Q3 2024 Knight-Swift Transportation Holdings Inc Earnings Call
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Chloe: Good morning, My name is Chloe and I will be your conference operator today at this time I would like to welcome everyone to the Knight Swift Transportation third quarter 2024 earnings call.
Chloe: 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.
Speaker Change: Speakers from today's call will be Adam Miller, Chief Executive Officer, Andrew Hirsch, Chief Financial Officer, and Brad Stuart Treasurer, and senior VP of Investor Relations. Mr. Stuart The meeting is now yours.
Chloe: Yeah.
Brad Stuart: Thank you good afternoon, everyone and thank you for joining our third quarter 2024 earnings call.
Brad Stuart: Today, we plan to discuss topics relating 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 <unk> <unk>.
Brad Stuart: All is scheduled to last one hour following our commentary we will answer questions related to these topics in order to get to as many participants as possible we limit the questions to one per participant.
Brad Stuart: You have a second question please feel free to get back in the queue. We will answer as many questions as time allows.
Brad Stuart: If we are not able to get to your question due to time restrictions you may call 602, 600 66349.
Speaker Change: 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.
Speaker Change: Investors are directed to the information contained in item one a risk factors apart one of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results.
Speaker Change: Actual results may differ.
Speaker Change: Now I will turn to our overview on slide three.
Speaker Change: The charts on slide three compare our consolidated third quarter revenue and earnings results on a year over year basis.
Revenue, excluding fuel surcharge decreased five 3% and our adjusted operating income declined by seven 1% year over year as we lapped the acquisition of U S Express at the beginning of the quarter.
Speaker Change: GAAP earnings per diluted share for the third quarter of 2024 was <unk> 19.
Speaker Change: And our adjusted EPS was <unk> 34.
Speaker Change: Our consolidated adjusted operating ratio was 93, 9%, which was flat with the prior year, while representing a modest sequential improvement over the second quarter.
This was the first sequential improvement in third quarter consolidated adjusted operating ratio since 2021.
Speaker Change: Our results were negatively impacted on a year over year basis by a $6 $6 million increase in net interest expense and the 34, one percentage point increase in the effective tax rate on our GAAP results and the six one percentage point increase in the effective tax rate on a non-GAAP basis year over year.
Speaker Change: Impairment charges and an investment write offs totaling $13 1 million.
Speaker Change: Are also excluded from our non-GAAP results now.
Speaker Change: Now onto the next slide.
Speaker Change: Slide four illustrates the revenue and adjusted operating income for each of our segments in.
Speaker Change: In general <unk>.
Speaker Change: Truckload logistics and intermodal segments continued to navigate a challenging full truckload market, but as we noted last quarter. We believe the worst of this truckload cycle may be behind us.
Speaker Change: This view has been further supported by several sequential trends in the third quarter.
Speaker Change: Revenue, excluding fuel surcharge adjusted operating income and adjusted operating ratio, we are at least stable and in most cases improving over the second quarter results for each of these three segments.
Speaker Change: The ongoing attrition of excess truckload capacity added during the up cycle still has further to go.
Speaker Change: Street rates have largely stabilized and are showing modest improvement, but remain at unsustainable levels.
Speaker Change: The RTL segment continues to experience a much more supportive market than truckload, where our business continues to achieve steady rate improvement as we extend the reach of our network and capture new volumes.
Speaker Change: At the same time startup costs and early stage operations at so many new facilities that have yet to go through a bid cycle.
Speaker Change: Drag on margins in the near term.
Speaker Change: The market in the third quarter, largely played out as expected prior to hurricane and lean and the impending port strike curtailing volumes across our asset based businesses in the last week of the quarter.
Speaker Change: The arrival of Hurricane Milton in the early days of October extended the market disruption into October, particularly for our U S Express and Tripoli Cooper brands based in the southeast.
Aside from these events the truckload market is giving signs of being balanced and scale service and freight security are becoming more of a differentiator.
Speaker Change: These are signs that align with the unique value that we are positioned to create for our customers when the market strengthens.
Speaker Change: For now we remain focused on disciplined pricing cost control and operational excellence.
Speaker Change: As we see opportunities across our enterprise, we leverage our unique suite of brands intentionally driving collaboration to create distinctive solutions for customers.
Speaker Change: This allows us to offer solutions across different services.
Speaker Change: And to retain more volumes than any single brand could execute.
Speaker Change: As the market improves and shippers have acute needs. We expect this to become a more valuable advantage.
Speaker Change: Now I will turn it over to Adam to discuss our truckload.
Speaker Change: Got it.
Okay, Thanks, Brad and good afternoon, everyone.
Speaker Change: Although we remain cautious in an environment that remains challenging.
Speaker Change: Further attrition of excess capacity is still needed.
Speaker Change: Continue to observe positive signs, including a continuation of seasonal patterns with some project activity underway in the fourth quarter.
Speaker Change: <unk> rate increases in more recent truckload bid awards sequentially, improving our average truckload revenue per mile over the second quarter and seeing customers, reducing their usage of brokers and efforts to improve cargo security as well as the ongoing stability of their supply chain.
Speaker Change: Our average spot rate remains higher than our average contract rate as we believe we are seeing opportunities to address acute needs for our customers that may not be reflective of the broader market. This is where our scale and unique suite of diversified brands offer distinct value to our customers.
Speaker Change: On a year over year basis, our truckload revenue, excluding fuel surcharge for the third quarter decreased six 1%, reflecting a similar decrease in loaded miles as the lap the acquisition of U S Express at the beginning of the quarter.
Revenue per loaded mile excluding fuel surcharges was essentially flat year over year.
Speaker Change: Miles per tractor were also flat year over year as improvements in the legacy truckload trucking business were offset by a decline at U S xpress, reflecting a churn in the freight portfolio as well as as we redefine the freight network over the past year for U S Express.
Speaker Change: Similarly revenue, excluding fuel surcharge per tractor declined slightly by six tenths of a percent year over year as improvements in our legacy business were offset by a decline at USA truck.
Speaker Change: On a sequential basis.
Speaker Change: Revenue per loaded mile excluding fuel surcharge increased slightly over the second quarter.
Speaker Change: Miles and truck count were stable producing any modest improvement in revenue excluding fuel surcharge.
Speaker Change: Our spot exposure remained relative consistent with the second quarter.
Speaker Change: The adjusted operating ratio for the legacy trucking business sequentially improved by 200, 250 basis points driven by improvements in cost per mile and revenue per tractor.
Speaker Change: U S Express adjusted operating ratio was fairly flat sequentially as modest declines in its total miles and utilization were offset by improvement in revenue per mile.
Speaker Change: Now on to slide six where we cover the lts.
Speaker Change: Market conditions in the <unk> industry remained much more supportive than in truckload, though the pace of year over year rate increases appears to be slowing a bit as comparisons get increasingly more difficult.
Speaker Change: While industrial production is stuck in neutral.
Speaker Change: We are still experiencing solid demand and steady rate increases in our business, partly aided by our expanding network that allows us to offer our services are more lanes to new and existing customers.
Speaker Change: Alright, LCL business grew revenue, excluding fuel surcharge 16, 7% year over year as shipments per day increased 11, 1%.
Speaker Change: Our acquisition of DHA in the <unk> Division dependable highly expressed on July 30th contributed approximately seven 5% to each of those improvements.
Speaker Change: Revenue per hundredweight, excluding fuel surcharge increased nine 2% year over year, the year over year trend of declining weight per shipments slowed to three 9% in the third quarter.
Speaker Change: The adjusted operating ratio was $89 six and adjusted operating income declined 19, 5% year over year due to startup costs and early stage operations at our recently opened facilities.
Speaker Change: Now onto slide seven.
Speaker Change: We summarize our recent progress on our LCL expansion strategy.
Speaker Change: During the quarter, we opened 16 additional service centers following 18 openings in the first half of the year, we expect to open four more service centers by the end of 2024 also our acquisition of <unk> represents approximately 10% growth in both service centers and door count and <unk>.
The key southwest markets of California, Arizona, and Nevada to our network overall, our organic and inorganic expansion activities in 2024 should add nearly 500 doors. This year, representing a 32, 2% increase.
Speaker Change: Her count from the beginning of the year.
Speaker Change: We've been hard at work integrating the systems and business of Phe into our network and expect to complete the integration during November.
Speaker Change: Customer responses to this acquisition and adding the southwest to our service offering have been very strong we expect meaningful opportunities for growth. Following the integration and are excited about the value. This adds to our existing business as well.
Speaker Change: Over the past year, we have chosen to invest capitalizing on opportunities to significantly expand our <unk> capabilities and service territory.
Speaker Change: The associated startup costs and operational inefficiencies are initially headwinds to improving operating margins.
Speaker Change: Moving beyond 2024, our focus is on continuing to capture volume with new and existing customers, particularly as we go through our first bid cycle with the expanded network.
Speaker Change: Our relative pricing position allows us to pursue incremental volume with less risk of diluting our yield.
Speaker Change: Our approach here will not be unlike our approach in truckload, where a cohesive network strategy disciplined pricing and intentional capacity deployment support better market density operational efficiency and service quality.
Speaker Change: Progress in this strategy should allow us to unlock new levels of operating performance and margin in the long run.
Speaker Change: We remain encouraged by the growth and opportunities for our <unk> segment, and we continue to look for both organic and inorganic plans to geographically expand our footprint within the LTE market filling out our Super Regional network in the short term and ultimately, creating a national network will allow us to participate in more freight and enable.
Speaker Change: To find opportunities to further support our existing truckload customers with LTE capacity.
Speaker Change: Now, let's move to logistics on slide eight.
Speaker Change: The logistics market continue to deal with the soft truckload environment as most public spot rate indicators faded throughout the quarter. Our disciplined approach to pricing has allowed our business to maintain profitability with our adjusted operating ratio of 90, 94, 5% improving 100 basis points over the second quarter.
Speaker Change: <unk>.
Speaker Change: Also increased revenue per load three 7% over the second quarter gross margin percent was stable both sequentially and year over year.
Speaker Change: As discussed last quarter. The logistics market is further challenged by a number of shippers allocating more of their business to asset based providers also we continue to divert a portion of our logistics volumes to support our asset business in certain markets.
Speaker Change: However, this headwind should flip to a tailwind when the market turns as the division will overflow freight to the logistics business, particularly for our power only service. This relationship with their asset division can create more volatility through a cycle for our logistics business, but it means there is a significant amount of runway.
Speaker Change: [noise] ahead of it at this point in the cycle.
Speaker Change: Revenue decreased nine 5% year over year as we lap the acquisition of the U S Express at the beginning of the quarter load count was down 21, 1% year over year, but was partially offset by a 13, 6% increase in revenue per load.
Speaker Change: We continue to leverage our power only capabilities to complement our asset business build a broader and more diversified portfolio and to enhance the returns on our capital.
Now I'll turn it over to Andrew on Slide nine.
Andrew Hirsch: Thanks, Adam.
Andrew Hirsch: In our intermodal business revenue increased one 4% year over year.
Andrew Hirsch: This is the first year over year.
Andrew Hirsch: Revenue increase of six quarters.
Andrew Hirsch: Driven by a seven 2% increase in load count.
Andrew Hirsch: The improvement in volume and progress in operating costs overcame a five 3% decrease in revenue per load to improve the operating ratio by 310 basis points year over year.
Andrew Hirsch: With recent hurricanes negatively impacting volumes early in the fourth quarter, we no longer expect intermodal load count to be sequentially stable with the third quarter.
Andrew Hirsch: This will also likely cause the business to be essentially breakeven in the fourth quarter, whereas we had previously projected to be slightly profitable.
Andrew Hirsch: We remain focused on executing our strategy.
First upon our business mix building density producing empty moves and reducing cost we expect ongoing progress in these areas should make this business profitable in 2025.
Now onto slide 10.
Andrew Hirsch: Slide 10 illustrates our all other segments. This category includes support services provided to our customers independent contractors and third party carriers, such as equipment sales and rental equipment leasing warehousing activities insurance and maintenance.
Andrew Hirsch: For the quarter revenue declined 42, 8% year over year, largely as a result of winding down our third party insurance business in the first quarter.
Andrew Hirsch: The $6 2 million operating income within the all other segment represents a modest sequential improvement over the second quarter and.
Andrew Hirsch: And was primarily driven by the warehousing and equipment leasing businesses.
On slide 11, we've outlined our guidance and key assumptions.
Andrew Hirsch: Which are also stated in the earnings release as noted in previous quarters, we are not incorporating an inflection and market conditions for the purpose of forecasts, but are rather based on these ranges unexpected seasonality and a continuation of existing market conditions similar to what we felt in the third quarter and.
Andrew Hirsch: <unk> October thus far.
Andrew Hirsch: Actual results may differ from our expectations.
Andrew Hirsch: Based on these assumptions, we expect our adjusted EPS for the fourth quarter of 2024 will be in the range of 32 to 36.
Andrew Hirsch: And our adjusted EPS for the first quarter of 2025 will be in the range of 29 to 33.
Andrew Hirsch: The key assumptions underpinning our guidance are listed on this slide so I won't cover them.
Andrew Hirsch: In summary, we protect truckload operating income to improve sequentially into the fourth quarter. We also expect a normal seasonal step down in LPL earnings and activities within our all other segments in the fourth quarter, which will largely offset the projected ramp up.
Andrew Hirsch: Truckload profits.
Andrew Hirsch: Our first quarter range reflects the normal seasonal slowdown in our truckload and logistics segments.
Andrew Hirsch: Partially partially offset by seasonal improvement in our <unk> segment and the all other segments.
Andrew Hirsch: While we cannot drive the timing evidenced prove it to the market conditions. We are focused on leveraging the scale in service of our unique suite of brands to solve complex problems and <unk>.
Andrew Hirsch: Distinctive value for our customers.
Andrew Hirsch: <unk> and for our expanding <unk> network, and improving efficiencies service and margins.
Andrew Hirsch: And fully capturing the synergies at U S Express recognizing the outsized margin improvement opportunity.
As market conditions recover.
Speaker Change: This concludes our prepared remarks, and before I turn it over for questions I want to remind everyone to keep it to one question.
Andrew Hirsch: Per participant.
Speaker Change: Thank you we will now open the line for questions.
Speaker Change: Certainly at this time, if you would like to ask.
Speaker Change: Chen Please press the star and one on your telephone keypad, you may withdraw yourself from the queue at any time by pressing star two.
Speaker Change: And we will take our first question from Jonathan Chappell with Evercore ISI. Your line is now open.
Jonathan Chappell: Thank you good afternoon.
Jonathan Chappell: Adam or Brad Adam you mentioned in your comments in the release as well that there's spots doing better than contract as it relates to your portfolio of business within <unk> can.
Jonathan Chappell: Can you give us kind of give us a sense for where you stand now.
Jonathan Chappell: On spot or kind of more short term business relative to maybe a year ago and long term averages just so it can help us frame kind of your flexibility and leverage for win.
Jonathan Chappell: The entire market starts to inflect.
Speaker Change: Yeah sure John I appreciate that.
Speaker Change: We're still in that range of just low double digits for spot versus our contract business and.
Speaker Change: Stronger markets, we've been able to flex that as high as 2025%. So we still have a good ways to go in terms of being able to be nimble in this market.
Speaker Change: And as we mentioned in the release, we've seen some seasonality that has carried over from Q3 and maybe some of that was delayed in Q3 because of the disruption from the hurricanes, but we are seeing a handful of shippers that have acute needs that they need to secure additional capacity at <unk>.
Speaker Change: Beyond what they can secure in their routing guide and we're seeing a lot of those opportunities in our larger brands, particularly Swift and then we're seeing some of that flow into maybe a U S Express and then a little bit more into into night, but still not that something that is it is as robust as we're seeing in swift.
Speaker Change: That tells us that.
Speaker Change: The inflection there isn't really a broad based inflection but that some of the shippers as they have real needs are going to go to the larger asset based players that are going to have the flexibility and the nimbleness and the equipment.
Speaker Change: To accommodate those needs and to provide value for them and it also means that the small carriers out there are still probably in a difficult environment, where we will still expect to see some attrition, which I think we still need to get back to where we feel like the market is imbalance. So we still have plenty of opportunity to flex if the market is there.
Speaker Change: And I think we have opportunity to provide even more capacity from our from our other brands that maybe aren't seeing the same.
Spot opportunities as we are on the Swiss business.
Speaker Change: I would just add to that in terms of our existing capacity for for spot exposure for flexibility.
Speaker Change: Look at our miles proceeded truck Theres still a lot of room for improvement on seeded truck basis, and so the slack in the system should there be opportunities we could create more capacity. If you will to capture those and create more spot exposure without having to lose any contractual business.
Speaker Change: Got it thanks, Brian Thanks.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: We'll move next to Tom White with switch UBS. Your line is open.
Tom White: Hi, yes, good afternoon.
Tom White: Wanted to just.
Tom White: Ask Adam and buzzard.
Tom White: Best view on how this cycle might play next year.
Tom White: It seems like there is.
Tom White: Conservatives disruption in the market with a couple of Hurricanes in shoreline port strike and just seeing a lot of lot of noise shrink off.
Tom White: Into the west coast with container imports as well, but at the same time, it's not clear whether you get enough spring to really get.
Tom White: Tightness and maybe.
Tom White: A better rate increase next year. So I don't know if you think it's kind of a gradual psyche.
Tom White: Cycle turn or if you're more optimistic than that at this point, but.
Tom White: It's crystal ball is probably not.
Tom White: Hard to have a clear when these days, but any thoughts on how we might go into.
Tom White: Next year on the cycle is kind of a base case.
Speaker Change: Yes, so Tom I think everyone has been predicting three months for about 12 months now so it's really it's really hard to tell where we're at.
Speaker Change: That's going to land, but I do think that the worst is behind us and I feel like.
Speaker Change: In the as the bids start to pick up here that we'd expect to see low to mid single digit improvement and then see that build throughout the year I don't expect there to be a real sharp.
Speaker Change: Inflection I think it's somewhat of a grind upwards, but thats, probably okay. Because some of those sharper inflections create almost a gold rush from the small carriers because you see the spot rates really jumped dramatically and I think that may keep more capacity in the market.
Speaker Change: So I think as you have.
Speaker Change: <unk> and the better market that's been building over time, I think the the larger well capitalized asset players that are stronger performers typically see.
Speaker Change: Outsized amount of opportunities there versus brokers or small carriers and so that's how I see it playing out now it's just kind of a slow progression.
Speaker Change: To the positive and I think rates could end up in the late part of the bid season.
Speaker Change: High single digits, perhaps there's still a long ways to go on.
Speaker Change: Margin recapture to make public.
Speaker Change: Public companies closer to where they've been historically and ourselves included in that so we've got we've got a ways to go and what we plan to get there with <unk>, probably productivity and continue to focus on our on our cost structure to put on it put us in a better position to again improve margins, but also bring value to our customers.
Speaker Change: I'll just I'll just add.
Speaker Change: We got the bid season, largely in front of US here. So we don't have a lot of signals, but but we are seeing is capturing.
Speaker Change: Capturing positive rate and often that escalates from early bid season as it progresses.
Speaker Change: No.
Speaker Change: Year ago, we were defending them trying to hold rate that thats no longer the case generally we're capturing rate.
Speaker Change: A lot of signals, we got still.
Speaker Change: Understand as we go through this but certainly we think the rate environment is going to be.
Speaker Change: Be a lift to us because we work as we work through 2025, and I think Tom I think maybe the most telling is how does the market feel once you get past Thanksgiving and because I think we're going to be busy up to that point and then once you get past there do you still see strength in December or does it we can and I think that that can really set that.
Speaker Change: <unk>, four where rates will inflect.
Speaker Change: Okay, Great. That's helpful. Thank you.
Speaker Change: Alright, thanks, so much.
Speaker Change: Well move to Daniel <unk> with Stephens, Inc. Your line is open.
Speaker Change: Yeah. Thanks, Good evening guys. Thanks for taking our questions.
Daniel <unk>: Maybe wanted to follow up related to that last question. So thank you it sounds like Youre still expecting sequential pricing improvement kind of to accelerate <unk> into next year curious on the expense side, we have insurance cost up equipment costs, maybe driver wages would love your thoughts there, but are the rate increases today or the cadence you just laid out are enough to cut.
Daniel <unk>: Cost inflation next year, or two where we actually get margin improvement and or improvement through 2025 or is there any thoughts on the underlying expense growth there would be great.
Speaker Change: Yes, so I think we feel like we still have some opportunity on the cost side in our business.
Speaker Change: <unk> expense has been I think a challenge for everyone in our space given how the environment.
Speaker Change: Litigation has developed but we believe we have some opportunity to keep that expense stable or make some progress in that area. Just given some of the initiatives that we have around safety and managing claims I think there is there is still some opportunity to rightsize, our fleet and I think today, we have a higher trade the detractive race.
Speaker Change: Seo than we would like and so we're still in the process of becoming more efficient from an equipment standpoint and to improve the utilization of our equipment.
Speaker Change: We take a driver pay typically we would share 25% to 30% of our rate increase with with our drivers and so when we start to feel like there is a consistent trend of rates improving and we see a pathway for that to continue then that maybe thats something we would look at but it's really going to depend on where we see them.
Speaker Change: Market.
Speaker Change: From a recruiting and retention standpoint Daniel.
Speaker Change: 2025, we're going to have to as an industry convert any rate improvement into margin improvement I think so so our focus will be keep inflation to a minimum if anything continuing to improve on our cost per mile basis, while youre gaining margin to vary why youre getting yield to the slowdown to margin I also.
Speaker Change: I believe that improving our utilization will also help with our cost per mile I think of the the marketed typically.
Speaker Change: With additional load count and then you start to get spot rate and then you start to get contract right. So we're seeing that already in the fourth quarter again, its early and it may be short lived we don't know yet, but as you get low count you gave more miles you cover your fixed costs more effectively and then you start to get ready to help drop to the bottom line. So so really.
Speaker Change: Asian standpoint, we have to hold steady or if not improve for next year.
Speaker Change: Just add that through the last few years one of the maybe.
Speaker Change: Maybe once wicked elements of the cycle is.
Speaker Change: Decreasing in costs through kind of a hyper inflationary environment.
Speaker Change: We see something different today, we're seeing more normalized.
Speaker Change: Cost inflation.
Speaker Change: We're seeing across the general economy, but we have been hard at work on reducing our fixed costs and.
Speaker Change: It started I think thats going to give us a lift.
Speaker Change: As we go into next year, if you look at our our legacy businesses, we improved sequentially, we said 250 basis points.
From Q2 on our or our cost per mile essentially drove that entirely right. Because we were basically flat on rate flat on miles.
Speaker Change: No.
Speaker Change: We've been hard at work on cost <unk>.
Speaker Change: <unk> in ways that don't impair our ability to capture market opportunities, but ways, which we think are going to benefit us as we see.
Speaker Change: Market improvement.
Speaker Change: I appreciate all the color thanks, guys.
Speaker Change: We'll move to Ravi Shanker with Morgan Stanley Your line is open.
Ravi Shanker: Great. Thanks, Good afternoon guys.
Ravi Shanker: And to follow up on the comments on the <unk>.
Speaker Change: Shifting customers to an asset base no we haven't brokers that you know.
Speaker Change: There's a site like a positive sign for the cycle how does this compare to.
Speaker Change: A similar trend at this point in previous cycles and also if you are seeing a shift more towards asset based carriers. What does this mean for potentially rates into the up cycle in the past people, who are part of the thing Theres a brokerage instead.
Speaker Change: The rates are too low in downturns and too high and upfront because of the brokers does that mean, we will see kind of less volatility on rates going forward because of this shift.
Yeah, I think Ravi we've seen these shifts in the past you've seen them shift to towards brokers when the market rates are really cheap and brokers can get.
Speaker Change: <unk> carriers to do things at lower rates than the larger asset players, even when some of our customers feel less comfortable with with the brokers and what that could mean to their to their supply chain or their available capacity when the market. When they think it's going to turn start to shift towards the asset based carriers I think all of that's playing out like <unk>.
Speaker Change: Most cycles typically would I think one difference is we're starting to hear a lot more comments around cargo security.
Speaker Change: There's been a a rash of of cargo steps.
Speaker Change: Across the industry.
Speaker Change: I think the proliferation of power only and Hey, we have power only we do it in a certain way that we feel like makes it very secure but it's not unusual to see a smaller carrier hauling.
Speaker Change: A larger carriers trailer because it happens all the time and at least to be concerned about that when we see a small carrier Holland.
Speaker Change: Swift or in eyecare, we'd probably call it into safety now, it's common practice and you could do it really well and effectively but there are some bad actors out there who have leveraged that has found a way to steal loads, especially when we've tried to make it very easy to ink to interact and engage with these small carriers and shippers and.
Speaker Change: So I think theres been.
Speaker Change: Several of our customers, who come to us and have asked for opportunities to leverage our equipment, because hey, David a couple of hundred dollars on a shipment.
Speaker Change: Over a period of time it gets it gets washed out really quickly when you start having full load stolen.
And when I think of our business and what we do from a security standpoint between all of our brands. We May Hall 4 million loads, a year and I can count on one hand, how many times, we have a full trailer stolen I mean, we have a very robust security departments. It's one of the more impressive themes, we have customers visit our operations that they get to <unk>.
Speaker Change: See the team Thats watching all the high value loads in locations, where you shouldn't drop trailers and we're tracking those very closely very few have that type of security. So that is becoming a bigger point.
Speaker Change: A point of contention with some of our customers and have gone to different conferences here over the last few months and cargo theft is now a prevailing topic when really where it really wasn't discussed that much in the past. So that's one thing that I believe is is new but I think our shippers they shift back and forth between broker NASA based customer.
Speaker Change: On a regular basis I don't see that changing outside of the concern around cargo theft.
Speaker Change: Very helpful. Thank you.
Speaker Change: We'll move next to Scott Group with Wolfe Research Your line is open.
Scott Group: Hey, Thanks, good afternoon, so any call any thoughts on why Swift is seeing the pickup in <unk>.
Scott Group: Spot and not the other businesses is it just because they are bigger.
Scott Group: Rates lower.
Scott Group: Any idea on why that and then.
Scott Group: Just wanted to make sure Im understanding your point about the margin improvement.
Speaker Change: Think back historically like whatever whatever price you get typically margins improve a little less right because youre, giving some back on drivers usually utilization you gave some of it back because the market gets tight.
Speaker Change: It sounds like your view is that whatever you get in price you will get at least that margin and maybe more in my understanding that right.
Speaker Change: Yes.
That's the goal Scott is because of just how much inflation that we felt over over the last several years. We just have a lot to get back there and it'll come from again managing safety more effectively improving our turnover.
The basic things and trucking to grind through that but also when you get more utilization on your equipment that really does help and if you have an improving market youll get utilization and then youll get right and so that will help offset the.
Speaker Change: <unk> had a typical inflation you'd have on it on a year to year basis. So.
Speaker Change: It may not be perfect that way, Scott, but thats going to Thats. Our objective here for 2025 is to keep cost per mile flat or even better and then any rate improvement be able to flow that to margins.
Speaker Change: And then on your Swift question Scott.
Speaker Change: <unk> is just it's the largest brand we have and it has the most equipment the most trailers.
Speaker Change: And so when especially certain customers they ship heavier in the fourth quarter, there used to be being able to call Swift and for swift to be able to solve big challenges and so instead of calling three or four or five carriers to pull together the capacity they need they may be able to call just swift and have them figure that out.
Speaker Change: And so that's why we really identified this through having multiple brands Dow how those calls and how that those bids start to flow and so what we're doing is finding where we can win with swift with these customers, but then take the opportunities that we can't do at Swift and leverage <unk>.
Leverage U S Express leverage Barr Nunn Abilene to file.
Speaker Change: The additional capacity to solve the problems for the customers. So it feels like to come into one entity, but we're giving them access to multiple brands you do it the right way, sometimes it's going direct with each brand sometimes it could just flow through one if it's a project and so it really depends on the customer, but a lot of those opportunities are starting to with Swift.
<unk> of the sheer size and the capabilities, that's what has us solve problems.
Speaker Change: Thank you guys.
Speaker Change: Yep.
Speaker Change: Okay.
Speaker Change: Next to Ken <unk> with Bank of America. Your line is open.
Speaker Change: Hey, good afternoon, Adam and team.
Ken: So you brought a lot of lesser truckload facilities online in the quarter.
Ken: I think it was almost double what you have done year to date, so how do you see the margin progression.
Ken: As we move forward and then it looks like you're targeting.
Ken: Well I'll leave it at that you just may be the state of the market your thoughts on pricing kind of within that within the market as a whole.
Speaker Change: Yes, maybe I'll give a thought on just the market and then maybe I'll, let Andrew touch on the.
Andrew Hirsch: The margin profile and how we see that progressing.
Speaker Change: I think we're still seeing good opportunities as we expand the network with these terminals in and Hey, it's been aggressive we acknowledged that and there is there has been some some headwinds on margins because of it but we look at 2024 as the year, where we invest in the network and in 2025 is the.
Speaker Change: Year that hey, we grow into it and we grow into it with with topline growth and improvement in margins and we're really excited about the addition of DHT.
Speaker Change: California market was really important and as well as Nevada, and Arizona, We had a lot of truckload customers that we have very close relationships with that are very large shippers that liked dealing with national players and so some of them were a little reluctant to leverage the Tripoli AAA NME network.
Still we had California that was a big piece for them and so as soon as we announced at EOG, we had several customers reach out and say hey, when can we start and we said well, let's let's let us.
Get our networks connected and so you have one system one pro number so it feels like one network to them and we expect to have that done probably in the next seven to 10 days and so there is a host of customers that have shipment volume that they want to flow to us that would be a significant increase.
Speaker Change: DHA is accustomed to Hollywood, but now that they are tied in to a broader network. We think there's some real opportunity there and then as we mentioned on the call or on the prepared remarks.
Speaker Change: We still like where our pricing is we still have some room to improve.
Speaker Change: To close the gap from the larger players that are out there that operate at better margins than is currently and so we don't feel like we need to pressure pricing to grow into the terminal network that we've grown.
Speaker Change: And so we're kind of excited about getting into 2025 and really growing into what we've built out and then obviously you look towards the northeast and find an opportunity to grow organically or inorganically in that market to start to round out the nationwide network and Andrew maybe you want to touch it.
Andrew Hirsch: On how we see that progressing from a margin standpoint, as we grow into those facilities.
Andrew Hirsch: Yes, I would say.
Andrew Hirsch: We think about it this way Q3, and Q4 sort of the kind of a low point in terms of the upside down math on costs versus revenues.
Andrew Hirsch: Our heaviest investment investments have occurred this quarter and so from this point, we're going to add some additional facilities, but largely the big investment in our organic growth is behind us and we're going to start filling up that we usually started with <unk>.
Andrew Hirsch: <unk> revenue once we get into the bid cycles, we're going to be converting that to a higher value freight that's going to help overall, but we have sort of.
Andrew Hirsch: Idiosyncratic path here that that maybe even a little different than some of our peers you saw that our revenue.
Ex fuel per hundred weight was up nine 2%.
Andrew Hirsch: We are.
We believe that we will be able to see strong rate capture as we go into Q4 and Q1 because of the.
Andrew Hirsch: The way that our network is sort of being restructured our length of haul is growing.
Andrew Hirsch: And we're capturing longer length of haul as we were able to deliver two new regions. So I expect kind of just to your question on margin I expect that that cost pressure is going to continue for a few quarters, but by early 2025, we're going to probably turned the corner as we get more into bid cycles that rates were favorable and we start getting better at all.
Andrew Hirsch: Our efficiencies in our pickup and delivery in our dock labor and making sure our line haul utilization is where it needs to be so so.
Andrew Hirsch: So I think we're somewhere around the low point in terms of the upside down math wasn't investment that we expect 2025 is going to pay off.
Andrew Hirsch: And really our goal there is we've kind of built.
Andrew Hirsch: Grown pretty dramatically. This year is to just keep marching down a path, where we're improving couple of hundred basis points in or just every year as we as we grow into our network and we just need to start marching down a path to where we're competing with with the best public companies out there.
Speaker Change: Wonderful so just to clarify then when you in your guidance assumptions the high Eighty's Youre talking about kind of exactly your target here your fourth quarter first quarter, and then start to see improvement from there or yes.
Yes, we would expect to see some improvement into in the second quarter of 'twenty five.
Speaker Change: Alright, Thanks, guys. Thanks, Andrew.
Speaker Change: Well move next to Chris Wetherbee with Wells Fargo. Your line is open.
Chris Wetherbee: Hey, Thanks, good afternoon guys.
Chris Wetherbee: Just curious how the progress at U S. Xpress is going I guess.
Margins were flattish in the quarter sequentially, but can you talk a little bit about how that integration has gone sort of there's a bit of a rehabilitation of the book of business and customer portfolio of the rates kind of get a sense of maybe how that's going and maybe any thoughts if it's different at all in terms of a longer term outlook forward and do you need a different or better freight environment to really start to pull the valley.
Chris Wetherbee: Out of that deal.
Speaker Change: Yeah, that's a great question Chris.
Speaker Change: It's certainly been more challenging than we originally anticipated and that's really more of a function of having a prolonged.
Speaker Change: Difficult trading market freight market that we've had to deal with.
There's really two sides of synergies that we have to capture right you have the cost side and then you have the revenue side.
Speaker Change: We've done I think a really good job on capturing cost synergies. We have closed the gap substantially on the cost per mile of U S xpress versus the cost per mile on our legacy Swift and Knight businesses now that there's still more improvement that's needed and these are in areas that.
Take time to show that improvement kind of cultural shifts and that would be on the safety side of the business. So that's kind of ensuring that we're co chain, we're bringing in the right drivers that we have the right culture around.
Speaker Change: Safety versus productivity in and really just having good relationships with our drivers and so we've had to build out a terminal network, which didn't exist before we did that very rapidly over over less than a year period and then we've got improved driver retention and that also is a function of having those relationships a terminal.
Speaker Change: Network and having the right people with the right mindset. So I feel like that's been established but it takes some time to see that flow through the business, but we're very comfortable the progress you've made on the cost side of the business now and.
Speaker Change: And Theres also some I see equipment long term leases that you purchased with the business that we have to work through and those can take time as we replace them with better financial terms on the equipment that we have so still levers to pull on the cost side, but feel good about the progress there.
Speaker Change: The real challenge is the over the road business and the gap between the U S express rate per mile and how we perform at night and Swift.
And there is still a lot of room, there that has to be worked through and it's in a market that we've been.
Speaker Change: Managing through its been a challenge to do so so we've been working on developing a network that runs between the terminal networks that we that we've worked on and sometimes that can create a shorter length of haul, but better rate per mile and really ultimately you're trying to achieve a certain revenue per tractor.
Speaker Change: But that's that's fully and in progress, but I think when you have some wind at our back from a market standpoint, we will close that gap much more rapidly on the revenue side I think thats when youll start to see the margin expansion that we probably originally forecasted when.
Speaker Change: And when we purchased U S Express they've also felt some pressure on dedicated they actually had a good dedicated business. They felt pressure there just like every other large carrier has went over the road is really cheap dedicated sales pressure and so we felt that at.
Speaker Change: Swift I know that others in the public space had mentioned that but let us stress hasnt really good logistics business. They performed really well they performed similar to where we have at night and Swift and that's a good complement to what they do on the asset side. So the big the Big Challenge is right in the over the road business.
Speaker Change: And certainly better market conditions will help us close that gap faster.
Got it that's helpful color I appreciate it thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We'll move next to Brian Hoffman Beck with Jpmorgan. Your line is open.
Speaker Change: Hey, good afternoon, guys. Thanks for taking the question, but maybe just a quick follow up on I guess.
Speaker Change: Broader topic of utilization.
Speaker Change: It sounds like there's a little bit of puts and takes between legacy and the new FX and maybe some normal seasonal decline into the first quarter in terms of the tractor count.
Speaker Change: Adam how are you thinking about trucker count utilization in general across the different brands.
Speaker Change: So some areas need to may.
Speaker Change: Maybe bring down a little bit so I think you do.
Speaker Change: Proactively earlier in the year.
Speaker Change: Then maybe Andrew can you just talk more about the impact the financial impact of the hurricanes because it sounded like it was.
Speaker Change: Pretty broad based impacting intermodal and truckload, probably Elk hills, well. So is that something you expect to recoup next quarter or is that sort of impact that we should be thinking about here.
Speaker Change: <unk>. Thank.
Speaker Change: Thank you.
Speaker Change: Alright, we'll start with your three pronged question here.
Speaker Change: Right. So so all good.
Speaker Change: Tractor count.
Speaker Change: So on the tractor count.
Speaker Change: I had mentioned earlier that theres been some pressure on the dedicated front and we felt some of that the U S Express business. So there is there's probably some tractor count that we need to bleed out of the network to offset some of the carrying costs that they've that they've had and we've started that.
Speaker Change: Already in the fourth quarter, and so thats why youll see a slight decline from Q.
Q3 to Q4, and then Q4 into Q1 on like an average tractor count number we would expect it to be pretty stable. After we get through through that adjustment and that's just probably a few hundred tractors that we need we need to work through.
Speaker Change: To help kind of reduce some.
Speaker Change: Some of the cost per net users use express is carrying on that when I think of the utilization.
Speaker Change: Having the open trucks certainly hurt on the U S Express side, but also again, we talked about.
Speaker Change: Realigning their network and I think what we've done is we replace maybe some longer length of haul freight that we're at rates that were incredibly low with some shorter length of haul regional freight that fits within the networks, where our drivers' lid and want to come in and out of and so less miles per tractor, but rates have improved as a result of.
Speaker Change: Of that so if you just strictly looking at miles per tractor. It would show that we have given up some.
Speaker Change: As a result of this shift, but we did something similar to this when we when we merged with Swift when we adjusted their network because really our focus is on having.
Speaker Change: The best revenue per truck per day, but also a network that supports driver retention and drivers coming in and out of.
Speaker Change: The networks that they're comfortable in and so sometimes the numbers can look a little funky when you when you are working through that.
Speaker Change: I know you asked questions about Hurricanes and Andrew can touch on some of that now if you want to Andrew.
Alright, Yes, Hey, Brian I think the hurricane did have some impact on us in Q3 and that final period.
Andrew Hirsch: And that carried over into the early part of October I would say this I would say our U S Express business and our AAA Cooper businesses.
In that region.
Almost exclusively are heavily so they were maybe disproportionately impacted.
Andrew Hirsch: So there is some permanent probably impact on our <unk> business intermodal.
Andrew Hirsch: It seems to have had a slow start here in Q4, but we think thats largely behind us at this point so from our perspective in truckload had some impact on U S Express, but it really probably overall it didn't impact our truckload business.
Andrew Hirsch: In a global way, but I would say.
Andrew Hirsch: What's the permanent impact of it it's probably some impact on RTL and <unk> and our intermodal business for Q4, but it may be a net positive.
Andrew Hirsch: Compare the impact on from Q3 to maybe some opportunity to pick up in Q4 for the truckload business, maybe not so much on <unk>, you'll have the same type of rebound on the truckload side.
Brian We may see that the net positive.
And Brian what I would add is while it is difficult for us to really quantify in financial terms, what that's done to our business through hurting volumes.
Andrew Hirsch: You can see that.
Andrew Hirsch: The impact of the Hurricanes likely would have brought our Q4 guidance Downs, we held it flat with where we started with it from a quarter ago. It would've come down if not for the opportunities. We are starting to see percolate on the truckload side here in the fourth quarter.
Andrew Hirsch: Okay very helpful. Thanks very much.
Speaker Change: We'll move next to Eric Morgan with Barclays. Your line is open.
Eric Morgan: Hey, good evening, Thanks for taking my question.
I wanted to come back to LPL, just the discussion on pricing and micro Paul do you have a good handle on the runway for where length of haul can go.
Eric Morgan: As the network sits today more customers take advantage of the reach you have now and if you.
Eric Morgan: You can keep up the pace of improvement you've seen should that naturally come with a sustained yield yields more in like the mid to high single digits over the next couple of years maybe.
Eric Morgan: Or is that not really to think about it. Thanks.
Speaker Change: We would expect the length of haul to improve as we as we grow density and we expand our reach we don't know exactly where that number may may settle out right. I mean, obviously the early bid season will give us some indication of that but we really won't see that until obviously, we connect in the <unk> network.
Speaker Change: We start to see some of those shipments flow, we do believe that longer length of haul freight some of the heavier freight does yield a better margin and is the reason and just maybe one component as to why some of the larger fleets have a better margin than the regional fleets.
We just don't know exactly where that will land until we kind of start working through the sales process and the rfps, but certainly that's our expectation.
Speaker Change: We think we think California was a game changer for us.
Speaker Change: We've talked to customers that participate in long length of haul freight.
Speaker Change: We were not even a viable option for them until we had California.
Speaker Change: And.
Speaker Change: So as we've as we've now approached those customers and talked about.
Speaker Change: And our network and just so for clarity, we expect that to happen in November.
Speaker Change: We've been in I guess surprised on.
Speaker Change: And a good way to response in terms of the desire for us to participate in bids.
Speaker Change: Gene.
Speaker Change: All time highs on shipment count in that business.
Speaker Change: And we have a lot of demand I think we can capture so I think California now.
Speaker Change: Not every location.
Speaker Change: Not every service centers the same California for us had in our view outsized strategic importance.
Speaker Change: Has an outsized impact on our ability to capture.
Opportunities with our customers. So we feel like that is a very important part of what's going to give us some tailwind right now.
I appreciate it.
Speaker Change: Okay.
Speaker Change: We'll move next to <unk> majors with Susquehanna. Your line is open.
Speaker Change: Okay.
Thanks for giving US an early look at the start of next year from your own budgeting. If you don't have meaningful recovery and just simple seasonality there.
Speaker Change: If I look historically in years, where there's been meaningful sequential strengthening in the truckload market.
Speaker Change: First quarter has been as low as mid teens percent of the full year.
Speaker Change: Conversely years, where <unk> had sequential deterioration its been as high as call it mid twenty's percent.
Speaker Change: No.
Speaker Change: There is no incentive to guide the full year at this point with all the uncertainty on rate but.
Is that seasonality book in a good starting point for us to think about a range of outcomes or is there something different about this cycle on this year that could make that historic look back.
Speaker Change: Just just.
Speaker Change: Unreasonable today. Thank you.
Speaker Change: Yes, I think it's really difficult to apply in a historic look back to our business today I mean, if you look at our consolidated business. We were just comprise so much differently than we were four or five years ago. We now have the obviously the <unk> component where larger now as we as we are still digesting the U S.
Speaker Change: Express business.
Speaker Change: And we've got our all other segments, where we have some leasing and warehousing that that performance differentiate normal trucking seasonality. So so has changed the way our earnings progress from quarter to quarter.
Speaker Change: I think what we would expect bascom is.
Speaker Change: Probably the same type of kind of seasonal.
Speaker Change: <unk> volume from Q4 to Q1, but we do feel like the bids will be playing out in our favor like we mentioned earlier and some times in.
Speaker Change: In trucking you.
Speaker Change: Do you feel better than when you look and sometimes you look better than you feel.
And I believe 2025, the first half, we're probably going to feel a little bit better about where we are as a company. Then we look on the financials, but it will come in the back half of the year. If these rates begin to play out and we can control cost and we can grow into our <unk> facilities and continued to make progress with.
Speaker Change: With the with the U S Express business and so we didn't give guidance for the full year. So I don't want to insinuate anything we've given our guidance for Q4, and Q1, but trying to apply previous cycles to.
Speaker Change: This company today is a bit challenging and I don't know that would be.
Speaker Change: Directionally correct.
Speaker Change: Basketball, what I would add this is Brett what I would add is you know.
Speaker Change: And the last comment going on three years now the truckload market has been so subdued right and so that has also dampened volatility you've seen in the seasonal cadence of earnings throughout the year whenever we get into a more normalized tighter and stronger truckload market that is going to argue for broader amplitude and more seasonality being as aggressive.
Speaker Change: Luckily core kind of kind of carries that.
Yeah.
Speaker Change: Thank you both.
Speaker Change: Okay Alright.
Speaker Change: That concludes now are.
Speaker Change: Presentation, I know, there's probably a few vieux.
Speaker Change: We weren't able to get to your question and if you'd like you can call 602 600 66349.
Speaker Change: We appreciate the interest appreciate everyone's jumping on.
Speaker Change: And we.
Speaker Change: We will talk to you next quarter.
Speaker Change: This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful evening.
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