Knight-Swift Transportation Holdings (KNX) Q3 2026 earnings call transcript

Good afternoon. My name is Jillian Robinson, and I will be your conference operator today. At this time, I would like to welcome everyone to the NightSwift Transportation 3rd Quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. If you would like to ask a question, please press star 1 to raise your hand.

To withdraw your question, press star 1 again. If at any time during this call, you require immediate assistance, please press star 0 for the operator.

Speakers from today's call will be Adam Miller, Chief Executive Officer. Andrew Hess, Chief Financial Officer. Brad Stewart, Treasurer and Senior Vice President of Investor Relations. Mr. Stewart, the meeting is now yours.

Good afternoon, everyone. Thank you for joining our 3rd Quarter 2026 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions, and earnings guides. We have slides to accompany this call, which are posted on our Investor website. The 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, we limit the questions to one 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. And to begin, I will first refer you to the disclosures on slide 2 of the presentation and note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict.

Investors are directed to the information contained in item 1A risk factors or part 1 of the company's annual report on form 10K, probably the United States SEC, for a discussion of the risks that may affect the company's future operating results. Actual results may differ.

Now, I'll hand the call to Adam for some opening remarks.

Thanks, Brad, and good afternoon, everyone. Just wanted to let you know I'm getting over a cold here, so I might have some lingering coughs that come through. Security and noise in the background, that would be me. I apologize for that, but wanted to make sure I was available for the call here. So first, I'd like to start by recognizing our team and the progress we have made in each of our distinct brands.

You know, we continue to build out our diversified service model and solve solid performance across each of our segments this quarter. In addition, I was very encouraged to see the improvement in our core truckload margins that are finally approaching recognizable territory after such a long and difficult down cycle. We are so grateful for the focus, teamwork, and commitment of our professional drivers and driver support personnel who brought us through the past cycle of whose creativity and collaboration will help us navigate the new one.

There's much work yet to be done to return to normal operating levels, but the good news is we see many opportunities for improvement to get us there and to help our organization chart new heights moving forward. We truly have an amazing team, and I look forward to navigating this next cycle together.

Yes, we believe the new cycle still has plenty of gas left in the tank. The truckload freight market continues to remain tight, and while broad measures of industry demand have been largely stable, demand for our capacity has been strong. We have more peak season project arrangements in place than at any time since the pandemic, and freight tenders have already started under several of these projects. We believe we are well-positioned to generate distinctive results for two main reasons.

The differentiation in our service mix and in our business model. Regarding service mix, our single largest service is the one-way truckload market, a space experiencing a supply-driven tightening after three plus years where artificially low pricing drove unusually weak industry margins. During the downturn, many carriers either went out of business, partially liquidated fleet assets, or shifted one-way capacity into dedicated services where there was less competition from non-compliant operators.

Because we have remained committed to one-way truckload service and operate the largest one-way fleet in the industry, we are now seeing consistent opportunities to deliver valuable capacity solutions to our customers in this space experiencing the most supply contraction. We believe this is contributing to our spot rates and low tender rejection rates trending stronger than broad market indicators on these metrics.

Also, because one-way service is the most flexible, our industry leading one-way scale in history of responsive problem solving means we are often the first call large shippers make when they have an acute need for transportation service. The one-way market also has an active spot market where rates that are highly responsive to the supply contraction not only accelerate our rate recovery, but also help provide insightful observations on price discovery, particularly as our spot rates are often much stronger than public spot rate data.

Regarding our differentiated business model, there are a few things that would highlight that are already serving as well and which will be the key to delivering industry leading margins. First would be our market management practices and unique purview on the freight market. We are continually refining our playbook for how we read and respond to signals in the market and how to manage the deployment of capacity in support of service and yield.

We coupled this with distinctive competitive intelligence provided by our industry leading scale in combination of multiple truckload brands in the marketplace, which further enhances our ability to read market signals and respond with agility. Related to this area is our intentional practice of engaging in spot rated transactions and modulating our spot exposure based on the phase of the cycle.

This is the hands are signal detection that allows for faster price recovery and up cycles. Next would be our large academy network and driver training program, through which we source and develop a significant portion of our professional driver base. This is helping to somewhat blunt the negative impacts of the tight driver market on a business, on our business, and will be key to helping us see more trucks and increase utilization to capture more opportunities.

Next would be our large terminal network and decentralized operating model. This has allowed us to construct a dense freight network that is primarily built on regional freight, which allows us to minimize empty miles and maximize revenue per truck relative to cost. Such a network also supports driver recruiting retention and development, as well as internalizing maintenance as advantageous costs. And finally, I would call out our test culture focus on cost and execution, which allows us to convert opportunities into earnings.

Of note lately, our disciplines around fuel procurement, efficiency, and recovery are helping us mitigate the negative impacts of record high diesel as best we can. To be clear, we're not immune from cost pressures, but we are focused on doing everything we can to mitigate cost impacts and recover inflation through pricing. We remain encouraged by momentum in the market and strong early progress in our core truckload business.

We are pleased with the significant progress the team that U of Xpress has made in improving costs, service, safety, business mix, and pricing, and we look forward to making further progress. We have also significantly reduced our floating interest rate exposure through our 1% convertible bond offering in the spring, and are making meaningful progress, reducing our acquisition-related leverage.

As free cash flow continues to improve, we anticipate being back to our target leverage range, both not before long, and will again have maximum flexibility as we consider opportunities for organic growth, M&A, and share buybacks. And with that, I'll turn the call over to Andrew and Brad to review the results in our guidance.

Thanks, Adam. The charts on slide three compare our consolidated third-quarter revenue and earning results on a year-over-year basis. Consolidated revenue increased 14.2%, and consolidated revenue, including truckload and LCL fuel surcharge, increased 7.7% year-over-year.

Operating income grew 128 million, or 255.1% year-over-year. The improvement in earnings was primarily driven by pricing and network efficiency gains across our asset-based businesses, in addition to gross marginal recovery in our logistics business. Gap earnings per diluted share for the third quarter of the 2026, or 72 cents compared to 5 cents in the third quarter of 2025.

Adjusted, EPS was 83 cents for the third quarter of the 2026 versus 32 last year. Our consolidated adjusted operating ratio was 89.3%, a 450 basis point improvement year-over-year.

Slide four illustrates the revenue and adjusted operating income from each of our segments for the quarter. Overall, the relative share of our various service offerings remained largely consistent, and modal again gained slightly over the previous quarter as it grew revenue 8.4% sequentially.

Now we'll discuss each of our segments, starting with our truckload segment on slide five. A truckload segment is making meaningful progress, restoring margin through disciplined annual management and cost control. After being driven by spot rates in the second quarter, realized revenue per mile accelerated in the third quarter, driven by contract rate changes, primarily within our one-way division.

This quarter marks the first one in a few years the operating margins for our one-way service exceeded those of our dedicated division.

We continue to see opportunities through many bids, turnback bids, while peak season projects have started to move even while conversations on late developing needs continue to surface.

We are leveraging collaborations to support our various brands and service lines while providing greater capacity solutions to our customers.

There are many reasons to be encouraged and plenty of levers to drive further improvement. One of the biggest priorities across our operation is CD more trucks and increasing utilization.

This will allow us to retain more opportunities and grow revenue at compelling incremental margins. We are leveraging our academy and training network to navigate driver sourcing challenges into managed cost. We have 12 CDL academies across the U. S. with plans to open a few more in the coming months, plus partner schools operating on-site at seven additional terminals.

After graduating from CDL school, the next phase is a finishing program where we have more than 2,000 qualified mentors who train new CDL holders over the road to ensure the readiness to be safe, productive, and successful.

After years, we have built a training program at U. S. Express modeled after our legacy program and student count can use crime.

Our scale is a distinct advantage and dedicated. Our startup costs on new fleets can pressure margins because equipment must be positioned and trucks must be staffed before they are fully productive.

When we onboard a new dedicated fleet, we can draw up on equipment and drivers from our national one-way network along with our academies program. Only in certain markets are we limited to recruiting experienced drivers at a premium. This helps us manage margin pressure from growth.

Recently, we have been having success in curling our dedicated fleet, which has grown approximately 3.5% since mid-Q2. Our dedicated revenue, excluding fuel surcharge grew nearly 4% sequentially between Q2 and Q3.

The investments we made in the quarter in recruiting, training, and driver pay have helped us to stabilize our truck count. We are preparing further targeted measures to improve our driver development and enhance utilization, given that our truckload margins are progressing according to plan. And our load rejection rates continue to run at a strong level, at strong levels, well ahead of the market.

We continue to closely monitor driver market conditions as well as our own metrics around seated tractors, utilization, and pay as a percentage of revenue to gauge appropriate action and invest where it generates a return.

We are balancing the need to restore margins with opportunities for growth. During this slide, I'd like to spend a few minutes on truckload costs.

Recently, investors seem to be indicating some level of concern that cost inflation could consume too much or perhaps even all of the rate gains being made in the industry.

However, our models generate meaningful margin progress through the combination of our significant exposure to the one-way truckload market, which is benefiting the most from capacity reduction and our distinctive approach to yield management and cost control as Adam touched on earlier.

The cable on the left is the headline. Year over year gains and revenue per mile excluding fuel surcharge have accelerated from two and a half percent in Q1 to 12.2 percent in Q3.

Over the same period, cost per mile stayed in a tight range between 3.3 and 3.8 percent. The result is that 68 percent of our third quarter rate improvement flowed through the margin up from 50 percent in the second quarter. Note that while we typically site rate per loaded mile metrics, these rate gains are stated in terms of rate per total mile in order to make it comparable to cost per total mile figures.

It also helps to look at this over the full cycle. From 2019 through 2025, our cost per mile grew at an average annual rate of 4.5 percent. That period includes inflation surge of 2021 and 2022.

Thereafter, we structurally reduced costs that allowed us to hold cost per mile flat from 2023 through 2025 as pricing and volumes declined.

A 3.5 percent cost per mile increased this year is below that recent average and much of it reflects deliberate reinvestment now that the rate opportunity supports it.

That's clear as when you separate our two largest businesses. Dedicated, rate is largely kept pace with modest cost growth and margins of state in a stable range through the cycle. In our one-way business rates fell sharply from 2022 through 2025, and we responded by taking out costs. With one-way rates rising significantly year over year, our tender rejections running strong, it's time to begin investing again in that business, and we're investing primarily in drivers.

So to be clear, we're not immune to inflation. We're not immune to inflation. We're immune to inflation.