Knight-Swift Transportation Holdings Inc. [KNX] Filings

10-Q 1 knx-20210930.htm 10-Q knx-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________________________________________________________________________________________________________________________

FORM 10-Q

_________________________________________________________________________________________________________________________________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35007

_________________________________________________________________________________________________________________________________________________________

___________________________________________________________________________________________________________________________________

Knight-Swift Transportation Holdings Inc.

(Exact name of registrant as specified in its charter)

___________________________________________________________________________________________________________________


Delaware						20-5589597
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2002 West Wahalla Lane

Phoenix, Arizona 85027

(Address of principal executive offices and zip code)

(602) 269-2000

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock $0.01 Par Value

KNX

New York Stock Exchange

_________________________________________________________________________________________________________________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 165,957,149 shares of the registrant's common stock outstanding as of October 27, 2021.

Glossary of Terms

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION			PAGE
Item 1. Financial Statements			5

Condensed Consolidated Balance Sheets (Unaudited) — September 30, 2021 and December 31, 2020			5

Condensed Consolidated Statements of Comprehensive Income (Unaudited) — Quarter and Year-to-Date September 30, 2021 and 2020			6

Condensed Consolidated Statements of Cash Flows (Unaudited) — Quarter and Year-to-Date September 30, 2021 and 2020			7

Condensed Consolidated Statements of Stockholders' Equity (Unaudited) — Quarter and Year-to-Date September 30, 2021 and 2020			9

Note 1 — Introduction and Basis of Presentation			11



Note 2 — Recently Issued Accounting Pronouncements			12

Note 3 — Acquisitions			12

Note 4 — Investments			16

Note 5 — Assets Held for Sale			17

Note 6 — Goodwill and Other Intangible Assets			17

Note 7 — Income Taxes			18



Note 8 — Accounts Receivable Securitization			19

Note 9 — Debt and Financing			20

Note 10 — Defined Benefit Pension Plan			22

Note 11 — Commitments			24

Note 12 — Contingencies and Legal Proceedings			25

Note 13 — Share Repurchase Plans			27

Note 14 — Weighted Average Shares Outstanding			28

Note 15 — Fair Value Measurement			28

Note 16 — Related Party Transactions			33

Note 17 — Information by Segment and Geography			34

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			36

Item 3. Quantitative and Qualitative Disclosures About Market Risk			65

Item 4. Controls and Procedures			66
PART II OTHER INFORMATION
Item 1. Legal Proceedings			67

Item 1A. Risk Factors			67

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			68

Item 3. Defaults Upon Senior Securities			68

Item 4. Mine Safety Disclosures			68

Item 5. Other Information			68

Item 6. Exhibits			69

Signatures			70

Table of Contents

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


QUARTERLY REPORT ON FORM 10-Q




GLOSSARY OF TERMS
The following glossary defines certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document.

Term						Definition
Knight-Swift/the Company/Management/We/Us/Our						Unless otherwise indicated or the context otherwise requires, these terms represent Knight-Swift Transportation Holdings Inc. and its subsidiaries.

2017 Merger						The September 8, 2017 merger of Knight and Swift, pursuant to which we became Knight-Swift Transportation Holdings Inc.
2017 Debt Agreement						The Company's unsecured credit agreement, entered into on September 29, 2017, as amended on October 2, 2020, consisting of the 2017 Revolver and 2017 Term Loan, which are defined below.
2017 Revolver						Revolving line of credit under the 2017 Debt Agreement
2017 Term Loan						The Company's term loan under the 2017 Debt Agreement
2018 RSA						Fourth Amendment to the Amended and Restated Receivables Sales Agreement, entered into on July 11, 2018 by Swift Receivables Company II, LLC with unrelated financial entities.
2021 Debt Agreement						The Company's unsecured credit agreement, entered into on September 3, 2021, consisting of the 2021 Revolver and 2021 Term Loans, which are defined below
2021 Prudential Notes						Third amended and restated note purchase and private shelf agreement, entered into on September 3, 2021 by ACT with unrelated financial entities
2021 Revolver						Revolving line of credit under the 2021 Debt Agreement
2021 Term Loans						The Company's term loans under the 2021 Debt Agreement, collectively consisting of the 2021 Term Loan A-1, 2021 Term Loan A-2 and 2021 Term Loan A-3
2021 Term Loan A-1						The Company's term loan under the 2021 Debt Agreement, maturing on December 3, 2022
2021 Term Loan A-2						The Company's term loan under the 2021 Debt Agreement, maturing on September 3, 2024
2021 Term Loan A-3						The Company's term loan under the 2021 Debt Agreement, maturing on September 3, 2026
2021 RSA						Fifth Amendment to the Amended and Restated Receivables Sales Agreement, entered into on April 23, 2021 by Swift Receivables Company II, LLC with unrelated financial entities.


July 2021 Term Loan						The Company's term loan entered into on July 6, 2021
ACT						AAA Cooper Transportation, and its affiliated entity
ACT Acquisition						The Company's acquisition of 100% of the securities of ACT on July 5, 2021
Annual Report						Annual Report on Form 10-K
ASC						Accounting Standards Codification
ASU						Accounting Standards Update
Board						Knight-Swift's Board of Directors
BSBY						Bloomberg Short-Term Bank Yield Index
COVID-19						Viral strain of a coronavirus which led the World Health Organization to declare a global pandemic in March 2020
DOE						United States Department of Energy
EPS						Earnings Per Share
Embark						Embark Trucks Inc. and its related entities
ESPP						Knight-Swift Transportation Holdings Inc. Amended and Restated 2012 Employee Stock Purchase Plan



GAAP						United States Generally Accepted Accounting Principles
Knight						Unless otherwise indicated or the context otherwise requires, this term represents Knight Transportation, Inc. and its subsidiaries

Table of Contents

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.




GLOSSARY OF TERMS
The following glossary defines certain acronyms and terms used in this Quarterly Report on Form 10-Q. These acronyms and terms are specific to our company, commonly used in our industry, or are otherwise frequently used throughout our document.

Term						Definition
LIBOR						London InterBank Offered Rate


LTL						Less-than-truckload
Quarterly Report						Quarterly Report on Form 10-Q
QTD						Quarter-to-date
RSU						Restricted Stock Unit
SEC						United States Securities and Exchange Commission
SPA						Stock Purchase Agreement
Swift						Unless otherwise indicated or the context otherwise requires, this term represents Swift Transportation Company and its subsidiaries
TRP						Transportation Resource Partners
US						The United States of America
UTXL						UTXL Enterprises, Inc.
YTD						Year-to-date

Table of Contents Glossary of Terms

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.

PART I FINANCIAL INFORMATION


ITEM 1.			FINANCIAL STATEMENTS


Condensed Consolidated Balance Sheets (Unaudited)


	September 30, 2021		December 31, 2020
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	269,694	$	156,699
Cash and cash equivalents – restricted	68,019		39,328
Restricted investments, held-to-maturity, amortized cost	7,140		9,001
Trade receivables, net of allowance for doubtful accounts of $21,811 and $22,093, respectively	830,402		578,479
Contract balance – revenue in transit	22,950		14,560
Prepaid expenses	76,697		71,649
Assets held for sale	20,330		29,756
Income tax receivable	46,899		2,903
Other current assets	62,334		20,988
Total current assets	1,404,465		923,363
Gross property and equipment	4,933,669		4,223,348
Less: accumulated depreciation and amortization	(1,477,334)		(1,230,696)
Property and equipment, net	3,456,335		2,992,652
Operating lease right-of-use-assets	102,230		113,296
Goodwill	3,461,898		2,922,964
Intangible assets, net	1,793,924		1,389,245
Other long-term assets	136,130		126,482
Total assets	$	10,354,982	$	8,468,002
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	177,634	$	101,001
Accrued payroll and purchased transportation	227,016		160,888
Accrued liabilities	134,002		88,894
Claims accruals – current portion	200,159		174,928

Finance lease liabilities and long-term debt – current portion	78,266		52,583
Operating lease liabilities – current portion	35,464		47,496
Accounts receivable securitization – current portion	—		213,918
Total current liabilities	852,541		839,708
Revolving line of credit	300,000		210,000
Long-term debt – less current portion	1,238,022		298,907
Finance lease liabilities – less current portion	208,556		138,243
Operating lease liabilities – less current portion	69,401		69,852
Accounts receivable securitization – less current portion	278,428		—
Claims accruals – less current portion	200,493		174,814
Deferred tax liabilities	856,926		815,941
Other long-term liabilities	45,175		48,497
Total liabilities	4,049,542		2,595,962
Commitments and contingencies (Notes 3, 10, 11, and 12)
Stockholders’ equity:
Preferred stock, par value $0.01 per share; 10,000 shares authorized; none issued	—		—
Common stock, par value $0.01 per share; 500,000 shares authorized; 166,003 and 166,553 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively.	1,660		1,665

Additional paid-in capital	4,344,894		4,301,424
Accumulated other comprehensive loss	(878)		—
Retained earnings	1,946,984		1,566,759
Total Knight-Swift stockholders' equity	6,292,660		5,869,848
Noncontrolling interest	12,780		2,192
Total stockholders’ equity	6,305,440		5,872,040
Total liabilities and stockholders’ equity	$	10,354,982	$	8,468,002

See accompanying notes to condensed consolidated financial statements (unaudited).

Table of Contents Glossary of Terms

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Quarter-to-Date September 30,				Year-to-Date September 30,
	2021		2020		2021		2020
	(In thousands, except per share data)
Revenue:
Revenue, excluding truckload fuel surcharge	$	1,510,572	$	1,137,313	$	3,856,549	$	3,162,005
Truckload fuel surcharge	131,873		73,093		324,611		233,897
Total revenue	1,642,445		1,210,406		4,181,160		3,395,902
Operating expenses:
Salaries, wages, and benefits	500,673		376,923		1,248,656		1,097,067
Fuel	146,422		104,703		390,713		312,939
Operations and maintenance	86,951		69,964		226,334		204,435
Insurance and claims	73,757		45,186		188,176		144,768
Operating taxes and licenses	27,475		21,475		71,240		64,527
Communications	6,612		5,069		16,284		14,845
Depreciation and amortization of property and equipment	138,570		115,664		382,091		340,486
Amortization of intangibles	15,719		11,473		39,452		34,421
Rental expense	12,002		19,700		42,265		67,447
Purchased transportation	352,061		245,102		914,448		670,485
Impairments	—		—		—		1,255
Miscellaneous operating expenses	12,116		29,686		38,040		73,480

Total operating expenses	1,372,358		1,044,945		3,557,699		3,026,155
Operating income	270,087		165,461		623,461		369,747
Other (expenses) income:
Interest income	245		326		809		1,595
Interest expense	(7,179)		(3,232)		(13,972)		(13,360)
Other income, net	4,072		7,484		37,017		9,476
Total other (expenses) income, net	(2,862)		4,578		23,854		(2,289)
Income before income taxes	267,225		170,039		647,315		367,458
Income tax expense	61,059		47,835		158,171		99,204
Net income	206,166		122,204		489,144		268,254
Net income attributable to noncontrolling interest	12		(146)		(372)		(581)
Net income attributable to Knight-Swift	206,178		122,058		488,772		267,673
Other comprehensive loss	(878)		—		(878)		—
Comprehensive income	$	205,300	$	122,058	$	487,894	$	267,673

Earnings per share:
Basic	$	1.24	$	0.72	$	2.95	$	1.57
Diluted	$	1.23	$	0.71	$	2.93	$	1.57

Dividends declared per share:	$	0.10	$	0.08	$	0.28	$	0.24

Weighted average shares outstanding:
Basic	165,966		170,205		165,823		170,257
Diluted	167,106		171,028		166,936		171,035

See accompanying notes to the condensed consolidated financial statements (unaudited).

Table of Contents Glossary of Terms

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Condensed Consolidated Statements of Cash Flows (Unaudited)


	Year-to-Date September 30,
	2021		2020
	(In thousands)
Cash flows from operating activities:
Net income	$	489,144	$	268,254
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment, and intangibles	421,543		374,907
Gain on sale of property and equipment	(47,700)		(6,468)

Impairments	—		1,255
Deferred income taxes	40,987		32,565
Non-cash lease expense	35,939		64,301
Non-cash adjustment to fair value of convertible note	(12,631)		—
Other adjustments to reconcile net income to net cash provided by operating activities	17,372		24,513
Increase (decrease) in cash resulting from changes in:
Trade receivables	(152,482)		(58,246)
Income tax receivable	(43,462)		8,668
Accounts payable	34,255		1,946
Accrued liabilities and claims accrual	57,157		(12,926)
Operating lease liabilities	(37,357)		(66,333)
Other assets and liabilities	14,759		22,583
Net cash provided by operating activities	817,524		655,019
Cash flows from investing activities:
Proceeds from maturities of held-to-maturity investments	8,380		9,400
Purchases of held-to-maturity investments	(6,683)		(12,644)
Proceeds from sale of property and equipment, including assets held for sale	192,454		102,550
Purchases of property and equipment	(388,518)		(378,694)
Expenditures on assets held for sale	(1,367)		(483)
Net cash, restricted cash, and equivalents invested in acquisitions	(1,342,042)		(46,811)
Investment in convertible note	(25,000)		—
Other cash flows from investing activities	14,019		(8,920)
Net cash used in investing activities	(1,548,757)		(335,602)
Cash flows from financing activities:
Repayment of finance leases and long-term debt	(374,539)		(61,321)
Proceeds from long-term debt	1,200,000		—

Borrowings (repayments) on revolving lines of credit, net	90,000		(109,000)
Borrowings under accounts receivable securitization	80,000		49,000
Repayment of accounts receivable securitization	(15,000)		(52,000)

Proceeds from common stock issued	7,624		11,632
Repurchases of the Company's common stock	(53,661)		(34,630)
Dividends paid	(46,935)		(41,297)

Other cash flows from financing activities	(14,180)		(5,522)
Net cash provided by (used in) financing activities	873,309		(243,138)
Net increase in cash, restricted cash, and equivalents	142,076		76,279
Cash, restricted cash, and equivalents at beginning of period	197,277		202,228
Cash, restricted cash, and equivalents at end of period	$	339,353	$	278,507

See accompanying notes to condensed consolidated financial statements (unaudited).

Table of Contents Glossary of Terms

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Condensed Consolidated Statements of Cash Flows (Unaudited) — Continued


	Year-to-Date September 30,
	2021		2020
	(In thousands)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	11,683	$	12,921
Income taxes	160,281		35,233
Non-cash investing and financing activities:
Equipment acquired included in accounts payable	$	9,278	$	45,430

Financing provided to independent contractors for equipment sold	2,548		4,359
Transfers from property and equipment to assets held for sale	80,881		59,543
Noncontrolling interest associated with acquisition	10,281		—
Contingent consideration associated with acquisition	5,000		18,245
Value of common stock issued for acquisition	10,000		—
Right-of-use assets obtained in exchange for operating lease liabilities	20,261		1,871
Right-of-use assets obtained in exchange for operating lease liabilities through acquisitions	4,613		12,356
Property and equipment obtained in exchange for finance lease liabilities	114,803		68,590
Property and equipment obtained in exchange for finance lease liabilities reclassified from operating lease liabilities	42,298		67,430


Reconciliation of Cash, Restricted Cash, and Equivalents:	September 30, 2021		December 31, 2020		September 30, 2020		December 31, 2019
	(In thousands)
Condensed Consolidated Balance Sheets
Cash and cash equivalents	$	269,694	$	156,699	$	240,236	$	159,722
Cash and cash equivalents – restricted 1	68,019		39,328		36,689		41,331
Other long-term assets 1	1,640		1,250		1,582		1,175
Condensed Consolidated Statements of Cash Flows
Cash, restricted cash, and equivalents	$	339,353	$	197,277	$	278,507	$	202,228

________

1 Reflects cash and cash equivalents that are primarily restricted for claims payments.

See accompanying notes to condensed consolidated financial statements (unaudited).

Table of Contents Glossary of Terms

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Condensed Consolidated Statements of Stockholders' Equity (Unaudited)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Knight-Swift Stockholders' Equity		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Par Value
	(In thousands, except per share data)


































Balances – December 31, 2020	166,553	$	1,665	$	4,301,424	$	1,566,759	$	—	$	5,869,848	$	2,192	$	5,872,040

Common stock issued to employees	475	6		5,020						5,026				5,026
Common stock issued to the Board	12	—		575						575				575
Common stock issued with ACT acquisition	219	2		9,998						10,000				10,000
Common stock issued under ESPP	47	—		2,023						2,023				2,023
Company shares repurchased	(1,303)	(13)				(53,648)				(53,661)				(53,661)
Shares withheld – RSU settlement						(8,079)				(8,079)				(8,079)
Employee stock-based compensation expense				25,854						25,854				25,854
Cash dividends paid and dividends accrued ($0.28 per share)						(46,820)				(46,820)				(46,820)
Net income attributable to Knight-Swift						488,772				488,772				488,772
Other comprehensive loss								(878)		(878)				(878)
Investment in noncontrolling interest												10,281		10,281
Distribution to noncontrolling interest												(65)		(65)
Net income attributable to noncontrolling interest												372		372

Balances – September 30, 2021	166,003	$	1,660	$	4,344,894	$	1,946,984	$	(878)	$	6,292,660	$	12,780	$	6,305,440


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Knight-Swift Stockholders' Equity		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Par Value
	(In thousands, except per share data)


































Balances – December 31, 2019	170,688	$	1,707	$	4,269,043	$	1,395,465	$	—	$	5,666,215	$	2,088	$	5,668,303

Common stock issued to employees	609	6		9,474						9,480				9,480
Common stock issued to the Board	13	—		515						515				515

Common stock issued under ESPP	47	—		1,637						1,637				1,637
Company shares repurchased	(1,139)	(11)				(34,619)				(34,630)				(34,630)
Shares withheld – RSU settlement						(4,508)				(4,508)				(4,508)
Employee stock-based compensation expense				13,835						13,835				13,835
Cash dividends paid and dividends accrued ($0.24 per share)						(41,197)				(41,197)				(41,197)
Net income attributable to Knight-Swift						267,673				267,673				267,673


Distribution to noncontrolling interest												(441)		(441)
Net income attributable to noncontrolling interest												581		581

Balances – September 30, 2020	170,218	$	1,702	$	4,294,504	$	1,582,814	$	—	$	5,879,020	$	2,228	$	5,881,248

See accompanying notes to condensed consolidated financial statements (unaudited).

Table of Contents Glossary of Terms

KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.


Condensed Consolidated Statements of Stockholders' Equity (Unaudited) — Continued


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Knight-Swift Stockholders' Equity		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Par Value
	(In thousands, except per share data)
















Balances – June 30, 2021	165,711	$	1,657	$	4,325,915	$	1,757,689	$	—	$	6,085,261	$	12,792	$	6,098,053

Common stock issued to employees	57	1		1,629						1,630				1,630