Knight-Swift Transportation Holdings Inc. — Q1 2022 Form 10-Q
Reporting period: Quarter ended March 31, 2022; comparisons are with Q1 2021 unless noted. Knight-Swift provides truckload, logistics, less-than-truckload (LTL), intermodal and related transportation services. The quarter included ACT and MME, acquired in 2021; their results were not included in the comparable prior-year periods, limiting comparability.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $1,827.0 million | $1,223.0 million | +49.4% |
| Revenue excluding truckload and LTL fuel surcharge | $1,647.9 million | $1,133.1 million | +45.4% |
| Operating income | $298.1 million | $162.3 million | +83.7% |
| Operating ratio | 83.7% | 86.7% | Improved 300 basis points |
| Net income attributable to Knight-Swift | $208.3 million | $129.8 million | +60.5% |
| Diluted EPS | $1.25 | $0.77 | +62.3% |
| Adjusted EPS (non-GAAP) | $1.35 | $0.83 | +62.7% |
| Cash flow from operations | $456.9 million | $306.1 million | +$150.7 million |
| Free cash flow (non-GAAP) | $352.4 million | Not provided | — |
The GAAP operating margin was approximately 16.3%, compared with 13.3% a year earlier. The company’s adjusted operating ratio was 80.6%, versus 84.5%; this non-GAAP measure excludes fuel surcharge and specified items, so it is not directly comparable to the GAAP ratio.
Segments
- Truckload: Revenue of $1,080.5 million (+12.2%); operating income of $205.1 million (+29.4%). GAAP operating ratio improved to 81.0% from 83.5%; adjusted ratio improved to 78.2% from 81.8%. Revenue excluding fuel surcharge and intersegment transactions rose 7.9%.
- Logistics: Revenue of $282.0 million (+137.2%); operating income of $39.6 million versus $7.6 million. Revenue excluding intersegment transactions increased 142.1%, reflecting 76.9% load growth and 36.8% higher revenue per load.
- LTL: Revenue of $255.1 million and operating income of $26.4 million. ACT and MME were acquired in 2021, so there is no comparable reported Q1 2021 segment result. Adjusted operating ratio was 85.9%.
- Intermodal: Revenue of $109.2 million (+2.1%); operating income rose to $15.2 million from $3.5 million. Load count fell 24.9%, while revenue per load rose 35.9%.
Cash, debt and liquidity
- Cash and cash equivalents were $242.9 million, including $128.8 million of restricted cash. Total assets were $10.70 billion and stockholders’ equity was $6.58 billion at March 31, 2022.
- Management reported total unrestricted liquidity of $1.257 billion, including cash and availability under the revolver, receivables securitization and ACT Prudential notes. Working capital surplus was $300.2 million, down from $339.5 million at year-end 2021.
- Revolver borrowings were $165.0 million; long-term debt, including its current portion, was $1.212 billion; receivables securitization borrowings were $279.0 million; and finance lease obligations were approximately $329.5 million. Management described total material debt and lease obligations as approximately $2.0 billion.
- Operating cash flow was $456.9 million. Investing cash outflow was $110.2 million, including $165.0 million of property and equipment purchases; financing cash outflow was $323.2 million. The company repurchased $144.9 million of shares and paid $20.1 million in dividends.
- The company stated it was in compliance with its debt and securitization covenants and did not foresee material liquidity constraints.
Changes, outlook and risks
- Results benefited from stronger segment performance and the inclusion of ACT and MME. The acquisitions also make year-over-year consolidated comparisons less comparable.
- Other expense, net was $14.4 million, compared with $16.1 million of income a year earlier. The unfavorable change primarily reflected investment losses, including a $17.5 million unrealized loss on the Embark investment; total losses on equity securities were $20.8 million.
- Gain on sale of property and equipment was $34.8 million, versus $10.5 million, reflecting a stronger used-equipment market. The company recorded an $0.8 million building-improvement impairment.
- Management expected 2022 net cash capital expenditures of $550–$600 million, excluding acquisitions. It anticipated continued strong freight demand and likely double-digit contract-rate increases, while noting demand remained difficult to predict. Management expected LTL revenue and margins to remain strong and intermodal load volumes to turn positive year over year in the second half.
- Management expected depreciation and amortization to rise and rental expense to decline as the company planned to purchase rather than primarily lease revenue equipment. It also planned to add 2,000 intermodal containers during 2022.
- Key risks cited include inflation in fuel, wages, equipment, maintenance and insurance; driver recruitment and retention; fuel-surcharge timing that may not fully offset rising fuel costs; tightening insurance markets and higher self-insured retention; rail congestion and capacity constraints; and uncertainty related to China lockdowns, overseas conflict, consumer confidence and economic conditions.
- The company had $682.2 million of revenue-equipment purchase commitments for the remainder of 2022, including $479.3 million for tractors, plus $52.0 million of facility and non-revenue-equipment commitments. ACT’s self-insured retention increased to $10 million per occurrence effective March 1, 2022.
- Legal proceedings had an aggregate accrual of approximately $18.6 million. Management did not expect pending matters, after accruals, to have a material adverse effect overall, but stated individual-period outcomes could be material.
- After quarter-end, the company announced a new $350 million share-repurchase authorization on April 25, replacing the prior plan. It reported $332.7 million remaining under the new plan as of May 4, 2022.
Important facts for investors to verify
- How much of revenue and earnings growth reflects underlying performance versus the inclusion and integration of ACT and MME.
- Whether operating improvements persist as fuel, labor, insurance and other inflationary costs evolve, and whether fuel surcharges keep pace with fuel costs.
- Execution of the $550–$600 million 2022 capital expenditure plan, equipment commitments and expected fleet purchases.
- Progress in LTL synergies and intermodal service recovery, including the expected second-half volume improvement.
- Investment valuation volatility, particularly Embark, and the effect of any further losses on reported earnings.
- Legal and insurance exposures, including self-insured retention levels and the $18.6 million legal accrual.
- Debt maturities, variable-rate exposure and capital allocation, including buybacks and dividends; management estimated that a 1 percentage-point rate increase would add $16.6 million to annual interest expense at quarter-end borrowings.