Knight-Swift Transportation Holdings Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets (Unaudited) March 31, 2023 December 31, 2022 (In thousands, except per share data) ASSETS Current assets: Cash and cash equivalents $ 191,245 $ 196,770 Cash and cash equivalents – restricted 204,348 185,792 Restricted investments, held-to-maturity, amortized cost 4,076 7,175 Trade receivables, net of allowance for doubtful accounts of $ 27,836 and $ 22,980 , respectively 800,415 842,294 Contract balance – revenue in transit 15,097 15,859 Prepaid expenses 105,429 108,081 Assets held for sale 48,259 40,602 Income tax receivable 30,221 58,974 Other current assets 43,546 38,025 Total current assets 1,442,636 1,493,572 Gross property and equipment 5,840,683 5,740,383 Less: accumulated depreciation and amortization ( 1,960,593 ) ( 1,905,340 ) Property and equipment, net 3,880,090 3,835,043 Operating lease right-of-use-assets 197,950 192,358 Goodwill 3,519,339 3,519,339 Intangible assets, net 1,760,561 1,776,569 Other long-term assets 142,428 134,785 Total assets $ 10,943,004 $ 10,951,666 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 214,574 $ 220,849 Accrued payroll and purchased transportation 154,471 171,381 Accrued liabilities 81,952 81,528 Claims accruals – current portion 342,530 311,822 Finance lease liabilities and long-term debt – current portion 72,875 71,466 Operating lease liabilities – current portion 39,409 36,961 Total current liabilities 905,811 894,007 Revolving line of credit — 43,000 Long-term debt – less current portion 1,016,261 1,024,668 Finance lease liabilities – less current portion 335,582 344,377 Operating lease liabilities – less current portion 153,336 149,992 Accounts receivable securitization 383,601 418,561 Claims accruals – less current portion 196,045 201,838 Deferred tax liabilities 906,577 907,893 Other long-term liabilities 10,197 12,049 Total liabilities 3,907,410 3,996,385 Commitments and contingencies (Notes 3, 7, 8, and 9) Stockholders’ equity: Preferred stock, par value $ 0.01 per share; 10,000 shares authorized; none issued — — Common stock, par value $ 0.01 per share; 500,000 shares authorized; 161,009 and 160,706 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively. 1,610 1,607 Accumulated other comprehensive loss ( 1,346 ) ( 2,436 ) Additional paid-in capital 4,401,276 4,392,266 Retained earnings 2,623,373 2,553,567 Total Knight-Swift stockholders' equity 7,024,913 6,945,004 Noncontrolling interest 10,681 10,277 Total stockholders’ equity 7,035,594 6,955,281 Total liabilities and stockholders’ equity $ 10,943,004 $ 10,951,666 See accompanying notes to condensed consolidated financial statements (unaudited). 4 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Quarter Ended March 31, 2023 2022 (In thousands, except per share data) Revenue: Revenue, excluding truckload and LTL fuel surcharge $ 1,450,293 $ 1,647,878 Truckload and LTL fuel surcharge 186,639 179,111 Total revenue 1,636,932 1,826,989 Operating expenses: Salaries, wages, and benefits 536,742 536,056 Fuel 187,759 190,489 Operations and maintenance 99,311 95,883 Insurance and claims 138,039 98,192 Operating taxes and licenses 25,890 29,037 Communications 5,749 5,870 Depreciation and amortization of property and equipment 155,966 145,044 Amortization of intangibles 16,183 16,166 Rental expense 15,068 13,401 Purchased transportation 280,729 386,446 Impairments — 810 Miscellaneous operating expenses 30,709 11,509 Total operating expenses 1,492,145 1,528,903 Operating income 144,787 298,086 Other (expenses) income: Interest income 5,049 461 Interest expense ( 23,091 ) ( 6,680 ) Other income (expenses), net 9,703 ( 14,405 ) Total other (expenses) income, net ( 8,339 ) ( 20,624 ) Income before income taxes 136,448 277,462 Income tax expense 32,735 69,174 Net income 103,713 208,288 Net loss attributable to noncontrolling interest 571 49 Net income attributable to Knight-Swift 104,284 208,337 Other comprehensive income (loss) 1,090 ( 372 ) Comprehensive income $ 105,374 $ 207,965 Earnings per share: Basic $ 0.65 $ 1.26 Diluted $ 0.64 $ 1.25 Dividends declared per share: $ 0.14 $ 0.12 Weighted average shares outstanding: Basic 160,915 165,377 Diluted 161,900 166,499 See accompanying notes to the condensed consolidated financial statements (unaudited). 5 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Quarter Ended March 31, 2023 2022 (In thousands) Cash flows from operating activities: Net income $ 103,713 $ 208,288 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property, equipment, and intangibles 172,149 161,210 Gain on sale of property and equipment ( 20,879 ) ( 34,801 ) Impairments — 810 Deferred income taxes ( 1,316 ) 4,246 Non-cash lease expense 10,651 9,490 (Gain) loss on equity securities ( 1,364 ) 20,849 Other adjustments to reconcile net income to net cash provided by operating activities 14,777 11,380 Increase (decrease) in cash resulting from changes in: Trade receivables 35,614 ( 28,007 ) Income tax receivable 28,753 692 Accounts payable 11,960 22,074 Accrued liabilities and claims accrual 8,194 89,289 Operating lease liabilities ( 10,489 ) ( 9,267 ) Other assets and liabilities ( 6,604 ) 607 Net cash provided by operating activities 345,159 456,860 Cash flows from investing activities: Proceeds from maturities of held-to-maturity investments 3,620 1,881 Purchases of held-to-maturity investments ( 525 ) ( 4,372 ) Proceeds from sale of property and equipment, including assets held for sale 59,345 60,532 Purchases of property and equipment ( 260,339 ) ( 164,974 ) Expenditures on assets held for sale ( 360 ) ( 43 ) Net cash, restricted cash, and equivalents invested in acquisitions ( 275 ) ( 1,291 ) Other cash flows from investing activities 1,229 ( 1,920 ) Net cash used in investing activities ( 197,305 ) ( 110,187 ) Cash flows from financing activities: Repayment of finance leases and long-term debt ( 22,946 ) ( 48,843 ) Repayments on revolving lines of credit, net ( 43,000 ) ( 95,000 ) Repayment of accounts receivable securitization ( 35,000 ) — Proceeds from common stock issued 1,086 1,220 Repurchases of the Company's common stock — ( 144,881 ) Dividends paid ( 22,983 ) ( 20,137 ) Other cash flows from financing activities ( 11,748 ) ( 15,608 ) Net cash used in financing activities ( 134,591 ) ( 323,249 ) Net increase in cash, restricted cash, and equivalents 13,263 23,424 Cash, restricted cash, and equivalents at beginning of period 385,345 350,023 Cash, restricted cash, and equivalents at end of period $ 398,608 $ 373,447 See accompanying notes to condensed consolidated financial statements (unaudited). 6 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Condensed Consolidated Statements of Cash Flows (Unaudited) — Continued Quarter Ended March 31, 2023 2022 (In thousands) Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 21,920 $ 5,928 Income taxes 1,295 1,778 Non-cash investing and financing activities: Equipment acquired included in accounts payable $ 15,232 $ 11,643 Financing provided to independent contractors for equipment sold 2,349 1,536 Transfers from property and equipment to assets held for sale 40,666 16,986 Purchase price adjustment on acquisition — 2,163 Right-of-use assets obtained in exchange for operating lease liabilities 16,281 3,314 Property and equipment obtained in exchange for finance lease liabilities 7,174 — Reconciliation of Cash, Restricted Cash, and Equivalents: March 31, 2023 December 31, 2022 March 31, 2022 December 31, 2021 (In thousands) Consolidated Balance Sheets Cash and cash equivalents $ 191,245 $ 196,770 $ 242,860 $ 261,001 Cash and cash equivalents – restricted 1 204,348 185,792 128,774 87,241 Other long-term assets 1 3,015 2,783 1,813 1,781 Consolidated Statements of Cash Flows Cash, restricted cash, and equivalents $ 398,608 $ 385,345 $ 373,447 $ 350,023 ________ 1 Reflects cash and cash equivalents that are primarily restricted for claims payments. See accompanying notes to condensed consolidated financial statements (unaudited). 7 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Knight-Swift Stockholders' Equity Noncontrolling Interest Total Stockholders’ Equity Shares Par Value (In thousands, except per share data) Balances – December 31, 2022 160,706 $ 1,607 $ 4,392,266 $ 2,553,567 $ ( 2,436 ) $ 6,945,004 $ 10,277 $ 6,955,281 Common stock issued to employees 282 3 43 46 46 Common stock issued under ESPP 21 — 1,040 1,040 1,040 Shares withheld – RSU settlement ( 11,748 ) ( 11,748 ) ( 11,748 ) Employee stock-based compensation expense 7,927 7,927 7,927 Cash dividends paid and dividends accrued ($ 0.14 per share) ( 22,730 ) ( 22,730 ) ( 22,730 ) Net income 104,284 104,284 ( 571 ) 103,713 Other comprehensive income 1,090 1,090 1,090 Investment in noncontrolling interest 975 975 Balances – March 31, 2023 161,009 $ 1,610 $ 4,401,276 $ 2,623,373 $ ( 1,346 ) $ 7,024,913 $ 10,681 $ 7,035,594 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Knight-Swift Stockholders' Equity Noncontrolling Interest Total Stockholders’ Equity Shares Par Value (In thousands, except per share data) Balances – December 31, 2021 165,980 $ 1,660 $ 4,350,913 $ 2,181,142 $ ( 563 ) $ 6,533,152 $ 10,298 $ 6,543,450 Common stock issued to employees 364 3 408 411 411 Common stock issued under ESPP 14 — 809 809 809 Company shares repurchased ( 2,723 ) ( 27 ) ( 144,854 ) ( 144,881 ) ( 144,881 ) Shares withheld – RSU settlement ( 15,608 ) ( 15,608 ) ( 15,608 ) Employee stock-based compensation expense 8,759 8,759 8,759 Cash dividends paid and dividends accrued ($ 0.12 per share) ( 19,913 ) ( 19,913 ) ( 19,913 ) Net income 208,337 208,337 ( 49 ) 208,288 Other comprehensive loss ( 372 ) ( 372 ) ( 372 ) Balances – March 31, 2022 163,635 $ 1,636 $ 4,360,889 $ 2,209,104 $ ( 935 ) $ 6,570,694 $ 10,249 $ 6,580,943 See accompanying notes to condensed consolidated financial statements (unaudited). 8 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 — Introduction and Basis of Presentation Certain acronyms and terms used throughout this Quarterly Report are specific to the Company, commonly used in the trucking industry, or are otherwise frequently used throughout this document. Definitions for these acronyms and terms are provided in the "Glossary of Terms," available in the front of this document. Description of Business Knight-Swift is a transportation solutions provider, headquartered in Phoenix, Arizona. During the quarter ended March 31, 2023, the Company operated an average of 18,152 tractors (comprised of 16,262 company tractors and 1,890 independent contractor tractors) and 79,490 trailers within the Truckload segment and leasing activities within the non-reportable segments. The LTL segment operated an average of 3,163 tractors and 8,387 trailers. Additionally, the Intermodal segment operated an average of 607 tractors and 12,829 intermodal containers. As of March 31, 2023, the Company's four reportable segments were Truckload, LTL, Logistics, and Intermodal. Basis of Presentation The condensed consolidated financial statements and footnotes included in this Quarterly Report include the accounts of Knight-Swift Transportation Holdings Inc. and its subsidiaries and should be read in conjunction with the consolidated financial statements and footnotes included in Knight-Swift's 2022 Annual Report. In management's opinion, these condensed consolidated financial statements were prepared in accordance with GAAP and include all adjustments necessary (consisting of normal recurring adjustments) for the fair statement of the periods presented. With respect to transactional/durational data, references to years pertain to calendar years. Similarly, references to quarters pertain to calendar quarters. Changes in Presentation Beginning in the second quarter of 2022, the Company separately disclosed "(Gain) loss on equity securities" in the condensed consolidated statement of cash flows. Accordingly, the amounts presented in the Company's year-to-date March 31, 2022 condensed consolidated statement of cash flows were reclassified from "Other adjustments to reconcile net income to net cash provided by operating activities" to "(Gain) loss on equity securities" to align with the current year presentation. Seasonality In the full truckload transportation industry, results of operations generally follow a seasonal pattern. Freight volumes in the first quarter are typically lower due to less consumer demand, customers reducing shipments following the holiday season, and inclement weather. At the same time, operating expenses generally increase, and tractor productivity of the Company's Truckload fleet, independent contractors and third-party carriers decreases during the winter months due to decreased fuel efficiency, increased cold weather-related equipment maintenance and repairs, and increased insurance claims and costs attributed to higher accident frequency from harsh weather. These factors typically lead to lower operating profitability, as compared to other parts of the year. Additionally, beginning in the latter half of the third quarter and continuing into the fourth quarter, the Company typically experiences surges pertaining to holiday shopping trends toward delivery of gifts purchased over the Internet, as well as the length of the holiday season (consumer shopping days between Thanksgiving and Christmas). However, as the Company continues to diversify its business through expansion into the LTL industry, warehousing, and other activities, seasonal volatility is becoming more tempered. Additionally, macroeconomic trends and cyclical changes in the trucking industry, including imbalances in supply and demand, can override the seasonality faced in the industry. 9 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 2 — Recently Issued Accounting Pronouncements Date Issued Reference Description Expected Adoption Date and Method Financial Statement Impact March 2023 ASU No. 2023-01: Leases (ASC 842), Common Control Arrangements The amendments in this ASU require that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements and that leasehold improvements associated with common control leases be accounted for as a transfer between entities under common control through an adjustment to equity if the lessee no longer controls the use of the asset. January 2024, Prospective or retrospective Currently under evaluation, but not expected to be material Note 3 — Acquisitions U.S. Xpress On March 21, 2023, the Company announced an agreement under which Knight-Swift will acquire U.S. Xpress for a total enterprise value of approximately $ 808 million, excluding transaction costs. The transaction has been unanimously approved by the Board and a special committee of the independent directors of the U.S. Xpress board of directors. Work continues to complete this process, with closing now anticipated to occur early third quarter of 2023, subject to customary closing conditions. The Company did not complete any other material acquisitions during the quarter ended March 31, 2023. Note 4 — Income Taxes Effective Tax Rate — The quarter ended March 31, 2023 and March 31, 2022 effective tax rates were 24.0 % and 24.9 %, respectively. Valuation Allowance — The Company has no t established a valuation allowance as it has been determined that, based upon available evidence, a valuation allowance is not required. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. Unrecognized Tax Benefits — Management believes it is reasonably possible that a decrease of up to $ 1.7 million in unrecognized tax benefits relating to federal deductions may be necessary within the next twelve months. Interest and Penalties — Accrued interest and penalties related to unrecognized tax benefits were approximately $ 0.2 million as of March 31, 2023 and December 31, 2022. Tax Examinations — Certain of the Company's subsidiaries are currently under examination by Federal and various state jurisdictions for tax years ranging from 2014 to 2021 . At the completion of these examinations, management does not expect any adjustments that would have a material impact on the Company's effective tax rate. Years subsequent to 2017 remain subject to examination. 10 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 5 — Accounts Receivable Securitization On October 3, 2022 , the Company entered into the 2022 RSA, which further amended the 2021 RSA. The 2022 RSA is a secured borrowing that is collateralized by the Company's eligible receivables, for which the Company is the servicing agent. The Company's receivable originator subsidiaries sell, on a revolving basis, undivided interests in all of their eligible accounts receivable to Swift Receivables Company II, LLC ("SRCII") who in turn sells a variable percentage ownership in those receivables to the various purchasers. The Company's eligible receivables are included in "Trade receivables, net of allowance for doubtful accounts" in the consolidated balance sheets. As of March 31, 2023, the Company's eligible receivables generally have high credit quality, as determined by the obligor's corporate credit rating. The 2022 RSA is subject to fees, various affirmative and negative covenants, representations and warranties, and default and termination provisions customary for facilities of this type. The Company was in compliance with these covenants as of March 31, 2023. Collections on the underlying receivables by the Company are held for the benefit of SRCII and the various purchasers and are unavailable to satisfy claims of the Company and its subsidiaries. The following table summarizes the key terms of the 2022 RSA (dollars in thousands): 2022 RSA (Dollars in thousands) Effective date October 3, 2022 Final maturity date October 1, 2025 Borrowing capacity $ 475,000 Accordion option 1 $ 100,000 Unused commitment fee rate 2 20 to 40 basis points Program fees on outstanding balances 3 one month SOFR + credit adjustment spread 10 basis points + 82.5 basis points 1 The accordion option increases the maximum borrowing capacity, subject to participation of the purchasers. 2 The 2022 RSA commitment fees rate are based on the percentage of the maximum borrowing capacity utilized. 3 As identified within the 2022 RSA, the lender can trigger an amendment by identifying and deciding upon a replacement for SOFR. Availability under the 2022 RSA is calculated as follows: March 31, 2023 December 31, 2022 (In thousands) Borrowing base, based on eligible receivables $ 396,700 $ 456,400 Less: outstanding borrowings 1 ( 384,000 ) ( 419,000 ) Availability under accounts receivable securitization facilities $ 12,700 $ 37,400 1 Outstanding borrowings are included in "Accounts receivable securitization" in the condensed consolidated balance sheets and are offset by deferred loan costs of $ 0.4 million as of March 31, 2023 and December 31, 2022. Interest accrued on the aggregate principal balance at a rate of 5.6 % and 5.1 % as of March 31, 2023 and December 31, 2022, respectively. Refer to Note 12 for information regarding the fair value of the 2022 RSA. 11 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 6 — Debt and Financing Other than the Company's accounts receivable securitization as discussed in Note 5, the Company's long-term debt consisted of the following: March 31, 2023 December 31, 2022 (In thousands) 2021 Term Loan A-2, due September 3, 2024, net 1 2 199,792 199,755 2021 Term Loan A-3, due September 3, 2026, net 1 2 798,793 798,705 Prudential Notes, net 1 27,955 35,960 Other 2,527 3,042 Total long-term debt, including current portion 1,029,067 1,037,462 Less: current portion of long-term debt ( 12,806 ) ( 12,794 ) Long-term debt, less current portion $ 1,016,261 $ 1,024,668 March 31, 2023 December 31, 2022 (In thousands) Total long-term debt, including current portion $ 1,029,067 $ 1,037,462 2021 Revolver, due September 3, 2026 1 3 — 43,000 Long-term debt, including revolving line of credit $ 1,029,067 $ 1,080,462 1 Refer to Note 12 for information regarding the fair value of debt. 2 As of March 31, 2023, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $ 0.2 million and $ 1.2 million in deferred loan costs, respectively. As of December 31, 2022, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $ 0.2 million and $ 1.3 million in deferred loan costs, respectively. 3 The Company also had outstanding letters of credit of $ 11.4 million and $ 15.8 million under the 2021 Revolver, primarily related to workers' compensation and self-insurance liabilities at March 31, 2023 and December 31, 2022, respectively. The Company also had outstanding letters of credit of $ 177.9 million and $ 173.1 million under a separate bilateral agreement which do not impact the availability of the 2021 Revolver as of March 31, 2023 and December 31, 2022, respectively. 12 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Credit Agreements 2021 Debt Agreement — On September 3, 2021, the Company entered into the $ 2.3 billion 2021 Debt Agreement (an unsecured credit facility), with a group of banks, replacing the 2017 Debt Agreement and the July 2021 Term Loan. The following table presents the key terms of the 2021 Debt Agreement: 2021 Term Loan A-2 2021 Term Loan A-3 2021 Revolver 2 2021 Debt Agreement Terms (Dollars in thousands) Maximum borrowing capacity $ 200,000 $ 800,000 $ 1,100,000 Final maturity date September 3, 2024 September 3, 2026 September 3, 2026 Interest rate margin reference rate BSBY BSBY BSBY Interest rate minimum margin 1 0.75 % 0.88 % 0.88 % Interest rate maximum margin 1 1.38 % 1.50 % 1.50 % Minimum principal payment — amount $ — $ 10,000 $ — Minimum principal payment — frequency Once Quarterly Once Minimum principal payment — commencement date September 3, 2024 September 30, 2024 September 3, 2026 1 The interest rate margin for the 2021 Term Loans and 2021 Revolver is based on the Company's consolidated leverage ratio. As of March 31, 2023, interest accrued at 5.46 % on the 2021 Term Loan A-2 and 5.59 % on the 2021 Term Loan A-3 and 2021 Revolver. 2 The commitment fee for the unused portion of the 2021 Revolver is based on the Company's consolidated leverage ratio, and ranges from 0.1 % to 0.2 %. As of March 31, 2023, commitment fees on the unused portion of the 2021 Revolver accrued at 0.1 % and outstanding letter of credit fees accrued at 1.0 %. Pursuant to the 2021 Debt Agreement, the 2021 Revolver and the 2021 Term Loans contain certain financial covenants with respect to a maximum net leverage ratio and a minimum consolidated interest coverage ratio. The 2021 Debt Agreement provides flexibility regarding the use of proceeds from asset sales, payment of dividends, stock repurchases, and equipment financing. In addition to the financial covenants, the 2021 Debt Agreement includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the 2021 Debt Agreement may be accelerated, and the lenders' commitments may be terminated. The 2021 Debt Agreement contains certain usual and customary restrictions and covenants relating to, among other things, dividends (which are restricted only if a default or event of default occurs and is continuing or would result therefrom), liens, affiliate transactions, and other indebtedness. As of March 31, 2023, the Company was in compliance with the covenants under the 2021 Debt Agreement. Borrowings under the 2021 Debt Agreement are made by Knight-Swift Transportation Holdings Inc. and are guaranteed by certain of the Company's material domestic subsidiaries (other than its captive insurance subsidiaries, driving academy subsidiary, and bankruptcy-remote special purpose subsidiary). ACT's Prudential Notes — The 2021 Prudential Notes allow ACT to borrow up to $ 125.0 million, less amounts currently outstanding with Prudential Capital Group, provided that certain financial ratios are maintained. The 2021 Prudential Notes have interest rates ranging fro m 4.05 % to 4.40 % a nd various maturity dates ranging from October 2023 through January 2028. The 2021 Prudential Notes are unsecured and contain usual and customary restrictions on, among other things, the ability to make certain payments to stockholders, similar to the provisions of the Company's 2021 Debt Agreement. As of March 31, 2023, ACT had $ 98.6 million available for issuance under the agreement. Fair Value Measurement — See Note 12 for fair value disclosures regarding the Company's debt instruments. 13 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 7 — Defined Benefit Pension Plan Net periodic pension income and benefits paid during the quarters ended March 31, 2023 and 2022 were immaterial. Assumptions A weighted-average discount rate of 4.65 % was used to determine benefit obligations as of March 31, 2023. The following weighted-average assumptions were used to determine net periodic pension cost: Quarter Ended March 31, 2023 2022 Discount rate 4.92 % 2.55 % Expected long-term rate of return on pension plan assets 6.00 % 6.00 % Refer to Note 12 for additional information regarding fair value measurements of the Company's investments. Note 8 — Purchase Commitments As of March 31, 2023, the Company had outstanding commitments to purchase revenue equipment of $ 912.9 million in the remainder of 2023 ($ 622.1 million of which were tractor commitments), and none thereafter. These purchases may be financed through any combination of finance leases, operating leases, debt, proceeds from sales of existing equipment, and cash flows from operations. As of March 31, 2023, the Company had outstanding commitments to purchase facilities and non-revenue equipment of $ 40.0 million in the remainder of 2023, $ 14.7 million from 2024 through 2025, $ 0.9 million from 2026 through 2027, and none thereafter. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures. Note 9 — Contingencies and Legal Proceedings Legal Proceedings The Company is party to certain legal proceedings incidental to its business. The majority of these claims relate to bodily injury, property damage, cargo and workers' compensation incurred in the transportation of freight, as well as certain class action litigation related to personnel and employment matters. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. Information is provided below regarding the nature, status, and contingent loss amounts, if any, associated with pending legal matters that may be material to the Company. There are inherent uncertainties in these legal matters, some of which are beyond management's control, making the ultimate outcomes difficult to predict. Moreover, management's views and estimates related to these matters may change in the future, as new events and circumstances arise and the matters continue to develop. Cash flows or results of operations could be materially affected in any particular period by the resolution of one or more of these contingencies. The Company has made accruals with respect to its legal matters where appropriate, which are included in "Accrued liabilities" in the condensed consolidated balance sheets. The Company has recorded an aggregate accrual of approximately $ 9.6 million, relating to the Company's outstanding legal proceedings as of March 31, 2023. 14 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED EMPLOYEE COMPENSATION AND PAY PRACTICES MATTERS California Wage, Meal, and Rest Class Actions The plaintiffs generally allege one or more of the following: that the Company 1) failed to pay the California minimum wage; 2) failed to provide proper meal and rest periods; 3) failed to timely pay wages upon separation from employment; 4) failed to pay for all hours worked; 5) failed to pay overtime; 6) failed to properly reimburse work-related expenses; and 7) failed to provide accurate wage statements. Plaintiff(s) Defendant(s) Date instituted Court or agency currently pending in John Burnell 1 Swift Transportation Co., Inc March 22, 2010 United States District Court for the Central District of California James R. Rudsell 1 Swift Transportation Co. of Arizona, LLC and Swift Transportation Company April 5, 2012 United States District Court for the Central District of California Recent Developments and Current Status In April 2019, the parties reached settlement of this matter. In January 2020, the court granted final approval of the settlement. Two objectors appealed the court’s decision granting final approval of the settlement. The likelihood that a loss has been incurred is probable and estimable, and the loss has accordingly been accrued as of March 31, 2023. 1 Individually and on behalf of all others similarly situated. Note 10 — Share Repurchase Plans On April 25, 2022, the Company announced that the Board approved the repurchase of up to $ 350.0 million of the Company's outstanding common stock (the "2022 Knight-Swift Share Repurchase Plan"). With the adoption of the 2022 Knight-Swift Share Repurchase Plan, the Company terminated the 2020 Knight-Swift Share Repurchase Plan, which had approximately $ 42.8 million of authorized purchases remaining upon termination. The following table presents the Company's repurchases of its common stock under the respective share repurchase plans, excluding advisory fees: Share Repurchase Plan Quarter Ended March 31, 2023 Board Approval Date Authorized Amount Shares Amount (shares and dollars in thousands) April 19, 2022 1 $ 350,000 — $ — Quarter Ended March 31, 2022 Board Approval Date Authorized Amount Shares Amount (shares and dollars in thousands) November 24, 2020 $ 250,000 2,723 $ 144,881 1 $ 200.0 million remained available under the 2022 Knight-Swift Repurchase Plan as of March 31, 2023 and December 31, 2022. 15 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 11 — Weighted Average Shares Outstanding Earnings per share, basic and diluted, as presented in the condensed consolidated statements of comprehensive income, are calculated by dividing net income attributable to Knight-Swift by the respective weighted average common shares outstanding during the period. The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding: Quarter Ended March 31, 2023 2022 (In thousands) Basic weighted average common shares outstanding 160,915 165,377 Dilutive effect of equity awards 985 1,122 Diluted weighted average common shares outstanding 161,900 166,499 Anti-dilutive shares excluded from earnings per diluted share 1 7 239 1 Shares were excluded from the dilutive-effect calculation because the outstanding awards' exercise prices were greater than the average market price of the Company's common stock for the periods presented. Note 12 — Fair Value Measurement The following table presents the carrying amounts and estimated fair values of the Company's major categories of financial assets and liabilities: March 31, 2023 December 31, 2022 Condensed Consolidated Balance Sheets Caption Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value (In thousands) Financial Assets: Equity method investments Other long-term assets $ 104,300 $ 104,300 $ 103,517 $ 103,517 Investments in equity securities Other long-term assets 2,968 2,968 1,668 1,668 Convertible note Other current assets 11,637 11,637 11,341 11,341 Financial Liabilities: 2021 Term Loan A-2, due September, 2024 1 Long-term debt – less current portion 199,792 200,000 199,755 200,000 2021 Term Loan A-3, due September 2026 1 Long-term debt – less current portion 798,793 800,000 798,705 800,000 2021 Revolver, due September 2026 Revolving line of credit — — 43,000 43,000 2021 Prudential Notes 2 Finance lease liabilities and long-term debt – current portion, Long-term debt – less current portion 27,955 28,000 35,960 36,014 2022 RSA, due October 2025 3 Accounts receivable securitization 383,601 384,000 418,561 419,000 Contingent consideration Accrued liabilities, Other long-term liabilities 4,217 4,217 4,217 4,217 1 As of March 31, 2023, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $ 0.2 million and $ 1.2 million in deferred loan costs, respectively. As of December 31, 2022, the carrying amounts of the 2021 Term Loan A-2 and 2021 Term Loan A-3 were net of $ 0.2 million and $ 1.3 million in deferred loan costs, respectively. 2 As of March 31, 2023, the carrying amount of the 2021 Prudential Notes was net of approximately $ 45,000 i n deferred loan costs and included $ 1.6 million in fair value adjustments. As of December 31, 2022, the carrying amount of the 2021 Prudential Notes was net of $ 0.1 million in deferred loan costs and included $ 1.7 million in fair value adjustments. 3 The carrying amount of the 2022 RSA was net of $ 0.4 million in deferred loan costs as of March 31, 2023 and December 31, 2022, respectively. 16 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Recurring Fair Value Measurements (Assets) — The following table depicts the level in the fair value hierarchy of the inputs used to estimate the fair value of assets measured on a recurring basis as of March 31, 2023 and December 31, 2022: Fair Value Measurements at Reporting Date Using Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Unrealized Gain (Loss) Position (In thousands) As of March 31, 2023 Convertible notes 1 $ 11,637 $ — $ — $ 11,637 $ 1,637 Investments in equity securities 2 2,968 2,968 — — ( 49,618 ) As of December 31, 2022 Convertible notes 1 $ 11,341 $ — $ — $ 11,341 $ 1,341 Investments in equity securities 2 1,668 1,668 — — ( 50,918 ) 1 Convertible notes — The condensed consolidated statements of comprehensive income include the fair value activities from the Company's convertible notes within "Other income (expenses), net". The estimated fair value is based on probability-weighted discounted cash flow analysis of the corresponding pay-off/redemption. The Company recognized unrealized gains of $ 0.3 million during the quarters ended March 31, 2023 and 2022. 2 Investments in equity securities — The condensed consolidated statements of comprehensive income include the fair value activities from the Company's investments in equity securities within "Other income (expenses), net". The estimated fair value is based on quoted prices in active markets that are readily and regularly obtainable. During the quarter ended March 31, 2023, the Company recognized unrealized gains of $ 1.3 million from the Company's various investments in equity securities. During the quarter ended March 31, 2022, the Company recognized a loss of $ 20.8 million from its investments in equity securities, which consisted of $ 20.8 million in unrealized losses and no realized gains. Recurring Fair Value Measurements (Liabilities) — The following table depicts the level in the fair value hierarchy of the inputs used to estimate the fair value of liabilities measured on a recurring basis as of March 31, 2023 and December 31, 2022: Fair Value Measurements at Reporting Date Using Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Gain (Loss) (In thousands) As of March 31, 2023 Contingent consideration 1 $ 4,217 $ — $ — $ 4,217 $ — As of December 31, 2022 Contingent consideration 1 $ 4,217 $ — $ — $ 4,217 $ — 1 Contingent consideration is associated with acquisitions and investments. The Company did no t recognize any gains (losses) during the quarters ended March 31, 2023 and 2022 related to the revaluation of these liabilities. Refer to Note 3 for information regarding material components of these liabilities. 17 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Nonrecurring Fair Value Measurements (Assets) — As of March 31, 2023, the Company had no major categories of assets estimated at fair value that were measured on a nonrecurring basis. The following table depicts the level in the fair value hierarchy of the inputs used to estimate fair value of assets measured on a nonrecurring basis as of December 31, 2022: Fair Value Measurements at Reporting Date Using Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Loss (In thousands) As of December 31, 2022 Buildings 1 $ — $ — $ — $ — $ ( 810 ) 1 Reflects the non-cash impairment of building improvements (within the non-reportable segments). Nonrecurring Fair Value Measurements (Liabilities) — As of March 31, 2023 and December 31, 2022, the Company had no major categories of liabilities estimated at fair value that were measured on a nonrecurring basis. Gain on Sale of Revenue Equipment — Net gains on disposals, including disposals of property and equipment classified as assets held for sale, reported in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income, were $ 20.9 million and $ 34.8 million for the quarters ended March 31, 2023 and 2022, respectively. Fair Value of Pension Plan Assets — The following table sets forth by level the fair value hierarchy of ACT's pension plan financial assets accounted for at fair value on a recurring basis. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. ACT's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and their placement within the fair value hierarchy levels. Fair Value Measurements at Reporting Date Using: Estimated Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs (In thousands) As of March 31, 2023 US equity funds $ 6,901 $ 6,901 $ — $ — International equity funds 3,588 3,588 — — Fixed income funds 43,564 43,564 — — Cash and cash equivalents 898 898 — — Total pension plan assets $ 54,951 $ 54,951 $ — $ — As of December 31, 2022 US equity funds $ 10,901 $ 10,901 $ — $ — International equity funds 4,828 4,828 — — Fixed income funds 34,728 34,728 — — Cash and cash equivalents 2,078 2,078 — — Total pension plan assets $ 52,535 $ 52,535 $ — $ — 18 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Note 13 — Related Party Transactions Quarter Ended March 31, 2023 2022 Provided by Knight-Swift Received by Knight-Swift Provided by Knight-Swift Received by Knight-Swift (In thousands) Facility and Equipment Leases $ — $ 25 $ — $ 78 Other Services $ 27 $ 134 $ 5 $ 9 March 31, 2023 December 31, 2022 Receivable Payable Receivable Payable (In thousands) Certain affiliates 1 $ 23 $ 46 $ 24 $ 39 1 "Certain affiliates" includes entities that are associated with various board members and executives and require approval by the Audit Committee of the Board prior to completing transactions. Transactions with these entities generally include facility and equipment leases, equipment sales, and other services. Note 14 — Financial Information by Segment and Geography Segment Information Quarter Ended March 31, 2023 2022 Revenue: (In thousands) Truckload $ 1,012,245 $ 1,080,531 LTL 255,304 255,125 Logistics 138,283 282,039 Intermodal 110,572 109,222 Subtotal $ 1,516,404 $ 1,726,917 Non-reportable segments 141,986 117,639 Intersegment eliminations ( 21,458 ) ( 17,567 ) Total revenue $ 1,636,932 $ 1,826,989 Quarter Ended March 31, 2023 2022 Operating income (loss): (In thousands) Truckload $ 115,899 $ 205,117 LTL 26,582 26,377 Logistics 12,820 39,601 Intermodal 5,102 15,170 Subtotal $ 160,403 $ 286,265 Non-reportable segments ( 15,616 ) 11,821 Operating income $ 144,787 $ 298,086 19 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED Quarter Ended March 31, 2023 2022 Depreciation and amortization of property and equipment: (In thousands) Truckload $ 116,802 $ 110,349 LTL 16,188 15,260 Logistics 1,043 596 Intermodal 4,432 3,864 Subtotal $ 138,465 $ 130,069 Non-reportable segments 17,501 14,975 Depreciation and amortization of property and equipment $ 155,966 $ 145,044 Geographical Information In the aggregate, total revenue from the Company's international operations was less than 5.0 % of consolidated total revenue for the quarters ended March 31, 2023 and 2022. Additionally, long-lived assets on the Company's international subsidiary balance sheets were less than 5.0 % of consolidated total assets as of March 31, 2023 and December 31, 2022. 20 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.