Knight-Swift Transportation Holdings Inc. Class A Stock

My name is Jillian Robinson, and I will be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation Third Quarter 2026 Earnings Call. [Operator Instructions] Speakers from today's call will be Adam Miller, Chief Executive Officer; Andrew Hess, Chief Financial Officer. Brad Stewart, Treasurer and Senior Vice President of Investor Relations. Mr. Stewart, the meeting is now yours.

Thank you, Jillian. Good afternoon, everyone. Thank you for joining our third quarter 2026 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. The call is scheduled to last 1 hour. Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to 1 per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If we are not able to get to your question due to time restrictions, you may call (602) 606-6349.

And to begin, I will first refer you to the disclosures on Slide 2 of the presentation and note the following: this conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict. Investors are directed to information contained in Item 1A Risk Factors or Part 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Now I'll hand the call over to Adam for some opening remarks.

Thanks, Brad, and good afternoon, everyone. Just want to let you know I'm getting over a cold here, so I might have some lingering cough that come through [indiscernible] noise in the background, that would be me, I apologize for that, but I wanted to make sure it was available for the call here. So first, I'd like to start by recognizing our team and the progress we have made in each of our distinct brands.

We continue to build out our diversified service model and saw solid performance across each of our segments this quarter. In addition, I was very encouraged to see the improvement in our core Truckload margins that are far approaching recognizable territory after such a long and difficult down cycle. We are so grateful for the focus, teamwork and commitment of our professional drivers and driver support personnel, who brought us through the past cycle and whose creativity and collaboration will help us navigate the new one. There is much work yet to be on to return to normal operating levels, but the good news is we see many opportunities for improvement to get us there and to help our organization chart new heights moving forward.

We truly have an amazing team, and I look forward to navigating this next cycle together. Yes, we believe the new cycle still has plenty of gas left in the tank. The truckload freight market continues to remain tight and while broad measures of industry demand have been largely stable, demand for our capacity has been strong. We have more peak season project arrangements in place than at any time since the pandemic and freight tenders have already started under several of these projects.

We believe we are well positioned to generate distinctive results for 2 main reasons: the differentiation in our service mix and in our business model. So regarding service mix, our single largest service is the One-Way Truckload market, a space experiencing a supply-driven tightening after 3-plus years where artificially low pricing drove unusually weak industry margins. During the downturn, many carriers either win out of business, partially liquidated fleet assets or shifted 1 way capacity into dedicated services where there was less competition from noncompliant operators.

Because we have remained committed to one-way truckload service and operate the largest one-way fleet in the industry, we are now seeing consistent opportunities to deliver valuable capacity solutions to our customers in this space experiencing the most supply contraction. We believe this is contributing to our spot rates and low 10 injection rates trending stronger than broad market indicators on these metrics. Also because one-way [ Sirius ] is the most flexible, our industry-leading one-way scale and history of responsive problem-solving means we are often the first call large shippers make when they have an acute need for transportation service. The one-way market also has an active spot market where rates that are highly responsive to the supply contraction not only accelerate our rate recovery but also help provide insightful observations on price discovery particularly as our spot rates are often much stronger than pub spot rate data.

Regarding our differentiated business model, there are a few things I would highlight that are already serving us well and which will be the key to delivering industry-leading margins. First would be our market management practices, a unique purview on the freight market. We are continually refining our playbook for how we read and respond to signals in the market and have managed deployment of capacity in support of service and yield. We couple this with distinctive competitive intelligence provided by our industry-leading scale and a combination of multiple truckload brands in the marketplace, which further enhances our ability to read market signals and respond with agility.

Related to this area is our [ eventual ] practice of engaging in spot-rated transactions and modulating our spot exposure based on the phase of the cycle. This enhances our signal detection and allows for faster price recovery and upsides. Next would be our [indiscernible] Academy network and driver training program, through which we source and develop a significant portion of our professional driver base. This is helping to somewhat blunt the negative impacts of the tight driver market business on our business and will be key to helping us see more trucks and increase utilization to capture more opportunities. Next would be our large terminal network and decentralized operating model. This has allowed us to construct a dense freight network that is primarily built on regional freight, which allows us to minimize empty miles and maximize revenue per truck relative to costs.

Such a network also supports driver recruiting, retention and development as well as internalizing maintenance as advantageous cost. And finally, I would call out our intense culture focus on cost and execution, which allows us to convert opportunities into earnings. Of note lately, our disciplines around fuel procurement, efficiency and recovery are helping us mitigate the negative impact of record-high diesel as best we can, or to be clear, we're not immune from cost pressures, but we are focused on doing everything we can to mitigate cost impacts and [ reinflation ] through pricing. We remain encouraged by momentum in the market and strong early progress in our core truckload business, we are pleased with the significant progress the team at U.S. Xpress has made in improving costs service, safety, business mix and pricing, and we look forward to making further progress.

We have also significantly reduced our floating interest rate exposure to our Water sent convertible bond offering in the spring and are making meaningful progress reducing our acquisition-related leverage as free cash flow continues to improve, we anticipate being back to our target leverage range, not before long and will again have maximum flexibility as we consider opportunities for organic growth, M&A and share buybacks. And with that, I'll turn the call over to Andrew and Brad to review the results and our guidance.

Thanks, Adam. The charts on Slide 3 compare our consolidated third quarter revenue and earnings results on a year-over-year basis. Consolidated revenue increased 14.2%, and consolidated revenue, excluding truckload and LTL fuel surcharge, increased 7.7% year-over-year. Operating income grew $128 million or 255.1% year-over-year. Adjusted operating income grew $93 million or 87.4% year-over-year. The improvement in earnings was primarily driven by pricing and network efficiency gains across our asset-based businesses in addition to gross margin recovery in our Logistics business. GAAP earnings per diluted share for the third quarter of 2026 were $0.72 compared to $0.05 in the third quarter of 2025. Adjusted EPS was $0.83 for the third quarter of 2026 versus $0.32 last year. Our consolidated adjusted operating ratio was 89.3%, a 450 basis point improvement year-over-year.

Slide 4 illustrates the revenue and adjusted operating income from each of our segments for the quarter. Overall, the relative share of our various service offerings remained largely consistent. Intermodal again gaining slightly over the previous quarter and grew revenue 8.4% sequentially. Now I'll discuss each of our segments, starting with our Truckload segment on Slide 5.

Our Truckload segment is making meaningful progress, restoring margin through disciplined yield management and cost control. After being driven by spot rates in the second quarter, realized revenue per mile accelerated in the third quarter, driven by contract rate changes primarily within our One-Way division. This quarter marks the first [ 1 ] in few years, the operating margins for our [indiscernible] of our dedicated division. We continue to see opportunities through many bids, turnback bids, while peak season projects have started to move even while conversations on late developing needs continue to surface. We are leveraging collaboration to support our various brands and service lines while providing greater capacity solutions to our customers.

There are many reasons to be encouraged and plenty of levers to drive further improvement. One of the biggest priorities across our operations is seeding more trucks increasing utilization. This will allow us to retain more opportunities and grow revenue at compelling incremental margins. We are leveraging our academy and training network to navigate driver sourcing challenges in to manage cost. We have 12 CDL academies across the U.S. with plans to open a few more in the coming months. plus partner schools operating on-site at 7 additional terminals. After graduating from CDL school, the next phase of our finishing program, where we have more than 2,000 qualified mentors who train new CDL holders over the road to ensure the readiness to be safe, productive, and successful.

The past 2 years, we have built a training program at U.S. Xpress modeled after our legacy program and student count continues to climb. Our scale is a distinct advantage in dedicated or start-up costs on new fleets compression margins because equipment must be positioned and trucks must be fast before they're fully productive. When we onboard a new dedicated fleet, we can draw upon equipment and drivers from our national one-way network, along with our academies program. Only in certain markets, are we limited to recruiting experienced drivers at a premium. This helps us manage margin pressure from growth.

Recently, we have been having success in growing our dedicated fleet, which has grown approximately 3.5% since mid-Q2. Our dedicated revenue, excluding fuel surcharge, grew nearly 4% sequentially between Q2 and Q3. Operating margin is essentially unchanged. The investments we made in the quarter in recruiting, training and driver pay have helped us to stabilize our trucking. We are preparing further targeted measures to improve our driver development and enhance utilization given that our Truckload margins are progressing according to plan, and our load rejection rates continue to run at a strong levels well ahead of the market.

We continue to closely monitor driver market conditions as well as our own metrics around ceded tractor utilization and pay as a percentage of revenue to gauge appropriate action and invest where it generates a return. We are balancing the need to restore margins with opportunities to support growth.

Turning to Slide 6. I'd like to spend a few minutes on truckload costs. Recently, investors seem to be indicating some level of concern that cost inflation could assume too much or perhaps even all of the rate gains being made in the industry. However, our model is generating meaningful margin progress through the combination of our significant exposure to the One-Way Truckload market, which is benefiting the most from capacity reduction and our distinctive approach to yield management and cost control, as Adam touched on earlier. The table on the left is the headline, year-over-year gains in revenue per mile, excluding fuel surcharge, have accelerated from 2.5% in Q1 to 12.2% in Q3. Over the same period, cost per mile stayed in a tight range between 3.3% and 3.8%. The result is that 68% of our third quarter rate improvement flowed through to margin, up from 50% in the second quarter.

Note that while we typically cite rate per loaded mile metrics, these ratings are stated in terms of rate per total mile in order to make comparable to cost for total mile figures. It also helps to look at this over the full cycle. From 2019 through 2025, our cost per mile grew at an average annual rate of 4.5%, that period includes the inflation surge of 2021 and 2022. Thereafter, we structurally reduced costs that allowed us to hold cost per mile flat from 2023 through 2025 as pricing and volumes declined. A 3.5% cost per mile increased this year is below that recent average and much of it reflects deliberate reinvestment now that the rate opportunity supports it. That's clear as when you separate our 2 largest businesses, dedicated, Rates largely kept pace with modest cost growth and margins have stayed in a stable range through the cycle.

In our one-way business, rates fell sharply from 2022 and through 2025, and we responded by taking out cost. With one-way rates rising significantly year-over-year, our tender rejections running strong, it's time to begin investing again in that business, and we're investing primarily in drivers. So to be clear, we're not immune to inflation, driver [ pay ] and fuel are currently the most acute cost pressures while insurance and claims may continue to be volatile.

Equipment costs continue to rise. However, we're offsetting the specific pressures cost discipline and efficiency. On driver pay, we're not making broad across-the-board increases. Pay actions are targeted by market, fleet and tenure, where they improve retention and seat trucks. On fuel, operationally, we're focused on fuel procurement, efficiency and recovery. We helped fixed costs flat year-over-year despite higher equipment costs. with fewer nondriver roles, real estate rationalization, AI automation and lower vendor costs. The fleet is also more productive. In the third quarter, miles per seated tractor rose 2.7% and empty miles fell 170 basis points [indiscernible].

To sum up, cost per mile is currently growing at fairly normal inflationary pace below our recent average, while rate is accelerating. That combination is why the majority of our rate improvement is now contributing to margin.

Now on to Slide 7 for a discussion of our LTL business. The LTL demand environment was steady with pockets of improvement. Third quarter trends generally followed normal seasonal patterns, so our average daily shipments showed a modest sequential outperformance. Our network and freight mix continue to evolve from the regional routes to a national [indiscernible] as seen in further year-over-year growth with length of haul and weight per shipment. After slightly decreasing during July and August, wafer shipment rebounded in September to our highest mark in 3 years, continuing its evolution and building greater density and longer haul shipments should facilitate better network efficiencies, less touch points, better transit and enhanced service over time.

The pricing environment means steady to slightly improving with renewals at mid-single-digit pace. Our focus continues on optimizing freight mix and network efficiency and efforts to improve margin, protect service and position us for further growth. We expect that over time growing into our network investments and maturing freight mix improve the network density and continuously refining our operational and cost execution will allow us to drive sustained, methodical improvement in operating margin.

Now I will turn it over to Brad for a discussion of our Logistics segment on Slide 8.

Thanks, Andrew. In our Logistics segment, we leveraged our efficient model and our disciplined pricing approach to profitability and carrier selection to drive a nearly 20% year-over-year improvement in adjusted operating income despite revenue falling 1%. The third quarter adjusted operating income and adjusted operating ratio were the best quarter marks in 3 years. This margin recovery was partly driven by our progress in resetting contractual pricing to align with the tighter market conditions as well as the seasonal easing and spot market capacity costs during the quarter, yielding the first year-over-year improvement in gross margin percentage in 4 quarters.

We anticipate the third party capacity will seasonally tighten again during the fourth quarter, and we're beginning to see the early [ stages ] of in October. We continue to hear customers express a preference for asset-based providers and customers are increasingly asking about carrier qualification practices. At this point, we really feel like they're still trying to understand what the evolving broker liability landscape will ultimately mean for businesses. And with capacity remaining tight, we believe many shippers are not yet hurrying to materially reduce number of brokerages that they work with. After periodically developing new refinements to our carrier [indiscernible] over the past several quarters, we saw our [indiscernible] carrier count largely stabilized during the third quarter. Now we will continue to evaluate the feasibility and effectiveness of potential additional refinements moving forward as access to new or improved data elements developed.

our company's long-standing commitment to safety and operational execution extends to our Logistics business, and we believe the new risk landscape enhances the value proposition of these principles in the eyes of our customers. Over time, we expect our logistics business to benefit from share gains as shippers become more selective and as brokers with less robust safety or compliance infrastructure are pressured by increased costs from compliance insurance and third-party capacity.

Now on the Slide 9 for discussion of our Intermodal business. The Intermodal segment posted strong year-over-year growth in revenue and load count for the second consecutive quarter, reaching the highest quarterly load count in over 5 years. Our concerted efforts to improve service and network balance in recent years have earned the trust to shippers, allowing us to capture business with new and existing customers, especially as they are more open to intermodal service in the face of tight trucking capacity as well as record high [indiscernible]. We are cross-selling our intermodal offering to our broad network of truckload customers to help add more value where we cannot allocate more trucks.

Our pipeline is strong and supported by many bed and turn bid activities in addition to the modal conversion opportunities. We are encouraged by the potential to drive further improvement in this business. The supportive setup has helped pricing progress notably in recent months, as shown in the 15.2% year-over-year increase in revenue per load or a 5.5% increase when excluding fuel surcharge revenues. We were able to drive recovery and pricing while meaningfully growing volumes and further addressing net balance in pursuit of sustainable profit improvement.

Now grade capacity has become tighter in a number of markets around the country. though the fact we use outside dray for a low single-digit percentage of our moves has helped to insulate us somewhat from the cost impact. We anticipate further rate progress in the upcoming bid season given the ongoing pressure on trucking capacity and inflation in the cost base, and we will maintain our focus on service and disciplined pricing and cost movement to drive profitable growth.

Slide 10 illustrates our All Other Segments. This category includes warehousing activities and support services provided to our customers, independent contractors and third-party carriers, such as equipment sales and rentals, equipment leasing, insurance and maintenance. Additionally, beginning January 1, 2026. All Other Segments also includes the cost of our accounts receivable securitization program that we reported below the line in interest expense in prior years.

Now for the quarter, revenue increased 41.8% year-over-year reaching the highest mark in 3 years, driven primarily by growth in warehousing and independent contractor services activities. Last 2 quarters have been particularly strong for our warehouning business as new business growth and some project activity have driven strong top line and bottom line results. This growth in revenue and our corresponding growth in our facility footprint creates a challenging quintal comparison setup as the activity that drives revenue recognition typically slows down meaningfully in the fourth quarter. without a corresponding decline in the now higher fixed cost base.

Our independent contractor services have grown as the number of contractors on our platform that's grown meaningfully this year. We expect further opportunities to attract more owners to platform given the reach and the density of our freight network and the cost structure advantages we can facilitate in support of their businesses.

On Slide 11, we've outlined our guidance in the key auctions, which are also stated in the earnings. Actual results may differ from our expectations. Based on our assumptions, we project our adjusted EPS for the fourth quarter of 2026 will be in the range of $0.78 to $0.84. Our projections reflect recent trends in volumes, spot rates, bid activity and driver hiring as well as expectations for seasonal project activity in truckload. The key assumptions underpinning this guidance are listed on this slide. I won't read through all of these components here. But I do want to highlight the seasonal cadence of some of our business units for the fourth quarter.

In summary, we project Truckload operating income to meaningfully improve sequentially into the fourth quarter. That's driven by further rate realization and seasonal project activity. At the same time, we expect the typical seasonal step down in LTL and All Other Segment earnings in the fourth quarter. In fact, we anticipate the All Other Segments will produce an operating loss for the fourth quarter as noted on this slide.

In our warehousing business, the majority of our revenue is recognized based on certain activity drivers under our customer contracts. Given the heavy retail mix, our customers prefer to minimize disruption in the holiday shopping period. which means the drivers of revenue decline in the fourth quarter. In addition to the normal seasonal slowdown in revenue recognition, our recent growth in our facility footprint to support growing revenues has increased the fixed cost base. Therefore, costs remain in the fourth quarter without the corresponding revenue. This dynamic is factored into our full year pricing agreements.

And finally, All Other Segments' fourth quarter projection also includes an estimated $6.5 million of costs for our AR securitization facility that were recorded in interest expense below the line in prior years. So the sequential decline in these 2 segments is expected to offset the projected ramp-up in our Truckload profits. This concludes our prepared remarks. [Operator Instructions] Thank you. Jillian will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Chris Wetherbee with Wells Fargo.

I guess maybe we can just hit on sort of the -- maybe the contractual rate environment kind of curious of how that's sort of pending or sort of post the traditional bid season, but I think there's still rate activity going on. And then as we think about '27, I think there's an expectation that we need to see the spot rate environment kind of improve seasonally through the peak season to put us in a position where we can kind of achieve maybe that high single digits or maybe even low table digits again in '27. So let's sort of hear your perspective on what you're seeing in the environment now from a contract perspective and maybe what the outlook is the early outlook for '27 is?

Yes. No, I appreciate that, Chris. We've largely gone through the large national bids through the bid season. So there's not a lot of work being done like a national bid standpoint. There's still a lot of turn back bids or mini bids, securing capacity for the short-term or even medium-term. And that can be -- that can vary widely in terms of where we're at in specific markets and what the need will be from a volume perspective.

But certainly, there's still a good straight around how we're pricing that business and what that would look like compared to a year ago. I do think there's still a lot of strength even for the setup for 2027 in terms of where contract rates will at least start the bid process. We're early on in having discussions, this season really starts to kick off in November, you have some larger customers that kick off their bid then. And you had some where we had maybe some prebid negotiations. I certainly feel like we're in a position to start with at least double-digit increases as we get going in this bid season, and we'll see how the market progresses from here.

It's going to be quite dependent on what happens with capacity. And if it continues to exit the market, given some of the regulatory push, it will vary based on what happens with demand because I think as everyone is well aware of, the challenges in the market have not been demand-driven. It's been more capacity driven. Demand has been relatively stable, if we get any type of lift there, I think we could see the contract rate market even improve from low double digits.

It will also depend on when you're addressing the rates. If you have a customer who had their rates renewed further into the bid season this year, then maybe their rates are in a better position when we look at renewing them versus a customer who had their rates renewed earlier in the bid season this year. it really depends on when you're going into the bid when you're going to be addressing the rates of the customer, also depend if you did a mid-cycle adjustments, which we've had to do in many cases, where rates just fell short based on where the market had turned to.

But again, easy to answer that is I think we'll start the bid season with the idea of probably low to mid-double digits and see how it develops from there, Chris.

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Adam, you did a great job in your prepared remarks. I hope you feel better soon. But if I can shoot a question your way, just to follow up on your comments on demand there. potentially record peak season notwithstanding. Are you concerned about demand at all? And kind of what you're seeing out there? You said it was stable. Should we expect to see better than that? And do you think supply alone can drive an up cycle if demand doesn't show up?

Well, I think demand (sic) [ supply ] alone is already driven. What's that? .

Supply alone.

Yes, sorry. I think thanks, Brad. I think supply alone is already driven enough cycle here, Ravi. And when we look at the peak season opportunities that we're seeing today, many of them will have to see what that demand in you kind of set the pricing and what the search capacity would cost and then you have to see how demand materializes. But so far early on in the peak season, we're seeing things develop as expected largely. I mean, you some be it or some will be a little bit less.

But in discussions with our customers, they are deviating from their forecast. So I feel like even just demand being stable, we're still in a position with where capacity is, what our turn downs have been, what the made bid activity has been, where there's still opportunity for rate to improve. I mean we could see our margins have improved meaningfully, but still nowhere near where they would be in the midst of an up cycle. So I think there's still a lot of room for that to run. And then if you look at the broader industry, there's some of the private guys, I know we don't see those results, but just with channel check. They haven't seen the margin improvement yet. We've had some peers report. There's still some room to improve margins, certainly, I believe, from their perspective in terms of how they performed in up cycles. So I think there's still a lot of room to run there, and we're kind of in the early innings on this.

Your next question comes from the line of Tom Wadewitz with UBS.

Yes. So Adam, I wanted to get your thoughts on just like you've got kind of a unique backdrop with Montgomery and rising insurance and these things that could put a lot of pressure on the small carrier I guess the backdrop is it's been really tough for a big trucker like you to grow organically with the fleet count over time, right?

You used to do that in a really big way, but it's been tough for a while. Do you think there's -- like can you actually grow, let's say, over the road fleet count and driver count in '27? Or is there kind of a path to that? Or maybe it's more owner-operators help you to grow there. But yes, just kind of wanted to get your thoughts on how you approach that? And what's maybe realistic? Or what kind of visibility do you have to that happening?

Yes, that's a great question, Tom. And that's been a challenge for all large carriers over the last couple of cycles, because I think largely the growth that's come in during an up cycle has been from the very small carriers with low barriers to entry and many of those not being as combined as the large carriers have had to be. So that's been a challenge to grow in that type of market. I feel like we're finally seeing some level of barriers to entry, and I feel like the carriers that really understand how to develop drivers and develop safe quality drivers have a shot at growing next year. Now it won't be easy. And so we're being very mindful about where we're making our investments to position to grow.

We've been very targeted and tactical about where we do driver pay and ensuring that we have the rate and the margin to support it. And I think we've done a good job managing that. And we've done some things on owner operator front because I do feel like the small independents that want to come in to access this market, they may come in under the cover of the large carrier from an insurance perspective. And so I think we've done some things to be very dynamic to the market and provide kind of market-based pricing for owners, which is different than what we've done historically. And we've seen some good demand there and some growth in owner operated [indiscernible] the last 9 months. So we're encouraged with that, and we're going to continue to invest in that area.

I told our team that we -- over the next 12 months, we'd be somewhat disappointed if all of our growth has come from just rate, right? We want the growth to come from running more miles with our existing truck growing into open trucks that we have and then ultimately growing our truck count. So that's probably our #1 priority as we get rate as we improve margins is to try to grow organically into this market.

What's your confidence you can actually do that, though?

Yes, I would say, look -- yes, sorry. So we've made some early investments there with really growing our recruiters, and it takes time for that to be trained and started to really contribute the way that we would expect. We've done some things on the driver pay front that we're just kind of testing between different brands on what's the most effective at bringing on new recruits and retaining drivers.

And so we're learning from that. And the strategy that we have of being able to do things different at each brand allows to test things and then compare them against others and then eventually harmonize to what we think works best. And so I think the early results are I think are encouraging, but there's still a small sample size right now. So I'm encouraged, but not -- there's still to be seen if it's something that's sustained through the holidays and as we lap into 2027, if we still see some momentum there, then I would feel better about saying, yes, I have confidence in doing this. It just hasn't been anything really, the large carriers have done over the last probably decade.

And so we're cautious before calling hey, the success there. But certainly, an area that we're greatly focused on and plan to invest in the future because we think that's the biggest opportunity for us to show earnings growth is really get the margin to rate, but also grow our fleet.

One insight I would add Tom, is that our view is that driver pay wages don't necessarily buy growth. The competitive place for experienced drivers is very high. So when we look at where we deploy our capital from a driver pay perspective or from recruiting, we look at we're able to test out different areas and their different brands.

And we think -- our thesis is that we target pay where it improves or [indiscernible] in our student profile. We think that is -- from our evidence, from our history, that what we direct resources where we've seen growth in the past it's when we direct resources there. So we're going to be opening up new academies, new partner schools. We've deployed resources to assist our recruiting teams using AI to help with recruiting, onboarding, retention, training and like Adam mentioned, we're staffing up our recruiting team. So look, fourth quarter is tough. It's hard to grow your seated truck count in the fourth quarter for -- that's what our evidence shows historically. But I think the setup is pretty positive that with the fertile ground we have with our academy network with the very targeted approach we have to our investment that we stand a good shot of seeing progress in our seated truck count in 2027.

Your next question comes from the line of Scott Group with Wolfe Research.

So I thought that was a really helpful slide on price/cost and wanted to get some perspective there. So that, I guess, [ 8.5-point ] price/cost spread in Q3, how do you see that evolving into next year? Do you think -- it sounds like you think the price will stay up double digits into next year? Do you think the cost sort of stays in that 3% to 4% range. So I guess, ultimately, like that 70% margin flow-through you saw in Q3, do you think that's sustainable? And I guess, Adam, what do you think that means for like where margins ultimately can go this cycle?

Yes. Well, I mean, we're going to see where that -- how that develops, Scott. I do think I have confidence on the cost side that we can really manage that effectively. Again, we're going to invest when we have margin to do so, right? And so we laid out kind of what historic normal inflation, how that trended over the last cycle, and we think we can manage costs within that range. I think there's still a lot of question about what equipment pricing is going to be with the new EPA regulation. We're working through that.

If we get make more progress on the dedicated rate, which I do think we'll be able to do that next year, then we'll make some investments in driver pay on the dedicated side. We just -- we typically don't do that until we have rates to support it. So the cost inflation will be somewhat dependent on what we see on the rate front. But we know that we need additional margin expansion. And I think we're pretty vocal about that earlier in this year.

It might have been the first quarter call. where, hey, when we get rate, it's going to go to margin first because where we're -- kind of where margins have been are not sustainable. And I think we're finally getting to the point where we're getting to more familiar territory but still don't feel like we're where we need to be, and that needs to continue. So Yes, I do expect to see a spread there. I don't know if it's going to be the exact same spread as we saw in the third quarter here. That was pretty healthy, but hey, coming from an easier comp perspective from a rate standpoint. But certainly, over the next year, if we're able to get rates in the double-digit range, at least starting the bid season, I certainly see an opportunity for that to continue to flow through to the bottom line.

Scott, the way to think about it is we're not going to see in the areas of driver pain recruiting, significant pressure Q3 to Q4. What -- the 2 things I would point out to you that are somewhat variable that can change. One is insurance liability claims, so development on prior year claims, new large cost settlements and [indiscernible] drive a lot of variability. [indiscernible] change 1 quarter to the next based on timing. We think we view that as fairly transitory. So those are going to, in the short term, affect the results.

But certainly, as we go into 2027, we'll continue to side, what is the right level of investment on drivers for us to make based on where the market is and our view on it. So -- but from a fundamentally from a perspective, I think the takeaway is that we've got a pretty dialed-in way we're managing cost. And we're pretty confident in our ability to manage that from a base inflationary perspective.

Your next question comes from the line of Dan Moore with Baird.

Real quick, a lot has already been covered. But 1 thing I'm curious about, and it's kind of a soft touch item. But in a post Montgomery world, it strikes me that ordinary care while that's historically been the standard for hiring a carrier, things like collision avoidance systems, drug and alcohol testing, established safety cultures and practices. They're probably taking on a much more important role in the counterparty equation of your customers.

And so if you could maybe just opine for a minute around how that's influencing the market. It strikes me the top 10-truckload carriers are probably 5% of the total market. And so for really large retailers, a very limited number of companies that they can go to, to presumably get the highest standard driver and capacity in the market. If you could just address that for a minute, that would be great. And I appreciate all the context.

Yes. So if I understand your question correctly, it's just how do you -- at least the conversation we're having with our customers, how are they viewing the safety of the carriers that are ultimately hauling their freight.

And yes. And I guess -- maybe just to add 1 piece to it, too, and I'm sorry, Adam. But it strikes me the dedicated market has changed a lot in the last 6 to 9 months. We're certainly seeing that with some of your peers. And so it seems like there's a big change that's developing. It certainly hasn't been volume. The housing market is a disaster, automotive is a disaster. Cost of capital is meaningfully higher. So fuel prices. So I'll just stop there, sorry.

Okay. I'll take a stab at answering your questions here. So with our discussions with our customers, I think they're trying to understand, I think, what they should be asking or what they should be looking for in terms of trying to understand if a carrier should be viewed as a safe carrier, right?

And the challenge is there is limited data out there. I mean you'll have the ratings through FMCSA, they're very limited because there are so many carriers out there, and there's not enough for the staff to really do proper ratings. You have CSA data that you could look at. It doesn't always correlate perfectly with safety, but it is something that's out there that you could look at. And then there's third-party services that gather information that we would leverage to try to pull together our own algorithm on what we feel like is due care in the carriers that we would hire.

And we've been sharing our view on that with our customers because we would, I think, have a different view of it because we understand what it takes to have a safe driver in our own fleet. The challenge is you can't have that same type of control with a third party. And so you have to rely on the information you have readily available and then do whatever diligence you can on the actual driver hauling the load and that's what we've done from our logistics standpoint which is why we've really limited the carriers that we have access to and why we took the approach of let's maintain profitability with good safe carriers as opposed to chase low count that may expose us to risk or lack of profitability.

And so I think our customers are asking like what should they be asking the brokers that they work with to ensure that they have a safe carriers and what their criteria is. And so it's -- I think it's a process of learning, and it's been evolving really since Montgomery. And I think it will take some time before you see some of the change really be involved and that could be from our customers asking brokers to have a certain standard. It could be from insurance companies requiring a certain standard to be covered with the insurance policy.

So I think there's more to come there, but we're constantly watching it and evolving just with -- as we gather more data and as we just kind of learn from what others are doing. And I think our customers are doing the same thing. As it relates to dedicated, like any time do you see capacity over the road, 1 way capacity become constrained and then the pricing rises rapidly as it has, you'll see customers start to be a bit more interested in dedicated.

Dedicated the last couple of years, has not been [ in vogue ] because it's typically a more expensive proposition because you're paying round trip for the capacity and you're required to keep it highly utilized. And when over the road capacity is cheap and widely available, you've seen customers kind of move volume away from dedicated to over the road. And now you see them shifting potentially some of that back to dedicated if they assume the rate market is going to be -- continue to rise and capacity will continue to be constrained.

And we're starting to see that. We talked a little bit about the growth we've seen in dedicated. We're starting to see that from some customers who really even haven't done any in the past just to look to say, "Hey, can you look at my market, can you look at my network," let's see would dedicate be a fit anywhere. So we're starting to explore that, but I still think it's early on in that process. But that's typically how these cycles play out. And over the road, it's really tight, dedicated, gets a little bit more popular with our customers. So hope I answered your question, Dan.

Your next question comes from the line of Bascom Majors at Stephens Inc.

Can we go back to the all other in the warehousing and independent contractor services, the trajectory from 3Q to 4Q? And just how to think about that business and the cadence off of the 4Q guidance you gave as we get into next year with some of the investments you're making?

Yes. Figure that would be a question given the volatility we're expecting for Q3 to Q4. Think about this, particularly on the warehouse business. So it's a business where we're investing in leases to manage warehouses. And generally, the customers that we work with, we bill based on activity. And in the fourth quarter, because of the nature of our customers, there's not as much activity that flows through to not disrupt anything going into their stores during the holiday season.

So your cost is fixed throughout the year. So you recognize that evenly through the year, but your revenue can be volatile based on how much activity runs through the warehouses. And so it's priced in for full year to work really well for us. But you see somewhat of an outsized amount of revenue in the first 3 quarters, particularly second and third, and then you see the dip in fourth quarter.

And as we've grown this business, which we've had -- which we have this year, that means your cost basis grows each quarter, yet you still see the dip in revenue in the fourth quarter. Now there's times in years where we've gotten projects done us during the fourth quarter, that would be something that we wouldn't have anticipated been able to project and that kind of softens the volatility from Q3 to Q4. And as of today, where we sit, we don't see a line of sight to that. It doesn't mean it couldn't happen. And so we're kind of giving you our best forecast of what we expect to occur which would be a drop in your normal activity, but with a higher cost basis that's impacting Q4.

So Bascome for 2027, until we give guidance, it's probably the best assumption is to assume the same quarterly cadence in 2027 as 2026, not leaking to the amount of revenue and margin, but just the cadence should be roughly similar next year.

And 1 element I would add, Bascome, this is Brad. In terms of making sense of the volume or activity in our warehousing slowing down in what would be a high activity quarter in the holiday shopping season is that more of what our warehousing business traffic is in is the store infrastructure relative to the stores, products on the shelves. And so that's why you're seeing less of that activity in the fourth quarter.

Thanks all 3 of you for giving some color on that. Just big picture, I think what I'm hearing is that the fixed cost structure of the business is higher as you've grown it and just the degree of quarter-to-quarter seasonality is more significant based on the way you raise revenue there. But the underlying annual earnings potential isn't changing here. Is that a fair assessment without getting to guidance?

Yes. I would say the annual earnings have improved as we've grown. And so yes, so it's still a profitable business for us, 1 that does really well. And -- but yes, it has this volatility, you just have to live with.

Your next question comes from the line of Ari Rosa with Citigroup.

Adam, I was hoping we could stay on the subject of Montgomery and just broadening out a little bit. I'm curious kind of 2 parts. So one, are you seeing shifts in customer behavior and more inbound requests, especially on kind of the asset-based side? And then second, just given how many trucks you're in, it seems to me that like accidents are inevitable in this industry. How are you thinking about insulating yourself from that risk? I mean even the best operators seems to be vulnerable when nuclear verdicts are being handed out in the kind of magnitude that they are -- what steps are you guys taking -- or is there anything you're doing differently now versus, say, 6 months ago?

Well, here's what I would say, Ari, is, unfortunately, the truckload guys have been dealing with nuclear for quite some time. So I think the brokers are now welcome to the party with us. And so we've been thinking about this address trying to mitigate our risk here for years. And so we buy a certain level of insurance, we keep some exposure to ourselves. We've got highly evolved training programs. We have a lot of technology in the truck. We do a lot of coaching with our drivers.

And we just try to put ourselves in the best position to defend our driver even if they're in an accident, it can never be perfect. We know that -- and so we try to protect ourselves with a certain amount of insurance, but also -- really, it's all about how you can prevent the accidents. And so we put a lot of focus on that. And so really, the changes we've made is ensuring that we have the right criteria for our third-party carriers to ensure that, that doesn't expose us any further than what we have on the asset side. But this is not a new topic for us whatsoever.

I think a beacon of life has been shown on it because of now the broker reliable for and then some of the big products that have been out there. But this has been something top of mind. I think every large carrier would tell you the same thing. -- for probably over a decade now. In terms of shifts from customers, I mean we're seeing a lot of that. And I think it's hard to know if that's driven by changes from wanting to move freight from non-asset to asset, and we've heard that from some shippers or could just be -- capacity is just extremely tight at trying to find capacity with a provider who can solve the acute problems. And I think we noted in our prepared remarks, given our scale, we usually get 1 of the first calls when there's a project or an acute need because we can typically round up capacity because of how much exposure we have the one-way market when that may take 10 or 15 calls with smaller carriers. So we are seeing a lot of that inbound you just don't know if it's because they're potentially shifting away from brokers or it's because just capacity as a whole is tight.

Do you think it's a net positive to your business?

Yes. No, absolutely. I think any time that our industry can ensure that we have good safe capacity on the road, that's a positive to everyone in our industry. And I think this is going to make it difficult for noncompliant carriers who are just entering the market, having gone through proper training right? And don't care about safety like the large carriers would, is seen to make it more difficult for them to access the freight market. And I think that's good for everyone does it mean that we'll be some along the way, maybe with some of the brokers who really leaned on that type of capacity. But at the end of the day, I think we're in a better space in the industry because we have safer drivers on the road.

Your next question comes from the line of Ken Hoexter with Bank of America.

Tier at the end. So great thoughts on the rate versus cost and the All Other Segments, really interesting and great to see the rate flow through at intermodal finally. So just jumping over to LTL. Maybe thoughts on where you stand, right? Density progress on, if you're doing the Northeast expansion you noted September weight per Sian rebounded to the highest mark in 3 years, maybe what's driving that? And then your thoughts on the operating ratio fourth quarter into '27. How do we think about this business now as it keeps growing?

Yes, I'll give you a little color and then Andrew, I know he loves to spot out LTL stats. In terms of our business and how that's progressing, we're still going through this evolution from a regional player to a national provider. And it's honestly, taking a little longer than we probably anticipated, but hey, we've never done this before.

But we are seeing a shift from really the lion's share of loads that we would -- or shipments that we would have called 2 years ago at a 1- to 2-day transit. And now we're seeing that shift to where we're seeing an elevated percentage of shipments that are moving 3 to 4 and some even beyond 4 days. And so that tells you it's a longer line of haul, a heavier shipment and it represents more of the kind of national network we want.

I think as part of the challenge is you don't have the density quite yet. Your line haul is still less efficient on moving that across your network. Do you have too many touch points along the way as you build density, you can kind of zone skin and go direct into markets without having to stop at certain locations. And so we introduced a little more cost to the linehaul service while you're making this transition.

And we've got great tools that are identifying where that is, and we're building our plans on how we mitigate that and how we go try to address the freight needs that we have to build the density. And so there's been this evolution that we're just still working through. But we're really encouraged with the progress last year from the transition from third to fourth, we typically see a little bit of lull in demand.

Last year, we saw kind of a healthy step back more than we anticipated, and we're not seeing that to the same extreme this year. We're seeing volumes are much more steady. And I felt like on a year-over-year basis, we'll see some good volume comparables. And look, we're encouraged about where this business is headed. And really, I think 2027 is set up to where we'll probably start to organically grow into the Northeast.

We've got several locations that are already picked out that I think would work from a location standpoint. And if the volume continues to hold in and we continue to make progress on managing the cost of that business, we'll start expanding to the Northeast. And we'll be very deliberate. We'll be really focused on managing our costs and the impact of the OR. But ultimately, we want to start growing into that market. Andrew, I don't know if you have anything you want to add?

I guess I would just -- I would add, there's some noise in our metrics as we're going through this transition. So I would just maybe 3 points how we see our results. We review what you should see in your results is steady pricing. I think that's how we view it. Second, Underneath these results, there's a lot of work that Adam referred to, to build the efficiency in the network. So it's a situation, there's a lot more going on, and there's a little lag before we start to see those results, but we feel really good about the work that's being done.

And then there's volume and momentum building. You saw a little bit of that from Q2 to Q3. We saw our OR progress better every month of the quarter. And so we feel like there's good momentum. Now we're going to see our normal Q4 seasonality or more retail exposed profile of our business just typically sees Q4 soften up quite a bit. But as Adam mentioned, we're seeing it better than last year. And so that's a function of the changing mix of customers we're developing more industrial and some growth, new wins that are coming into the business. So a lot of foundational things happening that I think set us up to see margin improvement as we move into next year.

And Ken, I want to say thank you for recognizing the Intermodal margin. I think our team there has been hard at work and I think they were very proud to be in the black and seems to be good momentum on volume and price and hey, they're going to continue to push forward to sustain profitability. But glad you mentioned that here at the tail end of the call here.

Adam, we picked on it on the other side for a long enough, so great to see.

We have reached the end...

Sorry, I would just say, yes, I think we wrapped up the call here. I appreciate everyone who's joined us. Again, if you wanted to follow up call, if we didn't answer your questions, you could call us at (602) 606-6349, and I'll hand it back to you Jillian.

Thank you, Adam. This concludes today's call. Thank you all for attending. You may now disconnect.

Good afternoon. My name is Jillian Robinson, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation Second Quarter 2026 Earnings Call. [Operator Instructions]

Speakers from today's call will be Adam Miller, Chief Executive Officer; Andrew Hess, Chief Financial Officer; Brad Stewart, Treasurer and Senior VP of Investor Relations. Mr. Stewart, the meeting is now yours.

Thank you, Jillian. Good afternoon, everyone, and thank you for joining our second quarter 2026 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last 1 hour. Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. And if we are not able to get to your question due to time restrictions, you may call (602) 606-6349.

To begin, I will first refer you to the disclosures on Slide 2 of the presentation and note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1A, Risk Factors or Part 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ.

Now I'll hand the call over to Adam for some opening remarks.

Thank you, Brad, and good afternoon, everyone. So the truckload freight market has rapidly progressed over the past few months, with spot rates trading well ahead of normal seasonality, tender rejection rates reaching levels not seen since 2021, and contractual bid activity growing increasingly supportive. This has continued to be largely supply-driven, though signs of improving demand are starting to emerge. We believe our business is positioned particularly well for environments such as this with our leading over-the-road scale, agility in the market to optimize yield, collaborative cross-brand solutions to meet shippers' needs, and industry-leading academy network and training infrastructure to source professional drivers and an intense cultural focus on cost and excellence in execution to convert opportunities into earnings.

Further, we believe demand for our truckload service offering is outpacing the market as evidenced by our tender rejection rates running roughly twice the level of public indications in the second quarter. Realized revenue per mile was just beginning to recover in the second quarter as contract rate improvement in the period was largely driven by bids priced early in the year.

Revenue per mile accelerated in June as the more recent bids reflecting the tighter backdrop started taking effect. These bid outcomes largely brought double-digit percentage gains in pricing. In the third quarter, the planned annual bid events typically wind down, though mini bid and turnback bid activity is persisting, if not increasing in the recent weeks. Additionally, we continue working on rate reviews on existing business to address rates that are below market where the next scheduled bid is too far out to be sustainable. We believe the efforts of the FMCSA and DOT, including initiatives to prevent and revoke invalidly issued CDLs, prevent cabotage, shut down noncompliant CDL schools and address hour of service abuses are in the early stages and will continue for some time. This cleanup effort should, in our view, have an outsized impact on the one-way truckload market, particularly on the lowest price capacity.

The service that was under the most pressure over the past few years is now benefiting the most from capacity exiting the system, a dynamic we expect will continue. Beyond the regulatory-driven pressure on supply, we believe the recent Montgomery ruling by Supreme Court will add to the tightening in the truckload market as marginal carriers will likely be squeezed out through a combination of higher insurance costs and higher shipper and/or broker selection standards. Given our...

[Technical Difficulty]

Apologies for the interruptions. Ladies and gentlemen, we are experiencing technical difficulties. Please pause while we figure things out on the back end.

Okay. Looks like we're back on.

We will now continue the call. Go ahead, Adam.

All right. Sorry about the disconnect there. We'll try to pick up where we left off. I think I figured out where the call got disrupted. So I apologize for that. I was touching on the recent Montgomery ruling. And [it was] mentioned that given our long-standing commitment to safety and our significant investments made in support of it over many years, that the Montgomery ruling should not add cost to our asset-based business, but should rather bring some future opportunities to it. And so as for brokers, which we have a brokerage business as well. The Montgomery ruling could structurally change the economic incentives for a large share of the brokerage space that all too often have pursued the cheapest possible capacity with less regard for carrier safety and quality. And it will likely take time for cost pressures from insurance and litigation to drive behavior change for many, but shipper behavior could bring that about sooner to the extent shippers stiffen requirements or allocate freight differently to mitigate risk.

Some shippers are starting to ask for higher insurance limits from brokers and carriers, ask questions about carrier vetting practices or even insist on having the right to approve broker carriers before they can be assigned. On the insurance front, our view has been that premiums for broker liability insurance will climb over time as underwriters work through a reevaluation of the risk and as litigation emerges. Our brokerage insurance actually expired in June, and we were in the market working towards a renewal when the Montgomery ruling came out, and that significantly impacted our renewal efforts. We have seen firsthand some of the changes that are just starting to develop in the insurance market.

In addition to a significant reduction in insurance capacity, insurers are seeking to introduce exclusions regarding carrier vetting practices into the policies, which, if not strictly followed would lead to a lack of coverage altogether for an accident. The good news is that feedback from insurers was that our carrier vetting is as rigorous as they've seen. But despite this, our premium rates increased to multiples of our prior coverage within just a few weeks of the Montgomery decision.

So we expect insurance costs in this space will continue to climb. Improvements in carrier vetting will noticeably pressure the carrier base and gross margins for brokers who will need to make meaningful changes to their approach. While we regularly review our vetting approach, and we'll continue to evaluate whether further refinements are feasible and effective, we believe our standards are already more stringent than most and are reflected in the size of our carrier base and our purchase transportation costs.

The situation is very fluid and shippers, carriers and brokers will navigate their respective risks and decisions as they see fit, but we believe the incremental opportunities for our business are greater than the incremental costs, especially for our asset division. Shippers continue to reduce usage of brokers and aligned with quality asset-based capacity. Our customers also generally have solid outlooks for their respective businesses in the near term and discussions about peak season demand support have continued.

With the tightening in market conditions, recruiting and retaining quality drivers have become more challenging. The constrained driver market is affecting over-the-road dedicated LTL and drayage markets to varying degrees. We believe we have an advantage with our terminal network, academies to source, develop drivers, a diverse service offering. The truckload market is most affected, and we are making thoughtful targeted investments to aid our efforts starting in the third quarter, generally in the form of hiring and productivity incentives.

We continue to closely monitor the driver market conditions as well as our own metrics around seated tractors, utilization and pay as a percentage of revenue to gauge appropriate actions as we balance the need to restore margins with opportunities for growth. We are encouraged by the momentum in the market and strong early progress in our core truckload business. We remain focused on increasing our seated truck percentage and optimizing yield. We are continually refining our cyclical playbook and have been preparing for this phase, which is typically a pivotal point. We have worked intentionally towards reducing costs, preparing to scale efficiently, investing in recruiting and training capacity and driving collaboration and technology towards maximizing opportunities in order to enhance the contributions of our operational and market management strategies. And with the acquisitions over the past 5 years, we have a larger revenue base to work with than we have entering any prior up cycle.

With that, I'll turn the call over to Andrew and Brad to review the results and our guidance.

Thanks, Adam. The charts on Slide 3 compare our consolidated second quarter revenue and earnings results on a year-over-year basis. Consolidated revenue, excluding truckload and LTL fuel surcharge increased 5.5%, and operating income grew $32.2 million or 44.4% year-over-year. Adjusted operating income grew $47.2 million or 45.5% year-over-year. The improvement in earnings was primarily driven by pricing and network efficiency gains across our asset-based businesses. GAAP earnings per diluted share for the second quarter of 2026 were $0.26, a 23.8% increase year-over-year. Adjusted EPS was $0.63 for the second quarter of 2026, an 80% increase year-over-year. Our consolidated adjusted operating ratio was 91.4%, a 240 basis point improvement year-over-year. The effective tax rate on our GAAP results was 34.1%, and our non-GAAP effective tax rate was 24.4% for the second quarter.

Slide 4 illustrates the revenue and adjusted operating income for each of our segments for the quarter. Relative share of our various services offerings remained largely consistent quarter-over-quarter, with intermodal gaining slightly over the first quarter as it grew revenue 21.2% sequentially. All reportable segments other than logistics improved their operating margins and income contribution year-over-year.

Now we will discuss each of our segments, starting with our Truckload segment on Slide 5. Our Truckload segment grew revenue excluding fuel surcharge by 2.8% and grew adjusted operating income by 69.4% year-over-year through disciplined network management and strategic deployment of capacity. Revenue per loaded mile, excluding fuel surcharge and intersegment transactions increased 5.5% year-over-year for the quarter. Network efficiency gains amplified the margin opportunity as a 140 basis point reduction in deadhead miles produced even greater improvement in revenue per total mile.

The adjusted operating ratio improved 360 basis points year-over-year to 91%, yielding the best adjusted operating margin for the combined Truckload segment in over 3 years. Year-over-year rate improvement progressed through the quarter, driven by spot and project opportunities that developed within the quarter. As Adam noted, rate improvement accelerated in June as more recent bids started taking effect with Truckload revenue per loaded mile, excluding fuel surcharge, increasing 8.4% and revenue excluding fuel surcharge per tractor increasing 10.1% year-over-year.

Results for the over-the-road service were even stronger as there is -- as this is the most capacity-constrained part of the market. US Xpress is making greater rate gains than our legacy brands, which was a key pillar in our thesis with the acquisition given the relative starting points on the pricing portfolios. We are excited to finally be in an improving market where we can act -- fully act to reset rates, which is what we had called out as the biggest synergy opportunity. This rate progress helped bring the US Xpress Over-the-Road division to its first profitable quarter since the acquisition, an important milestone for what was the most challenged part of the business at acquisition.

With the normal bid season winding down, at this point in the calendar, we are focused on ongoing opportunities to drive rate recovery as mini bids, turnback bids and rate reviews continue. While our total miles per tractor declined year-over-year for the first time in 8 quarters, this was primarily due to the reduction in empty miles as we drove network efficiencies. Q2 loaded miles per tractor improved year-over-year for the seventh consecutive quarter. Importantly, the strengthening rate backdrop and improving network efficiencies have ongoing implications for our business. With driver availability becoming a utilization and volume headwind, we are taking targeted actions in Q3 on driver pay with the goal of improving seated-truck count and opportunity capture. We remain focused on margin restoration alongside these efforts and are calibrating investments based on sustainable rate gains.

Now on to Slide 6 for a discussion of our LTL business. While the LTL sector has not seen the same sharp tightening as truckload, demand that has been generally stable is seeing pockets of improvement in addition to some indirect benefits from truckload tightness. Our freight mix continues to improve, and rate renewals have remained steady at a mid-single-digit pace. We are focused on optimizing freight mix and network efficiency and efforts to improve margin while protecting service and positioning us for further growth. LTL revenue, excluding fuel surcharge, declined 1.4% year-over-year, driven by a 3.7% decrease in shipments per day as we metered certain volumes as part of our initiatives around freight mix and network efficiency. Improvements in freight mix drove 4% growth in our daily tonnage, 7.9% growth in our weight per shipment and a 5.3% increase in our length of haul year-over-year. Additionally, both daily shipments and tonnage trends showed momentum as the quarter progressed. Revenue per hundredweight, excluding fuel surcharge fell 4.2%, driven by the strong increase in weight per shipment, while revenue per shipment, excluding fuel surcharge increased 3.4% year-over-year.

The adjusted operating ratio improved 100 basis points year-over-year to 92.1% and adjusted operating income grew 13.3%. While we anticipate that fuel will be a quarter-over-quarter headwind in Q3 based on recent trends, we aim to offset this margin headwind with further efficiency gains, volume recovery and pricing progress. We expect that over time, growing into our network investments, maturing freight mix, improvement in network density and continuously refining our operational cost execution, will allow us to drive sustained methodical improvement in operating margin.

Now I'll turn it over to Brad for a discussion of our Logistics segment on Slide 7.

Thanks, Andrew. The Logistics segment grew revenue 8.9% year-over-year, driven by a 29.6% increase in revenue per load, partially offset by a 16.4% decline in load count as we maintain a disciplined approach to profitability and carrier quality. Tightness in third-party carrier capacity continued through the second quarter as gross margin of 15.4% for the second quarter declined 350 basis points year-over-year and 120 basis points from first quarter levels. The adjusted operating ratio was 96.4%, a 160 basis point degradation year-over-year. As contractual pricing is reset through bid activity and proactive rate reviews, we expect to grow volumes at appropriate gross margins moving forward.

Also, over time, we expect our Logistics business to benefit from share gains as brokers with less robust safety and compliance infrastructure are pressured out of the market following the Montgomery ruling, as noted earlier. This team continues to leverage technology to take cost efficiencies to a new level as well as to improve our responsiveness and ability to capture opportunities in the marketplace, which we expect will contribute to earnings in 2026.

Now on to Slide 8 for a discussion of our Intermodal business. The Intermodal segment grew revenue 34.9% and improved its operating ratio by 470 basis points year-over-year through a 19.6% increase in load count, a 12.8% increase in revenue per load and improvements in costs and network efficiency. On a sequential basis, load count grew 9.7% and revenue per load grew 10.4% over the first quarter levels.

Load count improved progressively throughout the quarter, and core pricing also improved throughout the quarter as revenue per load increased 2.4% year-over-year before factoring in fuel surcharge revenue fluctuations. In addition, mix was a headwind to pricing as we've increased our backhaul volumes to improve network balance. While outside drayage service is affected by the constrained driver market, we outsource only a low single-digit percentage of our drayage needs, which should provide some insulation from the tightening in drayage capacity. Though the intermodal pricing environment remains more competitive than truckload, we are encouraged by ongoing opportunities to leverage our strong service performance and our truckload relationships to continue growing our volumes at improving rates.

Our pipeline is strong and supported by mini bid and turnback bid activities as well as modal conversion opportunities. We remain focused on delivering excellent service and driving appropriate returns through growing our load count with disciplined pricing through cost control, network balance and equipment utilization.

And Slide 9 illustrates our all other segments. This category includes warehousing activities and support services provided to our customers, independent contractors and third-party carriers, such as equipment sales and rentals and insurance and maintenance. Additionally, beginning January 1, 2026, all other segments also includes the cost of our accounts receivable securitization program that was reported below the line in interest expense in prior years.

For the quarter, revenue increased 41.8% year-over-year, reaching the highest mark in over 3 years, driven by growth in warehousing and trailer leasing services. While the operating businesses in this category grew their income contribution year-over-year operating results overall declined to an operating loss due to the inclusion of $5.8 million of costs for the accounts receivable securitization program as well as an $18.2 million severance charge, primarily related to the retirement of our former Executive Chairman.

On Slide 10, we highlight our convertible bond issuance during the second quarter and the benefits to our company. We've been monitoring the convert market for a long time and view this as an attractive opportunity to provide immediate meaningful earnings accretion, increase our flexibility and support our ongoing deleveraging efforts. This instrument allowed us to monetize our combination of strong credit and stock volatility while our stock was trading near all-time highs. By issuing bonds at 1% to pay off floating rate debt around 5%, we expect to generate annual savings of approximately $44 million pretax after accounting for deal costs. Beyond the immediate interest savings, the convert also helped us to extend maturities, reduce floating rate exposure, and reduce the outstanding capital among our banking relationships. Additionally, as we are bullish on the opportunities ahead for our company, we used $107 million of the proceeds to purchase a call spread that increased the effective conversion price from roughly $80 per share to $105 per share.

As a result, shareholders received the benefit of the interest savings today, while dilution remains limited until the stock appreciates substantially. And as illustrated on the slide, if the stock were to appreciate 87% from issuance to a hypothetical share price of $115, dilution will be approximately 1% of our current shares outstanding.

Now on Slide 11, we have outlined our guidance and the key assumptions, which are also stated in the earnings release. Actual results may differ from our expectations. Based on our assumptions, we project our adjusted EPS for the third quarter of 2026, to be in the range of $0.71 to $0.77. Our projections reflect recent trends in volumes, spot rates, rate activity and driver hiring as well as expectations for continued seasonal patterns for both truckload and LTL services. The key assumptions underpinning this guidance are listed on this slide.

Now this concludes our prepared remarks. And before I turn it over for questions, I just want to remind everyone to keep it to 1 question per participant. Thank you. Jillian, we will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Ken Hoexter with Bank of America.

Maybe just delve into the utilization or miles per tractor, the deadhead impact, right? So how do you adjust that? And then the timing of rolling in the out-of-date contracts with the new pricing? Maybe just talk scale or speed with which we could see that both of those ends, utilization and pricing start to really roll in.

Yes, I do appreciate that, Ken. Well, any time you go through bid season, you're going to have some level of churn where you're losing some of the incumbent business and you're picking up new lanes. And so when we have maybe a greater amount of freight being awarded to us than really we can handle, we have an opportunity to kind of pick and choose the lanes that create some additional efficiency in our network. And so we've been going through that process as we've been getting awards from our customers. And then even on the spot market, there's more opportunities there to fill in empty lanes that we've had historically. And so every business has just been going through and trying to build some efficiency into their network. And that will be something that we'll be continually doing as we find more opportunities and get more awards for our customers.

In terms of the pace of how the rates are playing out, I think as we touched on in the prepared remarks, we saw that really accelerate in June. We had a lot of the bid activity get implemented in June, and we'll have some additional activity get implemented in July. But quite honestly, this is going to be an ongoing process. And we'll be -- we are constantly getting these mini bids or even churn bids where a customer has gone and awarded business, and you've had carriers who've had to reject certain amount of awards because of the lack of available capacity or just a lack of a fit in their network, and then they have to go source some additional capacity to not be in the spot market.

We're seeing a lot of those. Obviously, the spot market is robust. And so we are creating a greater amount of exposure to the spot market. I think this year, we started the year probably around 10%. We're now kind of mid-teens in terms of our spot market exposure. And then you also have projects that will build and sometimes those can come without notice, sometimes they're planned. We had a good amount of projects that built into the back half of June as customers were needing capacity going into the Fourth of July holiday. That slows a little bit as you come out of the holiday, but I would expect that to pick up probably in September, and then that really lead to what we believe would be a strong peak season.

So I expect some normal seasonality to play out, but also I do think there's just the robust spot market and mini bid activity that allows us to continually improve rate. And then, hey, once you get through what we believe will be a strong fourth quarter peak season, you're kind of right back into bid season where you're able to address rates that may be outside of the market.

And just on your point on deadhead empty miles, we've really -- let me point to 2 factors that are allowing -- enabling us to drive this improvement. First, we've been in the process and development and have been implementing in the last months some enhanced planning tools that are significant in our ability to reduce our empty mile percent, but we've seen that really take traction. And so the momentum on our empty miles has been building over the last few quarters. But in an environment like this, in a good market, we have an opportunity to really build a more efficient network. And so when we're taking kind of the fundamental changes we've made in our structural processes on how we plan to -- along with the market where you have an opportunity, that's -- those are sustainable changes for the foreseeable future that we think are going to enable us to do that.

And so that's obviously creating some noise on our total miles per truck. But when you look at our loaded miles per truck, we are in a healthy trend that continues just to build. So our biggest opportunity is going to be seating trucks that are not active, so our unseated trucks where we do have a lot of opportunity there. Obviously, we put a lot of that cost into the system. So it's going to lever really well as we are able to put those trucks to work.

Your next question comes from the line of Scott Group with Wolfe Research.

So Adam, you talked about ELD and hours of service enforcement. It feels like we haven't really seen that yet. So maybe talk about what could be coming because I think that could be a next -- another big sort of opportunity on the capacity side. And then I guess just along those lines, listening to you, it sounds like with Montgomery and all these regulations, it sounds like you think large asset-based carriers should be the beneficiaries here. It's been a really long time, but do you see opportunity to start growing your fleet organically?

Yes. So let me hit that, Scott. So first question on these hours of service enforcement. I think this administration has a lot of things on their agenda that they plan to push to clean up the environment. There have been a lot of ELDs that have been self-certified in our industry that we don't believe can stand the rigors of real compliance. And I think they've been -- we've seen this administration going through and invalidating some of these devices and be much more strict on roadside inspections. And so I think that's just going to be part of the equation of just managing non-compliant carriers out there, and I think they're in the early innings of really pushing that. I think there's just a lot of ELD providers out there to work through. Just like there would be CDL schools. There are so many out there that they're cracking down on that were created that again were self-certified. And I know that's important to this administration.

So I think those will be areas that will just continue to push out the noncompliant carriers, which typically are those that are much cheaper in terms of how they price their capacity. In terms of Montgomery, I do believe that the quality asset-based carriers would be a large beneficiary from this ruling as we've had many customers reach out to divert some volume that was with brokers to the asset-based carriers. And we've also had customers who use our brokerage, who want to understand how do we vet carriers? And what are the things that we look at as important to ensure that we're putting a safe carrier, and more importantly, a safe driver behind the wheel that's hauling their freight. And we've done a lot on that front even before the Montgomery ruling that I think, has put us in a good position relative to many in the space.

But we continue to look through that and to ensure that we're mitigating risk best as possible, but being balanced with having capacity available for our customers. It's certainly with where the freight market is. I've always said in transportation and trucking, you either have freight or you have drivers. It's rare that you have them at the same time. And so clearly, we're focused on maximizing the opportunities in the market today with the freight that's available. And we are looking towards how do we maximize the utilization of our existing equipment. And then once we feel like we're in a good position there, we would like to grow the fleet. Driver availability, quality driver availability will be the one relegating factor. And so we're trying to put together some really thoughtful approaches to how we incentivize drivers in our company, how we recruit drivers for our different companies.

I know a big question is what happens with driver pay as rate -- as the rate market improves and we're committed to preserving rate best we can to enhance margins because there's a lot of margin that we have to get back into our business. And I think a lot of our peers are in the same place on that front. Now I think the good news is the last up cycle we had, we were competing against government incentives, and we're competing against a very tight labor market, where that is -- I think this market is very different than then. And so we don't have to spend as much to incentivize drivers to come to our company. So we've already done some things that are very tactical and very strategic in where we're going to put dollars around production incentives, some -- maybe some sign-on bonuses and just key markets, not broad-based, not near the expense we would have done during the last up cycle.

And we're taking different approaches business by business and learning from them. And then at some point, we'll maybe harmonize them to what got the best results and the greatest return based on the investment. Yes, but you're right, ultimately, we want to be able to grow organically in this market. But hey, we've got some utilization to improve before we get to that point, but I'd like to think that we'd be able to achieve that and begin to grow.

Your next question comes from the line of Brian Ossenbeck with JPMorgan.

Maybe a first quick follow-up for Adam. Do you think that some of these seated tractors can be filled here in the near term? Is that something -- it sounds like there are some approaches already in flight. So do you feel like you'll get some progress there? And I know it's maybe a sensitive number, but any relative percentage you can give us in terms of we have been historically with unseated tractors might be helpful to figure out where that trend is going. And then maybe for Andrew, if we can hear just a little bit more about the LTL trends. What was the month? How was that progressing? Were there any capacity constraints that you ran into there that we're sort of hearing across different parts of the industry? And then I guess lastly, the fuel headwind comment got a lot of attention. So maybe you can just walk through what you expect on that.

Yes. Look, I'd say from a seated tractor standpoint, we're just going to make incremental progress there, would be my expectation, Brian. I'd say, overall, for our company, it's stable. We have some businesses that have seen some good progress and others that have seen a little bit of pressure there. But overall, it's been relatively stable. We don't give a percentage out there. So it doesn't differ much from where we've been over the last year or two. But it's definitely a focus of ours, given the amount of freight opportunities that we have. I mean we're rejecting twice as much as the industry. And so those are going to be freight opportunities that we could leverage in our markets if we had more seated trucks.

And so now that we have the ability to do a little bit on the driver pay front that can help support bringing more drivers in and enhancing our recruiting, I think it's a good opportunity for us. And so we're highly focused on that.

Brian, on LTL intra-quarter trends. Let me just give you some of the numbers, so you have them, and then I'll give some context around it. But if you look at our shipments per day, which we described are down year-over-year as we've had this freight mix change with higher wage shipments. But in April, we were down 6.5% year-over-year. May, we were down 3.2%. And in June, we were down 1.3%. So we saw our shipments per day grow from April to May to June. And -- but we implied it in the discussion in our comments earlier. But early in the quarter, we metered some of our demand to protect service as we wanted to make sure we were balanced on our inbound and outbound freight. And so we restricted for a period of time early in the quarter, our demand to make sure that we could maintain service.

We feel like that we were able to open that up as we got into the middle of the quarter. And so we see a good environment in LTL. We hope to build off of the volumes that we experienced in Q2 and grow into Q3. The comments on fuel is, I was just saying, we -- it is an unpredictable line of our P&L. We know that it helped us some in Q2. What we're seeing early in the quarter, I would say maybe not, but that is a line we can't really foresee. There is a high degree of variability. And so we're just going to watch how that plays out. We just wanted to introduce the idea that, that is an uncertain line that could provide benefit or cost into Q3.

Your next question comes from the line of Jonathan Chappell with Evercore ISI.

Adam, you mentioned in the prior answer, I don't think it was asked directly, but you answered it anyway, about the driver pay and kind of relative, like it's a big question that's being asked right now. I just want to kind of simplify it, if you can. Can you compare and contrast the driver wage inflation potential today versus what it was in kind of late '20, early '21 and then to take the next step forward. How do you see either overall industry or Knight upside margin potential or call it peak margin potential, given the similarities and potential differences of wage inflation versus price.

Yes. Well, again, like I mentioned, we're -- it's a very different labor market, this go around that we saw in 2021, where we were competing with governments incentives and -- or stimulus and just an overall very tight labor market, where there were other significant number of opportunities, alternatives for that vocational labor. Drivers are always tight. I mean they always have been. We did a lot in pay in '20 and '21. So they -- we caught up quite a bit of where we were lacking as an industry, we haven't taken any of that back.

Even though rates went back 20%, driver pay is held as a per mile basis and has put pressure on margin as a result of that. So I think there's a lot of rate to get back, and there's some room on driver pay, certainly, but not near the extent that we had in '20 and '21. And so I do think we'll see margins, I would believe, improve faster in this cycle because of that, but we're starting at a much lower level, right, clearly. So I don't know that I'm really willing to say that the peak of margin changes from historical patterns versus this market because, again, where we are starting that. But we're in the early innings of this shift in the market. And what's unique about it is it's supply-driven largely.

Again, we saw kind of a couple of anecdotes of demand starting to improve, certainly not broad-based yet. So because it's supply-driven, it does feel like it could be a bit more durable, but it could be a little bit more linear in terms of how we see the results improve than maybe when it's really driven by a significant increase in consumer demand. Because when demand jumps up, shippers really need capacity because they're missing sales, and it's a new opportunity for shippers. And so they're a bit more willing to pay to rate increases to get that capacity.

In the market today, it's we're moving the same goods for the same sales, just lot fewer trucks to service that. And so you have to really negotiate and push to get the rates that you need to support your fleet and to get the return. So again, I don't know how this all plays out down the road in terms of peak margins, but I definitely feel like we'll have an opportunity to flow through the rate increases to improve our margin while doing a little bit for drivers where it makes sense in the markets where we need it.

Jonathan, I would just point to -- our approach, Jonathan, is kind of 5-pronged in terms of outside of driver pay, but like 5 things that we're doing as we look at how we navigate a tighter driver market. So we've put money to work in marketing, that would be the first. We've built up our recruiter base as we've been going through this year. So we've put money kind of ahead of those areas to focus on. Third, I would say we are leveraging tools we haven't had in the past. AI tools, including others to help us be more efficient in our recruiting and our training, retaining and rehiring. Fourth is leveraging our academy network and something that we've probably not done as well in the past is leveraging between our brands, our academy network to help all of our brands benefit from the academy network we have. And the fifth is we've got -- we're so much more in terms of the tools we have around driver pay. We've deployed new tools about how we pay our owner operators that are market-based pay.

We've got better tools around market intelligence. So the decisions that we're going to be making around driver pay, like Adam mentioned, are going to be tactical, data-based, market-based, specific to the fleet needs. Our approach is going to be more precise than blunt, which we've done in the past. We think that is going to help us be really smart how we deploy resources in driver pay to accomplish both things, grow our fleet and capture margin recovery.

Our next question comes from the line of Ravi Shanker with Morgan Stanley.

Adam, how are your shipper customers talking about TL versus intermodal right now? I think you're seeing a bit of a switch to intermodal, kind of do you think this is opportunistic given the gap in rates? Do you think it switches back to TL when demand tightens up? And kind of how do you think about -- I mean, how agnostic or not are you to that switch?

Yes. I think it's been, for us, been maybe more anecdotal than anything, Ravi. We haven't seen a wide shift from a wide group of customers. But there are certainly some where they have a longer length of haul or it's a great fit, where the freight is close to the ramp pairs where the gap has grown enough to where they'll give up some transit time or service to move intermodally. And we're seeing some of that, but it's -- I don't think it's material to the amount of opportunities we have on the truckload side, but it has helped with some of the growth in our intermodal business. So I mean, we're open to it because a lot of the stuff is the longer length of haul. Much of this freight, we probably wouldn't have been hauling anyways in our truckload fleet because of how regional our fleet is. And so we're very open to it. But again, I think it's still relatively small to the amount of freight that's moving by truck today.

Your next question comes from the line of Chris Wetherbee with Wells Fargo.

I guess maybe a little shorter term, sort of like hone in a little bit on the third quarter truckload guidance, I guess, revenue up mid-single digits year-over-year, you talked about the exit rate on a revenue per truck basis being in the 10% range. So I guess I'm just kind of curious about some of the moving parts there. We talked a little bit about seated tractors before. Do we assume that we actually will see more slippage sequentially in terms of the total fleet count? Just want to get a sense of how we should think about sort of squaring that revenue per tractor number relative to the potential total revenue number, just to get a sense of how you're thinking about the puts and takes and if there's any sort of updates you might want to give in terms of what that June number might look like as we transition over into July or the third quarter.

Andrew, do you want to hit on some of the guidance updates?

Yes. So yes I think -- let me give you a couple of the dynamics that are going on there. As you look at the Q2 to Q3. So we expect the rate momentum that we saw coming out of Q2 will continue. We -- at the end of the quarter, we saw a lot of project activity, seasonal activity that came with very healthy spot rates. As you move into Q3, you see some of those go down that is typical in the July, August period. We think there's some indication that those will be strong as we enter the back period of Q3, but we'll have to see. What we're seeing otherwise is a building contract volume. We still have a lot of the rates that have been negotiated going into effect in July and August. And so we'll continue to see that rate build. And that is what's driving the incremental EPS contribution to the business.

Now we'll have -- there's some factors that may act as a little bit of a headwind. I talked about fuel. We'll have to see where fuel rates go. But that certainly could -- is something we're watching carefully because we can be very impactful, particularly on the timing of that. Q2 was a large quarter for us on gains. We expect that to be less based on the amount of inventory we expect to sell in the third quarter, so that's going to provide us some degree of sequential cost pressure. And then driver pay, we talked about may provide a little bit of cost pressure, although we think it's relatively small at this point because of the approach we're taking.

So those are factors I'll consider. And I think we're going to see that benefit clearly in our one-way business. I would say, for the rest of our portfolio, our dedicated business, LTL, intermodal, logistics, the Q2 to Q3 is more steady in terms of contribution. And so obviously, those parts of the business aren't going to contribute sequentially a significantly different EPS contribution. So those are the dynamics I would point you to for the sequential look on the quarters.

Yes. And Chris, I know you mentioned about truck count. I mean we feel like truck count is going to be stable sequentially, miles picking up a little bit just from seasonality. So I think that would be part of the equation as well. But we expect the truckload business in the aggregate, including our dedicated to operate in the high 80s. It's been quite a few quarters since we've been there. So we feel encouraged about that. And hey, we feel we'll build from there into fourth quarter.

Your next question comes from the line of Ari Rosa from Citigroup.

So Adam, maybe you're the best person to ask this question. I think it's similar to Chris' question, just now. But if we look at truckload revenue ex fuel up about 3% year-over-year in second quarter and the guide for mid-single-digit growth in the third quarter. Compare that against the spot rate, which we're seeing up significantly above that. I understand, obviously, there's a big difference between spot and contract. But looking at the last cycle, obviously, we were getting to double-digit type of increases on revenue per load mile. What's the cadence? Or what's the expectation on when that can flow through or when we might expect that? Just given the kind of severe tightening that happened in capacity. Like I don't want the question to sound overly critical, but I guess I'm just surprised that, that number isn't a bit higher or accelerating faster? And I understand you guys gave some of the guidance on -- that's accelerating or accelerated through the quarter. But should we expect that getting to like double digits as we think about beyond third quarter?

Ari, just to clarify, you're saying which metric double digits, talk about revenue per mile or just overall truckload revenue. I just want to clarify.

Yes, revenue per load mile, specifically.

Yes. No. So we came out of the quarter. We mentioned in June, we were on a revenue per total mile over 10% on a loaded basis, over 8% on a year-over-year basis. Now we did have some projects in June, which we -- that drives a lot of premium freight, and look, we're still 70-plus percent on the contract side, 50% is spot. You have some backup that we take. And so when you look at the spot rates, I mean, that's not really the market that we operate in, and it's small relative to the overall. But our goal is to have good sustainable contract rates and have flexibility to do projects and take advantage of the spot where it makes sense for our business.

Now do I feel like you always take a little bit of a step back seasonally from projects as you go past the Fourth of July. July is still strong, just your normal business, but you may not have premium projects. We believe that will build into the back half of the quarter, particularly into September. And so I think rates could start to trend in that double-digit range as you get into September. And then I feel like if things play out as expected, fourth quarter would really see a ramp-up as you'd expect to have a good amount of projects and a heavy amount of spot opportunities and even some backup opportunities as we go into the fourth quarter.

Ari, now we are securing, for the most part, double-digit rates in our bids and in negotiations. So that is the rate we're getting. You've got to remember, 1/3 of our fleet are dedicated, and that's going to follow a different cadence. We think the benefit will we'll come to dedicated to the market, but that doesn't happen in such a short time. So I think those are factors you got to make sure you include as you model the projection in the short term.

Your next question comes from the line of Tom Wadewitz with UBS.

So I know you've gotten a bunch of kind of questions on price that are kind of near term. Maybe, Adam, if I take a step back from that and say, we've got a couple of cycles to look at and how much did spot rates go up, how much did contract rates go up in, say, 2013, '14, '17, '18 and in the COVID cycle. Does this cycle we're in right now feel to you like your crystal ball that it's a lot more like the COVID cycle, and if that's the case, do you think that it's reasonable to think your rates up, call it, high single digits for the year this year and then you can get to like mid-teens next year. I'm just -- and I guess in COVID, you probably got even more rate than that of 2 years, but your best look on how this cycle plays out maybe from a kind of -- to your perspective?

Yes. So Tom, I want to refrain from giving any kind of future guidance beyond what we gave for the third quarter. What I would tell you is, again, this cycle feels a bit different because it's more supply-driven than demand. And so as I mentioned, on the -- when it's driven by demand, I think rates can come even faster, but it can be fleeting when that demand shifts like we saw during COVID. I think the rate will progress, and it may be a little bit slower than previous cycles and how it progresses, but I think it's going to be more durable.

The real question, if we start to get demand, if you get some good seasonality in the fourth quarter and that can continue into next year, then I think you layer that on top of the supply constraints and what I think is going to continue, then yes, you're in a place where you could see rates move at a very rapid pace. But I think there's still a lot of things that have to play out to -- for that to come into effect. But -- so right now, it's we're giving guidance as we have for the third quarter. We're not -- we don't have guidance out for fourth, but I could tell you, I feel pretty bullish about how that could play out. But I don't know that I put a number to it yet, Tom. It's still kind of early innings on that.

Would you compare it to a prior cycle? I mean, I guess you're saying it's rates happening a little slower. To me, it feels like rates happening really fast. So I don't know. I mean, do you think it's fair to compare it to the COVID cycle or you don't want to do that?

I guess what I would say during the COVID cycle, rates happened really fast because customers had all these sales that they were potentially losing if they didn't move the goods, right? And they had a lot of incremental demand, right? So it's -- we've seen rates -- we felt this thing turn over a quarter ago, well over that, and we didn't really start to see the real impact here until probably late second quarter. I believe that's going to continue. I think it's somewhat like a 2018 where you had ELDs that went into effect that restrained capacity. But I feel like this is going to be even more durable than that.

We've just never seen the FMCSA and the DOT with the push that they're making on cleaning up our industry and taking the noncompliance of the bad actors out of it. So I don't think this cycle is anything that can really compare to over the past other than I feel like it's going to be more durable based on what this administration is doing. And I do feel like it probably raises the floor of where rates can go to when you have obviously, when the cycle begins to turn the other direction, assuming we don't go back to allowing maybe some bad actors into our space.

And since I know we got disconnected for a minute there, I think we'll do 1 more question, and then I think we got a jump for follow-ups here.

Your next question comes from the line of Richa Harnain with Deutsche Bank.

Okay. So just some clarification questions. I'll try to make it quick. Sorry to beat a dead horse, but just the guidance, revenue up only mid-single digits that ex fuel in Q3 year-over-year. Rate would be up more than that. So is utilization going to be down again year-over-year? And is that leading to the more muted top line, I assume? And then you still have OR improving 700 bps. So without as much utilization, what's -- I would just want to understand better what's driving that strong operating leverage, assumption? Is it just rate? Or are there big cost-out actions embedded?

And then lastly, on the question regarding driver pay. I think you said, Adam, in the past on these calls. At the high end, something like 30% of rate is typically shared with drivers in an up cycle. Is that a good rule of thumb to consider this cycle? Or given all the creativity, Andrew, I think you described it pretty well, you're taking on to improve conditions for drivers or whatever, maybe it could be less than that? Just trying to understand on that nuance.

Well, that was a long question to squeeze in there, Richa, but we'll try to do our best to try to cover that. So on the driver pay front. I know I shared that, that's what we've done historically. I don't feel like we're going to -- we're in a position right now that that's what we would have to do with the rate that we're picking up. We're going to have to take more of that rate to improve the margin because of where that starting point is. So it's going to be much on the lower end of that or even below the low end that we typically do at with that 25% to 30% because that -- the driver pay as a percentage of revenue has crept up over the years because we haven't reduced driver pay while we've seen rate reduce. And so we're going to have to get some of that back. So I would not model that much flowing through the driver pay based on the rate that we pick up.

I think we talked quite a bit about the guidance there. From a miles per tractor standpoint, I mean, we think that's pretty flat sequentially. We do expect rates to continue to build. And as Andrew mentioned, the dedicated piece of the business, that will take more time to build as you go through contracts as they renew. And so we'll have some opportunity there, but that will be a slower part of it. But on the over-the-road side of the business, we expect to see that momentum continue to build for the business.

So just to be clear, we guided the truck count to be relatively stable into Q3, but we're lower than last year. So you're comparing year-over-year, that's also contributing to the revenue number, but utilization is going to be relatively in line.

Okay. Well, we appreciate you hanging with us. I know we had some disruption on the call, but I appreciate you staying with us. Jillian, I don't know if we have anything else to close out.

No, that concludes today's call, everyone. Thank you so much for attending. You may now disconnect.

Good afternoon. My name is Sarah, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation First Quarter 2026 Earnings Call. [Operator Instructions]

Speakers from today's call will be Adam Miller, Chief Executive Officer; Andrew Hess, Chief Financial Officer; Brad Stewart, Treasurer and Senior VP of Investor Relations. Mr. Stewart, the meeting is now yours.

Thank you, Sarah. Good afternoon, everyone, and thank you for joining our first quarter 2026 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last 1 hour. Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to one per participant. If you have a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If we are not able to get to your question due to time restrictions, you may call (602) 606-6349.

To begin, I will first refer you to the disclosures on Slide 2 of the presentation and note the following: this conference call and presentation contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1A Risk Factors or Part 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ.

Now I will hand the call over to Adam for some opening remarks.

Thank you, Brad, and good afternoon, everyone. So these are certainly interesting times, and there are now more reasons to be optimistic about our industry than we have seen in over 4 years now. We operate one of the largest fleets in the truckload industry, and roughly 70% of our fleet is deployed in one way or over-the-road service. It is true the one-way market has been the most difficult place to be over the past 3 years plus as this market has felt the brunt of the influx of capacity over the last several years. Much of that capacity may not have been playing by the rules that we play by and therefore, operating with a different cost structure with distorted pricing behaviors and cyclical patterns.

The ongoing efforts of the FMCSA and the DOT to prevent and revoke in validly issued CDLs, shut down noncompliant CDL schools and address our service abuses are in the early stages and are already having an impact on the market. This cleanup effort should, in our view, have an outsized impact on not just the one-way truckload market, but on the lowest price capacity in this market.

The market that was the hardest hit over the past few years is now benefiting the most from the removal of capacity, a dynamic which we expect will continue. As we mentioned last quarter, the market has progressed to a point where even small changes can cause disruption. And we saw evidence of that during the first quarter as the severe weather in January led to acute tightness in an elevated spot market almost overnight.

We were able to leverage our one-way over-the-road capacity at scale to provide solutions across multiple brands to help our customers recover from the storm when others in our space were not able. Following the recovery from the storm, the tightness in the truckload market has continued to build, largely due to declining capacity though some indications of improving demand are beginning to emerge.

Broad truckload market indicators show improving trends for low tenders, tender rejections and spot pricing. Our business is experiencing even stronger levels on these metrics as our leading presence in the one-way market grows increasingly valuable to shippers. So late in the first quarter, we began to see the outcomes from early first quarter bids, which showed our volumes generally holding steady or growing while achieving mid-single-digit percentage rate increases. For reference, that is better than last year at this time when targeting slightly lower price increases often led to lower volumes.

Price activity is very busy now. In addition to bid season being in full swing, many bid activity has increased, indicating incumbent carriers are unable to or perhaps unwilling to service right at existing rates. In addition, turn back bids are happening more frequently as bid awards are being at least partially rejected by the awarded carriers as networks have shifted or the market has moved well past rates that were proposed even 1 or 2 months ago.

Unlike the past few years, shippers are generally not issuing off-cycle they're not issuing off-cycle bids opportunistically to improve service or drive prices lower, these actions are driven by a need to secure capacity. At the same time, previously deep discounts in the spot market have evaporated. Further encouraging shippers to align with quality asset capacity. This is on top of a trend of shippers favoring asset-based relationships that have formed late last year in response to the regulatory enforcement efforts.

Whether for these reasons or because of expectations of improving demand, we have already had a number of shippers initiate discussions about peak season demand support, which is not typical this early in the year. As we navigate a busy and rapidly evolving bid environment, we have shifted our bid targets to a range of high single to low double-digit percentage increases on current pricing activity as compared to our low to mid-single-digit target 1 quarter ago.

Across our truck blue brands, we are reviewing business that is not subject to current or near-term bids and addressing rates that are below market. Aside from the market developments and our position in one-way service, we believe our work over the past 2 years structurally cutting cost out of our business with ongoing opportunities for further progress sets us up for greater incremental margin as business conditions improve.

As the market improves, recruiting and retaining quality drivers have and will become more challenging. We believe we have an advantage with our terminal network and academies to source and develop drivers. However, we expect this to be a challenge for the industry in the back half of the year. While the LTL sector is not seeing the same sharp tightening as truckload, we are seeing our freight mix improve and rate renewals continue at a mid-single-digit pace.

Shipment volume trends have been directionally in line with normal seasonal patterns, though somewhat understated until late in the first quarter. However, we saw a notable improvement in weight per shipment for the first time in years with this measure progressively growing throughout the quarter. This is a result of bringing on more industrial customers who can leverage our expanded network footprint to move heavier and longer length of haul shipments.

We believe we are in the early stages of our network transition from regional to national. We expect that over time, growing into our network investments on maturing freight mix, improvement in network density and continuously refining our operational execution will allow us to drive sustained methodical improvement in operating margin.

We remain committed to thoughtfully deploying capital intentionally leveraging our strengths and creatively unlocking synergy opportunities across our businesses.

And with that, I will turn the call over to Andrew and Brad to review the results and our guidance.

Thanks, Adam. The charts on Slide 3 compare our consolidated first quarter revenue and earnings results on a year-over-year basis. Consolidated revenue, excluding Truckload fuel surcharge was essentially flat and operating income declined by $38 million year-over-year largely due to the $18 million of expense for claim development in our LTL segment, primarily related to an adverse arbitration ruling on the 2022 claim.

$4 million of expense in our Truckload segment for an adverse decision on VAT reimbursement in Mexico for prior tax years. Warehousing project business deferred to future quarters and an estimated $12 million to $14 million net negative impact for volume and cost headwinds from severe winter weather disruptions and sharply rising fuel prices during the quarter. Adjusted operating income declined $37 million year-over-year, primarily driven by the same items.

GAAP earnings per diluted share for the first quarter of 2026 were a loss of $0.01 and primarily due to the items noted above. GAAP earnings per diluted share in the prior year quarter were $0.19. Adjusted EPS was $0.09 for the first quarter of 2026 and compared to $0.28 for the first quarter of 2025. Our consolidated adjusted operating ratio was 97%, up 230 basis points year-over-year. The effective tax rate on our GAAP results was 7%, and our non-GAAP effective tax rate was 28%.

Slide 4 illustrates the revenue and adjusted operating income for each of our segments for the quarter. Overall, the relative shares of our various services -- service offerings remains largely consistent quarter-over-quarter, with LTL gains slightly over the fourth quarter as it exits its seasonally weakest period of the year.

Now we will discuss each of our segments, starting with our Truckload segment on Slide 5. Aside from the negative impacts to volume and cost from severe winter weather and fuel challenges in the quarter, most operational metrics were improving throughout the quarter. Revenue per loaded mile, excluding fuel surcharge and intersegment transactions, turned out stronger than we anticipated and even improved sequentially over our end of year peak season result.

Largely driven by spot opportunities that developed within the quarter. However, volumes and cost per mile for the quarter were both unfavorable as a result of the weather and fuel challenges. On the whole, our truckload adjusted operating ratio of 96.3% only degraded 70 basis points year-over-year as a reduction in empty miles and the strengthening rate environment largely offset the headwinds to volume and cost.

Q1 marks the seventh consecutive quarter of year-over-year improvement in miles per tractor. Importantly, the strengthening rate backdrop and improving network efficiency have ongoing implications for our business, while the weather issues are not expected to reoccur. On a year-over-year basis, revenue excluding fuel surcharge was essentially flat as a 1.4% improvement in revenue per loaded mile, excluding fuel surcharge and intersegment transactions, largely offset a 1.8% decrease in loaded miles.

Adjusted operating income declined $7.6 million year-over-year, largely as a result of the adverse decision in VAT reimbursement, as noted earlier as well as the cost headwind from severe winter weather and fuel escalation in the quarter. U.S. Express made further progress on operating efficiency and trailed the legacy brands and adjusted operating ratio by approximately 300 basis points for the quarter. The ongoing progress that U.S. Express is encouraging, and we expect this business will continue closing the gap in margin performance with our legacy brands as the market.

Moving on to Slide 6. Our LTL business grew revenue, excluding fuel surcharge, 2.6% year-over-year, driven by a 5.2% increase in weight per shipment, with an 8.5% increase in the length of haul. Tonnage trends showed momentum as the quarter progressed, ending with March average daily tonnage up 7% year-over-year. Our expanded service coverage and presence in new markets is helping us win business with new customers, gradually increase our industrial exposure and transition our network and freight mix from regional to national.

Shipments per day were down 1% year-over-year for the quarter, largely as a result of winter weather disruption in January and the shift in freight mix to a higher weight per shipment. Revenue per hundred weight excluding fuel surcharge, fell slightly by 70 basis points year-over-year, driven by the increase in weight per shipment, while renewal rates continued their trend of mid-single-digit increases.

We continue to make progress normalizing operational and cost fundamentals following a period of significant change to our network and freight. Purchased transportation as a percentage of revenue, equipment rent and variable labor per shipment all showed improvement year-over-year in the first quarter, and we anticipate further improvements in efficiency as we refine our network and freight flows.

As mentioned earlier, adjusted operating income and adjusted operating ratio were negatively impacted year-over-year by the adverse claims development. We are encouraged by emerging seasonal freight patterns steady progress on rate renewals, accelerating volume trends late in the quarter and an improvement in weight per shipment for the first time in years as freight mix continues to develop into our expanded terminal network.

Now I'll turn it over to Brad for a discussion of our Logistics segment on Slide 7.

Thanks, Andrew. Logistics revenue for the first quarter declined 9.9% year-over-year as volumes were down 18.9%, while revenue per load grew 10.4%. Third-party carrier capacity grew more difficult to source during the fourth quarter, and this trend continued through the first quarter. Gross margin of 16.6% for the first quarter declined 150 basis points year-over-year but improved 110 basis points from fourth quarter levels as strengthening spot opportunities helped to offset pressure on contractually priced business.

Despite the year-over-year decline in volumes and gross margin, our Logistics segment produced an adjusted operating ratio of 96.2%, only a 70 basis point degradation year. In addition to the increase in third-party carrier costs brought on by the regulatory pressures on capacity, our Logistics business experienced increased pressure on gross margin as we further enhanced our already rigorous carrier qualification standards in response to a sharp increase in cargo theft in the industry and the troubling carrier practices exposed by recent regulatory efforts.

This affects not only new applicants seeking to join our carrier base, but also resulted in a reduction in the number of existing carriers we are tendering loads to. While such efforts were a headwind to capacity costs and caused us to eject more loads as unprofitable, as we reset contractual pricing through the bid season, we expect that load count will improve and pressure on gross margin should lessen.

Given the complementary relationship between our Logistics and asset-based Truckload segments, we believe the improving market dynamics will ultimately benefit both our asset and logistics businesses over time. Our Logistics business has demonstrated its agility in navigating a volatile market in the past few years by maintaining its operating margin close to target levels through disciplined pricing and cost management. This team is now further leveraging technology take cost efficiencies to a new level as well as to improve our responsiveness and our ability to capture opportunities in the marketplace, which we expect will contribute to our earnings in 2026.

Now on to Slide 8 for a discussion of our Intermodal business. The Intermodal segment grew revenue 2.7% and improved its operating ratio of 50 basis points year-over-year as a 1.6% increase in revenue per load and a 1.2% increase in load count offset headwinds from winter weather in the quarter. Load count and revenue per load improved progressively throughout the quarter, with March load count up 8.4% year-over-year. While the intermodal pricing environment is more competitive than truckload, at this point.

We are encouraged by ongoing opportunities to leverage our strong service performance and our truckload relationships to continue growing our volumes at improving rates. We remain focused on delivering excellent service and driving appropriate turns through growing our load count with disciplined pricing, cost control, network balance and equipment utilization.

Slide 9 illustrates our all other segments category. This category includes warehousing activities and support services provided to our customers, independent contractors and third-party carriers such as equipment sales and rentals, equipment leasing, owner-operator insurance and maintenance.

Additionally, beginning January 1, 2026, all other segments also includes the cost of our accounts receivable securitization program that was formerly reported below the line in interest expense in prior quarters. For the first quarter, revenue increased 13.5%, operating results declined to an operating loss, partially due to the inclusion of $5 million of costs for the accounts receivable securitization program as well as start-up costs on new contract awards in our Warehousing business, for which revenue is expected to ramp in the coming months.

On Slide 10, we have outlined our guidance and the key assumptions, which are also stated in the earnings release. Actual results may differ from our expectations. Based on our assumptions, we project our adjusted EPS for the second quarter of 2026 will be in the range of $0.45 to $0.49. This range represents a larger-than-normal sequential increase in quarterly results. As the first quarter was negatively affected by events that we do not expect to recur and because freight market fundamentals are improving, exiting the first quarter.

Our projections reflect recent trends in volumes, spot rates and bid activity as well as expectations for a continued seasonal build in freight demand for both truckload and LTL services. The key assumptions underpinning this guidance are listed on this slide. I won't take time to read through all of our assumptions here but I do want to highlight the point that the recent strengthening of the truckload pricing environment will generally impact our contractual rates beginning late in the second quarter and into. This concludes our prepared remarks. And before I turn it over for questions, and everyone to keep it to 1 question, perfect discipline. Thank you. Sarah we will now open the line for questions.

[Operator Instructions]

Your first question comes from Chris Wetherbee with Wells Fargo.

I guess, obviously, the pricing environment in the truckload market is improving, probably materially versus what we talked about last time. So Adam, I was kind of curious as you think about the margin opportunities or maybe the earnings opportunity for the truckload business as we go through, I guess, this year, but maybe bigger picture. Do you think this cycle has the potential to be what you kind of hoped it could be in terms of the cycle earnings of the Truckload business or the midscale margins of the truckload business? Any color around that and maybe timing towards getting there would be helpful.

Yes. So I mean, a great question, Chris. And it's early in the inflection here. So it's hard to know exactly the strength, the duration and the timing of how that will play out. But just leaning in on our experience in previous cycles, I don't think we've ever really seen the pressure on capacity and that, I mean, from regulatory forces versus just normal economics.

And so I think we could see more capacity coming out of the network than we typically would see in a cycle. And I feel like that could be a catalyst to really drive a strong bid season this year but also into next year. So the question is going to be, can we capture rates, but can we also improve the utilization on our equipment, which we've done that now for 7 consecutive quarters on a year-over-year basis. And then can we grow our seated trucks, not necessarily investing in more trucks. Now hey, if we get to that point, obviously, we'd have the ability to do that. But to be able to see more of the trucks that we have on our fleet, while running them productively.

If we're able to do all 3 of those, then I do believe this sets up to be able to get back to a more normalized earnings or margin profile that we're accustomed to seeing in our businesses, and that includes even U.S. Express getting to the legacy performance that we've seen at Knight and Swift. It's early in the cycle, and we're just getting some feedback on bids, and we're seeing how those awards are coming in. And then how -- some of our customers are tendering those awards and what mini bid activity looks like, what turndown business is looking like.

So still a lot to read through into the market. But it certainly feels like the setup is there for those in the industry to get back to kind of sustainable rates that puts our industry in a position where the good quality compliant carriers have the ability to make enough margin to invest in their businesses, invest in drivers, invest in safety and invest in good quality equipment.

The next question comes from Richa Harnain with Deutsche Bank.

So just following up from that previous question, just Adam, when you say normalized margins, maybe you can highlight kind of what that is mid-cycle, -- is it sort of low teens that we're talking about here? And then just I think, Brad, when you ended the segment, you said the impact of this high single-digit, low double-digit rate improvement will really be seen towards the end of Q2 into the back half of the year.

But if you can just kind of like give us a sense of the level of magnitude of margin expansion as we move through the year, you're already calling for 100 to 200 basis points of year-over-year improvement in Q2 before we really start to see the evidence of this type of rate environment, I think in 2Q, you just caught a low single-digit improvement, right?

So I'm just trying to get a sense of how we should flow through this in the model near term and maybe more longer term, if you could help things.

Okay. Well, I'll hit on maybe the first portion. I'll try the second and Brad, you can dovetail on that. I think we probably got this question on normalized margins for the last like 5 earnings calls in a row. So I'll try to be consistent on how I answer this. We look at our business in a normalized market, the truckload business typically operates in the mid-80s, right? So that's kind of a mid-teens margin when the market is really good, we've operated sub-80s and then typically, in a difficult market, you're upper 80s, obviously, this cycle played out differently has been far more challenging across the industry and for us, included in that.

But that's what I'm referencing getting back to that mid-80s normalized earnings. I feel like there's the setup here in this bid season and going into next to be able to achieve that. And then when you look at where we're at, we have our LTL business that's been growing, and that doesn't have the same cycles as truckload and we look at just methodically improving the margins in that business. Obviously, we had the anomaly with the claim development in the first quarter, but we expect that to be put behind us and continue down the path of improving margins as we grow in to that network and start to march down into the 80s, which I still feel this year, we can achieve a sub-90 operating ratio during the year and just continue to build upon that.

And then typically, when our truckload business is healthy, the logistics business can grow exponentially. Now early on as the cycle changes, logistics feels pain because the rates haven't adjusted yet to what the third-party capacity rates are. And so you probably see a low-count degradation which we've seen because you just can't take freight that you can't make a margin on.

As rates reset, contractual rates, but also backup rates which we do a lot of with our customers. And so when the routing guy falls apart, they tend to slow to the backup rates that hopefully put us in a position where we can do it with our own trucks, we could do it with quality third-party capacity through our logistics business, 1 that we were able to take a lot more of the loads that we're turning down today.

So in normal earnings, I would expect logistics to be growing. And then Intermodal, we believe is on a path to profitability. I think we laid out the improvement sequentially that we expect to achieve in intermodal, which would mean we're profitable. And volumes are really starting to build in that business.

Last year, this time, we took a big step back when you had the tariffs announced that we were kind of pushing for improving our revenue per load, and that led to us losing some volume. But this year, it's very different. We're getting improvement, some improvement in rate, not near where you're going on the truckload side, but some improvement, and it's resulting in better volume as well.

So we're starting to see things build and we'd expect intermodal to get it to profitability and to see that improve as the cycle strengthens. So that's how we're viewing kind of this, say, normalized, you're never really at normal. It's kind of you're always flowing in the cycle. But that's how I'd frame it up, be sure for that question.

And then in terms of the high, low double-digit request, right now, we've probably got about 70% of our business in bid -- but a lot of that starts to be implemented kind of mid- to late second quarter and then it starts to flow into the third quarter. We have some pretty big customers that hit in the third quarter. So we may be seeing the activity really build in terms of approving a healthy rate improvement or rate increases, but it may not flow through to the P&L immediately. but we expect that margin to really start to flow through kind of fully based more in the third quarter and then build into the fourth quarter.

Brad, I don't know if you had anything else you want to elaborate on.

And just one thing I would add is in terms of our contract versus spot mix, we came into the first quarter in the 10% to 12% kind of range low double digits, where we had been for really the last couple of years in terms of spot exposure. We exit the first quarter, just a couple of points higher than that, kind of low to mid-teens perhaps. And look, as we navigate the pricing environment and navigate trying to manage our business and extract yield from our network, jumping into spot exposure is step one in trying to manage yield.

And so our first priority is our contractual recurring relationship business, and we have expectations for what -- where the market is on price at this point. And that's what we're trying to address first and foremost. And -- if we can't come to agreement on price the same way in terms of the market, -- we may end up with less contractual exposure on certain accounts, and that will create more spot exposure. And so that's something that can evolve over the next several months as we continue to work through bid season. And so that's just another lever that can contribute to our realized rate per mile this is the contract and the backup rates as that 1 spoke to. So that's something that we're going to be managing and watching week by week as we work through this, but a lot of different avenues to generate.

Your next question comes from Ken Hoexter with Bank of America.

And I guess, Brad, just to extrapolate on that a bit, right? It sounds like in the prepared remarks, Adam, I think you might have mentioned you're revisiting contracts that are longer in nature. Are you already starting to give those notices to to get out of the contracts and start to renew? Is that how tight the market has got. And I just want to understand kind of the comments around that.

And to clarify on the LTL, did you say the delay but the weights are ramping, the delay in getting pricing, but you're seeing weights ramping given the industrial move. How long does that delay get until you get that pricing?

Well, let me clarify that. We're not saying we're getting delayed pricing on LTL. I think we're saying we're getting mid-single digit on the renewals, but we're seeing a freight mix change where we're getting longer length of haul, heavier shipments that we believe will improve the yield of the business. And so the revenue per hundredweight make it a little bit skewed in terms of the year-over-year comparison because of the freight mix change, but we're not seeing delay in LTL pricing.

And then in terms of the rate review is what we would call them is we're going through our network and looking at any rate that may just be stale. If it's beyond a year, it's something we're going to look at. We're reviewing those that are called the bottom 20% performing and looking at what we need to do to get those rates to where they're closer to market. And so if we don't have an active bid to address those, we're being proactive of making that going through that review and then having discussions with customers around that.

So that is something that is active. I think early stages right now because there are a customer a lot of customers that do RFPs and like I said, we're probably in the heart of about 70% of that business, but there is the 30% that we need to make sure we're addressing as the market moves quickly.

And same for the LTL, does that gap closed, do you get if you're already at high single, low double in truckload. Can you see that transfer to the LTL market?

I don't know that they align that right now in LTL on renewals, we're getting mid-single digits right now.

Okay.

Your next question comes from Ravi Shanker with Morgan Stanley.

Adam, last quarter, you very helpfully walked through what you saw were upcoming catalysts on the supply side. Obviously, lots of moving parts here, but everything from derailers law, the Montgomery case and the brokerage side, you proposal for a $5 million minimum insurance as well as all of the rules that we saw last year. How do you see this evolving over the next few months and potentially the market tightening up more?

Yes. I mean I think you hit them, Ravi. I mean these are all pressures that we think are going to deter bad actors from coming into our space. I think it's going to push capacity out of the market that aren't at sustainable rates and are acting in a compliant manner. I think clearly, when our industry saw spot rates jumped dramatically in 2021 and then we had this push for immigration, this industry was targeted. And we had a lot of people enter our space and didn't have much experience in trucking, probably didn't have a great safety background, didn't have proper training and also we're probably exploded by some of the Camelian carriers that are out there and ultimately paid them rates well below what someone who's a citizen in the U.S. would view as livable wages.

And so I think that population is getting pushed out with the pressure on eliminating the improperly issued nondomicile CDLs. And I think Delia's law will help codify that into law, among other things. I think we've got an administration who is really pushing on what some of these Camelian carriers, how they've exploited the system and the self-certification of training, the self-certification of logs and putting more regulation behind that. And I just think there's going to be a lot more oversight from the FMCSA that's needed.

Now hey, if we get minimum insurance, that's another big thing. I mean you got English language proficiency, that's pushing capacity out of the market. And hey, I think drug testing is another big one where we already have set a much higher standard for ourselves. We've been doing hair follicle drug testing for over a decade. And we see that you're probably 10x to 15x more likely to pick up a positive drug testing you would with urine. Yet we don't accept that as a valid way to test drivers, and you can't even submit those positive results to the clearinghouse. And so those drivers can just go on to another company and get a job and be behind the wheel.

And we don't think that's right. And so I think that's another thing that I think this industry needs to help clean it up and really be focused on putting the safest drivers on the road.

But Ravi, what I'd say is we've never seen this type of push to clean up some of the capacity and the unsafe drivers out on the road. And when you pull that one of them, I think moves the needle enough, but when you aggregate them, I think we're already starting to see that influence the market. And really, the improvement we're seeing and the ability for us to get rate is driven largely by capacity reduction versus demand. And if we start to see demand pick up in conjunction with some of these other efforts that are just in the early innings, I think we could find ourselves in a much more favorable position from a carrier standpoint.

Ravi, I would say that I think it's clear to us through our conversations, the administration is committed to the cleanup that needs to happen in our industry. We think if we can get legislative support through -- law and the like. But obviously, that makes that more durable through future administrations, but we don't think it's dependent on that. We think whether that happens or not, that the actions of the administration are going to be effective over the next few years as we continue to kind of get things right with our industry.

Your next question comes from Scott Group with Wolfe Research.

So Adam, what are you seeing with seated tractor counts and drivers generally? And then just big picture, if you think back last cycle, just massive growth in your and everyone's brokerage business, but all the things that you talked about and that last question with nondomicile and Camilion and Montgomery, all these sorts of things. I'm wondering, as you're having these big conversations, is there a sense from shippers that they're less willing to do a brokerage offering right now and maybe are they willing to pay more for asset-based this time versus maybe prior cycles?

Yes. Okay. Well, let me hit on those, Scott. So on the ceded truck side, that -- certainly, finding drivers hiring driver has always been a challenge in our space. I've always said, in our industry, you either have drivers or you have loads. Really do you have them at the same time, right? So we're starting to see the loads come through. And so we're making investments to ensure that we can have an advantage in sourcing drivers. And so we're making investments in our marketing spend and the number of recruiters we have.

We're leveraging AI to ensure that we're very quick to react to leads as they come in. And we're really leveraging the Academy network that we have to train and develop drivers. And we're -- as we've made those investments as we saw the market change, we're starting to see that build some momentum really across all of our different brands. And so I'm feeling more bullish on our ability to not only improve rates, but to improve our utilization and grow seated truck which I know was the biggest challenge during the last up cycle in the pan I think everyone went backwards to truck with how difficult labor was. I think the challenge that we'll have is that we've only gone after the high-quality drivers in some of our space have been able to hire those that don't meet the criteria that we had.

Now as some of those drivers are kind of pushed out of the market because of some of the things we just talked about, the quality drivers that we look at are going to be more attractive. But we believe we bring far more to the table with terminal network we have, the equipment we have and the ability to give high-quality training. And so we feel like we'll have an advantage to maintain and even grow our seated truck count as drivers become more challenging.

And to your point about logistics, I agree with you that I think we saw this proliferation in logistics because you had customers that just had to move goods at all cost because demand was so high and you had this lot of capacity coming in. I think when talking to shippers, I think they're going to have a bias towards towards asset-based carriers. I mean we're already starting to see that.

We're starting to see that they're limiting even some bids, many bids only to asset-based carriers are living the percentage that they will allow in terms of brokers to participate in a bid. And I think that's going to continue. Now I think we get viewed a little bit differently because we do bring some assets to the equation with the power only that we offer. But we've also talked about what we're doing to vet the carriers that we work with. We have taken a great number of steps to really ensure that we have high-quality safe carriers. Now you're not always going to be perfect that, but we have cut down the number of carriers that we work with dramatically.

Just since the beginning of this year, were down 30%, and we had made a large cut even earlier last year. And so we had, how long you've been in business. We're looking at evidence that you have logs that we could see where your tractors are at we actually -- because I think 1 of the challenges in our space is the broker has no idea in most cases, who is actually driving the truck. And I think that's been a real challenge. -- for the broker and the shippers really know that. And so we are taking steps to ensure we know we have a copy of the license, we know who's in the truck, especially if they're going to operate and leverage 1 of our trailers.

So we're taking a lot of steps to put ourselves in a position that when customers kind of demand that as part of the logistics solution. We have that to offer. So I don't think you're going to see the same expensive growth that we saw during the pandemic. But I do think those that are good quality logistics providers do it the right way and have an asset solution to complement what they're offering. -- will have the ability to grow in a strengthening market.

Your next question comes from Jonathan Chappell with Evercore ISI.

Adam, I know you don't go into the monthly detail on LTL as some of the pure plays do. But is there any way to help give a cadence on kind of how the first quarter maybe April transpired as we think about like weight's been good, that's you're finally getting the turn there. But are we going to start to see more consistent kind of shipment tonnage growth? And then importantly, are you -- do you feel if you do get that demand tailwind or tonnage tailwind shipment tailwind behind you. I know cost alignment was kind of pretty difficult. Have you been building out the national network?

Do you feel like your costs are now appropriately aligned that if there were to be a demand pickup that would kind of go right to margin improvement as opposed to still kind of chasing that with resources?

Okay. That was a long question, John. I'll try to hit every component of it. That's the shortest one so far. Yes. Okay. So on the LTL front, I think we talked about in our commentary that we were a little bit slower on volume to begin the quarter but a good build with March being the strongest and then those trends continuing into April. We only got a couple of weeks into April, but we're not seeing that slow down at all.

And then typically, second quarter is our one of our strongest quarters in LTL. We do believe we have a tremendous amount of operating leverage in the business. There's just a few pinch points that we have, where we may have a few locations to open up this year, but it's not going to be near the investment we had to make in the prior years. And so it's allowed us to focus on the fundamentals with ensuring that we're efficient with our labor, managing the purchase trends.

I think some of the things that Andrew touched on the LTL discussion, and so yes, as we see the tonnage improve, and it may not -- because of the freight mix, it may not even have to be a huge lift in shipment count if you're getting more tonnage that typically yields better. As we look at our kind of our weekly performance and we have an estimated OR in that weekly performance as we see that building, yes, I think we're seeing the operating leverage in the business and a lot of that flowing to improved margins. And so that's where, if you feel like if this continues, it could be back half of this year, we start to see that operating ratio began with an 8 versus the 9 and then just continue to build from there.

I mean, hey, we're still working on freight flows and again, adjusting to the different -- the changing network but we feel very confident about our LTL team and what we're doing there and just making kind of consistent improvement in both the freight mix and the cost structure. I don't know, Andrew, you may have something you want to add to that?

Well, let me just say a couple of things. Just to give you a sense for the momentum within the quarter. So obviously, the Southeast was pretty heavily impacted by weather, and that's kind of our highest density volume is in our business. But if you look at tonnage in January, it was up 1.6%, February 2.6% and March 6.9%. So we really ended up at 4.1% up or so on tonnage year-over-year.

So we really did see that build as we kind of moved out of the weather and some of the new contract wins took effect. So I think that's going to be a positive momentum as we build into for us. In Q2 was our strongest seasonal quarter of our business. But when it comes to cost, I think below the surface, obviously, the claim or the arbitration liability cost impacted the core low, but we're seeing steady progress in our cost efficiency.

So we saw our variable wage per ship improved from the fourth quarter to the first quarter, we expect that's going to continue. We have seen, I guess, I would say, just to give you a little feel for it. We're seeing the most improvement in our dock wages per shipment. And I think line haul is the next area where we're going to start to see the most improvement. So the costs that came out of the business as we brought our different businesses together last year, in terms of vehicle-oriented travel costs, right-sizing our equipment, all of those are showing positive trends.

The one thing I would probably mention to you is we've mentioned that we're slowing down, building new locations. And that is right. That's kind of where we're at. But we're going to -- we have locations where there are pinch points that in our -- the security of our flow need to be addressed, and we are increasing door counts in those locations. That's going to allow our freight to flow in a more natural way, in a more cost-efficient way.

So you're going to see a fab locations where we need to, to help with that flow. Those are going to create some growth, but primarily, they're going to help with our costs. So we're still aligning our evolving network with our footprint but we're in a place now where it's just -- we're positioned well. We're just going to see improvement in terms of that efficiency we expect going forward.

Your next question comes from Dan Moore with Baird.

A lot of questions have been asked and answered, but one that was not addressed yet that I think is definitely worth a little bit of time is leverage around U.S. Express. So I can't imagine about a rate environment to begin to realize momentum in that business. I think we've argued for a while now that, that's really what was needed. I know you guys have done a lot of cost repair and management repair.

In terms of the business, but just the ability to move to a rate cycle, much less a rate cycle like this one. really presents a lot of opportunity. Can you talk to us about the size of the business today, generally? And maybe talk to the potential earnings leverage of U.S. Express as we move forward.

Yes. Well, so Dan, I think you're right. I mean when we purchased U.S. Express a few years ago, I mean, we felt like we were going to be in a more favorable environment sooner than we have found ourselves. So that's put some pressure on the margin and how quickly we are able to drive accretion through that acquisition.

But I agree, we're finally in a place now where we can work on improving their freight network and improving their rates to a more sustainable level. And we've got a great team there, the gentleman who leads that business that was led sales at Swift following the merger and was an integral part of the improvement at Swift and the margin profile at Swift. And so we feel him and his team are well positioned to understand what it takes to make some of the changes.

And hey, some of those rates are going to need to go up in a very meaningful way. And they're very equipped with understanding of the market, leveraging the network information we see across all of our brands. And closing the gap on where we're at from a legacy standpoint, I think this last quarter, they're about 300 basis point difference from an OR standpoint. Some of that is still a cost delta but I think a lot can be made up through getting the rates closer to where we are from a legacy standpoint, I think we've got the right team there.

We've made a lot of changes there, but feel well positioned in the discussions with our customers and getting, I think, good feedback in the early parts of the bid and expect to see rate continue to grow and develop.

And from a cost perspective, let me just make a couple of points. I'll point to

What are we going to say, Dan?

Yes, I'm sorry. I just wanted to -- 1 thing that would be helpful to understand is just the size of the business today and if you want to bracket it, that's fine or any manner in which you'd like to answer the question. I know it's -- I know, obviously, it's a consolidated business at this point, but we don't know how how -- we don't know what the revenues are. So if you can maybe add some context around that today, if at all possible, that would be really appreciated.

Yes. I think between the trucking and the logistics business, I mean, you're just under $2 billion between those 2.

Close to that. And now, Andrew, you want to...

Yes. So just I think 4 areas that I think are opportunities ahead of us on cost. First, the cost of insurance and safety. So that -- we've had to go through something of a culture change there in regards to how we manage safety and insurance. And the CSA crash basic, I think, is a good number for us to look at. That's over 60% better from where we were we at the acquisition.

So we are seeing, especially, we're starting to see that impact the business. And those legacy costs of insurance and claims have weighed on the business. We think that the -- the safety performance that's improved dramatically is going to start to impact the business. The equipment costs, we're still working through some of our high-cost equipment leasing and so we think as we roll through that equipment, that's going to provide some opportunity -- we've -- in terms of hiring costs and advertising, we think there's opportunity there as we get better at that to bring that cost down.

Obviously, the biggest opportunity is rate that Adam talked about, where we think we have more than a normal amount of progress to make on rate. So a lot of the work we've done on cost has been on the fixed cost side. On our overhead costs, which has been pretty significant in the last year. We think that, that's going to be structural and sustainable through volume growing in the business.

A lot of tailwinds emerging, a good look for the remainder of the year, guys.

Your next question comes from Brian Ossenbeck with JPMorgan Chase.

Maybe just to come back to some of the more topical ones here will be discussing here for a while. Just in terms of the -- I guess, the work you did with carriers in the logistics business, down 30% I think it was for accepted Carrier. That's a pretty significant number. So is that something you feel like the rest of the industry has to go through as well. Maybe they have an even higher number of carriers they're going to have to squeeze out of their networks. And Adam, we've heard for a long time about hair follicle testing and things of that nature.

It sounds like I think you said there's some momentum. But like what are the steps we would have to see for that to get a bit more progress? And when should we expect maybe we could see that start to begin.

Well, look, I don't want to speak to what other logistics companies should do or have to do, I think about what we felt like was required of us to ensure that we're putting quality carriers hauling our shipments, hauling our trailers when they're doing power only. We're anticipating that our customers are going to start being more concerned about this. as this becomes more of a relevant issue. And I think we're already seeing that in mainstream media.

We've already had some discussions with some of these shippers about how we're really monitoring who's hauling their freight who's actually driving the truck. And so we felt it was prudent for us to take the steps to eliminate capacity that we didn't feel comfortable with. And do I think others will do that. I think some will. I think some will still take the cheapest carrier when they're available, and that may just be based on survival. So I don't know how that will play out.

But I do think some of this capacity is just going to have to exit regardless because of some of the regulatory changes that are being enforced. And we feel very -- we were very supportive of this administration and the actions that they're taking. So some logistics company may not have a choice because the capacity of the leverage today won't exist. But we're not waiting for that. Where we want to be proactive and to do the right thing.

On the hair follicle, Brad, do you want to maybe touch on that, Brad, you've been engaged in that?

Yes, it was just maybe get a share in terms of what we've seen in our own experience over the last decade or so, as Adam mentioned, we do both, right? We do the year analysis because that's what's recognized by the feds. And we do the hair follicle test because that's what works. So we pay incremental cost to do that in addition to that because that is an important part of our hiring process. And what we found over doing this thousands, if not tens of thousands of times a year, is that the hair follicle test identifies roughly 14x the drug users that the urinalysis test does. So that prevents us from hiring them, it does not prevent them from driving in our industry because not all carriers do that. And so there is an openness it seems in Washington to at least engage in this conversation.

Congress past this years ago, and just health and human services has not gotten around to writing the rules to actually put this into practice. So it does seem like there's maybe an openness to engaging in that conversation. We would ask just to allow us to report but those of us who are paying for the test, what we are finding. Maybe we don't require it of everyone, but if we're going to pay for it, let us report that to the registry because we do think that is important for safety for the motoring public.

Your next question comes from Ari Rosa with Citigroup.

So Adam, I wanted to ask a bit of a strategic question. You've said a few thousand tractors since the USX acquisition. It makes sense to us, of course, why that decision would have been desirable in the downturn when obviously it was difficult to find loads. But now as we think about the up cycle, is there any dimension in which that holds back the ability to get the same level of upside that you might have seen if you kind of retain those tractors.

I'm just hoping you can kind of discuss that decision or maybe defend that decision a bit, give us a little bit of color on like why that was the right decision to shed those tractors and also put it in the context of, on an absolute basis, obviously, we're looking at a larger tractor count now than what you had in kind of the prior cycle. So kind of how do those dynamics play out against each other as we think about what the upside could look like?

Well, what I'd say, Ari, is we don't go into an acquisition with intentionally trying to shrink the capacity. I think as we go in and review the freight network and U.S. Express, 40% of their loads were coming from brokers which obviously you're not going to be successful if that's where -- who you're relying on for your freight. So we had to go in and adjust their network to find direct relationships, loads that can support their network.

And so in doing so, you had to turn some of the business they were very dependent on. At the same time, we're ensuring that we have good quality, safe drivers. And so we did change the standards at the hiring standards that U.S. expressed very early on in the acquisition to ensure that we had good quality drivers to drive down the craft basics to improve the safety, to improve productivity. Some of the things that Andrew has mentioned, -- and so when you do that, you kind of -- you're limiting the class sizes that you're going to have and then you're changing your freight network.

When you have that kind of churn, you'll naturally end up or you have the risk of ending up with more open trucks than you feel comfortable carrying as overhead. And so as you went through that to get the business on a better foundation and position them to be far more healthy long term, you end up with some capacity that you just need to sell and exit and remove from your brand. And so that was the process that we went through at Express.

Now we feel stable today -- and we're making the same investments there on the recruiting front and now leveraging that we have at Swift and said some at night to be able to train like our other brands do. And obviously, as you have a better freight market, they'll be able to make some progress on repairing their network and putting themselves in a position to have sustainable rates to grow the business back.

And hey, we'd love to be able to seat more trucks and grow trucks. But today, we have -- we still have some empty trucks that we want to fill before we invest in additional capital but hey, we're in a much better spot today than if we would have just tried to hang on to all the trucks from the original acquisition and keep the porphyry and not adjust the standards that we hire in terms of drivers.

So I still feel it was the right move. We feel good about how we're positioned and expect to make some real progress on margin and to the business.

And I'm just going to add a little bit of context, this is Brad. I know the op income right now coming out of the long and Argos down cycle doesn't show it, but we are running more miles than we were prior to the last up cycle. So we've got more of a basis there to work with going to this new cycle.

So appreciate the question, Ari. I think that now concludes our call. I think we're beyond the time here. So appreciate all the questions and interest from everyone. And again, if we weren't able to get to your question, you can call (602) 606-6349, and we'll try to return your call as quick as possible. Thank you, everyone.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Good afternoon. My name is Constantin and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation Fourth Quarter 2025 Earnings Call. [Operator Instructions] Speakers from today's call will be Adam Miller, Chief Executive Officer; Andrew Hess, Chief Financial Officer; and Brad Stewart, Treasurer and Senior VP of Investor Relations. Mr. Stewart, the meeting is now yours.

Thank you, Constantin. Good afternoon, everyone, and thank you for joining our fourth quarter 2025 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last 1 hour. Following our commentary, we will answer questions related to these topics -- in order to get to as many participants as possible, we limit the questions to 1 per participant. If you have a second question, please feel free to get back in the queue, and we will answer as many questions as time allows. If we are not able to get to your question due to time restrictions, you may call (602) 606-6349.

To begin, I will first refer you to the disclosures on Slide 2 of the presentation and note the following: This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1A Risk Factors or Part 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ.

Now please turn to Slide 3, and I'll hand the call over to Adam for some opening remarks.

Right. Thank you, Brad, and good afternoon, everyone. During the fourth quarter, the truckload market saw a demand that was generally stable, but lacking the typical broad-based seasonal lift in demand until late in the quarter. seasonal project activity occurred in October but wound down quickly in early November. As a result, truckload volumes were lower than we expected. While we did see some improvement in overall demand and a tightening spot market in December, it was a reduction in available capacity that seemed to be the primary driver of the tightening market. The pressure on capacity also may be affecting the secondary equipment market as we experienced slowing equipment sales trends and falling average prices during the quarter.

Developments such as these are often a precursor to a more healthy market. Thus far in January, network balance is running better than typical seasonality as capacity continues to be under pressure. We are pleased that our people were able to deliver meaningful sequential operating margin improvement in our Truckload segment even while demand was short of our expectation for much of the quarter. For the full year, our progress on structurally cutting costs out of the business helped us overcome a $125 million decline in Truckload revenue, excluding fuel surcharge, but grew adjusted operating income $28 million in this segment. At the same time, the truckload business overcame inflation pressures to hold its 2025 cost per mile flat with 2024 despite miles declining 3.6%.

Our LTL team was able to produce year-over-year shipment growth for the fourth quarter in a lower demand environment even after lapping the DHG acquisition in the prior quarter as our expanding network continues to help us create new opportunities. This team also responded quickly to the changing environment stepping up the intensity of our cost initiatives to deliver operating margin within 60 basis points of the prior year levels, even while shipping count growth fell well below that of the growth in facilities and door count year-over-year.

As we move into a new year and with anticipation building for return and market conditions, we felt it would be helpful to review our company's profile and to highlight some of the things we are focused on to better position ourselves for earnings growth moving forward. I won't touch on every part of our business here, but I wanted to share a few thoughts. First, we operate the largest fleet in the truckload industry, and roughly 70% of our fleet is deployed in one way or over-the-road service. It is true the one-way market has been the most difficult place to be over the past 3-plus years as this market has felt the brunt of the influx of capacity since the pandemic, but one-way service is what typically improves first and most in a tightening market. Our unique ability to deliver responsive this at scale and with industry-leading trailer pool flexibility our competitive differentiators that attract opportunities, especially in a tightening market.

Second, the significant progress we have made cutting costs out of our truckload business has driven year-over-year earnings growth despite lower revenue. Further, while the deleveraging effect of lower miles has masked some of our progress in reducing cost per mile, we believe most of the fixed cost reductions are permanent and position us for better incremental margins as volume and pricing recover. The incremental margin opportunity is further enhanced by the room to improve utilization on the existing fleet. While we have made meaningful progress on cost to date, there are still a number of opportunities to further improve and to scale our business efficiently. We've been investing in internal development and external products to facilitate tech-enabled efficiency gains as well as better revenue capture, including through AI and other methods. We expect the benefits to begin to be realized in 2026 as we more fully roll out these technologies and as an improving marketplace provides us opportunity to scale more efficiently.

Finally, our entry into the LTL industry and subsequent expansion over the past few years is just the beginning of what we believe will be a multiyear journey with an attractive runway for reinvesting free cash flow towards improving revenues, margin and earnings stability. As we have grown our facility count faster than our shipment count over the past 2 years, this has weighed down margins, but we expect a more deliberate pace of network expansion in the near term will allow us to restore margins as we continue to grow into these investments. We believe the existing infrastructure has capacity to support annualized revenue of $2 billion. As we continue growing into these investments, the operating leverage will be further enhanced by building density and optimizing our cost structure to help us reach our goals of steady margin improvement.

Then when we look externally, there are a number of factors that increasingly indicate the truckload market could begin to grow stronger in 2026. Capacity reduction is clearly underway. Regulatory enforcement of qualifications and safety standards was arguably the most welcome development in 2025 for our industry. The influx of capacity from 2021 to 2024, much of which was planned by a different set of rules in operating with different cost structures has distorted pricing behaviors and cyclical patterns. The ongoing efforts of the FMCSA and DOT to prevent and revoke in validly issued CDLs, shut down noncompliant CDL schools and address hour-of-service abuses should, in our view, have an outsized impact on the lowest price capacity in the one-way truckload market.

Aside from the regulatory cleanup, capacity continues to erode, especially in the one-way truckload market where struggling carriers are running out of liquidity and large players continue to shift towards dedicated services. Second, market data trends have improved of late. Despite muted demand, rejection rates climbed in recent months and are hanging in above year ago levels in early January. Similarly, market spot rates and the spot versus contract spread improved exiting 2025 to the best level seen since early 2022. These market trends align with those seen within our own businesses.

And finally, the inventory pull forward appears largely worked off as a result of solid holiday sales and there is a potential for stimulative support for demand from the tax bill and Fed rate cuts. It appears the market has progressed to a point where even small increases in demand can cause disruption and our industry-leading over-the-road capacity is uniquely positioned to create value for our customers and capture opportunities for our business. The market and regulatory developments in the back half of 2025 give us increased confidence in the path to return our Truckload segment back to mid-cycle margins. We are not here to call the turn by any means, but we are closely monitoring market trends, good developments and signals from our multiple nationwide truckload networks and are prepared to execute our playbook for deploying capacity towards the most valuable opportunities as the landscape shifts. We remain committed to thoughtfully deploying capacity capital, intentionally leveraging our strengths and creatively unlocking synergy opportunities across our business.

And with that, I will turn the call over to Andrew and Brad to review the results of the quarter and our guidance.

Thanks, Adam. The charts on Slide 4 compares our consolidated fourth quarter revenue and earnings results on a year-over-year basis. Before getting into the comparisons, it's important to note that our GAAP results for the current quarter include $52.9 million of noncash impairment charges primarily related to our decision during the quarter to combine our Abilene truckload brand into our SWP business. Impairments have been adjusted out of our non-GAAP results, as shown in the reconciliation schedules following this presentation.

Revenue, excluding fuel surcharge, decreased slightly by 40 basis points and operating income declined by $51.5 million year-over-year, largely due to the $52.9 million of impairment noted above. Adjusted operating income declined 5.3% for the year as a result of lighter truckload and tile demand environments compared to the fourth quarter of 2024. GAAP earnings per diluted share for the fourth quarter of 2025 were a loss of $0.04, primarily related to the impairments at above. GAAP earnings per diluted share in the prior year quarter were $0.43, which included a $36.6 million benefit for a mark-to-market adjustment of certain purchase price obligations associated with the U.S. Express acquisition.

Adjusted EPS was $0.31 for the fourth quarter of 2025 compared to $0.36 for the fourth quarter of 2024. Our consolidated adjusted operating ratio was 94%, up 30 basis points year-over-year and 20 basis points sequentially. The effective tax rate of 21.6% on our GAAP results was 820 basis points higher your effective tax rate of 23.1% of non-GAAP results was 460 basis points higher year-over-year.

Slide 5 illustrates the revenue and adjusted operating income for each of our segments for the quarter. Overall, truckload grew as a share of our consolidated revenue quarter-over-quarter as the fourth quarter is typically the strongest season for this business, while it is the softest preview. We would anticipate LTL returning closer to its recent 20% share next quarter as LTL seasonality begins to improve. We have been enhancing our ability to generate revenue synergies across brands and lines of service. The key levers are intentional leadership to drive powerful collaboration and deploying technology to foster seamless connectivity, leveraging excess capacity in one brand against excess demand and another effectively increases our ability to surge and capture a greater share of market opportunities while solving internal network imbalances. To be certain, we have leaned on each other before, but for these advances, -- but these advances make such practices systemic, more responsive and scalable. These are calculated investments, designed and prioritized based on their ability to propel our business.

Now we will discuss each of our segments, starting with our Truckload segment on Slide 6. As Adam mentioned, volumes in the Truckload segment were lower than expected, with generally lower demand than the prior year period until late in the quarter. Additionally, seasonal project activities in October had shorter duration than in the prior year, likely due to some freight having been moved earlier than the normal given trade and tariff disruptions throughout 2025. Additionally, blockades of the Mexico border during the quarter were a headwind to productivity, especially for our Transmix division. While demand did show some improvement late in the quarter, which helped support spot rates, this could only partially overcome the muted November results.

The secondary equipment market weakened during the quarter, which appears to be at least partially related to the impact of regulatory enforcement on smaller carriers, which caused gains on sale to come in roughly $4 million below the prior quarter level and our expectations. On a year-over-year basis, revenue excluding fuel surcharge declined 2.4% and adjusted operating income declined $9.2 million or 10.7% year-over-year largely as a result of the 3.3% decline in loaded miles. Revenue per loaded mile, excluding fuel surcharge and intersegment transactions increased 0.7% year-over-year. and sequentially improved 1.4% over the quarter.

The fourth quarter combined adjusted operating ratio was 70 basis points higher year-over-year. Excluding U.S. Express, the legacy Truckload brands operated at a 91.6% adjusted operating ratio, while U.S. Xpress improved its adjusted operating ratio of 430 basis points, year-over-year to the mid-90s as a seasonal project participation was at its highest since the 2023 acquisition.

Finally, during the fourth quarter, we decided to combine the Abilene trucking operations into our Swift business to improve efficiency and enhance the productivity by incorporating these assets and freight flows into a more robust network with more freight opportunities. We continue to make tangible progress improving our cost structure to position our business to generate meaningful returns as market conditions recover.

Moving on to Slide 7. Our LTL business grew revenues, excluding fuel surcharge, 7% year-over-year with shipments per day up 2.1%, a lower growth rate than the previous quarters, we lapped the acquisition of DHE on July 30 and as market demand moderated at the beginning of October. Revenue per hundredweight, excluding fuel surcharge, increased 5% year-over-year. Adjusted operating income decreased 4.8%, and adjusted operating ratio increased slightly by 60 basis points year-over-year. As Adam noted, in response to the moderating demand environment during the quarter, we stepped up the cost initiatives we had announced last summer to mitigate pressure on margin. We are taking action where prudent in the short term, but without sacrificing our ability to respond to growth opportunities through ongoing bids as discussions around bids currently in process are encouraging.

During the fourth quarter, we opened one new service center and we placed another with a larger site, bringing our growth in door count to 10% year-over-year. We have opportunities to optimize our operations and cost structure as our network and business mix mature, and we have confidence in our plans to achieve this. Our solid service levels, growing customer base, ground to make up on pricing provides a compelling runway for the value to be generated by this business.

Now I will turn it over to Brad for a discussion of our Logistics segment on Slide 8.

Thanks, Andrew. Logistics revenue for the fourth quarter declined 4.8% year-over-year as volumes were down 1%, while revenue per load was 4.1% lower due to mix change. Third-party carrier capacity grew noticeably more difficult to source during the quarter, which pressured gross margins. Gross margin of 15.5% for the fourth quarter declined 230 basis points from third quarter levels and 180 basis points year-over-year. Adjusted operating ratio was 95.8% for the quarter. Another recent trend is the increase in cargo theft in the industry. While fraud and theft in the industry has been on the rise over the past couple of years, channel checks indicate a rash of test in the quarter, some of which appear to be related to operators being forced out of the business through either financial struggles or regulatory enforcement. If these trends continue, it could further encourage shippers to allocate more business to direct asset-based carrier relationships.

For our part, we have been further tightening our already rigorous carrier qualification standards and narrowing the existing carrier base that we tender loads to. Also, if upward pressure on third-party capacity cost continues, this could cause further pressure on gross margin in the near term as capacity continues to erode. However, given the relationship between our Logistics segment and our asset-based Truckload segment, we believe these dynamics would ultimately benefit both our asset and logistics businesses over time. Our logistics business has demonstrated its agility in navigating a volatile market the past few years by maintaining its operating margin close to target levels through disciplined pricing and cost management. This team is now further leveraging technology to take cost efficiencies to a new level as well as to improve our responsiveness and ability to capture opportunities in the market. which we expect will contribute to earnings in 2026. These enhancements, combined with its complementary relationship with our asset business, position our logistics business to accelerate revenue growth and the return on our trailer assets in an improving market.

Now on to Slide 9 for a discussion of our Intermodal business. The Intermodal segment improved its adjusted operating ratio of 140 basis points year-over-year to 1.1 driven by a 2.8% increase in revenue per load as well as structural cost reduction and improvement in network balance, which led to significant year-over-year reductions in MTV repositioning, grade and chassis costs. Revenue declined 3.4% year-over-year on a 6% decrease in load count, partially offset by the increase in revenue per load. On a sequential basis, revenue grew 1.7%, a 2.6% increase in load count. with both measures reaching their highest marks for the year. We look forward to leveraging the new chapter in our rail partnerships in an improving market. And in the meantime, we remain focused on delivering excellent service and driving appropriate returns through growing our load count with disciplined pricing, cost control, network balance and equipment utilization.

Slide 10 illustrates our all other segments. This category includes support services provided to our customers and [indiscernible] and third-party carriers, such as equipment sales and rentals, equipment leasing, warehousing activities, insurance and maintenance. For the quarter, revenue increased 17.7% and the operating loss in the seasonally slow period for this category improved $5.9 million or 37.3% year-over-year. primarily driven by growth in our warehousing and leasing businesses.

Now on Slide 11, we have outlined our guidance and the key assumptions, which are also stated in the earnings release. Actual results may differ from our expectations. Based on our assumptions, we project our adjusted EPS for the first quarter of 2026 will be in the range of $0.28 to $0.32. In general, this guidance for the first quarter assumes current conditions remain stable. and that we experienced some seasonal slowing in the truckload market and seasonal recovery in the LTL market. The key assumptions underpinning this guidance are listed on this slide. I won't take time to read through all of our assumptions here, but I do want to touch on a couple of the more significant moves other than the typical seasonality in truckload.

We expect a strong bounce back in our all other segments category after its seasonal slow period in the fourth quarter. And we have significantly reduced the range for expected gain on sale based on the secondary equipment market trends that we noted in our earlier comments. Now this concludes our prepared remarks. And before I turn it over for questions, I want to remind everyone to please keep it to 1 question per participant. Thank you, Constantin. We will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Richa Harnain from Deutsche Bank.

I guess maybe we can start with the outlook Adam, you walked through some various items to be -- look forward to in 2026 some tailwinds. Maybe you can just elaborate on like in light of those tailwinds, why we're not seeing maybe a more robust outlook for Q1? Why -- and I understand that there's some seasonality, but maybe you can just talk about that. And then just generally speaking, like any sort of guidance on how we should think about Q1 relative to the entirety of the year? Has seasonality shifted at all? And given the incremental margin should maybe be better given all the good work you did on cost, like how should we think about how margins could progress as the year goes on?

Yes. Okay. Thank you, Richa. We'll count that as one question. So just to go through the outlook here. Maybe I'll start with just maybe walking through Q4 and then how that kind of sets up in Q1 and maybe how we're looking out beyond that, I won't give any guidance in terms of EPS beyond Q1, but I can give you my view of how I think the market may progress. When we came into the fourth quarter. I think on our last earnings call, we talked about having some projects in the queue some of them we haven't seen in several years. And those did materialize in October and typically, when you see projects like that materialize, you have other types of projects that just kick off during the fourth quarter where you have customers that have acute needs, and those typically drive a stronger November and build up through Thanksgiving and then you have a little bit of a lull coming out of that, and then you could finish the quarter strong.

Once we got through our projects in October or maybe early November, we did not see the strength continue and it was a bit disappointing the volumes in November, and it was just tough to overcome that even with some of the strength we saw the back half of December. And we don't get too wrapped up in the spot market jumping up for a couple of weeks because we're still largely contractual, but we did see some of the lift, but it wasn't enough to overcome the slower November and then just the disruption you get in productivity during the holidays.

But as we saw that market kind of continue in or bleed into the first part of -- the first couple of weeks of January, I think we became a bit more constructive on maybe the balance between supply and demand. And so as we sit in early January, we're feeling a bit better about our ability to push rates in the bid season and maybe find some ways to even get some spot -- there's some premium spot opportunities early in the first quarter, which has been some time since we've been able to do that. But when I look out to what that means for the first quarter, a lot of the work that we do in the bids, we don't really feel the benefit of that or see the benefit of that until you get into the second quarter, earlier mid-second quarter and then throughout the back half of the year. So I think the first quarter, we may be in a period where we feel better than we look in terms of the results, but the confidence in our ability to start to push rates higher and to restore or begin to restore our margins.

And I think we've started off the bid season with far more constructive conversations with customers where the discussions are starting around securing incumbent lanes with positive rates. Now I think what we'd be pushing for would be low to mid-single digits and improvements in contract rates and maybe closer to mid than low and maybe that being aligned with what our customers want to see in a pre-bid. And so some of this stuff is going to go into a bid to see where the market is from a balance standpoint. And we've already heard from several customers about wanting to shift a bit more volume from brokers to assets because of the spot market trends that we've been seeing and then some of the capacity that's been coming out of the market from a regulatory perspective.

So I think that gives us more confidence in where this market is headed. But I don't know that we really feel the full benefit or see the full benefit of that in the first quarter. But again, we're not trying to call the inflection yet. It's -- we've seen head fakes before. But I think we're feeling better about where this market is headed, and we do feel better about what the DOT and the FMCSA are doing to clean up capacity in our industry. And I could tell you our Knight or Swift and especially now our U.S. Xpress business is well positioned and prepared with the tools even the culture around what we're going to do to find opportunities to really leverage the scale and the flexibility that we have in our network. And so we're encouraged about what that could mean here in the back half of this year.

Richa, I mean, Q1s are always a hard quarter to really flex, right? Just based on that seasonality, I -- you rarely, and I don't expect rate will be much of a lift for us year-over-year in Q1. And so -- and we're operating on a smaller fleet than we were last year. So I think all those go together. We do expect continued progress on cost. And I think that's our expectation here in the first quarter improvement in cost per mile year-over-year. But -- and I guess the other side, we talk a lot about truckload but in LTL, I mean, I think there's -- we're still watching how the volume is built back. And that's to some degree, going to determine how this quarter plays out. And we're encouraged is kind of watching the early build back of volumes here in January, but there's still a lot of kind of runway ahead of us to see really where volumes build to in the quarter.

So our guidance range that we provided is not does not we think, reflects a reasonable kind of middle line view of how the quarter plays out, but certainly, if market conditions improve or worse then there is a degree of variation around the guidance we're providing here.

Your next question comes from the line of Jonathan Chappell from Evercore ISI.

Adam, as it relates to the priorities and the strategic goals, almost every single segment, you highlight cost to serve, technology, automation, optimization, et cetera. So when we think about your margin progression from 1Q, do you kind of view this as all the things you're doing on the cost side and the efficiency side, can make margins improve even without a true inflection of the market? Or is it more you need price, price kind of drives an exacerbated move in margins and kind of higher, high than higher lows?

Yes. I mean, really, John, we really want to see both. But if the market doesn't play out on the revenue side, like we're maybe expecting in the back half of the year. We're not going to be a victim of that. We're going to go after as much as we can on the cost side to improve margins on a year-over-year basis. But certainly, when you have a lift in rates in the spot market, that mean that's going to help you get to kind of normalized margins. I don't think you get to normalized margins just on cost alone. You'll need some lift in the market. But we look at it as, hey, we fight bulk battles on a regular basis and really the wins we've had have been more on the cost side in the last couple of years. And I think we're due on the revenue side, but our goal is to get -- to make progress on both. .

Yes, it's really a 3-pronged right, to full repair margins. It's capturing price. It's bringing volume back into the business and reducing our cost per mile. We expect each one of those independently to contribute in 2026 to margin improvement. And the price obviously is going to be very much market dependent and to some degree, the miles, but we expect cost alone should drive margin expansion in 2026.

Your next question comes from the line of Brian Ossenbeck from JPMorgan.

Maybe if you can expand a little bit more what you're seeing in the LTL market. It sounded -- I mean you guys called out things were softer than I think most others saw last quarter. So that seemed to play on October, but it hasn't really built back the way you might have thought. So I want to see if you can elaborate on that if it's more of a market perspective or maybe something with the network as you expand it. And then just some quick color on you mentioned expanding the length of haul for the network. Like how does that -- how long does that take? And what does that really mean from a margin perspective as you go throughout this year?

Yes. So I think we talked about how we saw a shift downward of demand starting early in October, and that really progressed throughout the quarter. And so we've had to make some adjustments on the cost side of the business to adjust for that, but also factoring in that with our expanded network now, we're now going to have an opportunity to bid with larger shippers that we just hadn't had an opportunity with before because we didn't have the breadth of the network that would support what they're looking for in a carrier. And so a lot of those loads may be heavier loads, may have a longer length of haul. And this is where we tap into the relationships that we have on the truckload side of the business to provide opportunities for our LTL business to bid on that volume.

So it's kind of still a little too early to tell. How is volume really -- is it really picking up? Are we seeing a shift from Q4 into Q1? I think margins were okay to start, but we're looking for a greater lift. But we have a lot in the pipeline right now in terms of bids that we think could be impactful to the shipment volume of our LTL business because we just have new customers that we have opportunities to grow with. So we're kind of working through those still early progress on that. And I think more to come, but we're just kind of balancing what you do on the labor front to manage your expense in a market where you have volumes lower than I know what we can handle, knowing that we could have an opportunity to see those volumes shift up, and we want to be prepared to handle that with a high level of service.

Yes, Brian, maybe one point I'd add to that is one of the things we identified last year was even though we had integrated from a back-end perspective and systems between the 3 businesses that we have combined, it was creating confusion in our sales efforts. And as we took our business to the market. And so we announced in the third quarter, we're moving to a unified brand. We've already seen that really help us in our sales efforts that we can present a single face to our customers and get them comfortable with our ability to deliver across our network in a way that meets their needs. So we think that is enhancing our sales efforts. We think that's going to help in addition to just the design of our network that we're going through. I mean it is a process to really put our network as we understand how our freight is flowing with these customers. There's been a process of doing that network design that we've been going through. And I think we're getting to the point where we've managed a lot of those bottlenecks. It's really put in a position on bid on business that we have not been able to participate on the floor. And so there's a lot of tailwind here in terms of -- we think that the strength is going to build in our ability to sell and build volume into the business that we built the structure on.

Next question is from the line of Ravi Shanker from Morgan Stanley.

Maybe as a follow-up to that, in the past, I think you've said you're keeping the brands that you've acquired protecting them so that you don't have any customer losses, driver losses and kind of other negative implications in taking those brands away. So, a, how do you protect against that? What does this mean for the other separate brands in your portfolio? And if I can squeeze a really quick 1 in, kind of you spoke about LTL bid season going well. Any early comments on TL bid season would be great as well.

Sure. I thought I touched on TL already, but I'll come back to that to Ravi. Yes. So if I look over the last 2 quarters, we've made a couple of adjustments to our strategy around some of our brands. On the LTL front, I think what we realized going into the strategy we had with buying multiple brands is the outsized benefit you get on the LTL front, when you have 1 distinct network, 1 Pro number, just 1 voice to the customer, I mean that is what they long for. They don't like the interline approach. And even though we had the systems integrated, we had this -- the visibility was similar across the different brands regardless of the website, it still didn't feel like 1 company and 1 carrier to them. And so we felt like we needed to shift that strategy around LTL to provide 1 brand, 1 voice to the customer in order to really maximize the potential of the network that we've built.

And so that wasn't an easy decision. We put a lot of thought into it, but we still think that was the right approach. Now you may have seen or we did comment on rolling Abilene Motor Express into our Swift Transportation business. Abilene Motor Express was a smaller company that we purchased in 2018, and it had gotten down to around 300-plus trucks and was really struggling. And what we found was, given the size of that company, and maybe the lack of brand recognition with some of our customers, it was really tough for them to break through with freight opportunities that was going to support their network. And we had had some change in leadership that came from the Swift business to help write the ship at Abilene. And ultimately, we made the decision that it would be best for the Abilene employees, that the drivers, in particular, to run under a more robust network under Swift. We're trying to convert as many of the Abilene customers that went direct with them to the Swift network. And we had a lot of overlap of customers. So we're in that process right now of keeping that freight within Swift and then supporting Abilene with backhauls and things that allow them to be far more efficient from a network perspective.

I would not -- we don't have another brand out there that we own that we believe we would ever need to take this approach with. This was one that really saw margins degradate over the last several years and didn't have a clear path to profitability, and we felt like this was the fastest way to get that business back to generating a reasonable turn for the assets that we have and then allow us to reduce some overhead and put our drivers in a position to be successful. So again, it wasn't -- this isn't something that we would take lightly, but this was the right decision for the situation we were in.

And on the TL bid, again, it's early, but we've had constructive conversations with our customers around rates being positive. And we're not having discussions about having to reduce rates to retain volume. And now it's just a matter of where can we get comfortable about where rates seem to settle out in the bids. And some may be done in prebid negotiations, others, it will probably have to go to the bid. So the customers can really where the market is. But I feel more confident going to this bid season, that rates or contract rates are going to be up. And I think that will build as capacity continues to exit. I mean, we have some cliff events coming potentially with capacity, Ravi, where we've already seen with English proficiency, nearly 12,000 drivers who've been put out of service since June. We have -- with California, there's 17,000 non-domiciled CDLs potentially expiring in March. New York has a similar number that isn't further that far out from there. Really all states other than I think, one, are not issuing nondomiciled CDL, so you kind of shut off that funnel of capacity coming in.

And then there are several countries where the temporary protective status is ending as well in Somalia, Epiopia, in Haiti, where I would believe actually, you're going to have some of those individuals that are driving the truck. That may not be legal to be able to do that. any longer than I mentioned just in my opening remarks about all the schools that are being shut down. I think there were 3,000 schools recently removed because of noncompliance and another 4,000 schools that are placed on notice for noncompliance. And there are audits out there being completed. I mean we -- 2 of our schools at Swift were audited. And hey, we passed with flying colors as we'd expect. So it is real. It is happening. And so I think, again, constructive on early bid, but I think we'll start to see rate improve as the bid season progresses.

And I think maybe 1 -- just 1 note to add to that is we've had customers share with us that one of their objectives out of the bid season is to increased their asset coverage. And we are -- I think we're seeing customers looking at the market, looking at the regulatory changes and realizing that this could be particularly more strategic procurement organizations are looking at this as a chance to increase their coverage of asset. And I think that's helpful in our conversations in the bids.

Your next question is from the line of Dan Moore from Baird.

I appreciate the time, and I appreciate the opportunity to ask a question. I think everyone realizes that you're positioned, first of all, that you're under-earning along with everybody else in the space. Secondly, that you're well positioned here from the standpoint of starting to get some momentum in terms of rate. I guess 2 questions, I'll call it one, 2 things that I'd like to get some perspective on is one, cost out story. You guys have been very focused on cost, lane balance, improving your landed cost. Where are you with that? And then, i.e., how much is left? Or you had a pivot point there where you really need to be more focused on rate and then to the extent that the rate environment improves over '26? Is there an opportunity to go back to customers in the early innings to try and lock in at rates that are noncompensatory? That's it. And I appreciate the time again.

Yes. So Dan, maybe I'll hit on rate, and I'll let Andrew talk about cost. Rate is pretty fluid in terms of how it works in our markets. because you got to realize we're not locking up with guaranteed volumes with the customer on the over-the-road space. Now dedicated is a little bit different, but the 70% that we do over the road is pretty fluid. And when the market begins to shift and it becomes tougher to find capacity, even if we've done contractual rates we're managing commitments. We start to get overflow volumes, which sometimes can be at a premium, you give backup rates where in a market like this would typically be higher than your contractual rate. You'll have spot opportunities that are ad hoc on our customer load boards that sometimes can be a premium. And so we can move pretty quickly to adjust to the market if we see a change in. And so even if you've kind of locked up rates early in the bid cycle, there's still opportunity with that customer. Even if it's not going back and changing what you've already agreed to, it's just doing more for them because it's tough for them to find capacity in a more challenging market, and that's where you can at times charge a premium.

And so you've got to know what your commitments are, be able to adjust those, manage it very closely and that's what Knight historically has always done. We brought that logic to Swift and they've deployed that extremely well. And that logic is there with U.S. Xpress now. And so I think we're well equipped to be able to react to the market. And again, we're watching this every single day. We have the network maps that are unique to each brand that we see trends before probably many in our space would see those trends. And we have API, we have algorithms that we can adjust on the fly if we see the market changing. And so I feel like we are -- we will be well positioned to get the most value out of the market if it does indeed does change.

Andrews, do you want to hand the cost?

Yes, to give you a little perspective on cost and kind of how I rate our performance as I look back on 2025 and give you a sense for how much more ahead of us is in 2026. So when you look at an environment like 2025 when we got less than 1% on rate, you're not even covering inflation, which probably wants to be 3% to 4%. So you're not getting a lot of help from the market. And so if you look at our Truckload segment, where our costs are down something like $150 million, probably 2/3 of that reduction is variable, maybe 1/3 of that is fixed. And so you put that all together and you get about, I think, an 80 basis points improvement on year-over-year. And so when you think about the variable costs, it probably drove half of that OR improvement. So you've covered inflation plus some margin expansion from these areas.

So -- at the beginning of the year, we put initiatives in place to drive cost out of what we viewed as the biggest opportunity 3 variable cost areas of maintenance, fuel and insurance. And those -- all of those areas improved, obviously, from a dollar perspective, but I think even more meaningful is that each one was lower in 2025 as a percentage of revenue in 2024 and on a cost per mile basis. So real improvement, not just volume-driven reductions. So those projects are continuing.

And just to give you a sense for some of the work we're doing there is we're working with our drivers to create new routing and fuel optimization processes to really get more efficient in our routes and identify a lowest cost fueling solutions. We have technology that we are deploying that is largely going to benefit us in 2026. I would -- but also another project that we're really encouraged by some additional tools to drive advanced auto planning technology to just help us optimize our freight routing and load assignments. I think this has a chance to help -- really help us driver and asset utilization and reduced deadhead and just improve our overall network efficiency. So we're going to continue to deploy these tools to drive variable costs per mile down.

On fixed costs, gosh, we made so much progress there. Obviously, you lose 3% or 4% miles are really -- it's hard to show up in your P&L because of the fixed cost leverage. But as a percentage of revenue, it also declined in 2025 versus 2024, even with that loss in volume. So we view these as structural in nature that won't come back and will lever really well. And I think it's going to come in 3 areas: equipment and cost and productivity. There, you saw that in our utilization improving 2 or 3 percentage points last year over the year before. Our real estate costs, look, we've done some really smart, in my view, facility rationalization, we exited and sold, I think, 13 locations that we don't think -- we're looking at this very long term. These aren't things that are going to impair our ability to capture opportunities, but drove -- are going to drive cost out of our business just in how we manage our facility costs. So our facility means costs are down about 4% last year. We want to do that again in 2026.

Our overhead costs are the other big area we're focusing. I think our -- in the truckload space, we're about 5% down on nondriver headcount after doing 5% or so the year before. So a lot of the AI initiatives that we've made reference to or we're rolling out in 2026 are really going to help us identify opportunities in G&A. And we talked about Abilene net screen area that's also going to create some opportunity for more efficiency in the cost of our business. So -- the costs are a huge area of focus for us. We're attacking it from a lot of angles, and we're optimistic about the momentum we're building on our strategy and cost.

Your next question is from the line of Chris Wetherbee from Wells Fargo.

I guess maybe kind of curious if you could elaborate a little bit on what you're hearing from shippers as you're going through the beginning of bid season here, I guess, maybe specifically around capacity reductions, I guess, is there any sense of urgency from the shipper community to kind of think about covering some capacity needs as we're -- and maybe doing that on the earlier side, just kind of thoughts about how they're thinking about it. And then maybe related to that, I know you're doing a lot of work on the cost side. But as you think about the potential for driver wage increases through the cycle, obviously, the enforcement focus is on the driver side, and we're seeing that pool shrink. Do you think there's risk to the upside in terms of the traditional relationships that we think about a point of price, getting a portion of that to the driver? Has that changed at all as we go through the cycle, given what this enforcement action looks like?

Well, so Chris, on the shipper commentary, I mean, look, we're in early bid season. So everyone's always negotiating at this point. So I think there are certainly some that acknowledge that there is potential risk, some would push that risk out a little bit further into the year and may not feel some of that pain today. There's others that recognize that they most likely want to get ahead of it, especially if they have a higher percentage of their freight running through brokers or where the real exposure is. But again, it's still kind of early on where it's more of a discussion point rather than then taking real action on it right now. So I think we -- again, we're going to watch that. We continue to have dialogue. And again, they may not always be so upfront with us because we're in the process of negotiating rates.

On the driver front, this is always a question we get, hey, when rates go up, do you have to share that with driver wages. And I think historically, we would typically share, it's probably around 25% to 30% of our revenue per mile would go to drivers. Now in this cycle may feel a little different. There's a lot of margin to restore given how low that margin has gotten over the last few years. And so I think we've got to take some of that margin to the bottom line before doing a blanket driver wage increase, unless we feel like there's enough momentum where we're going to have plenty of revenue per mile to share.

But we just watch are we able to hire? Are we able to retain? I think our drivers get just a noticeable increase in pay just from running more miles on the truck. And so typically, when in an environment that's improving, you're going to get better utilization, which you're already seeing that out of our trucks, which just naturally raises the wages for our drivers. But hey, if we find the driver market gets really tough kind of given the -- where the -- with the tightness of capacity and we are compelled that rates are going to be improving, then yes, we may share with the drivers so we can ensure that we have enough capacity to meet the needs that our customers have in terms of operating loans.

So it's pretty dynamic. And hey, we wouldn't -- we would look at it in pockets, and we would look at specific markets rather than historically we've done across-the-board approaches. We would be very dynamic based on the region and where we have challenges, retaining and hiring and that's where we put our resources.

Your next question is from the line of Ken Hoexter from Bank of America.

Adam and team just want to revisit a couple of your comments, right? So you said recent trends in truckload have continued into the early part of January, modestly better than typical seasonality. So I just want to understand, is that are you making a comment on anything demand-led? Is that just the capacity side? Is that weather? So maybe dig into the -- if there's anything in there on demand side as we go into the first quarter and your thoughts as we go forward? And I guess the same for LTL, it seems like you said something modest volume improvement. Is that just share gains? Or are you making a demand commentary there, too?

Yes. I think on the truckload side, what I'm referring to is every day will come into the office, and we get a look at the market in terms of the relationship of number of loads versus number of trucks that we have available. And in the first quarter, a lot of times, you're having to dig out every morning needing additional loads to feed the trucks that are available to operate a load. And so every morning if we get these maps, and we have -- it gives us an idea of the kind of the balance of the network. And so early part of January, that -- those maps are far more balanced than we would typically see in the first quarter, meaning you have -- you're very close to relationship of having enough loads for every truck that you have available, and you're not having to book as much same-day freight.

It's hard to know if that's demand or capacity. I would lean towards capacity can simply from the third-party data that we have that's available out there where low tenders have -- are still relatively low, even if you look at the last 3 years, yet rejections are higher. And that would align with what we're seeing on our rejections as well. Now our low tenders are still better. So I do feel like there's maybe a flight to quality in terms of customers shifting loads to the asset-based carriers. But from an industry perspective, I think it's for driven by capacity tightness versus demand, which I think is encouraging, because that helps me any uplift in demand is just going to be that much stronger for the market. It will be that much more disruptive potentially.

And then on the LTL side, I would say, I think it's just the -- we always see some real softness at the tail end of the fourth quarter, particularly with our customer base. We're a bit more retail than maybe some of the larger peers out there. And so we're just seeing that shipment count restore to kind of more normalized levels. But I don't know that we've really seen a big shift in demand that I would call out. And so for us, we're looking at through the bid season, can we pick up share through the customers that are newer to us, but again, they are larger shippers that now we have an opportunity to participate with.

Your next question comes from the line of Scott Group from Wolfe Research.

So Adam, just a bigger picture. If you look back at prior cycles, you've gotten a lot of price, but utilization usually goes down, maybe see the tractor counts go down or something like that driver pay goes up a lot. It sounds like from the -- one of the last questions, you don't think we have to give up maybe as much driver pay this time. And then maybe the other piece, like do you think you can get a -- can we get a pricing cycle where we also get utilization at the same time. And so if we have good price and utilization, maybe we don't have as much driver pay. It sounds like you're doing some stuff on technology productivity. Like could that relationship between price and margin being much better, meaning like if historically, 10 points of price is 5 points of margin, do you think it's a lot better this time around?

So Scott, I mean, our goal, what we intend to accomplish is to get some utilization along with price. So then, yes, that price goes a lot further because you got that utilization that also helps cover your fixed costs. And so I don't think we -- like if I look at the last cycle with COVID, I mean, the labor market was totally disrupted. And so I think that made it very challenging to source drivers. And so then obviously, rates were incredibly high. And even that shifted our network to where we were doing shorter length of haul at higher rates because that's where the needs were with the customer. So I think it really distorted the metrics if you're trying to look at it historically. I look at this as maybe a more typical cycle and the adjustment up. And I would think that we would be able to achieve better utilization with our equipment.

The key is going to be what happens in the labor force, but we believe that with the academies that we have, the ability to train drivers at a very high level and reducing competition from other academies that I think are not compliant, that we'll be in a good position to source drivers, get volume, while rates are improving.

Scott, I would just make one point that one thing we have not had in the prior cycles is we spent most of 2025 developing the capability to match up our demand between our different brands, between our large truckload brands and even LTL and truckload to find efficiencies where there's excess capacity in workplace and demand, we can match them up. That is not a toolkit we've had at scale with the level of sophistication that we're going to go into this next cycle with. So I think that's going to help infill in some of those gaps to drive utilization up.

Scott, we appreciate you sticking to 1 question. Okay. So yes. So that will conclude our call. We appreciate all the interest and all the questions. If we didn't -- if we weren't able to get to your question, you can dial (602) 606-6349, and we'll try to get back to you as soon as possible. Thank you, everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good afternoon. My name is Ina, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation Third Quarter 2025 Earnings Call. [Operator Instructions] Speakers from today's call will be Adam Miller, Chief Executive Officer; Andrew Hess, Chief Financial Officer; and Mr. Brad Stewart, Treasurer and Senior VP of Investor Relations. Mr. Stewart, the meeting is now yours.

Thank you, Ina. Good afternoon, everyone, and thank you for joining our third quarter 2025 earnings call. Today, we plan to discuss topics related to the results of the quarter, current market conditions and our earnings guidance. We have slides to accompany this call, which are posted on our investor website. Our call is scheduled to last 1 hour.

Following our commentary, we will answer questions related to these topics. In order to get to as many participants as possible, we limit the questions to 1 per participant. If you have a question, a second question, please feel free to get back in the queue. We will answer as many questions as time allows. If we are not able to get to your question due to time restrictions, you may call (602) 606-6349.

To begin, I will first refer you to the disclosures on Slide 2 of the presentation and note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1A Risk Factors or Part 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Before we get into the slides, I will hand the call over to Adam for some opening remarks.

Thanks, Brad, and good afternoon, everyone. The third quarter saw freight markets still grappling with uncertainty, with many shippers hesitant to take much risk and freight demand trends that continue to deviate from normal seasonal patterns. However, the third quarter brought more proactive customer discussions around peak season projects than we have seen since 2021. Some of these involve customers who did not express any such needs last year. Some peak projects are already underway, while our base level of normal demand through the first 2 weeks of October have remained stable and have not yet begun a seasonal build.

Last year, some peak projects developed almost overnight during the fourth quarter, and we still do not have visibility to forecast that, that will happen again this year. With still some uncertainty around how volumes will build during the quarter, we are taking a more cautious approach to our expectations for the fourth quarter. Despite some of the uncertainties in the present environment, we see a number of factors that make the opportunities of the next cycle more compelling for our businesses.

First, on the demand front, despite all the noise from tariffs and the shift in freight ordering patterns, demand has remained relatively stable throughout our different Truckload brands. We believe the value we deliver through our scale, flexibility and service has allowed us to maintain most of our volume in a challenging market. Early in the new bid season, we are seeing less churn of incumbent lanes and growth in awarded volume with low single-digit rate improvement.

This contrasts against last bid season where a similar pricing approach produced more churn in incumbent lanes and lower volume awards as some shippers were still pursuing discount offerings, especially through brokers. In recent weeks, more customers have been upfront about reducing the numbers of carriers they want to work with and are focused on increasing volumes with quality asset-based carriers. And as far as capacity, we expect ongoing attrition on a number of fronts that include the recent and developing regulatory focus on enforcement of standards related to English language proficiency and the qualifications and controls around the issuance, renewal and [ revocation ] of non-domiciled CDLs, which we believe may have an outsized impact on the lowest price capacity in the one-way over-the-road market.

Second, ongoing carrier downsizing [ and failures ], especially among medium-sized carriers who invest in safety and compliance but do not have the scale to overcome cost inflation and the unsustainably soft price environment our industry has faced over the last 3 years. Third, we see large carriers continuing to pull back from over-the-road service in favor of dedicated opportunities given difficult business conditions in the one-way market. And fourth, we see private fleet growth plateauing and likely reversing course as capital assets increasingly come up for replacement and at higher prices.

And while the spread between the cost of internalizing the service versus outsourcing it to the market is historically high. We believe the majority of the capacity attrition from these factors will be concentrated in the one-way market, which is where we do roughly 70% of our truckload business. There are signs that the recent regulatory focus is starting to have an impact on capacity availability but it may take some time before that tightness is consistently felt across the market, absent an increase in demand.

If enforcement efforts are sustained and effective, there could be a meaningful shift in the supply-demand dynamic in 2026. Such developments would bring a more favorable setup for carriers and one particularly beneficial to our truckload business given our unique ability to deliver responsiveness at scale and with industry-leading [ trailer pool ] resources that provide valuable flexibility to our customers. Also, the improvements we have made on our cost structure during the down cycle provide great opportunities for margin growth in a stronger market.

Beyond our Truckload segment, our Logistics business is well positioned through its complementary relationship with our asset business to augment revenue capture and to leverage our tech-enabled power-only services to enhance the return on our trailer assets. Further, our intermodal business targets additional progress on costs, network management and equipment utilization and look forward to leveraging the new chapter in our rail partnerships in an improving market.

Now shifting gears to our LTL business. We're excited to share that we are adopting the AAA Cooper brand across our entire LTL business. The consolidated branding recognizes that we are already one business operating seamlessly on one system through one network, delivering a cohesive solution to our customers. We are continuing to grow our LTL network, customer base and volumes, and we are committed to doing this while providing strong service levels. As we build our network, we are capturing growth opportunities with new LTL customers as well as from some of our long-standing truckload customers.

This growth has come during the time when the industry volumes remain under pressure. Although we have felt some cost pressure during our network expansion, we remain focused on improving margins and have multiple initiatives underway to accelerate improvements in cost efficiencies and operational execution as we adapt to the growing network and customer base in a fluid market. So with that, I will turn it over to Andrew for our overview on Slide 3.

Thanks, Adam.

The charts on Slide 3 compare our consolidated third quarter revenue and earnings results on a year-over-year basis. Before getting into the comparisons, it's important to note that our GAAP results from the current quarter include $58 million of significant unusual items. Included in our GAAP results are $28.8 million of trade name impairments as a result of our decision to combine our LTL brands under one trade name, $6 million of real property lease and software impairments, a loss contingency of $11.2 million related to the 2024 exit from the third-party carrier insurance business and $12 million of higher insurance and claims costs at US Express primarily driven by settlement of 2 large 2023 U.S. Express auto liability claims, one of which occurred prior to our July 2023 acquisition and the other shortly thereafter.

The impairments have been adjusted out of our non-GAAP results, as shown in the reconciliation schedules following this presentation. However, the loss contingency and the claim settlement accruals have not been adjusted out and negatively impacted our adjusted operating income by $23.2 million and our adjusted EPS by $0.10. Revenue, excluding fuel surcharge, increased by 2.4% and operating income declined by $31.1 million or 38.2% year-over-year, largely due to the $58 million of unusual items noted above.

Adjusted operating income improved by 14.2% year-over-year as earnings growth in our LTL warehousing and leasing businesses more than offset the loss contingency and U.S. Xpress claims costs in the current quarter. GAAP earnings per diluted share for the third quarter of 2025 were $0.05 compared to $0.19 for the third quarter of 2024. Adjusted EPS was $0.32 for the third quarter of 2025 compared to $0.34 for the third quarter of 2024, a 5.9% year-over-year decrease primarily as a result of the $0.10 negative impact of the loss contingency and claims accrual noted above.

Consolidated adjusted operating ratio was 93.8%, which was flat year-over-year and sequentially. The effective tax rate of 47% on our GAAP results was 15 percentage points higher year-over-year. The effective tax rate of 29.6% on our non-GAAP results was 30 basis points higher year-over-year and higher than the 27% to 28% range we had previously projected due to deferred tax impacts of combining our LTL legal entities.

Slide 4 illustrates the revenue and adjusted operating income for each of our segments for the quarter. Overall, our LTL business has become a larger share of our consolidated revenue through our ongoing network expansion over the past 2 years. For the third quarter, the LTL segment held steady sequentially at 20% of our consolidated revenue, its highest share since our entry into this segment in 2021.

Our strategy of building diversification in our enterprise is complemented by our strategy to enhance revenue synergies across brands and lines of service. To this end, we are applying intentional leadership to drive powerful collaboration. We continue to develop and deploy technology to foster seamless connectivity, enabling us to leverage excess capacity in one brand against excess demand in another, which effectively increases our ability to surge and to capture greater share of market opportunities while solving for network imbalances.

To be certain, we have leaned on each other before, but these advances make these practices systemic, more responsive and scalable. Now we will discuss each of our segments, starting with our Truckload segment on Slide 5. Our Truckload segment navigated atypical demand patterns in the third quarter to generate miles that were flat with the second quarter as we had expected. While freight flows and spot rates did show some progress in normalizing after an unusual second quarter, the partial recovery in these dynamics pressured our revenue per mile and operating margin relative to our expectations for the third quarter.

Additionally, while we made further meaningful progress reducing fixed costs in our business, the quarter saw headwinds on variable costs such as insurance and claims, health insurance and fuel. On a year-over-year basis, revenue declined 2.1%, driven by a 2.3% decrease in our loaded miles. Revenue per loaded mile, excluding fuel surcharge and [ intersegment ] transactions was up slightly year-over-year and sequentially improved 1.1% over the second quarter.

Adjusted operating income declined $7.3 million or 15% year-over-year, largely as a result of the $12 million of higher insurance and claims costs at U.S. Xpress which was a $0.05 negative impact to adjusted EPS. These accidents occurred prior to our integration of U.S. Xpress' hiring, safety and claims management practices which have since begun to produce meaningful improvements in safety metrics. The third quarter combined adjusted operating ratio was 60 basis points higher year-over-year as the U.S. Xpress claims noted above negatively impacted this metric by 110 basis points and offset ongoing progress on our cost structure.

Excluding U.S. Xpress, the legacy Truckload brands operated at a 93.7% adjusted operating ratio. While these claim developments disrupted U.S. Xpress' trend of improving results, we expect this business to return to profitability in the fourth quarter and be back on track to make further progress closing the margin gap with our legacy Truckload brands. Miles per tractor improved 4.2% year-over-year as a result of our efforts to drive productivity as well as our reduction of underutilized assets over the past several quarters.

Sequentially, tractor count was flat within the second quarter -- within the second -- third quarter -- was flat from the second and third quarter. We continue to make tangible progress in improving our cost structure to position our business to generate meaningful returns as market conditions recover. We remain committed to disciplined pricing, [ intense ] cost control and quality service.

All right. Moving to Slide 6. Our LTL business group revenue, excluding fuel surcharge, 21.5% year-over-year with shipments per day, up 14.2% as we lap the acquisition of DHE on July 30. Revenue per hundredweight, excluding fuel surcharge, increased 6.1% while revenue per shipment, excluding fuel surcharge, increased 6.6%. Weight per shipment increased 0.4% for the first year-over-year increase in this metric since our 2021 entry into this business.

Our GAAP results for this segment include a $28.8 million trade name impairment as a result of our decision to combine our LTL brands under the AAA Cooper trade name. Adjusted operating income increased 10.1%, marking the first year-over-year improvement in 5 quarters as volumes remained sequentially stable, while operational and cost initiatives begin to gain traction. The adjusted operating ratio was 90.6% for the third quarter, which was an improvement of 250 basis points from the second quarter, counter to typical seasonal degradation.

Some of the areas where we're making early progress on costs are in reducing purchase transportation as we deploy our own staff and equipment, optimizing pickup and delivery through our new technology implementation and in refining our staffing levels and scheduling across locations as we gain more visibility into our evolving freight mix. During the third quarter, we opened 1 new service center and replaced 2 more with larger sites, bringing our growth in door count to 8.5% year-to-date and 10.2% year-over-year.

Two weeks into the fourth quarter, LTL demand appeared softer than the normal fourth quarter seasonal slowdown. This may be short-lived, but we are stepping up the yield and cost initiatives we began launching last quarter to respond to market developments. We intend to take action where prudent to mitigate margin pressure in the short term, but without sacrificing our ability to respond to growth opportunities through ongoing bids as discussions around bids currently in process are encouraging.

We believe we have opportunity to deliver improving margins through growth, cost control and maturing operations and have confidence in our plans to achieve this. Our solid service levels, growing customer base [indiscernible] on pricing provide a compelling runway for the value to be generated by this business.

Now I will turn it over to Brad for a discussion of our Logistics segment on Slide 7.

Logistics volumes were down year-over-year, but generally [ built ] throughout the third quarter after the lull seen during the second quarter. This segment experienced brief market tightening around the 4th of July and at the end of the quarter. Revenue for the third quarter declined 2.2% year-over-year, driven by a 6.2% decline in load count, partially offset by a 3.6% increase in revenue per load. Despite the decline in revenue and load count, our disciplined approach to pricing and cost management helped us drive slight improvement in the adjusted operating ratio to 94.3% and to grow adjusted operating income 1.9% year-over-year.

We anticipate opportunities for further profitability gains ahead as we are early on in deployment of technology tools to drive better capture of opportunities and more efficient execution, which we expect will contribute to earnings beginning in 2026. In recent weeks, we are seeing what we believe are the early impacts that the renewed emphasis on regulatory enforcement is beginning to have on third-party carrier capacity availability.

The impact is not yet consistently felt but there has been a noticeable reduction in capacity availability and pressure on gross margin in certain lanes and types of service. If such trends were to continue, this could cause further pressure on gross margin in the near term as capacity erodes, and it could cause pressure on brokerage volumes if shippers increasingly rely on asset-based relationships.

However, given the relationship between our logistics segment and our asset-based truckload segment, we believe these dynamics would ultimately benefit both our asset and logistics businesses.

Now on to Slide 8 for a discussion of our Intermodal business. The Intermodal segment improved its adjusted operating ratio of 160 basis points year-over-year to 99.8%, driven by a 3.5% increase in revenue per load and improvements in efficiency and network balance. Revenue declined 8.4% year-over-year on an 11.5% decrease in load count, partially offset by the increase in revenue per load. On a sequential basis, after seeing load count declined in the second quarter on import softness and volume churn through bid outcomes, our Intermodal segment produced an 8.2% sequential recovery in volumes during the third quarter to reach the highest quarterly load total year-to-date.

This was largely driven by more favorable bid awards taking effect, even while achieving a 3.4% sequential increase in revenue per load. The adjusted operating ratio improved 430 basis points on an 11.9% increase in revenue compared to the second quarter. We remain focused on delivering excellent service and driving appropriate returns through cost control, network balance equipment utilization and through growing our load count with disciplined pricing.

Slide 9 illustrates our All Other Segments. This category includes support services provided to our customers, independent contractors and third-party carriers, such as equipment sales and rentals, equipment leasing, warehousing activities, insurance and maintenance. For the quarter, revenue increased 29.9% and operating income increased 86.4% year-over-year, primarily driven by growth in our warehousing and leasing businesses.

Additionally, the current quarter GAAP and adjusted results include a loss contingency of $11.2 million or a $0.05 negative impact to our adjusted EPS, representing estimated additional premiums related to our 2024 transfer to another insurance carrier of the outstanding auto liability claims from the third-party carrier insurance business we closed in March of 2024. The transfer of these claims was completed in 2 separate tranches, each of which carried the potential for up to $14 million of additional premium being owed as well as potential recovery of some premiums we paid depending on claim development over the succeeding 4-year period.

The change in the current quarter exhausts the additional premium exposure on the first tranche. Now on Slide 10, we have outlined our guidance and the key assumptions, which are also stated in the earnings release. Actual results may differ from our expectations. Based on our assumptions, we project our adjusted EPS for the fourth quarter of 2025 will be in the range of $0.34 to $0.40.

In general, this guidance for the fourth quarter assumes that current conditions persist and that we experienced some seasonality. The key assumptions underpinning this guidance are listed on the slide. We project that truckload operating income will improve sequentially, largely driven by operating margin improvement on fairly flat revenue. This assumes modest sequential improvement in revenue per mile while utilization sees a slight seasonal decline from third quarter.

For LTL, we anticipate continued year-over-year revenue growth and adjusted operating margins that are similar year-over-year in the fourth quarter. We project a sequential climb in revenue and earnings from our logistics segment as compared to the third quarter and for intermodal contribution to remain fairly stable as compared to the third quarter.

For our all other segments, we expect a seasonal slowdown in earnings for this category and the fourth quarter will result in roughly breakeven operating income before including the $11.7 million of quarterly intangible amortization. And finally, we project our full year net cash CapEx will be between $475 million to $525 million and that our effective tax rate on adjusted results will be between 23% to 24% for the fourth quarter. This concludes our prepared remarks. And before I turn it over for questions, I want to remind everyone to please keep it to 1 question per participant.

Thank you. Ina, we will now open the line for questions. .

[Operator Instructions] Your first question comes from the line of Scott Group from Wolfe Research.

So I have just a numbers question and then just a bigger picture. So am I just understanding this right, like the clean nonreportable is like $35 million in Q3, and you're seeing breakeven in Q4. Just it's a big drop. I just want to understand if I got that right. And then just bigger picture, like all like the regulatory stuff that you're talking about, like, what's your view of how much capacity this takes out, how much of this we're seeing already in the market? How long does it all take to play out? And then maybe just with that, Adam, you made a comment about private fleet growth reversing, which I think would also be a big deal. Just what's telling you that, that's happening that would be helpful.

So Scott, I think that's 3 questions maybe. We'll try to wrap that together as one. I don't want to set a precedent here. Yes, on the All Other, that is correct. You're reading that correctly. And I think we signaled that, I think maybe earlier this year, that's been the normal seasonal pattern. It's really driven by our warehousing business where we have a lot of work that we do that's somewhat front loaded in the year, and there's a lot that just doesn't happen in the fourth quarter.

And that's how that would have played out last year as well. We were trying to get that a bit more smoothed out, but that didn't happen this year. So that would be the case. And I think that's how we've modeled that even in previous years. In terms of the regulatory question. I think there's a lot of unknowns there. We've seen several numbers out there. I think the FMCSA has projected that there was over 200,000 nondomiciled CDLs that were issued.

I think a good number of them were probably not issued correctly. I think the enforcement may vary by state. I know that we're seeing certain states revoke CDLs now, and we're seeing letters come in across our industry. We have a very small number of drivers that have done domicile [ CDLs ], I'd say maybe a few dozen. And we've seen some activity there as well, even for those that were issued, we believe correctly.

And so I don't know, it's going to be interesting to watch, and we'll watch it very closely. I think you've seen a lot more enforcement on the English language proficiency, we're seeing the violations ramp up quite a bit over the last couple of months when that's been really pushed. And now that you have some states that are having federal funding withheld, I think that's going to push some states that have been a little bit resistant to push some of these regulatory changes that may feel like they got to act based on the new laws that have been issued. So when I look at certain markets, we could certainly see pockets where carriers are not willing to take longer lengths of haul because of the risk of going through more checkpoints, certain carriers that only want to stay within certain states where they feel like the enforcement will not be as strict. And so that's created some challenges on sourcing capacity in our logistics business, and I think we've seen that from certain customers as well.

We've had some customers come to us with projects, but with some requesting that nondomiciled drivers -- nondomiciled CDL drivers are not utilized for the project because of just what concerns could come from that if there were an incident. So it does feel like this is building. And it's the nondomiciled issue on top of the English Language proficiency that I think early on, I didn't feel was going to move the needle as much on capacity, but it certainly feels like the momentum is there, and we're beginning to start to see some tightness in certain markets. And I only -- and I believe that's only going to continue. Did I hit that, Scott?

Yes, that was -- I mean I asked about the private fleet stuff, too, but if you want to maybe talk to that later. think.

Yes, I think that's just an anecdotal dialogue that we've had with many of our customers who -- and some of them have ramped up fairly large private fleets and others that built up a private fleet not nearly as large as others, during the pandemic, and they're just seeing that they're probably not optimizing the capacity that they have and that there's probably more value to outsource it than to do that internally. And so as these trucks hit the year age and they have to determine if they want to refresh the trucks finding that many of them are just shrinking that capacity and outsourcing it where it makes more economic sense for them. .

I think the data on the private fleet cost per mile, how it's been pressured over the last few years if you compare that to the [ 4 ] higher cost per mile. It's quite different than it has been historically. And so make it an economic case for private fleets more challenging, especially as you're having to refresh the fleet. I think that economics are changing a little bit. So we'll see how that plays out, still kind of to be determined, but we think that we might see a shift there..

And your next question comes from the line of Richa Harman from Deutsche Bank.

I wanted to focus on LTL. I'll ask maybe a near-term question and then a longer-term one. Andrew, I think you said softer demand was noted for Q4, but also that your bid discussions are encouraging. And then you guided to flattish margins in Q4, but that would be significantly worse than normal seasonality. After you had very strong results in Q3, I think you're going to be the only carrier we cover that reports sequential margin improvement in Q3. So maybe help us square the messaging there and what's happening in Q4 and your guidance. And then just longer term, Adam, in the past, you've talked about potentially unlocking over time, the unique synergy opportunities from being the only carrier that has both a strong TL franchise and growing LTL operation. Maybe elaborate on that as you've gotten some traction with LTL. How do you feel about that synergy potential, what it could look like [ with anywhere ], et cetera?

Sure. All right. We'll touch on that, Richa. I think on the near term with LTL, I think what we wanted to comment is just that we've seen a little bit of softness going into the first couple of weeks of the quarter. It's hard to read into just a couple of weeks, but we felt it was noteworthy to share that and know that we're reacting to that. And we're making the adjustments where we can. A lot of that will be on the labor front. But we've built the network to handle a certain amount of volume, and we've been building into that volume over the last few quarters.

And to take a step back, it does put a little bit pressure on the cost front. And so we're going to manage what we can over the near term. But when we look at what the bid season and how that's building, we feel encouraged by what opportunity line in front of us that may start to go into effect in late first quarter and into the second quarter. So we want to be cognizant of being prepared to handle those volumes. And we talked about where we expect the OR to be from third to fourth.

And if you look at how we trended last year, that was -- that would be pretty consistent with the degradation sequentially given the mix of customers that we work with. We tend to have a real slowdown in the back half of the quarter, particularly in December. And so that would be something that we just have to navigate. But again, we're taking a lot of steps towards just managing the cost where it makes sense and aligning that management with where our shipment volumes are.

But again, as we build out this network, we still feel very encouraged that we'll see growth in our existing network that we have without opening many properties here in the near term. And then we think about what the capabilities are with LTL and truckload and the size that we have, we're finding real opportunities to leverage empty lanes between both brands where something might be a great fit for LTL partially on a lane. And so we can move a load halfway with truckload, transition to our LTL fleet to pick up some savings from not running empty.

We're also seeing that our LTL business can leverage our Truckload fleet for any purchase transportation instead of going to the outside. We can handle a lot of that inside when they have surge needs. And there's just more and more that we're finding as we've scaled LTL, and we're building systems that allow us to find those opportunities, not just between truckload and LTL, but between all of our truckload brands.

And we've been doing a lot of this kind of manually with communication and just relationships. But we have systems rolling out that will identify these systems. These opportunities quickly and allow us to seamlessly share those across our businesses. So I think we're in the early innings of finding opportunities to work together on truckload and LTL and I think you were just going to grow from here.

I would just add a couple of points there. So I think the Q3 to Q4 seasonality may look a little stronger for us than you're used to kind of with our peers in LTL. And that's just, I got to mention the nature of our business. So it's obviously a extremely volume-sensitive business. So that puts pressure on the margins. But to kind of unpack a little bit what enabled us to improve our LTL margins by the 250 basis points from Q2 to Q3 with similar volumes, it's what we've been telling you, we've been doing all along. We're starting to see results in that.

And so I'll point out 3 areas that I think are probably important for you to understand, first in labor. So we've in-sourced a lot of our purchase trends, we reduced that as a percentage of labor by 2.3% [indiscernible]. Our headcount is down about 2.5%. So we've been able to kind of rightsize our head count as we understand the flow of our freight. And so the rate of work we're doing and increased discipline on scheduling in hours and building the [ dock ] efficiencies, are starting to translate into real improvement and our variable labor per shipment improved quarter-over-quarter by $2 per shipment.

So I would say those improvements are going to continue fundamentally outside of the volume that's going to obviously lever in the business. The other costs that we've talked about in prior discussions here is some of the inefficiencies that are -- we had just from the system and business integrations. So that's travel costs, contract labor, equipment rental, all of those were reduced in the quarter, and we expect that will continue.

We feel like there's opportunity there. We're seeing good results as we implement technology in our P&D and rolling that out, we feel like we're just starting to see the benefit of that, and we feel like there's a lot of opportunity there to see more benefit. And then there was -- we had some redundant facilities as we've upsized certain locations over periods of time, we've been replacing existing facilities and upgrading our facilities with larger facilities where we've had a yard or door pressure. So we've been carrying some duplicate costs in some areas. Now we were able to exit some of those prior locations. So those are kind of some of the structural costs that will come out as we get stability in our network. So all of those are going to continue. What you're seeing from Q3 to Q4 is simply a matter of the volume impact on the margins in a high fixed cost business.

Okay. Understood. Quick -- just a quick one. So the softness that you cite, that's mainly on the volume side in LTL. It's not from a pricing perspective, what you're seeing in the environment is still pretty rational and consistent with what it's been. .

That's absolutely right. Pricing has been disciplined. We've not seen any pattern of change there. What we're seeing is some softness. Now it's early in the quarter. We'll see how it persists through the quarter. But these first few quarters have definitely signaled some softness.

And your next question comes from the line of Ariel Rosa from Citi Group.

So I want to ask about some of the cost-cutting opportunities. You had mentioned, I think, last quarter that there was kind of increased focus on scaling that cost and looking for ways you can be a little more efficient. I'm just wondering kind of where you are on that in terms of progressing on that for each of the segments.

Okay. Yes. Let me I kind of focus on that last question on LTL. So maybe I'll spend a little time addressing our approach to our cost in our Truckload segment. So let me break it down for you a little bit because the approach is different by area. I just want to hit a few areas. So let me talk about fixed costs. They represent maybe 1/3 of our costs in truckload and obviously, very lever really well in the business.

We really feel good about the progress we've made there. We've reduced our fixed cost spend cost per mile percentage of revenue, both year-over-year and quarter-over-quarter by multiple percents. And so we -- the progress there on our cost -- on the fixed cost is meaningful, and we think permanent. So about half of that is equipment based, and that is obviously a big driver of our costs. And so we our strategy around equipment is multipronged.

We are kind of analytical approach to equipment life cycle, how we procure our asset utilization improvement that you're seeing in our miles per truck numbers and our ability to reduce unseated trucks and then maintain optimal trailer tractor ratios. We got a lot more miles we can put on our trucks. And we think that's going to -- with volume, it's going to really give us some leverage opportunity. But our goal is to reduce our equipment cost per mile year-over-year each quarter. And so we're seeing good results there. The second area in our fixed costs that are G&A and overhead, we're deploying significant initiatives, lean initiatives, technology-based initiatives, that's AI, but that's other areas as well, with the goal to offset inflation, reduce our spend in G&A and overhead costs year-over-year every quarter.

And so we saw good progress sequentially in this area. And we really take a different approach on our facility costs, our footprint and put a lot of processes in place to understand fundamentally the cost there. And I would say we have the expectation that we're going to reduce our cost per square foot lower year-over-year in this area. And so that's where we're focused. Now on the variable costs, that's the other 2/3. You got to think about that as driver pay, maintenance, insurance, [ fuel ], those are your big ones, right? So in this area, we've really we put in place [ management ] continuous improvement initiatives with the goal to offset inflation and reduce our variable cost per mile.

And so in each of these areas, we have a different strategy deployed to do that. And so in maintenance, we're managing how we do things internally versus externally and really understanding the cost drivers of the truck and fuel. I really feel good about the underlying metrics in fuel in our miles per gallon results that we're seeing. But we're going to see that number kind of fluctuate a down a little bit quarter-to-quarter, and we saw a little bit of that in this quarter. But underlying it, we think our operating performance is good there. We approach and create a culture of accountability there.

Insurance, I will mention, I think, is a big area to focus because that's been hyperinflationary and really pressured. And what you're seeing in that [indiscernible] depend on some degree of normalcy in terms of what we would expect in claims expense over time. What we're seeing is the way claims costs are settling and developing, you're going to see kind of more volatility than normal, I believe, in this area. So -- and you saw some of that translate into our results this quarter. But we -- again, we think what we're doing there is really going to start to pay effect. Our [ DOT crash ] performance is on track for that to be our best ever over the last 3 years and LPL this year is going to be the best ever for our DOT [ crash ] performance. So as we really focus on these metrics, invest in technology to support this we think we can turn insurance costs to a competitive advantage. So it's a complicated question because there's -- each area requires a different approach, but we have -- our focused -- our organization is really focused on this to create a groundwork of sustainable, constant improvement and with the goal of seeing costs become an area where we can expand our margins over time.

I would add...

Yes, go ahead, Adam. Sorry.

Yes, [ we just said ] we didn't touch on intermodal. I mean that's an area where we've made, I think, a good amount of progress. And some of the areas we will be focused on is investing in chassis in certain markets, and that's given us some real operating leverage. And as we've improved the volume in that business, we've seen more of that volume translate to improved margins. And so we look to continue down that path. And then we're finding ourselves being able to balance our network a lot more effectively as well. And so that's another area that we're focused on, on the intermodal front.

Just as a follow-up, if you don't mind, I'm trying to get a little bit more clarity on like how far along you are in terms of implementing these initiatives and to what extent it's kind of showing up results -- showing up in results? And then how much it can drive kind of improvement in margins independent of rate improvement that might still be on the table?

No, I don't think -- look, I think it's -- I think our efforts in this have been earnest for the last year. It Still feels like early stages, particularly around the technology-enabled efficiencies that we expect to really translate in our G&A and overhead costs. So that's probably take a little more time than I probably can allocate here to really unpack that. But we feel like that is -- there's going to be a lot of opportunity there to really impact our business. We've been hard at work at it and we think the results are largely ahead of us. We think 2026 is we're going to really start to see that impact our business.

And your next question comes from the line of Ken Hoexter from Bank of America.

Adam, just a real quick 1 on the -- a lot of confusion, I'm getting some messaging. Is the technical reason, any technical reason why adjusted EPS, [ you went with ] $0.32 versus the $0.42, which it seems like that's your actual number if you exclude the 2 charges. And then my question would be just revisiting your fourth quarter comments, talk about seasonal demand, you're seeing it or you're not seeing -- you did a lot of requests, but then said it's not building into actual seasonal demand. So a little mixed message, I just want to understand your message there.

Yes. I appreciate that, Ken. And give me an opportunity to clarify there. So for one on the $0.10 related to the third-party insurance and the U.S. Xpress settlement, historically, we have not adjusted those out -- and so we're just following the historic pattern that we've used for reporting, but we wanted to make it clear to the reader that we believe these are kind of abnormal type charges and -- but we want to -- we didn't want to change our approach to how we actually do the accounting. So we adjusted out the impairments, but not the claims expense If that makes sense.

Yes.

And then in terms of fourth quarter, so let me -- I know I was kind of saying 2 things at once. But what I would say is we went into this fourth quarter with some peak projects already awarded to us and some of those are already beginning to -- we're already beginning to execute. There's some that have maybe a later date than we would have seen historically, but still a project that is under the works that we've been awarded and are anticipating generating outsized margins. .

Now what I was trying to convey is kind of the more of just the broad-based demand in terms of I look at every day how we're booked out. We haven't seen that, that demand grow like we would typically see from third to fourth when you have a strong peak season. So there's kind of limited seasonality with certain customers, that projects that we already have. Now last year, we had a project or 2 that developed kind of out of the blue kind of mid-fourth quarter that really had an impact on our results, and that was largely in our Swift business. And we're having dialogue around that, but nothing has been awarded, nothing there's nothing that we can count on that's going to occur.

So that still may happen. But today, I can't sit here and say, yes, [indiscernible] we expect to see. So I guess what I'm trying to say is there is some peak seasonality. It's somewhat limited right now. That could change. But based on what we see, what we know we're expecting what we've already had in the pipeline to occur and really just limited seasonality beyond that.

Would that be in your range? Is that in the 34, 40? Or is that something that pushes beyond that?

The [ 34, 40 ] is what we know today. .

Okay. And then just a follow-up on an answer you gave before to Richa, just a real quick one. The OR balance, I was surprised at your answer there just because I thought you had start-up costs a year ago. Is that -- I know you're talking seasonality or Andrew was talking about it, but wasn't there a start-up cost in that number as well?

We had some start-up costs with DHE, but we also had accelerated load count that [indiscernible] count from third to fourth. And so today, where we stand, we've seen a little bit of softness in the first 2 weeks, and so we're just taken a conservative approach on if that continues, this is what we would expect margins to do with us taking steps to try to limit the impact on it.

That could change if we see -- those volumes begin to pick up. We don't know how much could be related to government shutdown, how much that flows through in terms of LTL shipments. But it was just kind of unusual to see a little bit of a slowdown. And our channel checks would indicate that the other LTL carriers are seeing something similar.

And your next question comes from the line of Jonathan Chappell from Evercore ISI.

Hopefully, the enforcement of non-domiciled CDL and English efficiency is a little bit better than asking one question or 1 question only. Here's my 1 question, Adam. a little interesting that Knight-Swift is [ still in support ] of UNP and NSC potential merger. I understand the benefits to your intermodal franchise given that you're on both rails as your primary carrier. But can you walk through what it means to your TL business, especially the long haul, 70% of your business is one-way spot market or one-way market. And it seems like that's the area where a lot of the revenue synergies are coming from, from this transaction. So maybe the puts and takes on why you're so supportive of that were on the surface, it looks like it could be more competitive to your core business?

Yes. So here's what I would say, without giving too detailed here, if it offers a cost-effective solution to our customers, we think that we would be supportive of that, considering that we have an intermodal offering that we could be there to support our customers with our rail partners. Now when I think about that long length of haul freight that you're referring to, quite honestly, that is not -- we don't haul a lot of that freight today.

We do a lot of the regional kind of the tougher freight that we know how to price and generate a healthy revenue per truck per day. The long length of haul is typically the cheapest freight out there because it's very attractive to the really small micro carriers that really care about just running miles on those trucks. And typically, those are some of the less safe carriers out there. And so I feel like offering a good solution, a better solution for our customers for that type of length of haul would not be detrimental to our business. It would be additive because we can provide that with intermodal because, hey, that's just not freight that we really compete for in our truckload business.

And your next question comes from the line of Ravi Shanker from Morgan Stanley.

I'm going to stick with the 3 [ run-on correction ] strategy here. Just 3 follow-ups from me. One is just to confirm, you guys sound excited about what's happening on the capacity side, but you said it may take some time. So just wanted to confirm that you don't have anything capacity-wise in terms of tightness reflected in your guidance versus normal seasonality. Second, can you give us an update on where bid season has been going for '26 in your early conversations. And third, when will you know if those special projects for peak season materialize, you said mid-fourth quarter. So will you know in like 2 to 3 weeks' time?

Yes, we're going to have to change the rules for this. I think Scott started this off, not on the right foot here. Yes, I know. I know. So so I'll try to wrap that in as one question, right, in terms of just how we're seeing the market right now. Yes, I think, again, on the capacity front, we're seeing certain areas where there's some tightness and that's really we get some visibility of that through our brokerage business and when they're trying to secure certain capacity in some markets. It is starting to percolate, but it's not widespread yet.

But I do think over time, it's going to build. And I think there's probably a year or 2 time line when a lot of these kind of nondomiciled CDLs will expire. I think it will -- it won't be linear. I believe we'll see that happen maybe on the earlier part of that time line. So I do feel like we start to see that into '26. But really, that's not something that we're baking into the fourth quarter. so the fourth quarter is, hey, we have the projects that we've already had built into our system, some have already started, some will begin kind of -- could be late October, early November is really the time line. And some of them have a definite time but get pushed out if the customer still has the need, and we're starting to see see that with some of the projects we have already started. So it's still a bit of a moving target, but anything that's been awarded to us, we expect to start on target and on the date that we were awarded it.

I think -- the real question is, is there going to be something that builds in a meaningful way that we're just not aware of today similar to what happened last year. And so again, we're not baking that into our guidance. If that were to occur, that would give us some upside.

Your long on run on question there, Ravi.

And your next question comes from the line of Tom Wadewitz from UBS.

So I wanted to, I guess, get your thoughts on how much price maybe you need to improve truckload margin in 2026? Clearly, there's a lot of hard work going on on the cost side to control cost and reduce your cost per mile, which is great. I don't know if you anticipate any driver inflation or if that's just going to be another kind of muted year. But how do you think about inflation that you'll have to offset? And what kind of pricing do you think you need in 2026 to see some meaningful improvement in truckload margin?

Yes. So Tom, I think the way we're looking at it is I think early in the bid season where we don't see the tightness that could come in '26. We're going after securing healthy wins on the volume front, but probably getting the low single-digit pricing in the early part of the bid, which I think we shared in our prepared remarks. I think that, that pricing will grow if the capacity tightens like we think it will, but we wanted to start the bid season with a healthy amount of volume because when we can run our trucks at more volume and improve the utilization on the equipment, that certainly helps with that fixed cost absorption.

And so that helps drive our cost per mile down and manage any inflation that we may feel on the driver front, it's really going to be dependent on what we see in the market. If drivers get really tight, obviously, as an industry, we're to do something for drivers, but it's going to be market-driven, and we haven't determined if that's something that we're going to do yet. So I think the margin improvement that we expect to see in 2026 will be a combination of volume and price earlier in '26 will be probably more volume. And I think that half will be driven more by price. .

But if you get that low single-digit pricing, is that enough to get margin improvement? Or you need to see something stronger through the bid season than that to really get the margin improvement?

If that leads to additional volumes and productivity, then yes, that can improve margins. But if the market does tighten like we expect it will, we'll have opportunities on the -- in the spot market, where we'll shift capacity over there where we'll be able to see rates move much faster than what we've done on the contractual business.

And your next question comes from the line of Fred from Stephens.

I wanted to touch on exactly what you just talked about, was on the contract side. As we look at this tightening, I'm sure shippers are seeing a lot of the same things that you are. when you start your negotiations for next year, do you get any leverage when you talk about the tightening that you're seeing in the capacity coming out? Or are they still pretty hesitant to give you any credit for that right now as we sit.

That's going to be really case-by-case with our customers. There's some that try to look ahead and try to see what carriers they want in their portfolio if they do come across a tighter market and may be willing to do more on the contractual side to lock in that capacity. And then there's others that are going to take the approach of getting the best price possible in the near term and deal with any fallout in their network down the road. Our customers have different means of doing that. Some have many bids that they put out on a weekly basis where they have challenges covering certain lanes, and they allow carriers to bid on that in many cases, in a tightening market that becomes a premium rate that they pay to cover any holes. And then there's others that put things out on just spot boards that are transactional that we participate in. And then there's others that may come to us and try to secure more capacity at, I guess, more favorable rates for us to ensure that they don't have fallout.

pBut again, it's going to be customer by customer. And hey, we're fine with any approach that they want to utilize, and we work with them to provide them good service. to have flexible capacity at scale. And hey, we understand the market similar to what -- how they would, but some take different approaches. And so -- we just -- we always try to be very nimble in the market. So we don't lock in too much capacity. And so when there are changes, we could be one of the first carriers out there to capture what the market will bear. And that usually leads to us improving margins faster than the broader industry. .

Okay. So I think that hit our time for the call. We appreciate everyone who has joined. And again, we've got the phone number out there if we weren't able to get to your question, 602 606-6349. And again, we appreciate everyone who joined the call. .

And this concludes today's conference call. Thank you for your participation. You may now disconnect.