EX-99.1 2 exhibit99109302021.htm KNIGHT-SWIFT HOLDINGS INC ANNOUNCES FINANCIAL RESULTS FOR THIRD QUARTER 2021 Document
Exhibit 99.1
image2a.jpg
October 20, 2021
Phoenix, Arizona
Knight-Swift Transportation Holdings Inc. Reports Third Quarter 2021 Revenue and Earnings
Knight-Swift Transportation Holdings Inc. (NYSE: KNX) ("Knight-Swift" or "the Company"), one of the largest and most diversified freight transportation companies, operating the largest full truckload fleet in North America, today reported third quarter 2021 net income attributable to Knight-Swift of $206.2 million and Adjusted Net Income Attributable to Knight-Swift of $217.1 million. GAAP earnings per diluted share for the third quarter of 2021 were $1.23, compared to $0.71 for the third quarter of 2020. The Adjusted EPS was $1.30 for the third quarter of 2021, compared to $0.79 for the third quarter of 2020.
Key Financial Highlights
Each reportable segment grew revenue while improving margins, leading to consolidated revenue growth of 32.8%, excluding truckload fuel surcharge, and an improvement of 63.2% in consolidated operating income to $270.1 million in the third quarter of 2021, as compared to the same quarter last year. Net Income Attributable to Knight-Swift increased by 68.9% to $206.2 million.
•Truckload — 77.8% Adjusted Operating Ratio within our Truckload segment, a 350 basis point improvement as compared to the same quarter last year
•Logistics — 87.6% Adjusted Operating Ratio within our Logistics segment, a 980 basis point improvement, supported by a 130.0% increase in Logistics revenue, excluding intersegment transactions, as load counts grew by 60.7%, while revenue per load increased 43.1%.
•Intermodal — 91.5% Adjusted Operating Ratio within our Intermodal segment, an 820 basis point improvement, supported by 14.1% year-over-year revenue growth
•Less-than-Truckload ("LTL") — 87.5% Adjusted Operating Ratio, which represents the results of AAA Cooper Transportation ("ACT"). See discussion under "Recent Acquisition" below. On an annualized basis, the LTL segment represents approximately 12% of revenue within the four reportable segments.
Quarter Ended September 30, 1
20212020Change
(Dollars in thousands, except per share data)
Total revenue$1,642,445 $1,210,406 35.7 %
Revenue, excluding truckload fuel surcharge$1,510,572 $1,137,313 32.8 %
Operating income$270,087 $165,461 63.2 %
Adjusted Operating Income 2
$283,108 $183,094 54.6 %
Net income attributable to Knight-Swift$206,178 $122,058 68.9 %
Adjusted Net Income Attributable to Knight-Swift 2
$217,080 $134,618 61.3 %
Earnings per diluted share$1.23 $0.71 73.2 %
Adjusted EPS 2
$1.30 $0.79 64.6 %
1For information regarding comparability of the reported results due to acquisitions, refer to footnote 1 of the Condensed Consolidated Statements of Comprehensive Income in the schedules following this release.
2See GAAP to non-GAAP reconciliation in the schedules following this release.



Dave Jackson, CEO of Knight-Swift, commented, "We continue to invest in the diversification of our business through our Truckload, Logistics, Intermodal, LTL, and other developing businesses, including our warehousing activities and expanded services to third-party carriers. This diversification has allowed us to grow revenue and earnings across multiple segments and we expect will lead to earnings growth in 2022. We continue to generate meaningful free cash flow that we plan to invest in both organic and inorganic growth into the future that will support our expansion into LTL as well as third-party carrier services. We are appreciative of our drivers and supporting team members across all of our brands, who are the foundation of our company and continuously work together to safely move goods throughout the supply chain."
Recent Acquisition — On July 5, 2021, we acquired Dothan, Alabama-based ACT, a leading LTL carrier that also offers dedicated contract carriage and ancillary services. The results of ACT beginning July 5, 2021 are included within the LTL segment in our consolidated results.
Other Income, net — We earned $4.1 million of income within "Other income, net" in the condensed consolidated statements of comprehensive income in the third quarter of 2021, representing a $3.4 million decrease compared to $7.5 million in the third quarter of 2020. The year-over-year change was driven by lower gains recognized within our portfolio of investments, as well as a third quarter 2021 write-off of deferred debt issuance costs from replacing our previous term loan and credit facility with a new credit facility (discussed under "Liquidity and Capitalization" below).
Income Taxes — The effective tax rate was 22.8% for the third quarter of 2021, compared to 28.1% for the third quarter of 2020. The current quarter effective tax rate was favorably impacted by a reduction in state deferred taxes due to the ACT acquisition. We expect the full-year 2021 effective tax rate to be approximately 25%.
Dividend — On July 29, 2021 our board of directors declared a quarterly cash dividend of $0.10 per share of common stock. The dividend was payable to the Company's stockholders of record as of September 3, 2021 and was paid on September 27, 2021.
Segment Financial Performance
Truckload Segment
Quarter Ended September 30,
20212020Change
(Dollars in thousands)
Revenue, excluding fuel surcharge and intersegment transactions$933,205 $902,592 3.4 %
Operating income$206,543 $168,781 22.4 %
Adjusted Operating Income 1
$206,866 $169,105 22.3 %
Operating ratio80.2 %82.7 %(250  bps)
Adjusted Operating Ratio 1
77.8 %81.3 %(350  bps)
1See GAAP to non-GAAP reconciliation in the schedules following this release.
Our Truckload segment includes our irregular route, dedicated, refrigerated, expedited, flatbed, and cross-border operations across our brands with 12,937 irregular route tractors and 4,930 dedicated tractors. The Adjusted Operating Ratio improved by 350 basis points to 77.8%, leading to a 22.3% improvement in Adjusted Operating Income. Year-over-year revenue, excluding fuel surcharge and intersegment transactions, grew by 3.4% in the third quarter. A 24.9% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions, partially offset by a 13.6% decrease in miles per tractor, contributed to a 6.8% increase in average revenue per tractor. Shipping demand remains strong throughout all markets. We have experienced more opportunities in shorter length of haul lanes, which have resulted in higher revenue per mile but fewer miles per tractor. These opportunities ultimately contributed to higher revenue per tractor and improved margins.

image2a.jpg
2

Logistics Segment
Quarter Ended September 30,
20212020Change
(Dollars in thousands)
Revenue, excluding intersegment transactions$221,374 $96,237 130.0 %
Operating income$27,128 $2,478 994.8 %
Adjusted Operating Income 1
$27,462 $2,478 1,008.2 %
Operating ratio88.0 %97.5 %(950  bps)
Adjusted Operating Ratio 1
87.6 %97.4 %(980  bps)
1See GAAP to non-GAAP reconciliation in the schedules following this release.
Demand for our logistics service offering continued to grow throughout the quarter, as we continue to leverage our fleet of over 60,000 trailers in our Power-only service offering. Logistics revenue increased 130.0% as we grew load count by 60.7%, while increasing revenue per load by 43.1%. The Adjusted Operating Ratio improved to 87.6%, resulting in a 1,008.2% increase in Adjusted Operating Income. Brokerage gross margin was 18.1% in the third quarter of 2021, compared to 11.0% in the third quarter of 2020.
Within our Power-only service offering, revenue grew by 333.9% as a result of an 84.1% increase in load volumes. Our Power-only service offering represented approximately 35% of brokerage load volumes during the third quarter of 2021. Through our Select platform, we digitally matched more than 4,500 carriers with available capacity to available loads during the third quarter of 2021.
Intermodal Segment
Quarter Ended September 30,
20212020Change
(Dollars in thousands)
Revenue, excluding intersegment transactions$112,754 $98,808 14.1 %
Operating income$9,544 $250 3,717.6 %
Adjusted Operating Income 1
$9,544 $250 3,717.6  %
Operating ratio91.5 %99.7 %(820  bps)
Adjusted Operating Ratio 1
91.5 %99.7 %(820  bps)
1See GAAP to non-GAAP reconciliation in the schedules following this release.
Revenue grew by 14.1% while the Adjusted Operating Ratio improved from 99.7% to 91.5%, resulting in a $9.3 million increase in operating income. Continued rail congestion and rail allocations resulted in a reduction in load count, but contributed to a 25.9% increase in revenue per load. Intermodal is exhibiting strong momentum, and we expect operational improvements in cost structure and network design as we transition to a new western rail partner in the coming quarters. To position Intermodal for continued growth, we plan to add approximately 1,000 containers over the next two quarters.


image2a.jpg
3

LTL Segment 1
Quarter Ended September 30,
2021
(Dollars in thousands)
Revenue, excluding fuel surcharge$167,900 
Operating income$17,469 
Adjusted Operating Income 2
$20,967 
Operating ratio90.9 %
Adjusted Operating Ratio 2
87.5 %
1For information regarding comparability of the reported results due to acquisitions, refer to footnote 1 of the Condensed Consolidated Statements of Comprehensive Income in the schedules following this release.
2See GAAP to non-GAAP reconciliation in the schedules following this release.
Our LTL segment, which operates across approximately 70 facilities with a door count of over 3,400, generated $167.9 million in revenue, excluding fuel surcharge and an 87.5% Adjusted Operating Ratio during the third quarter of 2021. During the quarter, our LTL segment earned revenue per hundredweight of $12.44, a 6.9% increase over the third quarter of 2020, while revenue per shipment, excluding fuel surcharge increased 7.9% to $138.27.
We are pleased with the results of ACT and we are encouraged with the synergy opportunities the teams have identified and expect to improve the cost structure as well as capitalize on network and revenue opportunities. We feel confident we are on pace to achieve our goal of an 85% Adjusted Operating Ratio in the coming years.
Non-reportable Segments
Quarter Ended September 30,
20212020Change
(Dollars in thousands)
Total revenue$89,393 $56,610 57.9 %
Operating income (loss)$9,403 $(6,048)255.5 %
The non-reportable segments include support services provided to our customers, independent contractors, and third party carriers (including repair and maintenance shop services, equipment leasing, warranty services, and insurance), trailer parts manufacturing, certain warehousing activities, as well as certain corporate expenses (such as legal settlements and accruals and $10.3 million in quarterly amortization of intangibles related to the 2017 merger). Revenue growth and improved profitability within the non-reportable segments is related to revenue and margin improvement in our warehousing activities, expanded services to third-party carriers, (including Iron Truck Services), and increased demand for our equipment leasing services.


image2a.jpg
4

Consolidated Liquidity, Capital Resources, and Earnings Guidance
Cash Flow Sources (Uses) 1
 Year-to-Date September 30,
 20212020Change
(In thousands)
Net cash provided by operating activities$817,524 $655,019 $162,505 
Net cash used in investing activities(1,548,757)(335,602)(1,213,155)
Net cash provided by (used in) financing activities873,309 (243,138)1,116,447 
Net increase in cash, restricted cash, and equivalents 2
$142,076 $76,279 $65,797 
Net capital expenditures$(196,064)$(276,144)$80,080 
1For information regarding comparability of the reported results due to acquisitions, refer to footnote 1 of the Condensed Consolidated Statements of Comprehensive Income in the schedules following this release.
2"Net increase in cash, restricted cash, and equivalents" is derived from changes within "Cash and cash equivalents," "Cash and cash equivalents – restricted," and the long-term portion of restricted cash included in "Other long-term assets" in the condensed consolidated balance sheets.
Liquidity and Capitalization — As of September 30, 2021, we had a balance of $1.1 billion of unrestricted cash and available liquidity and $6.3 billion of stockholders' equity. The face value of our debt, net of unrestricted cash ("Net Debt") was $1.8 billion as of September 30, 2021, which is a $1.1 billion increase from December 31, 2020. On July 5, 2021, we acquired ACT and borrowed $1.2 billion to finance the transaction (the "2021 Term Loan"). The 2021 Term Loan, as well as our previous $1.1 billion unsecured credit facility, was replaced in September 2021 in connection with entry into our $2.3 billion unsecured credit facility. Free cash flow3 for the year-to-date period ended September 30, 2021 was $621.5 million (computed as net cash provided by operating activities, less net capital expenditures). During the year-to-date period ended September 30, 2021, we generated $817.5 million in operating cash flows, reduced our operating lease liabilities by $37.4 million, paid down our finance lease liabilities by $73.8 million, spent $1.3 billion on three acquisitions, and returned $53.7 million in share repurchases and $46.9 million in dividends to our stockholders.
Equipment and Capital Expenditures — Gain on sale of revenue equipment increased to $22.1 million in the third quarter of 2021, compared to $1.7 million in the same quarter of 2020. The average age of the tractor fleet within our Truckload Segment was 2.4 years in the third quarter of 2021, compared to 2.1 years in the same quarter of 2020. The average age of the tractor fleet within our LTL segment was 4.0 years in the third quarter of 2021. Capital expenditures, net of disposal proceeds, were $196.1 million for year-to-date September 30, 2021. We expect net cash capital expenditures, including net cash capital expenditures of ACT, will be in the range of $450.0 – $470.0 million for full-year 2021. This is an update from our previously-disclosed range of $500.0 – $550.0 million, as we received less revenue equipment than ordered during the year. Our net cash capital expenditures primarily represent replacements of existing tractors and trailers, as well as investment in our terminal network, driver amenities, and technology.
Guidance — We expect that Adjusted EPS4 for full-year 2021 will range from $4.50 to $4.55, which is an update from our previously-disclosed range of $3.90 to $4.05. Our expected Adjusted EPS4 range considers the expected future earnings of ACT and UTXL and is also based on the current truckload, LTL, and general market conditions, recent trends, and the current beliefs, assumptions, and expectations of management (including those referenced in the third quarter 2021 earnings presentation posted on our website).
The factors described under "Forward-Looking Statements," among others, could cause actual results to materially vary from this guidance. Further, we cannot estimate on a forward-looking basis, the impact of certain income and expense items on our earnings per share, because these items, which could be significant, may be infrequent, are difficult to predict, and may be highly variable. As a result, we do not provide a corresponding GAAP measure for, or reconciliation to, our Adjusted EPS4 guidance.
________
3Free cash flow is a non-GAAP measure.
4Our calculation of Adjusted EPS starts with GAAP diluted earnings per share and adds back the after-tax impact of intangible asset amortization (which is expected to be approximately $0.25 for full-year 2021), as well as noncash impairments and certain other unusual items, if any.
image2a.jpg
5

Other Information
About Knight-Swift
Knight-Swift Transportation Holdings Inc. is one of North America's largest and most diversified freight transportation companies, providing multiple truckload transportation and logistics services, as well as LTL services through ACT (beginning in July 2021). Knight-Swift uses a nationwide network of business units and terminals in the United States and Mexico to serve customers throughout North America. In addition to operating the country's largest tractor fleet, Knight-Swift also contracts with third-party equipment providers to provide a broad range of truckload services to our customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors.
Investor Relations Contact Information
David A. Jackson, President and Chief Executive Officer, or Adam W. Miller, Chief Financial Officer: (602) 606-6349
Forward-Looking Statements
This press release contains statements that may constitute forward-looking statements, which are based on information currently available, usually identified by words such as "anticipates," "believes," "estimates," "plans,'' "projects," "expects," "hopes," "intends," "strategy," ''focus," "outlook," "foresee," "will," "could," "should," "may," "continue," or similar expressions, which speak only as of the date the statement was made. Such statements are forward-looking statements and are within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are subject to the safe harbor created by those sections and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of or guidance regarding earnings, earnings per share, revenues, cash flows, dividends, share repurchases, leverage ratio, capital expenditures, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed acquisition plans, new services or developments; any statements regarding future economic, industry, or Company conditions or performance, including, without limitation, expectations regarding future supply or demand, volume, or truckload capacity, or any impacts of the COVID-19 global pandemic or other similar outbreaks; and any statements of belief and any statement of assumptions underlying any of the foregoing.  In this press release, such statements include, but are not limited to, statements concerning:
•any projections of or guidance regarding earnings, earnings per share, Adjusted EPS, revenues, cash flows, dividends, capital expenditures, or other financial items,
•future dividends,
•future effective tax rates,
•future performance of our reportable segments, including network design and cost structure within our Intermodal segment and expected Adjusted Operating Ratio within our LTL segment,
•future capital structure, capital allocation, growth strategies and opportunities, and liquidity, and
•future capital expenditures, including nature and funding of capital expenditures.
Such forward-looking statements are inherently uncertain, and are based upon the current beliefs, assumptions, and expectations of management and current market conditions, which are subject to significant risks and uncertainties as set forth in the Risk Factors section of Knight-Swift's Annual Report on Form 10-K for the year ended December 31, 2020, Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and various disclosures in our press releases, stockholder reports, and other filings with the SEC.
image2a.jpg
6

Financial Statements
Condensed Consolidated Statements of Comprehensive Income (Unaudited) 1
Quarter Ended September 30,Year-to-Date September 30,
 2021202020212020
(In thousands, except per share data)
Revenue:
Revenue, excluding truckload fuel surcharge$1,510,572 $1,137,313 $3,856,549 $3,162,005 
Truckload fuel surcharge131,873 73,093 324,611 233,897 
Total revenue1,642,445 1,210,406 4,181,160 3,395,902 
Operating expenses:
Salaries, wages, and benefits500,673 376,923 1,248,656 1,097,067 
Fuel146,422 104,703 390,713 312,939 
Operations and maintenance86,951 69,964 226,334 204,435 
Insurance and claims73,757 45,186 188,176 144,768 
Operating taxes and licenses27,475 21,475 71,240 64,527 
Communications6,612 5,069 16,284 14,845 
Depreciation and amortization of property and equipment138,570 115,664 382,091 340,486 
Amortization of intangibles15,719 11,473 39,452 34,421 
Rental expense12,002 19,700 42,265 67,447 
Purchased transportation352,061 245,102 914,448 670,485 
Impairments— — — 1,255 
Miscellaneous operating expenses12,116 29,686 38,040 73,480 
Total operating expenses1,372,358 1,044,945 3,557,699 3,026,155 
Operating income270,087 165,461 623,461 369,747 
Other (expenses) income:
Interest income245 326 809 1,595 
Interest expense(7,179)(3,232)(13,972)(13,360)
Other income, net4,072 7,484 37,017 9,476 
Total other (expenses) income, net(2,862)4,578 23,854 (2,289)
Income before income taxes267,225 170,039 647,315 367,458 
Income tax expense61,059 47,835 158,171 99,204 
Net income206,166 122,204 489,144 268,254 
Net income (loss) attributable to noncontrolling interest12 (146)(372)(581)
Net income attributable to Knight-Swift$206,178 $122,058 $488,772 $267,673 
Other comprehensive loss(878)— (878)— 
Comprehensive income$205,300 $122,058 $487,894 $267,673 
Earnings per share:
Basic$1.24 $0.72 $2.95 $1.57 
Diluted$1.23 $0.71 $2.93 $1.57 
Dividends declared per share:$0.10 $0.08 $0.28 $0.24 
Weighted average shares outstanding:
Basic165,966 170,205 165,823 170,257 
Diluted167,106 171,028 166,936 171,035 
________
1The reported results do not include the results of operations of ACT and its subsidiary prior to its acquisition by Knight-Swift on July 5, 2021 in accordance with the accounting treatment applicable to the transaction.
image2a.jpg
7

Condensed Consolidated Balance Sheets (Unaudited)1
September 30, 2021December 31,
2020
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents$269,694 $156,699 
Cash and cash equivalents – restricted68,019 39,328 
Restricted investments, held-to-maturity, amortized cost7,140 9,001 
Trade receivables, net of allowance for doubtful accounts of $21,811 and $22,093, respectively
830,402 578,479 
Contract balance – revenue in transit22,950 14,560 
Prepaid expenses76,697 71,649 
Assets held for sale20,330 29,756 
Income tax receivable46,899 2,903 
Other current assets62,334 20,988 
Total current assets1,404,465 923,363 
Property and equipment, net3,456,335 2,992,652 
Operating lease right-of-use assets102,230 113,296 
Goodwill3,461,898 2,922,964 
Intangible assets, net1,793,924 1,389,245 
Other long-term assets136,130 126,482 
Total assets$10,354,982 $8,468,002 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$177,634 $101,001 
Accrued payroll and purchased transportation227,016 160,888 
Accrued liabilities134,002 88,894 
Claims accruals – current portion200,159 174,928 
Finance lease liabilities – current portion
78,266 52,583 
Operating lease liabilities – current portion35,464 47,496 
Accounts receivable securitization – current portion— 213,918 
Total current liabilities852,541 839,708 
Revolving line of credit300,000 210,000 
Long-term debt – less current portion
1,238,022 298,907 
Finance lease liabilities – less current portion208,556 138,243 
Operating lease liabilities – less current portion69,401 69,852 
Accounts receivable securitization – less current portion278,428 — 
Claims accruals – less current portion200,493 174,814 
Deferred tax liabilities856,926 815,941 
Other long-term liabilities45,175 48,497 
Total liabilities4,049,542 2,595,962 
Stockholders’ equity:
Common stock1,660 1,665 
Additional paid-in capital4,344,894 4,301,424 
Accumulated other comprehensive loss(878)— 
Retained earnings1,946,984 1,566,759 
Total Knight-Swift stockholders' equity6,292,660 5,869,848 
Noncontrolling interest12,780 2,192 
Total stockholders’ equity6,305,440 5,872,040 
Total liabilities and stockholders’ equity$10,354,982 $8,468,002 
________
1The reported balances include ACT as of September 30, 2021
image2a.jpg
8

Segment Operating Statistics (Unaudited)
Quarter Ended September 30,Year-to-Date September 30,
20212020Change20212020Change
Truckload
Average revenue per tractor 1
$52,231 $48,884 6.8 %$149,026 $137,736 8.2 %
Non-paid empty miles percentage13.5 %12.6 %90  bps13.1 %13.1 %—  bps
Average length of haul (miles)398 436 (8.7 %)407 427 (4.7 %)
Miles per tractor20,233 23,422 (13.6 %)62,083 68,729 (9.7 %)
Average tractors17,867 18,464 (3.2 %)18,041 18,439 (2.2 %)
Average trailers60,361 58,310 3.5 %60,396 57,716 4.6 %
Logistics
Revenue per load 2
$2,513 $1,756 43.1 %$2,261 $1,518 48.9 %
Gross margin18.1 %11.0 %710  bps16.5 %13.5 %300  bps
Intermodal
Average revenue per load 2
$2,902 $2,305 25.9 %$2,682 $2,291 17.1 %
Load count38,856 42,862 (9.3 %)124,897 120,520 3.6 %
Average tractors609 548 11.1 %605 573 5.6 %
Average containers10,842 10,852 (0.1 %)10,843 10,522 3.1 %
LTL 3 4
Shipments per day16,430 N/AN/A16,430 N/AN/A
Weight per shipment (pounds)1,111 N/AN/A1,111 N/AN/A
Average length of haul (miles)515 N/AN/A515 N/AN/A
Revenue per shipment$157.55 N/AN/A$157.55 N/AN/A
Revenue xFSR per shipment$138.27 N/AN/A$138.27 N/AN/A
Revenue per hundredweight$14.18 N/AN/A$14.18 N/AN/A
Revenue xFSR per hundredweight$12.44 N/AN/A$12.44 N/AN/A
Average tractors1,999 N/AN/A1,999 N/AN/A
1Computed with revenue, excluding fuel surcharge and intersegment transactions
2Computed with revenue, excluding intersegment transactions
3Operating statistics within the LTL segment exclude dedicated and other businesses
4Refer to Condensed Consolidated Statements of Comprehensive Income — footnote 1.
image2a.jpg
9

Non-GAAP Financial Measures and Reconciliations
The terms "Adjusted Net Income Attributable to Knight-Swift," "Adjusted Operating Income," "Adjusted EPS," "Adjusted Operating Ratio," and "Free Cash Flow," as we define them, are not presented in accordance with GAAP. These financial measures supplement our GAAP results in evaluating certain aspects of our business. We believe that using these measures improves comparability in analyzing our performance because they remove the impact of items from our operating results that, in our opinion, do not reflect our core operating performance. Management and the board of directors focus on Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, Adjusted Operating Income, and Adjusted Operating Ratio as key measures of our performance, all of which are reconciled to the most comparable GAAP financial measures and further discussed below. Management and the board of directors use Free Cash Flow as a key measure of our liquidity, which is defined under "Liquidity and Capitalization" above. Free Cash Flow does not represent residual cash flow available for discretionary expenditures. We believe our presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance.
Adjusted Net Income Attributable to Knight-Swift, Adjusted Operating Income, Adjusted EPS, Adjusted Operating Ratio, and Free Cash Flow are not substitutes for their comparable GAAP financial measures, such as net income, cash flows from operating activities, operating margin, or other measures prescribed by GAAP. There are limitations to using non-GAAP financial measures. Although we believe that they improve comparability in analyzing our period to period performance, they could limit comparability to other companies in our industry if those companies define these measures differently. Because of these limitations, our non-GAAP financial measures should not be considered measures of income generated by our business or discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.
Non-GAAP Reconciliation (Unaudited):
Adjusted Operating Income and Adjusted Operating Ratio 1 2
Quarter Ended September 30,Year-to-Date September 30,
2021202020212020
GAAP Presentation(Dollars in thousands)
Total revenue$1,642,445 $1,210,406 $4,181,160 $3,395,902 
Total operating expenses(1,372,358)(1,044,945)(3,557,699)(3,026,155)
Operating income$270,087 $165,461 $623,461 $369,747 
Operating ratio83.6 %86.3 %85.1 %89.1 %
Non-GAAP Presentation
Total revenue$1,642,445 $1,210,406 $4,181,160 $3,395,902 
Truckload fuel surcharge(131,873)(73,093)(324,611)(233,897)
Revenue, excluding truckload fuel surcharge1,510,572 1,137,313 3,856,549 3,162,005 
Total operating expenses1,372,358 1,044,945 3,557,699 3,026,155 
Adjusted for:
Truckload fuel surcharge(131,873)(73,093)(324,611)(233,897)
Amortization of intangibles 3
(15,719)(11,473)(39,452)(34,421)
Impairments 4
— — — (1,255)
Legal accruals 5
5,005 (6,160)2,884 (6,160)
COVID-19 incremental costs 6
— — — (12,259)
Transaction fees 7
(2,307)— (2,966)— 
Adjusted Operating Expenses1,227,464 954,219 3,193,554 2,738,163 
Adjusted Operating Income$283,108 $183,094 $662,995 $423,842 
Adjusted Operating Ratio81.3 %83.9 %82.8 %86.6 %
image2a.jpg
10

1     Pursuant to the requirements of Regulation G, this table reconciles consolidated GAAP operating ratio to consolidated non-GAAP Adjusted Operating Ratio.
2    Refer to Condensed Consolidated Statements of Comprehensive Income — footnote 1.
3    "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the 2017 Merger, the July 5, 2021 ACT acquisition, and other acquisitions.
4    "Impairments" reflects the non-cash impairment of certain tractors (within the Truckload segment) and certain legacy trailers (within the non-reportable segments) as a result of a softer used equipment market during the second quarter of 2020, as well as impairment charges of trailer tracking equipment (within the Truckload segment) during the first quarter of 2020.
5    "Legal accruals" are included in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income and reflect costs related to certain class action lawsuits arising from employee and contract related matters. During the third quarter of 2021, the Company reversed an accrued legal matter previously identified as probable in 2019. This was based on the recent decision of the appellate court, resulting in a change to a remote likelihood that a loss was incurred.
6    "COVID-19 incremental costs" reflects costs incurred during 2020 that were directly attributable to the pandemic and were incremental to those incurred prior to the outbreak. These include payroll premiums paid to our drivers and shop mechanics, additional disinfectants and cleaning supplies, and various other pandemic-specific items. The costs are clearly separable from our normal business operations and are not expected to recur once the pandemic subsides.
7    "Transaction fees" consisted of legal and professional fees associated with the acquisitions of UTXL and ACT. The transaction fees are included within "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income.
Non-GAAP Reconciliation (Unaudited):
Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS 1 2
Quarter Ended September 30,Year-to-Date September 30,
2021202020212020
(Dollars in thousands, except per share data)
GAAP: Net income attributable to Knight-Swift$206,178 $122,058 $488,772 $267,673 
Adjusted for:
Income tax expense attributable to Knight-Swift61,059 47,835 158,171 99,204 
Income before income taxes attributable to Knight-Swift267,237 169,893 646,943 366,877 
Amortization of intangibles 3
15,719 11,473 39,452 34,421 
Impairments 4
— — — 1,255 
Legal accruals 5
(5,005)6,160 (2,884)6,160 
COVID-19 incremental costs 6
— — — 12,259 
Transaction fees 7
2,307 — 2,966 — 
Write-off of deferred debt issuance costs 8
1,024 — 1,024 — 
Adjusted income before income taxes281,282 187,526 687,501 420,972 
Provision for income tax expense at effective rate(64,202)(52,908)(167,990)(113,651)
Non-GAAP: Adjusted Net Income Attributable to Knight-Swift$217,080 $134,618 $519,511 $307,321 
image2a.jpg
11

Note: Because the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding.
Quarter Ended September 30,Year-to-Date September 30,
2021202020212020
GAAP: Earnings per diluted share$1.23 $0.71 $2.93 $1.57 
Adjusted for:
Income tax expense attributable to Knight-Swift0.37 0.28 0.95 0.58 
Income before income taxes attributable to Knight-Swift1.60 0.99 3.88 2.15 
Amortization of intangibles 3
0.09 0.07 0.24 0.20 
Impairments 4
— — — 0.01 
Legal accruals 5
(0.03)0.04 (0.02)0.04 
COVID-19 incremental costs 6
— — — 0.07 
Transaction fees 7
0.01 — 0.02 — 
Write-off of deferred debt issuance costs 8
0.01 — 0.01 — 
Adjusted income before income taxes1.68 1.10 4.12 2.46 
Provision for income tax expense at effective rate(0.38)(0.31)(1.01)(0.66)
Non-GAAP: Adjusted EPS$1.30 $0.79 $3.11 $1.80 
1Pursuant to the requirements of Regulation G, these tables reconcile consolidated GAAP net income attributable to Knight-Swift to non-GAAP consolidated Adjusted Net Income Attributable to Knight-Swift and consolidated GAAP diluted earnings per share to non-GAAP consolidated Adjusted EPS.
2Refer to Condensed Consolidated Statements of Comprehensive Income — footnote 1.
3Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote 3.
4Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote 4.
5Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote 5.
6Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote 6.
7Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote 7.
8"Write-off of deferred debt issuance costs" is included within "Other income, net" in the condensed consolidated statement of comprehensive income for the third quarter of 2021. The loss was incurred as a result of replacing the 2017 Debt Agreement with the 2021 Debt Agreement in September 2021.
image2a.jpg
12

Non-GAAP Reconciliation (Unaudited):
Segment Adjusted Operating Income and Adjusted Operating Ratio 1

Quarter Ended September 30,Year-to-Date September 30,
Truckload Segment2021202020212020
GAAP Presentation(Dollars in thousands)
Total revenue$1,041,332 $975,881 $2,990,137 $2,774,311 
Total operating expenses(834,789)(807,100)(2,456,654)(2,390,408)
Operating income$206,543 $168,781 $533,483 $383,903 
Operating ratio80.2 %82.7 %82.2 %86.2 %
Non-GAAP Presentation
Total revenue$1,041,332 $975,881 $2,990,137 $2,774,311 
Fuel surcharge(107,867)(73,093)(300,605)(233,897)
Intersegment transactions(260)(196)(953)(705)
Revenue, excluding fuel surcharge and intersegment transactions933,205 902,592 2,688,579 2,539,709 
Total operating expenses834,789 807,100 2,456,654 2,390,408 
Adjusted for:
Fuel surcharge(107,867)(73,093)(300,605)(233,897)
Intersegment transactions(260)(196)(953)(705)
Amortization of intangibles 2
(323)(324)(971)(972)
Impairments 3
— — — (1,055)
COVID-19 incremental costs 4
— — — (12,146)
Adjusted Operating Expenses726,339 733,487 2,154,125 2,141,633 
Adjusted Operating Income$206,866 $169,105 $534,454 $398,076 
Adjusted Operating Ratio77.8 %81.3 %80.1 %84.3 %
1     Pursuant to the requirements of Regulation G, this table reconciles GAAP operating ratio to non-GAAP Adjusted Operating Ratio.
2"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in historical Knight acquisitions.
3Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote 4.
4Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote 6.
image2a.jpg
13


Non-GAAP Reconciliation (Unaudited):
Segment Adjusted Operating Income and Adjusted Operating Ratio — Continued 1
Quarter Ended September 30,Year-to-Date September 30,
Logistics Segment2021202020212020
GAAP Presentation(Dollars in thousands)
Total revenue$226,338 $99,018 $511,962 $248,320 
Total operating expenses(199,210)(96,540)(462,901)(239,085)
Operating income$27,128 $2,478 $49,061 $9,235 
Operating ratio88.0 %97.5 %90.4 %96.3 %
Non-GAAP Presentation
Total revenue$226,338 $99,018 $511,962 $248,320 
Intersegment transactions(4,964)(2,781)(12,699)(8,260)
Revenue, excluding intersegment transactions221,374 96,237 499,263 240,060 
Total operating expenses199,210 96,540 462,901 239,085 
Adjusted for:
Intersegment transactions(4,964)(2,781)(12,699)(8,260)
Amortization of intangibles 2
(334)— (431)— 
Adjusted Operating Expenses193,912 93,759 449,771 230,825 
Adjusted Operating Income$27,462 $2,478 $49,492 $9,235 
Adjusted Operating Ratio87.6 %97.4 %90.1 %96.2 %

Quarter Ended September 30,Year-to-Date September 30,
Intermodal Segment2021202020212020
GAAP Presentation(Dollars in thousands)
Total revenue$112,801 $98,859 $335,245 $276,410 
Total operating expenses(103,257)(98,609)(316,432)(283,372)
Operating income (loss)$9,544 $250 $18,813 $(6,962)
Operating ratio91.5 %99.7 %94.4 %102.5 %
Non-GAAP Presentation
Total revenue$112,801 $98,859 $335,245 $276,410 
Intersegment transactions(47)(51)(226)(281)
Revenue, excluding intersegment transactions112,754 98,808 335,019 276,129 
Total operating expenses103,257 98,609 316,432 283,372 
Adjusted for:
Intersegment transactions(47)(51)(226)(281)
COVID-19 incremental costs 3
— — — (113)
Adjusted Operating Expenses103,210 98,558 316,206 282,978 
Adjusted Operating Income (Loss)$9,544 $250 $18,813 $(6,849)
Adjusted Operating Ratio91.5 %99.7 %94.4 %102.5 %
1Pursuant to the requirements of Regulation G, this table reconciles GAAP operating ratio to non-GAAP Adjusted Operating Ratio.
2"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the UTXL acquisition.
3Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote 6.
image2a.jpg
14


Non-GAAP Reconciliation (Unaudited):
Segment Adjusted Operating Income and Adjusted Operating Ratio — Continued 1
LTL Segment 2
Quarter and Year-to-Date September 30, 2021
GAAP Presentation(Dollars in thousands)
Total revenue$191,906 
Total operating expenses(174,437)
Operating income$17,469 
Operating ratio90.9 %
Non-GAAP Presentation
Total revenue$191,906 
Fuel surcharge(24,006)
Revenue, excluding fuel surcharge167,900 
Total operating expenses174,437 
Adjusted for:
Fuel surcharge(24,006)
Amortization of intangibles 3
(3,498)
Adjusted Operating Expenses146,933 
Adjusted Operating Income$20,967 
Adjusted Operating Ratio87.5 %
1Pursuant to the requirements of Regulation G, this table reconciles GAAP operating ratio to non-GAAP Adjusted Operating Ratio.
2Refer to Condensed Consolidated Statements of Comprehensive Income — footnote 1.
3"Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the ACT acquisition.
image2a.jpg
15