Knight Swift Transportation : Fourth Quarter 2018 Earnings Release

January 29, 2019 Phoenix, Arizona

Knight-Swift Transportation Holdings Inc. Reports Fourth Quarter 2018 Revenue and Earnings

Knight-Swift Transportation Holdings Inc. (NYSE: KNX) ("Knight-Swift"), North America's largest truckload transportation company, today reported fourth quarter 2018 net income attributable to Knight-Swift of $151.7 million and Adjusted Net Income Attributable to Knight-Swift of $162.9 million. Our GAAP earnings per diluted share were $0.86 for the fourth quarter of 2018, compared to $2.50 for the fourth quarter of 2017. Included in the fourth quarter 2017 results was an income tax benefit of $364.2 million (or $2.03 per diluted share), representing management's estimate of the net impact of the Tax Cuts and Jobs Act enacted during that quarter.

Our Adjusted EPS was $0.93 for the fourth quarter of 2018, compared to $0.52 for the fourth quarter of 2017.

Key Financial Highlights

We are pleased with our fourth quarter 2018 results and the progress made across all of our reportable segments. Our trucking segments, which include Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated, operated on a combined basis at an 80.9% Adjusted Operating Ratio. Swift's average operational tractor count remained stable during the fourth quarter at 14,737. The Swift Truckload segment's profitability significantly improved, achieving a 75.9% Adjusted Operating Ratio, while Swift's other reportable segments also achieved meaningful improvement on a year-over-year basis. The Knight Trucking segment continued to operate efficiently with an Adjusted Operating Ratio of 78.1%. Our asset-light businesses, which include Knight Brokerage, Knight Intermodal, Swift Logistics, and Swift Intermodal, together operated at an 89.3% Adjusted Operating Ratio during the fourth quarter of 2018.

Quarter Ended December 31, (1)

2018

2017

Change

(Dollars in thousands, except per share data)

Total revenue	$	1,394,640$
Revenue, excluding fuel surcharge	$
Operating income	$
Adjusted Operating Income (2)	$
Net income attributable to Knight-Swift	$
Adjusted Net Income Attributable to Knight-Swift (2)	$
Earnings per diluted share	$
Adjusted EPS (2)	$
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1,242,625 $

1,359,420	2.6 %
1,218,188	2.0 %
143,771	43.8 %
156,112	42.0 %
447,564	(66.1)%
94,002	73.2 %
0.86$	2.50	(65.6)%
0.52	78.8 %

151,696$

206,777$

221,658 162,856

$ $

0.93 $

• (1) For information regarding comparability of the reported results due to mergers and acquisitions, refer to footnote (1) of the Condensed Consolidated Income Statements (Unaudited), in the schedules following this release.

• (2) See GAAP to non-GAAP reconciliation in the schedules following this release.

Dividend - The company previously announced a quarterly cash dividend of $0.06 per share to stockholders of record on December 3, 2018, which was paid on December 27, 2018.

Revenue - Total revenue increased 2.6% for the fourth quarter of 2018 from the fourth quarter of 2017. Revenue, excluding fuel surcharge, increased 2.0% for the fourth quarter of 2018 from the fourth quarter of 2017. The year-over-year increase was largely driven by improvements in average revenue per tractor and growth in our asset-light businesses.

Operating Income - Operating income increased 43.8% to $206.8 million for the fourth quarter of 2018 from $143.8 million for the fourth quarter of 2017. Adjusted Operating Income increased 42.0% to $221.7 million for the fourth quarter of 2018 from $156.1 million for the fourth quarter of 2017. This was primarily driven by increased revenue per tractor, improved safety results, and improved cost control.

Income Taxes - The fourth quarter 2018 effective tax rate was 25.0%, compared to 24.6% in the third quarter of 2018. We expect the full-year 2019 effective tax rate to be in the range of 25.0% to 26.0% before discrete items.

Segment Financial Performance

Comparability - For information regarding comparability of the reported results due to mergers and acquisitions, refer to footnote (1) of the Condensed Consolidated Income Statements (Unaudited), in the schedules following this release.

Trucking Segments - Our asset-based trucking services include dry van, refrigerated, dedicated, drayage, flatbed, and cross-border transportation through our Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated reportable segments. During the fourth quarter of 2018, the trucking segments together comprised 18,828 average operational tractors, and operated on a combined basis at an 80.9% Adjusted Operating Ratio, compared to an 85.8% Adjusted Operating Ratio during the fourth quarter of 2017.

Our efforts throughout 2018 resulted in the continued stabilization of the Swift tractor fleet, which had an average operational tractor count of 14,737 during the fourth quarter of 2018, compared to 14,769 during the third quarter of 2018.

After experiencing a strong freight market in the fourth quarter of 2018, which supported increases in both contract and non-contract rates, we are experiencing typical seasonality thus far in the first quarter of 2019. We expect contract rate improvements to continue in 2019, but at a slower pace than in 2018. We continue to see opportunities in our trucking segments to improve yields, increase revenue per tractor, and enhance our ability to source and retain drivers without compromising our commitment to improve safety.

Quarter Ended December 31,

Knight Trucking:

Revenue, excluding fuel surcharge and intersegment transactions Operating income

• $ 260,780 $

• $ 55,184$

  Adjusted Operating Income (1) Operating ratio

• $ 57,173 $

Adjusted Operating Ratio (1)

2018

Change
215,434	21.0 %
37,695	46.4 %
39,595	44.4 %
81.5%	84.6%	(310 bps)
78.1%	81.6%	(350 bps)

2017 (Dollars in thousands)

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(1) See GAAP to non-GAAP reconciliation in the schedules following this release.

During the fourth quarter of 2018, the Knight Trucking segment produced an Adjusted Operating Ratio of 78.1% compared to 81.6% for the same quarter last year, resulting in a 44.4% improvement in Adjusted Operating Income. The strong freight market and tight capacity supported increases in both contract and non-contract rates throughout the quarter. Revenue, excluding fuel surcharge and intersegment transactions increased 21.0%, as a result of a 12.2% increase in average revenue per tractor and a 7.9% increase in average tractor count (fourth quarter 2018 results include Abilene, which was acquired on March 16, 2018). The improvement in average revenue per tractor was driven by an 11.1% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions, and a 1.9% improvement in miles per tractor.

Quarter Ended December 31,2018

2017 (Dollars in thousands)Change

Swift Truckload:

Revenue, excluding fuel surcharge Operating income

• $ 377,416 $

  Operating ratio

  Adjusted Operating Ratio (1)

• $ 90,814$ 78.8% 75.9%

434,688 66,957 86.4%

(13.2) % 35.6 % (760 bps)

• 84.6%(870 bps)

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(1) See GAAP to non-GAAP reconciliation in the schedules following this release.

During the fourth quarter of 2018, the Swift Truckload segment produced an Adjusted Operating Ratio of 75.9% compared to 84.6% for the same quarter last year, resulting in a 35.6% improvement in operating income. The significant year-over-year improvement was driven by a 5.9% increase in average revenue per tractor, improved safety results, and cost control. We have emphasized improving revenue per tractor over the last year, which has led to a change in our freight mix and 9.3% fewer miles per tractor.

Quarter Ended December 31,

2018

2017 (Dollars in thousands)Change

Swift Dedicated:

Revenue, excluding fuel surcharge Operating income

• $ 149,916 $

  Operating ratio

  Adjusted Operating Ratio (1)

• $ 24,240$ 85.7% 83.8%

144,642 19,461 88.0%

3.6 % 24.6 % (230 bps)

• 86.5%(270 bps)

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(1) See GAAP to non-GAAP reconciliation in the schedules following this release.

Adjusted Operating Ratio improved 270 basis points in the Swift Dedicated segment to 83.8% in the fourth quarter of 2018, compared to 86.5% in the fourth quarter of 2017, resulting in a 24.6% increase in operating income. The year-over-year improvement was predominately related to a 9.4% increase in our revenue per loaded mile, excluding fuel surcharge, and a 3.4% increase in average operational tractors for the fourth quarter of 2018, compared to the same quarter last year.

Quarter Ended December 31,

2018

2017 (Dollars in thousands)Change

Swift Refrigerated:

Revenue, excluding fuel surcharge Operating income

• $ 181,830 $

  Operating ratio

  Adjusted Operating Ratio (1)

• $ 13,080$ 93.5% 92.8%

186,595 13,199 93.6% 92.9%

(2.6) % (0.9) % (10 bps) (10 bps)

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(1) See GAAP to non-GAAP reconciliation in the schedules following this release.

Adjusted Operating Ratio within the Swift Refrigerated segment for the fourth quarter of 2018 remained relatively flat compared to the fourth quarter of 2017, and improved 280 basis points compared to the third quarter of 2018. Revenue per loaded mile, excluding fuel surcharge, increased 10.5% in the fourth quarter of 2018, compared to the fourth quarter of 2017, and loaded miles per tractor decreased 10.4%. We made sequential Adjusted Operating Ratio improvements in the third quarter and fourth quarter of 2018 in both the over-the-road and dedicated businesses within this segment, and we continue to refine our strategy to improve profitability in 2019.

Knight Logistics Segment - Our Knight Logistics segment consists of brokerage, intermodal, and other logistics services.

Quarter Ended December 31,

Knight Logistics:

Revenue, excluding intersegment transactions Operating income

• $ 97,202 $

Adjusted Operating Income (1) Operating ratio

$ $

Adjusted Operating Ratio (1)

2018

Change
65,899	47.5 %
3,923	114.4 %
3,923	130.0 %
91.5%	94.2%	(270 bps)
90.7%	94.0%	(330 bps)

2017 (Dollars in thousands)

8,411$ 9,021 $

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(1) See GAAP to non-GAAP reconciliation in the schedules following this release.

Adjusted Operating Ratio in the Knight Logistics segment improved to 90.7% in the fourth quarter of 2018 from 94.0% in the fourth quarter of 2017. Revenue, excluding intersegment transactions, increased by 47.5%, contributing to a 130.0% improvement in Adjusted Operating Income. Brokerage revenue increased by 56.0% in the fourth quarter of 2018, when compared to the same quarter in 2017, as load volumes increased 56.9% and revenue per load decreased 0.6%. Brokerage gross margin percentage for the quarter increased by 50 basis points to 16.8% on a year-over-year basis.

Swift Intermodal Segment - This segment includes revenue generated by moving freight over the rail in Swift's containers and other trailing equipment, combined with revenue for drayage to transport loads between the railheads and customer locations.

Quarter Ended December 31,

2018

2017 (Dollars in thousands)Change

Swift Intermodal:

Revenue, excluding fuel surcharge Operating income

• $ 111,511 $

  Operating ratio

  Adjusted Operating Ratio (1)

• $ 12,672$ 90.3% 88.6%

91,861 4,581 95.7%

21.4 % 176.6 % (540 bps)

• 95.0%(640 bps)

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(1) See GAAP to non-GAAP reconciliation in the schedules following this release.

We continued to see meaningful improvement in our operating profitability within our Swift Intermodal segment during the fourth quarter of 2018, as a result of our focus on improving our revenue per load, while executing on cost control. Our fourth quarter Adjusted Operating Ratio improved 640 basis points to 88.6%, compared to 95.0% for the fourth quarter of 2017, resulting in a 176.6% increase in operating income. On a year-over-year basis, improvements were largely due to a 14.1% increase in revenue per container, excluding fuel surcharge for the fourth quarter of 2018, compared to the fourth quarter of 2017. Average revenue per load increased by 23.1%, which was partially offset by a 1.4% decrease in load counts for the fourth quarter of 2018, compared to the fourth quarter of 2017.

Segment Realignment - As of the date of this release, management is re-assessing the presentation of the Company's segment information, which we expect to recast during the first quarter of 2019. Once finalized, the Company will provide recast historical financial results on Knight-Swift's investor website and will file a corresponding Form 8-K with the SEC. Based on management's preliminary assessment, we expect that beginning in the first quarter of 2019, we will present three reportable segments, as follows:

• • The Trucking Segment will include the results of the previously-reported Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments.

• • The Logistics Segment will include the results of the Knight brokerage and Swift logistics businesses which were previously included within the Knight Logistics and Swift non-reportable segments, respectively.

• • The Intermodal segment will include the results of the previously-reported Swift Intermodal segment and the results of the Knight intermodal business, which was previously included in the Knight Logistics Segment.

We expect our non-reportable segments will continue to include support services that Swift's subsidiaries provide to customers and independent contractors (including repair and maintenance shop services, equipment leasing, and insurance), as well as certain Swift legal settlements and accruals, amortization of intangibles related to the 2017 Merger, and certain other corporate expenses. Additionally, we expect our non-reportable segments will include Knight's equipment leasing and warranty services to independent contractors, warehousing activities, and trailer parts manufacturing, which were previously reported within the Knight Logistics segment.

Consolidated Liquidity, Capital Resources, and Earnings Guidance

Cash Flow Sources (Uses) (1)

Year Ended December 31,

2018

2017

Change

(In thousands)

Net cash provided by operating activities Net cash used in investing activities

$

881,977$ (647,292)

322,590$

559,387

(204,263) (443,029)

Net cash (used in) provided by financing activities

(255,442)

24,000

(279,442)

Net (decrease) increase in cash, restricted cash, and equivalents (2)$

$

(20,757) $ (163,084)

142,327

Net capital expenditures

$ (530,176)

$ (304,460)

$ (225,716)

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• (1) For information regarding comparability of the reported results due to mergers and acquisitions, refer to footnote (1) of the Condensed Consolidated Income Statements (Unaudited), in the schedules following this release.

• (2) "Net (decrease) increase in cash, restricted cash, and equivalents" is derived from changes within "Cash and cash equivalents," "Cash and cash equivalents - restricted," and the long-term portion of restricted cash included in "Other long-term assets" in the consolidated balance sheets.

Liquidity and Capitalization - As of December 31, 2018, we had $666.1 million of unrestricted cash and available liquidity, $5.5 billion of stockholders' equity, and $847.4 million in face value of net debt.

During 2018, we generated $882.0 million in operating cash flows. We invested $530.2 million in net capital expenditures and $103.2 million for the acquisition of Abilene Motor Express, while paying down $47.5 million in net debt and reducing our off-balance sheet lease obligations by over $300 million*. We also repurchased $179.3 million of our common stock and returned $42.8 million in quarterly dividends to our stockholders during the year. We remain committed to a strong capital structure, which we believe will position us for long-term success and enable us to pursue further opportunities for organic growth and growth through acquisition.

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*Our calculation of the reduction in off-balance sheet lease obligations is based on management's estimated value of off-balance sheet operating leases as if they were capital leases. This number is used by management for analysis purposes only and does not purport to be calculated in the same manner or intended for the same purpose as the calculation of future minimum lease payments under United States generally accepted accounting principles.