Q2 2025 Knight-Swift Transportation Holdings Inc Earnings Call

Good afternoon. My name is konstantin and I'll be your conference operator today.

At this time, I would like to welcome everyone. To the Knight. Swift Transportation second quarter 2025 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 from today's call will be Adam Miller. Chief executive officer

Andrew: Andrew has Chief Financial Officer.

Speaker Change: Brad Stewart, treasure, and Senior VP of investor relations Mr. Stewart, the meeting is now yours.

Brad Stewart: Thank you, Constantine. Good afternoon, everyone, and thank you for joining our second quarter 2025 earnings call.

Brad Stewart: 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 1 hour.

Brad Stewart: 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 we are not able to get to your question due to time restrictions, you may call 602-606-6349

Brad Stewart: To begin, I will first refer you to the disclosures on slide 2 of the presentation. To 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, 1 180 risk, factors, or part 1 of the company's annual report on form. 10K filed with the United States SEC for a discussion of the risks. That may affect the company's future operating results. Actual results May differ.

Brad Stewart: before we get into the slides,

Adam Miller: I'll hand the call over to Adam for some opening remarks.

Thank you, Brad and good afternoon everyone. So the second quarter saw unprecedented trade actions which brought a range of responses by shippers and volatility in Freight flows. That differed meaningfully from normal patterns and typical seasonality Trends in the truckload Market.

Adam Miller: This call for agility from our businesses and our people responded. Demonstrating the flexibility of our over the road capacity and network. In order to mitigate pressure on Miles and earnings.

Adam Miller: While the import Cliff, that many anticipated did not prove to be a stark. There was a general softness and Freight demand for most of the quarter, especially on the West Coast.

Adam Miller: We did experience a mild lift and Freight opportunities and projects near the end of the quarter, but short of the normal seasonal, build and Freight volumes. We typically see in a second quarter,

given this backdrop, we are pleased that our truckload business was able to prevent a deeper decline in revenues while growing margins and operating income meaningfully year-over-year.

Adam Miller: We are pleased to see our US Express brand. Build on the profitability. It established in the first quarter by expanding operating margins sequentially in the second quarter.

Adam Miller: While we continue to drive costs out of our businesses, we are careful not to sacrifice the competitive Advantage. We have through our industry-leading scale and the flexibility of our over the road model provides allowing us to deliver distinctive value to our customers.

Adam Miller: We are continuing to grow our LTL Network customer base and volumes. And we are committed to doing this while maintaining strong service levels.

we are encouraged to see customers responding to our service offering awarding us robust growth at a time when industry volumes remain under pressure,

Adam Miller: At the same time, the cost of expansion and integration in our efforts to ramp Staffing levels and Fleet Assets in anticipation of further growth are putting pressure on margins.

We have multiple initiatives underway to accelerate the normalization of our operational fundamentals and the regaining of efficiencies in our cost performance even as our Network and Freight portfolio grow rapidly.

Adam Miller: The fluid policy environment makes forecasting even more difficult than normal.

Adam Miller: We are staying close with our customers as a situation unfolds, delivering solid service, and bringing our capacity and creativity to bear in responding to disruptions created by the Shifty landscape.

Adam Miller: As we noted last quarter changes in trade policy, can create the need for shippers to react quickly and managing inventory levels, which could benefit the fast flexible nature of truckload service.

Adam Miller: As we begin to navigate the third quarter, we are in early discussions with a few customers regarding potential projects during peak season.

Adam Miller: It is too early to know if these discussions will materialize into into additional business. But these types of conversations provide encouragement, that 1-way capacity is becoming less plentiful and more valuable when it can be provided with scale.

Adam Miller: We cannot say when the Freight Market will finally turn, but we are confident that we are well positioned to make the most of the opportunities that the next cycle will bring our larger truckload business and heavy and heavy mix of 1-way truckload service are growing LTL business. Our agile and efficient Logistics business which complements our asset model and the progress. We continue to make sure structurally cutting costs out of our organization.

With that, I will now turn it over to Andrew uh, for slide 3, our our overview.

Andrew: Thanks Adam.

Andrew: The charts on slide 3. Compare our Consolidated second quarter revenue and earnings results on a year-over-year basis.

Andrew: And our adjusted operating income improved by 17.2% or 15.2 million year-over-year.

Andrew: Earnings per diluted share for the second quarter of 2025 or 21 cents.

Andrew: 61.5% year-over-year increase and our adjusted DPS was 35, cents the 45.8%. Year-over-year increase as earnings improved year-over-year for the third consecutive quarter.

Andrew: Our Consolidated adjusted operating ratio was 93.8%.

Which was 80 basis points better than the prior year.

Andrew: The effective tax rate of 29.2% on our Gap results and 28% on our non-gaap results. Each lower year-over-year but were higher than previously projected.

Andrew: Slide 4 illustrates the revenue and adjusted operating income for each of our segments, for the quarter.

Andrew: Overall most segments experienced pressure on Revenue year-over-year with a soft Freight environment.

Andrew: While while our LTL segment continues to post strong growth driven by our ongoing Network expansion with the LTL segment reaching its highest share of the Consolidated Revenue since our entry into the segment in 2021.

Our truckload and logistic segments also improved adjusted operating income and adjusted operating ratio year-over-year.

Andrew: Now, we will discuss each of our segments.

Andrew: Starting with our truckload segment on Slide.

Andrew: The flexibility of our over the road model and meaningful progress. Improving our cost structure. Helped our truckload segment improve its adjusted. Operating ratio by 260 basis points and grow a adjusted operating income 87.5% year-over-year, despite loaded miles declining, 2.8% and revenue per loaded mile excluding fuel storage, being flat year-over-year. In an unseasonably. Soft second quarter.

Andrew: The LOL and import driven Freight demand caused the absence of certain contractual Freight, particularly off the West Coast.

Andrew: Sifting our capacity toward other Freight Lanes allowed our truckload business to grow, loaded mile sequentially but Revenue per loaded mile excluding fuel fuel surcharge declined 1.4% sequentially.

Andrew: Due to spot Market weakness and because California headhaul markets were underrepresented in our freight. Mix

Andrew: Bid outcomes remained in a low to mid single digit, increase range. During the quarter, we anticipate that as Freight flows. Normalize our realized Revenue per mile will recover

Andrew: On a year-over-year basis. Our truckload Revenue, excluding fuel store charge for the second quarter, decreased 2.7%.

Andrew: We have been reducing the number of underutilized assets, which has resulted in a 6.6% decline in truck count. However, we continue to make progress on our utilization with miles per truck, improving 4% year-over-year. Making 8 consecutive quarters of year-over-year gains in this metric.

Andrew: We anticipate that tractor count will be fairly stable for the remainder of 2025. While we do have room to further, reduce our trailer ratio as we continue to tighten our cost structure.

Andrew: Our cost per mile for the second quarter. Improved year-over-year for the fourth quarter in a row, despite the declining in miles.

Andrew: We are pleased with the progress of our US Express truckload business which even in a difficult environment improved. Its operating margins by 200 basis points on a sequential basis.

Andrew: We are committed to discipline pricing, intense cost control and Quality Service, as we position, our business, for the current volatility, and for potential opportunities, that may arise.

Andrew: On slide 6, we provide a little more context on our cost cutting progress in our truckload business.

Andrew: On a trailing 12-month basis. Through the end of the second quarter, our realized cost per total Mi has declined 1.5% or 3 cents per mile as compared to the preceding 12-month period.

Andrew: This task was made more challenging due to the deleveraging effect of the reduction of Miles during this period.

Andrew: Our efforts produced results in both fixed costs and variable costs.

We made meaningful progress, reducing fixed costs on an absolute basis.

Our fixed cost progress. Prevented the typical margin pressure of a reduction in volumes which allowed us

Andrew: allowed our reduction in variable cost per mile to drive margin Improvement.

Andrew: While our our lower fixed cost base, may not be visible in our realized cost per mile currently. We believe these improvements primarily in areas of equipment, GNA and facilities are durable, and will provide increased leverage from margin expansion as Freight markets recover.

Andrew: Our reduction in VAR variable cost per mile is the result of improved execution and process Improvement primarily in the areas of insurance and claims maintenance and fuels.

Andrew: We believe these new levels of efficiency will be sustainable as the market recovers aiding to the recovery in our truckload earnings.

Andrew: There are still a number of areas with additional opportunity for games.

Andrew: Such as further leveraging, technology enabled, deficiencies rationalizing. Our Capital asset profile refreshing vendor relationships in terms and optimizing hiring processes and expenses.

Andrew: Our largest segment is already benefiting from the meaningful progress made thus far. And this progress should not only grow but be magnified once. Volumes recovered

Andrew: Moving on to slide 7.

Our LTL business, grew Revenue, excluding fuel search charged 28.4% year-over-year, a shipments per day, increased 21.7%.

Andrew: Which includes the our acquisition of DHE.

Andrew: Revenue per 1008, excluding fuel surcharge. Increased 9.9% year-over-year while wait for shipment declined. 2.6% year-over-year. But with stable sequentially.

Andrew: The adjusted operating ratio was 93.1% a 110 basis, point sequential Improvement.

Andrew: Adjusted adjusted, operating income declined, 36.8% year-over-year. Due to the decline and operating margin primarily attributable to early stage operations that are recently opened facilities as well as continued costs related to the integration of the

Andrew: As context, quarter ending, door count is up 7.8% year to date and 27.5% year-over-year.

Andrew: Are strategic strategic strategic decision to maintain service. During this rapid expansion, requires that we onboard Staffing and Equipment costs, in advance of anticipated volume growth.

Andrew: The steady state where growth May might be more in the single digit range that incremental cost would be less noticeable.

But in a business growing volumes on the order of 20%, that headwind is more pronounced relative to existing Revenue levels.

Andrew: That is not to say that we accept the current pressure on margin in this business. We believe we have opportunities to deliver better margins and have confidence in our plans to achieve this.

Andrew: While the LTL segment continues to process strong growth in customers and Freight volumes across the expanding networks. We are taking actions to accelerate the realization of cost efficiencies and to better align our Resources with the volume evolving volumes and Frameworks,

Andrew: After 24, months of continuous, Geographic expansion, and an acquisition, multiple initiatives are underway to return to our normal operational, focus and fundamentals, including expanding ourselves efforts to build volume and density into these new markets.

Andrew: We have identified a number of actions to improve yield and reduce costs. That should drive multiple points of margin expansion. In addition to the operating leverage benefits for growing into our Network Investments.

Some of these initiatives include improving variable cost per shipment through refined scheduling, and light alignment of resources to volumes leveraging software currently being implemented for enhanced pickup and delivery planning and optimizing line haul routing and load factors.

Andrew: We anticipate the paragraph progress on these initiatives and ongoing new business Awards will partially offset, the normal seasonal, pattern of operating margin degradation in the back, half of the year and helped expand margins in 2026.

We opened 3, new service centers and replaced. Another with a large facility during the quarter.

Our pace of facility additions in 2025 is slower compared to 2024 as we focus on growing in uh, our existing Investments.

Andrew: We will continue to look for both organic and inorganic opportunities to expand our footprint within the LTL Market.

Andrew: Levels growing customer base and ground to make up on pricing, provide a compelling, runway for the value to be generated by this business.

Now, I will turn it over to Brad for a discussion of our Logistics segment on. Slide 8.

Thanks Andrew.

Andrew: The logistics segment experience, soft volumes for much of the quarter other than brief tightening around the International Road, check week in mid-may. And the build up to July 4th at the very end of the quarter.

Andrew: Revenue for the second quarter declined. 2.6% year-over-year driven by an 11 Port, 11.7% decrease in load count. Largely offset by a 10.6% increase in Revenue per load.

Despite the decline in revenue and load, counts are disciplined approach to pricing and cost management, helped us improve the adjusted, operating ratio, 70 basis points to 94.8% and grow adjusted operating income. 13.3% year-over-year with opportunities for further efficiency. Gains ahead.

Andrew: We continue to invest in technology that is allowed us to seamlessly connect with customers to react quickly to spot Market opportunities with real-time quotes.

We also developed trailer tracking technologies that enabled our Logistics segment to more efficiently and secure the utilize. Our trailer Fleet for power only opportunities giving our customers drop and hook capabilities at greater scale.

Andrew: This is help, bring more resiliency to the margin profile of our Logistics business.

Andrew: Our Logistics segment continues to provide additional capacity and scale to our customers while complementing our truckload segment.

Andrew: Now, on to slide 9.

Andrew: Our inner motor segments was the most impacted by the decline, in import volumes on the west coast and saw Revenue decline. 13.8% year-over-year driven by a 12.4% decrease in load count and 1.6% decrease in Revenue per load.

Andrew: Reductions in costs and improvements in network, balance helped to partially offset, the decrease in revenue and load count. As the operating ratio was negatively impacted by 230 basis points year-over-year, which was the first year-over-year degradation in operating ratio and 5 quarters.

Andrew: As part of our efforts to improve the cost structure.

We converted to private chassis in 5 markets. During the quarter, completing an initiative, we began early this year, which will benefit future periods as we no longer no longer experience. Both rental charges and Chassis ownership costs in tandem.

Further. We expect load count to grow sequentially as a result of recent Business Awards. And as volumes in the west normalized from recent disruptions,

Andrew: We remain disciplined on pricing with over 80% of the year-over-year. Volume loss attributable to a few large accounts, whose moves were strictly based on aggressive price competition.

Andrew: Moving forward we are focused on improving our execution, getting more out of our business Awards and driving further Network and cost efficiencies to position this business for profitability.

Andrew: Slide 10 illustrates our all other segments. This category includes Support Services provided to our customers in the contractors and third party carriers.

Andrew: Such as equipment sales and Rentals equipment, leasing warehousing activities, and insurance and maintenance.

Andrew: For the quarter Revenue, increased 9% and operating income, increased, 73.6% year-over-year, primarily driven by growth in our warehousing and leasing businesses.

Andrew: The operating result also includes a 2.8 million charge for additional premiums related to the third-party Auto liability risk. We transferred in 2024 following the closure of this business in March of 24

On slide 11, we have outlined our guidance in the key assumptions which are also stated in the earnings release. Actual results. May differ from our expectations. We are again providing 1 quarter of forward guidance.

Andrew: Based on our assumptions, we project our adjusted EPS, for the third quarter of 25 will be in the range of 36 to 42 cents.

Andrew: In general.

Andrew: This guidance for the third quarter assumes current conditions remain fairly stable and that we experienced some seasonality.

Andrew: The key assumptions. Underpinning. This guidance are listed on this slide though. I won't cover them in detail here.

Andrew: We project truckload operating income will improve sequentially, largely driven by revenue and operating margin that is slightly improved sequentially.

Andrew: This assumes modest sequential Improvement in Revenue per mile supported by normalizing Freight, mix, while miles and utilization are largely flat with the second quarter levels.

Andrew: For LTL, whereas normal seasonality would call for modest sequential degradation in revenue and operating margin. We project modest sequential improvements in both. Measures driven by ongoing progress, growing our customer base and market share yield improvements and progress driving cost efficiencies in our growing operations.

Andrew: Compared to the second quarter and for Intermodal to reduce its operating ratio and operating loss as compared to the second quarter, largely driven by sequential volume recovery and our cost initiatives.

in our all other segments,

Andrew: While year to date operating results and our expectations. For the third quarter are above our initial projections entering this year. We now anticipate a sequential slowdown in earnings for this category in the fourth quarter, similar to the seasonal Trend in the prior year.

Andrew: And finally, we not project our full year. Net cash capex, will be 525 million to 575 million which is a reduction from the original range of 575 to 625 million.

This concludes our prepared remarks and before I turn it over to questions, I want to remind everyone to keep it to 1 question per participant.

Andrew: Thank you.

Constantine: Constantine. We will now open the line for questions.

Constantine: Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question please? Press star. Followed by the number 1 on your touchtone phone and

Constantine: you will hear a prompt that your hand has been raced. Should you wish to recline from the polling process? Please press star followed by the number 2.

Constantine: If you're using a speaker-phone, please list the handset, before pressing any keys.

Constantine: Your first question comes from the line of Chris Weatherbee from Los Fargo. Your line is now open.

Speaker Change: Yeah. Hey great thanks. Good afternoon guys. Um you know, maybe we could just start with a with a big picture question about sort of supply and demand and where we think we are kind of in that that that equilibrium process. So in particular, I think there's some concerns about overhang with inventories and maybe consumer weakness, growing in the back, half of the year. You have maybe some industrial activity that could improve. Now that we have legislation in place and things like capacity sort of slowly coming out. But but what's your general take, I guess I'm curious how you guys think about the dynamic of the market where we are relative to equilibrium and and maybe where we can go in the second half of the year.

Speaker Change: Sure, I'll I'll start that Chris Adam. And then if uh, Andrew or Brad have anything to add, they can they can jump in.

Speaker Change: So so I think about the current market conditions, you know, anecdotally we hear about, you know, failures in our industry. Some are, you know sizeable fleets compared to the 1 or 2 truck failures. That I think we all see on the third party data but it's always hard to to really have a good feel of exactly what's happening with capacity. I mean we we feel and we have you know stated this for the last few quarters that we think it's going to be a slow process for capacity to to exit the market. And I think we're we're seeing that from just discussions with customers and what

Speaker Change: They're doing with, um, you know, how much they're willing to be exposed to, to Brokers and maybe some of the service failures are seen from Brokers that rely on small carriers, as well as other customers that have, you know, a little bit more sizable fleets that may have operated dedicated uh you know, piece of business for them that are no longer going to be continued to operate. So it certainly feels like capacity is continuing to exit. So the question would be what's going to happen with with demand? I think you know some stability.

With tariffs and trade policy, I think will help our customers uh get a better feel on decisions. They want to make around inventory and help them better understand where the where the customer is going to land. I think conversations today with customers are a bit more, I think, stable than they were, you know, you know, a quarter ago, I think there's maybe less of a reaction to to maybe some of the, the tariffs that everyone was um, concerned about. And as we noted in the, the release and the prepared remarks, we actually are having some discussions around maybe, uh, potentially doing some Peak projects with with customers that have historically, done that. And and you know, there's certainly some that are concerned about what 1-way capacity may look like at scale. If you get into uh, you know, a fourth quarter, where enough capacities, come out, where it's no longer easy to to uh fulfill a larger needs through your waterfall. And and so when you look at just actual start to the third quarter,

Speaker Change: Years, uh, but we're watching this closely and so I think we're, we're still cautious on where the market is going to is going to head in the back half of the year, but I but I feel like, you know, again, the worst is behind us. We're, we're seeing supply and demand tighten up and, and, and I feel like the over the road capacity at scale is going to be, uh, become more valuable, especially when you have projects. Now, hey, still transactionally load for load. It's still, um, I think, you know, relatively easy to find capacity, but it's getting a little tougher when, uh, there's bigger projects out there or greater needs for our customers. So, again, I think it's just a, a slow progression of, of Supply, coming out of the market and demand really remaining stable at this point,

Adam Miller: thanks Adam. Appreciate the comments.

Speaker Change: Your next question is from the line of Danielle Ember from Stevens. Your line is now open.

Adam Miller: Yeah, hey thanks. Good evening, guys. Thanks again for your questions. Um, maybe just to follow up on that last. Kind of truckload Outlook at them, you know, race this year. Have clearly not developed as quickly as you hoped. But when you think about Knights ability to grow earnings through the upcoming cycle, can you maybe talk about where you see mid-cycle margins going, maybe specifically in truckload? Because on 1 hand you have a capacity out there which you mentioned on the other hand, you made a ton of progress on cost per mile. How do you put those 2 things together? What do you see as structurally different with the margin profile and how that looks through a maybe

Speaker Change: Longer but less deep up cycle.

Speaker Change: I mean, I think

Speaker Change: Question on a regular basis and and the way we would look at our our margin profile kind of coming out of of this a much more volatile cycle than I think we've ever seen in our industry is, you know, mid-cycle on the truckload side we'd expect to operate our business in in the mid 80s and when you're you're near Peak from a demand standpoint, it's probably low 80s to high 70s and in a in a more challenging Market you know that that maybe is more similar to what previous Cycles have been versus our current cycle. You'd operate in in in the upper 80s. We we still think that that's intact. And today, we're really focused on

Showing up the cost side of our business. We feel like we have a bit more control over things that we can, we can do there. And, and then position ourselves to when there's opportunities in the market, we're ready to react to that quicker than anyone provide value to our customers, to that process. And and, and certainly be compensated for the value that we are bringing

Speaker Change: Like we've done a good job of still continue to be flexible and Nimble and we we really manage where our commitments are and can Flex into the spot Market. When it's advantageous to us and, you know, we noted, you know, in the second quarter that the, The Slowdown particularly in the west led to us, having to be a little bit more aggressive in the spot Market with our, with our customers, to try to keep trucks moving while there the the demand had waned. And so that that did weigh a bit on our overall rate per mile, um, between, you know, sequentially from 1st to 2nd quarter. Uh, but we've already started to see that come back and start to normalize. And so, I think we'll start to to realize some of the, uh, the contractual rate Improvement that we've been able to achieve and this bid cycle, which we, you know, we noted was, you know, low to mid single uh digits. And and it's certainly some of this.

Speaker Change: Potential project business, uh, comes to fruition in the, in the back half of the year. I think that could provide some some upside in in margins and that I think would lead to a more favorable bid environment next year, where I think the, you know, we'd have an opportunity to raise contractual rates. So again, we're focused on what we can control right now which is really positioning us from a cost perspective. Uh to provide leverage in our business to win the market does turn, we can quickly get our margins back to to the levels. I I spoke to earlier

Speaker Change: And Daniel, maybe I'll add 1. Other comment to Adam said. So I I would say relative

Speaker Change: to the competitive landscape. We we believe, you know, we we're seeing fewer carriers wanting to participate in the space for 1-way service than say, you know, how it looked in a year like 2019.

Speaker Change: um so so this once we kind of look at as when 1-way service becomes less commoditized when service

Capable of participating and when we service solving acute needs with trailer, polls at scale. We think our position is, is maybe better than it's ever been in regards to that.

Speaker Change: To see outside gains.

Speaker Change: But at this point, the spot Market's very compelling economically to our customers. And so until you see that tighten up and services impacted, then you're going to start you. When that happens you'll start to see. I think those opportunities become stronger for us. So we're we believe there's a a real opportunity here when opportunities available to us.

Thanks for the caller. Best of luck guys.

Speaker Change: You you? And next question comes from the line of can hooker from back of America.

Speaker Change: Your line is now open.

Great. Good afternoon. Um, so Adam the commentary on on truckload sounds a bit different than maybe some of the past quarters where, where we were guessing. Like we're, we're turning and feels like now, capacity is coming out continuously. And maybe there's some project on the demand side, the consumer building and, and Manufacturing opportunities from the big bills. So, maybe a relay that over to the LTL side, which is different than the overall Market given the buildout that you're doing. So, maybe talk some color on the share wins that cost you're taking out there, I think you mentioned counter seasonality, given the opportunity. Can you dig into the scale and the momentum there? Thanks.

Speaker Change: Sure. Yeah. Thanks Ken. Um, yeah. So so on the LTL front, um, you know, we, you know, we've done a lot over the last 24 months, in terms of scaling that business, we've had an an acquisition through the process. And, you know, it's giving us a real opportunity to provide, you know, additional um, services to our customers and markets that we just didn't serve historically and customers that really liked the the service that AAA Cooper or or an mme or DHE was have been able to provide. And so we've really kind of leaned into, you know, developing density and growing with with with the new uh Network that we've created, you know. But there's been certainly challenges in that process when you're integrating a new system and where you have, it's not just the technical, you know, changes in terms of how you operate a system, there's process changes. There's just cultural changes that are required while scaling the business.

Business. And, and having to deal with more volume, it it's created some challenges for us and so, you know, we've got our team now kind of focused on. Hey, let's let's figure out how we pull some of the costs that we that we've incurred through this process. Because, hey, you've had to add labor, we've had to have ADD assets to to fulfill the the service for these additional uh additional load count. And and we have to optimize that. Now we have technology that allows us to do that but we have

Speaker Change: to, to utilize that more effectively, particularly with the

Speaker Change: The, uh, the brands that have been inquired after AAA Cooper. So our team is is focused on that quite a bit now to get us back to, you know, more kind of normalized margins, without giving up the opportunities to grow into the network that we've developed. Because I think we still have a long Runway, uh, to get to, uh, you know, more optimal levels of shipment count through through the different, uh, terminals that we've opened up clearly. We've kind of slowed the growth there and intentionally and we may just have a, a few kind of strategic places that we're going to potentially open up in the back half of this year. Uh but largely it's going to be a we're going to be focused on you know growing into what what we currently have, we we've remained disciplined on price. You could see the the revenue per 100 weight continues to to grow at a at a healthy clip. We think there's a potential to just kind of catch some of the leaders in the space in terms of where they're at from, from a pricing standpoint. Uh, but right now it's going to get back.

Speaker Change: back to fundamentals to get to improve the margin, you know, capture more operating income with with the network we have and then kind of grow into

the additional scale that we have that we we were able to maybe overcome some of the

Speaker Change: The normal seasonality that we, you know, we encounter from from second quarter, uh, to third quarter.

Yeah, that last part. That's the great stuff. Thank you appreciate that, man. Yep. All right. Thanks.

Speaker Change: The next question comes from the line of Scott group from Wolfe research. Your line is now open.

Scott: Hey, thanks afternoon. So I know you guys don't have a a fourth quarter guide. Um I'm just want to give them the big swing and other operating income. Do you think it's fair to think about Q4 being similar with Q3 or maybe Adam because of some of the, the peak?

Scott: Activity starting to pick up, maybe there's still an opportunity to see some some decent, sequential earnings Improvement. Um and then I know just separately, if if I can does, does I know your cutting cap backs? Does does the does the bill change your and bonus depreciation change your views about

Scott: Capex going forward at all.

Yes. So on the last piece there I think the the capex changed there is just kind of us tightening up and and in different areas it's maybe not so much on the equipment front. Maybe from a facility standpoint uh an IT investment standpoint is really where we're we're seeing some of the adjustments. Uh, we really haven't changed our equipment strategy. We like to keep a pretty consistent replenishment.

Process. So you don't have, um, a lot of volatility in your, in your capex that you have, you know, cuz if you make adjustments there then 4 or 5 years, down the road, and you have a, a big jump in capex. So so we, we're pretty consistent and, and how we, uh, purchase, uh, tractors trailers. Can be a little, you know, a little bit more volatile depending on where our need is and what our what our ratios are. But but from a tractor standpoint, it didn't really change our strategy around that

What I think about, uh, fourth quarter, Scott, you know, we we don't have a guide out there again, there's still a little bit too much uncertainty for us to, to put a number out there. I think what we wanted to convey around the, the, all the other segments is, you know, we, we believed we had made an adjustment in, in how we, um, you know, build, um, 1 of our customers in our all other segments. That was going to create, maybe more consistency of Revenue throughout the quarters, and we just never made that. We never got that that change over the, the finish line. And so, we're, we're continuing with the normal Revenue recognition that we had the previous year, which leads to, you know, more more Revenue generation in the third quarter, you know, the first 3 quarters and then you see a Slowdown in in the fourth quarter. So it's instead of we were trying to go fix variable, but but we were able to accomplish that. So, uh, we just wanted to make sure that uh, the investment Community the analyst Community was was, was aware of that but we're not.

Scott: We're not prepared to to put a number out there uh, for fourth quarter at this point.

Scott: Very, very helpful. Thank you guys.

Yep.

Your next question comes from the line of Rhea. Hiring from Dash Bank, your line is now open,

Hey everyone, thanks for the time. So Adam I wanted to double, click on the comment, you made around maybe further cost savings and the truckload segment. I think that's quite impressive statement given all the success. You had there so far. So maybe you can walk us through some tangible examples of what's on the come, in terms of driving more, more cost Improvement. And then, if you can clarify where you are now in terms of fixed versus variable costs and um, you know, I'm trying to get a sense of what the incremental margin potential is. I know you walk through like long term overall margins but just as we see the cycle uplift occur, kind of how, how should we think about incremental is here, given that change in cost structure? Thank you.

Scott: Yeah, so so reach. Maybe I'll I'll turn that over to to Andrew. He's kind of been the a driving force around some of these costs initiatives. So I'll kind of walk through uh some of your questions there around. What, what's on the come there? Which I think the slide we we have tried to highlight some of those and then maybe even a breakdown of updates for this variable.

Scott: Yeah. Hey, so

So yeah, let me kind of I what I would say is that we've in the last year or so we've really been building the muscle of continuous cost reduction in our organization.

Scott: so we're using uh lean management tools to to drive a culture of continuous Improvement and cost and it took a little while for that to really

Uh, started to show results. You're starting to see that in the numbers. So there's a number of areas that we're looking at, we identified a few in the slide, but I would say

Scott: um,

Scott: Continuing to for us to be a contra inflationary area now that can change with 1 large claim. But what we've what we've done is we we've generally taken a more proactive position ahead of getting ahead of a cruels.

That could develop adversely, then we have in the past and and we don't wait uh till the end of the year to to look at actuaries and adjust those, we look at those each quarter. So we have a better handle on our costs. We're we're on top of our cruels and proactive ways so we're less likely to see surprise there. We on trailers on equipment, we still feel like our trailer ratio has an opportunity for us to bring down trainer costs and we're still well above historic levels that we need to be opportunistic in various market conditions.

Scott: So um we think that that that's to our advantage. We've um we have implemented uh number of, and we're in the process of implementing projects enabled by technology. Now that is AI. It's automation of other types, it's using data science. We have a number of tools that we have put significant resources to

Scott: And so, we're looking across our organization determining doing value stream, assessments understanding, what is a value to our customer and what is not. And if it's not a value, we look at ways to automate it or stop doing it. And so we're using technology to change the core processes of what it costs to serve this.

Scott: This business. So our goal is to dramatically over time change the cost to serve on the back end of our business um in in a material way and we're going to use every tool and invest where it makes sense to go capture that.

Scott: I would also say we're, we're getting much better at uh, looking across our divisions to improve efficiency there, both in resources, and in support levels, we've gotten, we've gotten pretty smart in way. We have been in the past about how to uh, move assets between our divisions. So we we we can take dedicated trucks out of our truckload businesses and use them in LPL day. Cabs we we have a, we have a leasing business for trailers. That at end of life, we can bring those trailers to that leasing business. Um, we're moving trailers out of our Swift business to US Express and replacing more expensive lease trailers. So we, we are figuring out how to take advantage of all of our Brands, to drive efficiencies, and, and processes to. Um, get more. Get smarter about that.

Scott: We've also taken a real hard look at our fixed costs around our facilities. We have, I think 9, or so, truckload facilities, and a handful in LTL facilities that we are, um, there are underutilized Arc and impact us from an operational perspective. But we are exiting and selling. And so we're that's going to take a lot of costs out. As we do that, we're being very thoughtful. None of these, we believe impairs our ability to be opportunistic or affects our Market, but there's there's opportunities, we, as we've looked at that. And then, as you've seen, we've made improvements in all of the core variable cost areas, the fuel and maintenance. We, I talked about insurance, those Prague the projects that we made are because of initiatives in those areas that we have, um,

Implemented and we're seeing results uh, in our actual results and and we are just just kind of early stages in a lot of those projects. So we expect there's going to be continued Improvement in those areas. So when it comes down to it, we we are looking at costs everywhere and and and in a market like this, you start to look at costs in a different way. You start to really assess what what are the drivers of your cost? What creates value and where you can take cost out. And and so I expect our our, our expectation is we we continue to see costs per mile year-over-year improved um ongoing where we cover inflation Plus

Scott: So that's that's kind of what the journey we're on on cost, we think is going to position this business better than ever from a leverage perspective to be, uh, really opportunistic. Um, because we've more cost competitive I think than we've ever been

Scott: That's great. I appreciate all that color.

Misha: Thanks Misha.

Your next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is now open

Ravi Shanker: You as well. Can I just talk about some of the moving Parts there? Please.

Speaker Change: Yeah. I mean I I think it's you know, that that markets just seems to have some starts and stops to it. Robbie it it also you know will be dependent on the inventory that we have in stock and where the where the demand is and so, you know, we were uh, you know, maybe short on certain items that were in higher demand near the end of the quarter and as we go into the to the third quarter, I think we're better positioned from a, from an inventory standpoint, and we've seen some early demand that. Uh, seems to be positioning that to be stronger than what we saw in the second quarter.

We lose your Robbie.

Speaker Change: Sorry, I was on mute. Uh, so so how how do we think of that kind of run rate, kind of going forward? Uh, is that something that can come back in the back half?

Speaker Change: Well, well, hey, I mean you, it it's, it's kind of hard. It's this these small carriers are are, you know, it's hard to count on what that trend is going to be on a consistent basis. I think, right now you've seen good Demand on the tractor, front, maybe not as much on on the trailer front and and so, but hey that that could change in in the fourth quarter. It's just it's hard to predict. I think we we try to forecast out the the first, you know, you know obviously the third quarter but the fourth quarter still, uh, you know, I don't see deviating dramatic.

Speaker Change: Lie. But could be could be less could be more, it depends on what the trends. We're seeing Ravi Travi our, our capex is kind of back-end loaded so we're going to be bringing more new equipment.

Uh, into our Fleet and the back half of the year, it's going to give us more inventory to be able to sell. So I think that's maybe

Speaker Change: 1 difference between the first half and the second half.

Speaker Change: All right, thanks Robbie.

Speaker Change: Your next question comes from the line of our urosa from CD group. The Line is now open.

Hey, good afternoon. Uh, so hoping you could speak about the, uh, the the impact that Brokers are having on the market. Uh, do you think they're driving greater price? Transparency Adam. I think you mentioned a couple of, uh, service failures on the broker side. Maybe you could talk about that and kind of balance that against, uh, is, is greater participation from Brokers, uh, or maybe, uh, kind of the tech that Brokers are bringing to the industry. Is that part of what's making it harder for the market to recover? Thanks.

Speaker Change: I think, all right, there is clearly more transparency in the market than we, that we had 10, 15 years ago. Clearly, and I, I don't know if it's necessarily Brokers are doing, I mean, there's third-party data sets that all of our customers subscribe to or most of them that that that have scale and they can see what's happening to rates. And I I think that leads to just a a market that's just more

More efficient. And so when when rates are going down, everybody kind of sees that and kind of presses from a procurement standpoint for for, for rate concessions, but it also works the other direction and we saw this during Co when rates are going up.

Everyone could see and acknowledge it and they use that to go to their leaders to say, hey we need to do something here if we want to secure capacity because it's clear rates are going up. So I just think it gives more insight and probably these Cycles move a little faster based on real supply and demand and it's not necessarily the relationship where you're trying to go get raid and they have to go through procurement and go through all process to to, to see what what the market will bear, like, you did 10 15 years ago. I think it's, it's it's easier to set up the expectations rates going up or down. I think, Brokers out there are really just a function of more small carriers, more small capacity being available in the market. When there's more of that capacity available you'll have more Brokers coming to the space and as that capacity exit, I think you're going to have Brokers that, that exit the space. That's what naturally happens. And I think, what we focus on what we see from our customers is

Speaker Change: Most likely because you have a carrier that's, that's failing, a lane. They just cannot fulfill the, the demand that the customer has and then they're looking for a larger player to come in or another player to come in and take over that lane. And in many cases it's at a rate that's higher than what you bid on in the, in the National Bid. And so we're seeing more of that occur. And I think we're having more dialogue with customers about what's causing that and some of that's going to be the, the broker's falling off because they don't have the, the carriers that can support the volume. And, in other cases. It's maybe some larger carriers that, that, that have come off the lane that aren't that aren't necessarily carriers that they're, they're coming through, uh, through Brokers. So, that that's where we're seeing again. It's, it's anecdotal, but it's, it's, it's a trend that is starting to develop.

Speaker Change: If I could just follow up quickly, is there any dimension in which that greater price and transparency makes it harder to get to the margin targets that you were discussing earlier?

Speaker Change: Please. So I think

Speaker Change: The Cycles. I think.

Speaker Change: Quicker because it's easier to see what's happening to to supply and demand. I I think from our standpoint, when capacity gets tight, I mean that's when a carrier of our size at our different brands, has the ability to come in and solve large problems for for our customers and you, you do it with asset based capacity that that's initially get tied to what's happening.

Happening in the in the third party with the small Brokers but it's secure capacity, that's that they can do drop. And hook that has security around the, the freight that that that we're hauling and that, you know, we'll be able to to, you know get back to the margins that that we've been at. Because if you look at we have this transparency during coid and that led to the best margins we've ever seen. And part of that was because everyone could see that rates were going higher. Then everyone could see, they were going, they were going down and so procurement leverages that to to negotiation at the end of the day, it's going to come down already to supply and demand and where it's at, and it's just easier to see where that's at in the market today than it was 10 or 15 years ago.

Adam Miller: That's great. Thanks for the time, Adam.

Your next question is from the line of Jason, Cole from TD, calling your line is now open.

Jason Cole: Thank you. Uh evening guys. I wanted to switch back to LTL here. Um you know you guys are coming up on your uh your anniversary of purchasing DHE. I was wondering if you could talk about uh, how building tonnage in the western network is going. And then broadly overall, how would you categorize the pricing environment in the LTL Marketplace versus the prior quarter? Would you say it's sequentially about the same? Did it worsen a little bit? Then how should we think about the rest of the year? Thank you.

so here, here's I'd say Jason, um,

You know, building tonnage has gone well in the west I think we've seen customers very responsive to it. They like having another option out there and

Jason Cole: again leveraging the the great relationships that we had with triple A Cooper and mme coming in, you know, as we as we you know, embarked in the west coast you know, but there's been challenges with as I mentioned earlier with scaling like we have in the west coast while doing it a system integration that's that's put some cost headwinds into the business that hey, we we have an issues now to to work through. So I think tonnage has worked just as expected. I think it's been a bit more challenging on the change management of the process. And then some of the costs that we that we've incurred, uh, to build out that tonnage. And and that's what, that's what we're going to. We're going to work through when you think about of a pricing standpoint. I mean it's it's been relatively consistent, you know, I think the the renewals have been still solid in the the mid to Upper single digits and and I don't think there's anything right now that indicates that that's really changing as we get into the third quarter.

Speaker Change: Appreciate the call. Yeah, just have a little color on kind of the Dynamics that are going on there. So we're opening new locations, West Coast as well. So, you know, DHE, we went through the the wholesale implementation of their core processes, right? They used to operate in and, you know, that was a big lift. But, but, um, we, you know, while we've done that with new volumes and new locations, the team has done a great job with good health from our AAA uh Team there. But that takes time to get fully up to speed and so

Speaker Change: You know, I think we feel like there's a lot more opportunities still there. So, when we approach this, can I give you a sense for what you can expect?

From the business, you know, high growth environments which we're in and with our top priority being to deliver High service.

Speaker Change: Capacity and cost by like we've mentioned ahead of that demand and sometimes that that can be very expensive cost, right? That's could be subcontractors. Um, Outsource maintenance sometimes rented equipment. Uh, Meanwhile, we're we're in the process in those locations where we're seeing a lot of growth of hiring and training and onboarding new employees and it creates some redundancy right in the network and as as you're bringing in this new capacity online and opening a new locations that changes your network flow

Speaker Change: And sometimes when you do that, you have headcount inefficiencies that are kind of misaligned with your evolving Network. So until that stabilizes, you got some inefficiencies you got to work through and that's kind of where we're at. So um but as we're bringing these new locations on the west coast online, it's opening up new opportunities from us. So we we are making sure that we don't bring in more capacity into that part of our business. Then we can service. Effectively we're playing the long game here, right? We're not going to sacrifice short-term right margin as long as an opportunity and so that that's where we're at we. Well, if we're building that efficiency and then we're going to continue to scale and pull, pull more volume into the region. Well, that makes sense. If you guys are are out there, running equipment that can get very expensive. I did it back in the day, um, should we expect? Maybe capex to, to go up next year. You guys are going to be purchasing more equipment for next year.

Speaker Change: I I mean 1 of the 1 of the the beauties of our the synergies of truckload and l l together is that we can run.

Uh, tractors out of our dedicated Fleet Jabs and Intel LTL. It's it's feeding our growth in a very cost-efficient way. So we'll we'll look at that but I don't I don't think that I would expect it to be materially different next year.

Uh, from from an equipment capex perspective.

Speaker Change: Fair enough. Appreciate the time, gentlemen.

Speaker Change: Thank you, Jason.

Speaker Change: Next question is from the line of Zordon out here for Goldman Sachs, your line is now open.

Zordon: Yeah. Hi everyone. Hey, I wanted to Circle back on the Mi. Protractor, you know, being up 4% uh this past quarter which seemed pretty strong against some tough comps. Um, is is that some indication? I know you're reducing your tractor Fleet, but is that some indication on Supply demand broadly and do you expect to build on that as part of the thought process for the third quarter and Beyond? Thanks.

so so there's a couple

Speaker Change: factors Weighing on the the Improvement there, Jordan. I mean 1 would be, you know, disposing of underutilized assets. So we had unseated tractors and didn't feel like we had the the driver tool to be able to fill those ignore the freight market. Then we would dispose of those which we did some of that. Clearly you saw that you can see that in the track account.

Speaker Change: Um, but also, when you look at production on a seated basis, which we don't provide that number, we are seeing that improve on a, on a year-over-year basis as well. So we are being more productive with the trucks. We had seated this year than we were with the trucks. We had seated last year. So again, it's another indication that the market slowly improving. We believe the worst is behind us and we expect the slow progression of the market to continue into the back half of this year kind of barring any, you know, unforeseen. Real Market. Disruptions whether that be tariffs or other other, you know, policies. But but yeah, we believe that that is a sign. And hey, that's something we track on a, on a regular basis and really put a great focus on and does allow us to capture some of the operating leverage in the business when you're running more miles on on your your your Fleet. So it's certainly certainly a big focus of our Jordan

Speaker Change: Thank you.

Speaker Change: Now, we hit an hour. So hey we we appreciate all the the questions, um, interaction uh, from the group. Um, and so we will go ahead and conclude and again if we didn't weren't able to get to your question, uh, you can call 602-606-6349 and we'll schedule a follow-up call. Appreciate it. Everyone.

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