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: • our ability to gain market share and adapt to market conditions, the ability of our infrastructure to support future growth, and the ability, desire, and effects of expanding our service offerings, whether we grow organically or through potential acquisitions, • our ability to recruit and retain qualified driving associates, • future safety performance, • future performance of our segments or businesses, • future capital expenditures, equipment prices and availability, our equipment purchasing or leasing plans (including containers in our Intermodal segment), and mix of our owned versus leased revenue equipment, and our equipment turnover, • the impact of pending legal proceedings, • future insurance claims, coverage, coverage limits, premiums, and retention limits, • the expected freight environment, including freight demand, capacity, seasonality, and volumes, • economic conditions and growth, including future inflation, consumer spending, supply chain conditions, labor supply and relations, and US Gross Domestic Product ("GDP") changes, • expected liquidity and methods for achieving sufficient liquidity, including our expected need or desire to incur indebtedness and our ability to comply with debt covenants, • future fuel prices and availability and the expected impact of fuel efficiency initiatives, • future expenses, including depreciation and amortizations, interest rates, cost structure, and our ability to control costs, • future rates, operating profitability and margin, asset utilization, and return on capital, • future third-party service provider relationships and availability, including pricing terms, • future contracted pay rates with independent contractors, ability to lease equipment to independent contractors, and compensation arrangements with driving associates, • future capital allocation, capital structure, capital requirements, and growth strategies and opportunities, • future share repurchases and dividends, • future tax rates, • expected tractor and trailer fleet age, fleet size, and demand for trailer fleet, • future investment in and deployment of new or updated technology or services, 21 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED • political conditions and regulations, including conflicts, trade regulation, quotas, duties, or tariffs, and any future changes to the foregoing, • future purchased transportation expense • the proposed U.S. Xpress transaction, including the expected timing and closing of the transaction, integration efforts, and any future effects of the acquisition, 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," "feel," 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 2022 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 2022 Annual Report. 22 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 one of North America's largest and most diversified freight transportation companies, providing multiple full truckload, LTL, intermodal, and other complementary services. Our objective is to operate our business with industry-leading margins and continued organic growth and growth through acquisitions while providing safe, high-quality, cost-effective solutions for our customers. Knight-Swift uses a nationwide network of business units and terminals in the US and Mexico to serve customers throughout North America. In addition to operating the country's largest truckload fleet, Knight-Swift also contracts with third-party equipment providers to provide a broad range of transportation services to our customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors. Our four reportable segments are Truckload, LTL, Logistics, and Intermodal. Additionally, we have various non-reportable segments. Key Financial Highlights — Year-to-Date March 31, 2023 Consolidated operating income decreased 51.4% to $144.8 million in the quarter ended March 31, 2023, as compared to the same period last year. Net income attributable to Knight-Swift decreased 49.9% to $104.3 million. • Truckload — 88.6% operating ratio during the quarter ended March 31, 2023. The Adjusted Operating Ratio 1 was 86.6%, with an 8.0% quarter-over-quarter decrease in revenue, excluding fuel surcharge and intersegment transactions. These results were impacted by negative developments on certain large prior year insurance claims totaling $8.5 million pre-tax (or $0.04 per diluted share), primarily related to an unfavorable jury verdict during the first quarter of 2023. • LTL — 89.6% operating ratio during the quarter ended March 31, 2023. The Adjusted Operating Ratio 1 was 85.7%, a 20 basis point improvement quarter-over-quarter, as a result of continued improvements in yields and efficiencies. • Logistics — 90.7% operating ratio during the quarter ended March 31, 2023. The Adjusted Operating Ratio 1 was 90.4% , while load count decreased 23.2%. • Intermodal — 95.4% operating ratio during the quarter ended March 31, 2023, with load count up 8.5% quarter-over-quarter. • Non-reportable Segments — Revenue grew 20.7% quarter-over-quarter, though operating income fell to a loss of $15.6 million driven by a $22.8 million operating loss (or $0.11 per diluted share) in our third-party insurance business primarily as a result of increased frequency and unfavorable claim development during the quarter and premium collection issues associated with small carriers. • Acquisition of U.S. Xpress — On March 21, 2023, we 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 of directors of Knight-Swift 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. We expect to apply a similar approach to integration as we used successfully in the Knight-Swift merger, using cross-functional teams composed of leaders from Knight, Swift, and U.S. Xpress, and we remain encouraged given the positive outcome of the Knight-Swift merger and certain similarities in this transaction. • Liquidity and Capital — During the quarter ended March 31, 2023, we generated $345.2 million in operating cash flows. Our Free Cash Flow 1 was $144.2 million. We paid down $8.4 million in long-term debt, $43.0 million on our revolving line of credit, $14.6 million in finance lease liabilities, and $10.5 million in cash on our operating lease liabilities. We also issued $23.0 million in dividends to our stockholders. Gain on sale of revenue equipment decreased to $20.9 million in the quarter ended March 31, 2023, compared to $34.8 million this time last year. As of March 31, 2023, we had a balance of $191.2 million in unrestricted cash and cash equivalents, $1.0 billion face value outstanding on the 2021 Term Loans, and $7.0 billion of stockholders' equity. We do not foresee 23 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED 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. ________ 1 Refer to "Non-GAAP Financial Measures" below. Key Financial Data and Operating Metrics Quarter Ended March 31, 2023 2022 GAAP financial data: (Dollars in thousands, except per share data) Total revenue $ 1,636,932 $ 1,826,989 Revenue, excluding truckload and LTL fuel surcharge $ 1,450,293 $ 1,647,878 Net income attributable to Knight-Swift $ 104,284 $ 208,337 Earnings per diluted share $ 0.64 $ 1.25 Operating ratio 91.2 % 83.7 % Non-GAAP financial data: Adjusted Net Income Attributable to Knight-Swift 1 $ 118,491 $ 224,863 Adjusted EPS 1 $ 0.73 $ 1.35 Adjusted Operating Ratio 1 88.7 % 80.6 % Revenue equipment statistics by segment: Truckload Average tractors 2 18,152 17,965 Average trailers 3 79,490 71,310 LTL Average tractors 4 3,163 3,091 Average trailers 5 8,387 8,302 Intermodal Average tractors 607 584 Average containers 12,829 11,027 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 Our tractor fleet within the Truckload segment had a weighted average age of 2.7 years and 2.6 years as of March 31, 2023 and 2022, respectively. 3 Our average trailers includes 8,988 and 7,561 trailers related to leasing activities recorded within our non-reportable segments for the quarters ended March 31, 2023 and 2022, respectively . Our trailer fleet within the Truckload segment had a weighted average age of 10.2 years and 8.4 years as of March 31, 2023 and 2022, respectively . 4 Our LTL tractor fleet had a weighted average age of 4.2 years and 4.5 years as of March 31, 2023 and 2022, respectively. Our LTL tractor fleet includes 619 and 695 tractors from ACT's and MME's dedicated and other businesses for the quarters ended March 31, 2023 and 2022, respectively. 24 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED 5 Our LTL trailer fleet had a weighted average age of 8.3 years and 8.0 years as of March 31, 2023 and 2022, respectively. Our LTL trailer fleet includes 778 and 907 trailers from ACT's and MME's dedicated and other businesses for the quarters ended March 31, 2023 and 2022, respectively. Market Trends and Outlook The national unemployment rate was 3.5% 1 as of March 31, 2023, as compared to 3.6% 1 as of March 31, 2022. The US gross domestic product, which is the broadest measure of goods and services produced across the economy, increased by 1.1% 2 on a quarter-over-quarter basis, per preliminary third-party forecasts. The increase, compared to the fourth quarter increase of 2.6%, reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment. These movements were partly offset by an acceleration in consumer spending, an upturn in exports, and a smaller decrease in residential fixed investment. Early estimates of the first quarter 2023 US employment cost index indicate a quarter-over-quarter increase of 4.8% 1 and a sequential increase of 1.2% 1 . The freight market outlook for the remainder of 2023 includes the following: • Continued softness in freight demand with few non-contract opportunities through the first half of 2023 as shippers work through higher inventory levels; • Capacity continues to exit at an accelerating rate; • Freight volumes begin to improve in the second half of the year with a more typical peak season; • The combinations of demand recovery and supply reduction should lead to improving freight market conditions by the end of the third quarter; • Spot pricing bottoms out in the second quarter and begins recovering in the second half of 2023; • Expect trailer pool service to continue to be a differentiator when demand recovers; • LTL demand pressured but remains more stable than truckload; • LTL year-over-year improvement in revenue, excluding fuel surcharge per hundredweight; • Inflationary pressures ease in many cost areas but remain elevated on a year-over-year basis; • Insurance and claims remain volatile; • Equipment and labor availability continues to improve, particularly for large carriers; and • Demand for used tractors remains steady given production limitations that are impacting the refresh rate. Based on the above market factors, our Company outlook for the remainder of 2023 includes the following and does not reflect the inclusion of U.S. Xpress pending the close of the acquisition: • Truckload rates continue to be pressured, with a year-over-year decrease in overall revenue per mile of high single digits for the year; • Truckload tractor count stable with miles per tractor improving on a year-over-year basis in the second half of the year; • LTL revenue, excluding fuel surcharge increases modestly year-over-year with relatively stable margin profile and typical seasonality; • Logistics volume and revenue per load remains under pressure into the second quarter before improving in the back half of the year, with an operating ratio of approximately 90 for the year; • Intermodal operating ratio in the mid 90's for the full year with volumes up year over year; • Non-reportable segments to have modest revenue growth for the year and quarterly operating income run rate in the low to mid teens for the balance of year; • Reflecting reduced exposure to third party insurance risk, easing trailer lease demand from lower inventory overhang and muted freight conditions, and continued revenue and margin growth in warehousing; • Equipment gains to be in the range of $15 million to $20 million quarterly; • Expect modest increase in interest expense from the first quarter of 2023, assuming Fed hiking cycle is nearly complete; • Net cash capital expenditures for the full year 2023 expected range of $640 – $690 million; • Approximate tax rate of 25% for the full year 2023. 25 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED In addition to the above, we expect the Truckload segment will remain resilient and continue to operate efficiently and the Logistics segment will continue to provide value to our customers through our power-only and traditional brokerage service offerings. Our ACT and MME teams are working together to further build out a super-regional network that we expect will provide additional yield and revenue opportunities. As of the fourth quarter of 2022, ACT and MME are on the same platform. We experienced some challenges in the integration, but believe the material challenges were addressed during the first quarter of 2023. The Intermodal segment continues to build out its network that aligns with our new rail partners. Our non-reportable segments are further expanding to complement our other service offerings even as we work to improve the underwriting profitability of our insurance program as well as reduce our exposure to small carrier risk in the current market. We anticipate that depreciation and amortization expense will increase and rental expense will correspondingly decrease, as a percentage of revenue, excluding truckload and LTL fuel surcharge, as we intend to purchase, rather than enter into operating leases, for a majority of our revenue equipment, terminal improvements, or terminal expansions in the remainder of 2023. With significant tightening in the insurance markets, we may also experience changes in premiums, retention limits, and excess coverage limits in the remainder of 2023. While fuel expense is generally offset by fuel surcharge revenue, our fuel expense, net of truckload and LTL fuel surcharge revenue, may increase in the future, particularly during periods of sharply rising fuel prices. Overall, we remain committed to long-term profitability as we continue to leverage opportunities across the Knight-Swift brands, and efficiently deploy our assets, while maintaining a relentless focus on cost control. This includes seeking acquisition opportunities to improve earnings, gain customers, and reach more professional drivers, as illustrated by the planned acquisition of U.S. Xpress and our intention to expand the geographic footprint of our LTL network. ________ 1 Source: bls.gov 2 Source: bea.gov Results of Operations — Summary Operating Results: First Quarter 2023 Compared to First Quarter 2022 The $104.1 million decrease in net income attributable to Knight-Swift to $104.3 million during the first quarter of 2023 from $208.3 million during the same period last year includes the following: • Contributor — $89.2 million decrease in operating income within our Truckload segment. Quarter-over-quarter miles per tractor decreased 2.7% during the first quarter of 2023, and revenue, excluding fuel surcharge and intersegment transactions declined by 8.0%. These results include $8.5 million pre-tax ($0.04 per diluted share) insurance and claims expense for development on large losses from claim years 2018-2020, primarily related to an unfavorable jury verdict during the first quarter of 2023. • Contributor — $26.8 million decrease in operating income within our Logistics segment due to 23.2% decline in load count. • Contributor — $10.1 million decrease in operating income within our Intermodal segment, driven by a 6.7% decrease in revenue per load. • Contributor — $27.4 million decrease in operating income within the non-reportable segments, primarily due to a $22.8 million operating loss from our Iron Insurance line of business. • Contributor — $16.4 million increase in consolidated interest expense primarily driven by higher interest rates. • Offset — $24.1 million increase in "Other income (expenses), net," primarily driven by a $14.4 million unrealized loss on our investment in Embark recorded in the first quarter of 2022 and a net gain recorded within our portfolio of investments during the first quarter of 2023. • Offset — $36.4 million decrease in consolidated income tax expense was primarily due to a reduction of pre-tax income. The results in an effective tax rate of 24.0% for the first quarter of 2023, and 24.9% for the first quarter of 2022. 26 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 — Segment Review The Company has four reportable segments: Truckload, LTL, Logistics, and Intermodal, as well as certain non-reportable segments. Consolidating Tables for Total Revenue and Operating Income (Loss) 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 27 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Revenue • Our truckload services include irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border transportation of various products, goods, and materials for our diverse customer base with approximately 13,600 irregular route and 4,600 dedicated tractors. • Our LTL business, which was initially established in 2021 through the ACT acquisition and later the MME acquisition, provides our customers with regional LTL transportation service through our growing network of approximately 110 facilities and a door count of approximately 4,400. Our LTL segment operates approximately 3,200 tractors and approximately 8,400 trailers and also provides national coverage to our customers by utilizing partner carriers for areas outside of our direct network. • Our Logistics and Intermodal segments 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. We continue to offer power-only services through our Logistics segment leveraging our fleet of over 79,000 trailers. • Our non-reportable segments include support services provided to our customers and third-party carriers including insurance, equipment maintenance, equipment leasing, warehousing, trailer parts manufacturing, and warranty services. Our non-reportable segments also include 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 programs, which serve to recover a majority of our fuel costs. This generally applies only to loaded miles for our Truckload and LTL segments 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 Truckload and LTL segments. Expenses Our most significant expenses typically vary with miles traveled and include fuel, driving associate-related expenses (such as wages and benefits), and services purchased from third-party service providers (including other trucking companies, railroad and drayage providers, and independent contractors). 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 performance, fleet age, operating efficiency, and other factors. Our primary fixed costs are depreciation and lease expense for revenue equipment and terminals, non-driver employee compensation, amortization of intangible assets, and interest expenses. 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 Operating Statistics We measure our consolidated and segment results through the operating statistics listed in the table below. Our chief operating decision makers monitor the GAAP results of our reportable segments, supplemented by certain non-GAAP information. Refer to "Non-GAAP Financial Measures" 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 Truckload Measures productivity and represents revenue (excluding fuel surcharge and intersegment transactions) divided by average tractor count Total Miles per Tractor Truckload Total miles (including loaded and empty miles) a tractor travels on average Average Length of Haul Truckload, LTL For our Truckload segment this is calculated as average miles traveled with loaded trailer cargo per order. For our LTL segment this is calculated as average miles traveled from the origin service center to the destination service center. Non-paid Empty Miles Percentage Truckload Percentage of miles without trailer cargo Shipments per Day LTL Average number of shipments completed each business day Weight per Shipment LTL Total weight (in pounds) divided by total shipments Revenue per shipment LTL Total revenue divided by total shipments Revenue xFSC per shipment LTL Total revenue, excluding fuel surcharge, divided by total shipments Revenue per hundredweight LTL Measures yield and is calculated as total revenue divided by total weight (in pounds) times 100 Revenue xFSC per hundredweight LTL Total revenue, excluding fuel surcharge, divided by total weight (in pounds) times 100 Average Tractors Truckload, LTL, Intermodal Average tractors in operation during the period including company tractors and tractors provided by independent contractors Average Trailers Truckload, LTL 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 Truckload, LTL, 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 Truckload, LTL, 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. 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 Segment Review Truckload Segment We generate revenue in the Truckload segment primarily through irregular route, dedicated, refrigerated, expedited, flatbed, and cross-border service operations across our brands. We operated approximately 13,600 irregular route tractors and approximately 4,600 dedicated route tractors in use during the quarter ended March 31, 2023. Generally, we are paid a predetermined rate per mile or per load for our truckload 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 Truckload 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 Truckload 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 Truckload segment are depreciation and rent expense from tractors, trailers, and terminals, as well as compensating our non-driver employees. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands, except per tractor data) Total revenue $ 1,012,245 $ 1,080,531 (6.3 %) Revenue, excluding fuel surcharge and intersegment transactions $ 865,980 $ 941,534 (8.0 %) GAAP: Operating income $ 115,899 $ 205,117 (43.5 %) Non-GAAP: Adjusted Operating Income 1 $ 116,242 $ 205,441 (43.4 %) Average revenue per tractor 2 $ 47,707 $ 52,409 (9.0 %) GAAP: Operating ratio 2 88.6 % 81.0 % 760 bps Non-GAAP: Adjusted Operating Ratio 1 2 86.6 % 78.2 % 840 bps Non-paid empty miles percentage 2 15.0 % 14.1 % 90 bps Average length of haul (miles) 2 391 394 (0.8 %) Total miles per tractor 2 18,405 18,916 (2.7 %) Average tractors 2 3 18,152 17,965 1.0 % Average trailers 2 4 79,490 71,310 11.5 % 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics," above. 3 Includes 16,262 and 16,159 average company-owned tractors for the first quarter of 2023 and 2022, respectivel y. 4 Our average trailers includes 8,988 and 7,561 trailers related to leasing activities recorded within our non-reportable segments for the quarters ended March 31, 2023 and 2022, respectively . 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 Comparison Between the Quarters Ended March 31, 2023 and 2022 — The Truckload segment performed well in an extremely difficult environment, operating with an 86.6% Adjusted Operating Ratio. These results include $8.5 million pre-tax ($0.04 per diluted share) insurance and claims expense for development on large losses from claim years 2018-2020, primarily related to an unfavorable jury verdict during the first quarter of 2023. Revenue, excluding fuel surcharge and intersegment transactions, was $866.0 million, a decrease of 8.0% quarter-over-quarter. Miles per tractor decreased by 2.7%, while revenue per loaded mile, excluding fuel surcharge and intersegment transactions, was pressured throughout the quarter, posting a 5.3% average decline quarter-over-quarter. These factors ultimately led to a 9.0% quarter-over-quarter increase in average revenue per tractor as the improving revenue per tractor in our dedicated division was more than offset by declines in the over-the-road business. LTL Segment Dothan, Alabama-based ACT and Bismarck, North Dakota-based MME, both acquired in 2021, comprise our LTL segment. We provide regional direct service and serve our customers' national transportation needs by utilizing key partner carriers for coverage areas outside of our network. We primarily generate revenue by transporting freight for our customers through our core LTL services. Our revenues are impacted by shipment volume and tonnage levels that flow through our network. Additional revenues are generated through fuel surcharges and accessorial services provided during transit from shipment origin to destination. We focus on the following multiple revenue generation factors when reviewing revenue yield: revenue per hundredweight, revenue per shipment, weight per shipment, and length of haul. Fluctuations within each of these metrics are analyzed when determining the revenue quality of our customers' shipment density. Our most significant expense is related to direct costs associated with the transportation of our freight moves including; direct salary, wage and benefit costs, fuel expense, and depreciation expense associated with revenue equipment costs. Other expenses associated with revenue generation that can fluctuate and impact operating results are insurance and claims expenses, as well as maintenance costs of our revenue equipment. These expenses can be influenced by multiple factors including our safety performance, equipment age, and other factors. A key component of lowering our operating costs is labor efficiency within our network. We continue to focus on technological advances to improve the customer experience and reduce our operating costs. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands, except per tractor data) Total revenue $ 255,304 $ 255,125 0.1 % Revenue, excluding fuel surcharge and intersegment transactions $ 213,929 $ 214,675 (0.3 %) GAAP: Operating income $ 26,582 $ 26,377 0.8 % Non-GAAP: Adjusted Operating Income 1 $ 30,502 $ 30,322 0.6 % GAAP: Operating ratio 2 89.6 % 89.7 % (10 bps) Non-GAAP: Adjusted Operating Ratio 1 2 85.7 % 85.9 % (20 bps) LTL shipments per day 2 17,717 18,783 (5.7 %) LTL weight per shipment 2 1,061 1,098 (3.4 %) LTL average length of haul (miles) 2 535 522 2.5 % LTL revenue per shipment 2 $ 189.31 $ 178.43 6.1 % LTL revenue xFSC per shipment 2 $ 158.45 $ 150.70 5.1 % LTL revenue per hundredweight 2 $ 17.84 $ 16.25 9.8 % LTL revenue xFSC per hundredweight 2 $ 14.93 $ 13.73 8.7 % LTL average tractors 2 3 3,163 3,091 2.3 % LTL average trailers 2 4 8,387 8,302 1.0 % 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 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics," above. 3 Our LTL tractor fleet includes 619 and 695 tractors from ACT's and MME's dedicated and other businesses for the first quarter of 2023 and 2022, respectively. 4 Our LTL trailer fleet includes 778 and 907 trailers from ACT's and MME's dedicated and other businesses for the first quarter of 2023 and 2022, respectively. Comparison Between the Quarters Ended March 31, 2023 and 2022 — Our LTL segment operated well, producing an 85.7% Adjusted Operating Ratio during the first quarter of 2023, a 20 basis point improvement over the first quarter of 2022. Shipment counts decreased 5.7% quarter-over-quarter with softer demand. Revenue per hundredweight increased 8.7% excluding fuel surcharge, while revenue per shipment increased by 5.1%, excluding fuel surcharge, reflecting a 3.4% decrease in weight per shipment. We expect our connected LTL network and the expanded use of shipment dimensioning technology will provide additional opportunities for revenue growth. During the first quarter, we increased our door count by 50, and we expect door capacity to continue to grow by an additional 150 through the remainder of 2023. We remain encouraged by the strong performance within our LTL segment, and we continue to look for both organic and inorganic opportunities to geographically expand our footprint within the LTL market. Logistics Segment The Logistics segment is less asset-intensive than the Truckload and LTL segments 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 Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands, except per load data) Total revenue $ 138,283 $ 282,039 (51.0 %) Revenue, excluding intersegment transactions $ 136,777 $ 280,171 (51.2 %) GAAP: Operating income $ 12,820 $ 39,601 (67.6 %) Non-GAAP: Adjusted Operating Income 1 2 $ 13,154 $ 39,935 (67.1 %) Revenue per load 2 $ 1,715 $ 2,697 (36.4 %) Gross margin percentage 2 19.8 % 20.2 % (40 bps) GAAP: Operating ratio 2 90.7 % 86.0 % 470 bps Non-GAAP: Adjusted Operating Ratio 1 2 90.4 % 85.7 % 470 bps 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics," above. 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 March 31, 2023 and 2022 — The Logistics segment Adjusted Operating Ratio was 90.4% , with a gross margin of 19.8% in the first quarter of 2023, down slightly from 20.2% in the first quarter of 2022. The brokerage space continues to be pressured by soft demand, causing our load count to decline by 23.2% quarter-over-quarter. This lack of demand resulted in revenue per load decreasing by 36.4% quarter-over-quarter. Despite the difficult environment, the Logistics business remained nimble and produced near double-digit margin for the quarter. W e continue to leverage our consolidated fleet of approximately 79,000 trailers as we build out our power-only service. We continue to innovate with technology intended to remove friction and allow seamless connectivity, leading to services that we expect will capture new opportunities for revenue growth. 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. While rail pricing is determined on an annual basis, 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 Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands, except per load data) Total revenue $ 110,572 $ 109,222 1.2 % Revenue, excluding intersegment transactions $ 110,572 $ 109,192 1.3 % GAAP: Operating income $ 5,102 $ 15,170 (66.4 %) Average revenue per load 1 $ 3,234 $ 3,465 (6.7 %) GAAP: Operating ratio 1 95.4 % 86.1 % 930 bps Load count 34,193 31,515 8.5 % Average tractors 2 607 584 3.9 % Average containers 2 12,829 11,027 16.3 % 1 Defined under "Operating Statistics," above. 2 Includes 542 and 533 company-owned tractors for the first quarter of 2023 and 2022, respectively. Comparison Between the Quarters Ended March 31, 2023 and 2022 — The Intermodal segment operated with a 95.4% operating ratio while revenue excluding intersegment transactions increased 1.3% to $110.6 million. We are pleased that load count increased quarter-over-quarter by 8.5%, reflecting the first quarter-over-quarter increase in load count since transitioning western rail partners in January 2022. With rail service continuing to make progress and bid activity yielding promising new volume awards, we are encouraged for the near term opportunities for volumes to improve in this business. There is still opportunity for more consistent rail service to allow for improved equipment utilization and additional freight opportunities. 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 expect to continue to grow with new customers and expand with existing customers. Our average container count increased by over 300 units sequentially as we have taken delivery of nearly all containers on order as of the end of the quarter. With our container fleet count now approximately 13,000, we do not expect to order additional containers until we achieve meaningful improvement in our turns per container. Our capex strategy is shifting to chassis moving forward as we work to better optimize our operation and reduce equipment costs. We remain focused on growing our load count and improving the efficiency of our assets as Intermodal continues to provide value to our customers and is complementary to the many services we offer. Non-reportable Segments Our non-reportable segments include support services provided to our customers and third-party carriers including insurance, equipment maintenance, equipment leasing, warehousing, trailer parts manufacturing, and warranty services. Our non-reportable segments also include 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 Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Total revenue $ 141,986 $ 117,639 20.7 % Operating (loss) income $ (15,616) $ 11,821 (232.1 %) Revenue growth of 20.7% was offset by challenges within our third-party insurance program, resulting in a $15.6 million operating loss within our non-reportable segments. Overall, our Iron Insurance line of business produced a $22.8 million operating loss (or $0.11 per diluted share) during the first quarter of 2023, primarily due to increased frequency and unfavorable claim development during the quarter as well as insurance premium collection issues associated with small carriers who are struggling given the soft freight market conditions. We are continuing to execute our plan to improve the underwriting profitability of the insurance program, and we have decided to reduce our exposure to small carrier risk in the current market as we believe the extreme pressure small carriers are under is producing undesirable risk characteristics. This decision will be a headwind to growth in the near term, but we believe it is the prudent move for our business at this point in the cycle. We have applied rate increases to various lines of coverage, which will improve underwriting results on the risk that we elect to retain. It will take some time for this pivot to materialize in the results, but we expect sequential income growth and a positive contribution for these segments by the middle of the year, supported by continued revenue growth from the other activities within our non-reportable segments moving forward. 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 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 truckload and LTL fuel surcharge. Truckload and LTL 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 truckload and LTL fuel surcharge is a better measure for analyzing many of our expenses and operating metrics. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Salaries, wages, and benefits $ 536,742 $ 536,056 0.1 % % of total revenue 32.8 % 29.3 % 350 bps % of revenue, excluding truckload and LTL fuel surcharge 37.0 % 32.5 % 450 bps Salaries, wages, and benefits expense is primarily affected by the total number of miles driven by and rates we pay to 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 significant 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, our equipment, and our terminals that improve the experience of driving associates. We expect labor costs (related to both driving associates and non-driver employees) to remain inflationary, which we expect will result in additional pay increases in the future, thereby increasing our salaries, wages, and benefits expense. Comparison Between the Quarters Ended March 31, 2023 and 2022 — Consolidated salaries, wages, and benefits increased by $0.7 million for the first quarter of 2023, as compared to the first quarter of 2022. This increase pertained to driving associate pay rates and non-driver salaries and wages, partially offset by a 2.5% decrease in miles driven by company driving associates. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Fuel $ 187,759 $ 190,489 (1.4 %) % of total revenue 11.5 % 10.4 % 110 bps % of revenue, excluding truckload and LTL fuel surcharge 12.9 % 11.6 % 130 bps Fuel expense consists primarily of diesel fuel expense for our company-owned tractors. 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. 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 Our fuel surcharge programs help to offset increases in fuel prices, but generally apply only to loaded miles for our Truckload and LTL segments 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 for our Truckload and LTL segments. 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. Comparison Between Quarters Ended March 31, 2023 and 2022 — The $2.7 million decrease in consolidated fuel expense for the first quarter is due to a decrease in total miles driven by company driving associates and was partially offset by higher average DOE fuel prices for the first quarter of 2023 as compared to the first quarter of 2022. Average DOE fuel prices were $4.40 per gallon for the first quarter of 2023 and $4.36 per gallon for the first quarter of 2022. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Operations and maintenance $ 99,311 $ 95,883 3.6 % % of total revenue 6.1 % 5.2 % 90 bps % of revenue, excluding truckload and LTL fuel surcharge 6.8 % 5.8 % 100 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 typically 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 2023, 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, subject to availability of new revenue equipment, to maintain the average age of our equipment. Comparison Between the Quarters Ended March 31, 2023 and 2022 — The increase of $3.4 million for the first quarter of 2023 was attributed to higher maintenance expenses due to inflation and was partially offset by lower chassis expense and road expense due to the decrease in total miles discussed above. 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 Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Insurance and claims $ 138,039 $ 98,192 40.6 % % of total revenue 8.4 % 5.4 % 300 bps % of revenue, excluding truckload and LTL fuel surcharge 9.5 % 6.0 % 350 bps Insurance and claims expense consists of premiums for liability, physical damage, and cargo, and will vary based upon the frequency and severity of claims, 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. In addition, our Iron Insurance line of business offers insurance products to third-party carriers, earning additional premium revenues, which are partially offset by increased insurance reserves, but does increase our exposure to claims and inability to collect premiums. 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, lower excess coverage limits, and exposure through Iron Insurance may cause increased volatility in our consolidated insurance and claims expense. Comparison Between the Quarters Ended March 31, 2023 and 2022 — Consolidated insurance and claims expense increased by $39.8 million for the first quarter of 2023, as compared to the first quarter of 2022. The increase was predominately due to increased frequency and unfavorable claim development during the quarter within our Iron Insurance line of business as well as negative developments within our self-insured retention limits on certain large prior year insurance claims totaling $8.5 million pre-tax, primarily related to an unfavorable jury verdict during the first quarter of 2023. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Operating taxes and licenses $ 25,890 $ 29,037 (10.8 %) % of total revenue 1.6 % 1.6 % — bps % of revenue, excluding truckload and LTL fuel surcharge 1.8 % 1.8 % — bps Operating taxes and licenses include state franchise taxes, state and federal highway use taxes, property taxes, vehicle license and registration fees, and 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. Comparison Between the Quarters Ended March 31, 2023 and 2022 — Operating taxes and licenses expenses decreased by $3.1 million, but remained flat as a percentage of revenue, excluding truckload and LTL fuel surcharge. 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 Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Communications $ 5,749 $ 5,870 (2.1 %) % of total revenue 0.4 % 0.3 % 10 bps % of revenue, excluding truckload and LTL fuel surcharge 0.4 % 0.4 % — bps Communications expense is comprised of costs associated with our tractor and trailer tracking systems, information technology systems, and phone systems. Comparison Between the Quarters Ended March 31, 2023 and 2022 — Communications expense decreased $0.1 million, but remained flat as a percentage of revenue, excluding truckload and LTL fuel surcharge. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Depreciation and amortization of property and equipment $ 155,966 $ 145,044 7.5 % % of total revenue 9.5 % 7.9 % 160 bps % of revenue, excluding truckload and LTL fuel surcharge 10.8 % 8.8 % 200 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. 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 practices. Comparison Between the Quarters Ended March 31, 2023 and 2022 — Consolidated depreciation and amortization of property and equipment increased by $10.9 million for the first quarter of 2023, as compared to the same period last year. This increase was related to an increase in owned versus leased equipment and higher depreciation for capital improvements made to our terminals. We expect consolidated depreciation and amortization of property and equipment to increase in total and as a percentage of consolidated revenue, excluding truckload and LTL fuel surcharge, as we currently do not plan to use operating leases as a primary means of funding our equipment purchases, terminal improvements, or terminal expansions in the remainder of 2023. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Amortization of intangibles $ 16,183 $ 16,166 0.1 % % of total revenue 1.0 % 0.9 % 10 bps % of revenue, excluding truckload and LTL fuel surcharge 1.1 % 1.0 % 10 bps Amortization of intangibles relates to intangible assets identified with the 2017 Merger and various acquisitions. See Note 3 in Part I, Item 1, of this Quarterly Report for more details regarding details of our acquisitions. 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 Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Rental expense $ 15,068 $ 13,401 12.4 % % of total revenue 0.9 % 0.7 % 20 bps % of revenue, excluding truckload and LTL fuel surcharge 1.0 % 0.8 % 20 bps Rental expense consists primarily of payments for our terminals and other real estate leases and, to a lesser extent, payments for revenue equipment from expiring operating leases. The primary factors affecting the expense are the size and location of our leased properties. Comparison Between the Quarters Ended March 31, 2023 and 2022 — The quarter-over-quarter increase of $1.7 million is primarily related to the incorporation of new facilities as we expand our network. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Purchased transportation $ 280,729 $ 386,446 (27.4 %) % of total revenue 17.1 % 21.2 % (410 bps) % of revenue, excluding truckload and LTL fuel surcharge 19.4 % 23.5 % (410 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. Comparison Between the Quarters Ended March 31, 2023 and 2022 — Consolidated purchased transportation expense decreased by $105.7 million for the first quarter of 2023, as compared to the same period last year, primarily due to decreased load volume within our logistics business, partially offset by increased intermodal load volume. We expect that consolidated purchased transportation will increase as a percentage of revenue if we grow our logistics and intermodal businesses faster than our full truckload and LTL businesses. The increase could be partially offset if independent contractors exit the market due to regulatory changes. Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Impairments $ — $ 810 (100.0 %) In 2022, we incurred impairment charges associated with building improvements (within our non-reportable segments). 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 Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Miscellaneous operating expenses $ 30,709 $ 11,509 166.8 % 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 March 31, 2023 and 2022 — The $19.2 million increase in net consolidated miscellaneous operating expenses is primarily due to a $13.9 million decrease in gain on sales of equipment and $1.5 million in transaction fees related to the planned acquisition of U.S. Xpress. Consolidated Other Expenses (Income) Quarter Ended March 31, Increase (Decrease) 2023 2022 (Dollars in thousands) Interest expense $ 23,091 $ 6,680 245.7 % Other (income) expenses, net (9,703) 14,405 (167.4 %) Income tax expense 32,735 69,174 (52.7 %) Interest expense — Interest expense is comprised of debt and finance lease interest expense as well as amortization of deferred loan costs. The increase in interest expense during the quarter ended March 31, 2023 was primarily due to higher interest rates. Additional details regarding our debt are discussed in Note 6 in Part I, Item 1 of this Quarterly Report. Other (income) expenses, net — Other (income) expenses, net is primarily comprised of losses and (gains) from our various equity investments, including our investment in Embark, 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 March 31, 2023 and 2022 — The $24.1 million increase in other (income) expenses, net is primarily driven by a $14.4 million unrealized loss on our investment in Embark recorded in the first quarter of 2022 and a net gain recorded within our portfolio of investments during the first quarter of 2023. Income tax expense — In addition to the discussion below, Note 4 in Part I, Item 1 of this Quarterly Report provides further analysis related to income taxes. Comparison Between the Quarters Ended March 31, 2023 and 2022 — The $36.4 million decrease in consolidated income tax expense was primarily due to a reduction of pre-tax income. This resulted in an effective tax rate of 24.0% for the first quarter of 2023, and 24.9% for the first quarter of 2022. 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 Non-GAAP Financial Measures The terms "Adjusted Net Income Attributable to Knight-Swift," "Adjusted EPS," "Adjusted Operating Income," "Adjusted Operating Ratio," and "Free Cash Flow," as we define them, are not presented in accordance with GAAP. These financial measures supplement our GAAP results in evaluating certain aspects of our business. We believe that using these measures improves comparability in analyzing our performance because they remove the impact of items from our operating results that, in our opinion, do not reflect our core operating performance. Management and the Board focus on Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, Adjusted Operating Income, and Adjusted Operating Ratio as key measures of our performance, all of which are reconciled to the most comparable GAAP financial measures and further discussed below. Management and the Board use Free Cash Flow as a key measure of our liquidity. Free Cash Flow does not represent residual cash flow available for discretionary expenditures. We believe our presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance. Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, Adjusted Operating Income, Adjusted Operating Ratio, and Free Cash Flow are not substitutes for their comparable GAAP financial measures, such as net income, cash flows from operating activities, operating 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, GAAP reportable segment operating ratio to non-GAAP reportable segment Adjusted Operating Ratio, and GAAP cash flow from operations to non-GAAP Free Cash Flow. 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 Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS Quarter Ended March 31, 2023 2022 (In thousands) GAAP: Net income attributable to Knight-Swift $ 104,284 $ 208,337 Adjusted for: Income tax expense attributable to Knight-Swift 32,735 69,174 Income before income taxes attributable to Knight-Swift 137,019 277,511 Amortization of intangibles 1 16,183 16,166 Impairments 2 — 810 Legal accruals 3 (300) 5,055 Transaction fees 4 1,536 — Severance expense 5 1,452 — Adjusted income before income taxes 155,890 299,542 Provision for income tax expense at effective rate (37,399) (74,679) Non-GAAP: Adjusted Net Income Attributable to Knight-Swift $ 118,491 $ 224,863 Note: Since the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding. Quarter Ended March 31, 2023 2022 GAAP: Earnings per diluted share $ 0.64 $ 1.25 Adjusted for: Income tax expense attributable to Knight-Swift 0.20 0.42 Income before income taxes attributable to Knight-Swift 0.85 1.67 Amortization of intangibles 1 0.10 0.10 Impairments 2 — — Legal accruals 3 — 0.03 Transaction fees 4 0.01 — Severance expense 5 0.01 — Adjusted income before income taxes 0.96 1.80 Provision for income tax expense at effective rate (0.23) (0.45) Non-GAAP: Adjusted EPS $ 0.73 $ 1.35 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the 2017 Merger, the ACT Acquisition, and other acquisitions. Refer to Note 3 in Part I, Item 1 of this Quarterly Report for additional details regarding our acquisitions. 2 "Impairments" reflects the non-cash impairment of building improvements (within our non-reportable segments). 3 "Legal accruals" are included in "Miscellaneous operating expenses" in the condensed consolidated statements of comprehensive income and reflect the following: • First quarter 2023 legal expense reflects a decrease in the estimated exposure related to an accrued legal matter previously identified as probable and estimable in prior periods based on a recent settlement agreement. • First quarter 2022 legal expense reflects costs related to certain settlements and class action lawsuits arising from employee and contract related matters. 4 "Transaction fees" reflects consisted of legal and professional fees associated with the planned acquisition of U.S. Xpress. The transaction fees are included within "Miscellaneous operating expenses" in the condensed statements of comprehensive income. 5 "Severance expense" is included within "Salaries, wages, and benefits" in the condensed statements of comprehensive income. 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 Non-GAAP Reconciliation: Consolidated Adjusted Operating Income and Adjusted Operating Ratio Quarter Ended March 31, 2023 2022 GAAP Presentation (Dollars in thousands) Total revenue $ 1,636,932 $ 1,826,989 Total operating expenses (1,492,145) (1,528,903) Operating income $ 144,787 $ 298,086 Operating ratio 91.2 % 83.7 % Non-GAAP Presentation Total revenue $ 1,636,932 $ 1,826,989 Truckload and LTL fuel surcharge (186,639) (179,111) Revenue, excluding truckload and LTL fuel surcharge 1,450,293 1,647,878 Total operating expenses 1,492,145 1,528,903 Adjusted for: Truckload and LTL fuel surcharge (186,639) (179,111) Amortization of intangibles 1 (16,183) (16,166) Impairments 2 — (810) Legal accruals 3 300 (5,055) Transaction fees 4 (1,536) — Severance expense 5 (1,452) — Adjusted Operating Expenses 1,286,635 1,327,761 Adjusted Operating Income $ 163,658 $ 320,117 Adjusted Operating Ratio 88.7 % 80.6 % 1 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 1 . 2 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 2. 3 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 3 . 4 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 4. 5 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 5. 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 Non-GAAP Reconciliation: Reportable Segment Adjusted Operating Income and Adjusted Operating Ratio Truckload Segment Quarter Ended March 31, 2023 2022 GAAP Presentation (Dollars in thousands) Total revenue $ 1,012,245 $ 1,080,531 Total operating expenses (896,346) (875,414) Operating income $ 115,899 $ 205,117 Operating ratio 88.6 % 81.0 % Non-GAAP Presentation Total revenue $ 1,012,245 $ 1,080,531 Fuel surcharge (145,264) (138,661) Intersegment transactions (1,001) (336) Revenue, excluding fuel surcharge and intersegment transactions 865,980 941,534 Total operating expenses 896,346 875,414 Adjusted for: Fuel surcharge (145,264) (138,661) Intersegment transactions (1,001) (336) Amortization of intangibles 1 (343) (324) Adjusted Operating Expenses 749,738 736,093 Adjusted Operating Income $ 116,242 $ 205,441 Adjusted Operating Ratio 86.6 % 78.2 % 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in historical Knight 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 LTL Segment Quarter Ended March 31, 2023 2022 GAAP Presentation (Dollars in thousands) Total revenue $ 255,304 $ 255,125 Total operating expenses (228,722) (228,748) Operating income $ 26,582 $ 26,377 Operating ratio 89.6 % 89.7 % Non-GAAP Presentation Total revenue $ 255,304 $ 255,125 Fuel surcharge (41,375) (40,450) Revenue, excluding fuel surcharge and intersegment transactions 213,929 214,675 Total operating expenses 228,722 228,748 Adjusted for: Fuel surcharge (41,375) (40,450) Amortization of intangibles 1 (3,920) (3,945) Adjusted Operating Expenses 183,427 184,353 Adjusted Operating Income $ 30,502 $ 30,322 Adjusted Operating Ratio 85.7 % 85.9 % 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified with the ACT and MME acquisitions. Logistics Segment Quarter Ended March 31, 2023 2022 GAAP Presentation (Dollars in thousands) Total revenue $ 138,283 $ 282,039 Total operating expenses (125,463) (242,438) Operating income $ 12,820 $ 39,601 Operating ratio 90.7 % 86.0 % Non-GAAP Presentation Total revenue $ 138,283 $ 282,039 Intersegment transactions (1,506) (1,868) Revenue, excluding intersegment transactions 136,777 280,171 Total operating expenses 125,463 242,438 Adjusted for: Intersegment transactions (1,506) (1,868) Amortization of intangibles 1 (334) (334) Adjusted Operating Expenses 123,623 240,236 Adjusted Operating Income $ 13,154 $ 39,935 Adjusted Operating Ratio 90.4 % 85.7 % 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the UTXL acquisition. 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 Intermodal Segment Quarter Ended March 31, 2023 2022 GAAP Presentation (Dollars in thousands) Total revenue $ 110,572 $ 109,222 Total operating expenses (105,470) (94,052) Operating income $ 5,102 $ 15,170 Operating ratio 95.4 % 86.1 % Non-GAAP Presentation Total revenue $ 110,572 $ 109,222 Intersegment transactions — (30) Revenue, excluding intersegment transactions 110,572 109,192 Total operating expenses 105,470 94,052 Adjusted for: Intersegment transactions — (30) Adjusted Operating Expenses 105,470 94,022 Adjusted Operating Income $ 5,102 $ 15,170 Adjusted Operating Ratio 95.4 % 86.1 % Non-GAAP Reconciliation: Free Cash Flow Quarter Ended March 31, 2023 GAAP: Cash flows from operations $ 345,159 Adjusted for: Proceeds from sale of property and equipment, including assets held for sale 59,345 Purchases of property and equipment (260,339) Non-GAAP: Free Cash Flow $ 144,165 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 Liquidity and Capital Resources Sources of Liquidity Our primary sources of liquidity are funds provided by operations and the following: Source March 31, 2023 (In thousands) Cash and cash equivalents, excluding restricted cash $ 191,245 Availability under 2021 Revolver, due September 2026 1 1,088,615 Availability under 2022 RSA, due April 2024 2 12,700 Total unrestricted liquidity $ 1,292,560 Cash and cash equivalents – restricted 3 207,363 Restricted investments, held-to-maturity, amortized cost 3 4,076 Total liquidity, including restricted cash and restricted investments $ 1,503,999 1 As of March 31, 2023, we had no borrowings under our $1.1 billion 2021 Revolver. We additionally had $11.4 million in outstanding letters of credit (discussed below) issued under the 2021 Revolver, leaving $1.1 billion available under 2021 the Revolver. 2 Based on eligible receivables at March 31, 2023, our borrowing base for the 2022 RSA was $396.7 million, while outstanding borrowings were $384.0 million, leaving $12.7 million available under the 2022 RSA. Refer to Note 5 in Part I, Item 1 of this Quarterly Report for more information regarding the 2022 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 $204.3 million, included in "Cash and cash equivalents – restricted" on the condensed consolidated balance sheet and held by Mohave and Red Rock for claims payments. The remaining $3.0 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 and expand our trailer fleet, expand our network of LTL service centers, and, to a lesser extent, fund upgrades to our terminals and technology in our various service offerings. In connection with our business strategy, we regularly evaluate acquisition and strategic partnership opportunities. We expect net cash capital expenditures, will be in the range of $640.0 – $690.0 million for full-year 2023. This range excludes cash outlays for potential acquisitions. We believe we have ample flexibility in our trade cycle and purchase agreements to alter our current plans if economic and 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 2021 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. 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 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 2021 Revolver will be sufficient to fund our expected capital expenditures for at least the next twelve months. Principal and Interest Payments — As of March 31, 2023, we had debt, accounts receivable securitization, and finance lease obligations of $1.8 billion, 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. Letters of Credit — Pursuant to the terms of the 2021 Debt Agreement and the 2022 RSA, our lenders may issue standby letters of credit on our behalf. When we have certain letters of credit outstanding, the availability under the 2021 Revolver or 2022 RSA is reduced accordingly. As of March 31, 2023, we also had outstanding letters of credit of $177.9 million pursuant to a bilateral agreement which do not impact the availability of the 2021 Revolver and 2022 RSA. 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 1 availability, debt levels, common stock prices, general economic and market conditions, as well as internal approval requirements, we may repurchase shares of our outstanding common stock. As of March 31, 2023, the Company had $200.0 million remaining under the 2022 Knight-Swift Share Repurchase Plan. Additional details regarding our share repurchase plans are discussed in Note 10 in Part I, Item 1 of this Quarterly Report. Working Capital We had a working capital surplus of $536.8 million as of March 31, 2023 and $599.6 million as of December 31, 2022. Material Debt Agreements As of March 31, 2023, we had $1.8 billion in material debt obligations at the following carrying values: • $199.8 million: 2021 Term Loan A-2, due September 2024 , net of $0.2 million in deferred loan costs • $798.8 million: 2021 Term Loan A-3, due September 2026, net of $1.2 million in deferred loan costs • $383.6 million: 2022 RSA outstanding borrowings, net of $0.4 million in deferred loan costs • $395.7 million: Finance lease obligations • $30.5 million: Other, net of approximately $45,000 in deferred loan costs As of December 31, 2022, we had $1.9 billion in material debt obligations at the following carrying values: • $199.8 million: 2021 Term Loan A-2, due September 2024, net of $0.2 million in deferred loan costs • $798.7 million: 2021 Term Loan A-3, due September 2026, net of $1.3 million in deferred loan costs • $418.6 million: 2022 RSA outstanding borrowings, net of $0.4 million in deferred loan costs • $403.0 million: Finance lease obligations • $43.0 million: 2021 Revolver, due September 2026 • $39.0 million: Other, net of $0.1 million in deferred loan costs ________ 1 Refer to "Non-GAAP Financial Measures." 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 Cash Flow Analysis Quarter Ended March 31, Change 2023 2022 (In thousands) Net cash provided by operating activities $ 345,159 $ 456,860 $ (111,701) Net cash used in investing activities (197,305) (110,187) (87,118) Net cash used in financing activities (134,591) (323,249) 188,658 Net Cash Provided by Operating Activities Comparison Between Quarter Ended March 31, 2023 and 2022 — The $111.7 million decrease in net cash provided by operating activities was primarily due to a $153.3 million decrease in operating income for quarter ended March 31, 2023, and a $16.0 million increase in cash paid for interest. Note: Factors affecting the increase in operating income are discussed in "Results of Operations — Consolidated Operating and Other Expenses." Net Cash Used in Investing Activities Comparison Between Quarter Ended March 31, 2023 and 2022 — The $87.1 million increase in net cash used in investing activities was primarily due to a $96.6 million increase in net cash capital expenditures. Net Cash Used in Financing Activities Comparison Between Quarter Ended March 31, 2023 and 2022 — Net cash used in financing activities decreased by $188.7 million, primarily due to a $144.9 million decrease in repurchases of our common stock and a $52.0 million decrease in net repayments on our 2021 Revolver. 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 Most of our operating expenses are inflation-sensitive, with inflation generally leading to increased costs of operations. Price increases in manufacturer revenue equipment has impacted the cost for us to acquire new equipment. Cost increases have also impacted the cost of parts for equipment repairs and maintenance. The qualified driver shortage experienced by the trucking industry overall has had the effect of increasing compensation paid to our driving associates. We have also experienced inflation in insurance and claims cost related to health insurance and claims as well as auto liability insurance and claims. Prolonged periods of inflation have recently and could continue to cause interest rates, fuel, wages, and other costs to increase as well. Any of these factors could adversely affect our results of operations unless freight rates correspondingly increase. 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. 49 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.