Q1 2024 Knight-Swift Transportation Holdings Inc Earnings Call

John: Good afternoon. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation First Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. If at any time during this call you require immediate assistance, please press star zero for the operator. Speakers on today's call will be Adam Miller, Chief Executive Officer, Andrew Hess, Chief Financial Officer, Brad Stewart, Treasurer, and Senior Vice President of Investor Relations. Mr. Miller, the meeting is now yours.

Good afternoon, My name is John and I'll be your conference operator today at this time I would like to welcome everyone to the Knight just transportation first quarter 2024 earnings call.

Lines have been placed on mute to prevent any background noise.

Speaker Change: Time during this call may require immediate assistance. Please press star zero for the operator.

Speaker Change: Speakers for today's call will be Adam Miller, Chief Executive Officer, Andrew <unk>, Chief Financial Officer, Brad Stuart.

Adam W. Miller: Pressure and senior Vice President of Investor Relations. Mr. Miller, The meeting is now yours.

Adam W. Miller: Thank you, John, and good afternoon, everyone, and thank you for joining our first quarter 2024 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions, and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last one hour, and following our commentary, we'll answer questions related to these topics in order to have as many participants as possible.

Adam W. Miller: Thank you John.

Adam W. Miller: Good afternoon, everyone and thank you for joining our first quarter 2024 earnings call.

Adam W. Miller: Today, we plan to discuss topics related to the results of the quarter.

Adam W. Miller: Current market conditions, and our earnings guidance.

We have slides to accompany this call which are posted on our investor website. Our call is scheduled to last one hour.

Adam W. Miller: Following our commentary we will answer your questions related to these topics in order to get to as many participants as possible we limit the questions to one per participant.

Adam W. Miller: We limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If you're not able to get to your question due to time restrictions, you may call 602-606-6349.

If you have a second question please feel free to get back in the queue. We will answer as many questions as time allows.

Adam W. Miller: If youre not able to get you to your question due to time restrictions you may call 602, 600 66349.

Adam W. Miller: Now, before we jump into the slides, I want to introduce the two gentlemen that will be joining me on the call today for the first time, Andrew Hess and Brad Stewart. Andrew is our newly appointed CFO. Andrew has been with our company for the last five years and has served in several financial roles, including VP of Finance at Nite when he started in 2019, then led our M&A efforts beginning in January of 2021.

Speaker Change: Now before we jump into the slides I want to introduce the two gentlemen that would be joining me on the call today for the first time, Andrew has Sam Brad Stuart.

Speaker Change: Andrew has is our newly appointed CFO, Andrew has been with our company for the last five years and has served in several financial roles, including the VP of finance at night. When he started in 2019, then led our M&A efforts beginning in January of 2021, and you played a significant role in closing on the AAA Cooper.

Adam W. Miller: Andrew played a significant role in closing on the AAA Cooper, MME, and U.S. Express acquisitions. And just prior to becoming the CFO, Andrew was leading the finance efforts at Swift, along with continued oversight of M&A. So we want to welcome Andrew to the call. And many of you may be familiar with Brad Stewart, as he has been leading our investor relations activity for the past year. Brad is our treasurer and has held various finance leadership roles in McKnight and Swift businesses over the past several years. And he has been with the company for 20 years now. I'm excited to welcome both Brad and Angie to the call. And with that, I will now turn the call over to Brad.

Speaker Change: Mmm and U S Express acquisitions, Jeff.

Speaker Change: Prior to becoming the CFO, Andrew was leading the finance efforts at Swift along with continued oversight.

Speaker Change: M&A, we want to welcome Andrew to the call.

Speaker Change: And then many of you may be familiar with Brad Stuart as he has been leading our investor relations activity for the past year, Brad as our treasurer and has helped.

Speaker Change: Ed has held various finance leadership roles.

Speaker Change: Right and Swiss businesses over the past several years and Brad has been with the company for 20 years now and I'm excited to welcome both Brad and answer the call and with that I will now turn the call over to Brad.

Brad Stewart: To begin, I will first refer you to the disclosures on slide two of the presentation and note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1A, Risk Factors, or Part 1 of the company's annual report on Form 10-K, filed with the United States Securities and Exchange Commission, for a discussion of the risks that may affect the company's future operating results. However, actual results may differ.

Brad Stuart: Thank you Adam.

Brad Stuart: To begin I'll first refer you to the disclosures on slide two of the presentation and note that following this conference call and presentation may contain forward looking statements made by the company that involve risks assumptions and uncertainties that are difficult to predict investors are directed to the information contained in item <unk> risk factors or part one of the company's annual report on Form 10-K filed with the United States Securities.

And exchange Commission for a discussion of the risks that may affect the company's future operating results actual results may differ.

Brad Stewart: Now I will turn to our overview on slide three. The charts on slide 3 compare our consolidated first quarter revenue and earnings results on a year-over-year basis. Market conditions in the LTL business continue to be solid while soft demand and excess capacity persist in the truckloads business. Revenue excluding fuel surcharge increased 11% while our adjusted operating income declined by 68.5%. Gap earnings per diluted share for the first quarter of 2024 was a loss of $2.7 billion, and our adjusted EPS was 12.

Brad Stuart: Now I will turn to our overview on slide three.

The charts on slide three compare our consolidated first quarter revenue and earnings results on a year over year basis market conditions in the <unk> business continue to be solid while soft demand and excess capacity persist in the truckload space.

Brad Stuart: Revenue, excluding fuel surcharge increased 11%, while our adjusted operating income declined by 68, 5%.

Brad Stuart: GAAP earnings per diluted share for the first quarter of 2024 was a loss of <unk> <unk> and our adjusted EPS was <unk> <unk>.

Brad Stewart: These results include a $19.5 million operating loss in our third-party insurance, which ceased operations at the end of the quarter. The insurance loss negatively impacted our gap and adjusted EPS by 8 cents. Excluding the loss on the insurance business, our adjusted EPS would have been $20,000. Our results were also negatively impacted on a year-over-year basis by an $18 million increase in net interest expense, or approximately $0.08 per share. Now on to the next slide.

Brad Stuart: These results include a $19 $5 million operating loss in our third party insurance business, which ceased operations at the end of the quarter.

Brad Stuart: Reinsurance loss negatively impacted our GAAP and adjusted EPS by <unk> <unk>.

Brad Stuart: Excluding the loss on the insurance business, our adjusted EPS would have been 20.

Brad Stuart: Our results were also negatively impacted on a year over year basis by an $18 million increase in net interest expense or approximately <unk> <unk> per share.

Brad Stuart: Now on to the next slide.

Brad Stewart: Slide four illustrates the revenue and adjusted operating income for each of our segments. In general, the LTL segment continues to experience a much more supportive market than the truckload, logistics, and intermodal segments. The first quarter saw greater than average winter weather disruption, which negatively impacted all of our operations. In addition, the pricing and demand environment proved more challenging than we anticipated for all but our LTL business in the first quarter.

Brad Stuart: Slide four illustrates the revenue and adjusted operating income for each of our segments in general the LCR segment continues to experience a much more supportive market than the truckload logistics and intermodal segments too.

Brad Stuart: The first quarter saw a greater than average winter weather disruption, which negatively impacted all of our operating segments. In addition to pricing and demand environment has proven more challenging than we anticipated for all but our <unk> business in the first quarter.

Brad Stewart: The combination of the weather disruption, a more challenging bid environment, and ongoing cost inflation weighed on operating results across our businesses during the quarter. U.S. Express continues to make progress on cost and contractual pricing in the truckload segment, and the U.S. Express logistics business continues to close the gap, performing in line with our legacy logistics business on gross margin and operating margin for the core, Now on to slide 5, for the truckload segment.

Brad Stuart: The combination of the weather disruption more challenging bid environment and ongoing cost inflation weighed on operating results across our businesses during the quarter.

Brad Stuart: U S Express continues to make progress on cost and contractual pricing in the truckload business and the U S Express logistics business continues to close the gap performing in line with our legacy logistics business on gross margin and operating margin for the quarter.

Brad Stuart: Now on to slide five.

Brad Stuart: For the truckload segment.

Brad Stewart: We did see some recovery following the January weather disruption, as well as some seasonal improvement in March, but neither was enough to overcome the negative impact of volumes and operating costs from the poor start to the quarter.

Brad Stuart: We did see some recovery following the January weather disruption as well as some seasonal improvement in March but neither was enough to overcome the negative impact of volumes and operating costs from the poor start to the quarter.

Andrew Hess: Loose capacity continues to plague the truckload market, preventing the ability to recover ongoing cost inflation or attain appropriate utilization levels on our equipment. Combined truckload revenue per loaded mile was down 2.5% sequentially, though our contract rates are largely stable thus far in 2024. The early part of the bid season led to greater-than-expected pressure on freight rates, as some shippers were still trying to push rates down further. In some cases, we lost contractual volumes because we were not willing to commit to further concessions on what we view as unsustainable contractual rates.

Brad Stuart: Loose capacity continues to plague, the truckload market, preventing the ability to recover ongoing cost inflation or obtain appropriate utilization levels on our equipment.

Brad Stuart: Buying truckload revenue per loaded mile was down two 5% sequentially, though our contract rates are largely stable thus far in 2024.

Brad Stuart: Early part of the bid season led to greater than expected pressure on freight rates as some shippers are still trying to push rates down further.

Brad Stuart: In some cases, we have lost contractual volumes, because we were not willing to commit to further concessions on what we view as unsustainable contractual rates.

Andrew Hess: This resulted in more of our capacity being allocated to the spot market, which creates further pressure on revenue per mile and utilization in the near term but positions us to react to changes in the market when the market does inflect. U.S. Express made further progress on costs and contractual rates through bids, which allowed this business to overcome the weather disruption and some dedicated business losses to stay largely flat on the operating ratio from the fourth quarter on a year-over-year basis.

Brad Stuart: This resulted in more of our capacity being allocated to the spot market, which creates further pressure on revenue per mile and utilization in the near term, but positions capacity to react to changes in the market when the market does inflect.

Brad Stuart: U S Express made further progress on cost and contractual rates through bids, which allowed this business to overcome the weather disruption and some dedicated business sources, just stayed largely flat operating ratio from the fourth quarter.

Brad Stuart: On a year over year basis, our truckload revenue, excluding fuel surcharge increased 26%.

Andrew Hess: Our truckload revenue, excluding fuel surcharge, increased 26%, reflecting an 11% decline in the legacy truckload business prior to the inclusion of U.S. Express. However, revenue per loaded mile fell 10% year-over-year, or 9% before including U.S. Express. Miles per tractor increased 8% overall, or 6% before the inclusion of U.S. Express, largely driven by our earlier decision to reduce the number of unseated tractors in our legacy businesses in order to reduce costs. We have been intentionally trimming our tractor and trailer fleets over the past few quarters in order to improve our cost structure through the down cycle, but without cutting so far as to sacrifice our ability to flex when the market does improve. Now I'll turn the call over to Andrew to discuss our LTO business on slide six. Thanks, Brad.

Brad Stuart: Selecting an 11% decline in the legacy truckload business prior to the inclusion of the US Express revs.

Brad Stuart: Revenue per loaded mile fell, 10% year over year, or 9% before including U S Express.

Brad Stuart: Miles per tractor increased 8% overall or 6% before the inclusion of U S Express.

Brad Stuart: Driven by our earlier decision to reduce the number of unseated tractors in our legacy businesses in order to reduce cost.

Brad Stuart: We haven't been intentionally trimming, our tractor and trailer fleets over the past few quarters in order to improve our cost structure through the down cycle, but without cutting so far as to sacrifice our ability to flex when the market does improve.

Brad Stuart: Now I'll turn the call over to Andrew to discuss our <unk> business on slide six.

Andrew: Thanks, Brad.

Andrew Hess: The benefits of our diversification continue to stand out as market conditions in the LTL industry remain much more supportive than in trucking. Our LTL business group revenue, excluding fuel charge, increased nearly 13% year over year, shipments per day increased 6%, and Revenue Per 100 Weight Excluding Fuel Surcharge increased 3% year-over-year. With our LTL activities concentrated in regions exposed to severe weather during the quarter, the disruptions were particularly impactful to our network and operating costs for our LTL segment. In addition, maintenance and labor costs were higher than normal as we stretched to cover growing volumes and extend our reach into new facilities.

Andrew: Benefits of our diversification continue to standout as market conditions in the <unk> industry remain much more supportive than in truckload.

Andrew: Our <unk> business grew revenue, excluding fuel charged nearly 13% year over year as shipments per day increased 6%.

Andrew: <unk> revenue per hundredweight, excluding fuel surcharge increased 3% year over year.

Andrew: With our <unk> activity is concentrated in regions exposed to the severe weather during the quarter. The disruptions were particularly impactful to our network and operating costs for our <unk> segment.

In addition, maintenance and labor costs were higher than normal as we stretch to cover growing volumes and extend our reach into new facilities.

Andrew Hess: We anticipate these costs should normalize as we scale volumes and staffing while growing revenue and annual EPS. The cost pressures contributed to a 90% adjusted operating ratio for the quarter, and Adjusted Operating Income declining by over 20% year over year. While this margin level is not up to our expectations or recent performance, it did improve in each month of the quarter after bottoming in January and continues to progress thus far in April, on track with our expectations to be back online for the second quarter.

Andrew: We anticipate these costs should normalize as we scale volumes and <unk>.

Andrew: Staffing, while growing revenue and new locations.

Andrew: The cost pressures contributed to a 90% adjusted operating ratio for the quarter.

Andrew: <unk> adjusted operating income declining by over 20% year over year.

Andrew: While this margin level is not up to our expectations or our recent performance. It did improve in each month of the quarter after bottoming in January.

Andrew: <unk> to progress thus far in April are on track with our expectations to be back on line for the second quarter.

Andrew Hess: After being impacted by weather disruptions in January, volumes recovered well as average shipments per day in February increased nearly 7% over January and held steady into March. Since acquiring AAA Cooper and MME in 2021, we have acquired or assumed the leases on 56 additional properties. We had brought 14 locations online prior to 2024, and we opened seven more during the first quarter. We expect to open another 25 terminals by the end of 2024.

After being impacted by weather disruptions of January volumes recovered well as average shipments per day in February increased nearly 7% over January and held steady into March.

Andrew: Since acquiring AAA Cooper and MMA in 2021, we have acquired or assumed the leases on 56 additional properties.

Andrew: We had brought 14 locations online line prior to 2024, and we opened seven more during the first quarter. We expect to open another 25 terminals by the end of 2024.

Andrew Hess: Overall, the 32 locations planned to open in 2024 will represent a 16% increase in our door count from the end of 2023, meaningfully impacting the reach of our service offering and increasing the density of our network. Filling out a super regional network in the short term and ultimately creating a national network will allow us to participate in more freight and enable us to find opportunities to further support our existing truckload customers with LTL capacity. Acting on organic and inorganic opportunities to geographically expand our footprint within the LTL market remains a key strategic priority for us. Now on slide seven.

Andrew: Overall to 32 locations planned to open in 2024 will represent a 16% increase to our door count from the end of 2023, meaning.

Andrew: Meaningfully impacting the reach of our service offering and increasing the density of our network.

Andrew: Filling out a super regional network in the short term and ultimately, creating a national network will allow us to participate in more freight.

Andrew: And enable us to find opportunities to further support our existing truckload customers with LPL capacity.

Acting on organic and inorganic opportunities to geographically expand our footprint within the <unk> market remains a key strategic priority for us.

Andrew: Now on to slide seven.

Brad Stewart: The logistics market continues to be a challenge as many brokers have struggled to find enough volume, and margins have been compressed while purchase transportation rates offer little room for relief. Being an asset-based logistics provider allows us to provide our customers seamless service, regardless if it is on our own assets or one of our partner carriers. This allows us to provide both committed and search capacity and drop and hook trailer pull services at scale.

Andrew: Logistics market continues to be a challenge as many brokers have struggled to find enough volume and margins have been compressed and margin has been compressed bulk purchase transportation rates offer little room for relief.

Andrew: Being an asset base logistics provider allows us to provide our customers seamless service, regardless, if it is on our own assets or one of our partner carriers.

Andrew: This allows us to provide both committed and search capacity and drop and hook trailer full service at scale.

Brad Stewart: Because of this, our logistics business remains profitable, though margins were squeezed by the weather-induced capacity crunch in January and by our decision to divert loads to the asset division to help offset losses of contractual business through bid activity. Overall revenue is down 7% year over year as revenue per load improved 2% and load count declined 10%. The U.S. Express Logistics business continues to make progress and performed in line with our legacy logistics businesses on Gross Margin and Operating Margin for the Quarter. Now moving to slide 8.

Andrew: Because of this our logistics business remains profitable, though margins were squeezed by the weather induced capacity crunch in January and by our decision to divert loads to the asset division to help us set losses of contractual business through bid activity.

Andrew: Overall revenue was down 7% year over year as revenue per load improved 2% and low count load count declined 10%.

Andrew: The U S Express logistics business continues to make progress and performed in line with our legacy logistics.

Andrew: On gross margin and operating margin for the quarter.

Andrew: Now moving to slide eight.

Brad Stewart: In our intermodal business, revenue decreased 20% year over year, driven by a 19% decrease in revenue per load and a nearly 2% decrease in load count. The decline in project revenue from the prior year largely drove the decline in revenue per load and negatively impacted the adjusted operating ratio, which was largely in line with the fourth quarter. Load count declined 4% sequentially, which is better than the typical seasonal progression coming out of the fourth quarter, and we anticipate sequential volume growth into the second quarter based on progress thus far in the bid season. Okay, moving on to slide nine.

In our intermodal business revenue decreased 20% year over year.

Andrew: Driven by a 19% decrease in revenue per load and a nearly 2% decrease in load count the decline in project revenue from the prior year largely drove the decline in revenue per load and negatively impacted the adjusted operating ratio, which we're just Florida, which was largely in line with the fourth quarter.

Count declined 4% sequentially.

Andrew: Which is better than the typical seasonal progression coming out of the fourth quarter, and we anticipate sequential volume growth into the second quarter based on progress.

Andrew: Thus far in bid season.

Andrew: Moving to slide nine.

Andrew Hess: Slide 9 illustrates all other segments, formerly referred to as our non-reportable segments. This category includes support services provided to our customers, Independent Contractors, and Third Party Carriers, such as insurance, maintenance, equipment sales and rentals, equipment leasing, and warehousing activities. For the quarter, revenue declined 40% year-over-year, largely as a result of winding down our third-party insurance business, which ceased operations at the end of the quarter. The $20 million operating loss within all other segments is primarily driven by the $19.5 million operating loss in the third-party insurance business, as well as $8.2 million of severance, legal, accrual, and impairment charges recorded during the quarter within this category.

Andrew: Slide nine illustrates our all other segments, formerly referred to as our non reportable segments.

Andrew: This category.

Andrew: <unk> includes support services provided to our customers independent contractors and third party carriers, such as insurance maintenance equipment sales and rentals equipment leasing and warehousing activities.

Andrew: For the quarter revenue declined 40% year over year, largely as a result of winding down our third party insurance business, which ceased operations at the end of the quarter.

Andrew: The $20 million operating loss within all other segments is primarily primarily driven by the $19 5 million operating loss in the third party insurance business as well as $8 $8 2 million of severance legal accrual and impairment charges recorded during the quarter within this category.

Andrew Hess: In order to further reduce the risk of ongoing income statement volatility from potential adverse developments in the claims of the third party insurance program, we executed a transaction during the quarter to transfer the majority of the risk to another insurance company. The costs of this transaction are included in the operating loss of the insurance business for the court. Now, I will turn the call over to Adam first.

In order to further reduce the risk of ongoing income statement volatility from potential adverse development of the claims that the third party insurance program we.

Andrew: We executed a transaction during the quarter to transfer the majority of the risk to another insurance company.

Andrew: The cost of this transaction are included in the operating loss of the insurance business for the quarter.

Andrew: Now I will turn the call over to Adam for Slide 10.

Adam W. Miller: All right, thank you, Andrew. Over the next few slides, we plan to talk through our structure as a company and how we are positioned to navigate the cyclical freight environment, the strategic intent each of our businesses is measured against, and the ability of our model to generate profits and cash flows and how we manage that capital to drive long-term value for our stakeholders. We'll start with our truckload segment on slide 10.

Adam W. Miller: Alright, Thank you Andrew.

Adam W. Miller: Over the next few slides, we plan to talk to our structure as a company and how we are positioned to navigate the cyclical freight environment. The strategic intent each of each of our businesses are measured against and the ability of our model to generate profits and cash flows and how we manage that capital to drive long term value for our stakeholders.

Adam W. Miller: We will start with our truckload segment on slide 10.

Adam W. Miller: It's no secret that we are in one of the deepest freight recessions the truckload industry has ever felt. And it comes during a time when the rest of the economy is performing well, such that cost inflation continues to be a challenge, labor is staying tight, and interest rates are of significance.

Adam W. Miller: No secret that we are in one of the deepest freight recessions the truckload industry has ever felt and it comes during a time when the rest of the economy is performing well such that cost inflation continues to be a challenge labor staying tight and interest rates are up significantly. This has resulted in both significant pricing and cost pressures and as.

Adam W. Miller: This has resulted in both significant pricing and cost pressures and has led to razor-thin margins and even losses for some of the best-run companies in our industry. This environment, however, comes on the heels of one of the best markets our industry has ever seen, where many experienced record earnings and margins. It's clear that the highs during the pandemic have led to the lows in the current environment. As a cyclical industry, we are accustomed to changes in the market. We have never seen the extremes we are currently experiencing.

Adam W. Miller: Led to razor thin margins and even losses for some of the best run companies in our industry. This environment. However comes on the heels of one of the best market our industry has ever seen where many experienced record earnings and margins. It's clear that is that the high during the pandemic have led to the lows in the current environment.

Adam W. Miller: As a cyclical industry, we are accustomed to changes in the market. We have never seen each streams. We are currently experiencing when.

Adam W. Miller: When we compare our margin performance during this current cycle to previous cycles, we have found that while the current cycle's high is much higher, and the low is much lower. Our average margin over this cycle has been very similar to what we have typically achieved. Given that we are at the lowest levels of operating performance our business may have ever seen, we believe we are positioned to benefit from significant operating leverage as business conditions improve.

Adam W. Miller: When we compare our margin performance. During this current cycle to previous cycles, we have found that while the current cycle highs.

Adam W. Miller: Were much higher and the low as much lower our average margin over this cycle has been very similar to what we have typically achieved.

Adam W. Miller: Given that we are at the lowest levels of operating performance. Our business may have that we're seeing we believe we are positioned to benefit from significant operating leverage as business conditions improve.

Adam W. Miller: While we can't change the timing of any change in market dynamics, we believe we have positioned our business to endure a difficult market and to be prepared to rapidly improve margins and cash flow when we begin to experience an inflection in the market similar to our performance in previous cycles. We have a unique position in our truckload segment as compared to peers. We have several large brands, between Knight, Swift, and U.S. Express, and several other smaller brands that provide us with a view of the markets on a daily basis.

Adam W. Miller: While we can't change the timing of any change in market dynamics. We believe we have positioned our business to endure a difficult market and to be prepared to rapidly improve margins and cash flow. When we began to experience an inflection in the market similar to our performance in previous cycles.

Adam W. Miller: We have a unique position in our in our truckload segment as compared to peers. We have several large brands between Knight Swift and using spreads and several other smaller brands that provide us a view of the markets on a daily basis, we are able to read what is happening to supply and demand in each market and to determine if changes are a result of market.

Adam W. Miller: We're able to read what is happening to supply and demand in each market and determine if changes are a result of market trends or specific changes to the network of one of our brands. We believe this provides insight into shifts in the market before most of the industry has visibility. We can leverage technology and automation to connect to customers and find solutions using all of our brands. We have scale that enables us to solve large problems quickly and at a high level of service.

Adam W. Miller: Trends or specific changes to the network of one of our brands. We believe this provides insight to shifts in the market before most of the industry has visibility, we can leverage technology and automation to connect to customers and find solutions leveraging all of our brands we have scale that enables us.

Adam W. Miller: To solve large problems quickly and at a high level of service. We have maintained the majority of our truckload capacity in one way over the road service, which becomes very valuable to our customers in a favorable freight market, we intentionally managed our contractual versus spot exposure through different phases in the cycle and.

Adam W. Miller: We have maintained the majority of our truckload capacity in one-way over-the-road service, which is very valuable to our customers in a favorable freight market. We intentionally managed our contractual versus spot exposure through different phases in the cycle in order to create value for customers and for our business. Although we have areas where we can further improve costs, we maintain a culture of cost discipline throughout cycles, which allows us to reach levels of industry-leading margins in both good and difficult markets.

Adam W. Miller: Order to create value for customers and for our business. Although we have areas, where we can further improve costs, we maintain a culture of cost discipline throughout cycles, which allows us to reach levels of industry, leading margins in both good and difficult markets.

Adam W. Miller: Now that we have acquired U.S. Express and have had time to establish the right rigors around cost and revenue management, we believe this business is positioned to perform at levels significantly better than legacy U.S. Express, and we expect to close the margin gap within our legacy Knight and Swift fleets when we have a more favorable market. As margins improve, as margins improve, we generate significant amounts of free cash flow that enable us to invest in organic growth. M&A and other high-return investment opportunities across our sector. Now if we turn to slide 11.

Adam W. Miller: Now that we have acquired use express and at that time to establish the right rakers around cost and revenue management. We believe this business is positioned to perform at levels significantly better than legacy U S Express and we expect to close the margin gap within our legacy Knight and Swift fleets, when we have a more favorable market.

Adam W. Miller: As margins improves as margins improve we generate significant amounts of free cash flow that enabled us to invest in organic growth.

Adam W. Miller: M&A and other high return investment opportunities across our segments.

Adam W. Miller: Now if we turn to slide 11.

Adam W. Miller: The significant free cash flow generated by our truckload business allowed us to make a meaningful investment in the LTL market in 2021 without meaningfully increasing leverage. We purchased AAA Cooper and MME and have converted them to one platform, providing seamless service from the southeast through the northwest. We further identified opportunities to put capital to work to invest in 56 additional terminals to expand our footprint towards building out a nationwide network. We plan to continue down the path of organic growth but also maintain a desire to acquire LTO companies that will provide a foothold in the Southwest and Northeast regions.

Adam W. Miller: The significant free cash flow generated by our truckload business allowed us to make a meaningful investment in LTE and the <unk> market in 2021 without meaningfully increasing leverage we purchased AAA Cooper NME and have converted them to one platform, providing seamless service from the southeast through the north.

West we further identified opportunities to put capital to work to invest in 56 additional terminals to expand our footprint towards building out a nationwide network. We plan to continue down the path of organic growth, but also maintain a desire to acquire <unk> companies that will provide a foothold in the southwest and.

Adam W. Miller: Northeast regions, our goal over the medium term is to achieve a nationwide network with $2 billion in annual revenue.

Adam W. Miller: Our goal over the medium term is to achieve a nationwide network with $2 billion in annual revenue. We believe developing this network will provide access to more freight opportunities with existing and new customers, which should lead to improved margins and create additional synergies with our nationwide truckload network. A nationwide LTL network will also provide a larger base of more stable income that should reduce the earnings volatility of the company that comes with the cyclical nature of the truckload segment.

Adam W. Miller: We believe developing this network will provide access to more freight opportunities with existing and new customers, which should lead to improved margins and create additional synergies with our nationwide truckload network.

Adam W. Miller: A nationwide <unk> network will also provide a larger base of more stable income that should reduce the earnings volatility of the company that come with the cyclical nature of the truckload segment.

Adam W. Miller: We also believe that in the next upcycle, we will grow our logistics business at a rapid pace as it complements our truckload business and provides differentiated value through our scalable power only. And lastly, in our intermodal business, we continue to build a diverse customer base while developing strategic partnerships with our rail partners in the West, East, and in Mexico. We believe we can build this business back to profitability while offering our customers a sustainable alternative that complements our truckload services. Performing in these three segments, coupled with our truckload business returning to historical margins, will lead to both significantly improved earnings and cash. Now on to slide 12.

Adam W. Miller: We also believe that the next up cycle, we will grow our logistics business at a rapid pace as it complements our truckload business.

Adam W. Miller: And provides differentiated value to our scalable power only solutions.

And lastly in our intermodal business, we continue to build a diverse customer base, while developing strategic partnerships with our rail partners in the West East and in Mexico, and we believe we can build this business back to profitability, while offering our customers a sustainable alternative that complements our truckload services.

Adam W. Miller: Performing in these three segments, coupled with our truckload business returning to historical margins.

Adam W. Miller: We.

Adam W. Miller: We will lead to both significantly improved earnings and cash flow.

Adam W. Miller: Now on to slide 12.

Adam W. Miller: We outline how our path to generate strong cash flow from the previous slides combines with our prudent capital structure and disciplined capital allocation strategy to drive long-term value. We have always valued a strong balance sheet to provide us with flexibility in a cyclical industry. We're also mindful of optimizing our weighted average cost of capital. We target what we believe is our optimal leverage position of one to one point two five turns of EBITDA.

Adam W. Miller: We outlined how our path to generate strong cash flow from the previous slides combined with our prudent capital structure and disciplined capital allocation strategy to drive long term value.

Adam W. Miller: We have always valued our strong balance sheet to provide us flexibility in a cyclical industry.

Adam W. Miller: We're also mindful of optimizing our weighted average cost of capital we target. What we believe is our optimal leverage position of one to 125 turns of EBITDA as we execute on M&A. This leverage can flex up such as when we acquire AAA Cooper in 2021 or U S Express in 2023 and then.

Adam W. Miller: As we execute on M&A, this leverage can flex up, such as when we acquire AAA Cooper in 2021 or U.S. Express in 2023, and then we use free cash flow to reduce leverage back to this level to preserve flexibility for navigating cycles and pursuing additional opportunities. We will also prioritize investing in organic growth of our businesses, where we believe we can generate double-digit returns throughout the cycle. Organic LTL expansion is our near-term focus, but as the truckload market improves, we are willing to invest in additional capacity and terminals where we believe we can successfully grow. At Knight Swift, we have had several successful large acquisitions, and we remain opportunistic with acting on M&A opportunities that drive value for our organization. Currently, our priority is building out our LTO network.

Adam W. Miller: We used free cash flow to reduce leverage back to this level to preserve flexibility for navigating cycles and pursuing additional opportunities.

Adam W. Miller: We will also prioritize investing in organic growth of our businesses, where we believe we can generate double digit returns throughout cycles organic LCL expansion is our near term focus but as the truckload market improves we are willing to invest in additional capacity in terminals, where we believe we can successfully grow.

At Knight Swift, we have had several successful large acquisitions and we remain opportunistic with acting on M&A opportunities that drive value for our organization. Currently our priority is building out our <unk> LTE network as we strengthen our balance sheet improve the margins of our core businesses generate additional free cash flow.

Adam W. Miller: As we strengthen our balance sheet, improve the margins of our core businesses, and generate additional free cash flow, we will remain open to additional types of M&A outside of LTO. We also remain committed to reviewing our dividend policy on a regular basis and have increased our quarterly dividend by two cents per share for five consecutive years now. A flexible balance sheet also gives us the ability to opportunistically repurchase our shares when we believe it is the best return option for our free cash flow.

We will remain open to additional types of M&A outside of LCL.

Adam W. Miller: We also remain committed to reviewing our dividend policy on a regular basis and have increased our quarterly Devin dividend <unk> <unk> per share for five consecutive years now a flexible balance sheet also gives us the ability to opportunistically repurchase our shares when we believe it is the best return option for our free cash flow.

Adam W. Miller: In summary, we are compelled by the outsized runway ahead of us for improving earnings of both our legacy and newly acquired businesses, driving significant free cash flow through cycles, and leveraging a disciplined approach to deploying capital to further increase the capital generating power of our company through successive cycles. Now on to our last slide, 13, for our earnings guidance. We have outlined in great detail our key assumptions for our guidance in this slide, which are also stated in the earnings release. I won't plan to read through them all.

Adam W. Miller: In summary, we are compelled by the outsized runway ahead of us for improving earnings of both our legacy and newly acquired businesses driving significant free cash flow through cycles, and leveraging a disciplined approach to deploying capital to further increase the capital generating power of our company through success.

Adam W. Miller: The cycles.

Adam W. Miller: Now onto our last slide 13 for our earnings guidance.

Adam W. Miller: We have outlined in great detail, our key assumptions to our guidance in this slide which you also stated in the earnings release I wont plan to read through them all because the timing of the inflection has proven especially difficult to predict during this cycle, we are not incorporating an inflection and market condition.

Adam W. Miller: Because the timing of the inflection has proven especially difficult to predict during this cycle, we are not incorporating an inflection in market conditions for the purposes of these forecasts but rather are basing these ranges on expected seasonality and a continuation of existing market conditions, similar to what we've felt in March and April thus far. Based on these assumptions, we expect our adjusted EPS for the second quarter will be in the range of $0.26 to $0.30, and our adjusted EPS for the third quarter will be in the range of $31 to $35. Our expected adjusted EPS ranges are based on the current truckload, LTL, and general market conditions, recent trends, and the current beliefs, assumptions, and expectations of management. And actual results may differ.

Adam W. Miller: For the purposes of these forecast, but rather are basing these ranges unexpected seasonality and a continuation of existing market conditions similar to what we've felt in March and April thus far based on these assumptions, we expect our adjusted EPS for the second quarter will be in the range of 26 to 30.

Adam W. Miller: And our adjusted EPS for the third quarter will be in the range of 31% to 35.

Adam W. Miller: Our expected adjusted EPS ranges are based on the current truckload LCL and general market conditions recent trends and our current beliefs assumptions and expectations of management and.

Adam W. Miller: Actual results may differ now.

Adam W. Miller: Now that concludes our prepared remarks. And before I turn it over to questions, I just want to remind everyone to keep it to one question per participant. And, John, we can now open the line for questions.

Speaker Change: That concludes our prepared remarks, and before I turn it over for questions I, just want to remind everyone to keep it to one question per participant.

Speaker Change: And John we can now open the line for questions.

John: Thank you, ladies and gentlemen at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.

John: Ladies and gentlemen, at this time I would like to remind everyone, in order to ask a question, please press Star, then the number 1 on your telephone keypad. Again, this is Star 1, your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Ravi Shanker from Morgan Stanley. Your line is now open. Thanks to everyone and congratulations Adam, Andrew, and Brad on your respective new positions.

Again this is star one on your telephone keypad, we'll pause for just a moment.

Speaker Change: To compile the Q&A roster.

Speaker Change: Your first question comes from the line of Ravi Shanker from Morgan Stanley. Your line is now open.

Ravi Shanker: Thanks, everyone and congratulations Adam Andrew and Brad in your respective new positions.

Ravi Shanker: Adam your commentary on the average margins as being in line with kind of a.

Ravi Shanker: Historical levels was interesting.

Ravi Shanker: Do you think that's a good benchmark for how we think about normalized mid cycle margins in the next cycle and beyond that.

Ravi Shanker: Same thing for EPS as well, obviously adjust to where you had expressed or how do you think of what normalized earnings look like thank you.

Adam W. Miller: Yeah, I think that's a great question, Ravi. And I think that's a good goalpost to use in terms of just trying to gauge what the performance will be across the next cycle. I do believe that we probably won't see the same highs as we saw in the COVID cycle or the pandemic and certainly not the lows that we are currently experiencing right now. I do feel like it won't take long for the US Express business to begin to align its performance with Knight and Swift. It may not be, you know, right in the first up cycle, but maybe maybe the second one might be when we close that gap. But I think we will make some progress here in the first up cycle.

Speaker Change: Yes, I think Thats, great quick question, Robby and I think that's a good goalpost to use in terms of just trying to gauge what the performance will be across the next cycle I do believe that we probably don't see the same highs as we saw in the COVID-19 cycle of the pandemic and certainly.

Speaker Change: Hopefully not the lows that we are currently experiencing right now.

Speaker Change: I do feel like it won't take long for the use express business to begin to align their performance with with Knight Swift and may not be.

Robby: Right and the first up cycle, but maybe maybe the second one might be when we close that gap, but I think we will make some progress here in the first up cycle. I think we would also want to look at the performance of our <unk> business. When you think about earnings potential because we do believe that we'll continue to scale.

Adam W. Miller: I think we would also want to look at the performance of our LTL business when you think about earnings potential because we do believe that will continue to scale. And we've laid out the expectation of getting to $2 billion in the midterm here. And again, it may be another cycle or two before we get there, depending on how quickly we can move on M&A targets. And certainly, there's opportunity to improve the margin in that business.

Speaker Change: Yes laid out the the expectation of getting to $2 billion in the midterm here and again that may be another cycle or two before we get there depending on how quickly we can move on M&A targets and certainly there is opportunity to improve the margin in that business and I think we're targeting now a mid <unk> operating ratio, but there are certainly other.

Adam W. Miller: I think we're targeting now a mid-80s operating ratio, but there are certainly other companies out there performing much better than that, and having a nationwide network, I think gives us the opportunity to expand those margins. And I do believe in the next up cycle, intermodal will perform better as we kind of, you know, kind of reset how we're building up that business with a diverse portfolio of customers. And and really logistics, with layering on US Express logistics with the Knight and Swift logistics and the capabilities we have as a power only, I think there's more potential in that segment as well. But when I look at truckload, I think that's probably a good gauge of what that kind of mid-to-mid cycle margin may be.

Companies out there performing much better than that and having a nationwide network and it gives us the opportunity to expand those margins and I do believe in the next up cycle intermodal will should perform better as we've kind of reset how we are building up that business with a diverse portfolio of customers.

Speaker Change: And really logistics with layering on U S Express logistics with the Knight Swift logistics and the capabilities. We have a power only I think there is more potential in that segment as well, but when I look at truckload I think thats, probably a good gauge of what that kind of mid mid cycle margin may be.

Speaker Change: Great. Thank you.

Speaker Change: Yep.

Thomas Richard Wadewitz: Your next question comes from the line of Tom Wadewitz from UBS. Your line is now open.

Speaker Change: Your next question comes from the line of Tom <unk> from UBS. Your line is now open.

Adam W. Miller: Yeah, good afternoon. Thanks for the time, and I appreciate the perspective on how to think about cycles. Wanted to see if you could offer some thoughts on, I guess, in the prior two cycles, it seems like the amplitude of the step-up in rates has been even bigger in 2018 with ELD and then, obviously, COVID, pretty unusual, a big step-up. Do you think that, I mean, I guess it's hard to know ahead of time, but do you think that the likely outcome is that we'll find another catalyst that gives you a big step up?

Yes, good afternoon, thanks for the time and.

Tom: I appreciate the perspective on kind of how to think about cycles.

Tom: Wanted to see if you could offer some thoughts on.

Tom: I guess in the prior two cycles. It seems like the amplitude of the step up in rates has been even bigger in 2018 with ILD and then obviously COVID-19 pretty unusual big step up.

Tom: Do you think that.

I guess, it's hard to know ahead of time, but do you think that the likely outcome is we'll we'll find another catalyst that gives you a big step up because.

Adam W. Miller: Or do you think its base case should be that it's kind of ends up being like a slow grind up? And I guess the reason I ask is because we just, as you point out, it's kind of a lower base. And so you think about getting to that mid-cycle margin. It seems like, you know, reasonable to get back to that, but it also seems like, you know, maybe that takes a long time to get to. So I don't know, my crystal ball is not so clear right now, Adam. So I was wondering if you could offer some more perspective on kind of how we get to

Or do you think it's base case should be that it's kind of ends up being like a slow grind up in I guess the reason I ask is because we just as you point out it's kind of a lower base and so you think about getting to that mid cycle margin.

Tom: It seems like.

Tom: Reason will you get back to that but it also seems like.

Tom: Maybe that takes a long time to get to so.

Speaker Change: I don't know Mike My Crystal ball is not so clear right now Adam So I was wondering if you could.

Adam W. Miller: Offer some more perspective on kind of how we get to that mid cycle. Thank you.

Adam W. Miller: Yeah, I don't know that my crystal ball is any better than yours, Tom. You know, when I think about the last few cycles, I think they've all had kind of unique catalysts that have kind of kicked them off. I think of 2013, early 14, you know. We'd been in a long period of, you know, kind of pressure on the carrier, and it was somewhat of a severe weather event that kind of kicked that off, and all of a sudden, it was tough to find a truck.

Adam W. Miller: Yes, I don't know that my Crystal ball is any better than yours Tom.

Adam W. Miller: When I think about the last few cycles I think they've all had kind of unique catalysts that have kind of kicked them off I think of 2013 early 14.

Adam W. Miller: In a long period of.

Speaker Change: Competitive pressure on the on the carrier and it was somewhat of a severe weather event that kind of kick that off and all of a sudden it was tough to find a truck and I think the capacity that had been coming out of the market finally caught up with where demand was and that led to I think very healthy rate increases and very strong margins and then as you read.

Adam W. Miller: And I think the capacity that had been coming out of the market finally caught up with where demand was, and that led to, I think, very healthy rate increases and very strong margins. And then, as you referenced, in late 17, that was right when we closed the Knight and Swift merger, we saw the market take off, and I think that was attributed largely to the ELD mandate. And then, obviously, we had COVID.

Speaker Change: Friends in late 17, and that was right when we close the night and Swift merger.

Speaker Change: We saw the market take off and I think that was attributed largely to the ELD mandate and then obviously we had COVID-19.

Speaker Change: That kicked off huge demand. So it's hard to know what is going to be the catalyst here clearly, we see capacity coming out of the market when we kind of track what the.

Adam W. Miller: That kicked off huge demand, you know, the changes in DOT authorities. And then we hear about the kind of anecdotal failures of companies that have been in business for a long period of time and just can't make it through the market dynamics today. It's hard to know when that's going to, you know, finally, be enough to balance out where the demand side is. I think it's going to be a combination of probably demand beginning to improve as customers are no longer de-stocking and are now, you know, replenishing inventories one for one.

Speaker Change: The changes in D. O T authorities and then we hear about the kind of anecdotal failures of companies that have been in business for a long period of time and just can't make it through the market dynamics today, it's hard to know when that's going to finally.

Speaker Change: Be enough to balance out where the demand side is I think it's going to be a combination of probably demand beginning to improve as customers are no longer destocking in and are now.

Speaker Change: Replenishing inventories one for one and eventually they'll go and they'll have a greater focus on top line sales in that inventory may may grow a bit while you have demand falling and what we know is this industry rarely stays in balance at any point in time. It is like an object in motion stays in motion and that will most likely kick off.

Adam W. Miller: And eventually, they'll go, they'll have a greater focus on top line sales, and that inventory may may grow a bit while you have demand falling. And what we know is this industry rarely stays in balance at any point in time. It's just like an object in motion stays in motion, and that will most likely kick off, you know, an opportunity to raise rates. To what degree? I don't know, Tom.

Speaker Change: <unk>.

Speaker Change: An opportunity to raise rates too.

Speaker Change: To what degree I don't know, Tom it's really hard to to try to estimate what that could be we may find ourselves in a spot where there's maybe a little more progress to be made on the cost side because that just has not been available in this freight recession. Because you just haven't had some of the other overall economic challenges that typically.

Adam W. Miller: It's really hard to try to estimate what that could be. We may find ourselves in a spot where there's maybe a little more progress to be made on the cost side because that just has not been available in this freight recession because you just haven't had some of the other, you know, overall economic challenges that typically lead to relief on the cost side. So I think when you get back to margins, it won't it won't all be right. I think that'll be obviously a large portion of.

<unk> two to relief on the cost side. So I think when you get back to margins. It won't it won't all be right I think that'll be obviously, a large portion of it but I think there is some cost help that I think are our industry really needs here to get back to those historic margins, but what we do know is it will happen. It's just a matter of.

Adam W. Miller: But I think there's some cost help that I think our industry really needs to get back to those historic margins. But what we do know is it will happen. It's just a matter of when, and right now, it's been really hard to predict when that could be. And so our strategy is, let's just not, you know, let's not try to make that prediction. Let's try to grind out better margins in all of our segments and control what we can control and position ourselves so that when it does turn, we'll move quicker than anyone in the space. Okay, great. Thanks for the time, Adam. I don't know, Andrew. Did you have something to add?

Speaker Change: When and right now, it's been really hard to predict when and when that could be and so our strategy is let's just not.

Speaker Change: Let's not try to make that prediction that shut a grind out better margins in all of our segments and control we can what we can control.

Speaker Change: And position ourselves that when it does turn we will move quicker than anyone in this space.

Speaker Change: Okay, great. Thanks for the time Adam.

Speaker Change: Andrew did you ask if the net and we just made.

Andrew Hess: Let me just add a couple thoughts to what Adam shared, which I agree with. So, yeah, we're deeper than we've ever been, but I would say our operating leverage is higher than it's ever been before.

Andrew: A couple thoughts to Adam shared which I agree with so yes, we are deeper than we've ever been.

Speaker Change: I would say.

Andrew: Our operating leverage is higher than it's ever been for if we truly look at obviously rates have been incredibly impactful in terms of getting to the position. We are at right now in margins, but volume.

Andrew Hess: If we truly look at, you know, obviously rates have been incredibly impactful in terms of getting to the position we're at right now in terms of margins, but volume has also been equally impactful. So, you know, as we really look at our variable costs, we're performing kind of in line with where we've been in the past. In a significant way, there's a fixed cost absorption play here, which means that with volume, our costs are going to grow slower on the ramp back up.

Andrew: <unk> has also been equally impactful.

Andrew: So as we really look at our our variable costs.

Andrew: We're performing kind of in line with where we've been in the past.

Andrew: In a significant way, there's a fixed cost absorption.

Andrew: Play here, which means with volume or costs are going to grow slower on the ramp backup so that leverage is going to see that curve moved quickly.

Andrew Hess: So that leverage is going to see that curve move quickly north, as well as it's gone down because of that lost volume. So, you know, as we've kind of modeled that, that gives us some encouragement that, you know, the path back could be maybe a little faster than you think if we can get volume and rate working together. Yeah, it's just rare that you ever see the market move linearly. It's always a pretty rapid change, and we've seen that on the up and the down. So, but hey, we're watching all the signs, Tom, and again, we'll move quickly when we see any of those changes occur. It's a good point to consider.

Andrew: <unk> as well as its gone down because of that lost volume so.

Andrew: As we've kind of model that gives us some encouragement that.

Andrew: Our pass backs could be maybe a little faster than you think if we can get volume and rate working together. It's just rare that you ever see the market move linearly, it's always a pretty rapid change and we've seen it on the up and down so.

Andrew: But hey, we're watching all the signs Tom then again, we'll we'll move quickly when we see any of those changes occur.

Andrew Hess: It's a good point to consider the volume lever and utilization as well as as well as the price. So yeah, thank you for that point as well, Andrew.

Speaker Change: It's a good point to consider the volume lever and utilization as well as well as the price. So yes. Thanks. Thank you for that point as well Andrew.

Amit Singh Mehrotra: Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Your line is now open.

Speaker Change: Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Your line is now open.

Amit Singh Mehrotra: Thanks, Operator. Hi everyone.

Amit Singh Mehrotra: Thanks, Operator, hi, everyone.

Adam W. Miller: I think there were some maybe small signs of life as we progressed through the end of March, but it was obviously uncertain if that was just the timing around when Easter fell, or was it something real? Can you just maybe give us an update on that in terms of whether you saw any of that actually carry over into April? And Adam, I think, like I assume one of the reasons for the depths of the decline is because you aren't signing up for contracts, and you're participating probably more so in company load boards than you have in the past.

Amit Singh Mehrotra: Think there was some maybe small signs of life as we progress through the end of March but it was obviously uncertain if that was the timing around when Easter fell.

Amit Singh Mehrotra: Or was it something real.

Amit Singh Mehrotra: Can you just maybe give us an update on that.

Amit Singh Mehrotra: In terms of if you saw any of that actually carryover into April and Adam I think like I assume one of the reasons for the depths of the of the decline is because you aren't signing up for for contracts and you're participating probably more so than company load boards than you have in the past and so that obviously has an implication for.

Adam W. Miller: And so that obviously has an implication for what the pivot could be. And if you could just talk about the concentration in the spot market and the company load boards today relative to what it has been in history, and maybe what that means for your ability to participate if the spot market gives you anything to participate in.

Amit Singh Mehrotra: What the pivot could be and if you could just talk about.

The concentration in the spot market and the company load boards today relative to what it was in history and maybe what that means for your ability to participate if the spot market gives you anything to participate with.

Adam W. Miller: OK, I'll answer your three questions in one, Amit, if that works. And hey, that was, I think, the best pronunciation of your name. So, credit to the operator there. I agree. Yeah. So, yeah, in March, and I think we've talked about this, I think, in our pre-announcement, I believe, with some of the analysts, you know, we did see a little bit of seasonality going to the quarter end.

Speaker Change: Okay I'll answer your three questions in one omit that works and Hey that was I think the best pronouncement of your name so.

Speaker Change: The credit to the operator there.

Speaker Change: I agree.

Speaker Change: Yeah. So so yes in March and I think we've talked about this.

Speaker Change: I think.

Speaker Change: Our pre announcement I believe and with some of the analysts we did see a little bit of seasonality going to the quarter end.

Adam W. Miller: And it's really the first time that we've really seen a change in volume and a few projects here or there in certain markets. The first time we've seen that at a quarter end for quite some time, but it was short lived. And, you know, it's really a few weeks, and then you hit April, and usually, you have a little bit of a lull in April as you get through quarter end, especially as you mentioned, it was aligned with Easter. And so that's normal.

Speaker Change: And it's really the first time that we've really seen a change in in volume and <unk>.

Speaker Change: Few projects here or there in certain markets.

Speaker Change: First of all we've seen that in a quarter in in quite some time that it was short lived and it was really a few weeks and then you hit April and you usually and you have a little bit of a lull in April as you get through quarter end, especially as you mentioned it was aligned with Easter and so thats normal, but we are seeing some of those some of that volume come back now hasn't led to.

Adam W. Miller: But we are seeing some of those that some of that volume coming back now hasn't led to premium pricing, but it has led to additional volume. And so I think there is some encouragement there. And I think the takeaway here is that there's not as much slack in the supply chain as there once was, and we're getting closer to a balance of supply and demand when we see just a little bit of an uptick in demand start to eat up capacity in certain markets.

Speaker Change: To premium pricing, but it has led to additional volume and so I think there is some encouragement there and I think the read through there is that there's not as much slack in the supply chain as there once was and we're getting closer to the balance of supply and demand when we see just a little bit of an uptick in demand.

Speaker Change: Man start to eat up capacity in certain markets and again, we watch that very closely between all of our different brands and what happens in each individual market and we can see shifts and sometimes those are weekly sometimes those are daily.

Adam W. Miller: And again, we watch that very closely between all of our different brands and what happens in each individual market. And we can see shifts, sometimes those are weekly, sometimes those are daily. But clearly, there are some markets that have firmed up when you see some seasonal lift. And, you know, we'll pay attention closely here as you get into the middle of May when the weather heats up and, as a country, we're moving and consuming a lot more beverages, and you have produce, produce heating up.

Speaker Change: But clearly there are some markets that have firmed up.

Speaker Change: When you see some some seasonal lift and.

Speaker Change: We will pay attention closely here as you get into the middle of May when the weather heats up.

Speaker Change: As the country, removing and consuming a lot more beverage and you have produce produce heating up.

Adam W. Miller: That's when we would expect to see some of that same seasonality pick up, and I think that, again, will be very telling of where the dynamic is between supply and demand. And so in the near term, you know, we've gone through the bids or the early part of the bids. We're probably about 40 percent implemented on new pricing for our freight network, and we probably have been in some level of negotiation for about 75 percent.

Speaker Change: When we would we would expect to see some of that same seasonality pick up I think that again will be very telling of where the dynamic is between supply and demand and so in the near term.

Speaker Change: We've gone through.

Speaker Change: Bids or early part of the bids we're probably about 40% implemented on new pricing.

Speaker Change: Of our of our freight network, probably have been in some level of negotiation of about 75% and there has been some puts and takes and there are some where we've been able to get some rate increases to support.

Adam W. Miller: And there's been some puts and takes, and there are some where we've been able to get some rate increases to support, you know, the capacity we have and others where maybe we were starting at a more premium rate where we gave a little bit and others where we were flat. But there are just some places we just were not willing or not able to go to where our customers wanted to take us.

Speaker Change: The capacity, we have and others, where maybe we were starting at a more premium rate, where we gave a little bit and others, where we were flat, but there is just some places we just we're not willing or not able to go where our customer wanted to take us in and we just we couldnt commit to rates that werent sustainable.

Adam W. Miller: And, you know, we just weren't We couldn't commit to rates that weren't sustainable. And hey, there's this dynamic right now where the public, the large public carriers who have to get a return for their shareholders, who have some type of return expectations, are limited in what they can do with rates, where you have smaller private companies who, right now, are just trying to keep the doors open in hopes that they can survive until when there's a market inflection and they can make up some of the losses that they've taken on.

Speaker Change: And Hey, there is this dynamic right now where the public the large public carriers, who have to get a return for those shareholders who have some type of return expectations are limited on what they can do with right where you have smaller private companies who right now are just trying to keep the doors open.

Speaker Change: In hopes that there they can survive to when there is a market inflection and they can make up some of the losses that they've that they've taken on and that gap is maybe a little bit wider than we've seen in quite some time and so we get.

Adam W. Miller: And that gap is maybe a little bit wider than we've seen in quite some time. And so, you know, we get you know, our customers have a responsibility to manage their budget and their costs, just like we have a responsibility to return to our business. And so there are just places where we just decide that maybe it's not a good fit.

Speaker Change: Our customers have a responsibility to manage their budget and their costs just like we have a responsibility to returns two to our business and so there is there's just places where we just decided that maybe it's not a good fit.

Adam W. Miller: And we'll work and be nimble and try to find other opportunities to support our network. Some of that may be on customer load boards. Some of that may be just winning in bids with other customers. And so where we have some gaps that have been created in our network, we still have many bids that we can work through to try to fill those. So it's a pretty dynamic and fluid process as you work through the bid season.

Speaker Change: And we will work and be nimble and try to find other opportunities to support our network. Some of that may be on customer load boards. Some of that may be just winning in bids with other customers and so we're we have some some gaps that are being created a network. We still have so many bids that we can work through to try to fill those so it's a pretty.

Speaker Change: Dynamic and fluid process as you work through the bid season I think one.

Adam W. Miller: I think one another positive sign, and again, it's just a very early sign, is that as we've seen some of these bids go live and implement, there's been a churn, a churn bid that comes to us, and we have an opportunity to maybe pick up some freight that wasn't awarded to us because of a failure of some sort of a carry or a rejection of the award because of where And that gives us an opportunity to continue to repair our network.

Speaker Change: Another one positive sign in and again, it's just very early sign is as we've seen some of these bids go live and implement theres been a churn or churn bid that comes to us. So we have an opportunity to to maybe picks up some freight that wasn't awarded to us because of the failure of some sort of a carry or rich.

Speaker Change: <unk> of the award because of where the pricing is and that gives us an opportunity to continue to repair our network now it may not be at premium pricing today, but pricing that was closer to what we originally bid on.

Adam W. Miller: Now, it may not be at premium pricing today, but pricing that was closer to what we originally bid on. And so it's just been a real consistent theme, not huge, but I think another data point that would tell us that we're getting closer to getting closer to balance. Okay, very clear.

Speaker Change: And so it's just been a real consistent theme not huge but I think another data point that would tell us that that that we're getting closer to getting closer into balance.

Speaker Change: Adam I would say very clear spread mix on the on the spot exposure complement to that question. We were high single digits. Later in 2023, and then through the churn on the contractual volume Adam talked about in the bid season Thats pushed up into the low double digits at this point and depending on how bid season continues to play out that could creep up further through the rest of the bid season or maybe <unk>.

Brad Stewart: Adam, in the spot exposure compliment to that question, we were high single digits late in 2023, and then through the turn on the contractual volume Adam talked about in the bid season, that's pushed up into the low double digits at this point, and depending on how the bid season continues to play out, that could creep up further through the rest of the bid season, or maybe it levels off here.

Speaker Change: Evil's off here.

Scott H. Group: Your next question comes from the line of Scott Group from Wolf Research. Your line is now open.

Speaker Change: Helpful. Thank you very much.

Speaker Change: Thanks, Nick.

Okay.

Speaker Change: Your next question comes from the line of Scott Group from Wolfe Research. Your line is now open.

Scott H. Group: Hey, thanks. Good afternoon.

Scott H. Group: Hey, Thanks, good afternoon. So I just wanted to focus on the guidance a little bit so Q2 higher than Q1, and then Q3 earnings higher than Q2. Some years Q3 is higher than Q2, but some years worse. So I guess ultimately I'm trying to understand here.

Scott H. Group: So I just want to focus on the guidance a little bit. So Q2 earnings will be higher than Q1, and then Q3 earnings will be higher than Q2. Some years, Q3 is higher than Q2, but some years, it's worse. So I guess, ultimately, what I'm trying to understand here, are you assuming that truckload rates start moving higher in order to get to this? Guidance, or is this assuming rates stay flat? And then on the LTL side, you've got rev per hundred weight up low to mid-teens in Q2, Q3. That's just, it's a lot of, those are big increases. And I just curious about your visibility of that, particularly in Q3, once we start to lap.

Scott H. Group: Are you assuming the truckload rates start moving higher in order to get to this guidance or is this assuming.

Scott H. Group: Rates stay flat and then on the <unk> side, you've got Rev per hundredweight up low to mid teens in Q2 Q3, that's just so it's a lot of those.

These are big increases and I'm, just curious your visibility of that particularly in Q3 once we start to lap.

Andrew Hess: Alright Scott, I'm going to have Andrew kind of dive into some of those questions here.

Scott H. Group: Yellow.

Scott H. Group: Alright, Scott I'm going to have Andrew.

<unk> into some of those questions here.

Andrew Hess: Yeah, and hey, thank you, with the questions. So, um, yeah, I think there's a couple dynamics that need to kind of be clear as we kind of look at the sequential numbers. So, Q2 is going to be obviously our strongest quarter from an LTL perspective. It is typically seasonal, and it is certainly in our business.

Andrew: Thank you.

Andrew: For the question so.

Andrew: Yes, I think Theres a couple of dynamics that.

Andrew: You need to kind of be clear as we kind of look at the sequential numbers. So Q2 is going to be obviously, our strongest quarter from an LTM perspective. It is typically seasonally and it is certainly in our business. So that's generating a significant uplift from from Q2 to Q3, but from a rate perspective, we.

Andrew Hess: So that's generating a significant uplift from Q2 to Q3. But from a rate perspective, we expect some additional rate pressure going from Q1 to Q2. Not necessarily in our primary rates, but as we participate in spot rates, it's going to maybe put some additional pressure, not significant, but some downward pressure. And so we're not expecting any, through either of these periods, any rate uplift at all between quarters. So yeah, I would characterize this as the forecast we have to be, you know, capturing what we view as normal seasonality for our business with market conditions as we are experiencing now, so we're expecting some strengthening just seasonally in May and June, and then March, or Q3, will follow a similar pattern to Q2, so no real strengthening in those numbers leading to Q3.

Andrew: Expect some additional rate pressure going from <unk>.

Andrew: Q1 to Q2, not as not necessarily in our primary rates, but is because we participate in spot rates, that's going to maybe put some additional pressure not significant but some down downward pressure and so we're not expecting any.

Andrew: Through either of these periods any any rate uplift at all.

Andrew: Between.

Andrew: Between quarters, So, yes, I would characterize this forecast we have to be.

Andrew: Capturing what we view as normal seasonality for our business with market conditions as.

Andrew: We are experiencing now so we're expecting some strengthening just.

Andrew: Seasonally in May and June.

And then March.

Q3 will follow a similar pattern to Q2, so no real strengthening in those numbers.

Adam W. Miller: Q3. Hey, Scott, what I would add is, you know, from a rate perspective, I think it's very steady, you know, from Q2 to Q3. We don't see a lot of change there. I think some of the margin improvement would be driven more from some of our cost efforts, where we're kind of leaning out our trailer fleet right now to get, you know, you know, a tighter trailer to tractor ratio. We're seeing better utilization on our seated trucks.

Speaker Change: Leading into Q3, and a Scott what I would add is.

From a rate perspective, I think its very steady.

Speaker Change: From Q2 to Q3, we don't see a lot of change there I think some of the margin improvement will be driven more from some of our cost efforts, where we're kind of leaning out our trailer fleet right now.

Speaker Change: Tighter trailer to tractor ratio, we're seeing better utilization on our seated trucks and so typically third quarter is one of your better utilization months or quarters, I know that sometimes Q2 to Q3 gets better gets worse or just thinking just just marginally better really driven by some of our cost initiatives.

Adam W. Miller: And so typically, the third quarter is one of your better utilization quarters. But I know that sometimes Q2 to Q3, it gets better, it gets worse. We're just thinking about it being marginally better, really driven by some of our cost initiatives, not expecting the market to really drive that change.

Speaker Change: Not expecting the market to really drive that change.

Adam W. Miller: Okay, thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Okay.

Kenneth Scott Hoexter: Your next question comes from the line of Quinn Hoexter from Bank of America. Your line is now open.

Speaker Change: Your next question comes from the line of Glenn <unk> from Bank of America. Your line is now open.

Kenneth Scott Hoexter: Hey, great. Good afternoon, Adam and Andrew. Congratulations on the roles.

Glenn: Hey, great good afternoon.

Glenn: Adam and Andrew Congrats.

Andrew Hess: Andrew, you mentioned back online in the operating ratio for intermodal in the second quarter. I don't know what back online means. What level is that?

Glenn: On the rolls.

Glenn: Andrew you mentioned back online and operating ratio for intermodal.

Glenn: Second quarter I don't know what back online means what level is that how much of the fleet is parked right now.

Andrew Hess: How much of the fleet is parked right now? And I guess, Adam, do you eventually sell this or get out if you can't flip this into profitability? We've been hearing about this for years.

Speaker Change: And I guess Adam.

Speaker Change: Do you eventually sell this or get out if you can't flip this profitability we've been hearing about this for years.

Kenneth Scott Hoexter: And that goes back to, I guess, Knight's historic religious focus on costs. I just guess I'm not clear on what's been lost here. I understand the fixed leverage. So do you just get rid of more tractors and get rid of more containers and bring it down if the industry's not doing it? to focus on those costs.

Speaker Change: And that goes back to I guess historic religious focus on costs.

Speaker Change: I, just guess I'm not clear on what's been lost here I get the fixed leverage. So you just get rid of more tractors and get rid of more containers and bring it down as the industry is not doing what do you do to.

Speaker Change: To focus on those costs.

Kenneth Scott Hoexter: Yeah, you're talking about intermodal specifically, Ken, is that your question? The first part was intermodal.

Speaker Change: Yes.

Speaker Change: They're modal specifically Ken Youre question first part was intermodal. The second part is I guess, just corporate with the religious the company used to be known for that really just focus on costs and I heard your leverage before but I'm wondering why you can't get is there other things you can do in this down cycle to to pull out cost to focus on that.

Adam W. Miller: So that was intermodal. The second part is, I guess, just corporate with the religious focus on costs. And I heard your leverage before, but I'm wondering why you can't get, are there other things you can do in this down cycle to pull out costs to focus on that?

Adam W. Miller: Yeah. Yeah.

Speaker Change: Yes, yes.

Adam W. Miller: And hey, so I'll hit Intermodal first, and then I think Brad may have some things to touch on as well. When I think about Intermodal, so we were actually fairly profitable in Intermodal, you know, during the pandemic, and it was driven by a couple of larger projects we had that we believed were going to be longer term. And I think that prevented us from kind of building a more diverse portfolio of customers that would have allowed that profitability to be more sustainable in a challenging market.

Speaker Change: So I'll hit intermodal first and then adding Brad may have some things to touch on as well.

Speaker Change: I think about intermodal. So we were actually fairly profitable intermodal during the pandemic and it was driven on a couple of larger projects. We have that we believe we're going to be longer term.

Brad Stuart: And I think that prevented us from building the more diverse portfolio of customers that would have allowed that profitability to be more sustainable through a challenging market and so we lost some of that business that went away sooner than we expected about this time last year and that led to two two the decline in margins in <unk>.

Adam W. Miller: And so we lost some of that business that went away sooner than we expected about this time last year, and that led to a decline in margins. And by the time that business left, we were kind of already through the bid season, so it's been more difficult to kind of build that volume back up. And so we've got a new leadership team that started in May of last year with a great amount of experience from a rail perspective.

Brad Stuart: At the time that business exited we were kind of already through the bid season. So it's been more difficult to kind of build that volume back up and so we've got a new leadership team that started in may of last year with great amount of experience from a rail perspective, and they've been working very closely with our.

Adam W. Miller: And they've been working very closely with our sales team and our pricing team, and we've had some very good success here recently in the bids. And so there's a nice pipeline of freight that we believe will come in to get this business back on a better footing and profitable. And so we've got some containers in stack that we've taken off just to manage costs in the meantime, but we believe we'll be able to bring those back on once we start to see the volume pick up in this business. We're anticipating we get closer to break even into the third quarter and then some small profitability into the fourth and really continue to build it from there. And so that's how we approach Intermodal.

With our sales team and our pricing team and we've had some very good success here recently in the bids and so there's a nice pipeline of freight that we believe will come on to get this business back on better footing and profitable and so we've got some containers in stack that we've take.

Brad Stuart: And Alex just to manage cost in the meantime, but we believe we will be able to bring those back on once we start to see the volume pick up in this business, we're anticipating we get closer to breakeven.

Brad Stuart: In the third quarter, and then some some small profitability and so forth and you really continue to build it from there and so thats, how we approach intermodal on the on the consolidated company Theres more that we can do with with cost we probably came into this market with a little more overhead in a bit.

Adam W. Miller: On the consolidated company, there's more that we can do with costs. We probably came into this market with a little more overhead and a bit more equipment than we needed. You know, we invested heavily in trailers because power only was in such high demand and was very profitable. But we found, as the market changed, that, you know, that wasn't going to be as sticky as we anticipated. And customers converted freight to live load and live unload to pick up the savings.

Brad Stuart: <unk> equipment than we needed we invested heavily in trailers because power only was what.

Brad Stuart: So such high demand.

Brad Stuart: And it was very profitable and we found as the market changed that that wasn't going to be as sticky as we anticipated and customers converted freighter live load live unload to pick up the savings and it was less sufficient for them, but they like the savings that came from that and so we find ourselves with more more equipment than we really need in this market.

Adam W. Miller: And it was less efficient for them, but they liked the savings that came from that. And so, we found ourselves with more equipment than we really needed in this market. So we're in the process now of leaning that out from a trailer perspective. That's where we have probably the most opportunity. But there are even some tractors that we put to work during the pandemic from a lease perspective, and it was very profitable. And when they've come back, we just haven't had the freight to support that equipment.

Brad Stuart: So we're in the process now of leaning that out.

From a trailer perspective, thats, where we have the most opportunity, but theres, even some some tractors that we put to work during the pandemic from a lease perspective and was very profitable and when they come back we just havent havent had the freight.

Brad Stuart: To support that equipment, and so we'll be leaning that out as well and I think there's some nice cost savings that come from that and really we've got our teams just focused on.

Adam W. Miller: And so we'll be leaning that as well. And I think there are some nice cost savings that come from that. And really, we've got our teams just focused on just the fundamentals, the core.

Brad Stuart: On just the fundamentals the core and <unk>.

Adam W. Miller: And, you know, the goal isn't we can't have, the plan can't be that the market's going to solve our problems. We have to control it, we can control it, and cost is going to be the biggest focus for us. And that's what's going to drive, I believe, the improvement here into the latter part of this year. And if we get the market's help, then great; we'll take it. But we're not going to relinquish, you know, anything on the cost side of the business.

The goal is we can't have the planning can't be that the market is going to solve our problems. We have new control, we can control and cost is going to be the biggest focus for us and that's what's going to drive it I believe the improvement here into the later part of this year.

We get the markets to help think right, we'll take it but we're not going to relinquish.

Brad Stuart: Anything on the cost side of the business.

Brad Stewart: Yeah, and then I was just going to add, Ken, that the initial comment that your question was referring back to was actually a comment on our LTL business, not Intermodal, where we stated that while our operating ratio was out of line in the first quarter, it would get back in line on a year-over-year basis in the second quarter.

Speaker Change: And then I was just going to add Tim that had initial comment to your question is referring back to was actually a comment to our <unk> business not intermodal, where we stated that we expected while our operating ratio was out of line in the first quarter that it will get back in line on a year over year basis in the second quarter right. Because I think we said we ran a <unk> 90 on the <unk> and there were some factors with weather and then.

Brad Stewart: Right because I think we said we ran a 90 on the LTL, and there were some factors with weather and then you know a little bit of additional costs as we rolled out some facilities, but we expect to get back to the mid 80s, similar to what we would have run last year. Great.

Speaker Change: A little bit of additional cost as we rolled out some facilities, but we expect to get back to the to the mid <unk> similar to what we would've run last year right.

Speaker Change: Great. Thanks, Thanks for the time I appreciate it thanks, Mike.

Speaker Change: Your next question comes from the line of Jordan <unk> from Goldman Sachs. Your line is now open.

Jordan: Yes, hi.

Jordan: Just sort of.

Kenneth Scott Hoexter: Great. Thanks. Thanks for the time. I appreciate the insight. Your next question comes from the line of Jordan Alliger from Goldman Sachs. Your line is now open. Yeah, hi. Just sort of talking about LTL for a second.

Jordan: Talking about <unk> for a second.

Jordan: Obviously pretty strong expansion plans.

Jordan: For the balance of this year can you talk to the ability.

Jordan: To get the staffing head count needed.

Jordan: Both in terms of drivers and the terminal folks and is there much wage inflation to sort of get these people and then maybe just an update on how you expect the rollout of the next 25 to go. Thank you.

Jordan Robert Alliger: Your next question comes from the line of Jordan Alliger from Goldman Sachs. Your line is now open.

Adam W. Miller: Yeah, I mean, thus far, we haven't had a challenge staffing those buildings. I mean, there was obviously a terminal there before and labor that supported those locations. Now, maybe different labor that we'd be looking for.

Speaker Change: Yes, I mean, thus far we haven't had a challenge of staffing those buildings I mean, there was obviously a terminal there before and labor that supported those locations now may be different labor that we'd be looking for but thus far that hasn't been the biggest challenge for us.

Adam W. Miller: But thus far, that hasn't been the biggest challenge for us. You know, as we kind of manage the rollout of these locations, where we want to be very deliberate and not put too much pressure on the cost side of our business, but, you know, typically, you're going to have some labor and some startup costs to get a building operating. But because we have great relationships with some larger shippers, and some of these locations fill out territories that they would have needs in, we're already connected, and can plug those zip codes in those territories in.

Speaker Change: As we kind of manage the rollout of these of these locations, where we want to be very deliberate and not put too much pressure on the cost side of our business but.

Typically youre going to have some labor and some startup costs to get a building operating but because we have great relationships with some larger shippers and some of these locations fill out territories that they would have needs in <unk>.

We're already connected in and can plug those zip codes in those territories in and very quickly we start to see freight come our way. So our goal is how quickly can we ramp up the shipment count to cover the cost to get the building's operating and then and then certainly to be profitable and we believe we've got several of them that are going on.

Adam W. Miller: And very quickly, we start to see freight come our way. So our goal is how quickly can we ramp up the shipping count to cover the cost to get the buildings operating and then, and then certainly to be profitable. And we believe, you know, we've got several of them that are going online or have gone online in April, and we'll have, I think it's another 24 of those for the full year that we'll roll out.

Speaker Change: Online or have gone on online in April and we will have.

Speaker Change: I think thats, what another 24 that for the full year that we'll rollout in <unk>. Some of that May may be done near the end of the third quarter early fourth quarter and so our team has been <unk>.

Adam W. Miller: And, hey, some of that may be done near the end of the third quarter or early fourth quarter. And so our team has been, you know, executing on this. And so far, it's gone as planned. And, you know, if we see anything shift in the market or we see challenges from a cost perspective, we can slow that down if we want to. But, you know, right now, we're excited about being able to expand this network and move into territories that we don't serve today and find opportunities to grow with existing customers and new customers. I'll just add that we can really do it

Speaker Change: Executing on this and so far it's gone gone as planned and.

Speaker Change: If we if we see anything shifting in the market or we see challenges from a cost perspective, we can slow that down if we want to.

Speaker Change: But right now we're excited about being able to expand this network IND and move into territories that we don't serve today and and find opportunities to grow with existing customers and new customers.

I'll just add that we can really right size. The cost we can grow into the costs. There is very little cost to kind of stand up one of these facilities at the beginning and so we can build into them as we get density but.

Brad Stewart: I'll just add that we can really right-size the cost; we can grow into the cost. There's very little cost to kind of stand up one of these facilities at the beginning, and so we can build into them as we get density.

Brad Stewart: But I think maybe just one other perspective that might be helpful to you as we, as you recall, we acquired MME and AAA Cooper in 2021. We integrated them onto the same system about a year later, so early 2023.

Speaker Change: Maybe just one other perspective that might be helpful to you as we so we've watched this network effect on our <unk> business. So as you recall, we acquired <unk> and AAA Cooper in 2021.

Speaker Change: We integrated them onto the same system about a year later so early 2020.

Brad Stewart: As we look back now and we look at Q1 volumes between those brands, from Q1 of 2023 to Q1 of 2024, it's up 90%. So what it takes, you get some volume initially, but once you can get into the bid processing and capture that national freight, the flow down across our network is great. And we've been, the pace of our adding facilities is growing, but we've been adding them throughout this period.

Speaker Change: Three as we look back now and we look at Q1 volumes between those brands.

Speaker Change: Q1 of 2023 to Q1 of 2024, it's up 90%.

Speaker Change: So what it takes you to get some volume initially, but once you can get into the bid processing and capture that national freight.

Speaker Change: The slowdown across our network as great and we've been we've been.

Speaker Change: The pace of our IV facilities is growing but we've been adding them throughout this period and so that's creating kind of the solid momentum in the network.

Brad Stewart: And so that's creating kind of its own momentum in the network, and that's just going to escalate even further as we add these new facilities. So we've got great conviction based on our experience thus far about how adding density and opening new zip codes creates a momentum that builds on itself.

Speaker Change: And Thats just going to escalate even further as we add these new facilities. So.

Speaker Change: We've got great conviction based on our experience thus far about how.

Speaker Change: Having density in opening new ZIP codes creates a momentum that builds on itself.

Brian Patrick Ossenbeck: Your next question comes from the line of Brian Osenbeck from J.P. Morgan. The line is now open.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Brian <unk> from Jpmorgan. Your line is now open.

Brian Patrick Ossenbeck: Hey guys, thanks for taking the questions. Just one for you, Adam, maybe you can just talk about, I know it's probably a question you get at the bottom of the cycle, which hopefully is the bottom of the cycle, but as we look up and figure out how this can play out, do you think anything is really structurally changed? This might not be for ever, but maybe elongating the trough here.

Brian: Hey, guys. Thanks for taking the questions.

Brian: Just one for you Adam maybe you can just talk about notes probably a question you get to the bottom of the cycle, what's hopefully at the bottom of cycle, but as we look up and figure out. How this can play out do you think anything is really structurally changed.

Adam W. Miller: Might not be for permanent but maybe you have on getting the trough here. When you think about things like theres more guaranteed payout there theres more trailer pools that had more capacity.

Brian Patrick Ossenbeck: You think about things like there's more guaranteed pay out there, there's more trailer pools that have more capacity, and should present more data, obviously got the COVID, earnings carryover. But I just want to get your perspective on that and also just more near-term, like why are we seeing in some of this net revocation data that there's actually truckers, you know, coming in on a net basis? Wanted to get your thoughts on that as well. Thanks.

Adam W. Miller: Should present more data obviously got the Covid.

Adam W. Miller: Earnings carryover.

Adam W. Miller: But I just want to get your perspective on that and also just more near term like why are we seeing in some of those net verification data, there's actually truckers coming in on a net basis wanted to get your thoughts on that as well. Thanks.

Adam W. Miller: Well, you know, when I think of any structural changes, I really don't see anything that has maybe structurally changed in our space or maybe impaired the ability to achieve margins that we typically achieve as we go through different cycles. You know, I think from a trailer perspective, many added trailers during COVID, but it was really the large players who did that. And so you would hear about it, and we would see the headlines around it, but the small guys were purchasing tractors, and those were extremely expensive.

Speaker Change: Yes, okay.

Speaker Change: Well I think of any structural changes I really I don't see anything that has maybe structurally change in our space or maybe impair the ability to achieve margins that we typically achieve as we go through different cycles.

Speaker Change: I think from a trailer perspective, many added trailers during COVID-19, but it was really the large players who did that and so you would hear about it and we would see the headlines around it but the small guys.

Speaker Change: We're purchasing tractors.

Speaker Change: And those were extremely expensive and then trailers were expensive as well. So I don't see I don't think we saw the same grow from a trailer perspective with the small players that was may be largely the larger players who have already a large asset footprint and I think youre going to see the trailer orders or we already have seen just rollovers really dip as I think there was an.

Adam W. Miller: And then trailers were expensive as well. So I don't see, I don't think we saw the same growth from a trailer perspective with the small players. That was maybe largely the larger players who already had a large asset footprint.

Adam W. Miller: And I think you're going to see the trailer orders, or we already have seen trailers really dip as I think there was an oversupply. So I think that will correct itself over time as we've seen that the demand from customers has lessened from a trailer perspective. What was your other part of the question? Sorry, I got it.

Speaker Change: So I think that will correct itself over time as we've as we've seen the demand from customers is lessened from a from a trailer pools perspective.

Brian Patrick Ossenbeck: Oh, revocation. You know, we track that as well, and it's really hard to know what that's telling you, because, you know, we look at it directionally, but you can have a trucking company of one start, or a trucking company of 100 can go out of business, and they're somewhat counted the same because it's just a DOT number. And I think what we're finding is you probably have a lot more capacity leaving, not from DOTs failing, but from companies just shrinking their fleet.

Speaker Change: What was your other part of the question sorry, I got.

Speaker Change: Eradication.

Speaker Change: We track that as well and it's really hard to know what that's telling you because when you look at it directionally, but you can have a trucking company have one start or a trucking company of 100 can go out of business and they're somewhat counted the same because it's just a number.

Speaker Change: And I think what we're finding is you probably have a lot more of capacity exiting not from dot's failing but from companies is shrinking their fleet.

Brian Patrick Ossenbeck: And we saw that with, you know, because of the visibility that we had in our insurance business, that may have been one of the few values we got from that over time, was that we had visibility into what was happening with the smaller fleets. And yeah, we saw them shrinking dramatically, not going out of business completely, but just pulling down their truck count because of the inability to keep the trucks productive enough to support the payments.

Speaker Change: And we saw that with because of the visibility that we had in our insurance business that may have been one of the few value as we got into that over time was that we had visibility to what's happening in the with the smaller fleets and yet we solve them shrinking dramatically not going out of business completely but just pulling down their truck count because of the inability to keep the trucks.

Speaker Change: <unk> enough.

Speaker Change: To support the payments. So that's just the net Rev occasions, one that data point, but it really doesn't tell the full story there really isn't anything out there that we that really can tell you what's happening fully across across the board but.

Brian Patrick Ossenbeck: So that's just the net revocation is one data point, but it really doesn't tell the full story. There really isn't anything out there that can tell you what's happening fully across the board. But, you know, that's just a data point that we look at. But hey, there are a lot of other things that we look at internally that give us a perspective of what's happening on the demand and the capacity side.

Speaker Change: That's just a data point that we look at but hey, there's a lot of other things that we look at internally that give us a perspective of what's happening on the demand and the capacity side.

Adam W. Miller: And that perspective on the capacity side is that it is shrinking just not fast enough. Is that what your mosaic is telling you?

And that perspective on the capacity side as it is shrinking just not.

Speaker Change: Fast enough.

Adam W. Miller: Yeah, I mean, if you look at just how much was added during COVID because of where the spot rates were and how much, how lucrative it was for small truckers it was, and how low the barriers to entry were, yeah, a lot was added. And so we have a lot to work through. And at the same time, you saw demand fall out because of what customers are doing with, you know, from an inventory perspective.

Speaker Change: What your mosaic is telling you.

Speaker Change: Yeah, I mean, if you look at just how much was added during COVID-19 because of where the spot rates were and how much how lucrative it was for small truckers. It was into how low the barriers to entries, where yes. A lot was added and so we have a lot to work through and at the same time you saw demand fallout because of what customers are doing with.

Speaker Change: With.

Speaker Change: From an inventory perspective, so we've got both demand and supply they have to come back in line to see this thing slip in and again. It will eventually just a matter of when that will be in and Hey, we're hunkered down trying to manage the cost of our business and do what we can that doesn't that doesn't it helps our margins, but doesn't impair our.

Adam W. Miller: So we've got both demand and supply that have to come back in line to see this thing flip. And hey, again, it will eventually, it's just a matter of when that will be. And hey, we're hunkered down trying to manage the cost of our business and do what we can that doesn't, that doesn't, it helps our margins, but doesn't impair our ability to react to the market and really drive the best returns when we see the inflection.

Speaker Change: Ability to react to the market and really drive the best returns when we see an inflection.

Brad Stewart: And I would just add, Brian, in the earlier days of the pandemic, a lot of that swelling of capacity, the one and two truck operators made up an outsized share of that swelling of capacity as compared to the complexion of the industry prior to the pandemic.

Speaker Change: And I would just add there Brian on the in the earlier days of the pandemic a lot of that swelling of capacity.

Speaker Change: The the one and two truck operators made up an outsized share of that swelling of capacity as compared to the complexion of the industry prior to the pandemic.

Brian Patrick Ossenbeck: Right. Okay. Thanks, guys. I appreciate it.

Speaker Change: Great.

Speaker Change: Thanks, guys I appreciate it.

Bascome Majors: Your next question comes from the line of Bascome Majors from Susquehanna. Your line is now open.

Speaker Change: Thanks, Brian.

Basketball Majors: Your next question comes from the line of basketball majors from Susquehanna. Your line is now open.

Adam W. Miller: Adam, thank you for that strategic, high-level overview, and it feels like The traditional Knight approach of a cost focus and cyclically aware management and capital deployment and both expanding the portfolio and growing the existing services is very much how you plan to run the business. If we took a new, more nuanced view into how you plan to lead versus how the business has been led in the last, you know, 20 years. Is there anything you'd want to highlight that you feel that you might do a little differently that we should pay attention to? Thank you. Well, we'll, we'll look into it.

Basketball Majors: Adam Thank you for the strategic high level overview.

Speaker Change: Fuels like.

The traditional.

Adam W. Miller: The approach of our cost focus and cyclically aware management and capital deployment in both expanding the portfolio and growing existing services.

Adam W. Miller: Very much how you plan to run the business. If we took a more nuanced view into how you plan to lead versus how the business has been we led in the last.

Adam W. Miller: 20 years is there anything you'd want to highlight.

Speaker Change: Feel that you might do a little differently that that we should pay attention too. Thank you.

Adam W. Miller: Well, look, I think our overarching strategy is still intact, right? I've worked very closely with Kevin Knight over the last 20 years, with Dave over the last 20 years, and hey, we kind of view things very similarly. When I think about our strategy on the truckload side, it's that we have to be an industry leader in the market regardless of the market conditions. So in a good time, we have to have the best, you know, operating ratio to be the most efficient.

Speaker Change: Well, we will look at it.

Speaker Change: Thank our our overarching strategy is still intact right.

Speaker Change: I've worked very closely with with Kevin Knight over the last 20 years with Dave over the last 20 years.

Speaker Change: And hey, we kind of view things very similarly, and I think about our strategy on the truckload side. It's we got to be an industry leader in the market regardless of the market condition. So in a good time, we have to have the best operating ratio will be the most efficient and in more challenging times, we have to have the best operating it would be the most efficient.

Adam W. Miller: And in more challenging times, we again have to have the best operating be the most efficient. And I think, you know, there can be times when the market's really good that you can sometimes take your eye off the ball in a couple areas on the cost side of the business, and it's easy to do that.

Speaker Change: <unk>.

Speaker Change: And I think.

Speaker Change: There is there can be times when the market's really good that you can sometimes take your eye off the ball in a couple of areas on the cost side of the business and it's easy to do that and so we have to remain disciplined through good times in bad times to ensure that we always.

Adam W. Miller: And so we have to remain disciplined through good times and bad times to ensure that we always, you know, keep that cost advantage over our peers in the industry. And we're going to continue to build out the LTL network. I think everyone here is very aligned with that and sees the value in that, and we're going to do that organically where we can. And where we think it speeds up the process and we can get good returns, we will look at M&A as an opportunity.

Speaker Change: Keep that cost advantage over the over our peers in the industry.

Speaker Change: We're going to continue to build out the <unk> network I think everyone. Here is very aligned with that and sees the value in that and we're going to do that organically, where we can and where we where we've seen it speeds up the process and we can get good returns. We will we will look at M&A as an opportunity.

Adam W. Miller: I think from a logistics standpoint, we found that, you know, we really have invested in power only, but we found that we can do that business, we can operate it with fewer trailers than we have today. And I think that's one of the major adjustments that we're making currently is right sizing that trailer to tractor ratio without impairing our ability to do power only. We think there's quite a bit of opportunity to do that, and we want our logistics business to complement what we do on the asset side.

Speaker Change: From a logistics standpoint, we found that we really invested in power only but we found that we can do that business. We can operate it with was fewer trailers than we have today and I think thats one of the major adjustments that we're making currently is right sizing that trailer to tractor ratio without impairing our ability to do to do power only.

Speaker Change: We think there's quite a bit of opportunity to do that and we want our logistics.

Speaker Change: <unk> to complement what we do on the asset side and in many cases, it's there to support from a service perspective.

Adam W. Miller: And in many cases, it's there to support from a service perspective, but in some cases, it's giving freight back to truckload. Now, hey, certainly, we have direct relationships with logistics with our customers, and we like doing that as well, but our logistics business can really ride the wave of being part of one of the best-operated truckload businesses in the industry, and we need to make sure that we create that alignment.

Speaker Change: But in some cases, it's giving afraid back to truckload now hey, we certainly we have direct relationships with logistics split with our customers and we like doing that as well, but our logistics business can really ride the wave of being part of one of the best operated truckload businesses.

Speaker Change: In the industry and and we need to make sure that we create that alignment and I already talked a lot about intermodal and what we need to do to build the profitability back up there and thats underway and it will take some time, but we feel confident with that with.

Adam W. Miller: Evan and I already talked a lot about Intermodal and what we need to do to build the profitability back up there, and that's underway, and it'll take some time, but we feel confident with the agreements we have with our rail partners and the leadership we have there and the progress we're making in some of the early bids this year that we'll have a pathway to see that profitable. But really, again, we want to keep the nimbleness of the market to be able to react to changes. We've got to have cost discipline and, again, leverage the unique position we're in as an industry leader.

Speaker Change: With the agreements we have with our railcar dinners and the leadership, we have there and the progress we're making and some of the early bids. This year that that will have a pathway to see that profitable, but really again, we want to keep the nimbleness and the market to be able to react to changes we got to have our cost discipline.

Speaker Change: And.

Speaker Change: Again leverage the unique position we're in.

Adam W. Miller: Thank you. And I think, John, our time has expired here. So I think we'll go ahead and conclude the call. And for those of you who weren't able to ask a question or want to follow up, you can call 602-606-4222. 6349.

Speaker Change: As an industry leader.

Speaker Change: Thank you.

Speaker Change: And I think John I think our time has expired here. So I think we'll go ahead and conclude the call and for those of you who weren't able to get a question or want to follow up.

Speaker Change: You can call 602 606.

Speaker Change: 6349, and we'll try to return your call as quick as possible appreciate everybody who joined the call and we'll look forward to talk to you later if you if you have a question.

Adam W. Miller: And we'll try to return your call as quickly as possible. We appreciate everybody who joined the call. And we'll look forward to talking to you later if you have a question.

John: Thanks, everyone.

Speaker Change: Thanks, everyone. Thanks, Dave.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: Yeah.