Knight-Swift Transportation Holdings Inc.: Form 10-Q for the period ended Sep 30, 2024

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:

• our ability to gain market share and adapt to market conditions, the ability of our infrastructure to support future growth, future market position, and the ability, desire, and effects of expanding our service offerings (including expansion of our LTL network), whether we grow organically or through potential acquisitions,
• our ability to recruit and retain qualified driving associates,
• future safety performance,
• future performance of our segments or businesses,
• future capital expenditures, equipment prices (including used equipment) and availability, our equipment purchasing or leasing plans, and mix of our owned versus leased revenue equipment, and our equipment turnover,
• the impact of pending legal proceedings,
• future insurance claims, coverage, coverage limits, premiums, and retention limits,
• the expected freight environment, including freight demand, capacity, seasonality, and volumes,
• economic conditions and growth, including future inflation, consumer spending, supply chain conditions, labor supply and relations, and US Gross Domestic Product ("GDP") changes,
• expected liquidity and methods for achieving sufficient liquidity, including our expected need or desire to incur indebtedness and our ability to comply with debt covenants,
• future fuel prices and availability and the expected impact of fuel efficiency initiatives,
• future expenses, including depreciation and amortization, purchased transportation, impairments, interest rates, cost structure, and our ability to control costs,
• future rates, operating profitability and margin, load count, asset utilization, and return on capital,
• future third-party service provider relationships and availability, including pricing terms,
• future contracted pay rates with independent contractors, ability to lease equipment to independent contractors, and compensation arrangements with driving associates,
• future capital allocation, capital structure, capital requirements, and growth strategies and opportunities,
• future share repurchases and dividends,
• future tax rates,
• expected tractor and trailer fleet age, fleet size, and demand for trailer fleet,
• future investment in and deployment of new or updated technology or services,
• future classification of our independent contractors, including the impact of new laws and regulations regarding classification,
• political conditions and regulations, including conflicts, trade regulation, quotas, duties, or tariffs, and any future changes to the foregoing,
• the U.S. Xpress transaction, including integration efforts and any future effects of the acquisition, and
• others.

Such statements may be identified by their use of terms or phrases such as "believe," "may," "could," "will," "would," "should," "expects," "estimates," "designed," "likely," "foresee," "goals," "seek," "target," "forecast," "projects," "anticipates," "plans," "intends," "hopes," "strategy," "potential," "objective," "mission," "continue," "outlook," "feel," and similar terms and phrases. Forward-looking statements are based on currently available operating, financial, and competitive information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to materially differ from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A "Risk Factors" in our 2023 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 2023 Annual Report.

Executive Summary

Company Overview

Knight-Swift Transportation Holdings Inc. is one of North America's largest and most diversified freight transportation companies, providing multiple full truckload, LTL, intermodal, and other complementary services. Our objective is to operate our business with industry-leading margins and continued organic growth and growth through acquisitions while providing safe, high-quality, cost-effective solutions for our customers. Knight-Swift uses a nationwide network of business units and terminals in the US and Mexico to serve customers throughout North America. In addition to operating the country's largest truckload fleet, Knight-Swift also contracts with third-party equipment providers to provide a broad range of transportation services to our customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors. Our four reportable segments are Truckload, LTL, Logistics, and Intermodal. Additionally, we have various non-reportable segments.

Key Financial Highlights — Year-to-Date September 30, 2024

Consolidated operating income decreased 48.3% to $165.4 million during the year-to-date period ended September 30, 2024, as compared to the same period last year. Net income attributable to Knight-Swift decreased 78.9% to $48.1 million.

• Truckload — 97.6% operating ratio during the year-to-date period ended September 30, 2024. The Adjusted Operating Ratio1 was 96.7%, with a 14.9% year-over-year increase in revenue, excluding fuel surcharge and intersegment transactions, as a result of the inclusion of the truckload business of U.S. Xpress. Adjusted Operating Ratio worsened by 520 basis points year-over-year primarily due to the 4.8% decline in revenue per loaded mile, excluding fuel surcharge and intersegment transactions, and the 1.3% increase in cost per mile largely due to inflationary prices.
• LTL — 91.5% operating ratio during the year-to-date period ended September 30, 2024. The Adjusted Operating Ratio1 increased 330 basis points year-over-year to 88.5%, primarily as a result of incremental operating, maintenance, and labor costs as we expand. We opened 34 new locations during the year-to-date period of 2024, and we acquired the assets of DHE effective July 30,2024, as we continue to grow our network.
• Logistics — 96.5% operating ratio during the year-to-date period ended September 30, 2024. The Adjusted Operating Ratio1 was 95.7% with a gross margin of 17.5% while revenue, excluding intersegment transactions, decreased 2.7%, including the U.S. Xpress logistics business. Load count decreased 11.5% due to the soft demand environment.
• Intermodal — 102.8% operating ratio during the year-to-date period ended September 30, 2024, as revenue per load declined 10.0% year-over-year and load count increased 1.3%.
• All Other Segments — Operating loss decreased to $10.3 million during the year-to-date period ended September 30, 2024 from $28.1 million during the comparable period of 2023, largely as a result of exiting the third-party insurance business.
• Liquidity and Capital — During the year-to-date period ended September 30, 2024, we generated $524.7 million in operating cash flows and Free Cash Flow1 of $116.2 million, which was negatively impacted by our decision to transfer $161.1 million of third-party insurance claim liabilities to another insurance company as discussed during the previous quarter, funded by transferring the corresponding restricted cash held in trust for payment of the third-party insurance claims. The use of restricted cash in this transaction does not impact the availability of operating cash for the needs of our ongoing businesses. We paid down $112.3 million in finance lease liabilities, $147.0 million in operating lease liabilities, and made $92.2 million of net repayments on our 2021 Revolver and 2023 RSA. As of September 30, 2024, we had a balance of $166.3 million in unrestricted cash and cash equivalents, $1.4 billion face value outstanding on the 2021 Term Loans and 2023 Term Loan, and $7.1 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.

1Refer to "Non-GAAP Financial Measures" below.

Key Financial Data and Operating Metrics

(Dollars in thousands, except per share data)

1Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are non-GAAP financial measures and should not be considered alternatives, or superior to, the most directly comparable GAAP financial measures. However, management believes that presentation of these non-GAAP financial measures provides useful information to investors regarding the Company's results of operations. Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are reconciled to the most directly comparable GAAP financial measures under "Non-GAAP Financial Measures," below.

2Our tractor fleet within the Truckload segment had a weighted average age of 2.6 years and 2.5 years as of September 30, 2024 and 2023, respectively.

3Our average trailers includes 8,510 and 8,432 trailers related to leasing activities recorded within our All Other Segments for the quarters ended September 30, 2024 and 2023, respectively. Our trailer fleet within the Truckload segment had a weighted average age of 9.1 years and 9.1 years as of September 30, 2024 and 2023, respectively. Our average trailers includes 8,718 and 8,599 trailers related to leasing activities recorded within our All Other Segments for the year-to-date periods September 30, 2024 and 2023, respectively.

4Our LTL tractor fleet had a weighted average age of 4.2 years and 4.3 years as of September 30, 2024 and 2023, respectively. Our LTL tractor fleet includes 615 and 609 tractors from ACT's and MME's dedicated and other businesses for the quarters ended September 30, 2024 and 2023, respectively. Our LTL tractor fleet includes 613 and 610 tractors from ACT's and MME's dedicated and other businesses for the year-to-date period September 30, 2024 and 2023, respectively.

5Our LTL trailer fleet had a weighted average age of 8.5 years as of September 30, 2024 and 2023. Our LTL trailer fleet includes 843 and 777 trailers from ACT's and MME's dedicated and other businesses for the quarters ended September 30, 2024 and 2023, respectively. Our LTL trailer fleet includes 831 and 778 trailers from ACT's and MME's dedicated and other businesses for the year-to-date periods September 30, 2024 and 2023, respectively.

Market Trends and Outlook

The national unemployment rate was 4.1%1 as of September 30, 2024, as compared to 3.8% as of September 30, 2023. The US gross domestic product, which is the broadest measure of goods and services produced across the economy, increased by 3.0%2 on a quarter-over-quarter basis, per the most recent third-party forecasts. The increase, compared to the prior quarter increase of 1.6%, primarily reflected increases in consumer spending, private inventory investment, and nonresidential fixed investments. These were partially offset by increased imports. The most recent US employment cost index indicates a quarter-over-quarter increase of 4.1%1 and a sequential increase of 0.9%1.

Our Company outlook for the fourth quarter of 2024 and the first quarter of 2025 includes the following:

Truckload

• Truckload Segment revenue up slightly sequentially in the fourth quarter and down low-to-mid single-digit percent sequentially into the first quarter with operating margins improving modestly sequentially in the fourth quarter and declining modestly sequentially into the first quarter,
• Tractor count down low single-digit percent sequentially in the fourth and first quarters.

LTL

• LTL Segment with high-teens percent growth in revenue, excluding fuel surcharge, year-over-year in both fourth and first quarters driven by shipment count growth from our expanding network, the inclusion of DHE, and yield improvement,
• Adjusted operating ratios in the high 80's as we continue to absorb costs from our network expansion.

Logistics

• Logistics Segment revenue up high single-digit percent sequentially in the fourth quarter and declining high-teens percent sequentially in the first quarter, with Adjusted Operating Ratios in the mid-90’s.

Intermodal

• Intermodal Segment load count down mid-to-high single-digit percent sequentially in the fourth quarter before growing low single-digit percent sequentially in the first quarter with approximately break-even operating margins.

All Other

• All Other Segment operating income, before including the $11.7 million quarterly intangible asset amortization, approximately break-even for the fourth quarter as some of these services experience their typical seasonal slowdown, and $16 million to $21 million for the first quarter.

Additional

• Equipment gains to be in the range of $5 million to $10 million per quarter,
• Net interest expense down modestly sequentially in the fourth quarter and first quarter,
• Net cash capital expenditures for the full year 2024 expected range of $525 million - $575 million,
• Expected effective tax rate on adjusted income before taxes of approximately 26% to 27% for fourth quarter 2024 and approximately 26% to 28% for full year 2025.

In addition to the above, we expect the Truckload segment will continue to pursue opportunities, as we implement a decentralized operating model within our new U.S. Xpress locations, and the Logistics segment will continue to provide value to our customers through our power-only and traditional brokerage service offerings. Our ACT and MME teams are working together to further build out a super-regional network, which we expanded in the third quarter of 2024 with the DHE Acquisition, that we expect will provide additional yield and revenue opportunities. The Intermodal segment continues to build out its network that aligns with our new rail partners as we pursue a more diversified portfolio of customers. Our All Other Segments are further expanding to complement our other service offerings.

We anticipate that depreciation and amortization expense will increase, as a percentage of revenue, excluding truckload and LTL fuel surcharge, as we intend to purchase, rather than enter into operating leases, for a majority of our revenue equipment, terminal improvements, or terminal expansions during 2024. With significant tightening in the insurance markets, we may also experience changes in premiums, retention limits, and excess coverage limits in the remainder of 2024. While fuel expense is generally offset by fuel surcharge revenue, our fuel expense, net of truckload and LTL fuel surcharge revenue, may increase in the future, particularly during periods of sharply rising fuel prices. In periods of declining prices the opposite is true. Overall, we remain committed to long-term profitability as we continue to leverage opportunities across the Knight-Swift brands, and efficiently deploy our assets, while maintaining a relentless focus on cost control. This includes seeking acquisition opportunities to improve earnings, gain customers, and reach more professional drivers, as illustrated by the acquisition of U.S. Xpress and our intention to expand the geographic footprint of our LTL network, as illustrated by the DHE Acquisition.

1Source: bls.gov

2Source: bea.gov

Results of Operations — Summary

Note: The reported results do not include U.S. Xpress' operating results prior to its acquisition by the Company on July 1, 2023 in accordance with the accounting treatment applicable to the transaction. The reported results do not include the LTL operations of DHE prior to its acquisition by the Company on July 30, 2024 in accordance with the accounting treatment applicable to the transaction. Accordingly, comparisons between the Company's current and prior period results may not be meaningful.

Operating Results: Third Quarter 2024 compared to Third Quarter 2023

The $29.7 million decrease in net income attributable to Knight-Swift to $30.5 million during the third quarter of 2024 from $60.2 million during the same period last year includes the following:

• Contributor — $3.0 million decrease in operating income within our Truckload segment primarily due to a 5.7% decline in loaded miles, partially offset by a 1.3% decrease in cost per mile.
• Contributor — $7.7 million decrease in operating income within our LTL segment primarily due to start-up costs and early stage operations at the recently opened facilities.
• Contributor — $3.7 million decrease in operating income within our Logistics segment due to the 21.1% decrease in load count, partially offset by a 13.6% increase in revenue per load.
• Contributor — $5.0 million increase in consolidated interest expense primarily driven by higher debt balances related to the DHE acquisition and higher interest rates.
• Contributor — $8.3 million decrease in other income, net, primarily due the $12.1 million loss on investment as a result of the write-off of a minority investment in a transportation-adjacent technology venture which ceased operations in the third quarter of 2024.
• Contributor — $15.4 million increase in consolidated income tax expense, primarily due to a partial release in the third quarter of 2023 of the valuation allowance associated with the U.S. Xpress net operating loss and tax credit carryforward benefits. Our effective tax rate for the third quarter of 2024 was 32.0%, compared to (2.1)% for the third quarter of 2023.
• Offset — $3.1 million decrease in operating loss within our Intermodal segment, driven by a 7.2% increase in load count, partially offset by a 5.3% decrease in revenue per load.
• Offset — $11.6 million increase in operating income within the All Other Segments, largely as a result of exiting the third-party insurance business at the end of the first quarter of 2024.

Operating Results: Year-To-Date September 30, 2024 Compared to Year-To-Date September 30, 2023

The $179.7 million decrease in net income attributable to Knight-Swift to $48.1 million during the year-to-date period ended September 30, 2024 from $227.8 million during the same period last year includes the following:

• Contributor — $140.2 million decrease in operating income within our Truckload segment primarily due to a 4.8% decline in revenue per loaded mile, excluding fuel surcharge and intersegment transactions, and a 1.3% increase in cost per mile.
• Contributor — $11.2 million decrease in operating income within our LTL segment due to severe winter weather experienced during the first quarter of 2024 and start-up costs and early stage operations at our recently opened facilities.
• Contributor — $18.8 million decrease in operating income within our Logistics segment due to an 11.5% decline in load count.
• Contributor — $2.0 million increase in operating loss within our Intermodal segment, driven by a 10.0% decrease in revenue per load, partially offset by a 1.3% increase in load count.
• Contributor — $39.3 million increase in consolidated interest expense primarily driven by higher debt balances related to the U.S. Xpress and DHE acquisitions and higher interest rates.
• Contributor — $13.8 million decrease in other income, net, primarily due the $12.1 million loss on investment as a result of the write-off of a minority investment in a transportation-adjacent technology venture which ceased operations in the third quarter of 2024.
• Offset — $17.7 million decrease in operating loss within the All Other Segments, largely as a result of exiting the third-party insurance business at the end of the first quarter.
• Offset — $31.2 million decrease in consolidated income tax expense, primarily due to a reduction of pre-tax income which was partially offset by the partial release in the third quarter of 2023 of the valuation allowance associated with the U.S. Xpress net operating loss and tax credit carryforward benefits. This resulted in an effective tax rate of 32.2% for the year-to-date period ended September 30, 2024, and 19.1% for the year-to-date period ended September 30, 2023.

Results of Operations — Segment Review

The Company has four reportable segments: Truckload, LTL, Logistics, and Intermodal, as well as certain other operating segments included within our All Other Segments.

Consolidating Tables for Total Revenue and Operating Income (Loss)

(In thousands)

(In thousands)

32

Revenue

• Our truckload services include irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border transportation of various products, goods, and materials for our diverse customer base with approximately 16,300 irregular route and 6,500 dedicated tractors.
• Our LTL business, which was initially established in 2021 through the ACT Acquisition and later the acquisitions of MME and the LTL division of DHE, provides our customers with regional LTL transportation service through our growing network of over 160 facilities and a door count of approximately 6,000. Our LTL segment operates approximately 3,700 tractors and approximately 9,900 trailers and also provides national coverage to our customers by utilizing partner carriers for areas outside of our direct network.
• Our Logistics and Intermodal segments provide a multitude of shipping solutions, including additional sources of truckload capacity and alternative transportation modes, by utilizing our vast network of third-party capacity providers and rail providers, as well as certain logistics and freight management services. We offer power-only services through our Logistics segment leveraging our fleet of nearly 91,000 trailers.
• Our All Other Segments include support services provided to our customers and third-party carriers including equipment maintenance, equipment leasing, warehousing, trailer parts manufacturing, and warranty services, as well as insurance prior to the first quarter of 2024. Our All Other Segments also include certain corporate expenses (such as legal settlements and accruals, certain impairments, and amortization of intangibles related to the 2017 Merger and various acquisitions).
• In addition to the revenues earned from our customers for the trucking and non-trucking services discussed above, we also earn fuel surcharge revenue from our customers through our fuel surcharge programs, which serve to recover a majority of our fuel costs. This generally applies only to loaded miles for our Truckload and LTL segments 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 expenses.

Operating Statistics

We measure our consolidated and segment results through the operating statistics listed in the table below. Our chief operating decision makers monitor the GAAP results of our reportable segments, supplemented by certain non-GAAP information. Refer to "Non-GAAP Financial Measures" for more details. Additionally, we use a number of primary indicators to monitor our revenue and expense performance and efficiency.

34

Segment Review

Truckload Segment

We generate revenue in the Truckload segment primarily through irregular route, dedicated, refrigerated, expedited, flatbed, and cross-border service operations across our brands. We operated approximately 16,300 irregular route tractors and approximately 6,500 dedicated route tractors in use during the quarter ended September 30, 2024. 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 expense from tractors, trailers, and terminals, as well as compensating our non-driver employees.

(Dollars in thousands, except per tractor data)

1 Refer to "Non-GAAP Financial Measures" below.

2 Defined under "Operating Statistics," above. In order to improve comparability, average tractors of 18,541 is used as the denominator in the average revenue per tractor and total miles per tractor calculations for year-to-date 2023, reflecting the pro-rata portion of the year for which U.S. Xpress' results of operations were reported following the close of the U.S. Xpress Acquisition.

3 Includes 20,688 and 21,676 average company-owned tractors for the third quarter of 2024 and 2023, respectively. Includes 20,838 and 17,977 average company-owned tractors for the year-to date periods September 30, 2024 and 2023, respectively.

4 Our average trailers includes 8,510 and 8,432 trailers related to leasing activities recorded within our All Other Segments for the quarters ended September 30, 2024 and 2023, respectively. Our average trailers includes 8,718 and 8,599 trailers related to leasing activities recorded within our All Other Segments for the year-to-date periods September 30, 2024 and 2023, respectively.

Comparison Between the Quarters Ended September 30, 2024 and 2023 — Truckload segment revenue, excluding fuel surcharge and intersegment transactions, declined 6.1% year-over-year, driven by a 5.7% decrease in loaded miles as we lapped the acquisition of U.S. Xpress at the beginning of the quarter. The third quarter Adjusted Operating Ratio was 95.6% in an environment that remained challenging. On a sequential basis, the Adjusted Operating Ratio of our legacy trucking businesses improved 250 basis points over the second quarter, while stable margins at U.S. Xpress negatively impacted this segment's Adjusted Operating Ratio by 220 basis points for the quarter. Third quarter revenue per loaded mile, excluding fuel surcharge and intersegment transactions, was flat year-over-year and increased slightly over the second quarter. The sequential improvement in revenue per loaded mile was achieved through positive rate changes in bid awards and our spot activity which continues to be at a premium to our average contractual revenue per loaded mile.

Cost per mile improved 1.3% year-over-year as we continue to focus on what we can control. We are working diligently to improve our cost structure and equipment utilization to mitigate pressure on margins through this prolonged freight cycle while remaining disciplined on pricing and capacity commitments to position our business to respond when market conditions improve.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Truckload segment revenue, excluding fuel surcharge and intersegment transactions, was $3.3 billion, an increase of 14.9% year-over-year, reflecting a 7.1% decline in the legacy truckload business prior to the inclusion of U.S. Xpress. Adjusted Operating Ratio was 96.7%, largely driven by a 4.8% decrease in revenue per loaded mile, excluding fuel surcharge and intersegment transactions and a 1.3% increase in cost per mile, net of fuel surcharge recovery.

LTL Segment

Dothan, Alabama-based ACT and Bismarck, North Dakota-based MME, both acquired in 2021, and the LTL division of DHE, acquired in 2024, comprise our LTL segment. We provide regional direct service and serve our customers' national transportation needs by utilizing key partner carriers for coverage areas outside of our network. We primarily generate revenue by transporting freight for our customers through our core LTL services.

Our revenues are impacted by shipment volume and tonnage levels that flow through our network. Additional revenues are generated through fuel surcharges and accessorial services provided during transit from shipment origin to destination. We focus on the following multiple revenue generation factors when reviewing revenue yield: revenue per hundredweight, revenue per shipment, weight per shipment, and length of haul. Fluctuations within each of these metrics are analyzed when determining the revenue quality of our customers' shipment density.

Our most significant expense is related to direct costs associated with the transportation of our freight moves including direct salary, wage and benefit costs, fuel expense, and depreciation expense associated with revenue equipment costs. Other expenses associated with revenue generation that can fluctuate and impact operating results are insurance and claims expenses, as well as maintenance costs of our revenue equipment. These expenses can be influenced by multiple factors including our safety performance, equipment age, and other factors. A key component of lowering our operating costs is labor efficiency within our network. We continue to focus on technological advances to improve the customer experience and reduce our operating costs.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

(Dollars in thousands, except per tractor data)

1Refer to "Non-GAAP Financial Measures" below.

2Defined under "Operating Statistics," above.

3Our LTL tractor fleet includes 615 and 609 tractors from ACT's and MME's dedicated and other businesses for the third quarter of 2024 and 2023, respectively. Our LTL tractor fleet includes 613 and 610 tractors from ACT's and MME's dedicated and other businesses for the year-to-date periods September 30, 2024 and 2023, respectively.

4Our LTL trailer fleet includes 843 and 777 trailers from ACT's and MME's dedicated and other businesses for the third quarter of 2024 and 2023, respectively. Our LTL trailer fleet includes 831 and 778 trailers from ACT's and MME's dedicated and other businesses for the year-to-date periods September 30, 2024 and 2023, respectively.

Comparison Between the Quarters Ended September 30, 2024 and 2023 — Our LTL segment grew revenue, excluding fuel surcharge, 16.7% as shipments per day increased 11.1% year-over-year. Our previously announced acquisition of DHE on July 30, 2024 contributed approximately 7.5% to each of these improvements and added the key Southwest markets of California, Arizona, and Nevada to our network. Revenue per hundredweight, excluding fuel surcharge, increased 9.2%, while revenue per shipment, excluding fuel surcharge, increased by 4.8%, reflecting a 3.9% decrease in weight per shipment. This segment produced an 89.6% Adjusted Operating Ratio during the third quarter, and Adjusted Operating Income decreased 19.5% year-over-year due to start-up costs and sub-scale operations at our recently opened facilities.

During the quarter, we opened 16 additional service centers following 18 openings in the first half of the year. We expect to open 4 more service centers by the end of 2024. Also, our DHE acquisition represents approximately 10% growth in both service centers and door count for our LTL network. Overall, our organic and inorganic expansion activities in 2024 should add nearly 1,500 doors, representing a 32.2% increase to our door count from the beginning of the year. We believe this meaningfully impacts the reach of our service offering and increases the density of our network. We believe the investments we are making in our network during 2024 bring opportunities to service additional freight and customers, though the associated set-up costs and initial operational inefficiencies are near-term headwinds to improving margins. Our focus for 2025 will be to have these locations continue to scale, particularly as they participate in the next bid cycle, to help drive growth and margin expansion in the business. We continue to look for both organic and inorganic opportunities to geographically expand our footprint within the LTL market.

Comparison Between Year-to-Date September 30, 2024 and 2023 — The LTL segment produced an 88.5% Adjusted Operating Ratio during the year-to-date period ending September 30, 2024, as revenue, excluding fuel surcharge, increased 14.9%. Adjusted Operating Income decreased 10.5% due to severe winter weather experienced during the first quarter of 2024 and start-up costs and early stage operations at our recently opened facilities. Average shipments per day increased 8.7%. Revenue per hundredweight, excluding fuel surcharge, increased 11.8%, while revenue per shipment, excluding fuel surcharge, increased 6.8%, reflecting a 4.6% decrease in weight per shipment.

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 logistics 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

(Dollars in thousands, except per load data)

1 Refer to "Non-GAAP Financial Measures" below.

2 Defined under "Operating Statistics," above.

Comparison Between the Quarters Ended September 30, 2024 and 2023 — The Logistics segment Adjusted Operating Ratio was 94.5%, with a gross margin of 17.8% in the third quarter of 2024. Logistics load count was down 21.1% year-over-year as we lapped the acquisition of the U.S. Xpress logistics business at the beginning of the quarter, though load count improved 5.5% over the second quarter. Revenue per load increased year-over-year by 13.6% in the third quarter. We remain disciplined on price and diligent in carrier qualification to provide value to customers while maintaining profitability. We continue to leverage our power-only capabilities to complement our asset business, build a broader and more diversified freight portfolio, and to enhance the returns on our capital assets.

Comparison Between Year-to-Date September 30, 2024 and 2023 — The Logistics segment Adjusted Operating Ratio was 95.7%, with a gross margin of 17.5% in the year-to-date period ending September 30, 2024, down from 19.0% in the same period of the prior year. Logistics load count decreased 11.5%, reflecting the inclusion of U.S. Xpress logistics volumes. Revenue per load increased by 8.8% year-over-year, largely driven by the inclusion of U.S. Xpress logistics in the current period, as it has a different business mix.

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. While rail pricing is determined on an annual basis, 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.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

(Dollars in thousands, except per load data)

1 Defined under "Operating Statistics," above.

2 Includes 566 and 612 company-owned tractors for the third quarter of 2024 and 2023, respectively.

Includes 558 and 583 company-owned tractors for the year-to-date periods ended September 30, 2024 and 2023, respectively.

Comparison Between the Quarters Ended September 30, 2024 and 2023 — The Intermodal segment improved its operating ratio to 101.4% while growing total revenue 1.4% year-over-year. This is the first year-over-year revenue increase in six quarters and was driven by a 7.2% increase in load count, partially offset by a 5.3% decline in revenue per load. We remain focused on growing our load count with disciplined pricing across a diverse group of customers.

Comparison Between Year-to-Date September 30, 2024 and 2023 — The Intermodal segment operated with a 102.8% operating ratio, while total revenue decreased 8.8% year-over-year to $288.2 million. The drop in revenue was driven by a 10.0% decline in revenue per load, offset by a 1.3% increase in load count year-over-year.

All Other Segments

Our All Other Segments include support services provided to our customers and third-party carriers including equipment maintenance, equipment leasing, warehousing, trailer parts manufacturing, and warranty services, as well as insurance prior to the first quarter of 2024. Our All Other Segments also include certain corporate expenses (such as legal settlements and accruals, certain impairments, and $11.7 million in quarterly amortization of intangibles related to the 2017 Merger and various acquisitions).

(Dollars in thousands)

Comparison Between the Quarters Ended September 30, 2024 and 2023 — The $6.2 million operating income within our All Other Segments is primarily driven by the warehousing and equipment leasing businesses. Revenue within our All Other Segments declined 42.8% year-over-year, largely as a result of winding down our third-party insurance program, which ceased operation at the end of the first quarter of 2024.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Revenue declined 43.4% year-over-year, largely as a result of winding down our third-party insurance program, ultimately ceasing operations at the end of the first quarter. The $10.3 million operating loss within our All Other Segments is primarily driven by the $17.1 million operating loss in our third-party insurance business.

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: The reported results do not include U.S. Xpress' operating results prior to its acquisition by the Company on July 1, 2023 in accordance with the accounting treatment applicable to the transaction. The reported results do not include the LTL operations of DHE prior to its acquisition by the Company on July 30, 2024 in accordance with the accounting treatment applicable to the transaction. Accordingly, comparisons between the Company's current and prior periods may not be meaningful.

(Dollars in thousands)

Salaries, wages, and benefits expense is primarily affected by the total number of miles driven by and rates we pay to 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 a significant 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 our terminals that improve the experience of driving associates. We expect labor costs (related to both driving associates and non-driver employees) to remain inflationary, which we expect will result in additional pay increases in the future, thereby increasing our salaries, wages, and benefits expense.

Comparison Between the Quarters Ended September 30, 2024 and 2023 — The $15.8 million increase in consolidated salaries, wages, and benefits for the third quarter of 2024, as compared to the third quarter of 2023, is primarily due to a $24.6 million increase in LTL wages as a result of service center expansion, the DHE Acquisition, and labor to support increased shipment count from expansion efforts. This was partially offset by a $12.8 million decrease in Truckload driver mileage pay primarily due to the 5.7% decrease in loaded miles.

Comparison Between Year-to-Date September 30, 2024 and 2023 — The $330.6 million increase in consolidated salaries, wages, and benefits for the year-to-date period ended September 30, 2024, as compared to the year-to-date period ended September 30, 2023, includes a $276.8 million increase from the results of U.S. Xpress and a $56.0 million increase in LTL wages as a result of shipment count growth facilitated by new service centers.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

(Dollars in thousands)

Fuel expense consists primarily of diesel fuel expense for our company-owned tractors. 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.

Our fuel surcharge programs help to offset increases in fuel prices, but generally apply only to loaded miles for our Truckload and LTL segments 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 and LTL segments. 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 Quarters Ended September 30, 2024 and 2023 — The $58.9 million decrease in consolidated fuel expense for the third quarter of 2024 is primarily driven by the 5.2% decrease in Truckload total miles and the decrease in the average weekly DOE fuel prices for the third quarter of 2024, as compared to the third quarter of 2023. Average weekly DOE fuel prices were $3.69 per gallon for the third quarter of 2024 and $4.27 per gallon for the third quarter of 2023.

Comparison Between Year-to-Date September 30, 2024 and 2023 — The $42.2 million increase in consolidated fuel expense for the year-to-date period ended September 30, 2024 includes a $95.1 million increase from the results of U.S. Xpress. The increase was partially offset by the decrease in the average weekly DOE fuel prices for the year-to-date period ended September 30, 2024, as compared to the year-to-date period ended September 30, 2023. Average weekly DOE fuel prices were $3.83 per gallon for the year-to-date period ended September 30, 2024 and $4.20 per gallon for the year-to-date period ended September 30, 2023.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

(Dollars in thousands)

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 typically 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 2024, which could increase future driving associate development and recruiting costs and negatively affect our operations and maintenance expense. We expect to prudently decrease our idle tractor and trailer capacity, in the coming quarters, to reduce operations and maintenance expense while remaining well positioned for potential market inflection.

Comparison Between Quarters Ended September 30, 2024 and 2023 — Operations and maintenance expense remained relatively flat for the third quarter of 2024, as compared to the same period last year.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Operations and maintenance expense increased $71.7 million for the year-to-date period ended September 30, 2024, as compared to the same period last year. The increase for the year-to-date period ended September 30, 2024 includes $65.0 million increase from the results of U.S. Xpress.

(Dollars in thousands)

Insurance and claims expense consists of premiums for liability, physical damage, and cargo, and will vary based upon the frequency and severity of claims, our level of self-insurance, and premium expense. In recent years, insurance carriers have raised premiums for many businesses, including transportation companies, and as a result, our insurance and claims expense could increase in the future, or we could raise our self-insured retention limits or reduce excess coverage limits when our policies are renewed or replaced. 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 and lower excess coverage limits, may cause increased volatility in our consolidated insurance and claims expense.

In the first quarter of 2024, we exited our third-party insurance business, which offered insurance products to third-party carriers, earning premium revenues, which were partially offset by increased insurance reserves, and which exposed us to claims and inability to collect premiums. We ceased operating this business in the first quarter of 2024, which we expect will result in some reduction of volatility as we will no longer be exposed to new claims from the third-party insurance business.

Comparison Between Quarters Ended September 30, 2024 and 2023 — Consolidated insurance and claims expense decreased by $62.4 million for the third quarter of 2024, as compared to the same period last year primarily due to the Company exiting the third-party insurance business at the end of the first quarter of 2024.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Consolidated insurance and claims expense decreased by $109.8 million for the year-to-date period ended September 30, 2024, as compared to the same period last year. The decrease for the year-to-date period ended September 30, 2024 is primarily related to the Company exiting the third-party insurance business at the end of the first quarter of 2024. This was partially offset by an increase of $38.8 million from the results of U.S. Xpress and an increase of $12.5 million for the settlement of an auto liability claim from 2020.

(Dollars in thousands)

Operating taxes and licenses include state franchise taxes, state and federal highway use taxes, property taxes, vehicle license and registration fees, and 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.

Comparison Between Quarters Ended September 30, 2024 and 2023 — Operating taxes and licenses expenses increased by $1.7 million for the third quarter of 2024, as compared to the same period last year primarily as a result of expanding the LTL network. It remained relatively flat as a percentage of revenue, excluding truckload and LTL fuel surcharge, as compared to the same period last year.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Operating taxes and licenses expenses increased by $9.2 million for the year-to-date period ended September 30, 2024, as compared to the same period last year. The change includes a $7.9 million increase from the results of U.S. Xpress. However, it remained relatively flat as a percentage of revenue, excluding truckload and LTL fuel surcharge, as compared to the same period last year.

(Dollars in thousands)

Communications expense is comprised of costs associated with our tractor and trailer tracking systems, information technology systems, and phone systems.

Comparison Between Quarters Ended September 30, 2024 and 2023 — Communications expense remained flat for the third quarter of 2024, as compared to the same period last year.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Communications expense increased $3.9 million for the year-to-date period ended September 30, 2024, as compared to the same period last year. The change includes a $3.3 million increase from the results of U.S. Xpress. However, it remained relatively flat as a percentage of revenue, excluding truckload and LTL fuel surcharge, as compared to the same period last year.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

(Dollars in thousands)

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. 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 practices.

Comparison Between Quarters Ended September 30, 2024 and 2023 — Consolidated depreciation and amortization of property and equipment remained relatively flat for the third quarter of 2024, as compared to the same period last year.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Consolidated depreciation and amortization of property and equipment increased by $50.4 million for the year-to-date period ended September 30, 2024, as compared to the same period last year. The increase includes a $60.1 million increase from the results of U.S. Xpress, partially offset by a decrease in our legacy Truckload tractor depreciation due to a decrease in its tractor count. With the inclusion of U.S. Xpress, tractor count increased year-over-year.

We anticipate that depreciation and amortization expense will increase, as a percentage of revenue, excluding truckload and LTL fuel surcharge, as we intend to purchase, rather than enter into operating leases, for a majority of our revenue equipment, terminal improvements, or terminal expansions in the remainder of 2024.

(Dollars in thousands)

Amortization of intangibles relates to intangible assets identified with the 2017 Merger, ACT Acquisition, U.S. Xpress Acquisition, and various other acquisitions. See Note 3 in Part I, Item 1, of this Quarterly Report for more details regarding details of our acquisitions.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

(Dollars in thousands)

Rental expense consists primarily of payments for revenue equipment assumed in the U.S. Xpress Acquisition, as well as our terminals and other real estate leases.

Comparison Between Quarters Ended September 30, 2024 and 2023 — Consolidated rental expense decreased $8.1 million for the third quarter of 2024, as compared to the same period last year. The decrease is primarily related to an increase in our owned versus leased equipment.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Consolidated rental expense increased $47.7 million for the year-to-date period ended September 30, 2024, as compared to the same period last year. The increase is primarily related to the increase of $46.8 million from the results of U.S. Xpress. Additional increases relate to the incorporation of new facilities as we expand our LTL network and were partially offset by a decrease in the rental expense for revenue equipment.

We anticipate that rental expense will decrease, as a percentage of revenue, excluding truckload and LTL fuel surcharge, as we intend to purchase, rather than enter into operating leases, a majority of our revenue equipment, terminal improvements, or terminal expansions in the remainder of 2024.

(Dollars in thousands)

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. Purchased transportation expense may also fluctuate as a percentage of revenue based on the relative growth of our logistics and intermodal businesses as compared to our full truckload and LTL businesses.

Comparison Between Quarters Ended September 30, 2024 and 2023 — Consolidated purchased transportation expense decreased $35.4 million for the third quarter of 2024, as compared to the same period last year. The decrease is primarily driven by the decrease in load volume within our logistics business.

Comparison Between Year-to-Date September 30, 2024 and 2023 — Consolidated purchased transportation expense decreased $10.4 million for the year-to-date period ended September 30, 2024, as compared to the same period last year. The decrease is primarily due to decreased load volume within our logistics business, partially offset by the increase of $143.1 million from the results of U.S. Xpress.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

(Dollars in thousands)

In 2024, we incurred impairment charges associated with building improvements certain revenue equipment held for sale, leases, and other equipment (within the Truckload segment and All Other Segments).

(Dollars in thousands)

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, 2024 and 2023 — The $1.1 million increase in net consolidated miscellaneous operating expenses is primarily due to a $2.2 million decrease in gain on sales of equipment.

Comparison Between Year-to-Date September 30, 2024 and 2023 — The $39.7 million increase in net consolidated miscellaneous operating expenses is primarily due to the $18.9 million increase from the results of U.S. Xpress as well as a $22.9 million decrease in gain on sales of equipment.

Consolidated Other Expenses (Income)

(Dollars in thousands)

Interest expense — Interest expense is comprised of debt and finance lease interest expense as well as amortization of deferred loan costs. The increase in interest expense during the third quarter and the year-to-date period ended of 2024 was primarily due to higher debt balances related to the acquisitions of U.S. Xpress and DHE. Additional details regarding our debt are discussed in Note 6 in Part I, Item 1 of this Quarterly Report.

Other (income) expenses, net — Other (income) expenses, net is primarily comprised of losses and (gains) from our various equity investments, as well as certain other non-operating income and expense items that may arise outside of the normal course of business.

Comparison Between the Quarters Ended September 30, 2024 and 2023 — The $8.3 million decrease in other (income) expenses, net is primarily driven by a $12.1 million write-off of a minority investment in a transportation-adjacent technology venture which ceased operations in the third quarter. This was partially offset by an increase in the net gain recorded within our remaining portfolio of investments during the third quarter of 2024.

Comparison Between Year-to-Date September 30, 2024 and 2023 — The $13.8 million decrease in other (income) expenses, net is primarily driven by a $12.1 million write-off of a minority investment in a transportation-adjacent technology venture which ceased operations in the third quarter. The remaining decrease is a result of the net loss recorded within our remaining portfolio of investments during the year-to-date period ended September 30, 2024.

Income tax expense (benefit) — In addition to the discussion below, Note 4 in Part I, Item 1 of this Quarterly Report provides further analysis related to income taxes.

Comparison Between the Quarters Ended September 30, 2024 and 2023 — The $15.4 million increase in consolidated income tax expense (benefit) was primarily due to the partial release in the third quarter of 2023 of the valuation allowance associated with the U.S. Xpress net operating loss and tax credit carryforward benefits. Our effective tax rate for the third quarter of 2024 was 32.0%, compared to (2.1)% for the third quarter of 2023.

Comparison Between Year-to-Date September 30, 2024 and 2023 — The $31.2 million decrease in consolidated income tax expense (benefit) was primarily due to a reduction of pre-tax income which was partially offset by the partial release in the third quarter of 2023 of the valuation allowance associated with the U.S. Xpress net operating loss and tax credit carryforward benefits. This resulted in an effective tax rate of 32.2% for the year-to-date period ended September 30, 2024, and 19.1% for the year-to-date period ending September 30, 2023.

Non-GAAP Financial Measures

The terms "Adjusted Net Income Attributable to Knight-Swift," "Adjusted EPS," "Adjusted Operating Income," "Adjusted Operating Ratio," and "Free Cash Flow," 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. Management and the Board use Free Cash Flow as a key measure of our liquidity. Free Cash Flow does not represent residual cash flow available for discretionary expenditures. 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, Adjusted Operating Ratio, and Free Cash Flow 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, GAAP reportable segment operating ratio to non-GAAP reportable segment Adjusted Operating Ratio, and GAAP cash flow from operations to non-GAAP Free Cash Flow.

Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS

(In thousands)

Note: Since the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding.

50

1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the 2017 Merger, the ACT Acquisition, the U.S. Xpress Acquisition, and other acquisition, as well as the non-cash amortization expense related to the fair value of favorable leases assumed in the DHE acquisition included within "Rental expense" in the condensed consolidated statements of comprehensive income. Refer to Note 3 in Part I, Item 1 of this Quarterly Report for additional details regarding our acquisitions.

2 "Impairments" reflects the non-cash impairments of building improvements, certain revenue equipment held for sale, leases, and other equipment (within the Truckload segment and All Other Segments).

3 "Legal accruals" are included in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income and reflect the following:

• Year-to-date 2024 legal expense reflects the increased estimated exposures for accrued legal matters based on recent settlement agreements.
• During the second and third quarters of 2023, legal expense reflects the increased estimated exposure for various accrued legal matters based on recent settlement agreements. First quarter 2023 legal expense reflects a decrease in the estimated exposure related to an accrued legal matter previously identified as probable and estimable in prior periods based on a recent settlement agreement.

4 "Transaction fees" reflects certain legal and professional fees associated with the July 1, 2023 and July 30, 2024 acquisitions of U.S. Xpress and DHE, respectively. The transaction fees are primarily included within "Miscellaneous operating expenses" and "Salaries, wages, and benefits" and with smaller amounts included in other line items in the condensed statements of comprehensive income.

5 "Other acquisition related expenses" represents one-time expenses associated with the U.S. Xpress acquisition, including certain severance expense, including the acceleration of stock compensation as well as other operating expenses. These are primarily included within "Salaries, wages, and benefits" in the condensed statements of comprehensive income.

6 "Severance expense" is included within "Salaries, wages, and benefits" in the condensed statements of comprehensive income.

7 "Change in fair value of deferred earnout" reflects the expense for the change in fair value of a deferred earnout related to various acquisitions, which is recorded in "Miscellaneous operating expenses."

8 "Loss on investment" reflects the write-off of a minority investment in a transportation-adjacent technology venture which ceased operations in the third quarter of 2024.

9 For the third quarter of 2024, an adjusted effective tax rate of 29.3% was applied in our Adjusted EPS calculation to exclude certain discrete items. For the year-to-date period ended September 30, 2024, an adjusted effective tax rate of 28.5% was applied in our Adjusted EPS calculation to exclude certain discrete items.

For the third quarter and year-to-date of 2023, an effective tax rate of 23.2% and 24.3%, respectively was applied in our Adjusted EPS calculation to exclude the tax benefit from the partial release of the pre-acquisition allowance associated with the U.S. Xpress net operating loss and tax credit carryforward benefits.

Non-GAAP Reconciliation: Consolidated Adjusted Operating Income and Adjusted Operating Ratio

(Dollars in thousands)

1 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 1.

2 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 2.

3 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 3.

4 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 4.

5 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 5.

6 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 6.

7 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 7.

Non-GAAP Reconciliation: Reportable Segment Adjusted Operating Income and Adjusted Operating Ratio

Truckload Segment

(Dollars in thousands)

1"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in historical Knight acquisitions and the U.S. Xpress Acquisition.

2See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 2.

3See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 3.

4See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 5.

5See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 6.

LTL Segment

(Dollars in thousands)

1"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified with the ACT, MME, and DHE acquisitions, as well as the non-cash amortization expense related to the fair value of favorable leases assumed in the DHE acquisition.

Logistics Segment

(Dollars in thousands)

1"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the U.S. Xpress and UTXL acquisitions.

Intermodal Segment

(Dollars in thousands)

Non-GAAP Reconciliation: Free Cash Flow

Liquidity and Capital Resources

Sources of Liquidity

Our primary sources of liquidity are funds provided by operations and the following:

(In thousands)

1 As of September 30, 2024, we had $227.0 million borrowings under our $1.1 billion 2021 Revolver. We additionally had $18.1 million in outstanding letters of credit (discussed below) issued under the 2021 Revolver, leaving $854.9 million available under the 2021 Revolver.

2 Based on eligible receivables at September 30, 2024, our borrowing base for the 2023 RSA was $492.4 million, while outstanding borrowings were $459.2 million, along with $27.2 million in outstanding letters of credit, leaving $6.0 million available under the 2023 RSA. Refer to Note 5 in Part I, Item 1 of this Quarterly Report for more information regarding the 2023 RSA.

3 Restricted cash is primarily held by our captive insurance companies for claims payments. "Cash and cash equivalents – restricted" consists of $150.9 million included in "Cash and cash equivalents – restricted" on the condensed consolidated balance sheet held by Mohave and Red Rock for claims payments. The remaining $3.7 million is included in "Other long-term assets" and is held in escrow accounts to meet statutory requirements.

Uses of Liquidity

Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, contract payments to independent contractors, insurance and claims payments, tax payments, and others. We also use large amounts of cash and credit for the following activities:

Capital Expenditures — When justified by customer demand, as well as our liquidity and our ability to generate acceptable returns, we make substantial cash capital expenditures to maintain a modern company tractor fleet, refresh and expand our trailer fleet, expand our network of LTL service centers, and, to a lesser extent, fund upgrades to our terminals and technology in our various service offerings. In connection with our business strategy, we regularly evaluate acquisition and strategic partnership opportunities. We expect net cash capital expenditures, will be in the range of $525.0 – $575.0 million for full-year 2024. Our expected net cash capital expenditures primarily represent replacements of existing tractors and trailers and investments in our terminal network, driver amenities, and technology, and excludes acquisitions. We believe we have ample flexibility in our trade cycle and purchase agreements to alter our current plans if economic and other conditions warrant.

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, 2024, we had debt, accounts receivable securitization, and finance lease obligations of $2.9 billion, which are discussed under "Material Debt Agreements," below. Certain cash flows from operations are committed to minimum payments of principal and interest on our debt and lease obligations. Additionally, when our financial position allows, we periodically make voluntary prepayments on our outstanding debt balances.

Letters of Credit — Pursuant to the terms of the 2021 Debt Agreement and the 2023 RSA, our lenders may issue standby letters of credit on our behalf. When we have certain letters of credit outstanding, the availability under the 2021 Revolver or 2023 RSA is reduced accordingly. As of September 30, 2024, we also had outstanding letters of credit of $248.0 million pursuant to a bilateral agreement which do not impact the availability of the 2021 Revolver and 2023 RSA. 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 Flow1 availability, debt levels, common stock prices, general economic and market conditions, as well as internal approval requirements, we may repurchase shares of our outstanding common stock. As of September 30, 2024, the Company had $200.0 million remaining under the 2022 Knight-Swift Share Repurchase Plan. Additional details regarding our share repurchase plans are discussed in Note 10 in Part I, Item 1 of this Quarterly Report.

1Refer to "Non-GAAP Financial Measures."

Working Capital

We had a working capital surplus of $8.1 million as of September 30, 2024 and a working capital deficit of $116.3 million as of December 31, 2023. The change in our working capital is primarily attributed to the 2024 Amendment which extended the maturity related to the 2021 Term Loan A-2 from September 2024 to September 2026.

Material Debt Agreements

As of September 30, 2024, we had $2.9 billion in material debt obligations at the following carrying values:

• $349.0 million: 2021 Term Loan A-2, due September 2026, net of $1.0 million in deferred loan costs
• $789.3 million: 2021 Term Loan A-3, due September 2026, net of $0.7 million in deferred loan costs
• $249.4 million: 2023 Term Loan, due September 2026, net of $0.6 million in deferred loan costs
• $458.9 million: 2023 RSA outstanding borrowings, net of $0.3 million in deferred loan costs
• $609.8 million: Finance lease obligations
• $227.0 million: 2021 Revolver, due September 2026
• $219.5 million: Revenue equipment installment notes
• $23.7 million: Other, net of approximately $13,000 in deferred loan costs

As of December 31, 2023, we had $2.7 billion in material debt obligations at the following carrying values:

• $199.9 million: 2021 Term Loan A-2, due September 2024, net of $0.1 million in deferred loan costs
• $799.1 million: 2021 Term Loan A-3, due September 2026, net of $0.9 million in deferred loan costs
• $249.1 million: 2023 Term Loan, due September 2026, net of $0.9 million in deferred loan costs
• $526.5 million: 2023 RSA outstanding borrowings, net of $0.5 million in deferred loan costs
• $528.9 million: Finance lease obligations
• $67.0 million: 2021 Revolver, due September 2026
• $279.3 million: Revenue equipment installment notes
• $33.6 million: Other, net of $22,000 in deferred loan costs

Cash Flow Analysis

(In thousands)

Net Cash Provided by Operating Activities

Comparison Between Year-to-Date September 30, 2024 and 2023 — The $348.8 million decrease in net cash provided by operating activities included a $154.4 million decrease in operating income for year-to-date September 30, 2024, a $161.1 million cash payment for a commutation agreement to transfer certain outstanding insurance reserves to a third party, and a $46.3 million increase in cash paid for interest. This was partially offset by a $28.1 million decrease in cash paid for income taxes. Note: Factors affecting the increase in operating income are discussed in "Results of Operations — Consolidated Operating and Other Expenses."

Net Cash Used in Investing Activities

Comparison Between Year-to-Date September 30, 2024 and 2023 — The $469.0 million decrease in net cash used in investing activities was primarily due to a $230.0 million decrease in net cash capital expenditures and a $272.8 million decrease in cash used on acquisitions.

Net Cash Used in Financing Activities

Comparison Between Year-to-Date September 30, 2024 and 2023 — Net cash used in financing activities increased by $340.6 million, primarily due to a $133.5 million increase in repayments on our finance leases and long-term debt, $100.0 million decrease in proceeds from our long-term debt, and $97.0 million decrease in net proceeds from our 2021 Revolver.

Seasonality

Discussion regarding the impact of seasonality on our business is included in Note 1 in the notes to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report, incorporated by reference herein.

Inflation

Most of our operating expenses are inflation-sensitive, with inflation generally leading to increased costs of operations. Price increases in manufactured 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 have recently and could continue to cause interest rates, fuel, wages, and other costs to increase as well. Any of these factors could adversely affect our results of operations unless freight rates correspondingly increase.

Recently Issued Accounting Pronouncements

See Note 2 in Part I, Item 1 of this Quarterly Report, which is incorporated herein by reference, for the impact of recently issued accounting pronouncements on the Company's condensed consolidated financial statements.

Interest Rate Risk

We have exposure from variable interest rates, primarily related to our 2021 Debt Agreement, 2023 Term Loan, and 2023 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 6.6% as of September 30, 2024) and fixed rate equipment lease financing. Assuming the level of borrowings as of September 30, 2024, a hypothetical one percentage point increase in interest rates would increase our annual interest expense by $20.9 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 diesel price per gallon in the US decreased to $3.69 for the third quarter of 2024 from an average of $4.27 in the third quarter of 2023. The weekly average diesel price per gallon decreased to $3.83 for year-to-date September 30, 2024 from an average price of $4.20 for year-to-date September 30, 2023. 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.

Disclosure Controls and Procedures

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our financial reports and to other members of senior management and the Board. Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (2) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We base our internal control over financial reporting on the criteria set forth in the 2013 COSO Internal Control: Integrated Framework.

We have confidence in our disclosure controls and procedures and internal control over financial reporting. Nevertheless, our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors, misstatements, or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

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 2023 Annual Report in the section entitled "Item 1A. Risk Factors," describes some of the risks and uncertainties associated with our business.