Knight-Swift Transportation Holdings Inc. — Q1 2023 10-Q
Reporting period: Quarter ended March 31, 2023. Knight-Swift is a diversified transportation provider with Truckload, LTL, Logistics, and Intermodal reportable segments, plus non-reportable businesses. Unless otherwise noted, comparisons are with Q1 2022.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $1,636.9 million | $1,827.0 million | Down 10.4% |
| Revenue excluding Truckload and LTL fuel surcharge | $1,450.3 million | $1,647.9 million | Down 12.0% |
| Operating income | $144.8 million | $298.1 million | Down 51.4% |
| Net income attributable to Knight-Swift | $104.3 million | $208.3 million | Down 49.9% |
| Diluted EPS | $0.64 | $1.25 | Down 48.8% |
| GAAP operating ratio | 91.2% | 83.7% | Up 750 bps |
| Adjusted operating ratio (non-GAAP) | 88.7% | 80.6% | Up 810 bps |
| Cash provided by operations | $345.2 million | $456.9 million | Down $111.7 million |
| Free cash flow (non-GAAP) | $144.2 million | Not provided here | — |
Profitability weakened amid softer freight demand and lower volumes, especially in Logistics, along with higher insurance and claims costs and interest expense. Insurance and claims expense rose 40.6% to $138.0 million; interest expense rose to $23.1 million from $6.7 million, primarily reflecting higher rates. Other income was $9.7 million, versus other expense of $14.4 million in the prior-year quarter, chiefly reflecting investment gains in 2023 and an Embark investment loss in 2022. The effective tax rate was 24.0%, versus 24.9%.
Segments and material changes
- Truckload: Revenue was $1,012.2 million, down 6.3%; operating income fell 43.5% to $115.9 million. Adjusted operating ratio was 86.6%, versus 78.2%. Revenue excluding fuel surcharge and intersegment transactions fell 8.0%; miles per tractor declined 2.7%. Results included $8.5 million of adverse development on prior-year claims, primarily related to an unfavorable jury verdict.
- LTL: Revenue was essentially flat at $255.3 million; operating income was $26.6 million. Adjusted operating ratio improved to 85.7% from 85.9%. Shipments per day fell 5.7%, while revenue per hundredweight excluding fuel surcharge rose 8.7%.
- Logistics: Revenue declined 51.0% to $138.3 million and operating income fell 67.6% to $12.8 million. Load count dropped 23.2% and revenue per load fell 36.4%; adjusted operating ratio deteriorated to 90.4% from 85.7%.
- Intermodal: Revenue rose 1.2% to $110.6 million, but operating income fell 66.4% to $5.1 million. Load count increased 8.5%, while revenue per load declined 6.7%; operating ratio increased to 95.4% from 86.1%.
- Non-reportable segments: Revenue increased 20.7% to $142.0 million, but the segment reported a $15.6 million operating loss versus $11.8 million income. Iron Insurance incurred a $22.8 million operating loss, associated with higher claim frequency, unfavorable claim development, and premium collection issues involving small carriers.
Cash, debt, and liquidity
- At March 31, unrestricted cash was $191.2 million. The company reported $1.293 billion of unrestricted liquidity, including $1.089 billion available under its $1.1 billion revolving facility and $12.7 million available under receivables securitization. Restricted cash and investments were primarily held for insurance claims.
- Working capital was $536.8 million, down from $599.6 million at year-end 2022. Total assets were $10.943 billion and stockholders’ equity was $7.036 billion.
- Material debt, receivables securitization, and finance lease obligations totaled approximately $1.8 billion at carrying value: approximately $1.029 billion of long-term debt, $383.6 million of securitization borrowings, and $395.7 million of finance lease obligations. The company had no revolver borrowings at quarter-end and reported compliance with debt covenants.
- Investing cash outflow was $197.3 million, including $260.3 million of property and equipment purchases. Financing cash outflow was $134.6 million; the company repaid $43.0 million on its revolver and paid $23.0 million in dividends. No shares were repurchased in the quarter. The declared dividend was $0.14 per share.
Outlook, risks, and unusual items
- Management expected soft freight demand and limited non-contract opportunities through the first half of 2023, with conditions potentially improving in the second half as capacity exits and demand recovers. These are forward-looking expectations, not assurances.
- For 2023, excluding the proposed U.S. Xpress acquisition, management expected Truckload revenue per mile to decline high single digits year over year; modest LTL revenue growth excluding fuel surcharge; Logistics operating ratio of approximately 90; and Intermodal operating ratio in the mid-90s with year-over-year volume growth. It projected net cash capital expenditures of $640–$690 million and an approximately 25% tax rate. Equipment gains were expected at $15–$20 million quarterly.
- On March 20, 2023, Knight-Swift agreed to acquire U.S. Xpress for approximately $808 million enterprise value, excluding transaction costs. Closing was anticipated early in Q3 2023, subject to customary conditions. The outlook above excludes the acquisition; completion, integration, financing, and expected benefits remain uncertain.
- Management cited volatile insurance claims, higher self-insured exposure, insurance-market tightening, driver availability and labor-cost inflation, fuel-price and surcharge timing risk, interest-rate exposure, and seasonal and cyclical freight demand. A 1 percentage-point increase in interest rates was estimated to raise annual interest expense by $14.1 million, assuming quarter-end borrowings.
- Revenue-equipment purchase commitments were $912.9 million for the remainder of 2023, including $622.1 million for tractors. Management said funding could involve cash, debt, leases, or equipment-sale proceeds. The filing reported $9.6 million accrued for outstanding legal proceedings and noted continuing appeals in a settled California employment class action.
Investor verification priorities
- Track freight volumes, pricing, and utilization—particularly Truckload miles and revenue per mile, Logistics load counts, and Intermodal operating efficiency—against management’s recovery assumptions.
- Assess whether insurance and claims costs, including Iron Insurance underwriting and prior-year claim development, normalize as projected.
- Verify U.S. Xpress closing conditions, timing, consideration and funding, and subsequent integration performance; the proposed transaction was not completed in this quarter.
- Monitor capital spending and equipment commitments against free cash flow, liquidity, and the company’s debt and lease obligations.
- Compare adjusted measures with GAAP results: adjusted operating ratio, adjusted EPS, and free cash flow are non-GAAP measures and are not substitutes for GAAP performance or discretionary cash availability.