Knight-Swift (KNX) Q1 2026 Earnings Transcript

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Date

Wednesday, April 22, 2026 at 5:30 p.m. ET

Call participants

• Chief Executive Officer — Adam Miller
• Chief Financial Officer — Andrew Hess
• Senior Vice President, Investor Relations — Brad Stewart

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Risks

• Adjusted operating income declined by $37 million year over year, "largely due to" adverse LTL claim development of $18 million and a $4 million VAT reimbursement expense.
• Winter weather and "sharply rising fuel prices" in the quarter created an estimated $12 million to $14 million net negative impact on volume and costs, as outlined by management.
• Logistics segment volumes fell 18.9% year over year, with management directly citing "increased pressure on gross margin" from tougher carrier qualification standards and market-driven cost increases.
• Shipments per day in LTL decreased by 1% year over year, partially attributed to ongoing freight mix shifts and weather disruption.

Takeaways

• GAAP earnings per share -- $(0.10) loss per diluted share; prior year was $0.19 per diluted share, with the latest result "primarily due to" negative items including an adverse LTL claim and a VAT reimbursement expense in Mexico.
• Adjusted EPS -- $0.09, down from $0.28 in the prior-year quarter, reflecting multiple specific operational and market headwinds.
• Consolidated adjusted operating ratio -- 97%, increasing by 230 basis points year over year, with LTL segment causing a slight gain in relative share versus previous quarter.
• Truckload segment operational trends -- Revenue per loaded mile (excluding fuel surcharge and intersegment transactions) improved 1.4% year over year and was sequentially higher than the prior quarter’s peak season, while loaded miles declined 1.8% and adjusted operating income fell by $7.6 million.
• Truckload adjusted operating ratio -- 96.3%, degrading by 70 basis points year over year, with adverse weather, fuel headwinds, and a one-time VAT expense as primary drivers.
• Less-than-truckload (LTL) revenue growth -- Up 2.6% year over year (excluding fuel surcharge), led by a 5.2% increase in weight per shipment and 8.5% growth in length of haul, while shipments per day dropped 1% and revenue per hundredweight declined 70 basis points.
• LTL rate renewals -- Mid single-digit percentage increases on renewals, with freight mix shifting toward heavier, longer-haul industrial shipments, as explicitly noted by management.
• LTL tonnage trends -- March average daily tonnage up 7% year over year, demonstrating late-quarter momentum.
• Logistics segment revenue and margins -- Revenue declined 9.9% and volumes fell 18.9% year over year, while revenue per load increased 10.4%; gross margin dropped 150 basis points year over year but rose 110 basis points sequentially from the fourth quarter.
• Logistics adjusted operating ratio -- 96.2%, only a 70 basis-point year-over-year degradation, as tighter carrier qualification standards and market pressures affected volume and cost structure.
• Intermodal segment growth -- Revenue increased 2.7% year over year, with a 1.6% improvement in revenue per load, 1.2% growth in load count, and operating ratio improvement of 50 basis points.
• All other segments -- Revenue rose 13.5%, but operating results turned to a loss due to the inclusion of $5 million in accounts receivable securitization costs and warehousing start-up expenses that have yet to generate revenue ramp.
• Q1 weather and fuel impact -- Estimated $12 million to $14 million net negative effect from severe winter weather and increased fuel prices, explicitly identified as nonrecurring in management commentary.
• 2026 adjusted EPS guidance -- Projected range of $0.45 to $0.49, with management citing expectation of a "larger-than-normal sequential increase in quarterly results" and noting Q1 was negatively affected by events not expected to recur.
• Bid activity and pricing trajectory -- Current bid season involves "high single- to low double-digit percentage" rate increase targets, rising from the "low- to mid single-digit target one quarter ago," with management stating implementation will largely impact contractual rates late in Q2 and into Q3.
• Contract vs. spot mix -- Spot exposure ended the quarter at "low to mid-teens" percentage versus "low double digits" at the start, reflecting increased spot market engagement.
• Regulatory market impact -- Management directly credited recent regulatory action in reducing market capacity and explicitly linked these efforts to "elevated spot market" and improved rate environment.
• Operational efficiency -- Miles per tractor improved year over year for the seventh consecutive quarter, with productivity supported by network optimization and ongoing market tailwinds.

Summary

Knight-Swift Transportation (NYSE:KNX) delivered first-quarter results marked by sharp year-over-year declines in profitability, explicitly attributed to nonrecurring legal settlements, adverse tax rulings, severe weather, and surging fuel costs. The company’s 2026 adjusted EPS guidance of $0.45 to $0.49 reflects an expectation for margin improvement, underpinned by an active bid season targeting mid-to-high single- or double-digit price increases and a progressively tighter truckload market. Strategic focus is on utilizing regulatory changes to capture market share, optimizing fleet utilization, and leveraging productivity gains across core business segments as contractual rate improvements are expected to meaningfully benefit results beginning late in the second quarter.

• Management stated, "turned out stronger than we anticipated and even improved sequentially over our end-of-year peak season result," signaling positive momentum in core truckload pricing prior to contract renewal flows.
• Leadership emphasized that "renewal rates continued their trend of mid single-digit increases," highlighting the ability to maintain rate discipline in that segment while navigating evolving freight mix and industrial verticals.
• Explicit commentary identified a fundamental industry shift: management noted, "shippers are generally not issuing off-cycle bids opportunistically to improve service or drive prices lower; these actions are driven by a need to secure capacity," indicating a supply-driven tightening not seen in previous cycles.
• Innovation in hiring and driver development was underscored as a future challenge and differentiator, with management leveraging terminal networks, academies, and AI-enabled recruiting to address anticipated industry-wide driver shortages.
• The company confirmed 70% of truckload contracts are in the current bid cycle, with implementation of higher rates expected to "flow through more fully in the third quarter and then build into the fourth quarter."

Industry glossary

• Loaded mile: The distance a truck travels while hauling customer freight, directly tied to revenue calculations.
• Adjusted operating ratio (Adjusted OR): A non-GAAP efficiency metric, calculated as operating expenses divided by revenue, adjusted for unusual or nonrecurring items; a lower ratio indicates stronger profitability.
• LTL (Less-than-truckload): Freight transportation for shipments too small for a full truckload, typically involving multiple customers’ goods consolidated onto a single vehicle.
• Spot market: The market for freight transactions priced and booked without a long-term contract, typically for one-off or short-notice shipments.
• Bid season: The annual or periodic process by which shippers solicit transportation rates and terms from carriers for the upcoming contract period.
• Mini-bid: A targeted, intermediate bid event outside the main annual cycle, often used to adjust contract terms for a subset of a shipper’s freight.
• Chameleon carrier: A trucking company that attempts to avoid negative safety or regulatory records by operating under a new identity, often flagged in regulatory enforcement discussions.
• CDL (Commercial driver’s license): A license required to operate large or specialized commercial vehicles, with regulatory implications around issuance and enforcement referenced in the earnings call.

Full Conference Call Transcript

Brad Stewart: 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 one 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 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, of Part I 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.

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

Adam Miller: Thank you, Brad, and good afternoon, everyone. These are certainly interesting times, and there are now more reasons to be optimistic about our industry than we have seen in over four years. 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 three-plus years, 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 invalidly issued CDLs, shut down noncompliant CDL schools, and address hours-of-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. We saw evidence of that during the first quarter, as the severe weather in January led to acute tightness and 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 load 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. 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. Pricing 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 freight 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 one or two months ago.

Unlike the past few years, shippers are generally 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 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 one quarter ago. Across our truckload 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 two years structurally cutting costs 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, a maturing freight mix, improvement in network density, and continuously refining our operational and cost 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.

I will now turn the call over to Andrew and Brad to review the results and our guidance.

Andrew Hess: 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 and LTL fuel surcharge was essentially flat, and operating income declined by $338 million year over year, largely due to $18 million of expense for claim development in our LTL segment, primarily related to an adverse arbitration ruling on a 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 $0.10, 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, 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 service offerings remain largely consistent quarter over quarter, with LTL gaining 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. Xpress made further progress on operating efficiency and trailed the legacy brands in adjusted operating ratio by approximately 300 basis points. The ongoing progress at U.S.

Xpress is encouraging, and we expect this business will continue closing the gap in margin performance with our legacy brands as the market improves. 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 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 hundredweight, excluding fuel surcharge, fell slightly, 70 basis points year over year, driven by the increase of 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.

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

Brad Stewart: 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 over 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 thefts 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 reject 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 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 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 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 01/01/2026, 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 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 will not take time to read through all of our assumptions here; 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 the third. This concludes our prepared remarks. We will now open the call for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you would like to withdraw your question, simply press star 1 again. Your first question comes from Chris Wetherbee with Wells Fargo. Your line is open.

Analyst: 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 curious how 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 hoped it could be in terms of the mid-cycle earnings of the Truckload business or the mid-cycle margins of the Truckload business? Any color around that and maybe timing towards getting there would be helpful.

Adam Miller: That is a great question, Chris. It is early in the inflection here, so it is hard to know exactly the strength, the duration, and the timing of how that will play out. But leaning on our experience in previous cycles, I do not think we have ever really seen the pressure on capacity coming from regulatory forces versus just normal economics. I think we could see more capacity coming out of the network than we typically would see in a cycle, and that could be a catalyst to really drive a strong bid season this year and also into next year.

The question is going to be: can we capture rate, can we also improve the utilization on our equipment—which we have done now for seven consecutive quarters on a year-over-year basis—and can we grow our seated truck count, not necessarily by investing in more trucks? If we get to that point, we obviously have the ability to do that, but being able to seat more of the trucks that we have on our fleet while running them productively. If we are able to do all three of those, then I do believe this sets up to get back to a more normalized earnings or margin profile that we are accustomed to seeing in our businesses, and that includes even U.S.

Xpress getting to the legacy performance that we have seen at Knight and Swift. Again, it is early in the cycle, and we are just getting feedback on bids and seeing how those awards are coming in, how some of our customers are tendering those awards, what mini-bid looks like, and what turndown business is looking like.

There is still a lot to read through in the market, but it certainly feels like the setup is there for those in the industry to get back to rates that put 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.

Analyst: Appreciate that perspective. Thanks very much.

Operator: The next question comes from Deutsche Bank. Your line is open.

Analyst: Yes, thanks for the time, guys. Following up from that previous question, Adam, when you say normalized margins, maybe you can highlight what that is. Mid-cycle, is it low teens that we are talking about here? And then 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. Can you give us a sense of the magnitude of margin expansion as we move through the year?

You are 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 Q2 you are calling for low single-digit improvement. I am trying to get a sense of how we should flow this through in the model near term and longer term.

Adam Miller: I will hit on the first portion and start the second, and Brad can dovetail. We have probably received the normalized margin question for the last five earnings calls, so to be consistent: in a normalized market, the Truckload business typically operates in the mid-80s OR—that is mid-teens margin. When the market is really good, we have operated sub-80s, and in a difficult market you are upper-80s. This cycle played out differently; it has been far more challenging across the industry, including for us. But getting back to that mid-80s normalized earnings, I feel like the setup is here in this bid season and going into next to be able to achieve that.

Our LTL business has been growing and does not have the same cycle as Truckload. We look to methodically improve the margins in that business. We had the anomaly with the claim development in the first quarter, but we expect that to be behind us and to continue improving margins as we grow into that network and start to march down into the 80s. I still feel this year we can achieve a sub-90 operating ratio during the year and continue to build upon that. Typically, when our Truckload business is healthy, the Logistics business can grow exponentially.

Early on, as the cycle changes, Logistics feels pain because the rates have not adjusted yet to what the third-party capacity rates are, so you see load count degradation, which we have seen, because you cannot take freight you cannot make a margin on. As rates reset—contractual rates, but also backup rates we do with our customers—when the routing guide falls apart, they tend to flow us the backup rates that hopefully put us in a position where, if we cannot do it with our own trucks, we can do it with quality third-party capacity through our Logistics business. Then we are able to take a lot more of the loads that we are turning down today.

In normal earnings, I would expect Logistics to be growing. Intermodal, we believe, is on a path to profitability. We laid out the sequential improvement we expect to achieve, which would mean volume and revenue per load are building. Last year this time, we took a big step back when tariffs were announced as we pushed for improving our revenue per load, and that led to us losing some volume. This year is very different. We are getting some improvement in rate—not near what you are getting on the Truckload side—but some improvement, and it is resulting in better volume as well. We expect Intermodal to get to profitability and to see that improve as the cycle strengthens.

On the timing of high single- to low double-digit requests, right now we probably have about 70% of our business in bid. A lot of that starts to be implemented 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. We may see the activity really build in terms of achieving healthy rate increases, but it may not flow through to the P&L immediately. We expect margin to start to flow through more fully in the third quarter and then build into the fourth quarter.

Brad Stewart: 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% range—low double digits—where we had been for the last couple years in terms of spot exposure. We exited the first quarter just a couple of points higher than that, low to mid-teens perhaps. As we navigate the pricing environment and manage our business to extract yield from our network, jumping into spot exposure is not step one. Our first priority is our contractual, recurring relationship business, and we have expectations for where the market is on price at this point. That is what we are addressing first.

If we cannot come to agreement or see 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. That can evolve over the next several months as we continue to work through bid season. It is another lever that can contribute to our realized rate per mile in addition to the contract and backup rates Adam spoke to. We will be managing and watching this week by week.

Operator: Your next question comes from Ken Hoexter with Bank of America. Your line is open.

Analyst: Great. Good afternoon. To extrapolate on that a bit, in the prepared remarks, I think you mentioned revisiting contracts that are longer in nature. Are you already starting to give those notices to get out of the contracts and start to renew? Is that how tight the market has gotten? And to clarify on LTL, did you say there is a delay, but the weights are ramping given the industrial move? How long is the delay to get pricing?

Adam Miller: Let me clarify the LTL point first. We are not seeing delays in LTL pricing. We are getting mid single digits on renewals, but we are seeing a freight mix change with longer length of haul and heavier shipments that we believe will improve the yield of the business. Revenue per hundredweight may get skewed year over year because of the freight mix change, but we are not seeing a delay in LTL pricing. In terms of the rate reviews, we are going through our network and looking at any rate that may be stale. If it is beyond a year, we are reviewing it.

We are reviewing the bottom 20% of performance and looking at what we need to do to get those rates closer to market. If we do not have an active bid to address those, we are being proactive in making that review and then having discussions with customers. That effort is active at the early stages now. Many customers do RFPs; we are in the heart of roughly 70% of that business, but there is about 30% we need to make sure we are addressing as the market moves quickly. And on your follow-up, we are not seeing the Truckload rate environment immediately transfer to LTL. On LTL renewals, we are getting mid single digits right now.

Operator: Your next question comes from Ravi Shanker with Morgan Stanley. Your line is open.

Analyst: Adam, last quarter you helpfully walked through what you saw were upcoming catalysts on the supply side—everything from Delilah's Law, the Montgomery case, the brokerage side, new proposals for $5 million minimum insurance, as well as all of the rules we saw last year. How do you see this evolving over the next few months and potentially the market tightening up more?

Adam Miller: These are all pressures that we think are going to deter bad actors from coming into our space. It is going to push capacity out of the market that is not sustainable at current rates and is not acting in a compliant manner. When our industry saw spot rates jump dramatically in 2021 and we had a push for immigration, this industry was targeted, and we had many people enter without much trucking experience, with weak safety backgrounds, without proper training, and many were exploited by chameleon carriers and ultimately paid rates well below what a U.S. citizen would view as livable wages. That population is getting pushed out with the pressure on eliminating improperly issued non-domiciled CDLs.

We think Delilah's Law will help codify that into law, among other things. We have an administration pushing on how chameleon carriers have exploited the system—self-certification of training, self-certification of logs—and putting more regulation behind that. There is going to be more oversight from the FMCSA that is needed. Minimum insurance would be another big factor. English language proficiency requirements are pushing capacity out. Drug testing is another big one.

We have set a higher standard for ourselves—we have been doing hair follicle drug testing for over a decade—and you are 10 to 15 times more likely to pick up a positive with hair testing than urine, yet hair testing is not accepted as a valid way to test and you cannot submit those positives to the clearinghouse, so those drivers can go to another carrier. We do not think that is right. That is another area the industry needs to clean up, focused on putting the safest drivers on the road. We have never seen this type of push to clean up unsafe capacity.

Any one of these could move the needle; aggregated, we are already starting to see them influence the market. The improvement we are seeing and our ability to get rate is driven largely by capacity reduction versus demand. If we start to see demand pick up in conjunction with these early efforts, we could find ourselves in a much more favorable position from a carrier standpoint.

Andrew Hess: I would add that this administration is committed to the cleanup that needs to happen in the industry. If we can get legislative support through Delilah's Law and the like, that makes it more durable through future administrations. But we do not think it is dependent on that; whether that happens or not, the actions of the administration are going to be effective over the next few years as we continue to get things right in our industry.

Analyst: Very helpful. Thank you.

Brad Stewart: Thanks, Ravi.

Operator: Your next question comes from Scott Group with Wolfe Research. Your line is open.

Analyst: Thanks. Afternoon, guys. Adam, what are you seeing with seated tractor counts and drivers generally? And big picture, if you think back to the last cycle, there was massive growth in your and everyone’s brokerage business. But with the things you talked about—non-domiciled CDLs, chameleon carriers, Montgomery, all these sorts of things—as you have these big conversations, is there a sense from shippers that they are less willing to do a brokerage offering right now, and are they willing to pay more for asset-based this time versus prior cycles?

Adam Miller: On seated trucks, finding and hiring drivers has always been a challenge in our space. I have always said in our industry you either have drivers or you have loads; rarely do you have them at the same time. We are starting to see the loads come through, and we are making investments to ensure we have an advantage in sourcing drivers. We are increasing our marketing spend and the number of recruiters. We are leveraging AI to ensure we react quickly to leads as they come in, and we are leveraging the academy network we have to train and develop drivers. Regarding shippers’ preferences, there is a clear shift toward valuing high-quality, compliant, asset-based capacity.

The regulatory environment and recent enforcement actions have heightened shippers’ sensitivity to risk in their supply chains. That does not eliminate brokerage—Logistics remains a key, complementary offering—but we are seeing willingness to pay for dependable asset capacity increase relative to prior cycles, and we expect that to continue as the market tightens.

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