Title

Presentation

Knight-Swift Transportation Holdings Inc. beats earnings expectations. Reported EPS is $0.28, expectations were $0.25.

Operator: Good afternoon. My name is Aaron, and I will be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation Holdings Inc. first 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, speakers from today’s call will be Adam Miller, Chief Executive Officer, Andrew Hess, Chief Financial Officer, and Brad Stewart, Treasurer and Senior VP of Investor Relations. Mr. Stewart, the meeting is now yours.

Brad Stewart: Good afternoon, everyone, and thank you for joining our first quarter 2025 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions, and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last one hour. Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If we are not able to get to your question due to time restrictions, you may call (602) 606-6349.

To begin, I will first refer you to the disclosures on slide two of the presentation and note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict. Investors are directed to the information contained in item one, a, risk factors, or part one of the company’s annual report on Form 10-Ks. Filed with the United States Securities and Exchange Commission, for a discussion of the risks that may affect the company’s future operating results. Actual results may differ. Before we get into the slides, I will hand the call over to Adam for some opening remarks.

Adam Miller: Thanks, Brad, and good afternoon, everyone. You know, with all the uncertainty in the market, I thought it would make sense to maybe open up the call with some high-level remarks regarding the first quarter as well as the current market. And then I will turn it over to Brad and Andrew to cover the remaining slides. Here to kick it off early in the first quarter, several indicators, both internal and external, were pointing to positive momentum in the truckload market. Our early bid season results were positive, and volumes remained healthy following the fourth quarter. In February, severe weather in areas of the country not well positioned to handle snow and ice contributed to a slowdown in volumes. We are expecting a nice seasonal volume rebound in March.

However, talks of tariffs and the food trade policy spurred a more cautious tone among shippers that brought a pause to the momentum in the market. The increased uncertainty among shippers and growing concern among consumers typical seasonal build in March resulted in lower volumes and an absence of this has also impacted current rate negotiations in the truckload bid season. We are still achieving increases in the low to mid-single-digit percentage range. However, we are not seeing the increases build like we had originally anticipated bid environment would play out. Further, the progress we are making on contractual rates may not be as visible in our second quarter overall realized revenue per mile if the market experiences a low in volumes and the spot market remains weak.

We are staying close with our customers as the situation unfolds, and they are generally expressing a few different approaches at this point. Some are pressing forward with little change, needing product as they see strength in their underlying sales. Some have already cut back or are in the process of cutting back on purchases mostly centered around China, while still others are in wait-and-see mode, where they are drawing down inventory to support sales in the near term. At this point, our customers are expressing more concern around cost impacts of tariffs and less concern regarding demand from their customers. These strategies can create negative disruptions in volume in the near term. However, if consumer spending remains steady, goods will have to move at some point, and that may create opportunities for carriers that are proven to be nimble with scale like many of our Knight-Swift truckload brands.

We recognize our customers’ plans can change as clarity develops, so we are focused on controlling what we can control. For example, we are tightening our equipment fleet by selling underutilized tractors and trailers that will lead to lower depreciation and greater utilization of our remaining assets. We are also investing in new technology and raising the intent around our safety and claims and reducing overhead costs. We need to have the most efficient cost structure possible in order to be prepared for what could be a volatile environment in the near term. With all that being said, during April, market conditions have largely been stable with where we exited the first quarter, but there is a wide range of possible paths forward from here.

There could be a low in volumes as shippers work to adjust supply chains, or there could be a pull forward anticipation of a return of reciprocal tariffs. Changes in trade policy could create the need for shippers to react quickly in managing inventory levels, which could benefit the fast, flexible nature of truckload service. On the other hand, concerns of recession risk could cause shippers to trim inventories and to aggressively prioritize the lowest short-term cost over all other factors. In light of the unusual uncertainty, we feel we must adjust our approach to providing near-term earnings guidance. Starting with this report, we are updating our guidance for the second quarter and will hold off on introducing guidance for the third quarter until enough clarity develops to support a return to two quarters of forward guidance.

Business conditions for the second quarter are also uncertain enough that we are providing a wider range than our normal practice and with risk appearing skewed to the downside in the near term, we are taking a somewhat more conservative approach as well. Even in an uncertain environment, we continue to improve on costs, and collaboration across our truckload segment and grow our volumes and network in our LTL segment. Opening seven more locations during the quarter and building to 30% growth in daily shipments year over year in March. The LTL industry is not immune to the wait-and-see attitude dampening freight demand, but we are not expecting the same potential for volatility in LTL demand in the second quarter as we do for truckload. Also, significant LTL network expansion over the past year positions us for differentiated growth.

We are confident that our experienced team, leadership, alignment across our businesses, strong balance sheet, and our unique scale diversified offerings, and value proposition will serve us well as we navigate the unfolding landscape. And with that, I will turn it over to Brad for our overview on slide three.

Brad Stewart: Thanks, The charts on Slide three compare our consolidated first quarter revenue and earnings results. On a year-over-year basis, revenue excluding fuel surcharge increased by 1.2% and our adjusted operating income improved by 68.2% or $35.1 million year over year. GAAP earnings per diluted share for the first quarter of 2025 were $0.19 and our adjusted EPS was $0.28. Our consolidated adjusted operating ratio was 94.7%, which was two ten basis points better than the prior year. Slide four illustrates the and adjusted operating income for each of our segments for the quarter. Overall, our Truckload, Logistics, and Intermodal segments all improved adjusted operating income and adjusted operating ratio year over year.

While our ongoing growth in our LTL business is driving a growing portion of our consolidated revenue mix. Reaching its highest share since our entry into this segment in 2021. The first quarter continued to show the benefits of our diversified business model, as the seasonal pickup in our warehousing business helped to partially offset the early weather challenges and lack of seasonality late in the quarter our truckload business. Now we will discuss our truckload segment on Slide five. On a year-over-year basis, our truckload revenue excluding fuel surcharge for the first quarter decreased 4.2% driven by a 5.4% decline in loaded miles, partially offset by a 1.5% increase in revenue per loaded mile excluding fuel surcharge. This was the first year-over-year increase in revenue per loaded mile in ten quarters.

Which was achieved despite the spot market softening through the back half of the quarter. The improvement in realized rate combined with a slight improvement in miles per tractor drove a 1.9% year-over-year improvement in revenue excluding fuel surcharge per tractor. The improvement in utilization marks seventh consecutive quarters of year-over-year gains in this metric, we push to improve productivity, and sell underutilized assets. As noted earlier, in March, we decided to tighten up our tractor fleet a little further alongside ongoing trailer ratio reductions. In order to reduce operating costs over the next few quarters but without going so far as to sacrifice our ability to respond to opportunities in the marketplace. Our cost per mile for the first quarter improved year over year for the third quarter in a row, despite the decline in miles.

Modest improvements in asset utilization cost per mile, and revenue per mile. Led to a 170 basis point year-over-year improvement in adjusted operating ratio and a 59.7% increase in adjusted operating income even while revenue declined. We are pleased with the progress in the US Express Truckload business which even in a difficult environment reached a quarterly operating profit for the full time since our July 2023 acquisition. We are committed to disciplined pricing, intense cost control, and quality service as we position our business for the current volatility and for potential opportunities that may arise. Now I will turn it over to Andrew for a discussion of our LTL business on slide six. Thanks, Brad. Good afternoon, everyone.

Andrew Hess: Our LTL business grew revenue excluding fuel surcharge 26.7% year over year as shipments per day increased 24.2%. Which includes our acquisition of DHE. 9.3% year over year Revenue per hundredweight excluding fuel surcharge increased while weight per shipment declined 2.5%. Year over year. The adjusted operating ratio was 94.2% and adjusted up adjusted operating income declined Start up costs and early stage operations at our recently opened facilities as well as cost headwinds from inefficiencies in the DHE region given our strategic commitment to maintaining service. Or rapidly growing shipment counts. Following assist recent system integration. Operating margins and year over year volume growth improved each month of the quarter.

Reaching 30% growth in daily average shipments and an adjusted operating ratio of 90.6% in March. Growth in shipment count was higher than our projections, which coupled with our recent system integration, was a headwind to operational efficiency and costs. As we leaned into outside maintenance, purchase transportation, and temporary labor to augment our own resources in the short term until we in source these services. The ramp in volume through the quarter and progress in bid awards are encouraging signs as we move forward and work to maintain high levels of service. While optimizing operational efficiency. We are still experiencing steady rate increases in our business. And as our expanded network allows us to offer service on more lanes to you and existing customers.

We opened seven new facilities and acquired or assumed leases on four or more for our pipeline during the quarter. Our pace of facility additions in 2025 should slow compared to ’24 but we will continue to look for both organic and inorganic opportunities to expand our footprint within the LTL market. We are focused on growing revenue and margins in 2025, and we are excited about the runway ahead. Us.

Brad Stewart: Slide seven covers our logistics segments.

Andrew Hess: Logistics revenue increased 11.8% year over year as revenue per load increased 11.7% with load count flat. Contested operating ratio of 95.5% improved 160 basis points. Year over year. Our investments in a common platform across our logistics brands have allowed us to be more efficient direct from our customers. in procuring capacity and winning freight opportunities Our power only offering continues to build momentum and differentiate us from non SF brokerages and we remain focused on being nimble in order to remain profitable regardless of market conditions.

Brad Stewart: While

Andrew Hess: complementing our truckload brands and bringing value to our customers, as an asset-based logistics provider. Now on to slide route. Revenue increased 3.5% driven by a 4.6% increase in load count partially offset by a 1.1% decrease in revenue per load

Brad Stewart: over year.

Andrew Hess: Improvement in volume and progress in operating costs and network balance overcame the decrease in revenue per load to improve the operating ratio by three sixty basis points. Year over year. As tariff discussions began during the quarter, saw the intermodal market begin to which has led to a more competitive bid season. Certain markets, in order to position its business, profitability. On Slide 10, we have outlined our on slide nine illustrates all other segments. This category includes support services, provided to our customers, independent contractors, and third-party carriers such as equipment sales and rentals, equipment leasing, warehouse housing activities, insurance, and maintenance. For the quarter, revenue declined 15.9% year over year largely as a result of winding down our third-party insurance business from the first quarter of last year.

The $6 million operating income within our other all other segments is primarily driven by our warehousing and trailer leasing businesses which saw some incremental activity beyond typical seasonality. Operating income was also improved year over year because the prior year period included a $19.5 million operating loss for the third-party insurance business. I am now on to slide 10, we have outlined our guidance and the key assumptions which are also stated in the earnings release. Actual results may differ from our expectations. As Adam noted earlier, because of the significant uncertainty created by the current fluid trade policy situation, and its implications for inflation, consumer demand and demand from our customers, are only updating our guidance for the second quarter and we will not introduce guidance for the third quarter at this time.

We plan to provide guidance for the third quarter when we report results for the second quarter and we will evaluate at that time whether enough clarity has developed to allow us to return to providing two forward quarters of earnings guidance. Based on our assumptions, we project our adjusted EPS for the second quarter of 2025 will be in the range of $0.3 to $0.38 which is an update from our original range of $0.46 to $0.50 The key assumptions underpinning this guidance are listed on this slide, though I will not cover them in detail. In general though, the guidance for the second quarter reflects the following outlook. At the top of the range, we assume volumes remain fairly steady. And we experience limited seasonality. The bottom of the range assumes a reduction in imports occurs in May and June and causes some deterioration in demand and an absence of seasonality.

The stated assumptions generally reflect the middle of the range and are only applicable to the second quarter.

Adam Miller: We project

Andrew Hess: truckload operating income to improve sequentially, largely driven by modest improvement in revenue with a comparable margin profile to the first quarter. This assumes modest improvement in miles and utilization while ongoing spot market softness serves to offset contractual rate progress made through bid activity. For LTL, we project seasonal improvement in volumes, and ongoing progress growing our customer base, and market share will support sequential improvement in revenue and operating margins. We also project relatively comparable contributions from our logistics, and intermodal segments with their respective first quarter levels on a sequential This concludes our prepared remarks. And before I turn it over for questions, want to remind everyone to keep it to question per participant.

Thank you. Erin, we will now open the line for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Jonathan Chappell. Evercore ISI. Go ahead, please.

Jonathan Chappell: And, Adam, thanks for laying out the different scenarios that could transpire from here. If we had the gains of $15.5 million from one q and looks like call it 20 for two q, in the for the second quarter of equipment sales. Is that a point where you think that you have right-sized the fleet for the kind of you know, downside scenario? I guess what I am getting at here is I I know Brad said you are you are being very cognizant of not selling maybe to the bone. My my terms. But how are you managing the kind of the very different paths and then the different cost levers that you can pull as you think about moving forward the next three months.

Adam Miller: I think when we look at our cost structure, I mean, we are going to we are going to look at every opportunity to be as tight as possible. And when you look at your your tractors and trailers, we have know, maybe a targeted trailer to tractor ratio. That we would have unique to each business. And I think today, it would tell us that we still have opportunity to pull out trailers to have of match up to the number of seated trucks we have, versus the number of trailers we are operating. And then when we look at our tractor count, there is always some degree of tractors that you just have unseated where you do not have drivers operating the tractors. And that is that is been a number that is been a bit elevated from our target.

And so we have taken we have made the choice to to tighten that up. And pull, you know, a few hundred tractors out of the network to to just you know, clean up any excess capital that we have that we are not utilizing today. And and that should drive better productivity when you look at miles per tractor in the total. It does not change our ability to respond to opportunities, to be flexible, to have capacity available. We if we if we see a surge in drivers in a market that returns we have flexibility to slow down what we pull out as we have new tractors that come in could order more tractors if we really needed to. I mean, we have flexibility with that you you know, with with with the tractor count. And so in the meantime, with all the uncertainty we have felt, like let us just be a little bit tighter here, but still get to a reasonable percentage where we are not limiting ourselves, reasonable percentage of trucks where we are not limiting ourselves to be able to hire drivers in market markets where it makes sense.

But let us not carry any excess costs in the meantime.

Jonathan Chappell: Got it. Thanks, Adam.

Brian Ossenbeck: Yeah.

Operator: The next question comes from the line of Brian Ossenbeck JPMorgan Chase. You may now ask your question.

Brian Ossenbeck: Alright. Thanks very much.

Jonathan Chappell: Maybe a question on LTL and filling in the the density. You know, do you think you will get a little bit more visibility to filling in some of those areas that you are trying to fill and maybe get rid of some of those additional costs that you are carrying right now to to meet the service where you are not not quite able to do so right now, and then you can add a few thoughts on m and a and if there is anything that kinda fits the bill, right now or if we just should expect this to be a little bit more gradual of a process to fill in the the rest of the the coverage gap? Thank you.

Adam Miller: Yes. No. Thanks for the question, Brian. You know, the the volume is has been building nicely, and it is been relatively consistent. You know, like we we have said before, as we have opened up these territories, we have been in doing so because it it gives us the ability to participate in the bids that are now ongoing in in the LTL industry. And so we are seeing the volumes build really on a on a weekly basis now that we have got out of some of the disruption from from weather. And we feel very encouraged about building that density and helping us with the cost absorption and and really kind of taking advantage of the operating leverage that we really have in in this business. And so we are we are able to take market share with with maintaining price discipline.

We are still seeing contractual renewals in the mid single digit range. And we are seeing volume growth at the at the same time. And so it it will just take time to do that in in each market, and there is still a few locations to to add this year. We we added seven you know, in the first quarter. We probably have maybe nine or 10 net adds. I think it is close to nine, and the back half of year already planned. And, hey, we could have you know, more if there is some opportunities that come our way, we feel good about the volumes building. And and so, you know, I think first quarter just got off to a slower start than we had hoped. And you had some cost headwinds that we have been dealing with. But feel much better about where we ended in March and felt that trend continue into April.

And so we are we are we are feeling really good about LTL, and and are looking to see that volume continue to build. And to be able to do that, you have to give great service. And so we have done that. At the at the maybe the expense of marching in the near term because we believe that gives us an to to build volume. And the reaction from our our customers has has been very positive. They they like having another option in some of markets that we now serve, and and we we feel good about building that out. If you know, you asked about m and a. I think I have said on on previous calls, you know, we are always open to organic and inorganic opportunities to grow the business. I think it is more likely if m and a were to play a role in building out particularly in the in the Northeast, that is probably a 2026 event, if anything.

I do not expect that to happen in 2025. This is this is a year where we kinda grow into this 37 locations that we grew organically last year. The you know, continue to integrate the DHE business that we acquired last year. So this is a year of of growing in to what we have, improving our top line as well as improving our margin profile in the business. We remain committed to to getting to a to a national to being a national carrier in this space. But we are going to do that very deliberately with some discipline. And, we think we have a lot of runway to grow top line and bottom line in 2025 without an acquisition.

Brad Stewart: Brian, I will just maybe add a little more color to to what Adam said is

Adam Miller: we can we are we are continuing to be in a phase of investment. I think we are mostly a lot of that is now absorbed into q one. So if you look at the cost that we brought into the business, in Q1 compared to Q4, we

Andrew Hess: brought a lot of fixed costs still into the business as we stood up those facilities. So cost

Brian Ossenbeck: on equipment,

Andrew Hess: depreciation, rents, those are now largely in our baseline now and we will see some of that continuing, but we mentioned we participated in some additional leases that we have assumed from the yellow bid in Q1. Those costs are included in our financials, but those are locations that are open yet. So we are we are there is still a lot of opportunity. I guess what is encouraging is shipment count is absorbing our our volume, both revenue and that cost. And helping us drive productivity leverage in that business. And as we have practice it, you know, the things we are focused on are first of all, driving improvement in our variable wage, efficiency. And we are seeing that as we look at where we were at in Q4 versus Q1 we are seeing that in our line haul in our P and D and our dock efficiency And certainly as we moved our DHE business, onto this same system as the rest of our business last quarter, there is been some time for them to develop that efficiency.

We feel like we are starting to see those results. Second, we are managing our maintenance. So we move into new locations. We have to use a lot of outside maintenance. And so that will get better as we build density and can in source a lot of that maintenance And the third is managing these fixed costs that are the leverage of the business will will provide. So I think those are kind of some of the dynamics that you are seeing in the financials here and as we look at Q2, you can see we are guiding to a low 90s OR. Think it is our progress in each of these areas that are going to help get us there as well as the density that looks good. As even here in April we feel good about the the track we are on They gave us confidence to increase the revenue guidance here in the second quarter.

From what we provided previously. Based on encouraging signs we are seeing in the market.

Brian Ossenbeck: Okay.

Jonathan Chappell: Very much. Very helpful.

Adam Miller: Thanks, Brian. The next question comes from the line of Ken Hoexter, Bank of America. You may now ask your question.

Ken Hoexter: Hey, great. Good afternoon. If I can just jump back to the truckload sector, I guess,

Adam Miller: you mentioned U. S. Express kind of getting profitability. Maybe talk about some of the things you have done on the cost side. And I guess,

Ken Hoexter: Adam, if we look at utilization, I think you were kind of addressing this before, but it used to be, what, about 22,000, 24,000 miles per tractor.

Adam Miller: Is that part of what you were talking about before, getting rid of more assets to increase

Ken Hoexter: that utilization? Or are there things you can still do in this uncertain market to increase asset utilization Is it getting rid of assets faster? What do you think has to be done to improve that profitability?

Adam Miller: Yeah. I think when you look at I will I will just touch on the the productivity side, and and maybe I will turn it over to Andrew. He could talk about some of the things on the cost side with with USX. Yeah. I think you know, part of the the the dynamic is just not carrying tractors that that are not producing revenue and are not producing miles. Right? Because we did not have the the drivers that are seated in there. And and so we might as well not carry that cost. We can now turn that into to capital and and sell it in what is been a relatively good used equipment market, for tractors at least, maybe not trailers, I think that is driven more from just scarcity of trucks in the market because of how many were not built four or five years ago because of the supply chain challenges.

And so we wanted to take advantage of that and just tighten up our our depreciation costs, and that will lead to know, now having similar number of miles over a reduced tractor which will drive obviously your miles per tractor up. So I think that is that is one of the things. That is just one of the levers, Ken, that would that we think we can pull that does not impact top line. It does not impact you know, the ability to respond to customer needs. And, again, if we see the market turn around quickly and there are needs and we can hire the drivers,

Andrew Hess: then we can slow down on what we pull out and we can order more

Adam Miller: trucks if we need to. We could be pretty nimble, and we could get new trucks pretty quickly, or we could hold on to some of our trucks without trading them when we have replacement trucks coming in if we need to be. So we felt like that was a lever that we can pull that does not necessarily impact our business in a negative way It it it just gives us the ability to be more efficient with existing you know, tractors. That make sense?

Andrew Hess: It does.

Adam Miller: Guess I was trying to lead into the

Ken Hoexter: the the asset utilization. Sorry. I stopped midway through my question, but asset utilization into bid season. Right? What does that I guess, I do not want to ask two questions, but

Brad Stewart: know if you could just throw one quick thought onto how bid season is progressing just given what where spot rates are.

Adam Miller: Alright. We will we will let you slide that one in, Ken. Yeah. So so I think I mentioned this on on our on our prepared remarks. You know, the the business started off, I think, just like we had thought. And I think many customers kind of understood that you know, contract rates were just not did not have any room to go down and that they were just trying to manage what that increase is going to look like. We we thought it would start low to mid single digits and build some momentum as it progressed. And it it started off that way, but I think as we got into March when we were in kind of in the heart of of the bid season, the slowdown because of just the uncertainty around tariffs maybe took away some of the momentum there.

For that just to really build. And so, the, you know, the renewals that we have are still, you know, in and they they range in that low to mid single digit range, the depending on the customer and and the lane. There are some puts and takes. There is we have seen growth with customers who who have seen the value that we bring. We have other customers who, maybe are focused more on getting the lowest cost possible for the time being, and and we have we have seen some some volume that we have lost. But I think overall, we are we are fair we are we are faring pretty well. And and I think it is going to put us in a position where we can improve productivity on our seated trucks and, and see our contract rates, know, take a step in the right direction.

Now like I mentioned, having a a weaker stock spot market potentially here in the second quarter could weigh on our overall rate, but I believe that is that is temporary. And I think when we if we see the the market come back, whether that be because of just know, continued consumer demand or we we finally get a we figure out our tariff policy and we have our our customers with more conviction to move forward with their plans, you know, we could see the spot market then improve, and and we will be in a good position to to be able to react to that and bring bring value to our customers. So it it it is you know, there is there is a lot of moving pieces to it now, but I think, ultimately, can we do feel the business is playing out to where it is going to help improve productivity at at rates that are that are higher on a year over year basis.

And maybe I will let Andrew hit the the US Express question here. Yeah. Yes. A little bit about what what cost levers we have. Here is what I would say. Look. We when we established our our path to parity of US Express to our truckload businesses,

Andrew Hess: we we thought about it in these three buckets. And we still have the same conviction we always did on these points. So first of all, we knew there was a lot of initial costs that we take out of the business. We have communicated that on that point, we have taken out more than $180 million of cost on an annualized basis. We are going to continue to find opportunities there, but those are costs around procurement and other areas where there is sufficiency to be gained. So we have kind of done those in this difficult market. The second thing we are focusing on is operational cost efficiency. So think of hiring costs, safety costs, fuel, We are well into that. We had to establish the decentralized network of terminals that enables that model we know works at Knight and Swift.

Into the US Express business. We are starting to see that. So just as an example, safety takes a while to really build the safety culture that you need and we are starting to see that so just as an example, our CSA crash rating is 20% better for that business than it was when we acquired them. And we feel like there is a lot more to go. We are nowhere near kind of the potential of that business, but that starts to to drive cost efficiency to the business. And then the third area Adam focused on, which is which is on the market side. And we are we are seeing so far in bids like he talked about you know, wins well, you know, rates that would exceed what we are seeing in the truckload business because of how much more opportunity they are to to have there.

So we we have the same conviction. We are we are something like five apart now on OR between our legacy businesses and US Express. We expect both of them to continue to progress from this point forward, but we are encouraged because we are seeing kind of systemic operational efficiencies that we knew that business could generate come to fruition.

Brad Stewart: Thank you so much. Appreciate the time.

Tom Wadewitz: The next question

Operator: comes from the line of Tom Wadewitz from UBS. You may now ask your question.

Tom Wadewitz: Yeah. Great. Good afternoon.

Andrew Hess: Adam, I I think

Tom Wadewitz: it makes a lot of sense that when you laid out the guidance, appreciate the perspective on it. I wanted to see if you could maybe comment a little bit further on how you think a

Brad Stewart: step down in container imports into the West Coast in particular would potentially flow into your into your business. I mean, I I think the numbers seem to be out there, could see, you know, 25, 30% decline in West Coast container imports. So at the low end of your range and kind of how it affects June, is that what you are assuming? And how I guess I would you know, it is tough to have intuition. With how that affects the truckload market. Right? Because you have already seen weakness in truckload without a decline in imports in in March. So I guess if you saw that, then yeah. I do not know. How do how do we think about what that does to to truckload? Thank you.

Adam Miller: Yes. I appreciate that, Tom. And and and, yeah, I think there is still

Andrew Hess: some uncertainty about how that is going to going to impact the truckload industry. You know, I think what we are looking at is we are we are already assuming that May is going to be weaker as a result of the the West Coast imports dropping off like like everyone is expecting to. You know, we are we are pretty have a lot of diversity when you look at our different brands. You know, you look at, you know, US Express, they are largely an East Coast. You know, player. We have got Bar Nun, Abilene. They they are largely in the in the East Coast, and terms of their presence. You know, Knight and Swift would they would be nationwide, and they would be pretty balanced between the East and West Coast, but would have some exposure to the West Coast.

So I think we could see an impact into to to those brands. And right now, we are we are working on plans to try to limit capacity in in the markets we feel could be affected. And we may need to be a bit more nimble on the spot market’s

Tom Wadewitz: Great.

Adam Miller: Could land on on the rail And I think there is international boxes that I think you you are not going to move, but then there is there is going to be, I think, an impact to to our intermodal business, which is why I think we we you know, our our updated guidance have come down of where we think the load count will be for that business as Intermodal has become, you know, pretty competitive on the price front, and and we have been I think, made some progress in the bid, but in some cases, that has had to I had to turn away from some some business because the pricing, just did not make sense. You know, based on what our competitors were were willing to run it on. So I think there is just there is going to be impact in in really the the night and Swift truckload brands mostly and then in our in our intermodal business.

But, again, we are could kinda see that coming, and we are trying to react the best we can do it. And and not let it catch us by surprise. And I think the really, the question when you look at the guidance, Tom, is is do you see you know, a reaction in June that where there is a rebound if we are able to get some clarity on trade policy and you know, our customers that are kind of, you know, living off inventory now have to replenish. And you you see some seasonality in June that helps offset maybe some of the the weakness the, you know, the kind of the unseasonable weakness you would see in May. So I think that is really the question, how do things play out in June? We are already expecting May to to to be you know, abnormal in terms of of the volume you would expect to see.

And then hey. How strong is beverage in produce, which is usually helps carry a second quarter. So still a lot to again, that is why we have had a wider range because there is a there is a lot of ways that this could play out. But we are we are watching it really closely and and trying to position ourselves to navigate it as well as we can.

Tom Wadewitz: Okay. Great. Makes sense. Thank you.

Andrew Hess: Yep. The next question,

Operator: comes from the line of Scott Grew. From wall Wolfe Research. You may now ask your question.

Scott Group: Hey. Thanks. Afternoon. Just want to clarify. Does

Brad Stewart: does the high end of the guide assume the normal May, June seasonal improvement we typically see or not? I just was not clear when you when you laid it out. And then just bigger picture, Adam, you guys are right-sizing the the the tractor fleet. Makes sense. At some point, do you consider shrinking the power only offering, the broader brokerage or offering maybe to to potentially try to help catalyze a tighter market?

Adam Miller: Okay. Well, let me hit both those questions there, Scott. So on on the on the guidance, I think what we have said is the the top end is really June with limited seasonality. Again, we normally do not say this, but I think when we were looking at a guidance, we were trying to to have a a degree of conservatism just given the the the risk that is out there, the potential for risk. So really, we are we would assume just limited seasonality, not not your normal strength that you would see in June.

Andrew Hess: That make sense?

Scott Group: Yes.

Andrew Hess: And and and then your question on

Adam Miller: power only. I mean, we look at power only as a way to really complement our truckload business. So they are even when you have some softer markets, there is always going to be markets where we do not have trucks available where our customers have demand. And and in some cases, those are customers that have drop and hook requirements when it when it comes to their freight. And so if we do not have power only, then we we really cannot participate in those freight opportunities. There is also times when our logistic business is better suited for for a certain business because it is maybe not as know, it is not as consistent. It does not create balance in your network, and you can you can still do that on the on the logistics front.

We are we are managing trailers tightly, and we have to just manage that better even when we have power only. And so we are we are really focused on that. But but I look at power only as a way to help support truckload, keep revenue in house, support service, support our dedicated operation when they need a surge so we are not having to pull those trucks from from line haul if they are needed elsewhere. So I think it gives us a lot a lot of flexibility in our network and and we would look at that as an advantage that we would have, and it brings value to our customers and allows us to to get better returns with the assets that we have.

Andrew Hess: Okay. Thank you for the perspective. Thanks, guys. Yeah. The next

Operator: question comes from the line of Daniel Imbro. From Stephens. You may now ask your question.

Daniel Imbro: Yeah. Hey. Good evening, guys. Thanks for taking the questions.

Brad Stewart: I want to follow-up on the cost per mile discussion within truckload, but maybe within the core business, not U. S. Express. The cost per mile declined again here in 1Q. I guess, do you feel about your ability to keep that flat to down for the full year? Just given the softer demand backdrop could make utilization maybe harder to achieve. And I know your 2Q guidance, I think, assumed relatively stable. Volumes here into April. But is there an opportunity to accelerate the cost takeout if volumes do deteriorate through the year? Just trying to get a sense for how variable that could be.

Andrew Hess: Yeah. Hey, Daniel. I will maybe make a few

Brad Stewart: comments there. So So that is like you mentioned, this is the third quarter we have reduced cost per mile, and this is

Andrew Hess: been

Brad Stewart: without the tellway to miles. Right? So when you really look at it where we are where we are seeing that progress, it gives us the conviction it is sustainable. It is Let me just kind of break it down for you. So probably two thirds of the improvement we are making from a cost per mile perspective comes because of operational improvements we have made in our business. Now that comes to how we manage fuel and maintenance and safety. So safety, let me just talk about safety. Safety has been we are seeing the same pressure everyone in the industry about new nuclear verdicts and the cost of of claims, but but overall, our leading metrics around safety are very encouraging, and that is in the case of the first quarter, our insurance costs are not inflationary to us.

We are managing those costs in a way that it is it is it is probably, you know, better than than the industry on average. Maintenance and fuel, we are we are doing that as well. And we will what we are seeing though is we are we are making a lot of progress on fixed costs. And so I will maybe focus on some of the improvements we are making there. Now it is hard to show that on a cost per mile basis because of the miles your denominator changing, but the the the cost that we have reset down in our overhead costs and g and a and equipment are significant. And so we are focusing on our facility footprint and how we manage our costs with our facilities We, in some cases, are consolidating trough yards. Or facilities. We have implemented process efficiencies in our back office labor that is allowed us to use attrition to manage down our non driver headcount.

We have effectively negotiated with vendors on costs that allowed us in areas like benefits to to see what we believe are some savings coming up in our business. Our discretionary costs, we are managing those much more effectively than I think we have in the past, and then we are we are reducing costs or finding better ways more efficient ways to manage IT costs, professional services, consulting, things like that that we think we are a better, tighter organization. And so so when we will continue to do this, we are we are not done. We have seen results from this but what this is going to do it it is really going work to our benefit going forward as as we have introduced even more operating leverage into our business by reducing not just equipment, but our G and A and overhead costs in the business.

So we will continue to pivot as we watch how this market unfolds and we have a different playbook depending on kind of where the economy goes and and we are we are thinking of scenarios and how we adjust costs to continue to drive cost per mile down even in a in a environment where miles are not helping us.

Adam Miller: I think there is also opportunity, and I do not know if you have touched on this, Andrew, on the the safety and claims. Standpoint. I mean, we have seen our our safety performance continue to improve. Now now, clearly, the the environment with nuclear verdicts is a challenge. So you could have, you know, great performance in one or two claims can can really impact the results. But I think we have done a a great job kinda navigating that the last you know, few quarters. And we, you know, we had some, you know, some some challenging claims to deal with. You know, over the last couple years, and and we feel like we have got a lot of these challenging claims behind us. And and now we just have to execute better on not having incidents.

And and for when you do have those, being able to manage them and get to a a favorable outcome as quick as possible. So I do think safety and claims is an area that we have some opportunities to improve just on execution and how we manage the claims.

Daniel Imbro: Great.

Jonathan Chappell: So much, guys.

Operator: The next question comes from the line of Chris Wetherbee. From Wells Fargo. You may now ask your question. Hey. Thanks. Good afternoon. Adam, I was curious to get your perspective on capacity in the truckload market. I guess, as you think about the next quarter, the next several months with potential weakness in May? And maybe there is a rebound in June, maybe there is not. Is that enough to sort of bring down capacity to the point where we are in a more balanced or more

Chris Wetherbee: favorable truckload environment? Kind of just curious how you are seeing capacity react real time to these potential risks coming up from a demand perspective?

Adam Miller: I think certainly when you see activities that drive the the spot market down, I mean, that that is a catalyst for capacity to exit the market. Now is it going to be you know, depending on the duration, is it enough for us to be in a, you know, back in balance? The part of the balance is going to be if if demand improves, then then I think we we would feel like we would be in pretty good shape given what momentum we saw early in in the first quarter and what where we were in the fourth quarter. But but I think we have we have got to see how both supply and demand play out here. In the near term. You know, there is you know, I we look at, you know, different components of of capacity and different ways to measure that on a regular basis.

One of the data points we look at is there is a there is a large know, load board company that that, you know, provides detail of how many trucks are being posted, on their load boards, and that is I think, March ’20 it is down 28% on a year over year basis in March. And so yeah, it tells us supply or capacity continues to to exit. But but I think it is it is still kinda hard to know what what needs to happen for us to be back in balance. But but, certainly, the the slowdown we are expecting to see in May is not going to help the small trucker.

Brad Stewart: you know, prior to this recent shift in in the marketplace, you know, here in in And and hey, Chris. This is Brad. I would just add a little color to that that in the first quarter, with all the tariff uncertainty and everything. Prior to that, especially in the fourth quarter and the beginning of this year, market was already behaving largely like a fairly balanced market And so it is not that we were still well out of balance, and now we have got further to go. The had largely gotten into a healthier balanced place, before we had this little adjustment here recently. So certainly, if there is a leg down in demand, maybe we need more capacity rationalization to find a new level of but it is not like we were far off the mark just prior to this latest uncertainty here.

Chris Wetherbee: Got it. Very helpful. Thank you.

Operator: The next question comes from the line of Ravi Shanker from Morgan Stanley.

Ravi Shanker: So just to confirm the overall message here. So you said that the risk is at the down which is what made you change your approach to guidance. But you are also getting low to mid single digit price increases. Are you hearing from your customers that they are, like, pulling back or, you know, going into their shell a little bit? Or is this just a reaction to

Adam Miller: some of short term data we are seeing out there? Kind of, obviously, the the message on on transport’s call so far is that we have not seen too much change in actual behaviors. So I am trying to see if you guys are seeing or hearing something different. Yeah. So I mean, we have we have had dialogue with I do not know, 40 or 50 of our, you know, larger customers And and, you know, they have been, you know, for the most part, fairly open with what their strategy has been, but, hey, it can it can change daily. Depending on, you know, what what they are seeing in the market. But you know, I think probably about there is three three buckets, Ravi, they fall into. And maybe a third or around hey. We are just not making any changes because of tariffs, and it is just we are just going to continue on our path forward.

And those are maybe some of our customers that do not have maybe as much exposure to to China. Then there is those that are more in a wait and see wait and see bucket. And I think those are, the customers that are maybe drawing down inventory more. And living off that. So that would impact the the volume that we would be seeing or could be seeing in in May, And then there are some that have told us that, yeah, they have they have canceled orders or they have stopped ordering particularly from from China, and we will figure out how to adjust their supply chains to avoid to avoid the cost. So I think our our conservativeness is is really based on the feedback we are we are hearing from customers as well as well as just some early trends we have seen with with, you know, how they maybe shifted or maybe have forecast what their volumes are going to be in the coming weeks.

So it is not so much what we are seeing today, it is what we are expecting to see based on customer sentiment as well as forecasts that that we are we are seeing in our business.

Brad Stewart: I would just clarify. As as we talk to our customers on their view of consumer sentiment, you know, a very few seem to be changing behavior to your point, Ravi, because of their view of a weakened consumer at this point.

Chris Wetherbee: Understood. Thank you.

Adam Miller: We are strong.

Andrew Hess: So

Brad Stewart: so it it seems to be a reaction to tariff costs as opposed to kind of a changing view on consumer sentiment

Andrew Hess: right now.

Chris Wetherbee: Understood. Thank you.

Brad Stewart: Robin. The next

Operator: question comes from the line of Bascome Majors from Susquehanna. You may now ask your question.

Bascome Majors: Thanks for taking my questions. When will your bid discussions with your largest three or four retail industry customers be completed? When will those bid pricing updates be implemented? And and ultimately, is the decision to to withdraw the two quarter forward guidance strategy. Is that more about pricing and margin risk and forecasting that from those bids that are being discussed? Or is it really more about what the macro and demand picture looks like two, three months from now? Thank you.

Adam Miller: Okay.

Andrew Hess: Bascome. So I will hit that.

Adam Miller: You know,

Andrew Hess: bids are kind of ongoing. K? And so we we have I think we have we implemented some in the first quarter. I think there is the majority of them will hit sometime in the second quarter, and then you will have some some of our larger customers that do some, you know, early third quarter. So it it is, you know, it it it is something that it is just you are always doing on a regular basis, but your largest impact typically going to be the second quarter. And we expect the our contract rates to improve to that, you know, low to mid single digit as we begin to to implement these these awards. There is also the mini bid process that a lot of our customers go through on sometimes it is every two weeks, sometimes it is weekly, where they have a a set of lanes that they need help with for whatever reason.

And we are able to bid on those lanes. And sometimes you can get some sizable awards through the mini bids. So it is an ongoing process that is why your network is always it is never in a static position. It is always pick up through these processes. I think when we look at the the the guidance, it is more about adjusting and moving based on new awards that you are able the volume that you are going to receive from these awards. Because awards are paper commitments. Right? There is no legal requirement for them to tender us those number of of of loads that we have that we have won through the bid process. So it is the concern is if they see a major change in their supply chain, do we do we not see the volume that we are expecting to see and what potential disruption could that have on on your network.

And so I think that is that gives us the the biggest know, that is the biggest challenge to forecast third quarter, knowing if we are going to see some you know, major disruption in in whether it be volume or just the balance in our And so that is why we have decided to take the approach that we have.

Bascome Majors: Adam, to that point, where is big compliance trending now versus what would be normal for this type of year? And has that loosened or deteriorated since, you know, that more normal seasonal environment you saw in January or February?

Adam Miller: Again, I we do not necessarily disclose that number, but it has been changed dramatically from where from where we have been. Again, we are we are more concerned about where that is going based on what we are we are seeing from the forecast from our customers and then external data. So and April’s been relatively stable, but, you know, we are just you know, where our conservative comes into is you know, this this may not play out like a normal May where you see strength. Particularly in the back half as beverage and produce picks up. Is that just going to be offset with some of the supply chain pauses from from our customers?

Andrew Hess: Thank you very much.

Operator: The next question comes from the line of Brandon Oglenski from Barclays. You may now ask your question.

Brandon Oglenski: Hey. Good afternoon, everyone, and thanks for taking my question.

Brad Stewart: Know, Adam, I feel like you guys have been positioning the business here for a while for, know, the inevitable upturn. It feels like maybe tariffs just push that out even more I guess with this prolonged downturn and kind of trough earnings environment, is there anything strategically you have been thinking about, like, through the portfolio approach on the TL side? You know, are there further cost efficiencies that you could look at there maybe with all the brands? Or even thinking things about, like, intermodal and and lack of know, like, long term profitability in that business? Appreciate the feedback.

Adam Miller: Yeah. I I mean, look, Andrew laid out all the different costs that that we are focused on and and and we continue to be focused on. Again, we are we are all about controlling what we can control. When I look at our different brands, we you know, through this process, we have made adjustments on size of certain brands, what we focus on with those brands, what makes them unique. To each other, and and, hey, you have to make adjustments in the market, and and we have been doing so. We also do not want to make

Brandon Oglenski: some decisions around businesses in kind of the trough of trough.

Adam Miller: Right? This has been the most challenging cycle that we have we have seen. Maybe ever. And so we want to see how these some of these businesses navigate through that. And I know you you mentioned intermodal, and and, hey. We have a very good team in intermodal. We like the partnerships we have with the rails. We have made year over year progress in many of the metrics over the last several quarters and expect to continue to make progress in that business. And believe it is a it is it is a a service our customers value. It is a lower cost service that they that they would value at times. And we want to be there to provide it. But, yeah, it has to generate returns. And we want to see that business and how it performs when we get to more balanced environment.

Rather than making decisions in in a trough environment. I do not I do not think that would be advisable and and that is something that we would we would be considering at this point. Now, hey. If you get into a a a better environment and you have businesses that still cannot perform in a better environment, then, yeah, you look at that a bit differently. But but you know, at at this point, we are we like what brands we have. We are making the the adjustments on the cost side as Andrew laid out. And I think we will be able to navigate you know, the the market that that we will be faced with and come out with

Brandon Oglenski: these businesses returning to more normalized

Adam Miller: you know, earnings when we get to a a more balanced market. And so we still have tremendous confidence in that.

Andrew Hess: Thanks, Adam. Okay. Well, I think that concludes

Adam Miller: our call. We we appreciate all the questions. Again, I know we have, some some folks in the queue. And and if we are not able if we have not been able to get to your question, you can go ahead and reach out to us. It is (602) 606-6349. You, everyone. And ladies and gentlemen, this concludes today’s conference call. And thank you so much for your participation. You have a great day.