Knight-Swift Transportation Holdings Inc. — Q1 2021 Form 10-Q
Reporting period: Quarter ended March 31, 2021. Financial statements are unaudited. The company provides truckload, logistics, and intermodal transportation services.
Financial performance
- Revenue: $1.223 billion, up 8.7% year over year; revenue excluding trucking fuel surcharge was $1.133 billion, up 10.3%.
- Profit and margins: Operating income was $162.3 million versus $102.1 million. Net income attributable to Knight-Swift was $129.8 million, or $0.77 per diluted share, versus $65.4 million, or $0.38. The GAAP operating ratio improved to 86.7% from 90.9%; adjusted operating ratio improved to 84.5% from 88.6%.
- Cash flow: Operating cash flow was $306.1 million, compared with $155.3 million. Investing activities used $74.1 million and financing activities used $185.4 million. Cash, restricted cash, and equivalents ended at $243.9 million, including $194.7 million unrestricted cash.
- Debt and liquidity: Material debt, receivables securitization, and finance lease obligations totaled $825.5 million at carrying value. Unrestricted liquidity was $853.2 million, including $655.7 million available under the revolver and $2.9 million available under the receivables facility. Working capital surplus was $15.3 million, down from $83.7 million at year-end.
- Capital returns and investment: The company repurchased $53.7 million of shares and paid $13.6 million in dividends. Net capital expenditures after disposal proceeds were $43.8 million; full-year 2021 net capital expenditures were expected to be $450–$500 million.
Changes versus Q1 2020
- Trucking revenue excluding fuel surcharge and intersegment transactions rose 6.3%; average revenue per tractor increased 7.7%, while miles per tractor declined 7.3%, partly due to inclement weather and unseated tractors. Trucking’s adjusted operating ratio improved to 81.8% from 86.5%.
- Logistics revenue excluding intersegment transactions grew 50.8%, and operating income more than doubled to $7.6 million. Brokerage revenue per load rose 43.0%; gross margin percentage eased to 14.4% from 14.7%.
- Intermodal revenue excluding intersegment transactions increased 13.1%, and the segment moved from a $2.7 million operating loss to $3.5 million operating income despite weather and service disruptions.
- Net income growth also reflected a $22.6 million favorable change in other income/expense, primarily from investment gains. Q1 2021 included $10.4 million of unrealized gains and $3.5 million of realized gains on equity investments; these items make reported earnings less indicative of recurring operating performance.
- Operating cash flow increased substantially, in part because Q1 2020 included $93.4 million of payments for previously accrued legal matters.
Outlook, risks, and unusual items
- Management described truckload demand as strong and expected it to continue through the rest of 2021 and into 2022, with favorable rates possible. It also cited limited capacity expansion related to parts availability and anticipated continued driver wage inflation. The filing provides no specific earnings or EPS guidance.
- Management expected sequential improvement in Intermodal results. It anticipated higher depreciation and lower rental expense as the company planned to purchase rather than primarily lease revenue equipment in the remainder of 2021.
- Key operating risks include driver sourcing and retention, wage inflation, insurance-market tightening and claims volatility, fuel-price changes and fuel-surcharge timing, freight demand and capacity conditions, and continuing COVID-19 uncertainty.
- The company acquired 79.44% of software provider Eleos for approximately $41.5 million in cash; purchase accounting remained preliminary. A $25 million convertible promissory note investment agreed to in April was funded May 4, after quarter-end.
- On April 23, 2021, the company amended its receivables securitization facility, extending maturity to April 2024 and increasing maximum borrowing capacity to $400 million. This subsequent event addressed the facility then scheduled to mature in July 2021.
- Outstanding purchase commitments included $654.8 million for revenue equipment for the remainder of 2021. Legal proceedings had an aggregate accrual of approximately $21.8 million; management did not expect pending matters, after accruals, to materially affect overall results, though outcomes could be material in an individual period.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much future earnings and cash generation depend on core freight operations versus investment gains and used-equipment disposal gains.
- Whether strong freight demand and pricing persist, and whether driver availability and wage inflation constrain fleet productivity and margins.
- Execution of the $450–$500 million net capital expenditure plan and its effect on depreciation, liquidity, and leverage.
- Facility availability and borrowing-base headroom under the amended receivables securitization agreement, alongside revolver and lease obligations.
- Developments in insurance claims, legal proceedings, COVID-19 impacts, and the preliminary Eleos purchase-price allocation.