Knight-Swift Transportation Holdings Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report contains certain statements that may be considered "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 27A of the Securities Act of 1933, as amended. 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, 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 conditions or performance, and • any statements of belief and any statements of assumptions underlying any of the foregoing. In this Quarterly Report, forward-looking statements include, but are not limited to, statements we make concerning: • the ability of our infrastructure to support future growth, whether we grow organically or through potential acquisitions, • the impacts of the COVID-19 global pandemic, • the future impact of acquisitions, including achievement of anticipated synergies and the anticipated risks regarding our acquisition of ACT, • the flexibility of our model to adapt to market conditions, • our ability to recruit and retain qualified driving associates, • future safety performance, • future performance of our segments or businesses, • our ability to gain market share, • the ability, desire, and effects of expanding our logistics, brokerage, and intermodal operations, • future equipment prices, our equipment purchasing or leasing plans, and our equipment turnover (including expected tractor trade-ins), • our ability to sublease equipment to independent contractors, • the impact of pending legal proceedings, • the expected freight environment, including freight demand and volumes, • economic conditions and growth, including future inflation, consumer spending, supply chain conditions, and US Gross Domestic Product ("GDP") changes, • future pricing terms from vendors and suppliers, • expected liquidity and methods for achieving sufficient liquidity, • future fuel prices and the expected impact of fuel efficiency initiatives, • future expenses and our ability to control costs, • future operating profitability, • future third-party service provider relationships and availability, • future contracted pay rates with independent contractors and compensation arrangements with driving associates, • our expected need or desire to incur indebtedness, 28 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED • future capital expenditures and expected sources of liquidity, capital allocation, capital structure, capital requirements, and growth strategies and opportunities, • expected capital expenditures, • future mix of owned versus leased revenue equipment, • future asset utilization, • future return on capital, • future share repurchases and dividends, • future tax rates, • future trucking industry capacity and balance between industry demand and capacity, • future rates, • future depreciation and amortization, • expected tractor and trailer fleet age, • future investment in and deployment of new or updated technology, • political conditions and regulations, including trade regulation, quotas, duties, or tariffs, and any future changes to the foregoing, • future insurance claims, premiums, and retention limits, • future purchased transportation expense, and • others. Such statements may be identified by their use of terms or phrases such as "believe," "may," "could," "will," "would," "should," "expects," "estimates," "designed," "likely," "foresee," "goals," "seek," "target," "forecast," "projects," "anticipates," "plans," "intends," "hopes," "strategy," "potential," "objective," "mission," "continue," "outlook," and similar terms and phrases. Forward-looking statements are based on currently available operating, financial, and competitive information. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to materially differ from those set forth in, contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part II, Item 1A "Risk Factors" of this Quarterly Report, Part I, Item 1A "Risk Factors" in our 2020 Annual Report, and various disclosures in our press releases, stockholder reports, and other filings with the SEC. All such forward-looking statements speak only as of the date of this Quarterly Report. You are cautioned not to place undue reliance on such forward-looking statements. We expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein, to reflect any change in our expectations with regard thereto, or any change in the events, conditions, or circumstances on which any such statement is based. Reference to Glossary of Terms Certain acronyms and terms used throughout this Quarterly Report are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document. Reference to Annual Report The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements (unaudited) and footnotes included in this Quarterly Report, as well as the consolidated financial statements and footnotes included in our 2020 Annual Report. 29 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Executive Summary Company Overview Knight-Swift Transportation Holdings Inc. is North America's largest truckload carrier and a provider of transportation solutions, headquartered in Phoenix, Arizona. The Company provides multiple truckload transportation, intermodal, and logistics services using a nationwide network of business units and terminals in the US and Mexico to serve customers throughout North America. In addition to its truckload services, Knight-Swift also contracts with third-party capacity providers to provide a broad range of shipping solutions to its customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors. Our three reportable segments are Trucking, Logistics, and Intermodal. Additionally, we have various non-reportable segments. Refer to Note 14 in Part I, Item 1 of this Quarterly Report for descriptions of our segments. Our objective is to operate our business with industry-leading margins and growth while providing safe, high-quality, cost-effective solutions for our customers. ACT Acquisition — On July 5, 2021, we acquired 100% of ACT. ACT is a leading less-than-truckload ("LTL") carrier that also offers dedicated contract carriage and ancillary services. Further details regarding this acquisition are included in Note 3 in Part I, Item 1 of this Quarterly Report. Revenue • Our trucking services include irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border transportation of various products, goods, and materials for our diverse customer base. We primarily generate revenue by transporting freight for our customers through our Trucking segment. • Our logistics and intermodal operations provide a multitude of shipping solutions, including additional sources of truckload capacity and alternative transportation modes, by utilizing our vast network of third-party capacity providers and rail providers, as well as certain logistics and freight management services. Revenue in our logistics and intermodal operations is generated through our Logistics and Intermodal segments. • Our non-reportable segments include support services provided to our customers and independent contractors (including repair and maintenance shop services, equipment leasing, warranty services, and insurance), trailer parts manufacturing, warehousing, and certain driving academy activities, as well as certain corporate expenses (such as legal settlements and accruals, certain impairments, and amortization of intangibles related to the 2017 Merger and various acquisitions). • In addition to the revenues earned from our customers for the trucking and non-trucking services discussed above, we also earn fuel surcharge revenue from our customers through our fuel surcharge program, which serves to recover a majority of our fuel costs. This applies only to loaded miles and typically does not offset non-paid empty miles, idle time, and out-of-route miles driven. Fuel surcharge programs involve a computation based on the change in national or regional fuel prices. These programs may update as often as weekly, but typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue. Therefore, many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue for our Trucking segment. Expenses — Our most significant expenses vary with miles traveled and include fuel, driving associate-related expenses (such as wages and benefits), and services purchased from independent contractors and other transportation providers (such as railroads, drayage providers, and other trucking companies). Maintenance and tire expenses, as well as the cost of insurance and claims generally vary with the miles we travel, but also have a controllable component based on safety improvements, fleet age, efficiency, and other factors. Our primary fixed costs are depreciation and lease expense for revenue equipment and terminals, amortization of intangible assets, interest expense, and non-driver employee compensation. 30 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Operating Statistics — We measure our consolidated and segment results through certain operating statistics, which are discussed under "Results of Operations — Segment Review — Operating Statistics," below. Our results are affected by various economic, industry, operational, regulatory, and other factors, which are set forth in Part I, Item 1A "Risk Factors" in our 2020 Annual Report, supplemented in Part II, Item 1A "Risk Factors" of this Quarterly Report, and various disclosures in our press releases, stockholder reports, and other filings with the SEC. Consolidated Key Financial Highlights and Operating Metrics Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 GAAP financial data: (Dollars in thousands, except per share data) Total revenue $ 1,315,701 $ 1,060,698 $ 2,538,715 $ 2,185,496 Revenue, excluding trucking fuel surcharge $ 1,212,872 $ 997,597 $ 2,345,977 $ 2,024,692 Net income attributable to Knight-Swift $ 152,804 $ 80,189 $ 282,594 $ 145,615 Earnings per diluted share $ 0.92 $ 0.47 $ 1.69 $ 0.85 Operating ratio 85.5 % 90.4 % 86.1 % 90.7 % Non-GAAP financial data: Adjusted Net Income Attributable to Knight-Swift 1 $ 162,998 $ 96,498 $ 302,431 $ 172,703 Adjusted EPS 1 $ 0.98 $ 0.57 $ 1.81 $ 1.01 Adjusted Operating Ratio 1 83.1 % 87.6 % 83.8 % 88.1 % Revenue equipment: Average tractors (Trucking segment only) 2 18,034 18,393 18,129 18,428 Average trailers 3 60,858 57,269 60,382 57,456 Average containers 10,842 10,853 10,844 10,355 1 Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are non-GAAP financial measures and should not be considered alternatives, or superior to, the most directly comparable GAAP financial measures. However, management believes that presentation of these non-GAAP financial measures provides useful information to investors regarding the Company's results of operations. Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are reconciled to the most directly comparable GAAP financial measures under "Non-GAAP Financial Measures," below. 2 The average age of our company-owned tractor fleet was 2.4 years and 2.1 years as of June 30, 2021 and 2020, respectively. 3 The average age of our trailer fleet was 8.3 years and 7.6 years as of June 30, 2021 and 2020, respectively . 31 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Market Trends and Company Performance Trends and Outlook — Our consolidated revenue, excluding trucking fuel surcharge, grew by 15.9% during the first half of 2021, reflecting meaningful growth across all reportable segments. We generated consolidated Adjusted Net Income Attributable to Knight-Swift of $302.4 million, which represents a 75.1% increase from $172.7 million during the first half of 2020. Revenue per tractor was up 9.0% despite lower fleet utilization as a result of the difficult driver sourcing environment. Our Trucking segment increased revenue, excluding fuel surcharge and intersegment transactions, by 7.2%, resulting in a 470 basis point improvement in the Adjusted Operating Ratio to 81.3% in the first half of 2021 from 86.0% in the first half of 2020. Our Logistics segment increased revenue, excluding intersegment transactions by 93.2%. Our Intermodal segment grew revenue 25.3% and improved its Adjusted Operating Ratio by 820 basis points to 95.8% in the first half of 2021, compared to the same period last year. We anticipate ongoing improvement within the Intermodal segment in the coming quarters. The national unemployment rate was 5.9% 1 as of June 30, 2021. The US gross domestic product, which is the broadest measure of goods and services produced across the economy, increased by 6.5% 2 and 1.6% 2 on a year-over-year and sequential basis, per preliminary third-party forecasts. Third-party forecasts are predicting a continued economic rebound in the second half of 2021, but perhaps at a slower pace. The first half 2021 US employment cost index rose 2.9% 1 and 0.7% 1 on a year-over-year and sequential basis, respectively. From a freight market perspective, we are encouraged by the continued strength in freight demand; however, demand may be difficult to predict for the rest of 2021. The 2021 market outlook includes the following: • we expect the unprecedented demand for over-the-road truckload capacity to continue throughout 2022, • capacity expansion continues to be limited as new tractor builds are constrained by parts availability, and • sourcing and retaining drivers will remain challenging and lead to additional driver wage inflation. The above factors should continue to support a favorable rate environment. In addition to the above market factors, demand for power-only opportunities continues. We anticipate that depreciation and amortization expense will increase and rental expense will correspondingly decrease, as a percentage of revenue excluding trucking fuel surcharge, as we intend to purchase, rather than enter into operating leases, for a majority of our revenue equipment in 2021. With significant tightening in the insurance markets, we may also experience changes in premiums, retention limits, and excess coverage limits in the remainder of 2021. While fuel expense is generally offset by fuel surcharge revenue, our fuel expense, net of fuel surcharge revenue may increase in the future. We expect that our acquisition of ACT will have a significant impact on future financial results, including an overall increase to operating revenues and expenses. However, we are still in the preliminary stages of this transaction and the assessment of the impact on our operations, policies or financial results. We continue to manage our leverage ratio relative to our targeted range and remain committed to a strong capital structure, which we believe will position us for long-term success and enable us to pursue further opportunities for organic growth, growth through acquisitions, and other capital allocation opportunities. We do not foresee material liquidity constraints or any issues with our ongoing ability to meet our debt covenants. ________ 1 Source: bls.gov 2 Source: bea.gov 32 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Comparison Between the Quarters Ended June 30, 2021 and 2020 — The $72.6 million increase in net income attributable to Knight-Swift to $152.8 million during the second quarter of 2021 from $80.2 million during the same period last year includes the following: • Contributor — $60.7 million increase in operating income within our Trucking segment. Average revenue per tractor increased by 10.3%, driven by a 18.8% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions. • Contributor — $11.3 million increase in operating income within our Logistics segment. Revenue, excluding intersegment transactions, increased by 141.8% within our Logistics segment, as brokerage load volumes grew by 55.3% and brokerage revenue per load increased by 55.8% (including the results of UTXL beginning June 1, 2021). • Contributor — $10.3 million improvement in operating income (loss) within our Intermodal segment. Revenue per load increased 16.3 % and load counts increased 19.9%. • Contributor — $8.3 million improvement in "Other income (expenses), net," primarily related to unrealized gains recognized from our investment in Embark, partially offset by a reduction in unrealized gains recognized for other investments within our portfolio. • Offset — $25.0 million increase in consolidated income tax expense, primarily due to an increase in income before income taxes resulting in an effective tax rate of 25.3% for the second quarter of 2021 and 25.0% for the second quarter of 2020. Comparison Between the Year-to-Date June 30, 2021 and 2020 — The $137.0 million increase in net income attributable to Knight-Swift to $282.6 million during the first half of 2021 from $145.6 million during the same period last year includes the following: • Contributor — $111.8 million increase in operating income within our Trucking segment. Average revenue per tractor increased by 9.0%, driven by a 17.5% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions. • Contributor — $15.2 million improvement in operating income within our Logistics segment. Revenue, excluding intersegment transactions, increased by 93.2% within our Logistics segment, as brokerage load volumes grew by 28.4% and brokerage revenue per load increased by 50.4% • Contributor — $16.5 million improvement in operating income (loss) within our Intermodal segment. Revenue per load increased 13.1% and load counts increased 10.8%. • Contributor — $31.0 million improvement in "Other income (expenses), net," primarily due to the Embark gain discussed above and an increase in unrealized gains recognized for other investments within our portfolio. • Offset — $45.7 million increase in consolidated income tax expense, primarily due to an increase in income before income taxes resulting in an effective tax rate of 25.5% for the first half of 2021 and 26.0% for the first half of 2020. See additional discussion of our operating results within "Results of Operations — Consolidated Operating and Other Expenses" below. Liquidity and Capital — During year-to-date June 30, 2021, we generated $459.5 million in operating cash flows, reduced our operating lease liabilities by $28.3 million, used $120.5 million for capital expenditures (net of disposal proceeds), spent $63.3 million on acquisitions, and returned $53.7 million in share repurchases and $30.3 million in dividends to our stockholders. We ended the quarter with $179.0 million in unrestricted cash and cash equivalents, $55.0 million outstanding on the Revolver, $300.0 million face value outstanding on the 2017 Term Loan, and $6.1 billion of stockholders' equity. 33 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED We continue to manage our leverage ratio relative to our targeted range and remain committed to a strong capital structure, which we believe will position us for long-term success and enable us to pursue further opportunities for organic growth, growth through acquisitions, and other capital allocation opportunities. We do not foresee material liquidity constraints or any issues with our ongoing ability to meet our debt covenants. See discussion under "Liquidity and Capital Resources" for additional information. Results of Operations — Segment Review The Company has three reportable segments: Trucking, Logistics, and Intermodal, as well as certain non-reportable segments. Refer to Note 14 to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report for descriptions of the operations of these reportable segments. Consolidating Tables for Total Revenue and Operating Income (Loss) Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 Revenue: (In thousands) Trucking $ 985,858 $ 879,369 $ 1,948,805 $ 1,798,430 Logistics 166,737 70,104 285,624 149,302 Intermodal 115,378 82,820 222,444 177,551 Subtotal $ 1,267,973 $ 1,032,293 $ 2,456,873 $ 2,125,283 Non-reportable segments 66,795 45,289 117,464 91,531 Intersegment eliminations (19,067) (16,884) (35,622) (31,318) Total revenue $ 1,315,701 $ 1,060,698 $ 2,538,715 $ 2,185,496 Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 Operating income (loss): (In thousands) Trucking $ 168,457 $ 107,788 $ 326,940 $ 215,122 Logistics 14,356 3,038 21,933 6,757 Intermodal 5,812 (4,475) 9,269 (7,212) Subtotal $ 188,625 $ 106,351 $ 358,142 $ 214,667 Non-reportable segments 2,490 (4,184) (4,768) (10,381) Operating income $ 191,115 $ 102,167 $ 353,374 $ 204,286 34 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Operating Statistics Our chief operating decision makers monitor the GAAP results of our reportable segments, as supplemented by certain non-GAAP information. Refer to "Non-GAAP Financial Measures" below for more details. Additionally, we use a number of primary indicators to monitor our revenue and expense performance and efficiency. Operating Statistic Relevant Segment(s) Description Average Revenue per Tractor Trucking Measures productivity and represents revenue (excluding fuel surcharge and intersegment transactions) divided by average tractor count Total Miles per Tractor Trucking Total miles (including loaded and empty miles) a tractor travels on average Average Length of Haul Trucking Average miles traveled with loaded trailer cargo per order Non-paid Empty Miles Percentage Trucking Percentage of miles without trailer cargo Average Tractors Trucking, Intermodal Average tractors in operation during the period including company tractors and tractors provided by independent contractors Average Trailers Trucking Average trailers in operation during the period Average Revenue per Load Logistics, Intermodal Total revenue (excluding intersegment transactions) divided by load count Gross Margin Percentage Logistics Logistics gross margin (revenue, excluding intersegment transactions, less purchased transportation expense, excluding intersegment transactions) as a percentage of logistics revenue, excluding intersegment transactions Average Containers Intermodal Average containers in operation during the period GAAP Operating Ratio Trucking, Logistics, Intermodal Measures operating efficiency and is widely used in our industry as an assessment of management's effectiveness in controlling all categories of operating expenses. Calculated as operating expenses as a percentage of total revenue, or the inverse of operating margin. Non-GAAP Adjusted Operating Ratio Trucking, Logistics, Intermodal Measures operating efficiency and is widely used in our industry as an assessment of management's effectiveness in controlling all categories of operating expenses. Consolidated and segment Adjusted Operating Ratios are reconciled to their corresponding GAAP operating ratios under "Non-GAAP Financial Measures," below. 35 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Segment Review Trucking Segment We generate revenue in the Trucking segment primarily through irregular route, dedicated, refrigerated, flatbed, expedited, and cross-border service offerings with 12,967 irregular route tractors and 5,067 dedicated route tractors in use during the quarter-to-date period ended June 30, 2021. Generally, we are paid a predetermined rate per mile or per load for our trucking services. Additional revenues are generated by charging for tractor and trailer detention, loading and unloading activities, dedicated services, and other specialized services, as well as through the collection of fuel surcharge revenue to mitigate the impact of increases in the cost of fuel. The main factors that affect the revenue generated by our Trucking segment are rate per mile from our customers, the percentage of miles for which we are compensated, and the number of loaded miles we generate with our equipment. The most significant expenses in the Trucking segment are primarily variable and include fuel and fuel taxes, driving associate-related expenses (such as wages, benefits, training, and recruitment), and costs associated with independent contractors primarily included in "Purchased transportation" in the condensed consolidated statements of comprehensive income. Maintenance expense (which includes costs for replacement tires for our revenue equipment) and insurance and claims expenses have both fixed and variable components. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency, and other factors. The main fixed costs in the Trucking segment are depreciation and rent expenses from leasing and acquiring revenue equipment and terminals, as well as compensating our non-driver employees. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands, except per tractor data) Increase (Decrease) Total revenue $ 985,858 $ 879,369 $ 1,948,805 $ 1,798,430 12.1 % 8.4 % Revenue, excluding fuel surcharge and intersegment transactions $ 882,560 $ 816,033 $ 1,755,374 $ 1,637,117 8.2 % 7.2 % GAAP: Operating income $ 168,457 $ 107,788 $ 326,940 $ 215,122 56.3 % 52.0 % Non-GAAP: Adjusted Operating Income 1 $ 168,781 $ 118,166 $ 327,588 $ 228,971 42.8 % 43.1 % Average revenue per tractor 2 $ 48,939 $ 44,366 $ 96,827 $ 88,839 10.3 % 9.0 % GAAP: Operating ratio 2 82.9 % 87.7 % 83.2 % 88.0 % (480 bps) (480 bps) Non-GAAP: Adjusted Operating Ratio 1 2 80.9 % 85.5 % 81.3 % 86.0 % (460 bps) (470 bps) Non-paid empty miles percentage 2 13.0 % 13.8 % 12.9 % 13.3 % (80 bps) (40 bps) Average length of haul (miles) 2 408 420 410 424 (2.9 %) (3.3 %) Total miles per tractor 2 20,913 22,741 41,841 45,307 (8.0 %) (7.7 %) Average tractors 2 3 18,034 18,393 18,129 18,428 (2.0 %) (1.6 %) Average trailers 2 60,858 57,269 60,382 57,456 6.3 % 5.1 % 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics," above. 3 Includes 16,144 and 16,315 average company-owned tractors for the second quarter of 2021 and 2020, respectivel y. Includes 16,225 and 16,327 average company-owned tractors for the year-to-date June 30, 2021 and 2020, respectivel y. 36 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Comparison Between the Quarters Ended June 30, 2021 and 2020 — Operating income grew by 56.3% within the Trucking segment, overcoming inflationary pressures related to sourcing and retaining drivers. Revenue, excluding fuel surcharge and intersegment transactions, grew by 8.2%. Average revenue per tractor increased by 10.3%, driven by an 18.8% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions. Consumer demand remained strong, while capacity remained constrained across our industry, which is driving up sourcing costs and corresponding rates. Our year-over-year rate improvement was partially offset by driver-related sourcing expenses, as well as an 8.0% decline in miles per tractor due to an increase in unseated tractors. On a sequential basis, miles per tractor remained relatively flat. Comparison Between Year-to-Date June 30, 2021 and 2020 — Operating income grew by 52.0% within the Trucking segment. Revenue, excluding fuel surcharge and intersegment transactions, grew by 7.2%. Average revenue per tractor increased by 9.0%, driven by a 17.5% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions. Our year-over-year rate improvement was partially offset by an increase in driver-related sourcing and other expenses during the first half of 2021, as well as a 7.7% decline in miles per tractor due to inclement weather and an increase in unseated tractors. Logistics Segment The Logistics segment is less asset-intensive than the Trucking segment and is dependent upon capable non-driver employees, modern and effective information technology, and third-party capacity providers. Logistics revenue is generated by its brokerage operations. We generate additional revenue by offering specialized logistics solutions (including, but not limited to, trailing equipment, origin management, surge volume, disaster relief, special projects, and other logistic needs). Logistics revenue is mainly affected by the rates we obtain from customers, the freight volumes we ship through third-party capacity providers, and our ability to secure third-party capacity providers to transport customer freight. The most significant expense in the Logistics segment is purchased transportation that we pay to third-party capacity providers, which is primarily a variable cost and is included in "Purchased transportation" in the condensed consolidated statements of comprehensive income. Variability in this expense depends on truckload capacity, availability of third-party capacity providers, rates charged to customers, current freight demand, and customer shipping needs. Fixed Logistics operating expenses primarily include non-driver employee compensation and benefits recorded in "Salaries, wages, and benefits" and depreciation and amortization expense recorded in "Depreciation and amortization of property and equipment" in the condensed consolidated statements of comprehensive income. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands, except per load data) Increase (Decrease) Total revenue $ 166,737 $ 70,104 $ 285,624 $ 149,302 137.8 % 91.3 % Revenue, excluding intersegment transactions $ 162,167 $ 67,066 $ 277,889 $ 143,823 141.8 % 93.2 % GAAP: Operating income $ 14,356 $ 3,038 $ 21,933 $ 6,757 372.5 % 224.6 % Non-GAAP: Adjusted Operating Income 1 $ 14,453 $ 3,038 $ 22,030 $ 6,757 375.7 % 226.0 % Revenue per load 2 $ 2,193 $ 1,408 $ 2,094 $ 1,392 55.8 % 50.4 % Gross margin percentage 2 15.7 % 15.7 % 15.2 % 15.1 % — bps 10 bps GAAP: Operating ratio 2 91.4 % 95.7 % 92.3 % 95.5 % (430 bps) (320 bps) Non-GAAP: Adjusted Operating Ratio 1 2 91.1 % 95.5 % 92.1 % 95.3 % (440 bps) (320 bps) 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics," above. 37 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Comparison Between the Quarters Ended June 30, 2021 and 2020 — Revenue, excluding intersegment transactions, increased by 141.8% within our Logistics segment, as brokerage load volumes grew by 55.3% and brokerage revenue per load increased by 55.8% (including the results of UTXL beginning June 1, 2021). Excluding the results of UTXL, brokerage load volumes grew by 49.6% and revenue per load increased by 47.5%. Logistics gross margin was 15.7% in the second quarters of 2021 and 2020, while Adjusted Operating Ratio improved by 440 basis points to 91.1% for the second quarter of 2021, from 95.5% for the second quarter of 2020. Within our power-only service offering, revenue grew 410.5%, as a result of a 141.5% increase in load volumes. Power-only represented 26.9% of brokerage revenue and over 25% of our total second quarter 2021 brokerage load volumes. During 2020, we introduced our Select platform, which digitally matches shippers with available capacity across our brands through frictionless transactions. During the second quarter of 2021, more than 4,500 carriers were digitally matched with loads through our Select platform, achieving an 18.2% sequential increase in Select platform load volumes. Comparison Between Year-to-Date June 30, 2021 and 2020 — Revenue, excluding intersegment transactions, increased by 93.2% within our Logistics segment, as brokerage load volumes grew by 28.4% and revenue per load increased by 50.4%. Logistics gross margin was 15.2% in the first half of 2021 and 15.1% in the first half of 2020. Adjusted Operating Ratio improved by 320 basis points to 92.1% in the first half of 2021, compared to 95.3% in the first half of 2020. Within our power-only service offering, load volumes grew 284.5%, representing 24.5% of brokerage revenue and over 25.0% of our brokerage load volumes in the first half of 2021. 38 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Intermodal Segment The Intermodal segment complements our regional operating model, allows us to better serve customers in longer haul lanes, and reduces our investment in fixed assets. Through the Intermodal segment, we generate revenue by moving freight over the rail in our containers and other trailing equipment, combined with revenue for drayage to transport loads between railheads and customer locations. The most significant expense in the Intermodal segment is the cost of purchased transportation that we pay to third-party capacity providers (including rail providers), which is primarily variable and included in "Purchased transportation" in the condensed consolidated statements of comprehensive income. Purchased transportation varies as it relates to rail capacity, freight demand, and customer shipping needs. The main fixed costs in the Intermodal segment are depreciation of our company tractors related to drayage, containers, and chassis, as well as non-driver employee compensation and benefits. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands, except per load data) Increase (Decrease) Total revenue $ 115,378 $ 82,820 $ 222,444 $ 177,551 39.3 % 25.3 % Revenue, excluding intersegment transactions $ 115,294 $ 82,699 $ 222,265 $ 177,321 39.4 % 25.3 % GAAP: Operating income (loss) $ 5,812 $ (4,475) $ 9,269 $ (7,212) (229.9 %) 228.5 % Non-GAAP: Adjusted Operating Income (Loss) 1 $ 5,812 $ (4,410) $ 9,269 $ (7,099) (231.8 %) 230.6 % Average revenue per load 2 $ 2,616 $ 2,249 $ 2,583 $ 2,283 16.3 % 13.1 % GAAP: Operating ratio 2 95.0 % 105.4 % 95.8 % 104.1 % (1,040 bps) (830 bps) Non-GAAP: Adjusted Operating Ratio 1 2 95.0 % 105.3 % 95.8 % 104.0 % (1,030 bps) (820 bps) Load count 44,073 36,769 86,041 77,658 19.9 % 10.8 % Average tractors 2 3 611 571 605 586 7.0 % 3.2 % Average containers 2 10,842 10,853 10,844 10,355 (0.1 %) 4.7 % 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics," above. 3 Includes 555 and 510 company-owned tractors for the second quarter of 2021 and 2020, respectively. Includes 549 and 523 company-owned tractors for the year-to-date June 30, 2021 and 2020, respectively. Comparison Between the Quarters Ended June 30, 2021 and 2020 — Intermodal r evenue, excluding intersegment transactions increased 39.4% year-over-year, as load counts increased 19.9% and revenue per load increased 16.3%. The Adjusted Operating Ratio improved to 95.0% in the second quarter of 2021, from 105.3% in the second quarter of 2020. Intermodal is exhibiting solid momentum, and we expect operational improvements in cost structure and network design in the coming quarters to lead to continued improvement. Comparison Between Year-to-Date June 30, 2021 and 2020 — Intermodal revenue, excluding intersegment transactions increased 25.3%, as load counts increased 10.8% and revenue per load increased 13.1%. Adjusted Operating Ratio within the Intermodal segment improved to 95.8%, compared to 104.0% during the first half of 2020, despite weather and service disruptions in the beginning of the year. 39 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Non-reportable Segments The non-reportable segments include support services provided to our customers and independent contractors (including repair and maintenance shop services, equipment leasing, warranty services, and insurance), trailer parts manufacturing, warehousing, and certain driving academy activities, as well as certain corporate expenses (such as legal settlements and accruals, certain impairments, and $11.6 million in quarterly amortization of intangibles related to the 2017 Merger and various acquisitions). Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Total revenue $ 66,795 $ 45,289 $ 117,464 $ 91,531 47.5 % 28.3 % Operating income (loss) $ 2,490 $ (4,184) $ (4,768) $ (10,381) 159.5 % 54.1 % Quarter-to-date and year-to-date 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, and increased demand for our equipment leasing services. This was partially offset by an increase in legal accruals. 40 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Results of Operations — Consolidated Operating and Other Expenses Consolidated Operating Expenses The following tables present certain operating expenses from our condensed consolidated statements of comprehensive income, including each operating expense as a percentage of total revenue and as a percentage of revenue, excluding trucking fuel surcharge. Trucking fuel surcharge revenue can be volatile and is primarily dependent upon the cost of fuel, rather than operating expenses unrelated to fuel. Therefore, we believe that revenue, excluding trucking fuel surcharge is a better measure for analyzing many of our expenses and operating metrics. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Salaries, wages, and benefits $ 377,613 $ 365,311 $ 747,983 $ 720,144 3.4 % 3.9 % % of total revenue 28.7 % 34.4 % 29.5 % 33.0 % (570 bps) (350 bps) % of revenue, excluding fuel surcharge 31.1 % 36.6 % 31.9 % 35.6 % (550 bps) (370 bps) Salaries, wages, and benefits expense is primarily affected by the total number of miles driven by company driving associates, the rate per mile we pay our company driving associates, and employee benefits, including healthcare, workers' compensation, and other benefits. To a lesser extent, non-driver employee headcount, compensation, and benefits affect this expense. Driving associate wages represent the largest component of salaries, wages, and benefits expense. Several ongoing market factors have reduced the pool of available driving associates, contributing to a challenging driver sourcing market, which we believe will continue. Having a sufficient number of qualified driving associates is a our biggest headwind, although we continue to seek ways to attract and retain qualified driving associates, including heavily investing in our recruiting efforts, our driving academies, technology, and terminals that improve the experience of driving associates. We expect driving associate pay to remain inflationary, which we expect will result in additional driving associate pay increases in the future, thereby increasing our salaries, wages, and benefits expense. Consolidated salaries, wages, and benefits increased by $12.3 million for the second quarter of 2021 and by $27.8 million for the first half of 2021, as compared to the same periods last year. The increases pertained to driving associate pay rates and an non-driver salaries and wages. These were partially offset by a decrease in miles driven by company driving associates and lower medical insurance costs. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Fuel $ 126,055 $ 86,381 $ 244,291 $ 208,236 45.9 % 17.3 % % of total revenue 9.6 % 8.1 % 9.6 % 9.5 % 150 bps 10 bps % of revenue, excluding trucking fuel surcharge 10.4 % 8.7 % 10.4 % 10.3 % 170 bps 10 bps Fuel expense consists primarily of diesel fuel expense for our company-owned tractors and fuel taxes. The primary factors affecting our fuel expense are the cost of diesel fuel, the fuel economy of our equipment, and the miles driven by company driving associates. Our fuel surcharge programs help to offset increases in fuel prices, but apply only to loaded miles and typically do not offset non-paid empty miles, idle time, or out-of-route miles driven. Typical fuel surcharge programs involve a computation based on the change in national or regional fuel prices. These programs may update as often as weekly, but typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue 41 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED for our Trucking segment. Therefore, many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue. Due to this time lag, our fuel expense, net of fuel surcharge, negatively impacts our operating income during periods of sharply rising fuel costs and positively impacts our operating income during periods of falling fuel costs. We continue to utilize our fuel efficiency initiatives such as trailer blades, idle-control, management of tractor speeds, fleet updates for more fuel-efficient engines, management of fuel procurement, and driving associate training programs that we believe contribute to controlling our fuel expense. The $39.7 million and $36.1 million increases in consolidated fuel expense for the second quarter and first half of 2021, respectively, are attributable to higher average DOE fuel prices when compared to the same periods last year. Average DOE fuel prices were $3.21 per gallon for the second quarter of 2021 and $2.44 per gallon for the second quarter of 2020. Average DOE fuel prices were $3.06 per gallon for year-to-date June 30, 2021 and $2.67 per gallon for year-to-date June 30, 2020. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Operations and maintenance $ 71,313 $ 66,067 $ 139,383 $ 134,471 7.9 % 3.7 % % of total revenue 5.4 % 6.2 % 5.5 % 6.2 % (80 bps) (70 bps) % of revenue, excluding trucking fuel surcharge 5.9 % 6.6 % 5.9 % 6.6 % (70 bps) (70 bps) Operations and maintenance expense consists of direct operating expenses, such as driving associate hiring and recruiting expenses, equipment maintenance, and tire expense. Operations and maintenance expenses are primarily affected by the age of our company-owned fleet of tractors and trailers and the miles driven. We expect the driver market to remain competitive throughout 2021, which could increase future driving associate development and recruiting costs and negatively affect our operations and maintenance expense. We expect to continue refreshing our tractor and trailer fleet in the coming quarters to maintain or improve the average age of our equipment. The increases of $5.2 million for the second quarter of 2021 and $4.9 million for the first half of 2021, as compared to the same periods last year, were attributed to higher driving associate hiring expenses and increased chassis expense. This was partially offset by a decrease in miles driven by company driving associates. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Insurance and claims $ 58,776 $ 45,302 $ 114,419 $ 99,582 29.7 % 14.9 % % of total revenue 4.5 % 4.3 % 4.5 % 4.6 % 20 bps (10 bps) % of revenue, excluding trucking fuel surcharge 4.8 % 4.5 % 4.9 % 4.9 % 30 bps — bps 42 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Insurance and claims expense consists of premiums for liability, physical damage, and cargo, and will vary based upon the frequency and severity of claims, as well as our level of self-insurance, and premium expense. In recent years, insurance carriers have raised premiums for many businesses, including transportation companies, and as a result, our insurance and claims expense could increase in the future, or we could raise our self-insured retention limits or reduce excess coverage limits when our policies are renewed or replaced. Insurance and claims expense also varies based on the number of miles driven by company driving associates and independent contractors, the frequency and severity of accidents, trends in development factors used in actuarial accruals, and developments in large, prior-year claims. In future periods, our higher self-insured retention limits or lower excess coverage limits may cause increased volatility in our consolidated insurance and claims expense. Consolidated insurance and claims expense increased by $13.5 million for the second quarter of 2021 and by $14.8 million for the first half of 2021, as compared to the same periods last year. These increases were primarily due to negative development within certain prior year losses and costs incurred through our third-party carrier insurance program. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Operating taxes and licenses $ 21,717 $ 20,883 $ 43,765 $ 43,052 4.0 % 1.7 % % of total revenue 1.7 % 2.0 % 1.7 % 2.0 % (30 bps) (30 bps) % of revenue, excluding trucking fuel surcharge 1.8 % 2.1 % 1.9 % 2.1 % (30 bps) (20 bps) Operating taxes and licenses include state franchise taxes, state and federal highway use taxes, property taxes, vehicle license and registration fees, fuel and mileage taxes, among others. The expense is impacted by changes in the tax rates and registration fees associated with our tractor fleet and regional operating facilities. The increases of $0.8 million for the second quarter of 2021 and $0.7 million for the first half of 2021, as compared to the same periods last year, were primarily due to higher overall toll expenses. These increases were partially offset by a decrease in total miles driven by our company driving associates. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Communications $ 4,635 $ 4,902 $ 9,672 $ 9,776 (5.4 %) (1.1 %) % of total revenue 0.4 % 0.5 % 0.4 % 0.4 % (10 bps) — bps % of revenue, excluding trucking fuel surcharge 0.4 % 0.5 % 0.4 % 0.5 % (10 bps) (10 bps) Communications expense is comprised of costs associated with our tractor and trailer tracking systems, information technology systems, and phone systems. Consolidated communications expense remained relatively flat as a percentage of revenue, excluding trucking fuel surcharge for the second quarter of 2021 and the first half of 2021, as compared to the same periods last year. 43 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Depreciation and amortization of property and equipment $ 123,606 $ 114,601 $ 243,521 $ 224,822 7.9 % 8.3 % % of total revenue 9.4 % 10.8 % 9.6 % 10.3 % (140 bps) (70 bps) % of revenue, excluding trucking fuel surcharge 10.2 % 11.5 % 10.4 % 11.1 % (130 bps) (70 bps) Depreciation relates primarily to our owned tractors, trailers, buildings, electronic logging devices, other communication units, and other similar assets. Changes to this fixed cost are generally attributed to increases or decreases to company-owned equipment, the relative percentage of owned versus leased equipment, and fluctuations in new equipment purchase prices, which have historically been precipitated in part by new or proposed federal and state regulations. Depreciation can also be affected by the cost of used equipment that we sell or trade and the replacement of older used equipment. Management periodically reviews the condition, average age, and reasonableness of estimated useful lives and salvage values of our equipment and considers such factors in light of our experience with similar assets, used equipment market conditions, and prevailing industry practice. Consolidated depreciation and amortization of property and equipment increased by $9.0 million for the second quarter of 2021 and increased by $18.7 million for the first half of 2021, as compared to the same periods last year. These increases were primarily related to an increase in owned versus leased equipment. We expect consolidated depreciation and amortization of property and equipment to increase both in total and as a percentage of consolidated revenue, excluding trucking fuel surcharge , as we currently do not plan to use operating leases as a primary means of funding our equipment purchases in the remainder of 2021. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Amortization of intangibles $ 11,984 $ 11,474 $ 23,733 $ 22,948 4.4 % 3.4 % % of total revenue 0.9 % 1.1 % 0.9 % 1.1 % (20 bps) (20 bps) % of revenue, excluding trucking fuel surcharge 1.0 % 1.2 % 1.0 % 1.1 % (20 bps) (10 bps) Amortization of intangibles relates to intangible assets identified with the 2017 Merger and other acquisitions. See Note 6 in Part I, Item 1, of this Quarterly Report for further details regarding the Company's intangible assets. The increases of $0.5 million and $0.8 million for the second quarter and first half of 2021, as compared to the same periods last year, were attributed to the Eleos and UTXL acquisitions. See Note 3 in Part I, Item 1, of this Quarterly Report for more details regarding details of our acquisitions. 44 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Rental expense $ 13,399 $ 22,372 $ 30,263 $ 47,747 (40.1 %) (36.6 %) % of total revenue 1.0 % 2.1 % 1.2 % 2.2 % (110 bps) (100 bps) % of revenue, excluding trucking fuel surcharge 1.1 % 2.2 % 1.3 % 2.4 % (110 bps) (110 bps) Rental expense consists primarily of payments for tractors and trailers financed with operating leases. The primary factors affecting the expense are the size of our revenue equipment fleet and the relative percentage of owned versus leased equipment. Consolidated rental expense decreased by $9.0 million for the second quarter of 2021 and decreased by $17.5 million for the first half of 2021, as compared to the same periods last year. This was primarily due to an increase in our owned versus leased equipment. We expect consolidated rental expense to continue to decrease both in total and as a percentage of consolidated revenue, excluding trucking fuel surcharge, as we currently do not plan to use operating leases as a primary means of funding our equipment purchases in the remainder of 2021. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Purchased transportation $ 304,157 $ 200,107 $ 562,387 $ 425,383 52.0 % 32.2 % % of total revenue 23.1 % 18.9 % 22.2 % 19.5 % 420 bps 270 bps % of revenue, excluding trucking fuel surcharge 25.1 % 20.1 % 24.0 % 21.0 % 500 bps 300 bps Purchased transportation expense is comprised of payments to independent contractors in our trucking operations, as well as payments to third-party capacity providers related to logistics, freight management, and non-trucking services in our logistics and intermodal businesses. Purchased transportation is generally affected by capacity in the market as well as changes in fuel prices. As capacity tightens, our payments to third-party capacity providers and to independent contractors tend to increase. Additionally, as fuel prices increase, payments to third-party capacity providers and independent contractors increase. We expect purchased transportation will increase as a percentage of revenue if we grow our logistics and intermodal businesses faster than our trucking business. The increase could be partially offset if independent contractors exit the market due to regulatory changes. Consolidated purchased transportation expense increased by $104.1 million for the second quarter of 2021 and increased by $137.0 million for the first half of 2021, as compared to the same periods last year. These increases were primarily due to payments made to third-party carriers, partially offset by a decrease in miles driven by independent contractors of 8.3% for the second quarter of 2021 and 10.7% the first half of 2021, as compared to the same periods last year. Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Impairments $ — $ 353 $ — $ 1,255 (100.0 %) (100.0 %) In 2020, we incurred impairment charges associated with revenue equipment held for sale and trailer tracking systems (within our Trucking and non-reportable segments). 45 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Miscellaneous operating expenses $ 11,331 $ 20,778 $ 25,924 $ 43,794 (45.5 %) (40.8 %) Miscellaneous operating expenses primarily consist of legal and professional services fees, general and administrative expenses, other costs, as well as net gain on sales of equipment. • Comparison Between the Quarters Ended June 30, 2021 and 2020 — The decrease in net consolidated miscellaneous operating expenses was primarily due to a $13.4 million increase in gain on sales of equipment. • Comparison Between Year-to-Date June 30, 2021 and 2020 — The decrease in net consolidated miscellaneous operating expenses was primarily due to a $20.9 million increase in gain on sales of equipment. Consolidated Other Expenses, net Quarter-to-Date June 30, Year-to-Date June 30, QTD 2021 vs. YTD 2021 vs. 2021 2020 2021 2020 QTD 2020 YTD 2020 (Dollars in thousands) Increase (Decrease) Interest expense $ 3,307 $ 4,021 $ 6,793 $ 10,128 (17.8 %) (32.9 %) Other (income), net (16,840) (8,499) (32,945) (1,992) 98.1 % 1,553.9 % Income tax expense 51,783 26,815 97,112 51,369 93.1 % 89.0 % Interest expense — Interest expense is comprised of debt and finance lease interest expense as well as amortization of deferred loan costs. The quarter and year-to-date decreases in interest expense were primarily due to lower overall interest rates. We expect interest expense to increase during the second half of 2021 due to the inclusion of the 2021 Term Loan which was entered into subsequent to June 30, 2021. Other (income), net — Other (income), net is primarily comprised of (gains) and losses from our various equity investments, including our TRP investments accounted for under the equity method, as well as certain other non-operating income and expense items that may arise outside of the normal course of business. • Comparison Between the Quarters Ended June 30, 2021 and 2020 — The $8.3 million favorable change between the second quarter of 2021 and the second quarter of 2020 is primarily driven by unrealized gains recognized from our investment in Embark, partially offset by a reduction in unrealized gains recognized for other investments within our portfolio. • Comparison Between Year-to-Date June 30, 2021 and 2020 — The $31.0 million favorable change between the first half of 2021 and the first half of 2020 is primarily due to the Embark gain discussed above and an increase in unrealized gains recognized for other investments within our portfolio. Income tax expense — In addition to the discussion below, Note 7 in Part I, Item 1 of this Quarterly Report provides further analysis related to income taxes. • Comparison Between the Quarters Ended June 30, 2021 and 2020 — The $25.0 million increase in consolidated income tax expense was primarily due to an increase in income before income taxes resulting in an effective tax rate of 25.3% for the second quarter of 2021 and 25.0% for the second quarter of 2020. • Comparison Between Year-to-Date June 30, 2021 and 2020 — The $45.7 million increase in consolidated income tax expense was primarily due to an increase in income before income taxes resulting in an effective tax rate of 25.5% for the first half of 2021 and 26.0% for the first half of 2020. 46 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Non-GAAP Financial Measures The terms "Adjusted Net Income Attributable to Knight-Swift," "Adjusted EPS," "Adjusted Operating Income," and "Adjusted Operating Ratio," 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 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. 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 EPS, Adjusted Operating Income, and Adjusted Operating Ratio are not substitutes for their comparable GAAP financial measures, such as net income, cash flows from operating activities, operating income, 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. Pursuant to the requirements of Regulation G, the following tables reconcile GAAP consolidated net income attributable to Knight-Swift to non-GAAP consolidated Adjusted Net Income attributable to Knight-Swift, GAAP consolidated earnings per diluted share to non-GAAP consolidated Adjusted EPS, GAAP consolidated operating ratio to non-GAAP consolidated Adjusted Operating Ratio, GAAP reportable segment operating income to non-GAAP reportable segment Adjusted Operating Income, and GAAP reportable segment operating ratio to non-GAAP reportable segment Adjusted Operating Ratio. Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 (In thousands) GAAP: Net income attributable to Knight-Swift $ 152,804 $ 80,189 $ 282,594 $ 145,615 Adjusted for: Income tax expense attributable to Knight-Swift 51,783 26,815 97,112 51,369 Income before income taxes attributable to Knight-Swift 204,587 107,004 379,706 196,984 Amortization of intangibles 1 11,984 11,474 23,733 22,948 Impairments 2 — 353 — 1,255 Legal accruals 3 879 — 2,121 — COVID-19 incremental costs 4 — 9,966 — 12,259 Transaction fees 5 659 — 659 — Adjusted income before income taxes 218,109 128,797 406,219 233,446 Provision for income tax expense at effective rate (55,111) (32,299) (103,788) (60,743) Non-GAAP: Adjusted Net Income Attributable to Knight-Swift $ 162,998 $ 96,498 $ 302,431 $ 172,703 47 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Note: Since the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding. Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 GAAP: Earnings per diluted share $ 0.92 $ 0.47 $ 1.69 $ 0.85 Adjusted for: Income tax expense attributable to Knight-Swift 0.31 0.16 0.58 0.30 Income before income taxes attributable to Knight-Swift 1.23 0.63 2.28 1.15 Amortization of intangibles 1 0.07 0.07 0.14 0.13 Impairments 2 — — — 0.01 Legal accruals 3 0.01 — 0.01 — COVID-19 incremental costs 4 — 0.06 — 0.07 Transaction fees 5 — — — — Adjusted income before income taxes 1.31 0.75 2.44 1.37 Provision for income tax expense at effective rate (0.33) (0.19) (0.62) (0.36) Non-GAAP: Adjusted EPS $ 0.98 $ 0.57 $ 1.81 $ 1.01 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the 2017 Merger and other acquisitions. Refer to Note 3 in Part I, Item 1 of this Quarterly Report for additional details regarding our acquisition. 2 "Impairments" reflects the non-cash impairment of certain tractors (within the Trucking 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 Trucking segment) during the first quarter of 2020. 3 "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. 4 "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 driving associates and shop technicians, 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. 5 "Transaction fees" represent certain acquisition related expenses associated with the UTXL and ACT acquisitions, consisting of legal and professional fees and are included in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income. 48 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Non-GAAP Reconciliation: Consolidated Adjusted Operating Income and Adjusted Operating Ratio Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 GAAP Presentation (Dollars in thousands) Total revenue $ 1,315,701 $ 1,060,698 $ 2,538,715 $ 2,185,496 Total operating expenses (1,124,586) (958,531) (2,185,341) (1,981,210) Operating income $ 191,115 $ 102,167 $ 353,374 $ 204,286 Operating ratio 85.5 % 90.4 % 86.1 % 90.7 % Non-GAAP Presentation Total revenue $ 1,315,701 $ 1,060,698 $ 2,538,715 $ 2,185,496 Trucking fuel surcharge (102,829) (63,101) (192,738) (160,804) Revenue, excluding trucking fuel surcharge 1,212,872 997,597 2,345,977 2,024,692 Total operating expenses 1,124,586 958,531 2,185,341 1,981,210 Adjusted for: Trucking fuel surcharge (102,829) (63,101) (192,738) (160,804) Amortization of intangibles 1 (11,984) (11,474) (23,733) (22,948) Impairments 2 — (353) — (1,255) Legal accruals 3 (879) — (2,121) — COVID-19 incremental costs 4 — (9,966) — (12,259) Transaction fees 5 (659) — (659) — Adjusted Operating Expenses 1,008,235 873,637 1,966,090 1,783,944 Adjusted Operating Income $ 204,637 $ 123,960 $ 379,887 $ 240,748 Adjusted Operating Ratio 83.1 % 87.6 % 83.8 % 88.1 % 1 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 1 . 2 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 2. 3 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 3 . 4 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 4. 5 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 5. 49 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Non-GAAP Reconciliation: Reportable Segment Adjusted Operating Income and Adjusted Operating Ratio Trucking Segment Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 GAAP Presentation (Dollars in thousands) Total revenue $ 985,858 $ 879,369 $ 1,948,805 $ 1,798,430 Total operating expenses (817,401) (771,581) (1,621,865) (1,583,308) Operating income $ 168,457 $ 107,788 $ 326,940 $ 215,122 Operating ratio 82.9 % 87.7 % 83.2 % 88.0 % Non-GAAP Presentation Total revenue $ 985,858 $ 879,369 $ 1,948,805 $ 1,798,430 Fuel surcharge (102,829) (63,101) (192,738) (160,804) Intersegment transactions (469) (235) (693) (509) Revenue, excluding fuel surcharge and intersegment transactions 882,560 816,033 1,755,374 1,637,117 Total operating expenses 817,401 771,581 1,621,865 1,583,308 Adjusted for: Fuel surcharge (102,829) (63,101) (192,738) (160,804) Intersegment transactions (469) (235) (693) (509) Amortization of intangibles 1 (324) (324) (648) (648) Impairments 2 — (153) — (1,055) COVID-19 incremental costs 3 — (9,901) — (12,146) Adjusted Operating Expenses 713,779 697,867 1,427,786 1,408,146 Adjusted Operating Income $ 168,781 $ 118,166 $ 327,588 $ 228,971 Adjusted Operating Ratio 80.9 % 85.5 % 81.3 % 86.0 % 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in historical Knight acquisitions. 2 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 2. 3 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 4. 50 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Logistics Segment Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 GAAP Presentation (Dollars in thousands) Total revenue $ 166,737 $ 70,104 $ 285,624 $ 149,302 Total operating expenses (152,381) (67,066) (263,691) (142,545) Operating income $ 14,356 $ 3,038 $ 21,933 $ 6,757 Operating ratio 91.4 % 95.7 % 92.3 % 95.5 % Non-GAAP Presentation Total revenue $ 166,737 $ 70,104 $ 285,624 $ 149,302 Intersegment transactions (4,570) (3,038) (7,735) (5,479) Revenue, excluding intersegment transactions 162,167 67,066 277,889 143,823 Total operating expenses 152,381 67,066 263,691 142,545 Adjusted for: Intersegment transactions (4,570) (3,038) (7,735) (5,479) Amortization of intangibles 1 (97) — (97) — Adjusted Operating Expenses 147,714 64,028 255,859 137,066 Adjusted Operating Income $ 14,453 $ 3,038 $ 22,030 $ 6,757 Adjusted Operating Ratio 91.1 % 95.5 % 92.1 % 95.3 % 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the UTXL acquisition. Intermodal Segment Quarter-to-Date June 30, Year-to-Date June 30, 2021 2020 2021 2020 GAAP Presentation (Dollars in thousands) Total revenue $ 115,378 $ 82,820 $ 222,444 $ 177,551 Total operating expenses (109,566) (87,295) (213,175) (184,763) Operating income (loss) $ 5,812 $ (4,475) $ 9,269 $ (7,212) Operating ratio 95.0 % 105.4 % 95.8 % 104.1 % Non-GAAP Presentation Total revenue $ 115,378 $ 82,820 $ 222,444 $ 177,551 Intersegment transactions (84) (121) (179) (230) Revenue, excluding intersegment transactions 115,294 82,699 222,265 177,321 Total operating expenses 109,566 87,295 213,175 184,763 Adjusted for: Intersegment transactions (84) (121) (179) (230) COVID-19 incremental costs 1 — (65) — (113) Adjusted Operating Expenses 109,482 87,109 212,996 184,420 Adjusted Operating Income (Loss) $ 5,812 $ (4,410) $ 9,269 $ (7,099) Adjusted Operating Ratio 95.0 % 105.3 % 95.8 % 104.0 % 1 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift footnote 4. 51 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Liquidity and Capital Resources Sources of Liquidity Our primary sources of liquidity are funds provided by operations and the following: Source June 30, 2021 (In thousands) Cash and cash equivalents, excluding restricted cash $ 179,032 Availability under Revolver, due October 2022 1 708,408 Availability under 2021 RSA, due April 2024 2 55,719 Total unrestricted liquidity $ 943,159 Cash and cash equivalents – restricted 3 53,035 Restricted investments, held-to-maturity, amortized cost 3 8,589 Total liquidity, including restricted cash and restricted investments $ 1,004,783 1 As of June 30, 2021, we had $55.0 million in borrowings under our $800.0 million Revolver. We additionally had $36.6 million in outstanding letters of credit (discussed below), leaving $708.4 million available under the Revolver. 2 Based on eligible receivables at June 30, 2021, our borrowing base for the 2021 RSA was $400.0 million, while outstanding borrowings were $ 279.0 million. We additionally had $65.3 million in outstanding letters of credit (discussed below), leaving $55.7 million available under the 2021 RSA. Refer to Note 8 in Part I, Item 1 of this Quarterly Report for more information regarding the 2021 RSA. 3 Restricted cash and restricted investments are primarily held by our captive insurance companies for claims payments. "Cash and cash equivalents – restricted" consists of $51.6 million, included in "Cash and cash equivalents — restricted" in the condensed consolidated balance sheet and held by Mohave and Red Rock for claims payments. The remaining $1.4 million is included in "Other long-term assets" and is held in escrow accounts to meet statutory requirements. Uses of Liquidity Our business requires substantial amounts of cash for operating activities, including salaries and wages paid to our employees, contract payments to independent contractors, insurance and claims payments, tax payments, and others. We also use large amounts of cash and credit for the following activities: Capital Expenditures — When justified by customer demand, as well as our liquidity and our ability to generate acceptable returns, we make substantial cash capital expenditures to maintain a modern company tractor fleet, refresh our trailer fleet, fund replacement of our revenue equipment fleet, and, to a lesser extent, fund upgrades to our terminals and technology in our various service offerings. We expect that net capital expenditures from the aforementioned projects will be in the range of $500.0 – $550.0 million for the full-year 2021, including anticipated net cash capital expenditures of ACT. The range provided excludes cash outlays for potential acquisitions. We believe we have ample flexibility with our trade cycle and purchase agreements to alter our current plans if economic or other conditions warrant. Over the long-term, we will continue to have significant capital requirements, which may require us to seek additional borrowing, lease financing, or equity capital. The availability of financing or equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions. If such additional borrowing, lease financing, or equity capital is not available at the time we need it, then we may need to borrow more under the Revolver (if not then fully drawn), extend the maturity of then-outstanding debt, rely on alternative financing arrangements, engage in asset sales, limit our fleet size, or operate our revenue equipment for longer periods. 52 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED There can be no assurance that we will be able to obtain additional debt under our existing financial arrangements to satisfy our ongoing capital requirements. However, we believe the combination of our expected cash flows, financing available through operating and finance leases, available funds under our accounts receivable securitization, and availability under the Revolver will be sufficient to fund our expected capital expenditures for at least the next twelve months. Principal and Interest Payments — As of June 30, 2021, we had debt, accounts receivable securitization, and finance lease obligations of $870.7 million, which are discussed under "Material Debt Agreements," below. Certain cash flows from operations are committed to minimum payments of principal and interest on our debt and lease obligations. Additionally, when our financial position allows, we periodically make voluntary prepayments on our outstanding debt balances. Subsequent to June 30, 2021, we acquired ACT and borrowed $1.2 billion pursuant to the 2021 Term Loan to finance the transaction. Letters of Credit — Pursuant to the terms of the 2017 Debt Agreement and the 2021 RSA, our lenders may issue standby letters of credit on our behalf. When we have letters of credit outstanding, the availability under the Revolver or 2021 RSA is reduced accordingly. Standby letters of credit are typically issued for the benefit of regulatory authorities, insurance companies and state departments of insurance for the purpose of satisfying certain collateral requirements, primarily related to our automobile, workers' compensation, and general insurance liabilities. Share Repurchases — From time to time, and depending on free cash flow availability, debt levels, common stock prices, general economic and market conditions, as well as Board approval, we may repurchase shares of our outstanding common stock. As of June 30, 2021, the Company had $196.3 million remaining under the 2020 Knight-Swift Share Repurchase Plan . Additional details are discussed in Note 11 in Part I, Item 1 of this Quarterly Report. Working Capital We had a working capital surplus of $369.3 million as of June 30, 2021 and $83.7 million as of December 31, 2020. Material Debt Agreements As of June 30, 2021, we had $870.7 million in material debt obligations at the following carrying values: • $299.2 million: 2017 Term Loan, due October 2022, net of $0.8 million in deferred loan costs • $278.4 million: 2021 RSA outstanding borrowings, net of $0.6 million in deferred loan costs • $238.1 million: Finance lease obligations • $55.0 million: Revolver, due October 2022 As of December 31, 2020, we had $913.6 million in material debt obligations at the following carrying values: • $298.9 million : 2017 Term Loan, due October 2022 , net of $1.1 million in deferred loan costs • $213.9 million : 2018 RSA outstanding borrowings, due July 2021, net of $0.1 million in deferred loan costs • $190.8 million : Finance lease obligations • $210.0 million : Revolver, due October 2022 . 53 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Cash Flow Analysis Year-to-Date June 30, Change 2021 2020 (In thousands) Net cash provided by operating activities $ 459,504 $ 383,360 $ 76,144 Net cash used in investing activities (196,916) (253,066) 56,150 Net cash used in financing activities (227,798) (173,771) (54,027) Net Cash Provided by Operating Activities Comparison Between Year-to-Date June 30, 2021 and 2020 — The $76.1 million increase in net cash provided by operating activities was primarily due to a $149.1 million increase in operating income and a $4.7 million decrease in interest payments, partially offset by a $129.7 million increase in income tax payments. The remaining difference is attributed to various changes in working capital. Net Cash Used in Investing Activities Comparison Between Year-to-Date June 30, 2021 and 2020 — The $56.2 million decrease in net cash used in investing activities was primarily due to a $74.7 million decrease in net cash capital expenditures, partially offset by $25.0 million spent on our investment in Embark's convertible note. Net Cash Used in Financing Activities Comparison Between Year-to-Date June 30, 2021 and 2020 — Net cash used in financing activities increased by $54.0 million, primarily due to a $24.5 million increase in net repayments of our debt and finance lease obligations and a $19.0 million increase in repurchases of our common stock. Seasonality Discussion regarding the impact of seasonality on our business is included in Note 1 in the notes to the condensed consolidated financial statements, included in Part I, Item 1 of this Quarterly Report, incorporated by reference herein. Inflation Inflation can have an impact on our operating costs. A prolonged period of inflation could cause interest rates, fuel, wages, and other costs to increase, which would adversely affect our results of operations unless freight rates correspondingly increased. Consistent with trends in the trucking industry overall, we continue to experience inflationary pressures with respect to driver wages, as compared to prior years. Recently Issued Accounting Pronouncements See Note 2 in Part I, Item 1 of this Quarterly Report, which is incorporated herein by reference, for the impact of recently issued accounting pronouncements on the Company's condensed consolidated financial statements. 54 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.