Knight-Swift Transportation Holdings Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unless stated otherwise, dollar amounts are in millions. Comparisons are with 2021; acquisitions, including ACT and MME, limit comparability because their results were not included before acquisition dates.
Business context and results
Knight-Swift provides truckload, less-than-truckload (LTL), logistics, intermodal, and related services. It operated four reportable segments: Truckload, LTL, Logistics, and Intermodal.
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total revenue | $1,961.1 | $1,315.7 | $3,788.1 | $2,538.7 |
| Revenue excluding truckload and LTL fuel surcharge | $1,694.5 | $1,212.9 | $3,342.4 | $2,346.0 |
| Operating income | $325.8 | $191.1 | $623.9 | $353.4 |
| Net income attributable to Knight-Swift | $219.5 | $152.8 | $427.8 | $282.6 |
| Diluted EPS | $1.35 | $0.92 | $2.60 | $1.69 |
| GAAP operating ratio | 83.4% | 85.5% | 83.5% | 86.1% |
| Adjusted operating ratio (non-GAAP) | 79.9% | 83.1% | 80.3% | 83.8% |
Q2 revenue excluding fuel surcharge rose 39.7%; operating income increased 70.5% and attributable net income rose 43.6%. For the first half, revenue excluding fuel surcharge increased 42.5%, operating income 76.5%, and attributable net income 51.4%. The company reported adjusted EPS of $1.41 for Q2 and $2.76 for the first half; these are non-GAAP measures.
Segments and material changes
- Truckload: Q2 revenue excluding fuel surcharge and intersegment transactions grew 11.2%; adjusted operating ratio improved 200 basis points to 78.9%. Higher revenue per loaded mile was partly offset by miles per tractor down 6.6%.
- LTL: Q2 revenue was $283.8 and operating income $43.8; adjusted operating ratio was 78.7%. ACT and MME were acquired in 2021, so the filing provides no comparable 2021 segment results.
- Logistics: Q2 revenue excluding intersegment transactions grew 52.5%, with load count up 48.2%; adjusted operating ratio improved to 82.2% from 91.1%.
- Intermodal: Q2 revenue rose 15.2% and operating income increased to $14.2 from $5.8. Revenue per load rose 39.2%, offset by load count down 17.2%; rail congestion and equipment dwell times remained challenges.
- Other notable item: The Embark investment’s mark-to-market decline contributed to a $30.7 Q2 loss on equity securities and an unfavorable year-over-year change in other income/expense. Management estimated the investment loss reduced first-half diluted and adjusted EPS by $0.23.
Cash flow, debt, and liquidity
- First-half operating cash flow was $720.0, versus $459.5 in 2021. Investing cash outflow was $204.3; financing cash outflow was $552.4. Management-defined free cash flow was $528.7 (non-GAAP).
- At June 30, unrestricted cash was $198.0; restricted cash was $111.4. Total unrestricted liquidity, including available facilities, was $1.214 billion. Working capital was $369.6.
- Reported material debt, receivables securitization, and finance lease obligations totaled about $2.0 billion, down from $2.1 billion at year-end 2021. This included $129.0 drawn on the $1.1 billion revolver and $278.6 of receivables securitization borrowings. The company reported covenant compliance.
- First-half share repurchases were $299.9 and dividends paid were $39.7. The new $350 million repurchase authorization had approximately $200 million remaining at quarter-end.
Outlook, risks, and contingencies
- Management expected second-half freight conditions to include moderating consumer demand, fewer non-contract opportunities, reduced visibility into peak season, and year-over-year rate pressure late in Q3 and into Q4. It anticipated stable truck count, modest sequential improvement in miles per tractor, LTL revenue growth and improved margins, and higher Logistics volumes but lower revenue per load.
- Full-year 2022 net cash capital expenditures were expected to be $550–$600 million, excluding acquisitions; the expected tax rate was approximately 25%. Equipment sale gains were expected to total $20–$25 million in the rest of 2022. No specific EPS or total-revenue guidance is provided in the supplied filing text.
- Inflation in labor, equipment, maintenance, insurance, and other costs; driver recruitment and retention; fuel-price changes and surcharge timing; rail network disruption; and higher interest rates could pressure results. A one-percentage-point increase in interest rates was estimated to raise annual interest expense by $16.2 million. The company also anticipated tighter insurance markets and potentially higher premiums or retention limits.
- Revenue-equipment purchase commitments were $554.6 million for the rest of 2022 and $87.8 million for 2023. These may be funded through leases, debt, equipment-sale proceeds, or operating cash.
- Legal proceedings had an aggregate accrual of approximately $15.9 million. Management did not expect pending matters, after accruals, to materially affect the company overall, but acknowledged outcomes could be material in an individual period. ACT’s self-insured retention increased to $10 million per occurrence effective March 1, 2022.
Most important facts for investors to verify
- Whether freight demand, contract and spot rates, and peak-season trends developed as management’s second-half outlook anticipated.
- Whether Truckload utilization and driver availability improved, and whether LTL synergies translated into sustainable margins.
- The cash and earnings effects of Embark’s valuation changes, fuel-price movements, insurance reserves, and higher interest rates.
- Funding and execution of the substantial equipment commitments and full-year capital expenditure plan, alongside repurchases and debt reduction.
- Developments in legal matters, insurance retention exposure, and compliance with debt and securitization covenants.