Knight-Swift Transportation Holdings Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain acronyms and terms used throughout this Annual 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. Management's discussion and analysis of financial condition and results of operations should be read together with "Business" in Part I, Item 1 of this Annual Report, as well as the consolidated financial statements and accompanying footnotes in Part II, Item 8 of this Annual Report. This discussion contains forward-looking statements as a result of many factors, including those set forth under Part I, Item 1A. "Risk Factors" and Part I "Cautionary Note Regarding Forward-looking Statements" of this Annual Report, and elsewhere in this report. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from those discussed. 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, continued organic growth, and growth through acquisitions while providing safe, high-quality, and 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 one of the country's largest truckload fleets, Knight-Swift also contracts with third-party carriers 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 other operating segments, included within our All Other Segments. Key Financial Highlights During 2024, consolidated total revenue was $7.4 billion, which is a 3.8% increase over 2023. Consolidated operating income was $243.4 million in 2024, reflecting a decrease of 28.0% from 2023. Consolidated net income attributable to Knight-Swift decreased by 45.8% from 2023 to $117.6 million. • Truckload — 96.7% operating ratio during 2024, with a 9.4% increase in revenue, excluding fuel surcharge and intersegment transactions, compared to 2023. • LTL — 92.9% operating ratio during 2024 with a 16.2% increase in revenue, excluding fuel surcharge. • Logistics — 95.9% operating ratio during 2024. Load count reduced by 11.1%, leading to a 1.3% decrease in revenue, excluding intersegment transactions. • Intermodal — 102.4% operating ratio during 2024. Load count improved by 3.5%, leading to a 10.0% decrease in operating loss. • All Other Segments — Operating loss improved 76.5% to $26.2 million during 2024 compared to $111.6 million in 2023, largely as a result of winding down our third-party insurance program, ultimately ceasing operations at the end of the first quarter of 2024. • Liquidity and Capital — During 2024, we generated $799.1 million in operating cash flows. Our Free Cash Flow 1 was $233.8 million. We paid down $140.2 million in long-term debt, $134.8 million in finance lease liabilities, and $175.9 million on our operating lease liabilities. We obtained financing of $150.0 million in new long-term debt and $165.0 million from net borrowings on our revolving lines of credit. In 2024, we issued $104.2 million in dividends to our stockholders. Gain on sale of property and equipment decreased to $34.4 million in 2024, compared to $64.7 million in 2023. We ended 2024 with $1.1 billion in unrestricted cash and cash equivalents and available liquidity and $7.1 billion of stockholders' equity. The face value of our debt, net of unrestricted cash ("Net Debt") was $2.7 billion at the end of 2024. We do not foresee material liquidity constraints or any issues with our ongoing ability to meet our debt covenants. See discussion under "Liquidity and Capital Resources" for additional information. ________ 1 Refer to "Non-GAAP Financial Measures" below. 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 Key Financial Data and Operating Metrics 2024 2023 GAAP financial data: (Dollars in thousands, except per share data) Total revenue $ 7,410,078 $ 7,141,766 Revenue, excluding truckload and LTL fuel surcharge $ 6,611,957 $ 6,308,169 Net income attributable to Knight-Swift $ 117,626 $ 217,149 Earnings per diluted share $ 0.73 $ 1.34 Operating ratio 96.7 % 95.3 % Non-GAAP financial data: Adjusted Net Income Attributable to Knight-Swift 1 $ 172,085 $ 278,739 Adjusted EPS 1 $ 1.06 $ 1.72 Adjusted Operating Ratio 1 94.7 % 93.1 % Revenue equipment statistics by segment: Truckload Average tractors 2 22,791 20,948 Average trailers 3 92,831 87,865 LTL Average tractors 4 3,569 3,201 Average trailers 5 9,564 8,482 Intermodal Average tractors 615 639 Average containers 12,572 12,730 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 2.6 years and 2.5 years as of December 31, 2024 and 2023, respectively. 3 Note that average trailers includes 8,985 and 8,724 trailers within our All Other Segment as of December 31, 2024 and 2023, respectively. Our trailer fleet within the Truckload segment had a weighted average age of 9.4 years and 8.9 years as of December 31, 2024 and 2023, respectively. 4 Our LTL tractor fleet had a weighted average age of 4.2 years and 4.4 years as of December 31, 2024 and 2023, respectively, and includes 619 and 611 tractors from ACT's and MME's dedicated and other businesses for 2024 and 2023, respectively. 5 Our LTL trailer fleet had a weighted average age of 8.4 years and 8.6 years as of December 31, 2024 and 2023, respectively, and includes 876 and 723 trailers from ACT's and MME's dedicated and other businesses for 2024 and 2023, respectively. 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 Results of Operations — Summary Notes regarding presentation: A discussion of changes in our results of operations from 2022 to 2023 has been omitted from this Annual Report, but may be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2023 Annual Report filed with the SEC on February 22, 2024. In accordance with accounting treatment applicable to each of our recent acquisitions, Knight-Swift's reported results do not include the operating results of the acquired entities prior to the respective acquisition dates. Accordingly, comparisons between the Company's 2024 results and prior periods may not be meaningful. Refer to Note 1 in Part II, Item 8 of this Annual Report for a list of our recent acquisitions. Operating Results: 2024 Compared to 2023 — The $99.5 million decrease in net income attributable to Knight-Swift to $117.6 million in 2024 from $217.1 million in 2023, includes the following: • Contributor — $129.6 million decrease in operating income within our Truckload segment, primarily due to a 7.6% decrease in average revenue per tractor, which includes the results of U.S. Xpress. Excluding U.S. Xpress, revenue, excluding fuel surcharge, per tractor increased 1.6% year-over-year. • Contributor — $31.5 million decrease in operating income from our LTL segment as a result of increased costs related to expanding our LTL service area and a 4.1% decrease in weight per shipment. • Contributor — $20.1 million decrease in operating income within our Logistics segment driven by a 11.1% decrease in load count. • Contributor — $49.1 million increase in net interest expense primarily due to an increase in interest rates and increase in outstanding borrowings. • Offset — $85.4 million decrease in operating loss within our All Other Segments, largely as a result of exiting the third-party insurance business at the end of the first quarter of 2024. • Offset — $22.6 million increase in "Other income (expenses), net," primarily driven by a mark-to-market adjustment in 2024 related to certain purchase price obligations associated with the acquisition of U.S. Xpress. • Offset — $21.8 million decrease in consolidated income tax expense, primarily due to a decrease in income before income taxes. This resulted in a 2024 effective tax rate of 22.1% and a 2023 effective tax rate of 20.3%. • Offset — $1.0 million decrease in operating loss within our Intermodal segment driven by a 3.5% increase in load count. See additional discussion of our operating results within "Results of Operations — Consolidated Operating and Other Expenses" below. 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 Results of Operations — Segment Review The Company has four reportable segments: Truckload, LTL, Logistics, and Intermodal, as well as certain other operating segments included within our All Other Segments. Refer to Note 23 in Part II, Item 8 of this Annual Report for descriptions of our segments. Refer to Part I, Item 1, "Business – Our Mission and Company Strategy" of this Annual Report for discussion related to our segment operating strategies. Consolidating Tables for Total Revenue and Operating Income 2024 2023 Revenue: (Dollars in thousands) Truckload $ 5,034,941 67.9 % $ 4,698,655 65.8 % LTL $ 1,235,547 16.7 % $ 1,082,454 15.2 % Logistics $ 570,001 7.7 % $ 582,250 8.2 % Intermodal $ 387,232 5.2 % $ 410,549 5.7 % Subtotal $ 7,227,721 97.5 % $ 6,773,908 94.9 % All Other Segments $ 266,496 3.6 % $ 462,061 6.5 % Intersegment eliminations $ (84,139) (1.1 %) $ (94,203) (1.4 %) Total revenue $ 7,410,078 100.0 % $ 7,141,766 100.0 % 2024 2023 Operating income (loss): (Dollars in thousands) Truckload $ 168,345 69.2 % $ 297,977 88.1 % LTL $ 87,390 35.9 % $ 118,880 35.2 % Logistics $ 23,312 9.6 % $ 43,418 12.8 % Intermodal $ (9,458) (3.9 %) $ (10,507) (3.1 %) Subtotal $ 269,589 110.8 % $ 449,768 133.0 % All Other Segments $ (26,201) (10.8 %) $ (111,615) (33.0 %) Operating income $ 243,388 100.0 % $ 338,153 100.0 % 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 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 16,300 irregular route and 6,500 dedicated tractors. • Our LTL business, which was initially established in 2021 through the ACT Acquisition and later the MME and DHE acquisitions, provides our customers with regional LTL transportation service through our growing network of approximately 170 facilities and a door count of approximately 6,060. Our LTL segment operates approximately 3,600 tractors and approximately 9,600 trailers, including equipment used for ACT's and MME's dedicated and other businesses. The LTL segment 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 by leveraging our fleet of approximately 93,000 trailers as of December 31, 2024. • All Other Segments include support services provided to our customers and third-party carriers including equipment maintenance, equipment leasing, warehousing, trailer parts manufacturing, warranty services, and insurance for independent contractors, as well as insurance for affiliated carriers through the first quarter of 2024. All Other 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, nor 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. 49 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED 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) divided by average tractor count 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 50 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Segment Review Truckload Segment We generate revenue in the Truckload segment primarily through irregular route, dedicated, refrigerated, flatbed, expedited, and cross-border service offerings, with approximately 16,300 irregular route tractors and approximately 6,500 dedicated route tractors in use during 2024. 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, other specialized services, and 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 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 expenses from tractors, trailers, and terminals, as well as compensating our non-driver employees. 2024 2023 2024 vs. 2023 (Dollars in thousands, except per tractor data) Increase (decrease) Total revenue $ 5,034,941 $ 4,698,655 7.2 % Revenue, excluding fuel surcharge and intersegment transactions $ 4,408,612 $ 4,031,054 9.4 % GAAP: Operating income $ 168,345 $ 297,977 (43.5 %) Non-GAAP: Adjusted Operating Income 1 $ 194,744 $ 314,542 (38.1 %) Average revenue per tractor 2 $ 193,436 $ 209,258 (7.6 %) GAAP: Operating ratio 2 96.7 % 93.7 % 300 bps Non-GAAP: Adjusted Operating Ratio 1 2 95.6 % 92.2 % 340 bps Non-paid empty miles percentage 2 14.0 % 14.3 % (30 bps) Average length of haul (miles) 2 383 393 (2.5 %) Total miles per tractor 2 81,563 85,233 (4.3 %) Average tractors 2 3 22,791 20,948 8.8 % Average trailers 2 4 92,831 87,865 5.7 % 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined within "Operating Statistics" above. 3 Includes 20,644 and 18,821 company-owned tractors for 2024 and 2023, respectively. 4 Average trailers includes 8,985 and 8,724 trailers from our All Other Segments for 2024 and 2023, respectively. 2024 Compared to 2023 — Our Truckload segment revenue, excluding fuel surcharge and intersegment transactions, increased 9.4 % year-over-year, driven by a 13.6% increase in loaded miles. Revenue per loaded mile, excluding fuel surcharge and intersegment transactions, declined 3.8% year-over-year. The 2024 Adjusted Operating Ratio increased 340 basis points year-over-year to 95.6%. We believe our extensive trailer fleet, which has grown to approximately 93,000 trailers as of the end of 2024, positions us to provide valuable capacity, flexibility, and efficiency to our customers through our Truckload and Logistics segments. We are focused on disciplined pricing and capacity commitments that we expect will position our business to continue to respond as market conditions improve. 51 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED LTL Segment Our LTL segment provides regional direct service and serves 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 expenses are 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 expense, 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 to 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. 2024 2023 2024 vs. 2023 (Dollars in thousands, except per shipment and per hundredweight data) Increase (decrease) Total revenue $ 1,235,547 $ 1,082,454 14.1 % Revenue, excluding fuel surcharge $ 1,063,165 $ 914,568 16.2 % GAAP: Operating income $ 87,390 $ 118,880 (26.5) % Non-GAAP: Adjusted Operating Income 1 $ 105,511 $ 134,560 (21.6) % GAAP: Operating ratio 2 92.9 % 89.0 % 390 bps Non-GAAP: Adjusted Operating Ratio 1 2 90.1 % 85.3 % 480 bps LTL shipments per day 2 20,756 18,899 9.8 % LTL weight per shipment 2 1,005 1,048 (4.1) % LTL average length of haul (miles) 2 589 553 6.5 % LTL revenue per shipment 2 $ 202.67 $ 193.32 4.8 % LTL revenue xFSC per shipment 2 $ 174.10 $ 163.10 6.7 % LTL revenue per hundredweight 2 $ 20.17 $ 18.44 9.4 % LTL revenue xFSC per hundredweight 2 $ 17.33 $ 15.56 11.4 % LTL average tractors 2 3 3,569 3,201 11.5 % LTL average trailers 2 4 9,564 8,482 12.8 % 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics," above. 3 Includes 619 and 611 tractors from ACT's and MME's dedicated and other businesses for 2024 and 2023, respectively. 4 Includes 876 and 723 trailers from ACT's and MME's dedicated and other businesses for 2024 and 2023, respectively. 2024 Compared to 2023 — Our LTL segment grew revenue, excluding fuel surcharge, 16.2% as shipments per day increased 9.8% year-over-year, which includes the acquisition of DHE on July 30, 2024. Revenue per hundredweight, excluding fuel surcharge, increased 11.4%, while revenue per shipment, excluding fuel surcharge, increased by 6.7%, reflecting a 4.1% decrease in weight per shipment. This segment produced a 90.1% Adjusted Operating Ratio in 2024, while Adjusted Operating Income decreased 21.6% year-over-year primarily due to start-up costs and early-stage operations at our recently opened facilities and costs related to the system integration of DHE, which was completed during the fourth quarter of 2024. 52 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED During 2024, we opened 37 additional service centers and added 14 more facilities through the DHE Acquisition in the third quarter. Overall, our organic and inorganic expansion activities in 2024 added approximately 1,430 doors, representing over 30% growth in our door count from the beginning of the year. We believe this meaningfully impacts the reach of our service offering and ultimately will increase the density of our network. We believe the investments in our network during 2024 bring opportunities to service additional freight and customers, though the associated set-up costs and initial operational inefficiencies are near-term headwinds to improving margins. Our focus for 2025 will be to grow shipment volumes at these locations, particularly as they participate in the bid cycle, which we expect will help drive both revenue and margin expansion in the business. While we currently anticipate that our pace of facility additions will slow in 2025, 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 primarily 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 logistics 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 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," as well as depreciation and amortization expense recorded in "Depreciation and amortization of property and equipment" in the consolidated statements of comprehensive income. 2024 2023 2024 vs. 2023 (Dollars in thousands, except per load data) Increase (decrease) Total revenue $ 570,001 $ 582,250 (2.1 %) Revenue, excluding intersegment transactions $ 570,001 $ 577,695 (1.3 %) GAAP: Operating income $ 23,312 $ 43,418 (46.3 %) Non-GAAP: Adjusted Operating Income 1 2 $ 27,968 $ 45,031 (37.9 %) Revenue per load - Brokerage only 2 $ 1,894 $ 1,724 9.9 % Gross margin percentage - Brokerage only 2 17.5 % 18.7 % (120 bps) GAAP: Operating ratio 2 95.9 % 92.5 % 340 bps Non-GAAP: Adjusted Operating Ratio 1 2 95.1 % 92.2 % 290 bps 1 Refer to "Non-GAAP Financial Measures" below. 2 Defined under "Operating Statistics" above. 2024 Compared to 2023 — Logistics Adjusted Operating Ratio was 95.1%, with a gross margin of 17.5% in 2024, compared to 18.7% in 2023. Logistics load count, excluding U.S. Xpress, declined by 26.3% year-over-year. With the inclusion of U.S. Xpress logistics volumes, load count declined by 11.1% year-over-year. Revenue per load increased by 9.9% year-over-year, but was offset by increased purchase transportation costs. We remain disciplined on price and diligent in carrier qualification to provide value to customers while maintaining profitability. We continue to leverage our power-only capabilities to complement our asset business, build a broader and more diversified freight portfolio, and to enhance the returns on our capital assets. 53 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Intermodal Segment The Intermodal segment complements our regional operating model, while also allowing 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 consolidated statements of comprehensive income. While rail pricing is primarily 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. 2024 2023 2024 vs. 2023 (Dollars in thousands, except per load data) Increase (decrease) Total revenue $ 387,232 $ 410,549 (5.7 %) GAAP: Operating loss $ (9,458) $ (10,507) 10.0 % Average revenue per load 1 $ 2,590 $ 2,842 (8.9 %) GAAP: Operating ratio 1 102.4 % 102.6 % (20 bps) Load count 149,512 144,471 3.5 % Average tractors 1 2 615 639 (3.8 %) Average containers 1 12,572 12,730 (1.2 %) 1 Defined within "Operating Statistics" above. 2 Includes 561 and 577 c ompany-owned tractors for 2024 and 2023, respectively. 2024 Compared to 2023 — Intermodal operated with a 102.4% operating ratio in 2024. While load count increased year-over-year by 3.5%, total revenue decreased 5.7% year-over-year to $387.2 million as revenue per load declined 8.9%, resulting from soft demand and competitive truck capacity. We remain focused on growing our load count with disciplined pricing across a diverse group of customers, although we expect future results will be impacted by the cost of alternative truck capacity. All Other Segments Our All Other Segments include support services provided to our customers and third-party carriers including equipment maintenance, equipment leasing, warehousing, trailer parts manufacturing, warranty services, and insurance for independent contractors, as well as insurance for affiliated carriers through the first quarter of 2024. Our All Other Segments also include certain corporate expenses (such as legal settlements and accruals, certain impairments, and $46.7 million in annual amortization of intangibles related to the 2017 Merger and various acquisitions). 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Total revenue $ 266,496 $ 462,061 (42.3 %) Operating income (loss) $ (26,201) $ (111,615) 76.5 % 2024 Compared to 2023 — Revenue declined 42.3% year-over-year, largely as a result of winding down our third-party carrier insurance program in the first quarter of 2024. The $26.2 million operating loss within our All Other Segments is primarily driven by the intangible amortization during 2024. The operating loss within our All Other Segments improved from the prior year, which had included a $125.5 million operating loss for the third-party insurance business during 2023. 54 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 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. 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Salaries, wages, and benefits $ 2,821,987 $ 2,479,759 13.8 % % of total revenue 38.1 % 34.7 % 340 bps % of revenue, excluding truckload and LTL fuel surcharge 42.7 % 39.3 % 340 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, equipment, and 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 increases in pay and benefits expenses in the future, thereby increasing our salaries, wages, and benefits expense. 2024 Compared to 2023 — The increase in consolidated salaries, wages, and benefits includes a $263.6 million increase as a result of including U.S. Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023 as well as an $87.0 million increase from LTL wages primarily due to the DHE Acquisition. 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Fuel $ 871,146 $ 878,407 (0.8 %) % of total revenue 11.8 % 12.3 % (50 bps) % of revenue, excluding truckload and LTL fuel surcharge 13.2 % 13.9 % (70 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. 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. 55 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED 2024 Compared to 2023 — The decrease in consolidated fuel expense was primarily due to lower average weekly DOE fuel prices of $3.76 per gallon in 2024 compared to $4.20 per gallon in 2023, mostly offset by the increase in fuel expense as a result of including U.S. Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023. 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Operations and maintenance $ 546,883 $ 473,491 15.5 % % of total revenue 7.4 % 6.6 % 80 bps % of revenue, excluding truckload and LTL fuel surcharge 8.3 % 7.5 % 80 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 2025, 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 fleet in the coming quarters, subject to availability of new revenue equipment, to maintain the average age of our equipment. 2024 Compar ed to 2023 — The increase in consolidated operations and maintenance expense includes a $57.5 million increase as a result of including U.S. Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023 and a $10.0 million increase in maintenance primarily related to tractor and trailer tire expenses, excluding U.S. Xpress. 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Insurance and claims $ 415,652 $ 609,536 (31.8 %) % of total revenue 5.6 % 8.5 % (290 bps) % of revenue, excluding truckload and LTL fuel surcharge 6.3 % 9.7 % (340 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. As a result, our insurance and claims expense could increase in the future, or we could raise our self-insured retention limits or reduce excess coverage limits when our policies are renewed or replaced. Insurance and claims expense also varies based on the number of miles driven by company driving associates and independent contractors, the frequency and severity of accidents, trends in development factors used in actuarial accruals, and developments in prior-year claims. In future periods, our higher self-insured retention limits and lower excess coverage limits may cause increased volatility in our consolidated insurance and claims expense. In the first quarter of 2024, we exited our third-party insurance business, which offered insurance products to third-party carriers, earning premium revenues, which were partially offset by increased insurance reserves, and which exposed us to claims and inability to collect premiums. We ceased operating this business in the first quarter of 2024, which we expect will result in some reduction of volatility as we will no longer be exposed to new claims from the third-party insurance business. 2024 Compared to 2023 — Consolidated insurance and claims expense decreased primarily due to a $259.7 million decrease in insurance costs associated with the third-party insurance business, which we exited in the first quarter of 2024. This decrease was partially offset by an increase of $42.2 million in insurance and claims expense as a result of including U.S. Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023. 56 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Operating taxes and licenses $ 127,505 $ 117,024 9.0 % % of total revenue 1.7 % 1.6 % 10 bps % of revenue, excluding truckload and LTL fuel surcharge 1.9 % 1.9 % — 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. 2024 Compared to 2023 — The increase in consolidated operating taxes and licenses expense is primarily due to the inclusion of $7.5 million of operating taxes and licenses expense from including U.S Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023. 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Communications $ 31,152 $ 29,661 5.0 % % of total revenue 0.4 % 0.4 % — bps % of revenue, excluding truckload and LTL fuel surcharge 0.5 % 0.5 % — bps Communications expense is comprised of costs associated with our tractor and trailer tracking systems, information technology systems, and phone systems. 2024 Compared to 2023 — The increase in consolidated communications expense is primarily due to the inclusion of $2.0 million of communications expense from including U.S. Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023. 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Depreciation and amortization of property and equipment $ 717,522 $ 664,962 7.9 % % of total revenue 9.7 % 9.3 % 40 bps % of revenue, excluding truckload and LTL fuel surcharge 10.9 % 10.5 % 40 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 in 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. 2024 Compared to 2023 — The increase in consolidated depreciation and amortization of property and equipment includes a $65.7 million increase of expense as a result of including U.S. Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023. This was partially offset by a decrease in tractor and trailer depreciation as a result of the decrease in the tractor and trailer counts for our legacy business, excluding U.S. Xpress. We anticipate that depreciation and amortization expense will increase, 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 2025. 57 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Amortization of intangibles $ 75,280 $ 70,138 7.3 % % of total revenue 1.0 % 1.0 % — bps % of revenue, excluding truckload and LTL fuel surcharge 1.1 % 1.1 % — bps Amortization of intangibles relates to intangible assets identified with the 2017 Merger, ACT Acquisition, U.S. Xpress Acquisition, and other acquisitions. See Note 4 and Note 8 in Part II, Item 8, of this Annual Report for further details regarding the Company's intangible assets, historical amortization, and anticipated future amortization. 2024 Compared to 2023 — The increase in consolidated amortization of intangibles for 2024 is primarily attributed to the U.S. Xpress and DHE acquisitions. See Note 4 in Part II, Item 8, of this Annual Report for more details regarding our acquisitions. 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Rental expense $ 171,665 $ 130,269 31.8 % % of total revenue 2.3 % 1.8 % 50 bps % of revenue, excluding truckload and LTL fuel surcharge 2.6 % 2.1 % 50 bps Rental expense consists primarily of payments for revenue equipment assumed in the U.S. Xpress Acquisition, as well as our terminals and other real estate leases. 2024 Compared to 2023 — The increase in consolidated rental expense is primarily related to the inclusion of $38.0 million from including U.S. Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023. Additional increases relate to the incorporation of new facilities as we expand our LTL network and were partially offset by a decrease in the rental expense for revenue equipment. 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Purchased transportation $ 1,170,806 $ 1,190,836 (1.7 %) % of total revenue 15.8 % 16.7 % (90 bps) % of revenue, excluding truckload and LTL fuel surcharge 17.7 % 18.9 % (120 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. Purchased transportation expense may also fluctuate as a percentage of revenue based on the relative growth of our logistics and intermodal businesses as compared to our full truckload and LTL businesses. 2024 Compared to 2023 — The decrease in consolidated purchased transportation expense is primarily due to decreased load volume within our logistics business and lower miles driven by independent contractors, partially offset by $152.2 million of additional purchased transportation expense from including U.S. Xpress' full year expense in 2024 compared to its partial year expense in 2023 following the U.S. Xpress Acquisition in July 2023. 58 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Impairments $ 19,012 $ 2,236 750.3 % 2024 Compared to 2023 — In 2024, we incurred impairment charges related to building improvements, certain revenue equipment held for sale, leases, and other equipment (within the Truckload segment and All Other Segments). In 2023, we incurred impairment charges related to certain revenue equipment held for sale (within the Truckload segment) and terminated software projects (recorded within our All Other Segments, specifically related to our third-party insurance business). 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Miscellaneous operating expenses $ 198,080 $ 157,294 25.9 % Miscellaneous operating expenses primarily consists of legal and professional services fees, general and administrative expenses, and other costs, net of gain on sales of equipment. 2024 Compared to 2023 — The increase in net consolidated miscellaneous operating expenses is primarily due to a $30.2 million decrease in gain on sales of property and equipment, as well as the inclusion of the full year expense of $14.4 million in 2024 compared to the partial year expense in 2023 from the results of U.S. Xpress. Consolidated Other Expenses, net The following table summarizes fluctuations in certain non-operating expenses included in our consolidated statements of comprehensive income: 2024 2023 2024 vs. 2023 (Dollars in thousands) Increase (decrease) Interest income $ (16,556) $ (21,577) (23.3 %) Interest expense $ 171,158 $ 127,100 34.7 % Other income, net $ (60,260) $ (37,659) 60.0 % Income tax expense $ 32,960 $ 54,768 (39.8 %) Interest income — Interest income includes interest earned from financing revenue equipment to independent contractors, as well as interest earned from our investments. 2024 Compared to 2023 — The decrease in consolidated interest income is primarily due to the lower balances in our interest yielding cash accounts during 2024. Interest expense — Interest expense is comprised of debt and finance lease interest expense, as well as amortization of deferred loan costs. 2024 Compared to 2023 — Consolidated interest expense increased due to an increase in interest rates during 2024 and an increase in the average debt balance. Additional details regarding our debt are discussed in Note 13 in Part II, Item 8 of this Annual Report. Other income, net — Other income, net is primarily comprised of (gains) and losses from our various equity investments, as well as certain other non-operating income and expense items that may arise outside of the normal course of business. 2024 Compared to 2023 — The increase in consolidated other income, net is primarily due to the $36.6 million benefit for the mark-to-market adjustment in 2024 related to certain purchase price obligations associated with the acquisition of U.S. Xpress, partially offset by a $12.1 million write-off of a minority investment in a transportation-adjacent technology venture which ceased operations in the third quarter of 2024. See Note 4 in Part II, Item 8, of this Annual Report for more details regarding our purchase price obligations in connection with the U.S. Xpress Acquistion. 59 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Income tax expense — In addition to the discussion below, Note 11 in Part II, Item 8 of this Annual Report provides further analysis related to income taxes. 2024 Compared to 2023 — The decrease in consolidated income tax expense was primarily due to a reduction in pre-tax earnings in addition to tax benefits from mark-to-market adjustments and decreased state tax expense due to changes in rates. These were partially offset by a decrease in the release of valuation allowance, reductions in foreign currency benefits, and decreases in stock compensation deductions. As a result, the effective tax rate for 2024 was 22.1% as compared to the 2023 effective tax rate of 20.3%. 60 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 Expenses," "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, Adjusted Operating Expenses 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 Expenses, 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 expenses to non-GAAP segment Adjusted Operating Expenses, 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. Note regarding presentation: A discussion of changes in our results of operations from 2022 to 2023 has been omitted from this Annual Report, but may be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2023 Annual Report filed with the SEC on February 22, 2024 . 61 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 2024 2023 (Dollars in thousands) GAAP: Net income attributable to Knight-Swift $ 117,626 $ 217,149 Adjusted for: Income tax expense attributable to Knight-Swift 32,960 54,768 Income before income taxes attributable to Knight-Swift 150,586 271,917 Amortization of intangibles 1 75,945 70,138 Impairments 2 19,012 2,236 Legal accruals 3 2,560 7,694 Transaction fees 4 602 6,868 Other acquisition related expenses 5 — 7,697 Severance expense 6 7,219 5,151 Change in fair value of deferred earnout 7 (859) (3,359) Loss on investment 8 12,107 — USX mark to market adjustment 9 (36,617) — Adjusted income before income taxes 230,555 368,342 Provision for income tax expense at effective rate 10 (58,470) (89,603) Non-GAAP: Adjusted Net Income Attributable to Knight-Swift $ 172,085 $ 278,739 Note: Since the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding. 2024 2023 GAAP: Earnings per diluted share $ 0.73 $ 1.34 Adjusted for: Income tax expense (benefit) attributable to Knight-Swift 0.20 0.34 Income before income taxes attributable to Knight-Swift 0.93 1.68 Amortization of intangibles 1 0.47 0.43 Impairments 2 0.12 0.01 Legal accruals 3 0.02 0.05 Transaction fees 4 — 0.04 Other acquisition related expenses 5 — 0.05 Severance expense 6 0.04 0.03 Change in fair value of deferred earnout 7 (0.01) (0.02) Loss on investment 8 0.07 — USX mark to market adjustment 9 (0.23) — Adjusted income before income taxes 1.42 2.28 Provision for income tax expense at effective rate 10 (0.36) (0.55) Non-GAAP: Adjusted EPS $ 1.06 $ 1.72 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the 2017 Merger, the ACT Acquisition, the U.S. Xpress Acquisition, and other acquisitions, as well as the non-cash amortization expense related to the fair value of favorable leases assumed in the DHE acquisition included within "Rental expense" in the consolidated statements of comprehensive income. 62 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED 2 "Impairments" reflects the non-cash impairments: • 2024 impairments of building improvements, certain revenue equipment held for sale, leases, and other equipment (within the Truckload segment and All Other Segments). • 2023 impairments related to certain revenue equipment held for sale (within the Truckload segment) and terminated software projects (recorded within our All Other Segments, specifically related to our third party insurance business). 3 "Legal accruals" are included in "Miscellaneous operating expenses" in the consolidated statements of comprehensive income and reflect the following: • Year-to-date 2024 legal expense reflects the increased estimated exposures for accrued legal matters based on recent settlement agreements. • During the fourth quarter of 2023, the Company recorded estimated exposure for various legal matters. Additionally, the Company identified a probable loss contingency related to our third-party carrier insurance business included within our All Other segments. During the second and third quarters of 2023, legal expense reflects the increased estimated exposure for various accrued legal matters based on recent settlement agreements. 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. 4 "Transaction fees" reflects certain legal and professional fees associated with the July 1, 2023 and July 30, 2024 acquisitions of U.S. Xpress and DHE, respectively. The transaction fees are primarily included within "Miscellaneous operating expenses" and "Salaries, wages, and benefits" and with smaller amounts included in other line items in the consolidated statements of comprehensive income. 5 "Other acquisition related expenses" represents one-time expenses associated with the U.S. Xpress Acquisition, including certain severance expenses, including the acceleration of stock compensation expense as well as other operating expenses. These are primarily included within "Salaries, wages, and benefits" in the consolidated statements of comprehensive income. 6 "Severance expense" is included within "Salaries, wages, and benefits" in the consolidated statements of comprehensive income. 7 " Change in fair value of deferred earnout" reflects the benefit for the change in fair value of a deferred earnout related to various acquisitions, which is recorded in "Miscellaneous operating expenses." 8 "Loss on investment" reflects the write-off of a minority investment in a transportation-adjacent technology venture which ceased operations in the third quarter of 2024 and is recorded within the All Other Segments. 9 Mark-to-market adjustment related to certain purchase price obligations associated with the acquisition of U.S. Xpress. 10 For 2024, an adjusted effective tax rate of 25.4% was applied in our Adjusted EPS calculation to exclude certain discrete items. For 2023, an effective tax rate of 24.3% was applied in our Adjusted EPS calculation. The change in the effective tax rate was primarily impacted by the change in pre-tax income based on the adjustments presented in Adjusted Net Income Attributable to Knight-Swift. For 2023, the effective tax rate was normalized to exclude the third quarter 2023 tax benefit from the partial release of the pre-acquisition allowance associated with the U.S. Xpress net operating loss and tax credit carryforward benefits. 63 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, Adjusted Operating Expenses, and Adjusted Operating Ratio 2024 2023 GAAP Presentation (Dollars in thousands) Total revenue $ 7,410,078 $ 7,141,766 Total operating expenses (7,166,690) (6,803,613) Operating income $ 243,388 $ 338,153 Operating ratio 96.7 % 95.3 % Non-GAAP Presentation Total revenue $ 7,410,078 $ 7,141,766 Truckload and LTL fuel surcharge (798,121) (833,597) Revenue, excluding truckload and LTL fuel surcharge 6,611,957 6,308,169 Total operating expenses 7,166,690 6,803,613 Adjusted for: Truckload and LTL fuel surcharge (798,121) (833,597) Amortization of intangibles 1 (75,945) (70,138) Impairments 2 (19,012) (2,236) Legal accruals 3 (2,560) (7,694) Transaction fees 4 (602) (6,868) Other acquisition related expenses 5 — (7,697) Severance expense 6 (7,219) (5,151) Change in fair value of deferred earnout 7 859 3,359 Adjusted Operating Expenses 6,264,090 5,873,591 Adjusted Operating Income $ 347,867 $ 434,578 Adjusted Operating Ratio 94.7 % 93.1 % 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 . 6 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 6. 7 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 7 . 64 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, Adjusted Operating Expenses, and Adjusted Operating Ratio Truckload Segment 2024 2023 GAAP Presentation (Dollars in thousands) Total revenue $ 5,034,941 $ 4,698,655 Total operating expenses (4,866,596) (4,400,678) Operating income $ 168,345 $ 297,977 Operating ratio 96.7 % 93.7 % Non-GAAP Presentation Total revenue $ 5,034,941 $ 4,698,655 Fuel surcharge (625,739) (665,711) Intersegment transactions (590) (1,890) Revenue, excluding fuel surcharge and intersegment transactions 4,408,612 4,031,054 Total operating expenses 4,866,596 4,400,678 Adjusted for: Fuel surcharge (625,739) (665,711) Intersegment transactions (590) (1,890) Amortization of intangibles 1 (7,099) (5,576) Impairments 2 (17,132) (656) Legal accruals 3 (702) — Other acquisition related expenses 4 — (7,697) Severance expense 5 (1,466) (2,636) Adjusted Operating Expenses 4,213,868 3,716,512 Adjusted Operating Income $ 194,744 $ 314,542 Adjusted Operating Ratio 95.6 % 92.2 % 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in historical Knight acquisitions and the U.S. Xpress Acquisition. 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 5. 5 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 6. 65 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 2024 2023 GAAP Presentation (Dollars in thousands) Total revenue $ 1,235,547 $ 1,082,454 Total operating expenses (1,148,157) (963,574) Operating income $ 87,390 $ 118,880 Operating ratio 92.9 % 89.0 % Non-GAAP Presentation Total revenue $ 1,235,547 $ 1,082,454 Fuel surcharge (172,382) (167,886) Revenue, excluding fuel surcharge 1,063,165 914,568 Total operating expenses 1,148,157 963,574 Adjusted for: Fuel surcharge (172,382) (167,886) Amortization of intangibles 1 (17,447) (15,680) Impairments 2 (674) — Adjusted Operating Expenses 957,654 780,008 Adjusted Operating Income $ 105,511 $ 134,560 Adjusted Operating Ratio 90.1 % 85.3 % 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified with the ACT, MME, and DHE acquisitions, as well as the non-cash amortization expense related to the fair value of favorable leases assumed in the DHE Acquisition. 2 See Non-GAAP Reconciliation: Consolidated Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS footnote 2. Logistics Segment 2024 2023 GAAP Presentation (Dollars in thousands) Total revenue $ 570,001 $ 582,250 Total operating expenses (546,689) (538,832) Operating income $ 23,312 $ 43,418 Operating ratio 95.9 % 92.5 % Non-GAAP Presentation Total revenue $ 570,001 $ 582,250 Intersegment transactions — (4,555) Revenue, excluding intersegment transactions 570,001 577,695 Total operating expenses 546,689 538,832 Adjusted for: Intersegment transactions — (4,555) Amortization of intangibles 1 (4,656) (1,613) Adjusted Operating Expenses 542,033 532,664 Adjusted Operating Income $ 27,968 $ 45,031 Adjusted Operating Ratio 95.1 % 92.2 % 1 "Amortization of intangibles" reflects the non-cash amortization expense relating to intangible assets identified in the U.S. Xpress and UTXL acquisitions. 66 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 2024 2023 GAAP Presentation (Dollars in thousands) Total revenue $ 387,232 $ 410,549 Total operating expenses (396,690) (421,056) Operating loss $ (9,458) $ (10,507) Operating ratio 102.4 % 102.6 % Non-GAAP Reconciliation: Free cash flow 2024 GAAP: Cash flows from operations $ 799,063 Adjusted for: Proceeds from sale of property and equipment, including assets held for sale 253,923 Purchases of property and equipment (819,150) Non-GAAP: Free Cash Flow $ 233,836 67 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 The following table presents our available sources of liquidity as of December 31, 2024: Source: Amount (In thousands) Cash and cash equivalents, excluding restricted cash $ 218,261 Availability under 2021 Revolver, due September 2026 1 849,899 Availability under 2023 RSA, due October 2025 2 14,333 Total unrestricted liquidity $ 1,082,493 Cash and cash equivalents – restricted 3 151,969 Total liquidity, including restricted cash $ 1,234,462 1 As of December 31, 2024, we had $232.0 million in borrowings under our $1.1 billion 2021 Revolver. We additionally had $18.1 million in outstanding letters of credit (discussed below) issued under the 2021 Revolver, leaving $849.9 million available under the 2021 Revolver. 2 Based on eligible receivables at December 31, 2024, our borrowing base for the 2023 RSA was $500.7 million, while outstanding borrowings were $459.2 million, along with $27.2 million in outstanding letters of credit, leaving $14.3 million available under the 2023 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 $147.7 million, which is included in "Cash and cash equivalents — restricted" in the consolidated balance sheets held by Mohave and Red Rock for claims payments. The remaining $4.3 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 — Subject to 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 (when justified by customer demand), 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, investment, and strategic partnership opportunities. We expect net cash capital expenditures will be in the range of $575.0 to $625.0 million in 2025. Our expected net cash capital expenditures primarily represent replacements of existing tractors and trailers and investments in our terminal network, driver amenities, and technology, and excludes acquisitions. 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. 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 2023 RSA, and availability under the 2021 Revolver will be sufficient to fund our expected capital expenditures for at least the next twelve months. Refer to Note 16 in Part II, Item 8 of this Annual Report for additional discussion of our short-term and long-term contractual payment obligations related to purchase commitments. 68 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Principal and Interest Payments — As of December 31, 2024, we had debt, accounts receivable securitization, and finance lease obligations of $2.9 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. Prior to the maturity of our 2023 RSA, 2023 Term Loan, 2021 Term Loans, 2021 Revolver, Prudential Notes, revenue equipment installment notes, and other debt, we expect to be contractually obligated to make interest payments of approximately $19.4 million, $27.0 million, $115.7 million, $7.0 million, $0.7 million, $11.1 million and $1.4 million, respectively. Refer to Notes 12 and 13 in Part II, Item 8 of this Annual Report for additional discussion of the principal payment obligations related to the 2023 RSA, 2023 Term Loan, and 2021 Debt Agreement. Refer to Note 14 in Part II, Item 8 of this Annual Report for additional discussion on our contractual principal and interest payment obligations for finance leases. Letters of Credit — Pursuant to the terms of the 2021 Debt Agreement and the 2023 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 2023 RSA is reduced accordingly. As of December 31, 2024, we also had outstanding letters of credit of $246.0 million pursuant to a bilateral agreement which does not impact the availability of the 2021 Revolver and 2023 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, the price of our common stock, general economic and market conditions, as well as internal approval requirements, we may repurchase shares of our outstanding common stock. The 2022 Knight-Swift Repurchase Plan had $200.0 million available as of December 31, 2024. See further details regarding our share repurchases under Note 18 in Part II, Item 8 of this Annual Report. Working Capital We had a working capital deficit of $258.0 million as of December 31, 2024 and a working capital deficit of $116.3 million as of December 31, 2023. The $141.7 million increase in the deficit was primarily due to the current classification of the 2023 RSA, which matures October 2025. ________ 1 Refer to "Non-GAAP Financial Measures." 69 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 Debt Agreements As of December 31, 2024, we had $2.9 billion in material debt obligations at the following carrying values: • $349.1 million: 2021 Term Loan A-2, due September 2026, net of $0.9 million in deferred loan costs • $779.4 million: 2021 Term Loan A-3, due September 2026, net of $0.6 million in deferred loan costs • $249.5 million: 2023 Term Loan, due September 2026, net of $0.5 million in deferred loan costs • $459.0 million: 2023 RSA outstanding borrowings, net of $0.2 million in deferred loan costs • $597.4 million: Finance lease obligations • $232.0 million: 2021 Revolver, due September 2026 • $192.3 million: Revenue equipment installment notes • $23.3 million: Other, net of approximately $10,000 in deferred loan costs As of December 31, 2023, we had $2.7 billion in material debt obligations at the following carrying values: • $199.9 million: 2021 Term Loan A-2, due September 2024, net of $0.1 million in deferred loan costs • $799.1 million: 2021 Term Loan A-3, due September 2026, net of $0.9 million in deferred loan costs • $249.1 million: 2023 Term Loan, due September 2026, net of $0.9 million in deferred loan costs • $526.5 million: 2023 RSA outstanding borrowings, net of $0.5 million in deferred loan costs • $528.9 million: Finance lease obligations • $67.0 million: 2021 Revolver, due September 2026 • $279.3 million: Revenue equipment installment notes • $33.6 million: Other, net of approximately $22,000 in deferred loan costs Key terms and other details regarding our material debt obligations and finance leases are discussed in Notes 12, 13, and 14 in Part II, Item 8 of this Annual Report, and are incorporated by reference herein. Cash Flow Analysis 2024 2023 Change (In thousands) Net cash provided by operating activities $ 799,063 $ 1,161,676 $ (362,613) Net cash used in investing activities (759,122) (1,228,025) 468,903 Net cash (used in) provided by financing activities (139,397) 150,690 (290,087) Net Cash Provided by Operating Activities 2024 Compared to 2023 — The $362.6 million decrease in net cash provided by operating activities was primarily due to a $94.8 million decrease in operating income, a $161.1 million cash payment for a commutation agreement to transfer certain outstanding insurance reserves to a third party, a $77.1 million decrease in change in trade receivables, and a $56.3 million increase in cash paid for interest. These were partially offset by a $30.4 million decrease in cash paid for taxes and various changes in working capital. Factors affecting the increase in operating income are discussed in "Results of Operations — Consolidated Operating and Other Expenses." Net Cash Used in Investing Activities 2024 Compared to 2023 — The $468.9 million decrease in net cash used in investing activities was primarily due to a $272.8 million decrease in net cash invested in acquisitions and a $213.8 million decrease in net cash capital expenditures. 70 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Net Cash (Used in) Provided by Financing Activities 2024 Compared to 2023 — Net cash used in financing activities increased by $290.1 million, primarily due to a $175.8 million increase in net repayments on our 2023 RSA, a $154.9 million increase in repayments on finance leases and long-term debt, and a $100.0 million decrease in proceeds from long-term debt. These were offset by a $86.0 million increase in net borrowings on our 2021 Revolver. Inflation Most of our operating expenses are inflation-sensitive, with inflation generally leading to increased costs of operations. Price increases in manufactured revenue equipment have impacted the cost for us to acquire new equipment in recent periods. 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. Critical Accounting Estimates The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that impact the amounts reported in our consolidated financial statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenue, expenses, and associated disclosures of contingent assets and liabilities are affected by these estimates and assumptions. We evaluate these estimates and assumptions on an ongoing basis, utilizing historical experience, consultation with experts, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates and assumptions, and it is possible that materially different amounts could be reported using differing estimates or assumptions. We consider our critical accounting estimates to be those that require us to make more significant judgments and estimates when we prepare our financial statements. Note 2 in Part II, Item 8 of this Annual Report describes the Company's accounting policies. The following discussion should be read in conjunction with Note 2, as it presents uncertainties involved in applying the accounting policies, and provides insight into the quality of management's estimates and variability in the amounts recorded for these critical accounting estimates. Our critical accounting estimates include the following: Claims Accruals — Insurance and claims expense varies as a percentage of total revenue, based on the frequency and severity of claims incurred in a given period, as well as changes in claims development trends. The actual cost to settle our self-insured claim liabilities, as well as our third-party claim liabilities, may differ from our reserve estimates due to legal costs, claims that have been incurred but not reported, and various other uncertainties, including the inherent difficulty in estimating the severity of the claim and the potential judgment or settlement amount to dispose of the claim. If claims development factors that are based upon historical experience had increased by 10%, our claims accrual as of December 31, 2024 would have potentially increased by $43.4 million. Refer to Note 10, in Part II, Item 8 of this Annual Report for discussion about the changes in the claims accrual balance. Goodwill and Indefinite-lived Intangible Assets — The test of goodwill requires judgment, including the identification of reporting units, assigning assets (including goodwill) and liabilities to reporting units and determining the fair value of each reporting unit. Fair value of the reporting unit is determined using a combination of comparative valuation multiples of publicly traded companies, internal transaction methods, and discounted cash flow models. Estimating the fair value of reporting units includes several significant assumptions, including future cash flow estimates, determination of appropriate discount rates, and other assumptions that management believed reasonable under the circumstances. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit. Knight-Swift evaluated its goodwill associated with the 2017 Merger and various acquisitions as of June 30, 2024 and 2023. The evaluations were completed using fair value measurement guidance prescribed in ASC 350, 71 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED Intangibles – Goodwill and Other. The fair value of the goodwill was established using an equal weighting of both the income and market approaches. In evaluating this quantitative analysis, the Company determined that it was more likely than not that fair value exceeded carrying value for the Company's reporting units as of June 30, 2024 and 2023. The test of indefinite-lived intangible assets consists of a comparison of the estimated fair value of certain trade names to their carrying values. The determination of the fair value of the trade names requires management to make significant estimates and assumptions related to forecasts of future revenues, discount rates, and royalty rates. Changes in these assumptions could materially affect the determination of the fair value of the trade names, the amount of any trade names impairment charge, or both. M anagement evaluated trade names for impairment as of June 30, 2024 and 2023 noting that the fair value exceeded carrying value for the trade name. Refer to Note 8, in Part II, Item 8 of this Annual Report for discussion about the changes in the goodwill and indefinite-lived intangible asset balances. Depreciation and Amortization — Selecting the appropriate accounting method requires management judgment, as there are multiple acceptable methods that are in accordance with GAAP, including straight-line, declining-balance, and sum-of-the-years' digits. As discussed in Note 2 included in Part II, Item 8 of this Annual Report, property and equipment is depreciated on a straight-line basis and intangible customer relationships are amortized on a straight-line basis over the estimated useful lives of the assets. We believe that these methods properly spread the costs over the useful lives of the assets. Management judgment is also involved when determining estimated useful lives of the Company's long-lived assets. We determine useful lives of our long-lived assets, based on historical experience, as well as future expectations regarding the period we expect to benefit from the asset. Factors affecting estimated useful lives of property and equipment may include estimating loss, damage, obsolescence, and company policies around maintenance and asset replacement. Factors affecting estimated useful lives of long-lived intangible assets may include legal, contractual, or other provisions that limit useful lives, historical experience with similar assets, future expectations of customer relationships, among others. Refer to Note 8, in Part II, Item 8 of this Annual Report for discussion about the impact of the amortization of definite-lived intangibles on our results for 2024 and 2023. Impairments of Long-lived Assets — Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as necessary. Estimating fair value includes several significant assumptions, including future cash flow estimates, determination of appropriate discount rates, and other assumptions that management believed reasonable under the circumstances. Changes in these estimates and assumptions could materially affect the determination of fair value and/or impairment. Refer to Note 21, in Part II, Item 8 of this Annual Report for discussion about the changes in long-lived assets and the impact on our results for 2024 and 2023. Fair Value of Net Assets Acquired in Business Combinations — Management performs fair value assessments in determining the fair value of the identifiable assets and liabilities acquired through the business combination as of the acquisition date. Management and third-party specialists use significant inputs and assumptions in the valuations of acquired net assets such as certain prospective information, discount rates, royalty rates, and market data. Changes in these estimates and assumptions could materially affect the determination of fair value. Refer to Note 4, in Part II, Item 8 of this Annual Report for discussion about the fair value of net assets acquired in business combinations and the impact on our results for 2024 and 2023. Fair Value of Contingent Consideration — Management performs assessments in determining the fair value of contingent consideration arrangements associated with certain acquisitions and which based on the acquired businesses achieving certain thresholds related to performance. The fair values of these contingent consideration arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent earnout payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability on the consolidated balance sheets. 72 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED The fair values of certain earnout arrangements are estimated by discounting the expected future contingent payments to present value using a variation of the income approach, specifically using a Monte Carlo Simulation approach. The key assumptions used in our valuation were: (i) forecast of operating income and net income, (ii) the volatility associated with operating income and net income, (iii) risk-adjusted discount rate applied to forecasted operating income and net income, and (iv) the credit-adjusted discount rate related to the payment of the contingent consideration. Refer to Notes 4 and 21, in Part II, Item 8 of this Annual Report for discussion about the fair value of contingent consideration agreements and the impact on our results for 2024 and 2023. Income Taxes — Significant management judgment is required in determining our provision for income taxes and in determining whether deferred tax assets will be realized in full or in part. We periodically assess the likelihood that all or some portion of deferred tax assets will be recovered from future taxable income. To the extent we believe the likelihood of recovery is not sufficient, a valuation allowance is established for the amount determined not to be realizable. Management judgment is necessary in determining the frequency at which we assess the need for a valuation allowance, the accounting period in which to establish the valuation allowance, as well as the amount of the valuation allowance. We believe that we have adequately provided for our future tax consequences based upon current facts and circumstances and current tax law. However, should our tax positions be challenged, different outcomes could result and have a significant impact on the amounts reported in our consolidated statements of comprehensive income. Management judgment is also required regarding a variety of other factors including the appropriateness of tax strategies. We utilize certain income tax planning strategies to reduce our overall income taxes. It is possible that certain strategies might be disallowed, resulting in an increased liability for income taxes. Significant management judgments are involved in assessing the likelihood of sustaining the strategies and determining the likely range of defense and settlement costs, in the event that tax strategies are challenged by taxing authorities. An ultimate result worse than our expectations could adversely affect our results of operations. Refer to Note 11, in Part II, Item 8 of this Annual Report for discussion about the changes in the balances of deferred taxes assets and related valuation allowances. Leases — At the inception of a lease, management judgment is involved in the determination of the discount rate, the determination of whether a contract contains a lease, classification of operating versus finance lease, assessment of useful lives, and estimation of residual values. Discounted future minimum lease payments are used in determining the lease classification represent the present value of minimum rental payments called for over the lease term, inclusive of residual value guarantees (if applicable) and amounts that would be required to be paid, if any, by the Company upon default for leases containing subjective acceleration or cross default clauses. Refer to Note 14, in Part II, Item 8 of this Annual Report for discussion about the changes in balance of operating leases. Stock-based Compensation — We issue several types of stock-based compensation, including awards that vest, based on service conditions, performance conditions, or a combination of service and performance conditions. Determining the appropriate amount to expense in each period is based on likelihood and timing of achievement of the stated targets for performance-based awards, and requires judgment, including forecasting future financial results, market performance, and other factors. The estimates are revised periodically, based on the probability and timing of achieving the required performance targets, and adjustments are made as appropriate. There is also some judgement involved with estimating expected forfeiture rates as we have opted to net the benefit of expected forfeitures against our stock-based compensation expense. Refer to Note 19, in Part II, Item 8 of this Annual Report for discussion about the assumptions related to these awards and the impact on our results for 2024 and 2023. Legal Settlements and Reserves — See Note 17 in Part II Item 8 of this Annual Report. Recently Issued Accounting Pronouncements See Note 3 in Part II, Item 8 of this Annual Report, which is incorporated herein by reference, for recently issued accounting pronouncements that could have an impact on our consolidated financial statements. 73 Table of Contents Glossary of Terms KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.