UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021March 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35007
Knight-Swift Transportation Holdings Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 20-5589597 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2002 West Wahalla Lane
Phoenix, Arizona 85027
(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 |
| Common Stock $0.01 Par Value | | KNX | | New York Stock Exchange |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Large Accelerated Filer | | ☒ | | 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 165,957,149163,568,435 shares of the registrant's common stock outstanding as of OctoberApril 27, 2021.2022.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | |
| QUARTERLY REPORT ON FORM 10-Q |
| TABLE OF CONTENTS |
| PART I FINANCIAL INFORMATION | PAGE |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
| |
| |
| |
| PART II OTHER INFORMATION | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | | | | |
| 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 consisting of the 2017 Revolver and 2017 Term Loan, which are defined below. |
2017 Revolver | | Revolving line of credit under the 2017 Debt Agreement |
2017 Term Loan | | The Company's term loan under the 2017 Debt Agreement |
2018 RSA | | Fourth Amendment to the Amended and Restated Receivables Sales Agreement, entered into on July 11, 2018 by Swift Receivables Company II, LLC with unrelated financial entities. |
| 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 |
COVID-19 | | Viral strain of a coronavirus which led the World Health Organization to declare a global pandemic in March 2020 |
| 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 |
| | |
KnightLIBOR | | Unless otherwise indicated or the context otherwise requires, this term represents Knight Transportation, Inc.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 |
| | |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | | | | |
|
|
| 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 |
LIBOR | | London InterBank Offered Rate |
| | |
| | |
LTL | | Less-than-truckload |
Quarterly Report | | Quarterly Report on Form 10-Q |
QTD | | Quarter-to-date |
RSU | | Restricted Stock Unit |
| SEC | | United States Securities and Exchange Commission |
SPA | | Stock Purchase Agreement |
Swift | | Unless otherwise indicated or the context otherwise requires, this term represents Swift Transportation Company and its subsidiaries |
| TRP | | Transportation Resource Partners |
| US | | The United States of America |
| UTXL | | UTXL Enterprises, Inc. |
YTD | | Year-to-date |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | | | | | | | | | | |
| PART I FINANCIAL INFORMATION |
| | | | | |
| ITEM 1. | FINANCIAL STATEMENTS |
| | |
| Condensed Consolidated Balance Sheets (Unaudited) |
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | (In thousands, except per share data) | | (In thousands, except per share data) |
| ASSETS | ASSETS | | ASSETS | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 269,694 | | | $ | 156,699 | | Cash and cash equivalents | $ | 242,860 | | | $ | 261,001 | |
| Cash and cash equivalents – restricted | Cash and cash equivalents – restricted | 68,019 | | | 39,328 | | Cash and cash equivalents – restricted | 128,774 | | | 87,241 | |
| Restricted investments, held-to-maturity, amortized cost | Restricted investments, held-to-maturity, amortized cost | 7,140 | | | 9,001 | | Restricted investments, held-to-maturity, amortized cost | 8,302 | | | 5,866 | |
| Trade receivables, net of allowance for doubtful accounts of $21,811 and $22,093, respectively | 830,402 | | | 578,479 | | |
| Trade receivables, net of allowance for doubtful accounts of $19,883 and $21,663, respectively | | Trade receivables, net of allowance for doubtful accounts of $19,883 and $21,663, respectively | 939,704 | | | 911,336 | |
| Contract balance – revenue in transit | Contract balance – revenue in transit | 22,950 | | | 14,560 | | Contract balance – revenue in transit | 21,185 | | | 22,936 | |
| Prepaid expenses | Prepaid expenses | 76,697 | | | 71,649 | | Prepaid expenses | 86,742 | | | 90,507 | |
| Assets held for sale | Assets held for sale | 20,330 | | | 29,756 | | Assets held for sale | 11,421 | | | 8,166 | |
| Income tax receivable | Income tax receivable | 46,899 | | | 2,903 | | Income tax receivable | 217 | | | 909 | |
| Other current assets | Other current assets | 62,334 | | | 20,988 | | Other current assets | 27,064 | | | 26,318 | |
| Total current assets | Total current assets | 1,404,465 | | | 923,363 | | Total current assets | 1,466,269 | | | 1,414,280 | |
| Gross property and equipment | Gross property and equipment | 4,933,669 | | | 4,223,348 | | Gross property and equipment | 5,235,593 | | | 5,118,897 | |
| Less: accumulated depreciation and amortization | Less: accumulated depreciation and amortization | (1,477,334) | | | (1,230,696) | | Less: accumulated depreciation and amortization | (1,655,908) | | | (1,563,533) | |
| Property and equipment, net | Property and equipment, net | 3,456,335 | | | 2,992,652 | | Property and equipment, net | 3,579,685 | | | 3,555,364 | |
| Operating lease right-of-use-assets | Operating lease right-of-use-assets | 102,230 | | | 113,296 | | Operating lease right-of-use-assets | 141,363 | | | 147,540 | |
| Goodwill | Goodwill | 3,461,898 | | | 2,922,964 | | Goodwill | 3,518,589 | | | 3,515,135 | |
| Intangible assets, net | Intangible assets, net | 1,793,924 | | | 1,389,245 | | Intangible assets, net | 1,814,883 | | | 1,831,049 | |
| Other long-term assets | Other long-term assets | 136,130 | | | 126,482 | | Other long-term assets | 175,017 | | | 192,132 | |
| Total assets | Total assets | $ | 10,354,982 | | | $ | 8,468,002 | | Total assets | $ | 10,695,806 | | | $ | 10,655,500 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | $ | 177,634 | | | $ | 101,001 | | Accounts payable | $ | 248,762 | | | $ | 224,844 | |
| Accrued payroll and purchased transportation | Accrued payroll and purchased transportation | 227,016 | | | 160,888 | | Accrued payroll and purchased transportation | 237,909 | | | 217,084 | |
| Accrued liabilities | Accrued liabilities | 134,002 | | | 88,894 | | Accrued liabilities | 188,008 | | | 128,536 | |
| Claims accruals – current portion | Claims accruals – current portion | 200,159 | | | 174,928 | | Claims accruals – current portion | 223,382 | | | 206,607 | |
| | Finance lease liabilities and long-term debt – current portion | Finance lease liabilities and long-term debt – current portion | 78,266 | | | 52,583 | | Finance lease liabilities and long-term debt – current portion | 234,146 | | | 262,423 | |
| Operating lease liabilities – current portion | Operating lease liabilities – current portion | 35,464 | | | 47,496 | | Operating lease liabilities – current portion | 33,822 | | | 35,322 | |
| Accounts receivable securitization – current portion | — | | | 213,918 | | |
| | Total current liabilities | Total current liabilities | 852,541 | | | 839,708 | | Total current liabilities | 1,166,029 | | | 1,074,816 | |
| Revolving line of credit | Revolving line of credit | 300,000 | | | 210,000 | | Revolving line of credit | 165,000 | | | 260,000 | |
| Long-term debt – less current portion | Long-term debt – less current portion | 1,238,022 | | | 298,907 | | Long-term debt – less current portion | 1,029,159 | | | 1,037,552 | |
| Finance lease liabilities – less current portion | Finance lease liabilities – less current portion | 208,556 | | | 138,243 | | Finance lease liabilities – less current portion | 277,839 | | | 256,166 | |
| Operating lease liabilities – less current portion | Operating lease liabilities – less current portion | 69,401 | | | 69,852 | | Operating lease liabilities – less current portion | 103,161 | | | 107,614 | |
| Accounts receivable securitization – less current portion | Accounts receivable securitization – less current portion | 278,428 | | | — | | Accounts receivable securitization – less current portion | 278,539 | | | 278,483 | |
| Claims accruals – less current portion | Claims accruals – less current portion | 200,493 | | | 174,814 | | Claims accruals – less current portion | 202,737 | | | 210,714 | |
| Deferred tax liabilities | Deferred tax liabilities | 856,926 | | | 815,941 | | Deferred tax liabilities | 881,287 | | | 874,877 | |
| Other long-term liabilities | Other long-term liabilities | 45,175 | | | 48,497 | | Other long-term liabilities | 11,112 | | | 11,828 | |
| Total liabilities | Total liabilities | 4,049,542 | | | 2,595,962 | | Total liabilities | 4,114,863 | | | 4,112,050 | |
| Commitments and contingencies (Notes 3, 10, 11, and 12) | 0 | | 0 | |
| Commitments and contingencies (Notes 3, 7, 8, and 9) | | Commitments and contingencies (Notes 3, 7, 8, and 9) | 0 | | 0 |
| Stockholders’ equity: | Stockholders’ equity: | | Stockholders’ equity: | |
| Preferred stock, par value $0.01 per share; 10,000 shares authorized; none issued | Preferred stock, par value $0.01 per share; 10,000 shares authorized; none issued | — | | | — | | Preferred stock, par value $0.01 per share; 10,000 shares authorized; none issued | — | | | — | |
| Common stock, par value $0.01 per share; 500,000 shares authorized; 166,003 and 166,553 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively. | 1,660 | | | 1,665 | | |
| Common stock, par value $0.01 per share; 500,000 shares authorized; 163,635 and 165,980 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively. | | Common stock, par value $0.01 per share; 500,000 shares authorized; 163,635 and 165,980 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively. | 1,636 | | | 1,660 | |
| | Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (935) | | | (563) | |
| Additional paid-in capital | Additional paid-in capital | 4,344,894 | | | 4,301,424 | | Additional paid-in capital | 4,360,889 | | | 4,350,913 | |
| Accumulated other comprehensive loss | (878) | | | — | | |
| Retained earnings | Retained earnings | 1,946,984 | | | 1,566,759 | | Retained earnings | 2,209,104 | | | 2,181,142 | |
| Total Knight-Swift stockholders' equity | Total Knight-Swift stockholders' equity | 6,292,660 | | | 5,869,848 | | Total Knight-Swift stockholders' equity | 6,570,694 | | | 6,533,152 | |
| Noncontrolling interest | Noncontrolling interest | 12,780 | | | 2,192 | | Noncontrolling interest | 10,249 | | | 10,298 | |
| Total stockholders’ equity | Total stockholders’ equity | 6,305,440 | | | 5,872,040 | | Total stockholders’ equity | 6,580,943 | | | 6,543,450 | |
| Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 10,354,982 | | | $ | 8,468,002 | | Total liabilities and stockholders’ equity | $ | 10,695,806 | | | $ | 10,655,500 | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) |
| | | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| | (In thousands, except per share data) | | | (In thousands, except per share data) |
| Revenue: | Revenue: | | Revenue: | | |
| Revenue, excluding truckload fuel surcharge | $ | 1,510,572 | | | $ | 1,137,313 | | | $ | 3,856,549 | | | $ | 3,162,005 | | |
| Truckload fuel surcharge | 131,873 | | | 73,093 | | | 324,611 | | | 233,897 | | |
| Revenue, excluding truckload and LTL fuel surcharge | | Revenue, excluding truckload and LTL fuel surcharge | | $ | 1,647,878 | | | $ | 1,133,105 | |
| Truckload and LTL fuel surcharge | | Truckload and LTL fuel surcharge | | 179,111 | | | 89,909 | |
| Total revenue | Total revenue | 1,642,445 | | | 1,210,406 | | | 4,181,160 | | | 3,395,902 | | Total revenue | | 1,826,989 | | | 1,223,014 | |
| Operating expenses: | Operating expenses: | | | | | | | | Operating expenses: | | | | |
| Salaries, wages, and benefits | Salaries, wages, and benefits | 500,673 | | | 376,923 | | | 1,248,656 | | | 1,097,067 | | Salaries, wages, and benefits | | 536,056 | | | 370,370 | |
| Fuel | Fuel | 146,422 | | | 104,703 | | | 390,713 | | | 312,939 | | Fuel | | 190,489 | | | 118,236 | |
| Operations and maintenance | Operations and maintenance | 86,951 | | | 69,964 | | | 226,334 | | | 204,435 | | Operations and maintenance | | 95,883 | | | 68,070 | |
| Insurance and claims | Insurance and claims | 73,757 | | | 45,186 | | | 188,176 | | | 144,768 | | Insurance and claims | | 98,192 | | | 55,643 | |
| Operating taxes and licenses | Operating taxes and licenses | 27,475 | | | 21,475 | | | 71,240 | | | 64,527 | | Operating taxes and licenses | | 29,037 | | | 22,048 | |
| Communications | Communications | 6,612 | | | 5,069 | | | 16,284 | | | 14,845 | | Communications | | 5,870 | | | 5,037 | |
| Depreciation and amortization of property and equipment | Depreciation and amortization of property and equipment | 138,570 | | | 115,664 | | | 382,091 | | | 340,486 | | Depreciation and amortization of property and equipment | | 145,044 | | | 119,915 | |
| Amortization of intangibles | Amortization of intangibles | 15,719 | | | 11,473 | | | 39,452 | | | 34,421 | | Amortization of intangibles | | 16,166 | | | 11,749 | |
| Rental expense | Rental expense | 12,002 | | | 19,700 | | | 42,265 | | | 67,447 | | Rental expense | | 13,401 | | | 16,864 | |
| Purchased transportation | Purchased transportation | 352,061 | | | 245,102 | | | 914,448 | | | 670,485 | | Purchased transportation | | 386,446 | | | 258,230 | |
| Impairments | Impairments | — | | | — | | | — | | | 1,255 | | Impairments | | 810 | | | — | |
| Miscellaneous operating expenses | Miscellaneous operating expenses | 12,116 | | | 29,686 | | | 38,040 | | | 73,480 | | Miscellaneous operating expenses | | 11,509 | | | 14,593 | |
| | Total operating expenses | Total operating expenses | 1,372,358 | | | 1,044,945 | | | 3,557,699 | | | 3,026,155 | | Total operating expenses | | 1,528,903 | | | 1,060,755 | |
| Operating income | Operating income | 270,087 | | | 165,461 | | | 623,461 | | | 369,747 | | Operating income | | 298,086 | | | 162,259 | |
| Other (expenses) income: | Other (expenses) income: | | | | | | | | Other (expenses) income: | | | | |
| Interest income | Interest income | 245 | | | 326 | | | 809 | | | 1,595 | | Interest income | | 461 | | | 294 | |
| Interest expense | Interest expense | (7,179) | | | (3,232) | | | (13,972) | | | (13,360) | | Interest expense | | (6,680) | | | (3,486) | |
| Other income, net | 4,072 | | | 7,484 | | | 37,017 | | | 9,476 | | |
| Other (expense) income, net | | Other (expense) income, net | | (14,405) | | | 16,105 | |
| Total other (expenses) income, net | Total other (expenses) income, net | (2,862) | | | 4,578 | | | 23,854 | | | (2,289) | | Total other (expenses) income, net | | (20,624) | | | 12,913 | |
| Income before income taxes | Income before income taxes | 267,225 | | | 170,039 | | | 647,315 | | | 367,458 | | Income before income taxes | | 277,462 | | | 175,172 | |
| Income tax expense | Income tax expense | 61,059 | | | 47,835 | | | 158,171 | | | 99,204 | | Income tax expense | | 69,174 | | | 45,329 | |
| Net income | Net income | 206,166 | | | 122,204 | | | 489,144 | | | 268,254 | | Net income | | 208,288 | | | 129,843 | |
| Net income attributable to noncontrolling interest | 12 | | | (146) | | | (372) | | | (581) | | |
| Net loss (income) attributable to noncontrolling interest | | Net loss (income) attributable to noncontrolling interest | | 49 | | | (53) | |
| Net income attributable to Knight-Swift | Net income attributable to Knight-Swift | 206,178 | | | 122,058 | | | 488,772 | | | 267,673 | | Net income attributable to Knight-Swift | | 208,337 | | | 129,790 | |
| Other comprehensive loss | Other comprehensive loss | (878) | | | — | | | (878) | | | — | | Other comprehensive loss | | (372) | | | — | |
| Comprehensive income | Comprehensive income | $ | 205,300 | | | $ | 122,058 | | | $ | 487,894 | | | $ | 267,673 | | Comprehensive income | | $ | 207,965 | | | $ | 129,790 | |
| | Earnings per share: | Earnings per share: | | Earnings per share: | | |
| Basic | Basic | $ | 1.24 | | | $ | 0.72 | | | $ | 2.95 | | | $ | 1.57 | | Basic | | $ | 1.26 | | | $ | 0.77 | |
| Diluted | Diluted | $ | 1.23 | | | $ | 0.71 | | | $ | 2.93 | | | $ | 1.57 | | Diluted | | $ | 1.25 | | | $ | 0.77 | |
| | Dividends declared per share: | Dividends declared per share: | $ | 0.10 | | | $ | 0.08 | | | $ | 0.28 | | | $ | 0.24 | | Dividends declared per share: | | $ | 0.12 | | | $ | 0.08 | |
| | Weighted average shares outstanding: | Weighted average shares outstanding: | | Weighted average shares outstanding: | | |
| Basic | Basic | 165,966 | | | 170,205 | | | 165,823 | | | 170,257 | | Basic | | 165,377 | | | 167,478 | |
| Diluted | Diluted | 167,106 | | | 171,028 | | | 166,936 | | | 171,035 | | Diluted | | 166,499 | | | 168,374 | |
See accompanying notes to the condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) |
| | | | Year-to-Date September 30, | | Quarter Ended March 31, |
| | | 2021 | | 2020 | | 2022 | | 2021 |
| | (In thousands) | | (In thousands) |
| Cash flows from operating activities: | Cash flows from operating activities: | | Cash flows from operating activities: | |
| Net income | Net income | $ | 489,144 | | | $ | 268,254 | | Net income | $ | 208,288 | | | $ | 129,843 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization of property, equipment, and intangibles | Depreciation and amortization of property, equipment, and intangibles | 421,543 | | | 374,907 | | Depreciation and amortization of property, equipment, and intangibles | 161,210 | | | 131,664 | |
| Gain on sale of property and equipment | Gain on sale of property and equipment | (47,700) | | | (6,468) | | Gain on sale of property and equipment | (34,801) | | | (10,537) | |
| | Impairments | Impairments | — | | | 1,255 | | Impairments | 810 | | | — | |
| Deferred income taxes | Deferred income taxes | 40,987 | | | 32,565 | | Deferred income taxes | 4,246 | | | (18,920) | |
| Non-cash lease expense | Non-cash lease expense | 35,939 | | | 64,301 | | Non-cash lease expense | 9,490 | | | 15,589 | |
| Non-cash adjustment to fair value of convertible note | (12,631) | | | — | | |
| | Other adjustments to reconcile net income to net cash provided by operating activities | Other adjustments to reconcile net income to net cash provided by operating activities | 17,372 | | | 24,513 | | Other adjustments to reconcile net income to net cash provided by operating activities | 32,229 | | | (6,522) | |
| Increase (decrease) in cash resulting from changes in: | Increase (decrease) in cash resulting from changes in: | | Increase (decrease) in cash resulting from changes in: | |
| Trade receivables | Trade receivables | (152,482) | | | (58,246) | | Trade receivables | (28,007) | | | (11,586) | |
| Income tax receivable | Income tax receivable | (43,462) | | | 8,668 | | Income tax receivable | 692 | | | 2,872 | |
| Accounts payable | Accounts payable | 34,255 | | | 1,946 | | Accounts payable | 22,074 | | | 12,534 | |
| Accrued liabilities and claims accrual | Accrued liabilities and claims accrual | 57,157 | | | (12,926) | | Accrued liabilities and claims accrual | 89,289 | | | 70,975 | |
| Operating lease liabilities | Operating lease liabilities | (37,357) | | | (66,333) | | Operating lease liabilities | (9,267) | | | (15,174) | |
| Other assets and liabilities | Other assets and liabilities | 14,759 | | | 22,583 | | Other assets and liabilities | 607 | | | 5,375 | |
| Net cash provided by operating activities | Net cash provided by operating activities | 817,524 | | | 655,019 | | Net cash provided by operating activities | 456,860 | | | 306,113 | |
| Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
| Proceeds from maturities of held-to-maturity investments | Proceeds from maturities of held-to-maturity investments | 8,380 | | | 9,400 | | Proceeds from maturities of held-to-maturity investments | 1,881 | | | 500 | |
| Purchases of held-to-maturity investments | Purchases of held-to-maturity investments | (6,683) | | | (12,644) | | Purchases of held-to-maturity investments | (4,372) | | | (512) | |
| Proceeds from sale of property and equipment, including assets held for sale | Proceeds from sale of property and equipment, including assets held for sale | 192,454 | | | 102,550 | | Proceeds from sale of property and equipment, including assets held for sale | 60,532 | | | 67,175 | |
| Purchases of property and equipment | Purchases of property and equipment | (388,518) | | | (378,694) | | Purchases of property and equipment | (164,974) | | | (111,020) | |
| Expenditures on assets held for sale | Expenditures on assets held for sale | (1,367) | | | (483) | | Expenditures on assets held for sale | (43) | | | (401) | |
| Net cash, restricted cash, and equivalents invested in acquisitions | Net cash, restricted cash, and equivalents invested in acquisitions | (1,342,042) | | | (46,811) | | Net cash, restricted cash, and equivalents invested in acquisitions | (1,291) | | | (39,281) | |
| Investment in convertible note | (25,000) | | | — | | |
| | Other cash flows from investing activities | Other cash flows from investing activities | 14,019 | | | (8,920) | | Other cash flows from investing activities | (1,920) | | | 9,398 | |
| Net cash used in investing activities | Net cash used in investing activities | (1,548,757) | | | (335,602) | | Net cash used in investing activities | (110,187) | | | (74,141) | |
| Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
| Repayment of finance leases and long-term debt | Repayment of finance leases and long-term debt | (374,539) | | | (61,321) | | Repayment of finance leases and long-term debt | (48,843) | | | (6,600) | |
| Proceeds from long-term debt | 1,200,000 | | | — | | |
| | Borrowings (repayments) on revolving lines of credit, net | 90,000 | | | (109,000) | | |
| Borrowings under accounts receivable securitization | 80,000 | | | 49,000 | | |
| | Repayments on revolving lines of credit, net | | Repayments on revolving lines of credit, net | (95,000) | | | (95,000) | |
| | Repayment of accounts receivable securitization | Repayment of accounts receivable securitization | (15,000) | | | (52,000) | | Repayment of accounts receivable securitization | — | | | (15,000) | |
| | Proceeds from common stock issued | Proceeds from common stock issued | 7,624 | | | 11,632 | | Proceeds from common stock issued | 1,220 | | | 2,709 | |
| Repurchases of the Company's common stock | Repurchases of the Company's common stock | (53,661) | | | (34,630) | | Repurchases of the Company's common stock | (144,881) | | | (53,661) | |
| Dividends paid | Dividends paid | (46,935) | | | (41,297) | | Dividends paid | (20,137) | | | (13,624) | |
| | Other cash flows from financing activities | Other cash flows from financing activities | (14,180) | | | (5,522) | | Other cash flows from financing activities | (15,608) | | | (4,190) | |
| Net cash provided by (used in) financing activities | 873,309 | | | (243,138) | | |
| Net cash used in financing activities | | Net cash used in financing activities | (323,249) | | | (185,366) | |
| Net increase in cash, restricted cash, and equivalents | Net increase in cash, restricted cash, and equivalents | 142,076 | | | 76,279 | | Net increase in cash, restricted cash, and equivalents | 23,424 | | | 46,606 | |
| Cash, restricted cash, and equivalents at beginning of period | Cash, restricted cash, and equivalents at beginning of period | 197,277 | | | 202,228 | | Cash, restricted cash, and equivalents at beginning of period | 350,023 | | | 197,277 | |
| Cash, restricted cash, and equivalents at end of period | Cash, restricted cash, and equivalents at end of period | $ | 339,353 | | | $ | 278,507 | | Cash, restricted cash, and equivalents at end of period | $ | 373,447 | | | $ | 243,883 | |
|
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) — Continued |
| | | | Year-to-Date September 30, | | Quarter Ended March 31, |
| | | 2021 | | 2020 | | 2022 | | 2021 |
| | (In thousands) | | (In thousands) |
| Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | Supplemental disclosures of cash flow information: | |
| Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
| Interest | Interest | $ | 11,683 | | | $ | 12,921 | | Interest | $ | 5,928 | | | $ | 2,505 | |
| Income taxes | Income taxes | 160,281 | | | 35,233 | | Income taxes | 1,778 | | | 2,199 | |
| Non-cash investing and financing activities: | Non-cash investing and financing activities: | | Non-cash investing and financing activities: | |
| Equipment acquired included in accounts payable | Equipment acquired included in accounts payable | $ | 9,278 | | | $ | 45,430 | | Equipment acquired included in accounts payable | $ | 11,643 | | | $ | 13,860 | |
| | Financing provided to independent contractors for equipment sold | Financing provided to independent contractors for equipment sold | 2,548 | | | 4,359 | | Financing provided to independent contractors for equipment sold | 1,536 | | | 462 | |
| Transfers from property and equipment to assets held for sale | Transfers from property and equipment to assets held for sale | 80,881 | | | 59,543 | | Transfers from property and equipment to assets held for sale | 16,986 | | | 29,955 | |
| Noncontrolling interest associated with acquisition | Noncontrolling interest associated with acquisition | 10,281 | | | — | | Noncontrolling interest associated with acquisition | — | | | 10,281 | |
| Contingent consideration associated with acquisition | 5,000 | | | 18,245 | | |
| Value of common stock issued for acquisition | 10,000 | | | — | | |
| Right-of-use assets obtained in exchange for operating lease liabilities | 20,261 | | | 1,871 | | |
| Purchase price adjustment on acquisition | | Purchase price adjustment on acquisition | 2,163 | | | — | |
| | Right-of-use assets obtained (forfeited) in exchange for operating lease liabilities | | Right-of-use assets obtained (forfeited) in exchange for operating lease liabilities | 3,314 | | | (2,608) | |
| Right-of-use assets obtained in exchange for operating lease liabilities through acquisitions | Right-of-use assets obtained in exchange for operating lease liabilities through acquisitions | 4,613 | | | 12,356 | | Right-of-use assets obtained in exchange for operating lease liabilities through acquisitions | — | | | 560 | |
| Property and equipment obtained in exchange for finance lease liabilities | 114,803 | | | 68,590 | | |
| | Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities | Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities | 42,298 | | | 67,430 | | Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities | — | | | 28,149 | |
|
| | Reconciliation of Cash, Restricted Cash, and Equivalents: | Reconciliation of Cash, Restricted Cash, and Equivalents: | September 30,
2021 | | December 31,
2020 | | September 30,
2020 | | December 31,
2019 | Reconciliation of Cash, Restricted Cash, and Equivalents: | March 31,
2022 | | December 31,
2021 | | March 31,
2021 | | December 31,
2020 |
| | (In thousands) | | (In thousands) |
| Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets | | Condensed Consolidated Balance Sheets | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 269,694 | | | $ | 156,699 | | | $ | 240,236 | | | $ | 159,722 | | Cash and cash equivalents | $ | 242,860 | | | $ | 261,001 | | | $ | 194,650 | | | $ | 156,699 | |
Cash and cash equivalents – restricted 1 | Cash and cash equivalents – restricted 1 | 68,019 | | | 39,328 | | | 36,689 | | | 41,331 | | Cash and cash equivalents – restricted 1 | 128,774 | | | 87,241 | | | 47,867 | | | 39,328 | |
Other long-term assets 1 | Other long-term assets 1 | 1,640 | | | 1,250 | | | 1,582 | | | 1,175 | | Other long-term assets 1 | 1,813 | | | 1,781 | | | 1,366 | | | 1,250 | |
| Condensed Consolidated Statements of Cash Flows | Condensed Consolidated Statements of Cash Flows | | Condensed Consolidated Statements of Cash Flows | |
| Cash, restricted cash, and equivalents | Cash, restricted cash, and equivalents | $ | 339,353 | | | $ | 197,277 | | | $ | 278,507 | | | $ | 202,228 | | Cash, restricted cash, and equivalents | $ | 373,447 | | | $ | 350,023 | | | $ | 243,883 | | | $ | 197,277 | |
|
________
1 Reflects cash and cash equivalents that are primarily restricted for claims payments.
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
| 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 | | Balances – December 31, 2021 | 165,980 | | | $ | 1,660 | | | $ | 4,350,913 | | | $ | 2,181,142 | | | $ | (563) | | | $ | 6,533,152 | | | $ | 10,298 | | | $ | 6,543,450 | |
| | Common stock issued to employees | | Common stock issued to employees | 364 | | | 3 | | | 408 | | | | | | | 411 | | | | | 411 | |
| | Common stock issued under ESPP | | Common stock issued under ESPP | 14 | | | — | | | 809 | | | 809 | | | 809 | |
| Company shares repurchased | | Company shares repurchased | (2,723) | | | (27) | | | (144,854) | | | (144,881) | | | (144,881) | |
| Shares withheld – RSU settlement | | Shares withheld – RSU settlement | | (15,608) | | | (15,608) | | | (15,608) | |
| Employee stock-based compensation expense | | Employee stock-based compensation expense | | 8,759 | | | 8,759 | | | 8,759 | |
| Cash dividends paid and dividends accrued ($0.12 per share) | | Cash dividends paid and dividends accrued ($0.12 per share) | | (19,913) | | | (19,913) | | | (19,913) | |
| Net income attributable to Knight-Swift | | Net income attributable to Knight-Swift | | 208,337 | | | 208,337 | | | 208,337 | |
| Other comprehensive loss | | Other comprehensive loss | | (372) | | | (372) | | | (372) | |
| | Net income attributable to noncontrolling interest | | Net income attributable to noncontrolling interest | | (49) | | | (49) | |
| | Balances – March 31, 2022 | | Balances – March 31, 2022 | 163,635 | | | $ | 1,636 | | | $ | 4,360,889 | | | $ | 2,209,104 | | | $ | (935) | | | $ | 6,570,694 | | | $ | 10,249 | | | $ | 6,580,943 | |
| | | | 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 | 166,553 | | | $ | 1,665 | | | $ | 4,301,424 | | | $ | 1,566,759 | | | $ | — | | | $ | 5,869,848 | | | $ | 2,192 | | | $ | 5,872,040 | | |
| | Common stock issued to employees | 475 | | | 6 | | | 5,020 | | | | | | | 5,026 | | | | | 5,026 | | |
| Common stock issued to the Board | 12 | | | — | | | 575 | | | 575 | | | 575 | | |
| Common stock issued with ACT acquisition | 219 | | | 2 | | | 9,998 | | | 10,000 | | | 10,000 | | |
| Common stock issued under ESPP | 47 | | | — | | | 2,023 | | | 2,023 | | | 2,023 | | |
| Company shares repurchased | (1,303) | | | (13) | | | (53,648) | | | (53,661) | | | (53,661) | | |
| Shares withheld – RSU settlement | | (8,079) | | | (8,079) | | | (8,079) | | |
| Employee stock-based compensation expense | | 25,854 | | | 25,854 | | | 25,854 | | |
| Cash dividends paid and dividends accrued ($0.28 per share) | | (46,820) | | | (46,820) | | | (46,820) | | |
| Net income attributable to Knight-Swift | | 488,772 | | | 488,772 | | | 488,772 | | |
| Other comprehensive loss | | (878) | | | (878) | | | (878) | | |
| Investment in noncontrolling interest | | 10,281 | | | 10,281 | | |
| Distribution to noncontrolling interest | | (65) | | | (65) | | |
| Net income attributable to noncontrolling interest | | 372 | | | 372 | | |
| | Balances – September 30, 2021 | 166,003 | | | $ | 1,660 | | | $ | 4,344,894 | | | $ | 1,946,984 | | | $ | (878) | | | $ | 6,292,660 | | | $ | 12,780 | | | $ | 6,305,440 | | |
| | | | | 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 | | Balances – December 31, 2020 | 166,553 | | | $ | 1,665 | | | $ | 4,301,424 | | | $ | 1,566,759 | | | $ | — | | | $ | 5,869,848 | | | $ | 2,192 | | | $ | 5,872,040 | |
| | Common stock issued to employees | | Common stock issued to employees | 220 | | | 3 | | | 2,006 | | | | | | | 2,009 | | | | | 2,009 | |
| | Common stock issued under ESPP | | Common stock issued under ESPP | 18 | | | — | | | 700 | | | 700 | | | 700 | |
| Company shares repurchased | | Company shares repurchased | (1,303) | | | (13) | | | (53,648) | | | (53,661) | | | (53,661) | |
| Shares withheld – RSU settlement | | Shares withheld – RSU settlement | | (4,159) | | | (4,159) | | | (4,159) | |
| Employee stock-based compensation expense | | Employee stock-based compensation expense | | 5,662 | | | 5,662 | | | 5,662 | |
| Cash dividends paid and dividends accrued ($0.08 per share) | | Cash dividends paid and dividends accrued ($0.08 per share) | | (13,345) | | | (13,345) | | | (13,345) | |
| Net income attributable to Knight-Swift | | Net income attributable to Knight-Swift | | 129,790 | | | 129,790 | | | 129,790 | |
| | Investment in noncontrolling interest | | Investment in noncontrolling interest | | 10,281 | | | 10,281 | |
| Distribution to noncontrolling interest | | Distribution to noncontrolling interest | | (32) | | | (32) | |
| Net income attributable to noncontrolling interest | | Net income attributable to noncontrolling interest | | 53 | | | 53 | |
| | Balances – March 31, 2021 | | Balances – March 31, 2021 | 165,488 | | | $ | 1,655 | | | $ | 4,309,792 | | | $ | 1,625,397 | | | $ | — | | | $ | 5,936,844 | | | $ | 12,494 | | | $ | 5,949,338 | |
| | | | 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, 2019 | 170,688 | | | $ | 1,707 | | | $ | 4,269,043 | | | $ | 1,395,465 | | | $ | — | | | $ | 5,666,215 | | | $ | 2,088 | | | $ | 5,668,303 | | |
| | Common stock issued to employees | 609 | | | 6 | | | 9,474 | | | | | | | 9,480 | | | | | 9,480 | | |
| Common stock issued to the Board | 13 | | | — | | | 515 | | | 515 | | | 515 | | |
| | Common stock issued under ESPP | 47 | | | — | | | 1,637 | | | 1,637 | | | 1,637 | | |
| Company shares repurchased | (1,139) | | | (11) | | | (34,619) | | | (34,630) | | | (34,630) | | |
| Shares withheld – RSU settlement | | (4,508) | | | (4,508) | | | (4,508) | | |
| Employee stock-based compensation expense | | 13,835 | | | 13,835 | | | 13,835 | | |
| Cash dividends paid and dividends accrued ($0.24 per share) | | (41,197) | | | (41,197) | | | (41,197) | | |
| Net income attributable to Knight-Swift | | 267,673 | | | 267,673 | | | 267,673 | | |
| | Distribution to noncontrolling interest | | (441) | | | (441) | | |
| Net income attributable to noncontrolling interest | | 581 | | | 581 | | |
| | Balances – September 30, 2020 | 170,218 | | | $ | 1,702 | | | $ | 4,294,504 | | | $ | 1,582,814 | | | $ | — | | | $ | 5,879,020 | | | $ | 2,228 | | | $ | 5,881,248 | | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) — Continued |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 – June 30, 2021 | 165,711 | | | $ | 1,657 | | | $ | 4,325,915 | | | $ | 1,757,689 | | | $ | — | | | $ | 6,085,261 | | | $ | 12,792 | | | $ | 6,098,053 | |
| | | | | | | | | | | | | | | |
| Common stock issued to employees | 57 | | | 1 | | | 1,629 | | | | | | | 1,630 | | | | | 1,630 | |
| | | | | | | | | | | | | | | |
| Common stock issued with ACT acquisition | 219 | | | 2 | | | 9,998 | | | | | | | 10,000 | | | | | 10,000 | |
| Common stock issued under ESPP | 16 | | | — | | | 692 | | | | | | | 692 | | | | | 692 | |
| | | | | | | | | | | | | | | |
| Shares withheld – RSU settlement | | | | | | | (132) | | | | | (132) | | | | | (132) | |
| Employee stock-based compensation expense | | | | | 6,660 | | | | | | | 6,660 | | | | | 6,660 | |
| Cash dividends paid and dividends accrued ($0.10 per share) | | | | | | | (16,751) | | | | | (16,751) | | | | | (16,751) | |
| Net income attributable to Knight-Swift | | | | | | | 206,178 | | | | | 206,178 | | | | | 206,178 | |
| Other comprehensive loss | | | | | | | | | (878) | | | (878) | | | | | (878) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Net income attributable to noncontrolling interest | | | | | | | | | | | | | (12) | | | (12) | |
| | | | | | | | | | | | | | | |
| Balances – September 30, 2021 | 166,003 | | | $ | 1,660 | | | $ | 4,344,894 | | | $ | 1,946,984 | | | $ | (878) | | | $ | 6,292,660 | | | $ | 12,780 | | | $ | 6,305,440 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 – June 30, 2020 | 170,162 | | | $ | 1,701 | | | $ | 4,287,293 | | | $ | 1,474,466 | | | $ | — | | | $ | 5,763,460 | | | $ | 2,129 | | | $ | 5,765,589 | |
| | | | | | | | | | | | | | | |
| Common stock issued to employees | 42 | | | 1 | | | 1,165 | | | | | | | 1,166 | | | | | 1,166 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Common stock issued under ESPP | 14 | | | — | | | 574 | | | | | | | 574 | | | | | 574 | |
| | | | | | | | | | | | | | | |
| Shares withheld – RSU settlement | | | | | | | (8) | | | | | (8) | | | | | (8) | |
| Employee stock-based compensation expense | | | | | 5,472 | | | | | | | 5,472 | | | | | 5,472 | |
| Cash dividends paid and dividends accrued ($0.08 per share) | | | | | | | (13,702) | | | | | (13,702) | | | | | (13,702) | |
| Net income attributable to Knight-Swift | | | | | | | 122,058 | | | | | 122,058 | | | | | 122,058 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Distribution to noncontrolling interest | | | | | | | | | | | | | (47) | | | (47) | |
| Net income attributable to noncontrolling interest | | | | | | | | | | | | | 146 | | | 146 | |
| | | | | | | | | | | | | | | |
| Balances – September 30, 2020 | 170,218 | | | $ | 1,702 | | | $ | 4,294,504 | | | $ | 1,582,814 | | | $ | — | | | $ | 5,879,020 | | | $ | 2,228 | | | $ | 5,881,248 | |
| | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements (unaudited).
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | |
| 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 year-to-date period ended September 30, 2021,first quarter of 2022, the Company operated an average of 18,04117,965 tractors (comprised of 16,16616,159 company tractors and 1,8751,806 independent contractor tractors) and 60,39671,310 trailers within the Truckload segment.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 CompanyIntermodal segment operated an average of 605584 tractors and 10,84311,027 containers in the Intermodal segment.intermodal containers. As of September 30, 2021March 31, 2022, the Company's 4 reportable segments were Truckload, Logistics, Intermodal,LTL, and LTL.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 20202021 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:
Note regarding comparability• —100.0% of MME on December 6, 2021. The reported results do not include ACT's operating results prior to its acquisition byare included within the CompanyLTL segment.
•100.0% of ACT on July 5, 2021 in2021. 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 transaction.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 third quarter 2021 resultscurrent and prior periodsperiod results may not be meaningful.
ChangeAdditional information regarding the Company's recent acquisitions is included in Accounting Estimate
In September 2021, the Company increased the useful life for a certain group of its trailers, given recent trends in the used trailer market. Management prospectively accounted for this as a change in accounting estimate. This increased "Depreciation and amortization of property and equipment" in the condensed consolidated statements of comprehensive income by approximately $0.6 million for the quarter and year-to-date periods ended September 30, 2021, which immaterially affected basic and diluted earnings per share.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. At the same time,weather, while operating expenses generally increase, and tractorincrease. Tractor productivity of the Company's Truckload fleet, third-party carriers, and independent contractors and third-party carriers 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
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
third quarter and continuing into the fourth quarter, the Company typically experiences surges pertaining to holiday shopping trends toward delivery of gifts purchased over the Internet, as well as the length of the holiday season (consumer shopping days between Thanksgiving and Christmas). However, as the Company continues to diversify its business through expansion into the LTL industry, warehousing, and other activities, seasonal volatility is becoming more tempered. Additionally, macroeconomic trends and cyclical changes
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
in the trucking industry, including imbalances in supply and demand, can override the seasonality faced in the industry.
Impact of COVID-19
The Company continues to operate its business through the COVID-19 pandemic, including its variants, and has taken additional precautions to ensure the safety of its employees, customers, vendors, and the communities in which it operates.
There are various uncertainties that have arisen from the COVID-19 pandemic. While management is continuing to monitor the impact of the pandemic on Knight-Swift, including its employees, customers, independent contractors, stockholders, and other business partners and stakeholders, it is difficult to predict the impact that the pandemic will have on future results of its operations, financial position, and liquidity. This has caused some uncertainties around various accounting estimates. Due to these uncertainties, the Company's accounting estimates may change, as management's assessment of the impacts of the COVID-19 pandemic continues to evolve.
Note 2 — Recently Issued Accounting Pronouncements
There have been no ASUs issued since the filing date of the 2020 Annual Report that may have a material impact on the Company. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | The amendments in this ASU require that a creditor incorporates troubled debt restructurings into the allowance for credit losses and disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases. | | January 2023, Prospective | | Currently under evaluation, but not expected to be material |
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.
The total purchase price consideration of $1.31 billion included $1.30 billion in cash and $10.0 million in Knight-Swift shares issued to sellers at closing. Additionally, the Company assumed $36.5 million in debt, net of cash. Cash was funded from the July 2021 Term Loan, as well as existing Knight-Swift liquidity. ACT was an S corporation for tax purposes, and the transaction included an election under Internal Revenue Code Section 338(h)(10). Accordingly, the book and tax basis of the acquired assets and liabilities are the same as of the purchase date. The SPA contains customary representations, warranties, and covenants.
The Company's condensed consolidated financial statements for the quarter and year-to-date periods ended September 30, 2021 include ACT's operating results beginning July 5, 2021 (closing of the acquisition) through September 30, 2021. During the quarter and year-to-date periods ended September 30, 2021,March 31, 2022, the Company's condensed consolidated operating results included ACT's total revenue of $191.9$217.7 million and net income of $13.4$16.1 million. ACT's net income during the quarter and year-to-date periods ended September 30, 2021,March 31, 2022 included $3.5 million related to the amortization of intangible assets acquired in the ACT Acquisition.
The goodwill recognized represents expected synergies from combining the operations of ACT with the Company, including enhanced service offerings, as well as other intangible assets that did not meet the criteria for separate recognition. The goodwill is expected to be deductible for tax purposes.
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, the beginning of the comparative period presented.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter-to-Date September 30, | | Year-to-Date September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in thousands, except per share data) | | (in thousands, except per share data) |
| Total revenue | $ | 1,642,445 | | | $ | 1,388,490 | | | $ | 4,570,470 | | | $ | 3,911,986 | |
| Net income attributable to Knight-Swift | 202,883 | | | 129,295 | | | 507,168 | | | 284,095 | |
| Earnings per share – diluted | 1.21 | | | 0.76 | | | 3.04 | | | 1.66 | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | Quarter Ended March 31, |
| | | | | | | 2021 |
| | | | | (in thousands, except per share data) |
| Total revenue | | | | | | | $ | 1,412,232 | |
| Net income attributable to Knight-Swift | | | | | | | 139,189 | |
| Earnings per share – diluted | | | | | | | 0.83 | |
| | | | | | | |
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. As a result of the ACT Acquisition, the Company incurred certain acquisition-related expenses totaling $2.4 million and $2.7 million during the quarter and year-to-date periods ended September 30, 2021, respectively. These expenses were eliminated in the presentation of the unaudited pro forma "Net income attributable to Knight-Swift" presented above.
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 an SPAa 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.
The total purchase priceAs of March 31, 2022, contingent consideration of $37.2 million, including cash on hand and net working capital adjustments, consisted of $32.2 million in cash to the sellers at closing, which was funded through cash-on-hand and borrowing on the 2017 Revolver onassociated with the transaction date. At closing $2.25 million of the cash consideration was placed in escrow to secure certain of the sellers' indemnification obligations and remains subject to further adjustments.
The purchase price also included contingent consideration consisting of two additional annual payments of up to $2.5 million each (or $5.0 million in total), representing the maximum possible annual deferred payments to the sellers based on operating ratio and revenue growth targets for each of the twelve-month periods ending May 31, 2022 and May 31, 2023. As of September 30, 2021, $2.5 million is included in "Accrued liabilities" and $2.5 million is included in "Other long-term liabilities" in the Company's condensed consolidated balance sheets, depending on the expected payment dates.
For income tax purposes, the sale of UTXL's equity interests to the Company is intended to be treated as a sale and purchase of assets. Accordingly, the book and tax basis of the acquired assets and liabilities are the same as of the purchase date. The SPA contains customary representations, warranties, covenants, and indemnification provisions.
The goodwill recognized represents expected synergies from combining the operations of UTXL with the Company, including enhanced service offerings, as well as other intangible assets that did not meet the criteria for separate recognition. The goodwill is expected to be deductible for tax purposes.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
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 basedCarolina-based software provider, specializing in mobile driving platforms, which complement the Company's suite of services. The total purchase price consideration, including cashwas allocated based on hand and net working capital adjustments, consisted of $41.5 million in cash to the sellers at closing, which was funded through cash-on-hand and borrowing on the Revolver on the transaction date. At closing, $4.1 millionestimated fair values of the cash considerationassets acquired and liabilities assumed at the acquisition date. The purchase price allocation was placed in escrow to secure certainopen for adjustments through the end of the sellers' indemnification obligations and other items.
The MIPA included that bothmeasurement period, which closed one year from the buyer and sellers would file an election under the Internal Revenue Code Section 754 to adjust the tax basis of the Company's assets and liabilities, with respect to the buyer's purchase of the equity. The MIPA contains customary representations, warranties, covenants, and indemnification provisions for transactions of this nature.
The goodwill recognized represents expected synergies from combining the operations of Eleos with the Company, including enhanced service offerings, as well as other intangible assets that did not meet the criteria for separate recognition. The goodwill is expected to be deductible for tax purposes.February 1, 2021 acquisition date.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Purchase Price Allocations
TheUnless otherwise stated, the purchase price allocations for the belowabove 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.
| | | | | | | | | | | | | | | | | |
| ACT | | UTXL | | Eleos |
| July 5, 2021 Opening Balance Sheet as Reported at September 30, 2021 | | June 1, 2021 Opening Balance Sheet as Reported at September 30, 2021 | | February 1, 2021 Opening Balance Sheet as Reported at September 30, 2021 |
| |
| Fair value of the consideration transferred | $ | 1,306,214 | | | $ | 37,230 | | | $ | 41,518 | |
| | | | | |
| Cash and cash equivalents | 17,477 | | | 8,206 | | | 2,237 | |
| | | | | |
| Trade receivables | 104,220 | | | 9,451 | | | 545 | |
| Prepaid expenses | 15,803 | | | — | | | 47 | |
| Other current assets | 3,537 | | | — | | | — | |
| Property and equipment | 427,722 | | | 54 | | | — | |
| Operating lease right-of-use assets | 4,053 | | | — | | | 560 | |
Identifiable intangible assets 1 | 406,160 | | | 22,121 | | | 15,850 | |
| | | | | |
| Other noncurrent assets | 1,739 | | | — | | | — | |
| Total assets | 980,711 | | | 39,832 | | | 19,239 | |
| | | | | |
| Accounts payable | (19,386) | | | (14,183) | | | (156) | |
| Accrued payroll and payroll-related expenses | (33,411) | | | (247) | | | (605) | |
| Accrued liabilities | (9,302) | | | (69) | | | (1,391) | |
| Claims accruals – current and noncurrent portions | (40,958) | | | (418) | | | — | |
| Operating lease liabilities – current and noncurrent portions | (4,052) | | | — | | | (560) | |
| Long-term debt – current and noncurrent portions | (54,024) | | | — | | | — | |
| Other long-term liabilities | (4,243) | | | — | | | (475) | |
| Total liabilities | (165,376) | | | (14,917) | | | (3,187) | |
| | | | | |
| Noncontrolling interest | — | | | — | | | (10,281) | |
| Total stockholders' equity | — | | | — | | | (10,281) | |
| | | | | |
| Goodwill | $ | 490,879 | | | $ | 12,315 | | | $ | 35,747 | |
| | | | | |
1 Includes $278.8 million in customer relationships, $1.2 million in noncompete agreements, $10.0 million in internally developed software, and $154.1 million in trade names.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Warehousing Co.
Information about the accounting treatment for the acquisition of Warehousing Co., including the details of the transaction, determination of the total fair value consideration, allocation of the purchase price at the end of the measurement period are included in the Company’s Quarterly Report for the quarter ended March 31, 2021.
As of September 30, 2021 and December 31, 2020, the remaining estimated contingent consideration was $16.2 million representing the fair value of the remaining annual deferred payments for the year ending December 31, 2021 and the annualized six-month period ending June 30, 2022. As of September 30, 2021, the amounts are included in "Accrued liabilities" on the condensed consolidated balance sheets.
Note 4 — Investments
Restricted Investments, Held-to-Maturity
The following tables present the cost or amortized cost, gross unrealized gains and temporary losses, and estimated fair value of the Company's restricted investments, held-to-maturity:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| | | Gross Unrealized | | |
| Cost or Amortized
Cost | | Gains | | Temporary
Losses | | Estimated Fair Value |
| (In thousands) |
| US corporate securities | $ | 7,140 | | | $ | — | | | $ | (6) | | | $ | 7,134 | |
| | | | | | | |
| | | | | | | |
| Restricted investments, held-to-maturity | $ | 7,140 | | | $ | — | | | $ | (6) | | | $ | 7,134 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Gross Unrealized | | |
| Cost or Amortized
Cost | | Gains | | Temporary
Losses | | Estimated Fair Value |
| (In thousands) |
| US corporate securities | $ | 9,001 | | | $ | 2 | | | $ | (8) | | | $ | 8,995 | |
| | | | | | | |
| | | | | | | |
| Restricted investments, held-to-maturity | $ | 9,001 | | | $ | 2 | | | $ | (8) | | | $ | 8,995 | |
| | | | | | | |
As of September 30, 2021, the contractual maturities of the restricted investments, held-to-maturity, were one year or less. There were 13 securities and 16 securities that were in an unrealized loss position for less than twelve months as of September 30, 2021 and December 31, 2020, respectively. The Company did not recognize any impairment losses related to its held-to-maturity investments during the quarter or year-to-date periods ended September 30, 2021 or 2020.
Embark Convertible Note
During the second quarter of 2021, the Company invested $25.0 million in Embark in exchange for a convertible note. The convertible note accrues simple interest on the unpaid principal balance at a rate of 10.0% and is payable on demand any time after April 16, 2022, unless earlier converted into shares of Embark's common stock. The amount outstanding on the convertible note is automatically converted into a number of shares of Embark's common stock upon either the closing of a qualified financing or upon a public event, subject to discounted conversion pricing per share based on a valuation of Embark.
On June 22, 2021, Embark and Northern Genesis Acquisition Corp II (NYSE:"NGAB"), a publicly-traded special purpose acquisition company, entered into a definitive business combination agreement that would result in Embark becoming a publicly listed company. Completion of the transaction is expected to occur in the fourth quarter of 2021 and is subject to approval of NGAB stockholders and the satisfaction or waiver of certain other customary closing conditions. Based on the valuation of this public event, the Company estimated that the fair value of this investment
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
was $37.6 million and recognized a $12.6 million gain on the convertible note during the year-to-date period ended September 30, 2021. No gain was recognized during the quarter ended September 30, 2021.
Refer to Note 15 for additional information regarding fair value measurements of the Company's investments.
Note 5 — Assets Held for Sale
The Company expects to sell its assets held for sale, which primarily consist of revenue equipment, within the next twelve months. Revenue equipment held for sale totaled $16.7 million and $29.8 million as of September 30, 2021 and December 31, 2020, respectively. The Company had $3.6 million in land and facilities classified as held for sale as of September 30, 2021. No land and facilities were classified as held for sale as of December 31, 2020. 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:
•$22.1 million and $1.7 million for the quarter-to-date periods ended September 30, 2021 and 2020, respectively.
•$47.7 million and $6.5 million for the year-to-date periods ended September 30, 2021 and 2020, respectively.
The increase in net gains on disposals was primarily due to a stronger market for used revenue equipment during the quarter and year-to-date periods ended September 30, 2021, as compared to the same periods in 2020.
The Company did not recognize impairment losses related to assets held for sale during the quarters ended September 30, 2021 and 2020. The Company did not recognize impairment losses during the year-to-date period ended September 30, 2021, as compared to the same period of last year when the Company recognized impairment losses related to assets held for sale of $0.4 million.
Note 6 — Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill were as follows:
| | | | | | | |
| | | |
| (In thousands) |
Goodwill, balance at December 31, 2020 | $ | 2,922,964 | | | |
Adjustments relating to deferred tax assets | (7) | | | |
Acquisitions 1
| 538,941 | | | |
| | | |
Goodwill, balance at September 30, 2021 | $ | 3,461,898 | | | |
| | | |
1The goodwill associated with the ACT, UTXL and Eleos acquisitions referenced in Note 3 was allocated to the LTL, Logistics, and non-reportable segments, respectively, and is net of purchase price accounting adjustments.
The Company did not record any goodwill impairments during the quarter or year-to-date periods ended September 30, 2021 or 2020.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Other Intangible Assets
Other intangible asset balances were as follows:
| | | | | | | | | | | |
| September 30, 2021 | | December 31,
2020 |
| (In thousands) |
Definite-lived intangible assets 1 | | | |
| Gross carrying amount | $ | 1,187,970 | | | $ | 894,597 | |
| Accumulated amortization | (185,304) | | | (145,852) | |
| Definite-lived intangible assets, net | 1,002,666 | | | 748,745 | |
| Indefinite-lived trade names: | | | |
| Gross carrying amount | 791,258 | | | 640,500 | |
| Intangible assets, net | $ | 1,793,924 | | | $ | 1,389,245 | |
| | | |
1The major categories of the Company's definite-lived intangible assets include customer relationships, non-compete agreements, internally-developed software, trade names, and others.
Identifiable intangible assets subject to amortization have been recorded at fair value. Intangible assets related to acquisitions other than the 2017 Merger are amortized over a weighted-average amortization period of 18.9 years. The Company's customer relationship intangible assets related to the 2017 Merger are being amortized over a weighted average amortization period of 19.9 years.
As of September 30, 2021, management anticipates that the composition and amount of amortization associated with intangible assets will be $15.9 million for the remainder of 2021, $62.8 million in 2022, $62.2 million for each of the years 2023 and 2024, and $62.1 million in 2025. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets, and other events.
Note 7 — Income Taxes
Effective Tax Rate — The quarter-to-date September 30,March 31, 2022 and March 31, 2021 and September 30, 2020 effective tax rates were 22.8%24.9% and 28.1%, respectively. The year-to-date September 30, 2021 and September 30, 2020 effective tax rates were 24.4% and 27.0%25.9%, respectively.
Valuation Allowance — The Company has not 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 $0.6$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 million and $0.3 millionas of September 30, 2021March 31, 2022 and December 31, 2020, respectively.2021.
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 20192020. 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 20152017 remain subject to examination.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 85 — Accounts Receivable Securitization
On April 23, 2021, the Company entered into the 2021 RSA which further amended the 2018 RSA. The 2021 RSA is a secured borrowing that is collateralized by the Company's eligible receivables, for which the Company is the servicing agent. The Company's receivable originator subsidiaries sell, on a revolving basis, undivided interests in all of their eligible accounts receivable to Swift Receivables Company II, LLC ("SRCII") who in turn sells a variable percentage ownership in those receivables to the various purchasers. The Company's eligible receivables are included in "Trade receivables, net of allowance for doubtful accounts" in the condensed consolidated balance sheets. As of September 30, 2021,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 September 30, 2021.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 and 2018 RSA (dollars in thousands):
| | | | | | | | | | | |
| 2021 RSA | | 2018 RSA |
| Effective date | April 23, 2021 | | July 11, 2018 |
| Final maturity date | April 23, 2024 | | July 9, 2021 |
| Borrowing capacity | $400,000 | | | $325,000 | |
Accordion option 1 | $100,000 | | | $175,000 | |
Unused commitment fee rate 2 | 20 to 40 basis points | | 20 to 40 basis points |
Program fees on outstanding balances 3 4 | one-month LIBOR + 82.5 basis points | | one-month LIBOR + 80 to 100 basis points |
| | | |
1The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers.
2The 2021 RSA and 2018 RSA commitment fees rate are based on the percentage of the maximum borrowing capacity utilized.
3Only the rate for the 2018 RSA program fee is subject to the Company's consolidated total net leverage ratio.
4As 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 and 2018 RSA is calculated as follows:
| | | | | | | | | | | |
| 2021 RSA | | 2018 RSA |
| September 30, 2021 | | December 31, 2020 |
| (In thousands) |
| Borrowing base, based on eligible receivables | $ | 400,000 | | | $ | 302,700 | |
Less: outstanding borrowings 1 | (279,000) | | | (214,000) | |
| Less: outstanding letters of credit, net | (65,300) | | | (67,281) | |
| Availability under accounts receivable securitization facilities | $ | 55,700 | | | $ | 21,419 | |
| | | |
1As of September 30, 2021, outstanding borrowings are included in "Accounts receivable securitization – less current portion" in the condensed consolidated balance sheets and are offset by $0.6 million of deferred loan costs. As of December 31, 2020, outstanding borrowings are included in "Accounts receivable securitization – current portion" in the condensed consolidated balance sheets and are offset by $0.1 million of deferred loan costs. Interest accrued on the aggregate principal balance at a rate of 0.9% and 1.0% as of September 30, 2021 and December 31, 2020, respectively. | | | | | | | |
| | | |
| |
| Effective date | April 23, 2021 | | |
| Final maturity date | April 23, 2024 | | |
| Borrowing capacity | $400,000 | | | |
Accordion option 1 | $100,000 | | | |
Unused commitment fee rate 2 | 20 to 40 basis points | | |
Program fees on outstanding balances 3 | one-month LIBOR + 82.5 basis points | | |
| | | |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Program fees and unused1The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers.
2The 2021 RSA commitment fees rate are recordedbased 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 | $ | 400,000 | | | $ | 400,000 | |
Less: outstanding borrowings 1 | (279,000) | | | (279,000) | |
| Less: outstanding letters of credit, net | (65,300) | | | (65,300) | |
| Availability under accounts receivable securitization facilities | $ | 55,700 | | | $ | 55,700 | |
| | | |
1As of March 31, 2022 and December 31, 2021, outstanding borrowings are included in "Interest expense""Accounts receivable securitization – less current portion" in the condensed consolidated statements balance sheets and are offset by $0.5 millionof comprehensive income. The Company incurred accounts receivable securitization program feesdeferred loan costs. Interest accrued on the aggregate principal balance at a rate of $0.8 million1.1% and $0.7 million during the quarter-to-date September 30,0.9% as of March 31, 2022 and December 31, 2021, and 2020 periods, respectively. The Company incurred accounts receivable securitization program fees of $2.3 million and $2.8 million during the year-to-date September 30, 2021 and 2020 periods, respectively.
Refer to Note 1512 for information regarding the fair value of the 2021 RSA and 2018 RSA.
Note 96 — Debt and Financing
Other than the Company's accounts receivable securitization as discussed in Note 8,5, the Company's long-term debt consisted of the following:
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | (In thousands) | | (In thousands) |
2021 Term Loan A-1, due December 3, 2022, net 1 2 | 2021 Term Loan A-1, due December 3, 2022, net 1 2 | $ | 199,588 | | | $ | — | | 2021 Term Loan A-1, due December 3, 2022, net 1 2 | $ | 169,765 | | | $ | 199,676 | |
2021 Term Loan A-2, due September 3, 2024, net 1 2 | 2021 Term Loan A-2, due September 3, 2024, net 1 2 | 199,571 | | | — | | 2021 Term Loan A-2, due September 3, 2024, net 1 2 | 199,645 | | | 199,607 | |
2021 Term Loan A-3, due September 3, 2026, net 1 2 | 2021 Term Loan A-3, due September 3, 2026, net 1 2 | 798,264 | | | — | | 2021 Term Loan A-3, due September 3, 2026, net 1 2 | 798,440 | | | 798,352 | |
| 2017 Term Loan, due October 2022, net 1 3 | — | | | 298,907 | | |
| | 2021 Prudential Notes, net | 47,760 | | | — | | |
| 2021 Prudential Notes, net 1 | | 2021 Prudential Notes, net 1 | 39,261 | | | 47,265 | |
| Other | Other | 5,567 | | | — | | Other | 4,567 | | | 5,069 | |
| Total long-term debt, including current portion | Total long-term debt, including current portion | 1,250,750 | | | 298,907 | | Total long-term debt, including current portion | 1,211,678 | | | 1,249,969 | |
| Less: current portion of long-term debt | Less: current portion of long-term debt | (12,728) | | | — | | Less: current portion of long-term debt | (182,519) | | | (212,417) | |
| Long-term debt, less current portion | Long-term debt, less current portion | $ | 1,238,022 | | | $ | 298,907 | | Long-term debt, less current portion | $ | 1,029,159 | | | $ | 1,037,552 | |
|
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | (In thousands) | | (In thousands) |
| Total long-term debt, including current portion | Total long-term debt, including current portion | $ | 1,250,750 | | | $ | 298,907 | | Total long-term debt, including current portion | $ | 1,211,678 | | | $ | 1,249,969 | |
2021 Revolver, due September 3, 2026 1 4 | 300,000 | | | — | | |
2017 Revolver, due October 2022 1 5 | — | | | 210,000 | | |
2021 Revolver, due September 3, 2026 1 3 | | 2021 Revolver, due September 3, 2026 1 3 | 165,000 | | | 260,000 | |
| | Long-term debt, including revolving line of credit | Long-term debt, including revolving line of credit | $ | 1,550,750 | | | $ | 508,907 | | Long-term debt, including revolving line of credit | $ | 1,376,678 | | | $ | 1,509,969 | |
|
1Refer to Note 1512 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 $0.4$0.2 million, $0.4 million, and $1.7$1.6 million in deferred loan costs as of September 30,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 arenet of $0.3 million, $0.4 million, and $1.6 million in deferred loan costs as of December 31, 2021, respectively.
3Net of $1.1 million deferred loan costs at December 31, 2020.
4The Company also had outstanding letters of credit of $63.8$64.4 million and $64.0 million under the 2021 Revolver, primarily related to workers' compensation and self-insurance liabilities at September 30, 2021. Subsequent to September 30, 2021, we paid $95.0 million on the 2021 Revolver.
5The Company also had outstanding letters of credit of $29.3 million under the 2017 Revolver, primarily related to workers' compensationMarch 31, 2022 and self-insurance liabilities at December 31, 2020.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
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 (described below).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 | $200,000 | | $200,000 | | $800,000 | | $1,100,000 |
| Final maturity date | December 3, 2022 | | September 3, 2024 | | September 3, 2026 | | September 3, 2026 |
| Interest rate minimum margin | BSBY | | BSBY | | BSBY | | BSBY |
Interest rate minimum margin 1 | 0.75% | | 0.75% | | 0.88% | | 0.88% |
Interest rate maximum margin 1 | 1.38% | | 1.38% | | 1.50% | | 1.50% |
| Minimum principal payment — amount | $— | | $— | | $10,000 | | $— |
| Minimum principal payment — frequency | Once | | Once | | Quarterly | | Once |
| Minimum principal payment — commencement date | December 3, 2022 | | September 3, 2024 | | September 30, 2024 | | September 3, 2026 |
1The interest rate margin for the 2021 Term Loans and 2021 Revolver is based on the Company's consolidated leverage ratio. As of September 30, 2021,March 31, 2022, interest accrued at 1.1%1.08% on the 2021 Term Loans and 1.2%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 September 30, 2021,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 1.1%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 September 30, 2021,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).
July 2021 Term Loan — On July 6, 2021, Knight-Swift entered into a $1.2 billion term loan with Bank of America, N.A (the "July 2021 Term Loan"). The July 2021 Term Loan was incremental to, and was separate from, the 2017 Debt Agreement. The July 2021 Term Loan was fully funded on July 6, 2021 and there were no scheduled principal payments prior to its maturity in October 2022. The interest rate applicable to the July 2021 Term Loan was subject to a leverage-based grid and equaled the BSBY rate plus 1.000% at closing. The July 2021 Term Loan was paid off and terminated using the proceeds of the 2021 Term Loans, discussed above.
The July 2021 Term Loan contained similar terms to the 2017 Debt Agreement, including the financial covenants, usual and customary events of default for a facility of this nature, and certain usual and customary restrictions and covenants.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
ACT Credit Agreement
Prudential Notes — Through the acquisition of ACT, the Company assumed the Second Amended and Restated Note Purchase and Private Shelf Agreement with Prudential Capital Group ("2014 Prudential Notes"). On September 3, 2021, ACT entered into the 2021 Prudential Notes, replacing the 2014 Prudential Notes. 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 allow ACT to borrow up to $125$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 September 30, 2021,March 31, 2022, ACT had $77.1$87.9 million available under the agreement.
See Note 1512 for fair value disclosures regarding the Company's debt instruments.
Note 10 — Defined Benefit Pension Plan
Through the ACT Acquisition, the Company assumed a defined benefit pension plan covering ACT's drivers, drivers' helpers, warehousemen, warehousemen's helpers, mechanics, and mechanics' helpers. The plan provides normal retirement benefits based on years of credited service and applicable benefit units as defined by the plan. Provision is also made for early and defined retirements.
The pension plan was amended such that benefit accrual and plan participation for the plan were effectively frozen as of January 1, 1997, resulting in a curtailment on that date. The net pension liability recognized is as follows:
| | | | | | | |
| September 30, 2021 | | |
| (In thousands) |
Projected benefit obligation | $ | 71,263 | | | |
Less: fair value of plan assets | 69,400 | | | |
Unfunded status | 1,863 | | | |
Accrued pension liability recognized 1
| $ | 1,863 | | | |
| | | |
1The pension liability is included in "Other long-term liabilities" in the condensed consolidated balance sheets.
"Other comprehensive loss" in the condensed consolidated statements of comprehensive income included a $0.9 million loss from pension plan adjustments during the third quarter of 2021. The provisions of the plan do not require compensation levels to be considered in determining the plan’s benefit obligation. As such, the accumulated benefit obligation and projected benefit obligation are the same.
Other information concerning the defined benefit pension plan is summarized below:
| | | | | | | |
| Quarter-to-Date September 30, |
| 2021 | | |
| (In thousands) |
Net periodic pension income | $ | 596 | | | |
Benefits paid | 771 | | | |
| | | |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Assumptions
A weighted-average discount rate of 2.53% was used to determine benefit obligations as of September 30, 2021.
The following weighted-average assumptions were used to determine net periodic pension cost:
| | | | | | | |
| Quarter-to-Date September 30, |
| 2021 | | |
Discount rate | 2.49 | % | | |
Expected long-term rate of return on pension plan assets | 6.00 | % | | |
| | | |
ACT's assumptions for the expected long-term rate of return on pension plan assets are based on a periodic review of the plan’s asset allocation over a long-term period. Expectations of returns for each asset class are based on comprehensive reviews of historical data and economic/financial market theory. The expected long-term rate of return on pension plan assets was selected from within the reasonable range of rates determined by (1) historical real returns, net of inflation, for the asset classes covered by the investment policy and (2) projections of inflation over the long-term period during which benefits are payable to plan participants.
The defined benefit pension plan weighted-average asset allocations, by asset category, are as follows:
| | | | | | | |
| September 30, 2021 | | |
Asset category: | | | |
Equity securities | 30 | % | | |
Debt securities | 69 | % | | |
Cash and cash equivalents | 1 | % | | |
Total | 100 | % | | |
| | | |
Pension plan assets
The target allocation by asset category, is as follows:
| | | | | | | |
| September 30, 2021 | | |
Asset category: | | | |
Equity securities | 30 | % | | |
Debt securities | 70 | % | | |
Total | 100 | % | | |
| | | |
The investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefit payments. The investment guidelines consider a broad range of economic conditions. Central to the policy are target allocation percentages (shown above) by major asset categories. The objectives of the target allocation percentages are to maintain investment portfolios that diversify risk through prudent asset allocation parameters and achieve asset returns that meet or exceed the plan’s actuarial assumptions.
Refer to Note 15 for additional information regarding fair value measurements of the Company's investments.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Cash flows
ACT did not contribute to the pension plan in the quarter-to-date period ended September 30, 2021. ACT is not expecting to recognize any net loss in net other comprehensive losses during the remainder of 2021 or 2022.
The following benefit payments are expected to be paid in each of the fiscal years as follows:
| | | | | |
| September 30, 2021 |
| (In thousands) |
| Remainder of 2021 | $ | 874 | |
| 2022 | 3,593 | |
| 2023 | 3,707 | |
| 2024 | 3,851 | |
| 2025 | 3,953 | |
| 2026 | 4,040 | |
| 2027 through 2030 | 16,453 | |
| Total | $ | 36,471 | |
| |
Note 11 — Commitments
Purchase Commitments
As of September 30, 2021, the Company had outstanding commitments to purchase revenue equipment of $256.7 million in the remainder of 2021 ($166.8 million of which were tractor commitments), $65.9 million in 2022 ($7.5 million of which were tractor commitments), and none thereafter. These purchases may be financed through any combination of operating leases, finance leases, debt, proceeds from sales of existing equipment, and cash flows from operations.
As of September 30, 2021, the Company had outstanding commitments to purchase facilities and non-revenue equipment of $39.0 million in the remainder of 2021, $4.9 million in the two-year period 2022 through 2023, $0.8 million in the two-year period 2024 through 2025, and none thereafter. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.
As of September 30, 2021, the Company had outstanding commitments for fuel purchases of $3.6 million in the remainder of 2021, and none thereafter.
TRP Commitments
Since 2003, Knight has entered into partnership agreements with entities that make privately-negotiated equity investments. In these agreements, Knight committed to invest in return for an ownership percentage. During the first quarter of 2021, Knight increased its commitment to invest in TRP Capital Partners V, LP by $10.0 million to $30.0 million, with $20.5 million outstanding as of September 30, 2021. There were no other material changes related to the previously disclosed TRP commitments during the quarter ended September 30, 2021.
Embark Commitment
On June 23, 2021, the Company entered into a stock subscription agreement with Embark to purchase $25.0 million of Embark's common stock, with $25.0 million outstanding as of September 30, 2021.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
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 | 2.55 | % | | |
| Expected long-term rate of return on pension plan assets | 6.00 | % | | |
| | | |
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 none thereafter. These purchases may be financed through any combination of finance leases, operating leases, debt, proceeds from sales of existing equipment, and cash flows from operations.
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 none 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 $18.4$18.6 million, relating to the Company's outstanding legal proceedings as of September 30, 2021.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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
| | | | | | | | | | | | | | | | | | | | |
| EMPLOYEE COMPENSATION AND PAY PRACTICES MATTERS |
CRST Expedited |
The plaintiff alleges tortious interference with contract and unjust enrichment related to non-competition agreements entered into with certain of its drivers. |
Plaintiff(s) | | Defendant(s) | | Date instituted | | Court or agency currently pending in |
CRST Expedited, Inc. | | Swift Transportation Co. of Arizona LLC. | | March 20, 2017 | | United States District Court for the Northern District of Iowa |
Recent Developments and Current Status |
In July 2019, a jury issued an adverse verdict in this lawsuit. The court issued a decision granting in part and denying in part certain motions related to the jury’s verdict. Both parties have appealed the court’s decision. On August 6, 2021 a three-judge panel of the 8th Circuit Court of Appeals issued an opinion reversing the trial court’s decision. On October 4, 2021 the 8th Circuit Court of Appeals denied a petition for rehearing. The likelihood that a loss has been incurred is no longer probable, and the accrual for this lawsuit has accordingly been reversed as of September 30, 2021. |
| California Wage, Meal, and Rest Class Actions |
| The plaintiffs generally allege one or more of the following: that the Company 1) failed to pay the California minimum wage; 2) failed to provide proper meal and rest periods; 3) failed to timely pay wages upon separation from employment; 4) failed to pay for all hours worked; 5) failed to pay overtime; 6) failed to properly reimburse work-related expenses; and 7) failed to provide accurate wage statements. |
| Plaintiff(s) | | Defendant(s) | | Date instituted | | Court or agency currently pending in |
John Burnell 1 | | Swift Transportation Co., Inc | | March 22, 2010 | | United States District Court for the Central District of California |
| | | | | | |
James R. Rudsell 1 | | Swift Transportation Co. of Arizona, LLC and Swift Transportation Company | | April 5, 2012 | | United States District Court for the Central District of California |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Recent Developments and Current Status |
In April 2019, the parties reached settlement of this matter. In January 2020, the court granted final approval of the settlement. Two objectors appealed the court’s decision granting final approval of the settlement. The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of September 30, 2021. |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
| | | | | | | | | | | | | | | | | | | | March 31, 2022. |
| INDEPENDENT CONTRACTOR MATTERS |
| Ninth Circuit Independent Contractor Misclassification Class Action |
| The putative class alleges that Swift misclassified independent contractors as independent contractors, instead of employees, in violation of the Fair Labor Standards Act and various state laws. The lawsuit also raises certain related issues with respect to the lease agreements that certain independent contractors have entered into with Interstate Equipment Leasing, LLC. The putative class seeks unpaid wages, liquidated damages, interest, other costs, and attorneys' fees. |
| Plaintiff(s) | | Defendant(s) | | Date instituted | | Court or agency currently pending in |
Joseph Sheer, Virginia Van Dusen, Jose Motolinia, Vickii Schwalm, Peter Wood 1 | | Swift Transportation Co., Inc., Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew | | December 22, 2009 | | UnitesUnited States District Court of Arizona and Ninth Circuit Court of Appeals |
| Recent Developments and Current Status |
In January 2020, the court granted final approval of the settlement in this matter. In March 2020, the Company paid the settlement amount approved by the court. As of September 30, 2021,March 31, 2022, the Company has accrued for anticipated costs associated with finalizing this matter. |
1 Individually and on behalf of all others similarly situated.
Other Environmental
The Company's tractors and trailers are involved in motor vehicle accidents, experience damage, mechanical failures and cargo issues as an incidental part of its normal ordinary course of operations. From time to time, these matters result in the discharge of diesel fuel, motor oil or other hazardous materials into the environment. Depending on local regulations and who is determined to be at fault, the Company is sometimes responsible for the clean-up costs associated with these discharges. As of September 30, 2021, the Company's estimate for its total legal liability for all such clean-up and remediation costs was approximately $0.4 million in the aggregate for all current and prior year claims.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Self Insurance
Swift and Knight
•Automobile Liability, General Liability, and Excess Liability — Effective NovemberMarch 1, 2020, the Company has $100.0 million in excess auto liability ("AL") coverage. Effective November 1, 2019, the Company had $130.0 million in excess AL coverage. For prior years, Swift and Knight separately maintained varying excess AL and general liability limits. During prior policy periods, Swift AL claims were subject to2022, ACT retains a $10.0 million self-insured retention ("SIR") per occurrence, and Knight AL claims were subjectas compared to a $1.0 million to $3.0 million SIR per occurrence. Additionally, Knight carried a $2.5 million aggregate deductible for any loss or losses within the $5.0 million excess of $5.0 million layer of coverage. Effective March 1, 2020, Knight and Swift retain the same $10.0 million SIR per occurrence.
•Cargo Damage and Loss — The Company is insured against cargo damage and loss with liability limits of $2.0 million per truck or traileroccurrence with a $10.0 million limit per occurrence.
•Workers' Compensation and Employers' Liability — The Company is self-insured for workers' compensation coverage. Swift maintains statutory coverage limits, subject to a $5.0 million SIR for each accident or disease. Effective March 1, 2019, Knight maintains statutory coverage limits, subject to a $2.0 million SIR for each accident or disease.
•Medical — Knight maintains primary and excess coverage for employee medical expenses, with a $0.4 million SIR per claimant. Effective January 1, 2020, Swift provides primary and excess coverage for employee medical expenses, with an SIR of $0.5 million per claimant to all employees.
ACT — ACT maintains SIRs for claims on cargo losses, employee health and welfare, bodily injury and property, general liability and workers’ compensation. Losses under the employee health and welfare, BIPD, and workers’ compensation programs are typically limited on a per claim and aggregate basis through stop-loss and excess insurance policies. Risk retention amounts per occurrence are as follows:
•Workers' compensation - $1.0 million
•Bodily injury and property damage - $2.0 million (ACT maintains a $5.0 million annual corridor deductible subject to a $10.0 million three-year policy term aggregate cap.)
•Employee medical - $1.0 million
Note 13 — Share Repurchase Plans
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"). With the adoption of the 2020 Knight-Swift Share Repurchase Plan, the Company terminatedcap during the previous share repurchase plan, which had approximately $54.1 millionpolicy period. This was the only material change related to our self insurance policies during the first quarter of authorized purchases remaining upon termination.
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-to-Date September 30, 2021 | | Year-to-Date September 30, 2021 |
| Board Approval Date | | Authorized Amount | | Shares | | Amount | | Shares | | Amount |
| | | | (shares and dollars in thousands) |
November 24, 2020 1 | | $250,000 | | — | | | $ | — | | | 1,303 | | | $ | 53,661 | |
| | | | | | | | | | |
| | Quarter-to-Date September 30, 2020 | | Year-to-Date September 30, 2020 |
| May 30, 2019 | | $250,000 | | — | | | $ | — | | | 1,139 | | | $ | 34,630 | |
| | | | | | | | | | |
| | | | | | | | | | |
1$196.3 million and $250.0 million remained available under the 2020 Knight-Swift Share Repurchase Plan as of September 30, 2021 and December 31, 2020, respectively.2022.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 1410 — 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 | | $250,000 | | 2,723 | | | $ | 144,881 | | | 1,303 | | | $ | 53,661 | |
| | | | | | | | | | |
| | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
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-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| | (In thousands) | | | (In thousands) |
| Basic weighted average common shares outstanding | Basic weighted average common shares outstanding | 165,966 | | | 170,205 | | | 165,823 | | | 170,257 | | Basic weighted average common shares outstanding | | 165,377 | | | 167,478 | |
| Dilutive effect of equity awards | Dilutive effect of equity awards | 1,140 | | | 823 | | | 1,113 | | | 778 | | Dilutive effect of equity awards | | 1,122 | | | 896 | |
| Diluted weighted average common shares outstanding | Diluted weighted average common shares outstanding | 167,106 | | | 171,028 | | | 166,936 | | | 171,035 | | Diluted weighted average common shares outstanding | | 166,499 | | | 168,374 | |
Anti-dilutive shares excluded from diluted earnings per share 1 | Anti-dilutive shares excluded from diluted earnings per share 1 | 23 | | | 8 | | | 165 | | | 187 | | Anti-dilutive shares excluded from diluted earnings per share 1 | | 239 | | | 6 | |
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.
Note 15 — Fair Value Measurement
ASC Topic 820, Fair Value Measurements and Disclosures, requires that the Company disclose estimated fair values for its financial instruments. The estimated fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Changes in assumptions could significantly affect these estimates. Because the fair value is estimated as of September 30, 2021 and December 31, 2020, the amounts that will actually be realized or paid at settlement or maturity of the instruments in the future could be significantly different.
The estimated fair values of the Company's financial instruments represent management's best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. The estimated fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the estimated fair value measurement reflects management's own judgments about the assumptions that market participants would use in pricing the asset or liability. These judgments are developed by the Company based on the best information available under the circumstances.
The following summary presents a description of the methods and assumptions used to estimate the fair value of each class of financial instrument.
Restricted Investments, Held-to-Maturity — The estimated fair value of the Company's restricted investments, held-to-maturity, is based on quoted prices in active markets that are readily and regularly obtainable. See Note 4 for additional disclosures regarding restricted investments, held-to-maturity.
Convertible Notes — The estimated fair value of the Company's convertible note is based on probability weighted discounted cash flow analysis of the corresponding pay-off/redemption.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Equity Method InvestmentsNote 12 — The estimated fair value of the Company's equity method investments are privately negotiated investments. The carrying amount of these investments approximates the fair value.
Equity Securities — The estimated fair value of the Company's investments in equity securities is based on quoted prices in active markets that are readily and regularly obtainable.
Pension Plan Assets — The estimated fair value of ACT's pension plan assets are based on quoted prices in active markets that are readily and regularly obtainable.
Debt Instruments and Leases — For notes payable under the 2017 Revolver, the 2017 Term Loan, the 2021 Revolver and the 2021 Term Loans, fair value approximates the carrying value due to the variable interest rate. The carrying values of the 2021 RSA and 2018 RSA approximate fair value, as the underlying receivables are short-term in nature and only eligible receivables (such as those with high credit ratings) are qualified to secure the borrowed amounts. For finance and operating lease liabilities, the carrying value approximates the fair value, as the Company's finance and operating lease liabilities are structured to amortize in a manner similar to the depreciation of the underlying assets.
Contingent Consideration — The estimated fair value of the Company's contingent consideration owed to sellers is calculated using applicable models and inputs for each acquiree.
Other — Cash and cash equivalents, restricted cash, net accounts receivable, income tax refund receivable, and accounts payable represent financial instruments for which the carrying amount approximates fair value, as they are short-term in nature. These instruments are accordingly excluded from the disclosures below. All remaining balance sheet amounts excluded from the below are not considered financial instruments, subject to this disclosure.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Fair Value MeasurementThe following table presents the carrying amounts and estimated fair values of the Company's major categories of financial assets and liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2021 | | December 31, 2020 |
| Condensed Consolidated Balance Sheets Caption | | Carrying
Value | | Estimated
Fair Value | | Carrying
Value | | Estimated
Fair Value |
| | | (In thousands) |
| Financial Assets: | | | | | | | | | |
Restricted investments, held-to-maturity 1 | Restricted investments, held-to-maturity, amortized cost | | $ | 7,140 | | | $ | 7,134 | | | $ | 9,001 | | | $ | 8,995 | |
| Equity method investments | Other long-term assets | | 82,883 | | | 82,883 | | | 77,562 | | | 77,562 | |
| | | | | | | | | |
| Investments in equity securities | Other long-term assets | | 21,063 | | | 21,063 | | | 18,675 | | | 18,675 | |
| Convertible note | Other current assets | | 37,631 | | | 37,631 | | | — | | | — | |
| | | | | | | | | |
| Financial Liabilities: | | | | | | | | | |
2017 Term Loan, due October 2022 2 | Long-term debt – less current portion | | $ | — | | | $ | — | | | $ | 298,907 | | | $ | 300,000 | |
2021 Term Loan A-1, due December 2022 3 | Long-term debt – less current portion | | 199,588 | | | 200,000 | | | — | | | — | |
2021 Term Loan A-2, due September, 2024 3 | Long-term debt – less current portion | | 199,571 | | | 200,000 | | | — | | | — | |
2021 Term Loan A-3, due September 2026 3 | Long-term debt – less current portion | | 798,264 | | | 800,000 | | | — | | | — | |
| | | | | | | | | |
2018 RSA, due July 2021 4 | Accounts receivable securitization
– current portion | | — | | | — | | | 213,918 | | | 214,000 | |
2021 RSA, due April 2024 5 | Accounts receivable securitization
– less current portion | | 278,428 | | | 279,000 | | | — | | | — | |
| 2017 Revolver, due October 2022 | Revolving line of credit | | — | | | — | | | 210,000 | | | 210,000 | |
| 2021 Revolver, due September 2026 | Revolving line of credit | | 300,000 | | | 300,000 | | | — | | | — | |
2021 Prudential Notes 6 | Finance lease liabilities and long-term debt
– current portion,
Long-term debt – less current portion | | 47,760 | | | 50,321 | | | — | | | — | |
| | | | | | | | | |
| Contingent consideration, acquisitions | Accrued liabilities, Other long-term liabilities | | 21,200 | | | 21,200 | | | 16,200 | | | 16,200 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | | 78,750 | | | 78,750 | | | 75,769 | | | 75,769 | |
| | | | | | | | | |
| Investments in equity securities | Other long-term assets | | 53,352 | | | 53,352 | | | 74,201 | | | 74,201 | |
| Convertible note | Other current assets | | 10,437 | | | 10,437 | | | 10,141 | | | 10,141 | |
| | | | | | | | | |
| 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 | | 169,765 | | | 170,000 | | | 199,676 | | | 200,000 | |
2021 Term Loan A-2, due September 2024 1 | Long-term debt – less current portion | | 199,645 | | | 200,000 | | | 199,607 | | | 200,000 | |
2021 Term Loan A-3, due September 2026 1 | Long-term debt – less current portion | | 798,440 | | | 800,000 | | | 798,352 | | | 800,000 | |
| 2021 Revolver, due September 2026 | Revolving line of credit | | 165,000 | | | 165,000 | | | 260,000 | | | 260,000 | |
2021 Prudential Notes 2 | Finance lease liabilities and long-term debt
– current portion,
Long-term debt – less current portion | | 39,261 | | | 39,341 | | | 47,265 | | | 47,354 | |
| | | | | | | | | |
2021 RSA, due April 2024 3 | Accounts receivable securitization
– less current portion | | 278,539 | | | 279,000 | | | 278,483 | | | 279,000 | |
| Contingent consideration, acquisitions | Accrued liabilities, Other long-term liabilities | | 13,100 | | | 13,100 | | | 13,100 | | | 13,100 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
1Refer to Note 4 for the differences between the carrying amounts and estimated fair values of the Company's restricted investments, held-to-maturity.
2The carrying amount of the 2017 Term Loan is net of $1.1 million in deferred loan costs as of December 31, 2020.
3The carrying amounts of the 2021 Term Loan A-1, 2021 Term Loan A-2, and 2021 Term Loan A-3 are net of $0.4$0.2 million, $0.4 million, and $1.7$1.6 million in deferred loan costs as of September 30,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 arenet of $0.3 million, $0.4 million, and $1.6 million in deferred loan costs as of December 31, 2021, respectively.
42The carrying amount of the 2018 RSA2021 Prudential Notes is net of $0.1 millionin deferred loan costs as of March 31, 2022 and December 31, 20202021. The carrying amount of the 2021 Prudential Notes is net of $2.2 million and $2.4 million in fair value adjustments as of March 31, 2022 and December 31, 2021, respectively.
53The carrying amount of the 2021 RSA is net of $0.60.5 million in deferred loan costs as of September 30, 2021.
6The carrying amount of the 2021 Prudential Notes is net of $0.1 million in deferred loan costsMarch 31, 2022 and $2.4 million in fair value adjustments as of September 30,December 31, 2021.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
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 September 30, 2021March 31, 2022 and December 31, 20202021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at Reporting Date Using: | | |
| Estimated
Fair Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Unrealized Gain Position |
| (In thousands) |
| As of September 30, 2021 | | | | | | | | | |
Convertible note 1 | $ | 37,631 | | | $ | — | | | $ | — | | | $ | 37,631 | | | $ | 12,631 | |
Investments in equity securities 2 | $ | 21,063 | | | $ | 21,063 | | | $ | — | | | $ | — | | | $ | 11,135 | |
| | | | | | | | | |
| | | | | | | | | |
| As of December 31, 2020 | | | | | | | | | |
Investments in equity securities 3 | $ | 18,675 | | | $ | 18,675 | | | $ | — | | | $ | — | | | $ | 3,553 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | $ | 10,437 | | | $ | — | | | $ | — | | | $ | 10,437 | | | $ | 296 | |
Investments in equity securities 2 | 53,352 | | | 53,352 | | | — | | | — | | | (7,817) | |
| | | | | | | | | |
| | | | | | | | | |
| As of December 31, 2021 | | | | | | | | | |
Convertible note 1 | 10,141 | | | — | | | — | | | 10,141 | | | 141 | |
Investments in equity securities 2 | 74,201 | | | 74,201 | | | — | | | — | | | 14,456 | |
| | | | | | | | | |
1The Company recognized $12.6$0.3 million of unrealized gains on the convertible note for the year-to-date periodquarter ended September 30, 2021,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 September 30, 2021,March 31, 2022, the Company recognized $4.0$20.8 million in gainslosses on these investments in equity securities, consisting of $3.0$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 $1.0$3.5 million in realized gains.
•Embark Investment —DuringAs of March 31, 2022, the year-to-date periodfair 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 September 30, 2021, the Company recognized $12.8 millionMarch 31, 2022 in gains on these investments in equity securities, consisting of $7.6 million in unrealized gains and $5.2 million in realized gains.
3Fair value activity from the investments in equity securities is recorded in "Other"Operating (expense) income, net" withinin the condensed consolidated statementstatements of comprehensive income.
•During the quarter ended September 30, 2020, the Company recognized $4.4 million in unrealized gains on these investments in equity securities.
•During the year-to-date period ended September 30, 2020, the Company recognized $6.9 million in unrealized gains on these investments in equity securities.
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 September 30, 2021March 31, 2022 and December 31, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 September 30, 2021 | | | | | | | | | |
Contingent consideration associated with acquisitions 1 | $ | 21,200 | | | $ | — | | | $ | — | | | $ | 21,200 | | | $ | — | |
| | | | | | | | | |
| As of December 31, 2020 | | | | | | | | | |
Contingent consideration associated with acquisition 2 | $ | 16,200 | | | $ | — | | | $ | — | | | $ | 16,200 | | | $ | (6,730) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | $ | 13,100 | | | $ | — | | | $ | — | | | $ | 13,100 | | | $ | — | |
| | | | | | | | | |
| As of December 31, 2021 | | | | | | | | | |
Contingent consideration associated with acquisition 1 | 13,100 | | | — | | | — | | | 13,100 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
1The Company did not recognize any gains (losses) during the quarter or year-to-date periodsquarters ended September 30,March 31, 2022 and 2021 related to the revaluation of these liabilities. Refer to Note 3 for information regarding the components of these liabilities.
2During the fourth quarter of 2020, the Company increased the estimated fair value of the remaining contingent consideration representing the final two annual payments, resulting in a $6.7 million fair value adjustment of the deferred earnout, which was recorded in “Miscellaneous operating expenses” in the consolidated statement of comprehensive income. The Company did not recognize any losses during the quarter and year-to-date periods ended September 30, 2020.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Nonrecurring Fair Value Measurements (Assets) — As of September 30, 2021, the Company had no major categories of assets estimated at fair value that were measured on a nonrecurring basis.
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, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 December 31, 2020 | | | | | | | | | |
| | | | | | | | | |
Equipment 1 | 5,851 | | | — | | | 5,851 | | | — | | | (5,335) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (810) | |
| | | | | | | | | |
| As of December 31, 2021 | | | | | | | | | |
| | | | | | | | | |
Equipment 2 | — | | | — | | | — | | | — | | | (299) | |
| | | | | | | | | |
| | | | | | | | | |
1 Reflects the non-cash impairment of certain alternative fuel technologybuilding improvements (within the non-reportable segments) and.
2 Reflects the non-cash impairment of certain revenue equipment held for sale (within the non-reportable segments and the Truckload segment).
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 Company did not recognize any impairmentsincrease in net gains on disposals was primarily due to a stronger market for used revenue equipment during the quarter ended September 30, 2020. The Company recognized $1.3 million of impairments duringMarch 31, 2022, as compared to the year-to-datesame period ended September 30, 2020.in 2021.
Nonrecurring Fair Value Measurements (Liabilities) — As of September 30, 2021March 31, 2022 and December 31, 2020,2021, the Company had no major categories of liabilities estimated at fair value that were measured on a nonrecurring basis.
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: | | | Fair Value Measurements at Reporting Date Using: |
| | Estimated
Fair Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs | | Estimated
Fair Value | | Level 1 Inputs | | Level 2 Inputs | | Level 3 Inputs |
| | (In thousands) | | (In thousands) |
| As of September 30, 2021 | | | |
| As of March 31, 2022 | | As of March 31, 2022 | | |
| US equity funds | US equity funds | $ | 14,810 | | | $ | 14,810 | | | $ | — | | | $ | — | | US equity funds | $ | 14,442 | | | $ | 14,442 | | | $ | — | | | $ | — | |
| International equity funds | International equity funds | 6,184 | | | 6,184 | | | — | | | — | | International equity funds | 5,902 | | | 5,902 | | | — | | | — | |
| Fixed income funds | Fixed income funds | 47,583 | | | 47,583 | | | — | | | — | | Fixed income funds | 42,431 | | | 42,431 | | | — | | | — | |
| Cash and cash equivalents | Cash and cash equivalents | 823 | | | 823 | | | — | | | — | | Cash and cash equivalents | 1,418 | | | 1,418 | | | — | | | — | |
| Total pension plan assets | Total pension plan assets | $ | 69,400 | | | $ | 69,400 | | | $ | — | | | $ | — | | Total pension plan assets | $ | 64,193 | | | $ | 64,193 | | | $ | — | | | $ | — | |
| | As of December 31, 2021 | | As of December 31, 2021 | | |
| US equity funds | | US equity funds | $ | 14,877 | | | $ | 14,877 | | | $ | — | | | $ | — | |
| International equity funds | | International equity funds | 6,304 | | | 6,304 | | | — | | | — | |
| Fixed income funds | | Fixed income funds | 47,873 | | | 47,873 | | | — | | | — | |
| Cash and cash equivalents | | Cash and cash equivalents | 1,413 | | | 1,413 | | | — | | | — | |
| Total pension plan assets | | Total pension plan assets | $ | 70,467 | | | $ | 70,467 | | | $ | — | | | $ | — | |
|
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 1613 — Related Party Transactions
The following table presents Knight-Swift's transactions with companies controlled by and/or affiliated with its related parties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | | | | | | | | — | | | 78 | | | — | | | 57 | |
| Total | | | | | | | | | $ | — | | | $ | 78 | | | $ | — | | | $ | 57 | |
| Other Services: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Certain affiliates 1 | | | | | | | | | 5 | | | 9 | | | 6 | | | 9 | |
| Total | | | | | | | | | $ | 5 | | | $ | 9 | | | $ | 6 | | | $ | 9 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter-to-Date September 30, | | Year-to-Date September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Provided by Knight-Swift | | Received by Knight-Swift | | Provided by Knight-Swift | | Received by Knight-Swift | | Provided by Knight-Swift | | Received by Knight-Swift | | Provided by Knight-Swift | | Received by Knight-Swift |
| (In thousands) |
| Freight Services: | | | | | | | | | | | | | | | |
Central Freight Lines 1 | $ | — | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 7,837 | | | $ | — | |
SME Industries 1 | — | | | — | | | 28 | | | — | | | — | | | — | | | 56 | | | — | |
| | | | | | | | | | | | | | | |
| Total | $ | — | | | $ | — | | | $ | 29 | | | $ | — | | | $ | — | | | $ | — | | | $ | 7,893 | | | $ | — | |
| Facility and Equipment Leases: | | | | | | | | | | | | | | | |
Central Freight Lines 1 | $ | — | | | $ | — | | | $ | 25 | | | $ | 92 | | | $ | — | | | $ | — | | | $ | 48 | | | $ | 277 | |
Other Affiliates 1 | — | | | 69 | | | 2 | | | 37 | | | — | | | 214 | | | 11 | | | 146 | |
| Total | $ | — | | | $ | 69 | | | $ | 27 | | | $ | 129 | | | $ | — | | | $ | 214 | | | $ | 59 | | | $ | 423 | |
| Other Services: | | | | | | | | | | | | | | | |
Central Freight Lines 1 | $ | — | | | $ | — | | | $ | 412 | | | $ | — | | | $ | — | | | $ | — | | | $ | 427 | | | $ | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
DPF Mobile 1 | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | | 33 | |
Other Affiliates 1 | 8 | | | 9 | | | 13 | | | — | | | 21 | | | 27 | | | 32 | | | — | |
| Total | $ | 8 | | | $ | 9 | | | $ | 425 | | | $ | 2 | | | $ | 21 | | | $ | 27 | | | $ | 459 | | | $ | 33 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Receivable | | Payable | | Receivable | | Payable |
| (In thousands) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Certain affiliates 1 | 2 | | | 39 | | | 14 | | | 44 | |
| Total | $ | 2 | | | $ | 39 | | | $ | 14 | | | $ | 44 | |
| | | | | | | |
1 Entities affiliated with former Board member Jerry Moyes include Central Freight Lines, SME Industries, and DPF Mobile. "Other"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.
•Freight Services Provided by Knight-Swift — The Company charges each of these companies for transportation services.
•Freight Services Received by Knight-Swift — Transportation services received from Central Freight Lines represent less-than-truckload freight services rendered to haul parts and equipment to Company shop locations.
•Other Services Provided by Knight-Swift —Other services provided by the Company to the identified related parties include equipment sales and miscellaneous services.
•Other Services Received by Knight-Swift — Consulting fees, diesel particulate filter cleaning, sales of various parts and tractor accessories, and certain third-party payroll and employee benefits administration services from the identified related parties are included in other services received by the Company.
During the quarter ended September 30, 2020, the ownership percentage of Jerry Moyes and related affiliates fell below the threshold requiring related party disclosure. The amounts included in this Note 16 pertain to transactions that occurred prior to the date that the ownership percentage changed.
Receivables and payables pertaining to related party transactions were:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Receivable | | Payable | | Receivable | | Payable |
| (In thousands) |
| Central Freight Lines | $ | — | | | $ | — | | | $ | 133 | | | $ | — | |
| | | | | | | |
| DPF Mobile | — | | | — | | | — | | | 41 | |
| Other Affiliates | 6 | | | 44 | | | 2 | | | 10 | |
| Total | $ | 6 | | | $ | 44 | | | $ | 135 | | | $ | 51 | |
| | | | | | | |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
Note 1714 — Financial Information by Segment and Geography
Segment Information
The Company has 4 reportable segments: Truckload, Logistics, Intermodal, and LTL, as well as the non-reportable segments, discussed below. Based on how economic factors affect the nature, amount, timing, and uncertainty of revenue or cash flows, the Company disaggregates revenues by reportable segment for the purposes of applying ASC Topic 606, Revenue from Contracts with Customers.
The Company's NaN operating segments are structured around the types of transportation service offerings provided to our customers, as well as the equipment utilized. In addition, the operating segments may be further distinguished by the Company’s respective brands. The Company aggregated these various operating segments into the four reportable segments discussed below based on similarities with both their qualitative and economic characteristics.
Truckload
The Truckload reportable segment is comprised of nine truckload operating segments that provide similar transportation services to the Company's customers utilizing similar transportation equipment over both irregular (one-way movement) and/or dedicated routes.The Truckload reportable segment consists of irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border operations.
Logistics
The Logistics reportable segment is comprised of six logistics operating segments that provide similar transportation services to the Company's customers and primarily consist of brokerage and other freight management services utilizing third-party transportation providers and their equipment.
Intermodal
The Intermodal reportable segment is comprised of two intermodal operating segments that provide similar transportation services to the Company's customers.These transportation services include arranging the movement of customers' freight through third-party intermodal rail services on the Company’s trailing equipment (trailers on flat cars and rail containers), as well as drayage services to transport loads between the railheads and customer locations.
LTL
The LTL reportable segment is comprised of one operating segment and provides our customers with regional LTL transportation services through a network of over 70 service centers in the Company's geographical footprint. The Company's LTL service also includes national coverage to customers by utilizing partner carriers for areas outside of the Company's direct network.
Non-reportable
The non-reportable segments include five operating segments that consist of support services provided to the Company's customers and independent contractors (including repair and maintenance shop services, equipment leasing, warranty services, and insurance), trailer parts manufacturing, warehousing, and certain driving academy activities, as well as certain corporate expenses (such as legal settlements and accruals, certain impairments, and amortization of intangibles related to the 2017 Merger and various acquisitions).
Intersegment Eliminations
Certain operating segments provide transportation and related services for other affiliates outside of their segments. For certain operating segments, such services are billed at cost, and no profit is earned. For the other operating segments, revenues for such services are based on negotiated rates, and are reflected as revenues of the billing segment. These rates are adjusted from time to time, based on market conditions. Such intersegment revenues and expenses are eliminated in Knight-Swift's consolidated results. | | | | | | | | | | | | | | | |
| | | 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 | |
| | | | | | | |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
The following tables present the Company's financial information by segment: | | | | | | | | | | | | | | | |
| | | | 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 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter-to-Date September 30, | | Year-to-Date September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Revenue: | (In thousands) |
| Truckload | $ | 1,041,332 | | | $ | 975,881 | | | $ | 2,990,137 | | | $ | 2,774,311 | |
| | | | | | | |
| Logistics | 226,338 | | | 99,018 | | | 511,962 | | | 248,320 | |
| Intermodal | 112,801 | | | 98,859 | | | 335,245 | | | 276,410 | |
| LTL | 191,906 | | | — | | | 191,906 | | | — | |
| Subtotal | $ | 1,572,377 | | | $ | 1,173,758 | | | $ | 4,029,250 | | | $ | 3,299,041 | |
| Non-reportable segments | 89,393 | | | 56,610 | | | 206,857 | | | 148,141 | |
| Intersegment eliminations | (19,325) | | | (19,962) | | | (54,947) | | | (51,280) | |
| Total revenue | $ | 1,642,445 | | | $ | 1,210,406 | | | $ | 4,181,160 | | | $ | 3,395,902 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Quarter-to-Date September 30, | | Year-to-Date September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Operating income (loss): | (In thousands) |
| Truckload | $ | 206,543 | | | $ | 168,781 | | | $ | 533,483 | | | $ | 383,903 | |
| | | | | | | |
| Logistics | 27,128 | | | 2,478 | | | 49,061 | | | 9,235 | |
| Intermodal | 9,544 | | | 250 | | | 18,813 | | | (6,962) | |
| LTL | 17,469 | | | $ | — | | | 17,469 | | | $ | — | |
| Subtotal | $ | 260,684 | | | $ | 171,509 | | | $ | 618,826 | | | $ | 386,176 | |
| Non-reportable segments | 9,403 | | | (6,048) | | | 4,635 | | | (16,429) | |
| Operating income | $ | 270,087 | | | $ | 165,461 | | | $ | 623,461 | | | $ | 369,747 | |
| | | | | | | |
| | | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| Depreciation and amortization of property and equipment: | Depreciation and amortization of property and equipment: | (In thousands) | Depreciation and amortization of property and equipment: | | (In thousands) |
| Truckload | Truckload | $ | 107,229 | | | $ | 97,867 | | | $ | 314,320 | | | $ | 288,970 | | Truckload | | $ | 110,349 | | | $ | 101,885 | |
| | Logistics | Logistics | 355 | | | 214 | | | 852 | | | 628 | | Logistics | | 596 | | | 208 | |
| LTL | | LTL | | 15,260 | | | — | |
| Intermodal | Intermodal | 3,942 | | | 3,564 | | | 11,700 | | | 10,658 | | Intermodal | | 3,864 | | | 3,818 | |
| LTL | 11,950 | | | $ | — | | | 11,950 | | | $ | — | | |
| | Subtotal | Subtotal | $ | 123,476 | | | $ | 101,645 | | | $ | 338,822 | | | $ | 300,256 | | Subtotal | | $ | 130,069 | | | $ | 105,911 | |
| Non-reportable segments | Non-reportable segments | 15,094 | | | 14,019 | | | 43,269 | | | 40,230 | | Non-reportable segments | | 14,975 | | | 14,004 | |
| Depreciation and amortization of property and equipment | Depreciation and amortization of property and equipment | $ | 138,570 | | | $ | 115,664 | | | $ | 382,091 | | | $ | 340,486 | | Depreciation and amortization of property and equipment | | $ | 145,044 | | | $ | 119,915 | |
|
Geographical Information
In the aggregate, total revenue from the Company's international operations was less than 5.0% of consolidated total revenue for the quarterquarters ended March 31, 2022 and year-to-date periods ended September 30, 2021 and 2020.2021. Additionally, long-lived assets on the Company's international subsidiary balance sheets were less than 5.0% of consolidated total assets as of September 30, 2021March 31, 2022 and December 31, 2020.
2021.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | |
| 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 impacts of the COVID-19 global pandemic,
•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,
•our expected need or desire to incur indebtedness and ability to comply with debt covenants,
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 insurance claims, coverage, coverage limits, premiums, and retention limits,
•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 II, Item 1A "Risk Factors" of this Quarterly Report, Part II, Item 1A "Risk Factors" in our Quarterly Report for the quarter-ended June 30, 2021, Part I, Item 1A "Risk Factors" in our 20202021 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 20202021 Annual Report.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Company Overview
Knight-Swift Transportation Holdings Inc. is one of theNorth America's largest and most diversified freight transportation companies, operating the largestproviding multiple full truckload, fleet in North America and is headquartered in Phoenix, Arizona. The Company provides multiple truckload transportation,LTL, intermodal, and logistics services usingservices. 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 its fulloperating the country's largest truckload and LTL services,fleet, Knight-Swift also contracts with third-party capacityequipment providers to provide a broad range of shipping solutionstransportation services to itsour customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors. Our four reportable segments are Truckload, Logistics, Intermodal,LTL, and LTL.Intermodal. Additionally, we have various non-reportable segments. Refer to Note 1714 in Part I, Item 1 of this Quarterly Report for descriptions ofinformation 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.
ACT Acquisition — On July 5, 2021, we acquired 100% of ACT. Further details regarding this acquisition are included inWe continue to grow our company organically and through acquisitions. Refer to Note 3 in Part I, Item 1 of this Quarterly Report.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. We primarily generate revenue by transporting freight for our customers through our Truckload segment.base with 13,249 irregular route and 4,716 dedicated tractors.
•Our logisticsLogistics and intermodal operationsIntermodal 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. Revenue in our logistics and intermodal operations is generatedWe continue to offer power-only services through our Logistics and Intermodal segments.segment with our consolidated fleet of over 71,000 trailers.
•Our LTL servicebusiness, 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 over 70approximately 100 service centers inwithin our geographical footprint. Our LTL servicesegment 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 Iron Truck Services, (which offers support services provided to our customers and independent contractorsthird-party carriers including repair andinsurance, equipment maintenance, shop services, equipment leasing, warranty services, and insurance),warehousing, trailer parts manufacturing, warehousing, and certain driving academy activities, as well aswarranty 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 program,programs, which servesserve 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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Expenses —Our most significant expenses vary with miles traveled and include fuel, driving associate-related expenses (such as wages and benefits), and services purchased from independent contractors and other transportation providers (such as railroads, drayage providers, and other trucking companies). 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 improvements, fleet age, efficiency, and other factors. Our primary fixed costs are depreciation and lease expense for revenue equipment and terminals, amortization of intangible assets, interest expense, and non-driver employee compensation.
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 II, Item 1A "Risk Factors" of this Quarterly Report, Part II, Item 1A "Risk Factors" of our Quarterly Report for the quarter-ended June 30, 2021, Part I, Item 1A "Risk Factors" in our 20202021 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-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| GAAP financial data: | GAAP financial data: | (Dollars in thousands, except per share data) | GAAP financial data: | | (Dollars in thousands, except per share data) |
| Total revenue | Total revenue | $ | 1,642,445 | | | $ | 1,210,406 | | | $ | 4,181,160 | | | $ | 3,395,902 | | Total revenue | | $ | 1,826,989 | | | $ | 1,223,014 | |
| Revenue, excluding truckload fuel surcharge | $ | 1,510,572 | | | $ | 1,137,313 | | | $ | 3,856,549 | | | $ | 3,162,005 | | |
| Revenue, excluding truckload and LTL fuel surcharge | | Revenue, excluding truckload and LTL fuel surcharge | | $ | 1,647,878 | | | $ | 1,133,105 | |
| Net income attributable to Knight-Swift | Net income attributable to Knight-Swift | $ | 206,178 | | | $ | 122,058 | | | $ | 488,772 | | | $ | 267,673 | | Net income attributable to Knight-Swift | | $ | 208,337 | | | $ | 129,790 | |
| Earnings per diluted share | Earnings per diluted share | $ | 1.23 | | | $ | 0.71 | | | $ | 2.93 | | | $ | 1.57 | | Earnings per diluted share | | $ | 1.25 | | | $ | 0.77 | |
| Operating ratio | Operating ratio | 83.6 | % | | 86.3 | % | | 85.1 | % | | 89.1 | % | Operating ratio | | 83.7 | % | | 86.7 | % |
| | Non-GAAP financial data: | Non-GAAP financial data: | | | Non-GAAP financial data: | | | |
Adjusted Net Income Attributable to Knight-Swift 1 | Adjusted Net Income Attributable to Knight-Swift 1 | $ | 217,080 | | | $ | 134,618 | | | $ | 519,511 | | | $ | 307,321 | | Adjusted Net Income Attributable to Knight-Swift 1 | | $ | 224,863 | | | $ | 139,433 | |
Adjusted EPS 1 | Adjusted EPS 1 | $ | 1.30 | | | $ | 0.79 | | | $ | 3.11 | | | $ | 1.80 | | Adjusted EPS 1 | | $ | 1.35 | | | $ | 0.83 | |
Adjusted Operating Ratio 1 | Adjusted Operating Ratio 1 | 81.3 | % | | 83.9 | % | | 82.8 | % | | 86.6 | % | Adjusted Operating Ratio 1 | | 80.6 | % | | 84.5 | % |
| | Revenue equipment: | | | |
Average tractors (Truckload segment only) 2 | 17,867 | | | 18,464 | | | 18,041 | | | 18,439 | | |
| Revenue equipment statistics by segment: | | Revenue equipment statistics by segment: | | | |
| Truckload | | Truckload | | | |
Average tractors 2 | | Average tractors 2 | | 17,965 | | | 18,224 | |
Average trailers 3 | Average trailers 3 | 60,361 | | | 58,310 | | | 60,396 | | | 57,716 | | Average trailers 3 | | 71,310 | | | 59,797 | |
| LTL | | LTL | | | |
Average tractors 4 | | Average tractors 4 | | 3,091 | | | N/A |
Average trailers 5 | | Average trailers 5 | | 8,302 | | | N/A |
| Intermodal | | Intermodal | | | |
| Average tractors | | Average tractors | | 584 | | | 597 | |
| Average containers | Average containers | 10,842 | | | 10,852 | | | 10,843 | | | 10,522 | | 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.
2 TheOur 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 company-owned tractornon-reportable segments in 2022. Our trailer fleet was 2.4within the Truckload segment had a weighted average age of 8.4 years and 2.18.2 years as of September 30,March 31, 2022 and 2021, and 2020, respectively.respectively.
3 The4Our LTL tractor fleet had a weighted average age of our 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 was 8.3 years and 7.7had a weighted average age of 8.0 years as of September 30, 2021March 31, 2022, and includes 907 trailers from ACT's and MME's dedicated and other businesses for the first 2020, respectively.quarter of 2022.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
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, growth of 22.0%, and an improvement of 68.6%83.7% in consolidated operating income to $623.5$298.1 million in the year-to-date period ended September 30, 2021,first quarter of 2022, as compared to the same periodquarter last year. Net Income Attributable to Knight-Swift increased by 82.6%60.5% to $488.8$208.3 million.
•Truckload — 82.2%81.0% operating ratio forduring the year-to-date period ended September 30, 2021. Thefirst quarter of 2022. We generated a 78.2% Adjusted Operating Ratio was 80.1% forduring the year-to-date period ended September 30, 2021,quarter, a 420360 basis point improvement, as compared to this time last year.supported by continued year-over-year revenue growth. This represents our strongest performance in a first quarter since the 2017 Merger.
•Logistics — 90.4%86.0% operating ratio forduring the year-to-date period ended September 30, 2021.first quarter of 2022. The Adjusted Operating Ratio was 90.1% for the year-to-date period ended September 30, 2021,85.7% with operating income improvement of 422.6%. Load count grew by 76.9%, leading to a 610 basis point improvement142.1% 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 time last year, supported byservice offering will continue to grow as a 108.0% increase in Logistics revenue, excluding intersegment transactions, as load counts grew by 39.6%, while revenue per load increased 48.9%.
•Intermodal — The operating ratio and Adjusted Operating Ratio were 94.4% for the year-to-date period ended September 30, 2021, an 810 basis point improvement as compared to this time last year. The improvement was supported by 21.3% year-over-year revenue growth.percentage of our overall logistics revenue.
•LTL — 87.5%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 representsincludes the results of ACT. On an annualizedMME.
•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 LTL segment represents approximately 12%activities within our diverse operating segments of revenueinsurance, equipment maintenance, equipment leasing, and warehousing, leading to a $19.1 million improvement in operating income within the four reportableour 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 4.8%3.6%12 as of September 30, 2021.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, increaseddecreased by 2.0%1.4%23 on a year-over-year basis, per preliminary third-party forecasts. The deceleration, compared to previous periods of 2021, was driven by a slowdownreduction in consumer spending.private inventory investment and lower spending at all levels of government. Early estimates of the thirdfirst quarter 20212022 US employment cost index indicate a year-over-year increase of 3.7%4.5%12 and a sequential increase of 1.3%1.4%12.
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 2021.2022. The 20212022 market outlook includes the following:
•Strong contract rates lead to an increase in addition to expecting unprecedented demand in the fourth quarter of 2021, we anticipate similar strength for truckload services throughout 2022,commitments with less spot exposure
•Trailer pool capacity expansion continues to be limited as new tractor and trailer builds are constrained by parts availability, and labor shortages,remains at a premium
•sourcingDeclining 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 will remainremains challenging and lead to additional driver wage inflation, and
•inflationaryInflationary pressure on equipment, maintenance, labor and other cost items.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
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 digitdouble-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 2021.2022. With significant tightening in the insurance markets, we may also experience changes in premiums, retention limits, and excess coverage limits in the remainder of 2021.2022. While fuel expense is generally offset by fuel surcharge revenue, our fuel expense, net of fuel surcharge revenue may increase in the future.future, particularly during periods of sharply rising fuel prices.
We expect that our acquisitionentry 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.
________
1Source: bls.gov
2Source: bea.gov See discussion under "Liquidity and Capital Resources" for additional information.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Note: The reported results do not include ACT's operating results prior to its acquisition by the Company on July 5, 2021, in accordance with the accounting treatment applicable to the transaction. Accordingly, comparisons between the Company’s quarter and year-to-date September 30, 2021 results and prior periods may not be meaningful.
Comparison Between the Quarters Ended September 30, 2021 and 2020 — The $84.1 million increase in net income attributable to Knight-Swift to $206.2 million during the third quarter of 2021 from $122.1 million during the same period last year includes the following:
•Contributor — $37.8 million increase in operating income within our Truckload segment, driven by a 3.4% increase in revenue, excluding fuel surcharge and intersegment transactions.
•Contributor — $24.7 million increase in operating income within our Logistics segment. Revenue, excluding intersegment transactions, increased by 130.0%, as load volumes grew by 60.7% while revenue per load increased by 43.1%.
•Contributor — $9.3 million improvement in operating income within our Intermodal segment. Revenue per load increased 25.9%, as rail congestion and allocations reduced load counts by 9.3%.
•Contributor — $17.5 million of operating income from our LTL segment in the third quarter of 2021.
•Offset — $3.4 million reduction in "Other income, net," primarily driven by lower gains recognized within our portfolio of investments, as well as a third quarter 2021 write-off of deferred debt issuance costs from replacing the 2017 Debt Agreement and July 2021 Term Loan with the 2021 Debt Agreement.
•Offset — $13.2 millionincrease in consolidated income tax expense was primarily due to an increase in income before income taxes, which was partially offset by favorable discrete items associated with the ACT acquisition and other discrete items. During the third quarter of 2020, we recognized discrete items relating to negative impacts from certain tax-related items within our Mexico operations. All of these factors resulted in an effective tax rate of 22.8% for the third quarter of 2021 and 28.1% for the third quarter of 2020.
Comparison Between the Year-to-Date September 30, 2021 and 2020 — The $221.1 million increase in net income attributable to Knight-Swift to $488.8 million during the year-to-date September 30, 2021 period from $267.7 million during the same period last year includes the following:
•Contributor — $149.6 million increase in operating income within our Truckload segment, driven by a 5.9% increase in revenue, excluding fuel surcharge and intersegment transactions.
•Contributor — $39.8 million improvement in operating income within our Logistics segment. Revenue, excluding intersegment transactions, increased by 108.0%, as load volumes grew by 39.6% and revenue per load increased by 48.9%.
•Contributor — $25.8 million improvement in operating income (loss) within our Intermodal segment. Revenue per load increased 17.1% and load counts increased 3.6%.
•Contributor — $17.5 million of operating income from our LTL segment.
•Contributor — $27.5 million improvement in "Other income, net," primarily due to unrealized gains recognized from our investment in Embark and an increase in unrealized gains recognized from other investments within our portfolio.
•Offset — $59.0 millionincrease in consolidated income tax expense, primarily due to an increase in income before income taxes resulting in an effective tax rate of 24.4% for year-to-date September 30, 2021 and 27.0% for year-to-date September 30, 2020.
See additional discussion of our operating results within "Results of Operations — Consolidated Operating and Other Expenses" below.
Liquidity and Capital — During year-to-date September 30, 2021, we generated $817.5 million in operating cash flows, reduced our operating lease liabilities by $37.4 million, paid down our finance lease liabilities by $73.8 million, used $196.1 million for capital expenditures (net of disposal proceeds), spent $1.3 billion on three acquisitions, and returned $53.7 million in share repurchases and $46.9 million in dividends to our stockholders.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
We ended the quarter with $269.7 million in unrestricted cash and cash equivalents, $300.0 million outstanding on the 2021 Revolver, $1.2 billion face value outstanding on the 2021 Term Loans, and $6.3 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.
| | |
| 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 1714 to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report for descriptions of the operations of these reportableinformation regarding our segments.
Consolidating Tables for Total Revenue and Operating Income (Loss)
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| Revenue: | Revenue: | (In thousands) | Revenue: | | (In thousands) |
| Truckload | Truckload | $ | 1,041,332 | | | $ | 975,881 | | | $ | 2,990,137 | | | $ | 2,774,311 | | Truckload | | $ | 1,080,531 | | | $ | 962,947 | |
| | Logistics | Logistics | 226,338 | | | 99,018 | | | 511,962 | | | 248,320 | | Logistics | | 282,039 | | | 118,887 | |
| LTL | | LTL | | 255,125 | | | — | |
| Intermodal | Intermodal | 112,801 | | | 98,859 | | | 335,245 | | | 276,410 | | Intermodal | | 109,222 | | | 107,066 | |
| LTL | 191,906 | | | — | | | 191,906 | | | — | | |
| Subtotal | Subtotal | $ | 1,572,377 | | | $ | 1,173,758 | | | $ | 4,029,250 | | | $ | 3,299,041 | | Subtotal | | $ | 1,726,917 | | | $ | 1,188,900 | |
| Non-reportable segments | Non-reportable segments | 89,393 | | | 56,610 | | | 206,857 | | | 148,141 | | Non-reportable segments | | 117,639 | | | 50,669 | |
| Intersegment eliminations | Intersegment eliminations | (19,325) | | | (19,962) | | | (54,947) | | | (51,280) | | Intersegment eliminations | | (17,567) | | | (16,555) | |
| Total revenue | Total revenue | $ | 1,642,445 | | | $ | 1,210,406 | | | $ | 4,181,160 | | | $ | 3,395,902 | | Total revenue | | $ | 1,826,989 | | | $ | 1,223,014 | |
|
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| Operating income (loss): | Operating income (loss): | (In thousands) | Operating income (loss): | | (In thousands) |
| Truckload | Truckload | $ | 206,543 | | | $ | 168,781 | | | $ | 533,483 | | | $ | 383,903 | | Truckload | | $ | 205,117 | | | $ | 158,483 | |
| | Logistics | Logistics | 27,128 | | | 2,478 | | | 49,061 | | | 9,235 | | Logistics | | 39,601 | | | 7,577 | |
| LTL | | LTL | | 26,377 | | | — | |
| Intermodal | Intermodal | 9,544 | | | 250 | | | 18,813 | | | (6,962) | | Intermodal | | 15,170 | | | 3,457 | |
| LTL | 17,469 | | | — | | | 17,469 | | | — | | |
| Subtotal | Subtotal | $ | 260,684 | | | $ | 171,509 | | | $ | 618,826 | | | $ | 386,176 | | Subtotal | | $ | 286,265 | | | $ | 169,517 | |
| Non-reportable segments | Non-reportable segments | 9,403 | | | (6,048) | | | 4,635 | | | (16,429) | | Non-reportable segments | | 11,821 | | | (7,258) | |
| Operating income | Operating income | $ | 270,087 | | | $ | 165,461 | | | $ | 623,461 | | | $ | 369,747 | | Operating income | | $ | 298,086 | | | $ | 162,259 | |
|
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 calculatescalculated 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 LTL | | 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 LTL | | 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 LTL | | 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. |
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Segment Review
Truckload Segment
We generate revenue in the Truckload segment primarily through irregular route, dedicated, refrigerated, expedited, flatbed, expedited, and cross-border service offerings with 12,937operations across our brands. We operated 13,249 irregular route tractors and 4,9304,716 dedicated route tractors in use during the quarter-to-date period ended September 30, 2021.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-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands, except per tractor data) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands, except per tractor data) | Increase (Decrease) | |
| Total revenue | Total revenue | $ | 1,041,332 | | | $ | 975,881 | | | $ | 2,990,137 | | | $ | 2,774,311 | | | 6.7 | % | | 7.8 | % | Total revenue | | $ | 1,080,531 | | $ | 962,947 | | | 12.2 | % |
| Revenue, excluding fuel surcharge and intersegment transactions | Revenue, excluding fuel surcharge and intersegment transactions | $ | 933,205 | | | $ | 902,592 | | | $ | 2,688,579 | | | $ | 2,539,709 | | | 3.4 | % | | 5.9 | % | Revenue, excluding fuel surcharge and intersegment transactions | | $ | 941,534 | | $ | 872,814 | | | | 7.9 | % |
| GAAP: Operating income | GAAP: Operating income | $ | 206,543 | | | $ | 168,781 | | | $ | 533,483 | | | $ | 383,903 | | | 22.4 | % | | 39.0 | % | GAAP: Operating income | | $ | 205,117 | | | $ | 158,483 | | | | 29.4 | % |
Non-GAAP: Adjusted Operating Income 1 | Non-GAAP: Adjusted Operating Income 1 | $ | 206,866 | | | $ | 169,105 | | | $ | 534,454 | | | $ | 398,076 | | | 22.3 | % | | 34.3 | % | Non-GAAP: Adjusted Operating Income 1 | | $ | 205,441 | | | $ | 158,807 | | | | 29.4 | % |
Average revenue per tractor 2 | Average revenue per tractor 2 | $ | 52,231 | | | $ | 48,884 | | | $ | 149,026 | | | $ | 137,736 | | | 6.8 | % | | 8.2 | % | Average revenue per tractor 2 | | $ | 52,409 | | | $ | 47,894 | | | | 9.4 | % |
GAAP: Operating ratio 2 | GAAP: Operating ratio 2 | 80.2 | % | | 82.7 | % | | 82.2 | % | | 86.2 | % | | (250 | bps) | | (400 | bps) | GAAP: Operating ratio 2 | | 81.0 | % | | 83.5 | % | | | (250 | bps) |
Non-GAAP: Adjusted Operating Ratio 1 2 | Non-GAAP: Adjusted Operating Ratio 1 2 | 77.8 | % | | 81.3 | % | | 80.1 | % | | 84.3 | % | | (350 | bps) | | (420 | bps) | Non-GAAP: Adjusted Operating Ratio 1 2 | | 78.2 | % | | 81.8 | % | | | (360 | bps) |
Non-paid empty miles percentage 2 | Non-paid empty miles percentage 2 | 13.5 | % | | 12.6 | % | | 13.1 | % | | 13.1 | % | | 90 | bps | | — | bps | Non-paid empty miles percentage 2 | | 14.1 | % | | 12.8 | % | | | 130 | bps |
Average length of haul (miles) 2 | Average length of haul (miles) 2 | 398 | | | 436 | | | 407 | | | 427 | | | (8.7 | %) | | (4.7 | %) | Average length of haul (miles) 2 | | 394 | | | 412 | | | | (4.4 | %) |
Total miles per tractor 2 | Total miles per tractor 2 | 20,233 | | | 23,422 | | | 62,083 | | | 68,729 | | | (13.6 | %) | | (9.7 | %) | Total miles per tractor 2 | | 18,916 | | | 20,928 | | | | (9.6 | %) |
Average tractors 2 3 | Average tractors 2 3 | 17,867 | | | 18,464 | | | 18,041 | | | 18,439 | | | (3.2 | %) | | (2.2 | %) | Average tractors 2 3 | | 17,965 | | | 18,224 | | | | (1.4 | %) |
Average trailers 2 | 60,361 | | | 58,310 | | | 60,396 | | | 57,716 | | | 3.5 | % | | 4.6 | % | |
Average trailers 2 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 16,04816,159 and 16,39116,305 average company-owned tractors for the thirdfirst quarter of 20212022 and 2020,2021, respectively.
4 Includes 16,166 and 16,347 average company-owned tractors7,561 trailers related to leasing activities recorded within our non-reportable segments for the year-to-date periods ended September 30,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 2020, respectivelintersegment transactions, led to a 29.4% improvement in Adjusted Operating Income.y.
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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Comparison BetweenWe 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 Quarters Ended September 30, 2021 and 2020— The Adjusted Operating Ratio improved by 350 basis points to 77.8%, leading to a 22.3% improvement in Adjusted Operating Income. Year-over-year revenue, excluding fuel surcharge and intersegment transactions, grew by 3.4%. A 24.9% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions, partially offset by a 13.6% decrease in miles per tractor, contributed to a 6.8% increase in average revenue per tractor. Shipping demand remains strong throughout all markets. We have experienced more opportunities in shorter lengthfourth quarter of haul lanes, which have resulted in higher revenue per mile but fewer miles per tractor. These opportunities ultimately contributed to higher revenue per tractor and improved margins.
Comparison Between Year-to-Date September 30, 2021 and 2020— The Adjusted Operating Ratio improved by 420 basis points to 80.1%, leading to a 34.3% improvement in Adjusted Operating Income. Year-over-year revenue, excluding fuel surcharge and intersegment transactions, grew by 5.9%. A 19.8% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions, partially offset by a 9.7% decrease in miles per tractor, contributed to an 8.2% increase in average revenue per tractor.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-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands, except per load data) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands, except per load data) | | Increase (Decrease) | |
| Total revenue | Total revenue | $ | 226,338 | | | $ | 99,018 | | | $ | 511,962 | | | $ | 248,320 | | | 128.6 | % | | 106.2 | % | Total revenue | | $ | 282,039 | | | $ | 118,887 | | | 137.2 | % |
| Revenue, excluding intersegment transactions | Revenue, excluding intersegment transactions | $ | 221,374 | | | $ | 96,237 | | | $ | 499,263 | | | $ | 240,060 | | | 130.0 | % | | 108.0 | % | Revenue, excluding intersegment transactions | | $ | 280,171 | | | $ | 115,722 | | | | 142.1 | % |
| GAAP: Operating income | GAAP: Operating income | $ | 27,128 | | | $ | 2,478 | | | $ | 49,061 | | | $ | 9,235 | | | 994.8 | % | | 431.3 | % | GAAP: Operating income | | $ | 39,601 | | | $ | 7,577 | | | | 422.6 | % |
Non-GAAP: Adjusted Operating Income 1 | Non-GAAP: Adjusted Operating Income 1 | $ | 27,462 | | | $ | 2,478 | | | $ | 49,492 | | | $ | 9,235 | | | 1,008.2 | % | | 435.9 | % | Non-GAAP: Adjusted Operating Income 1 | | $ | 39,935 | | | $ | 7,577 | | | | 427.1 | % |
Revenue per load 2 | Revenue per load 2 | $ | 2,513 | | | $ | 1,756 | | | $ | 2,261 | | | $ | 1,518 | | | 43.1 | % | | 48.9 | % | Revenue per load 2 | | $ | 2,697 | | | $ | 1,971 | | | | 36.8 | % |
Gross margin percentage 2 | Gross margin percentage 2 | 18.1 | % | | 11.0 | % | | 16.5 | % | | 13.5 | % | | 710 | bps | | 300 | bps | Gross margin percentage 2 | | 20.2 | % | | 14.4 | % | | | 580 | bps |
GAAP: Operating ratio 2 | GAAP: Operating ratio 2 | 88.0 | % | | 97.5 | % | | 90.4 | % | | 96.3 | % | | (950 | bps) | | (590 | bps) | GAAP: Operating ratio 2 | | 86.0 | % | | 93.6 | % | | | (760 | bps) |
Non-GAAP: Adjusted Operating Ratio 1 2 | Non-GAAP: Adjusted Operating Ratio 1 2 | 87.6 | % | | 97.4 | % | | 90.1 | % | | 96.2 | % | | (980 | bps) | | (610 | 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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Comparison Between the Quarters Ended September 30,March 31, 2022 and 2021 and 2020 — Demand for our logistics service offering continued to growremained strong throughout the quarter, as we continue to leverage our consolidated fleet of over 60,000approximately 71,000 trailers into support our Power-onlypower-only service offering. Logistics revenue, excluding intersegment transactions, increased 130.0%142.1% as we grew load count by 60.7%76.9%, while increasing revenue per load by 43.1%36.8%. The Adjusted Operating Ratio improved to 87.6%85.7%, resulting in a 1,008.2%427.1% increase in Adjusted Operating Income. Brokerage gross margin was 18.1%20.2% in the thirdfirst quarter of 2021,2022, compared to 11.0%14.4% in the third quarter of 2020.
Within our Power-only service offering, revenue grew by 333.9% as a result of an 84.1% increase in load volumes. Our Power-only service offering represented approximately 35% of brokerage load volumes during the third quarter of 2021. Through our Select platform, we digitally matched more than 4,500 carriers with available capacity to available loads during the thirdfirst quarter of 2021.
Comparison Between Year-to-Date September 30, 2021 and 2020— Logistics revenue, excluding intersegment transactions increased 108.0% as we grew load count by 39.6%, while increasing revenue per load by 48.9%. The Adjusted Operating Ratio improved to 90.1%, resulting in a 435.9% increase in Adjusted Operating Income. Brokerage gross margin was 16.5% for year-to-date September 30, 2021, compared to 13.5% for the same period last year.
Within our Power-only service offering, revenue grew by 308.1% as a result of a 90.2% increase in load volumes. Our Power-only service offering represented approximately 30% of brokerage load volumes for year-to-date September 30, 2021.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
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-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. |
| 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 |
| (Dollars in thousands, except per load data) | | Increase (Decrease) |
| | | | | | | |
| | | | | | | | | | |
| | | | |
| Total revenue | $ | 112,801 | | | $ | 98,859 | | | $ | 335,245 | | | $ | 276,410 | | | 14.1 | % | | 21.3 | % |
| Revenue, excluding intersegment transactions | $ | 112,754 | | | $ | 98,808 | | | $ | 335,019 | | | $ | 276,129 | | | 14.1 | % | | 21.3 | % |
| GAAP: Operating income (loss) | $ | 9,544 | | | $ | 250 | | | $ | 18,813 | | | $ | (6,962) | | | 3,717.6 | % | | 370.2 | % |
Non-GAAP: Adjusted Operating Income (Loss) 1 | $ | 9,544 | | | $ | 250 | | | $ | 18,813 | | | $ | (6,849) | | | 3,717.6 | % | | 374.7 | % |
Average revenue per load 2 | $ | 2,902 | | | $ | 2,305 | | | $ | 2,682 | | | $ | 2,291 | | | 25.9 | % | | 17.1 | % |
GAAP: Operating ratio 2 | 91.5 | % | | 99.7 | % | | 94.4 | % | | 102.5 | % | | (820 | bps) | | (810 | bps) |
Non-GAAP: Adjusted Operating Ratio 1 2 | 91.5 | % | | 99.7 | % | | 94.4 | % | | 102.5 | % | | (820 | bps) | | (810 | bps) |
| Load count | 38,856 | | | 42,862 | | | 124,897 | | | 120,520 | | | (9.3 | %) | | 3.6 | % |
Average tractors 2 3 | 609 | | | 548 | | | 605 | | | 573 | | | 11.1 | % | | 5.6 | % |
Average containers 2 | 10,842 | | | 10,852 | | | 10,843 | | | 10,522 | | | (0.1 | %) | | 3.1 | % |
1 Refer to "Non-GAAP Financial Measures" below.
2 Defined under "Operating Statistics," above.
3 Includes 554 and 494 company-owned tractors for the third quarter of 2021 and 2020, respectively.
Includes 550 and 513 company-owned tractors for the year-to-date September 30, 2021 and 2020, respectively.
Comparison Between the Quarters Ended September 30, 2021 and 2020 — Revenue grew by 14.1% while the Adjusted Operating Ratio improved from 99.7% to 91.5%, resulting in a $9.3 million increase in operating income. Continued rail congestion and rail allocations resulted in a reduction in load count, but contributed to a 25.9% increase in revenue per load. Intermodal is exhibiting strong momentum, and we expect operational improvements in cost structure and network design as we transition to a new western rail partner in the coming quarters. To position Intermodal for continued growth, we plan to add approximately 1,000 containers over the next two quarters.
Comparison Between Year-to-Date September 30, 2021 and 2020 — Revenue grew by 21.3% while the Adjusted Operating Ratio improved from 102.5% to 94.4%, resulting in a $25.8 million increase in operating income. Continued rail congestion and rail allocations resulted in a reduction in load count, but contributed to a 17.1% increase in revenue per load.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
LTL Segment
OurDothan, Alabama-based ACT and Bismarck, North Dakota-based MME, both acquired in 2021, comprise our LTL segment is a regional motor carrier headquartered in Dothan, Alabama.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 expenseexpenses 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 toof 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 and Year-to-Date September 30, 2021Ended March 31, 2022 | | | | | | |
| (Dollars in thousands, except per tractor data) | | | | | | |
| Total revenue | $ | 191,906255,125 | | | | | | | |
| Revenue, excluding fuel surcharge | $ | 167,900214,675 | | | | | | | |
| GAAP: Operating income | $ | 17,46926,377 | | | | | | | |
Non-GAAP: Adjusted Operating Income 1 | $ | 20,96730,322 | | | | | | | |
GAAP: Operating ratio 2 | 90.989.7 | % | | | | | | |
Non-GAAP: Adjusted Operating Ratio 1 2 | 87.585.9 | % | | | | | | |
| | | | | | | |
Shipments per day 2 | 16,43018,783 | | | | | | | |
Weight per shipment 2 | 1,1111,098 | | | | | | | |
Average length of haul (miles) 2 | 515522 | | | | | | | |
Revenue per shipment 2 | $ | 157.55178.43 | | | | | | | |
Revenue xFSR per shipment 2 | $ | 138.27150.70 | | | | | | | |
Revenue per hundredweight 2 | $ | 14.1816.25 | | | | | | | |
Revenue xFSR per hundredweight 2 | $ | 12.4413.73 | | | | | | | |
Average tractors 2 3 | 1,9993,091 | | | | | | | |
Average trailers 2 4 | 8,302 | | | | | | | |
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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Our LTL segment which operates approximately 3,100 tractors and 8,300 trailers across approximately 70100 facilities with a door count of over 3,400,approximately 4,300. We generated $167.9$214.7 million in revenue, excluding fuel surcharge and an 87.5%85.9% Adjusted Operating Ratio during the thirdfirst quarter of 2021. During the quarter, our LTL segment earned revenue2022. Revenue, excluding fuel surcharge, per hundredweight of $12.44 andwas $13.73, while revenue per shipment, excluding fuel surcharge of $138.27.
was $150.70. We are pleased withanticipate continued strength in revenue and margins within our LTL business in the results ofcoming quarters, as the ACT and MME teams continue to successfully connect their complementary networks. Additionally, we are encouragedexpanded 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 synergy opportunities the teams have identified and expect to improveIntermodal segment is the cost structureof 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 capitalize onnon-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 revenue opportunities. We feel confidentimproved service offering, we are on paceexpect load volumes to achieve our goal of an 85% Adjusted Operating Ratioinflect positive year-over-year in the coming years.back half of the year as we grow with new customers and expand with existing customers.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Non-reportable Segments
TheOur non-reportable segments include support services provided to our customers and independent contractors (including repair andthird-party carriers including insurance, equipment maintenance, shop services, equipment leasing, warranty services, and insurance),warehousing, trailer parts manufacturing, warehousing, and certain driving academy activities, as well aswarranty services. Our non-reportable segments also include certain corporate expenses (such as legal settlements and accruals, certain impairments, and $11.6 million in quarterlyof amortization of intangibles related to the 2017 Merger and various acquisitions).
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| Total revenue | Total revenue | $ | 89,393 | | | $ | 56,610 | | | $ | 206,857 | | | $ | 148,141 | | | 57.9 | % | | 39.6 | % | Total revenue | | $ | 117,639 | | | $ | 50,669 | | | 132.2 | % |
| Operating income (loss) | Operating income (loss) | $ | 9,403 | | | $ | (6,048) | | | $ | 4,635 | | | $ | (16,429) | | | 255.5 | % | | 128.2 | % | Operating income (loss) | | $ | 11,821 | | | $ | (7,258) | | | | 262.9 | % |
Quarter-to-dateActivities within our diverse operating segments of insurance, equipment maintenance, equipment leasing, and year-to-datewarehousing led to 132.2% revenue growth, and improved profitability within the non-reportable segments is related to revenue and margin improvementwhich resulted in our warehousing activities, expanded services to third-party carriers, (including Iron Truck Services), and increased demand for our equipment leasing services.
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: TheIn accordance with accounting treatment applicable to each of our recent acquisitions, Knight-Swift's reported results do not include ACT'sthe comparative operating results of the acquired entities prior to itsthe respective acquisition by the Company on July 5, 2021, in accordance with the accounting treatment applicable to the transaction.date. Accordingly, comparisons between the Company’sfirst quarter and year-to-date September 30, 20212022 results and prior periods may not be meaningful.
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| Salaries, wages, and benefits | Salaries, wages, and benefits | $ | 500,673 | | | $ | 376,923 | | | $ | 1,248,656 | | | $ | 1,097,067 | | | 32.8 | % | | 13.8 | % | Salaries, wages, and benefits | | $ | 536,056 | | | $ | 370,370 | | | 44.7 | % |
| % of total revenue | % of total revenue | 30.5 | % | | 31.1 | % | | 29.9 | % | | 32.3 | % | | (60 | bps) | | (240 | bps) | % of total revenue | | 29.3 | % | | 30.3 | % | | | (100 | bps) |
| % of revenue, excluding truckload fuel surcharge | 33.1 | % | | 33.1 | % | | 32.4 | % | | 34.7 | % | | — | bps | | (230 | bps) | |
| % of revenue, excluding truckload and LTL fuel surcharge | | % 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 rate per milerates 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 associate payassociates and non-driver employees) to remain inflationary, which we expect will result in additional driving associate pay increases in the future, thereby increasing our salaries, wages, and benefits expense.
•Comparison Between the Quarters Ended September 30, 2021 and 2020 — Consolidated salaries, wages, and benefits increased by $123.8$165.7 million for the thirdfirst quarter of 2021,2022, as compared to the thirdfirst quarter of 2020.2021. This increase includes $107.6$135.2 million from the first quarter 2022 results of ACT.ACT and MME. The remaining increase pertained to driving associate pay rates and non-driver salaries and wages, partially offset by a 10.9%an 11.9% decrease in miles driven by company driving associates, excluding ACT.ACT and MME.
•Comparison Between Year-to-Date September 30, 2021 and 2020 — Consolidated salaries, wages, and benefits increased by $151.6 million for the year-to-date period ended September 30, 2021, as compared to the same period last year. This increase includes $107.6 million from the results of ACT. The remaining increase pertained to driving associate pay rates and non-driver salaries and wages, partially offset by a 15.7% decrease in miles driven by company driving associates, excluding ACT.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| Fuel | Fuel | $ | 146,422 | | | $ | 104,703 | | | $ | 390,713 | | | $ | 312,939 | | | 39.8 | % | | 24.9 | % | Fuel | | $ | 190,489 | | | $ | 118,236 | | | 61.1 | % |
| % of total revenue | % of total revenue | 8.9 | % | | 8.7 | % | | 9.3 | % | | 9.2 | % | | 20 | bps | | 10 | bps | % of total revenue | | 10.4 | % | | 9.7 | % | | | 70 | bps |
| % of revenue, excluding truckload fuel surcharge | 9.7 | % | | 9.2 | % | | 10.1 | % | | 9.9 | % | | 50 | bps | | 20 | bps | |
| % of revenue, excluding truckload and LTL fuel surcharge | | % 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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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.
•Comparison Between the Quarters Ended September 30, 2021 and 2020 — The $41.7$72.3 million increase in consolidated fuel expense for the thirdfirst quarter, includes $15.2$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 $3.36$4.36 per gallon for the thirdfirst quarter of 20212022 and $2.43$2.91 per gallon for the thirdfirst quarter of 2020.2021. This was partially offset by the decrease in total miles driven by company driving associates, excluding ACT and MME, discussed above.
•Comparison Between Year-to-Date September 30, 2021 and 2020 — The $77.8 million increase in consolidated fuel expense for the year-to-date period ended September 30, 2021, includes $15.2 million of fuel expense from ACT's 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 $3.16 per gallon for year-to-date September 30, 2021 and $2.59 per gallon for year-to-date September 30, 2020. This was partially offset by the decrease in total miles driven by company driving associates discussed above.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. |
| 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 |
| (Dollars in thousands) | | Increase (Decrease) |
| | | | | | | |
| | | | | | | | | | |
| | | | |
| Operations and maintenance | $ | 86,951 | | | $ | 69,964 | | | $ | 226,334 | | | $ | 204,435 | | | 24.3 | % | | 10.7 | % |
| % of total revenue | 5.3 | % | | 5.8 | % | | 5.4 | % | | 6.0 | % | | (50 | bps) | | (60 | bps) |
| % of revenue, excluding truckload fuel surcharge | 5.8 | % | | 6.2 | % | | 5.9 | % | | 6.5 | % | | (40 | bps) | | (60 | bps) |
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) | | | |
| 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 2021 and into 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.
•Comparison Between the Quarters Ended September 30, 2021 and 2020 — The increase of $17.0$27.8 million for the thirdfirst quarter of 20212022 includes $9.3$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 driving associate hiringport per diem expenses as we navigate a backlog of shipping containers at ports where we operate, and increased chassis expense. This was partially offset by a decrease in miles driven by company driving associates discussed above.higher maintenance expense due to inflation.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
•Comparison Between Year-to-Date September 30, 2021 and 2020 — The increase of $21.9 million for the year-to-date period ended September 30, 2021, as compared to the same period last year, includes $9.3 million in operations and maintenance expense from ACT's results. The remaining increase is attributed to higher driving associate hiring expenses and increased chassis expense. This was partially offset by a decrease in miles driven by company driving associates discussed above.
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| Insurance and claims | Insurance and claims | $ | 73,757 | | | $ | 45,186 | | | $ | 188,176 | | | $ | 144,768 | | | 63.2 | % | | 30.0 | % | Insurance and claims | | $ | 98,192 | | | $ | 55,643 | | | 76.5 | % |
| % of total revenue | % of total revenue | 4.5 | % | | 3.7 | % | | 4.5 | % | | 4.3 | % | | 80 | bps | | 20 | bps | % of total revenue | | 5.4 | % | | 4.5 | % | | | 90 | bps |
| % of revenue, excluding truckload fuel surcharge | 4.9 | % | | 4.0 | % | | 4.9 | % | | 4.6 | % | | 90 | bps | | 30 | bps | |
| % of revenue, excluding truckload and LTL fuel surcharge | | % 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, as well as 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.
•Comparison Between the Quarters Ended September 30, 2021 and 2020 — Consolidated insurance and claims expense increased by $28.6$42.5 million for the thirdfirst quarter of 2021,2022, as compared to the thirdfirst quarter of 2020. This2021. The increase includes $7.7was 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. The remaining increase was primarily due to insurance reserves incurred through our third-party carrier insurance program.
•Comparison Between Year-to-Date September 30, 2021 and 2020 — Consolidated insurance and claims expense increased by $43.4 million for the year-to-date period ended September 30, 2021, as compared to the same period last year. This increase includes $7.7 million of insurance and claims expense from ACT's results. The remaining increase was primarily due to insurance reserves incurred through our third-party carrier insurance program.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| Operating taxes and licenses | Operating taxes and licenses | $ | 27,475 | | | $ | 21,475 | | | $ | 71,240 | | | $ | 64,527 | | | 27.9 | % | | 10.4 | % | Operating taxes and licenses | | $ | 29,037 | | | $ | 22,048 | | | 31.7 | % |
| % of total revenue | % of total revenue | 1.7 | % | | 1.8 | % | | 1.7 | % | | 1.9 | % | | (10 | bps) | | (20 | bps) | % of total revenue | | 1.6 | % | | 1.8 | % | | | (20 | bps) |
| % of revenue, excluding truckload fuel surcharge | 1.8 | % | | 1.9 | % | | 1.8 | % | | 2.0 | % | | (10 | bps) | | (20 | bps) | |
| % of revenue, excluding truckload and LTL fuel surcharge | | % 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 $6.0$7.0 million and year-to-date increase of $6.7 million areis primarily composed of $6.3$8.2 million of operating taxes and licenses expense from ACT's and MME's first quarter 2022 results.
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| Communications | Communications | $ | 6,612 | | | $ | 5,069 | | | $ | 16,284 | | | $ | 14,845 | | | 30.4 | % | | 9.7 | % | Communications | | $ | 5,870 | | | $ | 5,037 | | | 16.5 | % |
| % of total revenue | % of total revenue | 0.4 | % | | 0.4 | % | | 0.4 | % | | 0.4 | % | | — | bps | | — | bps | % of total revenue | | 0.3 | % | | 0.4 | % | | | (10 | bps) |
| % of revenue, excluding truckload fuel surcharge | 0.4 | % | | 0.4 | % | | 0.4 | % | | 0.5 | % | | — | bps | | (10 | bps) | |
| % of revenue, excluding truckload and LTL fuel surcharge | | % 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 $1.5$0.8 million and year-to-date increase of $1.4 million areis primarily composed of $1.0$1.1 million of communications expense from ACT's and MME's first quarter 2022 results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. |
| 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 |
| (Dollars in thousands) | | Increase (Decrease) |
| | | | | | | |
| | | | | | | | | | |
| | | | |
| Depreciation and amortization of property and equipment | $ | 138,570 | | | $ | 115,664 | | | $ | 382,091 | | | $ | 340,486 | | | 19.8 | % | | 12.2 | % |
| % of total revenue | 8.4 | % | | 9.6 | % | | 9.1 | % | | 10.0 | % | | (120 | bps) | | (90 | bps) |
| % of revenue, excluding truckload fuel surcharge | 9.2 | % | | 10.2 | % | | 9.9 | % | | 10.8 | % | | (100 | bps) | | (90 | bps) |
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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
•Comparison Between the Quarters Ended September 30, 2021 and 2020 — Consolidated depreciation and amortization of property and equipment increased by $22.9$25.1 million for the thirdfirst quarter of 2021,2022, as compared to the same period last year. This increase includes $12.0$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.
•Comparison Between Year-to-Date September 30, 2021 and 2020 — Consolidated depreciation and amortization of property and equipment increased by $41.6 million for the year-to-date period ended September 30, 2021, as compared to the same period last year. This increase included $12.0 million of expense from ACT's 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 the remainder of 2021.2022.
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| Amortization of intangibles | Amortization of intangibles | $ | 15,719 | | | $ | 11,473 | | | $ | 39,452 | | | $ | 34,421 | | | 37.0 | % | | 14.6 | % | Amortization of intangibles | | $ | 16,166 | | | $ | 11,749 | | | 37.6 | % |
| % of total revenue | % of total revenue | 1.0 | % | | 0.9 | % | | 0.9 | % | | 1.0 | % | | 10 | bps | | (10 | bps) | % of total revenue | | 0.9 | % | | 1.0 | % | | | (10 | bps) |
| % of revenue, excluding truckload fuel surcharge | 1.0 | % | | 1.0 | % | | 1.0 | % | | 1.1 | % | | — | bps | | (10 | bps) | |
| % of revenue, excluding truckload and LTL fuel surcharge | | % 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 ACT Acquisition and othervarious acquisitions. See Note 6 in Part I, Item 1, of this Quarterly Report for further details regarding the Company's intangible assets. See Note 3 in Part I, Item 1, of this Quarterly Report for more details regarding details of our acquisitions.
The increasesincrease of $4.2 million and $5.0$4.4 million for the thirdfirst quarter and year-to-date period ended September 30, 2021,2022, as compared to the same periodsperiod last year, werewas attributed to the ACT, MME, UTXL, and Eleos acquisitions during 2021.
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| Rental expense | Rental expense | $ | 12,002 | | | $ | 19,700 | | | $ | 42,265 | | | $ | 67,447 | | | (39.1 | %) | | (37.3 | %) | Rental expense | | $ | 13,401 | | | $ | 16,864 | | | (20.5 | %) |
| % of total revenue | % of total revenue | 0.7 | % | | 1.6 | % | | 1.0 | % | | 2.0 | % | | (90 | bps) | | (100 | bps) | % of total revenue | | 0.7 | % | | 1.4 | % | | | (70 | bps) |
| % of revenue, excluding truckload fuel surcharge | 0.8 | % | | 1.7 | % | | 1.1 | % | | 2.1 | % | | (90 | bps) | | (100 | bps) | |
| % of revenue, excluding truckload and LTL fuel surcharge | | % 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 $7.7 million and year-to-date decrease of $25.2$3.5 million was primarily due to an increase in our owned versus leased equipment.
We expect consolidated rental expense to continue to decrease both in total and as a percentage of consolidated revenue, excluding truckload 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 2021.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. |
| 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 |
| (Dollars in thousands) | | Increase (Decrease) |
| | | | | | | |
| | | | | | | | | | |
| | | | |
| Purchased transportation | $ | 352,061 | | | $ | 245,102 | | | $ | 914,448 | | | $ | 670,485 | | | 43.6 | % | | 36.4 | % |
| % of total revenue | 21.4 | % | | 20.2 | % | | 21.9 | % | | 19.7 | % | | 120 | bps | | 220 | bps |
| % of revenue, excluding truckload fuel surcharge | 23.3 | % | | 21.6 | % | | 23.7 | % | | 21.2 | % | | 170 | bps | | 250 | bps |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | |
| | | 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 $107.0$128.2 million for the thirdfirst quarter of 2021 and increased by $244.0 million for the year-to-date period ended September 30, 2021,2022, as compared to the same periods last year. This increase includes $3.3$4.6 million of expense from ACT's and MME's first quarter 2022 results. The comparative periodfirst quarter increases were primarily due to payments made to third-party carriers, partially offset by a decrease in miles driven by independent contractors of 17.7% for the third quarter of 2021 and 13.1% for the year-to-date period ended September 30, 2021.2.5%.
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-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. |
| 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 |
| (Dollars in thousands) | | Increase (Decrease) |
| | | | | | | |
| | | | | | | | | | |
| | | | |
| Impairments | $ | — | | | $ | — | | | $ | — | | | $ | 1,255 | | | — | % | | (100.0 | %) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | |
| | | Quarter Ended March 31, | | | | Increase (Decrease) |
| | | | | 2022 | | 2021 | | | |
| | | | | (Dollars in thousands) | | | |
| Impairments | | | | | $ | 810 | | | $ | — | | | | | 100.0 | % |
In 2020,2022, we incurred impairment charges associated with revenue equipment held for sale and trailer tracking systemsbuilding improvements (within our Truckload and non-reportable segments).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. |
| 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 |
| (Dollars in thousands) | | Increase (Decrease) |
| | | | | | | |
| | | | | | | | | | |
| | | | |
| Miscellaneous operating expenses | $ | 12,116 | | | $ | 29,686 | | | $ | 38,040 | | | $ | 73,480 | | | (59.2 | %) | | (48.2 | %) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | |
| | | 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.
•Comparison Between the Quarters Ended September 30, 2021 and 2020 — The decrease in netYear-over-year consolidated miscellaneous operating expenses was partially offset by $8.0 million in expenses from ACT's results and was favorably affected bydecreased during the first quarter primarily due to a $20.3$23.9 million increase in gain on sales of equipment, excluding ACT.
•Comparison Between Year-to-Date September 30, 2021ACT and 2020 — The decrease in net consolidated miscellaneous operating expensesMME. This was partially offset by $8.0$10.2 million in expenses from ACT's and MME's first quarter 2022 results and was favorably affected by a $41.2 million increase in gain on sales of equipment, excluding ACT.year-over-year increases from legal settlements and various administrative expenses classified as miscellaneous.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Consolidated Other Expenses, net
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | QTD 2021 vs. | | YTD 2021 vs. | |
| | 2021 | | 2020 | | 2021 | | 2020 | | QTD 2020 | | YTD 2020 | |
| | (Dollars in thousands) | | Increase (Decrease) | |
| | | | Quarter Ended March 31, | | | Increase (Decrease) |
| | | | 2022 | 2021 | | Increase (Decrease) | |
| | | | (Dollars in thousands) | | Increase (Decrease) | |
| | Interest expense | Interest expense | $ | 7,179 | | | $ | 3,232 | | | $ | 13,972 | | | $ | 13,360 | | | 122.1 | % | | 4.6 | % | Interest expense | | $ | 6,680 | | | $ | 3,486 | | | | 91.6 | % |
| Other (income), net | (4,072) | | | (7,484) | | | (37,017) | | | (9,476) | | | (45.6 | %) | | 290.6 | % | |
| Other expense (income), net | | Other expense (income), net | | 14,405 | | | (16,105) | | | | (189.4 | %) |
| Income tax expense | Income tax expense | 61,059 | | | 47,835 | | | 158,171 | | | 99,204 | | | 27.6 | % | | 59.4 | % | 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 thirdfirst quarter and year-to-date 2021of 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 96 in Part I, Item 1 of this Quarterly Report.
Other expense (income), net — Other expense (income), net is primarily comprised of (gains)losses and losses(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.
•Comparison BetweenWe incurred $14.4 million of expense in the Quarters Ended September 30, 2021 and 2020 — The $3.4 millioncondensed consolidated statement of comprehensive income in the first quarter of 2022, representing an unfavorable change betweenof $30.5 million, as compared to income of $16.1 million in the thirdfirst quarter of 2021 and the third quarter of 2020 is2021. The change was primarily driven by lower gains recognizedcurrent quarter net losses within our portfolio of investments, as well as a third quarter 2021 write-offincluding the unrealized loss from the mark-to-market adjustment of deferred debt issuance costs from replacing our previous term loan and credit facility with a new credit facility.
•Comparison Between Year-to-Date September 30, 2021 and 2020 — The $27.5 million favorable change between the year-to-date of 2021 and the year-to-date of 2020 is primarily due to unrealized gains recognized from our investment in Embark and an increase in unrealized gains recognized for other investments within our portfolio.Embark.
Income tax expense — In addition to the discussion below, Note 74 in Part I, Item 1 of this Quarterly Report provides further analysis related to income taxes.
•Comparison Between the Quarters Ended September 30, 2021 and 2020 — The $13.2$23.8 million increase in consolidated income tax expense was primarily due to an increase in income before income taxes which was partially offset by favorable discrete items associated with the ACT Acquisition and other discrete items. During the third quarter of 2020, we recognized discrete items relating to negative impacts from certain tax-related items within our Mexico operations. All these factors result in antaxes. The effective tax rate of 22.8%was 24.9% for the thirdfirst quarter of 2021 and 28.1%2022 compared to 25.9% for the thirdfirst quarter of 2020.
•Comparison Between Year-to-Date September 30, 2021 and 2020 — The $59.0 million increase in consolidated income tax expense was primarily due to an increase in income before income taxes resulting in an effective tax rate of 24.4% for year-to-date September 30, 2021 and 27.0% for year-to-date September 30, 2020.
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-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| | (In thousands) | | | (In thousands) |
| GAAP: Net income attributable to Knight-Swift | GAAP: Net income attributable to Knight-Swift | $ | 206,178 | | | $ | 122,058 | | | $ | 488,772 | | | $ | 267,673 | | GAAP: Net income attributable to Knight-Swift | | $ | 208,337 | | | $ | 129,790 | |
| Adjusted for: | Adjusted for: | | | Adjusted for: | | | |
| Income tax expense attributable to Knight-Swift | Income tax expense attributable to Knight-Swift | 61,059 | | | 47,835 | | | 158,171 | | | 99,204 | | Income tax expense attributable to Knight-Swift | | 69,174 | | | 45,329 | |
| Income before income taxes attributable to Knight-Swift | Income before income taxes attributable to Knight-Swift | 267,237 | | | 169,893 | | | 646,943 | | | 366,877 | | Income before income taxes attributable to Knight-Swift | | 277,511 | | | 175,119 | |
Amortization of intangibles 1 | Amortization of intangibles 1 | 15,719 | | | 11,473 | | | 39,452 | | | 34,421 | | Amortization of intangibles 1 | | 16,166 | | | 11,749 | |
| Impairments 2 | Impairments 2 | — | | | — | | | — | | | 1,255 | | Impairments 2 | | 810 | | | — | |
Legal accruals 3 | Legal accruals 3 | (5,005) | | | 6,160 | | | (2,884) | | | 6,160 | | Legal accruals 3 | | 5,055 | | | 1,242 | |
| COVID-19 incremental costs 4 | — | | | — | | | — | | | 12,259 | | |
Transaction fees 5 | 2,307 | | | — | | | 2,966 | | | — | | |
Write-off of deferred debt issuance costs 6 | 1,024 | | | — | | | 1,024 | | | — | | |
| | Adjusted income before income taxes | Adjusted income before income taxes | 281,282 | | | 187,526 | | | 687,501 | | | 420,972 | | Adjusted income before income taxes | | 299,542 | | | 188,110 | |
| Provision for income tax expense at effective rate | Provision for income tax expense at effective rate | (64,202) | | | (52,908) | | | (167,990) | | | (113,651) | | Provision for income tax expense at effective rate | | (74,679) | | | (48,677) | |
| Non-GAAP: Adjusted Net Income Attributable to Knight-Swift | Non-GAAP: Adjusted Net Income Attributable to Knight-Swift | $ | 217,080 | | | $ | 134,618 | | | $ | 519,511 | | | $ | 307,321 | | Non-GAAP: Adjusted Net Income Attributable to Knight-Swift | | $ | 224,863 | | | $ | 139,433 | |
|
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-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| GAAP: Earnings per diluted share | GAAP: Earnings per diluted share | $ | 1.23 | | | $ | 0.71 | | | $ | 2.93 | | | $ | 1.57 | | GAAP: Earnings per diluted share | | $ | 1.25 | | | $ | 0.77 | |
| Adjusted for: | Adjusted for: | | | Adjusted for: | | | |
| Income tax expense attributable to Knight-Swift | Income tax expense attributable to Knight-Swift | 0.37 | | | 0.28 | | | 0.95 | | | 0.58 | | Income tax expense attributable to Knight-Swift | | 0.42 | | | 0.27 | |
| Income before income taxes attributable to Knight-Swift | Income before income taxes attributable to Knight-Swift | 1.60 | | | 0.99 | | | 3.88 | | | 2.15 | | Income before income taxes attributable to Knight-Swift | | 1.67 | | | 1.04 | |
Amortization of intangibles 1 | Amortization of intangibles 1 | 0.09 | | | 0.07 | | | 0.24 | | | 0.20 | | Amortization of intangibles 1 | | 0.10 | | | 0.07 | |
| Impairments 2 | Impairments 2 | — | | | — | | | — | | | 0.01 | | Impairments 2 | | — | | | — | |
Legal accruals 3 | Legal accruals 3 | (0.03) | | | 0.04 | | | (0.02) | | | 0.04 | | Legal accruals 3 | | 0.03 | | | 0.01 | |
| COVID-19 incremental costs 4 | — | | | — | | | — | | | 0.07 | | |
Transaction fees 5 | 0.01 | | | — | | | 0.02 | | | — | | |
Write-off of deferred debt issuance costs 6 | 0.01 | | | — | | | 0.01 | | | — | | |
| | Adjusted income before income taxes | Adjusted income before income taxes | 1.68 | | | 1.10 | | | 4.12 | | | 2.46 | | Adjusted income before income taxes | | 1.80 | | | 1.12 | |
| Provision for income tax expense at effective rate | Provision for income tax expense at effective rate | (0.38) | | | (0.31) | | | (1.01) | | | (0.66) | | Provision for income tax expense at effective rate | | (0.45) | | | (0.29) | |
| Non-GAAP: Adjusted EPS | Non-GAAP: Adjusted EPS | $ | 1.30 | | | $ | 0.79 | | | $ | 3.11 | | | $ | 1.80 | | 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 acquisition.acquisitions.
2 "Impairments" reflects the non-cash impairment of certain tractorsbuilding improvements (within the Truckload segment) and certain legacy trailers (within theour non-reportable segments) as a result of a softer used equipment market during the second quarter of 2020, as well as impairment charges of trailer tracking equipment (within the Truckload segment) during the first quarter of 2020..
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. During the third quarter of 2021, the Company reversed an accrued legal matter previously identified as probable in 2019. This was based on the recent decision of the appellate court, resulting in a change to a remote likelihood that a loss was incurred.
4 "COVID-19 incremental costs" reflects costs incurred during 2020 that were directly attributable to the pandemic and were incremental to those incurred prior to the outbreak. These include payroll premiums paid to our driving associates and shop technicians, additional disinfectants and cleaning supplies, and various other pandemic-specific items. The costs are clearly separable from our normal business operations and are not expected to recur once the pandemic subsides.
5 "Transaction fees" represent certain acquisition related expenses associated with the UTXL and ACT acquisitions, consisting of legal and professional fees and are included in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income.
6 "Write-off of deferred debt issuance costs" was incurred from replacing the 2017 Debt Agreement with the 2021 Debt Agreement.
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-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| GAAP Presentation | GAAP Presentation | (Dollars in thousands) | GAAP Presentation | | (Dollars in thousands) |
| Total revenue | Total revenue | $ | 1,642,445 | | | $ | 1,210,406 | | | $ | 4,181,160 | | | $ | 3,395,902 | | Total revenue | | $ | 1,826,989 | | | $ | 1,223,014 | |
| Total operating expenses | Total operating expenses | (1,372,358) | | | (1,044,945) | | | (3,557,699) | | | (3,026,155) | | Total operating expenses | | (1,528,903) | | | (1,060,755) | |
| Operating income | Operating income | $ | 270,087 | | | $ | 165,461 | | | $ | 623,461 | | | $ | 369,747 | | Operating income | | $ | 298,086 | | | $ | 162,259 | |
| Operating ratio | Operating ratio | 83.6 | % | | 86.3 | % | | 85.1 | % | | 89.1 | % | Operating ratio | | 83.7 | % | | 86.7 | % |
| | Non-GAAP Presentation | Non-GAAP Presentation | | | Non-GAAP Presentation | | | |
| Total revenue | Total revenue | $ | 1,642,445 | | | $ | 1,210,406 | | | $ | 4,181,160 | | | $ | 3,395,902 | | Total revenue | | $ | 1,826,989 | | | $ | 1,223,014 | |
| Truckload fuel surcharge | (131,873) | | | (73,093) | | | (324,611) | | | (233,897) | | |
| Revenue, excluding truckload fuel surcharge | 1,510,572 | | | 1,137,313 | | | 3,856,549 | | | 3,162,005 | | |
| Truckload and LTL fuel surcharge | | Truckload and LTL fuel surcharge | | (179,111) | | | (89,909) | |
| Revenue, excluding truckload and LTL fuel surcharge | | Revenue, excluding truckload and LTL fuel surcharge | | 1,647,878 | | | 1,133,105 | |
| | Total operating expenses | Total operating expenses | 1,372,358 | | | 1,044,945 | | | 3,557,699 | | | 3,026,155 | | Total operating expenses | | 1,528,903 | | | 1,060,755 | |
| Adjusted for: | Adjusted for: | | | Adjusted for: | | | |
| Truckload fuel surcharge | (131,873) | | | (73,093) | | | (324,611) | | | (233,897) | | |
| Truckload and LTL fuel surcharge | | Truckload and LTL fuel surcharge | | (179,111) | | | (89,909) | |
Amortization of intangibles 1 | Amortization of intangibles 1 | (15,719) | | | (11,473) | | | (39,452) | | | (34,421) | | Amortization of intangibles 1 | | (16,166) | | | (11,749) | |
| Impairments 2 | Impairments 2 | — | | | — | | | — | | | (1,255) | | Impairments 2 | | (810) | | | — | |
Legal accruals 3 | Legal accruals 3 | 5,005 | | | (6,160) | | | 2,884 | | | (6,160) | | Legal accruals 3 | | (5,055) | | | (1,242) | |
| COVID-19 incremental costs 4 | — | | | — | | | — | | | (12,259) | | |
Transaction fees 5 | (2,307) | | | — | | | (2,966) | | | — | | |
| | Adjusted Operating Expenses | Adjusted Operating Expenses | 1,227,464 | | | 954,219 | | | 3,193,554 | | | 2,738,163 | | Adjusted Operating Expenses | | 1,327,761 | | | 957,855 | |
| Adjusted Operating Income | Adjusted Operating Income | $ | 283,108 | | | $ | 183,094 | | | $ | 662,995 | | | $ | 423,842 | | Adjusted Operating Income | | $ | 320,117 | | | $ | 175,250 | |
| Adjusted Operating Ratio | Adjusted Operating Ratio | 81.3 | % | | 83.9 | % | | 82.8 | % | | 86.6 | % | 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.
4See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 4.
5See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 5.
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-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| GAAP Presentation | GAAP Presentation | (Dollars in thousands) | GAAP Presentation | | (Dollars in thousands) |
| Total revenue | Total revenue | $ | 1,041,332 | | | $ | 975,881 | | | $ | 2,990,137 | | | $ | 2,774,311 | | Total revenue | | $ | 1,080,531 | | | $ | 962,947 | |
| Total operating expenses | Total operating expenses | (834,789) | | | (807,100) | | | (2,456,654) | | | (2,390,408) | | Total operating expenses | | (875,414) | | | (804,464) | |
| Operating income | Operating income | $ | 206,543 | | | $ | 168,781 | | | $ | 533,483 | | | $ | 383,903 | | Operating income | | $ | 205,117 | | | $ | 158,483 | |
| Operating ratio | Operating ratio | 80.2 | % | | 82.7 | % | | 82.2 | % | | 86.2 | % | Operating ratio | | 81.0 | % | | 83.5 | % |
| | Non-GAAP Presentation | Non-GAAP Presentation | | | Non-GAAP Presentation | | | |
| Total revenue | Total revenue | $ | 1,041,332 | | | $ | 975,881 | | | $ | 2,990,137 | | | $ | 2,774,311 | | Total revenue | | $ | 1,080,531 | | | $ | 962,947 | |
| Fuel surcharge | Fuel surcharge | (107,867) | | | (73,093) | | | (300,605) | | | (233,897) | | Fuel surcharge | | (138,661) | | | (89,909) | |
| Intersegment transactions | Intersegment transactions | (260) | | | (196) | | | (953) | | | (705) | | Intersegment transactions | | (336) | | | (224) | |
| Revenue, excluding fuel surcharge and intersegment transactions | Revenue, excluding fuel surcharge and intersegment transactions | 933,205 | | | 902,592 | | | 2,688,579 | | | 2,539,709 | | Revenue, excluding fuel surcharge and intersegment transactions | | 941,534 | | | 872,814 | |
| | Total operating expenses | Total operating expenses | 834,789 | | | 807,100 | | | 2,456,654 | | | 2,390,408 | | Total operating expenses | | 875,414 | | | 804,464 | |
| Adjusted for: | Adjusted for: | | | Adjusted for: | | | |
| Fuel surcharge | Fuel surcharge | (107,867) | | | (73,093) | | | (300,605) | | | (233,897) | | Fuel surcharge | | (138,661) | | | (89,909) | |
| Intersegment transactions | Intersegment transactions | (260) | | | (196) | | | (953) | | | (705) | | Intersegment transactions | | (336) | | | (224) | |
Amortization of intangibles 1 | Amortization of intangibles 1 | (323) | | | (324) | | | (971) | | | (972) | | Amortization of intangibles 1 | | (324) | | | (324) | |
Impairments 2 | — | | | — | | | — | | | (1,055) | | |
| COVID-19 incremental costs 3 | — | | | — | | | — | | | (12,146) | | |
| | | Adjusted Operating Expenses | Adjusted Operating Expenses | 726,339 | | | 733,487 | | | 2,154,125 | | | 2,141,633 | | Adjusted Operating Expenses | | 736,093 | | | 714,007 | |
| Adjusted Operating Income | Adjusted Operating Income | $ | 206,866 | | | $ | 169,105 | | | $ | 534,454 | | | $ | 398,076 | | Adjusted Operating Income | | $ | 205,441 | | | $ | 158,807 | |
| Adjusted Operating Ratio | Adjusted Operating Ratio | 77.8 | % | | 81.3 | % | | 80.1 | % | | 84.3 | % | 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.
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 4.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Logistics Segment
| | | Quarter-to-Date September 30, | | Year-to-Date September 30, | | | Quarter Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
| GAAP Presentation | GAAP Presentation | (Dollars in thousands) | GAAP Presentation | | (Dollars in thousands) |
| Total revenue | Total revenue | $ | 226,338 | | | $ | 99,018 | | | $ | 511,962 | | | $ | 248,320 | | Total revenue | | $ | 282,039 | | | $ | 118,887 | |
| Total operating expenses | Total operating expenses | (199,210) | | | (96,540) | | | (462,901) | | | (239,085) | | Total operating expenses | | (242,438) | | | (111,310) | |
| Operating income | Operating income | $ | 27,128 | | | $ | 2,478 | | | $ | 49,061 | | | $ | 9,235 | | Operating income | | $ | 39,601 | | | $ | 7,577 | |
| Operating ratio | Operating ratio | 88.0 | % | | 97.5 | % | | 90.4 | % | | 96.3 | % | Operating ratio | | 86.0 | % | | 93.6 | % |
| | Non-GAAP Presentation | Non-GAAP Presentation | | | Non-GAAP Presentation | | | |
| Total revenue | Total revenue | $ | 226,338 | | | $ | 99,018 | | | $ | 511,962 | | | $ | 248,320 | | Total revenue | | $ | 282,039 | | | $ | 118,887 | |
| | Intersegment transactions | Intersegment transactions | (4,964) | | | (2,781) | | | (12,699) | | | (8,260) | | Intersegment transactions | | (1,868) | | | (3,165) | |
| Revenue, excluding intersegment transactions | Revenue, excluding intersegment transactions | 221,374 | | | 96,237 | | | 499,263 | | | 240,060 | | Revenue, excluding intersegment transactions | | 280,171 | | | 115,722 | |
| | Total operating expenses | Total operating expenses | 199,210 | | | 96,540 | | | 462,901 | | | 239,085 | | Total operating expenses | | 242,438 | | | 111,310 | |
| Adjusted for: | Adjusted for: | | | Adjusted for: | | | |
| | Intersegment transactions | Intersegment transactions | (4,964) | | | (2,781) | | | (12,699) | | | (8,260) | | Intersegment transactions | | (1,868) | | | (3,165) | |
Amortization of intangibles 1 | Amortization of intangibles 1 | (334) | | | — | | | (431) | | | — | | Amortization of intangibles 1 | | (334) | | | — | |
| | Adjusted Operating Expenses | Adjusted Operating Expenses | 193,912 | | | 93,759 | | | 449,771 | | | 230,825 | | Adjusted Operating Expenses | | 240,236 | | | 108,145 | |
| Adjusted Operating Income | Adjusted Operating Income | $ | 27,462 | | | $ | 2,478 | | | $ | 49,492 | | | $ | 9,235 | | Adjusted Operating Income | | $ | 39,935 | | | $ | 7,577 | |
| Adjusted Operating Ratio | Adjusted Operating Ratio | 87.6 | % | | 97.4 | % | | 90.1 | % | | 96.2 | % | 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.
Intermodal Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| Quarter-to-Date September 30, | | Year-to-Date September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| GAAP Presentation | (Dollars in thousands) |
| Total revenue | $ | 112,801 | | | $ | 98,859 | | | $ | 335,245 | | | $ | 276,410 | |
| Total operating expenses | (103,257) | | | (98,609) | | | (316,432) | | | (283,372) | |
| Operating income (loss) | $ | 9,544 | | | $ | 250 | | | $ | 18,813 | | | $ | (6,962) | |
| Operating ratio | 91.5 | % | | 99.7 | % | | 94.4 | % | | 102.5 | % |
| | | | | | | |
| Non-GAAP Presentation | | | | | | | |
| Total revenue | $ | 112,801 | | | $ | 98,859 | | | $ | 335,245 | | | $ | 276,410 | |
| | | | | | | |
| Intersegment transactions | (47) | | | (51) | | | (226) | | | (281) | |
| Revenue, excluding intersegment transactions | 112,754 | | | 98,808 | | | 335,019 | | | 276,129 | |
| | | | | | | |
| Total operating expenses | 103,257 | | | 98,609 | | | 316,432 | | | 283,372 | |
| Adjusted for: | | | | | | | |
| | | | | | | |
| Intersegment transactions | (47) | | | (51) | | | (226) | | | (281) | |
| | | | | | | |
| | | | | | | |
COVID-19 incremental costs 1 | — | | | — | | | — | | | (113) | |
| Adjusted Operating Expenses | 103,210 | | | 98,558 | | | 316,206 | | | 282,978 | |
| Adjusted Operating Income (Loss) | $ | 9,544 | | | $ | 250 | | | $ | 18,813 | | | $ | (6,849) | |
| Adjusted Operating Ratio | 91.5 | % | | 99.7 | % | | 94.4 | % | | 102.5 | % |
1See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 4.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
LTL Segment
| | | | | | | | | | | |
| Quarter and Year-to-Date September 30, 2021Ended March 31, 2022 | | | | |
| GAAP Presentation | (Dollars in thousands) | | | | | | |
| Total revenue | $ | 191,906255,125 | | | | | | | |
| Total operating expenses | (174,437)(228,748) | | | | | | | |
| Operating income | $ | 17,46926,377 | | | | | | | |
| Operating ratio | 90.989.7 | % | | | | | | |
| | | | | | | |
| Non-GAAP Presentation | | | | | | | |
| Total revenue | $ | 191,906255,125 | | | | | | | |
| Fuel surcharge | (24,006)(40,450) | | | | | | | |
| | | | | | | |
| Revenue, excluding fuel surcharge and intersegment transactions | 167,900214,675 | | | | | | | |
| | | | | | | |
| Total operating expenses | 174,437228,748 | | | | | | | |
| Adjusted for: | | | | | | | |
| Fuel surcharge | (24,006)(40,450) | | | | | | | |
| | | | | | | |
Amortization of intangibles 1 | (3,498)(3,945) | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Adjusted Operating Expenses | 146,933184,353 | | | | | | | |
| Adjusted Operating Income | $ | 20,96730,322 | | | | | | | |
| Adjusted Operating Ratio | 87.585.9 | % | | | | | | |
1"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified with the ACT Acquisition.and MME acquisitions.
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 | |
| |
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 | | September 30, 2021March 31, 2022 |
| | (In thousands) |
| Cash and cash equivalents, excluding restricted cash | | $ | 269,694242,860 | |
Availability under 2021 Revolver, due September 2026 1 | | 736,192870,569 | |
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 | | $ | 1,061,5861,256,986 | |
Cash and cash equivalents – restricted 34 | | 69,659130,587 | |
Restricted investments, held-to-maturity, amortized cost 34 | | 7,1408,302 | |
| Total liquidity, including restricted cash and restricted investments | | $ | 1,138,3851,395,875 | |
| | |
1 As of September 30, 2021,March 31, 2022, we had $300.0$165.0 million in borrowings under our $1.1 billion 2021 Revolver. We additionally had $63.8$64.4 million in outstanding letters of credit (discussed below), leaving $736.2$870.6 million available under the Revolver.
2 Based on eligible receivables at September 30, 2021,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 85 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 $68.0$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 $1.6$1.8 million is included in "Other long-term assets" and is held in escrow accounts to meet statutory requirements.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
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, fund replacementexpand our network of our revenue equipment fleet,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 ACT,our LTL segment, will be in the range of $450.0$550.0 – $470.0$600.0 million for full-year 2021.2022. This is an update fromrange excludes cash outlays for potential acquisitions. We believe we have ample flexibility in our previously-disclosed rangetrade cycle and purchase agreements to alter our current plans if economic and other conditions warrant.
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 September 30, 2021,March 31, 2022, we had debt, accounts receivable securitization, and finance lease obligations of $2.1$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. Subsequent to September 30, 2021, we paid $95.0 million on the 2021 Revolver.
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 Boardinternal approval requirements, we may repurchase shares of our outstanding common stock. As of September 30, 2021,March 31, 2022, the Company had $196.3$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 1310 in Part I, Item 1 of this Quarterly Report.
Working Capital
We had a working capital surplus of $551.9$300.2 million as of September 30, 2021March 31, 2022 and $83.7$339.5 million as of December 31, 2020. The favorable change was attributable to the refinance of our accounts receivable securitization in April 2021, as well as acquired receivables, cash and prepaids from the ACT Acquisition.2021.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Material Debt Agreements
As of September 30, 2021,March 31, 2022, we had $2.1$2.0 billion in material debt obligations at the following carrying values:
•$199.6169.8 million: 2021 Term Loan A-1, due December 2022, net of $0.4$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
•$798.3798.4 million: 2021 Term Loan A-3, due September 2026, net of $1.7$1.6 million in deferred loan costs
•$278.4278.5 million: 2021 RSA outstanding borrowings, net of $0.6$0.5 million in deferred loan costs
•$274.1329.5 million: Finance lease obligations
•$300.0165.0 million: 2021 Revolver, due September 2026
•$53.343.8 million: Other, net of $0.1 million in deferred loan costs
As of December 31, 2020,2021, we had $913.6 million2.1 billion in material debt obligations at the following carrying values:
•$298.9 million: 2017199.7 million: 2021 Term Loan A-1, due OctoberDecember 2022,, net of $1.1$0.3 million in deferred loan costs
•$213.9 million199.6 million: 2021 Term Loan A-2, : 2018 RSA outstanding borrowings, due July 2021,September 2024, net of $0.1 $0.4 million in deferred loan costs
•$190.8798.4 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
•$210.0 million: 2017260.0 million: 2021 Revolver, due October 2022September 2026
•.$52.3 million: Other, net of $0.1 million in deferred loan costs
| | | Year-to-Date September 30, | | Change | | Quarter Ended March 31, | | Change |
| | | 2021 | | 2020 | | | 2022 | | 2021 | |
| | (In thousands) | | | (In thousands) | |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 817,524 | | | $ | 655,019 | | | $ | 162,505 | | Net cash provided by operating activities | $ | 456,860 | | | $ | 306,113 | | | $ | 150,747 | |
| Net cash used in investing activities | Net cash used in investing activities | (1,548,757) | | | (335,602) | | | (1,213,155) | | Net cash used in investing activities | (110,187) | | | (74,141) | | | (36,046) | |
| Net cash provided by (used in) financing activities | 873,309 | | | (243,138) | | | 1,116,447 | | |
| Net cash used in financing activities | | Net cash used in financing activities | (323,249) | | | (185,366) | | | (137,883) | |
Net Cash Provided by Operating Activities
Comparison Between Year-to-Date September 30,Quarter Ended March 31, 2022 and 2021 and 2020 — The $162.5$150.7 million increase in net cash provided by operating activities was primarily due to a $253.7$135.8 million increase in operating income, due to the factors discussed in "Results of Operations — Consolidated Operating and Other Expenses" above. Additionally, in the first quarter of 2020, we paid a $93.4 million cash settlement associated with pre-2017 Merger legal matters that were previously accrued and disclosed. These items were partially offset by a $125.0 million increase in income tax payments. The remaining difference is attributed to various changes in working capital.
Net Cash Used in Investing Activities
Comparison Between Year-to-Date September 30,Quarter Ended March 31, 2022 and 2021 and 2020 — The $1.2 billion$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 $1.3 billion increasefirst quarter 2022 investing activities of ACT and MME, and was partially offset by a $38.0 million decrease in net cash invested in acquisitions.
Net Cash Used in Financing Activities
Comparison Between Year-to-Date September 30, 2021 and 2020 — Net cash provided by financing activities increased by $1.1 billion, primarily due to $1.2 billion in proceeds from the 2021 Debt Agreement.
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.
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 can have an impact onMost of our operating costs. A prolonged periodexpenses 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 which wouldas well. Any of these factors could adversely affect our results of operations unless freight rates correspondingly increased. Consistent with trends in the trucking industry overall, we continue to experience inflationary pressures with respect to driver wages, as compared to prior years.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 1.2%1.1% as of September 30, 2021)March 31, 2022) and fixed rate equipment lease financing. Assuming the level of borrowings as of September 30, 2021,March 31, 2022, a hypothetical one percentage point increase in interest rates would increase our annual interest expense by $18.3$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 increaseincreased to $3.36$4.36 for the thirdfirst quarter of 20212022 from an average of $2.43$2.91 in the thirdfirst quarter of 2020. The weekly average diesel price per gallon in the US increased to $3.16 for year-to-date September 30, 2021 from an average of $2.59 for year-to-date September 30, 2020.2021. 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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | |
| 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
Except as set forth below, thereThere 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 September 30, 2021,March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
During the quarter ended September 30, 2021, we completed the ACT Acquisition. We are in the process of evaluating the existing controls and procedures of ACT and integrating ACT into our internal controls over financial reporting. As permitted by SEC staff interpretative guidance that an assessment of a recently acquired business may be omitted from the scope of an assessment for a period not to exceed one year from the date of acquisition, the scope of our assessment of our internal controls over financial reporting at September 30, 2021 does not include ACT.
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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | | | | | | | | | | |
| PART II OTHER INFORMATION |
Information about our legal proceedings is included in Note 129 of the notes to our condensed consolidated financial statements, included in Part I, Item 1, of this Quarterly Report for the period ended September 30, 2021,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.
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 20202021 Annual Report and our Quarterly Report for the quarterly period ended June 30, 2021, in the sectionssection entitled "Item 1A. Risk Factors," describedescribes some of the risks and uncertainties associated with our business. In addition to the risk factors set forth in these documents, we believe the following additional risks and uncertainties should be considered in evaluating our business and growth outlook:
The proposed new rule concerning mandatory COVID-19 vaccination of employees could have a material adverse effect on our business, financial condition, and results of operations.
In September 2021, President Biden announced a proposed new rule requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require any employees who remain unvaccinated to produce a negative COVID-19 test result on at least a weekly basis before coming to work. The Department of Labor’s Occupational Safety and Health Administration ("OSHA") is drafting an emergency rule to carry out this mandate (the "Emergency Rule"), which is expected to take effect in the coming weeks. It is currently unclear whether the Emergency Rule will include an exception for professional truck drivers. When the Emergency Rule is implemented, it could, among other things, (i) cause our unvaccinated employees to go to smaller employers, not subject to the Emergency Rule, or leave us or the trucking industry, especially our unvaccinated drivers, (ii) result in logistical issues, increased expenses, and operational issues from arranging for weekly tests of our unvaccinated employees, especially our unvaccinated drivers, (iii) result in increased costs for recruiting and retention of drivers, as well as the cost of weekly testing, and (iv) result in decreased revenue if we are unable to recruit and retain new drivers due to the Emergency Rule. It is expected that a vaccination mandate that applies to drivers would significantly reduce the pool of available drivers to us and our industry, which would further impact the extreme shortage of available drivers. Furthermore, the actions by certain states may conflict with the Emergency Rule, causing further issues with compliance. Accordingly, the Emergency Rule, when implemented, could have a material adverse effect on our business, financial condition, and results of operations.
Difficulty in obtaining materials, equipment, goods and services from our vendors and suppliers could adversely affect our business.
We are dependent upon our suppliers for certain products and materials, including our tractors, trailers and chassis. If we fail to maintain favorable relationships with our vendors and suppliers, or if our vendors and suppliers are unable to provide the products and materials we need or undergo financial hardship, we could experience difficulty in obtaining needed goods and services because of production interruptions, limited material availability or other reasons, or we may not be able to obtain favorable pricing or other terms. Currently, tractor and trailer manufacturers are experiencing significant shortages of semiconductor chips and other component parts and supplies, forcing many manufacturers to curtail or suspend their production, which has led to a lower supply of tractors and trailers, higher prices, and lengthened trade cycles, which could have a material adverse effect on our business, financial condition, and results of operations, particularly our maintenance expense and driver retention.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | |
| 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
|
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
July 1, 2021 to July 31, 2021 | — | | | $ | — | | | — | | | $ | 196,338,538 | |
August 1, 2021 to August 31, 2021 | — | | | $ | — | | | — | | | $ | 196,338,538 | |
September 1, 2021 to September 30, 2021 | — | | | $ | — | | | — | | | $ | 196,338,538 | |
Total | — | | | $ | — | | | — | | | $ | 196,338,538 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 November 30, 2020, the CompanyApril 25, 2022, we announced that the Board had approved the $250.0$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 20202022 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.
None.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
| | | | | | | | | | | | | | |
Exhibit
Number | | Description | | Page or Method of Filing |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | Credit Agreement, dated as of September 3, 2021, by and among Knight-Swift Transportation Holdings Inc., the lenders thereto, Bank of America, N.A., as Administrative Agent, Swingline Lender and Issuing Lender, and Wells Fargo Bank, National Association and PNC Bank National Association, as Co-Syndication AgentsSenior Executive RSU Award Notice | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| 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.
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
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: | November 3, 2021May 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: | November 3, 2021May 4, 2022 | | /s/ Adam W. Miller | |
| | | | Adam W. Miller | |
| | | | Chief Financial Officer, in his capacity as such and on | |
| | | | behalf of the registrant | |
| | | | | |
