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Jan 31, 2018

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

knightswiftlogo2018newa05.jpg
January 29, 2019
Phoenix, Arizona
Knight-Swift Transportation Holdings Inc. Reports Fourth Quarter 2018 Revenue and Earnings
Knight-Swift Transportation Holdings Inc. (NYSE: KNX) (“Knight-Swift”), North America’s largest truckload transportation company, today reported fourth quarter 2018 net income attributable to Knight-Swift of $151.7 million and Adjusted Net Income Attributable to Knight-Swift of $162.9 million. Our GAAP earnings per diluted share were $0.86 for the fourth quarter of 2018, compared to $2.50 for the fourth quarter of 2017. Included in the fourth quarter 2017 results was an income tax benefit of $364.2 million (or $2.03 per diluted share), representing management’s estimate of the net impact of the Tax Cuts and Jobs Act enacted during that quarter.
Our Adjusted EPS was $0.93 for the fourth quarter of 2018, compared to $0.52 for the fourth quarter of 2017.
Key Financial Highlights
We are pleased with our fourth quarter 2018 results and the progress made across all of our reportable segments. Our trucking segments, which include Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated, operated on a combined basis at an 80.9% Adjusted Operating Ratio. Swift’s average operational tractor count remained stable during the fourth quarter at 14,737. The Swift Truckload segment’s profitability significantly improved, achieving a 75.9% Adjusted Operating Ratio, while Swift’s other reportable segments also achieved meaningful improvement on a year-over-year basis. The Knight Trucking segment continued to operate efficiently with an Adjusted Operating Ratio of 78.1%. Our asset-light businesses, which include Knight Brokerage, Knight Intermodal, Swift Logistics, and Swift Intermodal, together operated at an 89.3% Adjusted Operating Ratio during the fourth quarter of 2018.
Quarter Ended December 31, (1)
2018
2017
Change
(Dollars in thousands, except per share data)
Total revenue
$
1,394,640
$
1,359,420
2.6
 %
Revenue, excluding fuel surcharge
$
1,242,625
$
1,218,188
2.0
 %
Operating income
$
206,777
$
143,771
43.8
 %
Adjusted Operating Income (2)
$
221,658
$
156,112
42.0
 %
Net income attributable to Knight-Swift
$
151,696
$
447,564
(66.1
)%
Adjusted Net Income Attributable to Knight-Swift (2)
$
162,856
$
94,002
73.2
 %
Earnings per diluted share
$
0.86
$
2.50
(65.6
)%
Adjusted EPS (2)
$
0.93
$
0.52
78.8
 %
_________________
(1)
For information regarding comparability of the reported results due to mergers and acquisitions, refer to footnote (1) of the Condensed Consolidated Income Statements (Unaudited), in the schedules following this release.
(2)
See GAAP to non-GAAP reconciliation in the schedules following this release.
Dividend — The company previously announced a quarterly cash dividend of $0.06 per share to stockholders of record on December 3, 2018, which was paid on December 27, 2018.
Revenue — Total revenue increased 2.6% for the fourth quarter of 2018 from the fourth quarter of 2017. Revenue, excluding fuel surcharge, increased 2.0% for the fourth quarter of 2018from the fourth quarter of 2017. The year-over-year increase was largely driven by improvements in average revenue per tractor and growth in our asset-light businesses.

Operating Income — Operating income increased 43.8% to $206.8 million for the fourth quarter of 2018 from $143.8 million for the fourth quarter of 2017. Adjusted Operating Income increased 42.0% to $221.7 million for the fourth quarter of 2018 from $156.1 million for the fourth quarter of 2017. This was primarily driven by increased revenue per tractor, improved safety results, and improved cost control.
Income Taxes — The fourth quarter 2018 effective tax rate was 25.0%, compared to 24.6% in the third quarter of 2018. We expect the full-year 2019 effective tax rate to be in the range of 25.0% to 26.0% before discrete items.
Segment Financial Performance
Comparability — For information regarding comparability of the reported results due to mergers and acquisitions, refer to footnote (1) of the Condensed Consolidated Income Statements (Unaudited), in the schedules following this release.
Trucking Segments — Our asset-based trucking services include dry van, refrigerated, dedicated, drayage, flatbed, and cross-border transportation through our Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated reportable segments. During the fourth quarter of 2018, the trucking segments together comprised 18,828 average operational tractors, and operated on a combined basis at an 80.9% Adjusted Operating Ratio, compared to an 85.8% Adjusted Operating Ratio during the fourth quarter of 2017.
Our efforts throughout 2018 resulted in the continued stabilization of the Swift tractor fleet, which had an average operational tractor count of 14,737 during the fourth quarter of 2018, compared to 14,769 during the third quarter of 2018.
After experiencing a strong freight market in the fourth quarter of 2018, which supported increases in both contract and non-contract rates, we are experiencing typical seasonality thus far in the first quarter of 2019. We expect contract rate improvements to continue in 2019, but at a slower pace than in 2018. We continue to see opportunities in our trucking segments to improve yields, increase revenue per tractor, and enhance our ability to source and retain drivers without compromising our commitment to improve safety.
Quarter Ended December 31,
2018
2017
Change
(Dollars in thousands)
Knight Trucking:
Revenue, excluding fuel surcharge and intersegment transactions
$
260,780
$
215,434
21.0
  %
Operating income
$
55,184
$
37,695
46.4
  %
Adjusted Operating Income (1)
$
57,173
$
39,595
44.4
  %
Operating ratio
81.5
%
84.6
%
(310
 bps)
Adjusted Operating Ratio (1)
78.1
%
81.6
%
(350
 bps)

_________________

(1)
See GAAP to non-GAAP reconciliation in the schedules following this release.
During the fourth quarter of 2018, the Knight Trucking segment produced an Adjusted Operating Ratio of 78.1% compared to 81.6% for the same quarter last year, resulting in a 44.4%improvement in Adjusted Operating Income. The strong freight market and tight capacity supported increases in both contract and non-contract rates throughout the quarter. Revenue, excluding fuel surcharge and intersegment transactions increased 21.0%, as a result of a 12.2% increase in average revenue per tractor and a 7.9% increase in average tractor count (fourth quarter 2018 results include Abilene, which was acquired on March 16, 2018). The improvement in average revenue per tractor was driven by an 11.1% increase in revenue per loaded mile, excluding fuel surcharge and intersegment transactions, and a 1.9% improvement in miles per tractor.
knightswiftlogo2018newa05.jpg
2

Quarter Ended December 31,
2018
2017
Change
(Dollars in thousands)
Swift Truckload:
Revenue, excluding fuel surcharge
$
377,416
$
434,688
(13.2
) %
Operating income
$
90,814
$
66,957
35.6
  %
Operating ratio
78.8
%
86.4
%
(760
 bps)
Adjusted Operating Ratio (1)
75.9
%
84.6
%
(870
 bps)
_________________
(1)
See GAAP to non-GAAP reconciliation in the schedules following this release.
During the fourth quarter of 2018, the Swift Truckload segment produced an Adjusted Operating Ratio of 75.9% compared to 84.6% for the same quarter last year, resulting in a 35.6%improvement in operating income. The significant year-over-year improvement was driven by a 5.9% increase in average revenue per tractor, improved safety results, and cost control. We have emphasized improving revenue per tractor over the last year, which has led to a change in our freight mix and 9.3% fewer miles per tractor.
Quarter Ended December 31,
2018
2017
Change
(Dollars in thousands)
Swift Dedicated:
Revenue, excluding fuel surcharge
$
149,916
$
144,642
3.6
  %
Operating income
$
24,240
$
19,461
24.6
  %
Operating ratio
85.7
%
88.0
%
(230
 bps)
Adjusted Operating Ratio (1)
83.8
%
86.5
%
(270
 bps)
_________________
(1)
See GAAP to non-GAAP reconciliation in the schedules following this release.
Adjusted Operating Ratio improved 270 basis points in the Swift Dedicated segment to 83.8% in the fourth quarter of 2018, compared to 86.5% in the fourth quarter of 2017, resulting in a 24.6% increase in operating income. The year-over-year improvement was predominately related to a 9.4% increase in our revenue per loaded mile, excluding fuel surcharge, and a 3.4% increase in average operational tractors for the fourth quarter of 2018, compared to the same quarter last year.
Quarter Ended December 31,
2018
2017
Change
(Dollars in thousands)
Swift Refrigerated:
Revenue, excluding fuel surcharge
$
181,830
$
186,595
(2.6
) %
Operating income
$
13,080
$
13,199
(0.9
) %
Operating ratio
93.5
%
93.6
%
(10
 bps)
Adjusted Operating Ratio (1)
92.8
%
92.9
%
(10
 bps)
_________________
(1)
See GAAP to non-GAAP reconciliation in the schedules following this release.
Adjusted Operating Ratio within the Swift Refrigerated segment for the fourth quarter of 2018 remained relatively flat compared to the fourth quarter of 2017, and improved 280 basis points compared to the third quarter of 2018. Revenue per loaded mile, excluding fuel surcharge, increased 10.5% in the fourth quarter of 2018, compared to the fourth quarter of 2017, and loaded miles per tractor decreased 10.4%. We made sequential Adjusted Operating Ratio improvements in the third quarter and fourth quarter of 2018 in both the over-the-road and dedicated businesses within this segment, and we continue to refine our strategy to improve profitability in 2019.
knightswiftlogo2018newa05.jpg
3

Knight Logistics Segment — Our Knight Logistics segment consists of brokerage, intermodal, and other logistics services.
Quarter Ended December 31,
2018
2017
Change
(Dollars in thousands)
Knight Logistics:
Revenue, excluding intersegment transactions
$
97,202
$
65,899
47.5
  %
Operating income
$
8,411
$
3,923
114.4
  %
Adjusted Operating Income (1)
$
9,021
$
3,923
130.0
  %
Operating ratio
91.5
%
94.2
%
(270
 bps)
Adjusted Operating Ratio (1)
90.7
%
94.0
%
(330
 bps)

_________________

(1)
See GAAP to non-GAAP reconciliation in the schedules following this release.
Adjusted Operating Ratio in the Knight Logistics segment improved to 90.7% in the fourth quarter of 2018 from 94.0% in the fourth quarter of 2017. Revenue, excluding intersegment transactions, increased by 47.5%, contributing to a 130.0% improvement in Adjusted Operating Income. Brokerage revenue increased by 56.0% in the fourth quarter of 2018, when compared to the same quarter in 2017, as load volumes increased 56.9% and revenue per load decreased 0.6%. Brokerage gross margin percentage for the quarter increased by 50 basis points to 16.8% on a year-over-year basis.
Swift Intermodal Segment — This segment includes revenue generated by moving freight over the rail in Swift’s containers and other trailing equipment, combined with revenue for drayage to transport loads between the railheads and customer locations.

Quarter Ended December 31,
2018
2017
Change
(Dollars in thousands)
Swift Intermodal:
Revenue, excluding fuel surcharge
$
111,511
$
91,861
21.4
  %
Operating income
$
12,672
$
4,581
176.6
  %
Operating ratio
90.3
%
95.7
%
(540
 bps)
Adjusted Operating Ratio (1)
88.6
%
95.0
%
(640
 bps)

_________________

(1)
See GAAP to non-GAAP reconciliation in the schedules following this release.
We continued to see meaningful improvement in our operating profitability within our Swift Intermodal segment during the fourth quarter of 2018, as a result of our focus on improving our revenue per load, while executing on cost control. Our fourth quarter Adjusted Operating Ratio improved 640 basis points to 88.6%, compared to 95.0% for the fourth quarter of 2017, resulting in a 176.6% increase in operating income. On a year-over-year basis, improvements were largely due to a 14.1% increase in revenue per container, excluding fuel surcharge for the fourth quarter of 2018, compared to the fourth quarter of 2017. Average revenue per load increased by 23.1%, which was partially offset by a 1.4% decrease in load counts for the fourth quarter of 2018, compared to the fourth quarter of 2017.
knightswiftlogo2018newa05.jpg
4

Segment Realignment — As of the date of this release, management is re-assessing the presentation of the Company’s segment information, which we expect to recast during the first quarter of 2019. Once finalized, the Company will provide recast historical financial results on Knight-Swift’s investor website and will file a corresponding Form 8-K with the SEC. Based on management’s preliminary assessment, we expect that beginning in the first quarter of 2019, we will present three reportable segments, as follows:
•
The Trucking Segment will include the results of the previously-reported Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments.
•
The Logistics Segment will include the results of the Knight brokerage and Swift logistics businesses which were previously included within the Knight Logistics and Swift non-reportable segments, respectively.
•
The Intermodal segment will include the results of the previously-reported Swift Intermodal segment and the results of the Knight intermodal business, which was previously included in the Knight Logistics Segment.
We expect our non-reportable segments will continue to include support services that Swift’s subsidiaries provide to customers and independent contractors (including repair and maintenance shop services, equipment leasing, and insurance), as well as certain Swift legal settlements and accruals, amortization of intangibles related to the 2017 Merger, and certain other corporate expenses. Additionally, we expect our non-reportable segments will include Knight’s equipment leasing and warranty services to independent contractors, warehousing activities, and trailer parts manufacturing, which were previously reported within the Knight Logistics segment.
Consolidated Liquidity, Capital Resources, and Earnings Guidance
Cash Flow Sources (Uses) (1)
Year Ended December 31,
2018
2017
Change
(In thousands)
Net cash provided by operating activities
$
881,977
$
322,590
$
559,387
Net cash used in investing activities
(647,292
)
(204,263
)
(443,029
)
Net cash (used in) provided by financing activities
(255,442
)
24,000
(279,442
)
Net (decrease) increase in cash, restricted cash, and equivalents (2)
$
(20,757
)
$
142,327
$
(163,084
)
Net capital expenditures
$
(530,176
)
$
(304,460
)
$
(225,716
)
_________________
(1)
For information regarding comparability of the reported results due to mergers and acquisitions, refer to footnote (1) of the Condensed Consolidated Income Statements (Unaudited), in the schedules following this release.
(2)
“Net (decrease) increase in cash, restricted cash, and equivalents” is derived from changes within “Cash and cash equivalents,” “Cash and cash equivalents – restricted,” and the long-term portion of restricted cash included in “Other long-term assets” in the consolidated balance sheets.
Liquidity and Capitalization — As of December 31, 2018, we had $666.1 million of unrestricted cash and available liquidity, $5.5 billion of stockholders’ equity, and $847.4 million in face value of net debt.
During 2018, we generated $882.0 million in operating cash flows. We invested $530.2 million in net capital expenditures and $103.2 million for the acquisition of Abilene Motor Express, while paying down $47.5 million in net debt and reducing our off-balance sheet lease obligations by over $300 million*. We also repurchased $179.3 million of our common stock and returned $42.8 million in quarterly dividends to our stockholders during the year. We remain committed to a strong capital structure, which we believe will position us for long-term success and enable us to pursue further opportunities for organic growth and growth through acquisition.
_________________
*Our calculation of the reduction in off-balance sheet lease obligations is based on management’s estimated value of off-balance sheet operating leases as if they were capital leases. This number is used by management for analysis purposes only and does not purport to be calculated in the same manner or intended for the same purpose as the calculation of future minimum lease payments under United States generally accepted accounting principles.
knightswiftlogo2018newa05.jpg
5

Equipment and Capital Expenditures — Gain on sale of revenue equipment was $9.4 million in the fourth quarter of 2018, compared to $6.4 million in the same quarter of 2017. A year-over-year increase in the volume of tractor sales, as well as better pricing on the sale of tractors and trailers, contributed to the improvement in our gain on sale of revenue equipment, as we focused on right-sizing our trailer-to-tractor ratio. Capital expenditures, net of disposal proceeds, were $178.0 million in the fourth quarter of 2018, while the average ages of the Knight and Swift tractor fleets were 2.5 years and 2.2 years, respectively.
We expect that net capital expenditures will be in the range of $550.0 – $575.0 million for full-year 2019, primarily representing replacements of existing tractors and trailers, as well as investment in our terminal network and driver amenities. We plan to continue funding purchases primarily with cash and financing through our revolver and rely less on leasing.
Guidance — As previously announced, our expected Adjusted EPS range for the first quarter of 2019 is $0.52 to $0.55 and our expected Adjusted EPS range for the second quarter of 2019 is $0.62 to $0.66. Our expected Adjusted EPS range for the first and second quarters of 2019 is based on the current truckload market, recent trends, and the current beliefs, assumptions, and expectations of management (including those referenced in the fourth quarter 2018 earnings presentation posted on our website). Adjusted EPS reflects US GAAP diluted earnings per share after adding back the after-tax impact of intangible amortization expense, impairments, and severance expense associated with certain organizational changes at Swift.
The factors described under “Forward-Looking Statements,” among others, could cause actual results to materially vary from this guidance. Further, we cannot estimate on a forward-looking basis, the impact of certain income and expense items on our earnings per share, because these items, which could be significant, may be infrequent, are difficult to predict, and may be highly variable. As a result, we do not provide a corresponding GAAP measure for, or reconciliation to, our Adjusted EPS guidance.
Other Information
About Knight-Swift
Knight-Swift Transportation Holdings Inc. is a provider of multiple truckload transportation and logistics services using a nationwide network of business units and terminals in the United States to serve customers throughout North America. In addition to operating the country’s largest tractor fleet, Knight-Swift also contracts with third-party equipment providers to provide a broad range of truckload services to its customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors.
Investor Relations Contact Information
David A. Jackson, President and Chief Executive Officer, or Adam W. Miller, Chief Financial Officer: (602) 606-6349
Forward-Looking Statements
This press release contains statements that may constitute forward-looking statements, which are based on information currently available, usually identified by words such as “anticipates,” “believes,” “estimates,” “plans,” “projects,” “expects,” “hopes,” “intends,” “strategy,” ”focus,” “outlook,” “will,” ‘is,” “could,” “should,” “may,” “continue,” or similar expressions, which speak only as of the date the statement was made. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of or guidance regarding earnings, earnings per share, revenues, cash flows, dividends, capital expenditures, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed acquisition plans, new services or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statement of assumptions underlying any of the foregoing.  In this press release, such statements include, but are not limited to, statements concerning:
•
any projections of or guidance regarding earnings, earnings per share, revenues, cash flows, dividends, capital expenditures, or other financial items,
•
any statement of plans, strategies, and objectives of management for future operations,
•
any statements concerning proposed acquisition plans, new services, or developments,
•
any statements regarding future economic or industry conditions or performance, and
•
any statements of belief and any statements of assumptions underlying any of the foregoing.
knightswiftlogo2018newa05.jpg
6

Such forward-looking statements are inherently uncertain, and are based upon the current beliefs, assumptions, and expectations of management and current market conditions, which are subject to significant risks and uncertainties as set forth in the Risk Factors section of Knight-Swift’s Annual Report on Form 10-K for the year ended December 31, 2017, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, and various disclosures in our press releases, stockholder reports, and other filings with the SEC. The following factors, among others, could cause actual results to differ materially from those in forward-looking statements:
•
the ability of our infrastructure to support future growth, whether we grow organically or through potential acquisitions,
•
the future impact of the 2017 Merger, including achievement of anticipated synergies,
•
future reportable and non-reportable segments,
•
the flexibility of our model to adapt to market conditions,
•
our ability to recruit and retain qualified driving associates,
•
future safety performance,
•
future dedicated and refrigerated performance,
•
our ability to gain market share,
•
our ability and desire to expand our brokerage and intermodal operations,
•
future equipment prices, our equipment purchasing plans, and our equipment turnover (including expected tractor trade-ins),
•
our ability to sublease equipment to independent contractors,
•
the impact of pending legal proceedings,
•
the expected freight environment, including freight demand and volumes,
•
economic conditions, including future inflation and consumer spending,
•
our ability to obtain favorable pricing terms from vendors and suppliers,
•
expected liquidity and methods for achieving sufficient liquidity,
•
future fuel prices,
•
future expenses and our ability to control costs,
•
future third-party service provider relationships and availability,
•
future contracted pay rates with independent contractors and compensation arrangements with driving associates,
•
our expected need or desire to incur indebtedness,
•
expected sources of liquidity for capital expenditures and allocation of capital,
•
expected capital expenditures,
•
future mix of owned versus leased revenue equipment,
•
future asset utilization,
•
future capital requirements,
•
future return on capital,
•
future tax rates,
•
our intention to pay dividends in the future,
•
future share repurchases,
•
future trucking industry capacity,
•
future rates,
•
future depreciation and amortization,
•
expected tractor and trailer fleet age,
•
political conditions and regulations, including trade regulation, quotas, duties or tariffs and any future changes to the foregoing, and
•
future purchased transportation expense.
knightswiftlogo2018newa05.jpg
7

Financial Statements
Condensed Consolidated Income Statements (Unaudited) (1)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
(In thousands, except per share data)
Revenue:
Revenue, excluding fuel surcharge
$
1,242,625
$
1,218,188
$
4,725,288
$
2,179,873
Fuel surcharge
152,015
141,232
618,778
245,580
Total revenue
1,394,640
1,359,420
5,344,066
2,425,453
Operating expenses:
Salaries, wages, and benefits
380,874
371,699
1,495,126
688,543
Fuel
151,380
143,704
621,997
274,956
Operations and maintenance
79,967
85,791
340,627
164,307
Insurance and claims
50,387
57,217
215,362
95,199
Operating taxes and licenses
22,971
22,705
90,778
40,544
Communications
5,128
6,566
20,911
10,691
Depreciation and amortization of property and equipment
100,186
91,453
387,505
193,733
Amortization of intangibles
10,693
10,468
42,584
13,372
Rental expense
37,022
56,285
177,406
74,224
Purchased transportation
328,970
349,755
1,318,303
594,113
Impairments
2,798
98
2,798
16,844
Miscellaneous operating expenses
17,487
19,908
61,626
41,781
Merger-related costs
—
—
—
16,516
Total operating expenses
1,187,863
1,215,649
4,775,023
2,224,823
Operating income
206,777
143,771
569,043
200,630
Interest income
1,009
648
3,200
1,207
Interest expense
(8,746
)
(6,738
)
(30,170
)
(8,686
)
Other income, net
3,478
678
9,965
558
Other (expense) income, net
(4,259
)
(5,412
)
(17,005
)
(6,921
)
Income before income taxes
202,518
138,359
552,038
193,709
Income tax expense (benefit)
50,573
(309,502
)
131,389
(291,716
)
Net income
151,945
447,861
420,649
485,425
Net income attributable to noncontrolling interest
(249
)
(297
)
(1,385
)
(1,133
)
Net income attributable to Knight-Swift
$
151,696
$
447,564
$
419,264
$
484,292
Earnings per share:
Basic
$
0.87
$
2.52
$
2.37
$
4.38
Diluted
$
0.86
$
2.50
$
2.36
$
4.34
Dividends declared per share:
$
0.06
$
0.06
$
0.24
$
0.24
Weighted average shares outstanding:
Basic
174,646
177,920
177,018
110,657
Diluted
175,617
179,106
177,999
111,697
_________________
(1)
The reported results do not include the results of operations of Swift and its subsidiaries on and prior to the merger with Knight on September 8, 2017 in accordance with the accounting treatment applicable to the transaction. The reported results do not include the results of operations of Abilene and its subsidiaries on and prior to its acquisition by Knight on March 16, 2018 in accordance with the accounting treatment applicable to the transaction.
knightswiftlogo2018newa05.jpg
8

Condensed Consolidated Balance Sheets (Unaudited) (1)
December 31,
2018
December 31,
2017
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents
$
82,486
$
76,649
Cash and cash equivalents – restricted
46,888
73,657
Restricted investments, held-to-maturity, amortized cost
17,413
22,232
Trade receivables, net of allowance for doubtful accounts of $16,355 and $14,829, respectively
616,830
574,265
Prepaid expenses
67,011
58,525
Assets held for sale
39,955
25,153
Income tax receivable
6,943
55,114
Other current assets
29,706
37,612
Total current assets
907,232
923,207
Property and equipment, net
2,612,837
2,384,221
Goodwill
2,919,176
2,887,867
Intangible assets, net
1,420,919
1,440,903
Other long-term assets
51,721
47,244
Total assets
$
7,911,885
$
7,683,442
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
117,883
$
119,867
Accrued payroll and purchased transportation
126,464
107,017
Accrued liabilities
151,500
186,379
Claims accruals – current portion
160,044
147,285
Capital lease obligations and long-term debt – current portion
58,672
49,002
Total current liabilities
614,563
609,550
Revolving line of credit
195,000
125,000
Long-term debt – less current portion
364,590
364,771
Capital lease obligations – less current portion
71,248
127,132
Accounts receivable securitization
239,606
305,000
Claims accruals – less current portion
201,327
206,144
Deferred tax liabilities
739,538
679,077
Other long-term liabilities
23,294
26,398
Total liabilities
2,449,166
2,443,072
Stockholders’ equity:
Common stock
1,728
1,780
Additional paid-in capital
4,242,369
4,219,214
Retained earnings
1,216,852
1,016,738
Total Knight-Swift stockholders’ equity
5,460,949
5,237,732
Noncontrolling interest
1,770
2,638
Total stockholders’ equity
5,462,719
5,240,370
Total liabilities and stockholders’ equity
$
7,911,885
$
7,683,442
_________________
(1)
The reported balances include the balances of Abilene as of December 31, 2018.
knightswiftlogo2018newa05.jpg
9

Segment Operating Statistics (Unaudited)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
Change
2018
2017
Change
Knight Trucking (4)
Average revenue per tractor (1)
$
53,791
$
47,949
12.2
%
$
207,682
$
174,553
19.0
%
Non-paid empty miles percentage
14.2
%
13.4
%
80
 bps
13.7
%
12.9
%
80
 bps
Average length of haul (miles)
516
466
10.7
%
506
483
4.8
%
Average tractors
4,848
4,493
7.9
%
4,787
4,570
4.7
%
Average trailers
14,136
12,388
14.1
%
13,575
12,383
9.6
%
Swift Truckload (5)
Average revenue per tractor (3)
$
53,112
$
50,174
5.9
%
$
194,987
$
183,872
6.0
%
Non-paid empty miles percentage
14.4
%
13.6
%
80
 bps
13.2
%
12.0
%
120
 bps
Average length of haul (miles)
606
598
1.3
%
584
604
(3.3
%)
Average tractors
7,106
8,664
(18.0
%)
7,484
9,419
(20.5
%)
Average trailers
28,492
34,715
(17.9
%)
30,223
35,151
(14.0
%)
Swift Dedicated (5)
Average revenue per tractor (3)
$
47,577
$
47,449
0.3
%
$
186,915
$
184,901
1.1
%
Non-paid empty miles percentage
18.3
%
17.1
%
120
 bps
18.8
%
18.2
%
60
 bps
Average length of haul (miles)
197
197
—
%
189
192
(1.6
%)
Average tractors
3,151
3,048
3.4
%
3,058
3,089
(1.0
%)
Average trailers
13,158
14,500
(9.3
%)
14,328
14,771
(3.0
%)
Swift Refrigerated (5)
Average revenue per tractor (3)
$
48,840
$
49,321
(1.0
%)
$
190,950
$
195,413
(2.3
%)
Non-paid empty miles percentage
7.4
%
7.0
%
40
 bps
7.2
%
7.3
%
(10
 bps)
Average length of haul (miles)
399
394
1.3
%
400
406
(1.5
%)
Average tractors
3,723
3,783
(1.6
%)
3,826
3,558
7.5
%
Average trailers
3,396
4,207
(19.3
%)
3,638
4,322
(15.8
%)
Knight Logistics (4)
Revenue per load – Brokerage only (2)
$
1,553
$
1,562
(0.6
%)
$
1,545
$
1,357
13.9
%
Gross margin – Brokerage only
16.8
%
16.3
%
50
 bps
16.0
%
15.4
%
60
 bps
Swift Intermodal (5)
Average revenue per load (3)
$
2,316
$
1,882
23.1
%
$
2,072
$
1,862
11.3
%
Load count
48,142
48,818
(1.4
%)
192,290
180,064
6.8
%
Average tractors
714
529
35.0
%
640
513
24.8
%
Average containers
9,706
9,122
6.4
%
9,330
9,127
2.2
%
____________
(1)
Computed with revenue, excluding fuel surcharge and intersegment transactions
(2)
Computed with revenue, excluding intersegment transactions
(3)
Computed with revenue, excluding fuel surcharge
(4)
The reported results do not include the results of operations of Abilene and its subsidiaries on and prior to its acquisition by Knight on March 16, 2018 in accordance with the accounting treatment applicable to the transaction.
(5)
The reported results for Swift’s operating statistics include full-year activity for 2017.
knightswiftlogo2018newa05.jpg
10

Non-GAAP Financial Measures and Reconciliations
The terms “Adjusted Net Income Attributable to Knight-Swift,” “Adjusted Operating Income,” “Adjusted EPS,” and “Adjusted Operating Ratio,” as we define them, are not presented in accordance with GAAP. These financial measures supplement our GAAP results in evaluating certain aspects of our business. We believe that using these measures improves comparability in analyzing our performance because they remove the impact of items from our operating results that, in our opinion, do not reflect our core operating performance. Management and the board of directors focus on Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio as key measures of our performance, all of which are reconciled to the most comparable GAAP financial measures and further discussed below. We believe our presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance.
Adjusted Net Income Attributable to Knight-Swift, Adjusted Operating Income, Adjusted EPS, and Adjusted Operating Ratio are not substitutes for their comparable GAAP financial measures, such as net income, cash flows from operating activities, operating margin, or other measures prescribed by GAAP. There are limitations to using non-GAAP financial measures. Although we believe that they improve comparability in analyzing our period to period performance, they could limit comparability to other companies in our industry if those companies define these measures differently. Because of these limitations, our non-GAAP financial measures should not be considered measures of income generated by our business or discretionary cash available to us to invest in the growth of our business. Management compensates for these limitations by primarily relying on GAAP results and using non-GAAP financial measures on a supplemental basis.
Non-GAAP Reconciliation (Unaudited):
Adjusted Operating Income and Adjusted Operating Ratio (1) (2)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
GAAP Presentation
(Dollars in thousands)
Total revenue
$
1,394,640
$
1,359,420
$
5,344,066
$
2,425,453
Total operating expenses
(1,187,863
)
(1,215,649
)
(4,775,023
)
(2,224,823
)
Operating income
$
206,777
$
143,771
$
569,043
$
200,630
Operating ratio
85.2
%
89.4
%
89.4
%
91.7
%
Non-GAAP Presentation
Total revenue
$
1,394,640
$
1,359,420
$
5,344,066
$
2,425,453
Fuel surcharge
(152,015
)
(141,232
)
(618,778
)
(245,580
)
Revenue, excluding fuel surcharge
1,242,625
1,218,188
4,725,288
2,179,873
Total operating expenses
1,187,863
1,215,649
4,775,023
2,224,823
Adjusted for:
Fuel surcharge
(152,015
)
(141,232
)
(618,778
)
(245,580
)
Impairments (3)
(2,798
)
(98
)
(2,798
)
(16,844
)
Accruals for class action lawsuits (4)
(1,000
)
(1,900
)
(1,000
)
(1,900
)
Amortization of intangibles (5)
(10,693
)
(10,343
)
(42,584
)
(12,872
)
Other merger-related operating expenses (6)
—
—
—
(6,596
)
Merger-related costs (7)
—
—
—
(16,516
)
Severance expense (8)
(390
)
—
(1,958
)
—
Adjusted Operating Expenses
1,020,967
1,062,076
4,107,905
1,924,515
Adjusted Operating Income
$
221,658
$
156,112
$
617,383
$
255,358
Adjusted Operating Ratio
82.2
%
87.2
%
86.9
%
88.3
%
knightswiftlogo2018newa05.jpg
11

____________
(1)
Pursuant to the requirements of Regulation G, this table reconciles consolidated GAAP operating ratio to consolidated non-GAAP Adjusted Operating Ratio.
(2)
For information regarding comparability of the reported results due to mergers and acquisitions, refer to footnote (1) of the Condensed Consolidated Income Statements (Unaudited).
(3)
During the fourth quarter of 2018, the Company incurred impairment charges related to the Company airplane of $2.2 million and incurred impairment charges related to replaced software systems of $0.6 million. During 2017, impairments related to the termination of Swift’s implementation of a new ERP system. Additionally, during the fourth quarter of 2017, management reassessed the fair value of certain tractors within the Company’s leasing subsidiary, Interstate Equipment Leasing, LLC, determining that there was an impairment loss.
(4)
During the fourth quarters of 2018 and 2017, we incurred expenses related to certain class action action lawsuits involving employment-related claims.
(5)
“Amortization of intangibles” reflects the non-cash amortization expense relating to intangible assets identified in the 2017 Merger, Abilene Acquisition, and historical Knight acquisitions. Certain data necessary to complete the purchase price allocation for the Abilene Acquisition is open for adjustments during the measurement period, and includes, but is not limited to, finalization of certain contingent liabilities and the calculation of deferred taxes based upon the underlying tax basis of assets acquired and liabilities assumed and assessment of other tax-related items. We believe the estimates used are reasonable but are subject to change as additional information becomes available.
(6)
“Other merger-related operating expenses” represent one-time expenses associated with the 2017 Merger, including acceleration of stock compensation expense, bonuses, and other operating expenses. These expenses were recorded in the “Salaries, wages, and benefits,” “Purchased transportation,” and “Miscellaneous operating expenses” line items in the condensed consolidated income statements.
(7)
During the second and third quarters of 2017, Knight incurred certain merger-related expenses associated with the 2017 Merger, consisting of legal and professional fees.
(8)
Severance expenses were incurred during the third and fourth quarters of 2018 in relation to certain organizational changes at Swift.
knightswiftlogo2018newa05.jpg
12

Non-GAAP Reconciliation (Unaudited):
Adjusted Net Income Attributable to Knight-Swift and Adjusted EPS (1) (2)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
(Dollars In thousands)
GAAP: Net income attributable to Knight-Swift
$
151,696
$
447,564
$
419,264
$
484,292
Adjusted for:
Income tax expense (benefit) attributable to Knight-Swift
50,573
(309,502
)
131,389
(291,716
)
Income before income taxes attributable to Knight-Swift
202,269
138,062
550,653
192,576
Impairments (3)
2,798
98
2,798
16,844
Accrual for class action lawsuits (4)
1,000
1,900
1,000
1,900
Amortization of intangibles (5)
10,693
10,343
42,584
12,872
Other merger-related operating expenses (6)
—
—
—
6,596
Merger-related costs (7)
—
—
—
16,516
Severance expense (8)
390
—
1,958
—
Adjusted income before income taxes
217,150
150,403
598,993
247,304
Provision for income tax expense at effective rate (9)
(54,294
)
(56,401
)
(142,923
)
(92,739
)
Non-GAAP: Adjusted Net Income Attributable to Knight-Swift
$
162,856
$
94,002
$
456,070
$
154,565
Note: Because the numbers reflected in the table below are calculated on a per share basis, they may not foot due to rounding.
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
GAAP: Earnings per diluted share
$
0.86
$
2.50
$
2.36
$
4.34
Adjusted for:
Income tax expense (benefit) attributable to Knight-Swift
0.29
(1.73
)
0.74
(2.61
)
Income before income taxes attributable to Knight-Swift
1.15
0.77
3.09
1.72
Impairments (3)
0.02
—
0.02
0.15
Accrued legal settlements (4)
0.01
0.01
0.01
0.02
Amortization of intangibles (5)
0.06
0.06
0.24
0.12
Other merger-related operating expenses (6)
—
—
—
0.06
Merger-related costs (7)
—
—
—
0.15
Severance expense (8)
—
—
0.01
—
Adjusted income before income taxes
1.24
0.84
3.37
2.21
Provision for income tax expense at effective rate (9)
(0.31
)
(0.31
)
(0.80
)
(0.83
)
Non-GAAP: Adjusted EPS
$
0.93
$
0.52
$
2.56
$
1.38
____________
(1)
Pursuant to the requirements of Regulation G, these tables reconcile consolidated GAAP net income attributable to Knight-Swift to non-GAAP consolidated Adjusted net income attributable to Knight-Swift and consolidated GAAP diluted earnings per share to non-GAAP consolidated Adjusted EPS.
(2)
For information regarding comparability of the reported results due to mergers and acquisitions, refer to footnote (1) of the Condensed Consolidated Income Statements (Unaudited).
(3)
Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote (3).
(4)
Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote (4).
(5)
Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote (5).
(6)
Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote (6).
(7)
Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote (7).
(8)
Refer to Non-GAAP Reconciliation (Unaudited): Adjusted Operating Income and Adjusted Operating Ratio – footnote (8).
(9)
For 2017, a normalized effective tax rate of 37.5% was utilized to calculate “Provision for income tax expense at effective rate,” as the actual effective tax rate for the year includes a significant income tax benefit representing management’s estimate of the net impact of the Tax Cuts and Jobs Act passed during the fourth quarter of 2017.
knightswiftlogo2018newa05.jpg
13

Non-GAAP Reconciliation (Unaudited):
Segment Adjusted Operating Income and Adjusted Operating Ratio
Knight Trucking Segment (1) (3)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
GAAP Presentation
(Dollars in thousands)
Total revenue
$
298,437
$
245,164
$
1,144,125
$
906,484
Total operating expenses
(243,253
)
(207,469
)
(935,026
)
(814,186
)
Operating income
$
55,184
$
37,695
$
209,099
$
92,298
Operating ratio
81.5
%
84.6
%
81.7
%
89.8
%
Non-GAAP Presentation
Total revenue
$
298,437
$
245,164
$
1,144,125
$
906,484
Fuel surcharge
(37,574
)
(29,713
)
(149,708
)
(108,649
)
Intersegment transactions
(83
)
(17
)
(242
)
(129
)
Revenue, excluding fuel surcharge and intersegment transactions
260,780
215,434
994,175
797,706
Total operating expenses
243,253
207,469
935,026
814,186
Adjusted for:
Fuel surcharge
(37,574
)
(29,713
)
(149,708
)
(108,649
)
Intersegment transactions
(83
)
(17
)
(242
)
(129
)
Impairments (4)
(1,640
)
—
(1,640
)
—
Accruals for class action lawsuits (5)
—
(1,900
)
—
(1,900
)
Amortization of intangibles (6)
(349
)
—
(1,209
)
—
Other merger-related operating expenses (7)
—
—
—
(6,596
)
Merger-related costs (8)
—
—
—
(16,516
)
Adjusted Operating Expenses
203,607
175,839
782,227
680,396
Adjusted Operating Income
$
57,173
$
39,595
$
211,948
$
117,310
Adjusted Operating Ratio
78.1
%
81.6
%
78.7
%
85.3
%
Swift Truckload Segment (1) (2)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
GAAP Presentation
(Dollars in thousands)
Total revenue
$
429,306
$
493,213
$
1,680,882
$
609,112
Total operating expenses
(338,492
)
(426,256
)
(1,455,446
)
(534,188
)
Operating income
$
90,814
$
66,957
$
225,436
$
74,924
Operating ratio
78.8
%
86.4
%
86.6
%
87.7
%
Non-GAAP Presentation
Total revenue
$
429,306
$
493,213
$
1,680,882
$
609,112
Fuel surcharge
(51,890
)
(58,525
)
(221,601
)
(72,264
)
Revenue, excluding fuel surcharge
377,416
434,688
1,459,281
536,848
Total operating expenses
338,492
426,256
1,455,446
534,188
Adjusted for:
Fuel surcharge
(51,890
)
(58,525
)
(221,601
)
(72,264
)
Adjusted Operating Expenses
286,602
367,731
1,233,845
461,924
Adjusted Operating Income
$
90,814
$
66,957
$
225,436
$
74,924
Adjusted Operating Ratio
75.9
%
84.6
%
84.6
%
86.0
%

____________

(1)
Pursuant to the requirements of Regulation G, these tables reconcile segment GAAP operating ratio to segment non-GAAP Adjusted Operating Ratio.
(2)
The reported results do not include the results of operations of Swift and its subsidiaries on and prior to the merger with Knight on September 8, 2017 in accordance with the accounting treatment applicable to the transaction.
(3)
The reported results do not include the results of operations of Abilene and its subsidiaries on and prior to its acquisition by Knight on March 16, 2018 in accordance with the accounting treatment applicable to the transaction.
(4)
During the fourth quarter of 2018, the Company incurred impairment charges related to the Company airplane of $2.2 million. This impairment was allocated between the Knight Trucking and Knight Logistics segments based on each segment’s use of the asset.
(5)
During the fourth quarter of 2017, we incurred expenses related to certain class action action lawsuits involving employment-related claims.
(6)
“Amortization of intangibles” reflects the non-cash amortization expense relating to intangible assets identified in the Abilene Acquisition and other historical Knight acquisitions.
(7)
“Other merger-related operating expenses” represent one-time expenses associated with the 2017 Merger, including acceleration of stock compensation expense, bonuses, and other operating expenses.
(8)
During the year-ended 2017, Knight incurred certain merger-related expenses associated with the 2017 Merger, consisting of legal and professional fees.
knightswiftlogo2018newa05.jpg
14

Non-GAAP Reconciliation (Unaudited):
Segment Adjusted Operating Income and Adjusted Operating Ratio — Continued
Swift Dedicated Segment (1) (2)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
GAAP Presentation
(Dollars in thousands)
Total revenue
$
169,591
$
161,508
$
646,057
$
200,628
Total operating expenses
(145,351
)
(142,047
)
(564,115
)
(178,218
)
Operating income
$
24,240
$
19,461
$
81,942
$
22,410
Operating ratio
85.7
%
88.0
%
87.3
%
88.8
%
Non-GAAP Presentation
Total revenue
$
169,591
$
161,508
$
646,057
$
200,628
Fuel surcharge
(19,675
)
(16,866
)
(74,472
)
(20,781
)
Revenue, excluding fuel surcharge
149,916
144,642
571,585
179,847
Total operating expenses
145,351
142,047
564,115
178,218
Adjusted for:
Fuel surcharge
(19,675
)
(16,866
)
(74,472
)
(20,781
)
Adjusted Operating Expenses
125,676
125,181
489,643
157,437
Adjusted Operating Income
$
24,240
$
19,461
$
81,942
$
22,410
Adjusted Operating Ratio
83.8
%
86.5
%
85.7
%
87.5
%
Swift Refrigerated Segment (1) (2)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
GAAP Presentation
(Dollars in thousands)
Total revenue
$
202,746
$
206,596
$
819,190
$
254,102
Total operating expenses
(189,666
)
(193,397
)
(784,849
)
(240,476
)
Operating income
$
13,080
$
13,199
$
34,341
$
13,626
Operating ratio
93.5
%
93.6
%
95.8
%
94.6
%
Non-GAAP Presentation
Total revenue
$
202,746
$
206,596
$
819,190
$
254,102
Fuel surcharge
(20,916
)
(20,001
)
(88,617
)
(24,276
)
Revenue, excluding fuel surcharge
181,830
186,595
730,573
229,826
Total operating expenses
189,666
193,397
784,849
240,476
Adjusted for:
Fuel surcharge
(20,916
)
(20,001
)
(88,617
)
(24,276
)
Adjusted Operating Expenses
168,750
173,396
696,232
216,200
Adjusted Operating Income
$
13,080
$
13,199
$
34,341
$
13,626
Adjusted Operating Ratio
92.8
%
92.9
%
95.3
%
94.1
%
____________
(1)
Pursuant to the requirements of Regulation G, these tables reconcile segment GAAP operating ratio to segment non-GAAP Adjusted Operating Ratio.
(2)
The reported results do not include the results of operations of Swift and its subsidiaries on and prior to the merger with Knight on September 8, 2017 in accordance with the accounting treatment applicable to the transaction.
knightswiftlogo2018newa05.jpg
15

Non-GAAP Reconciliation (Unaudited):
Segment Adjusted Operating Income and Adjusted Operating Ratio — Continued
Knight Logistics Segment (1) (3)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
GAAP Presentation
(Dollars in thousands)
Total revenue
$
98,943
$
67,196
$
334,108
$
234,155
Total operating expenses
(90,532
)
(63,273
)
(309,191
)
(221,555
)
Operating income
$
8,411
$
3,923
$
24,917
$
12,600
Operating ratio
91.5
%
94.2
%
92.5
%
94.6
%
Non-GAAP Presentation
Total revenue
$
98,943
$
67,196
$
334,108
$
234,155
Intersegment transactions
(1,741
)
(1,297
)
(6,554
)
(6,203
)
Revenue, excluding intersegment transactions
97,202
65,899
327,554
227,952
Total operating expenses
90,532
63,273
309,191
221,555
Adjusted for:
Intersegment transactions
(1,741
)
(1,297
)
(6,554
)
(6,203
)
Impairments (4)
(610
)
—
(610
)
—
Adjusted Operating Expenses
88,181
61,976
302,027
215,352
Adjusted Operating Income
$
9,021
$
3,923
$
25,527
$
12,600
Adjusted Operating Ratio
90.7
%
94.0
%
92.2
%
94.5
%
Swift Intermodal Segment (1) (2)
Quarter Ended December 31,
Year Ended December 31,
2018
2017
2018
2017
GAAP Presentation
(Dollars in thousands)
Total revenue
$
130,324
$
106,395
$
470,165
$
130,441
Total operating expenses
(117,652
)
(101,814
)
(440,038
)
(124,464
)
Operating income
$
12,672
$
4,581
$
30,127
$
5,977
Operating Ratio
90.3
%
95.7
%
93.6
%
95.4
%
Non-GAAP Presentation
Total revenue
$
130,324
$
106,395
$
470,165
$
130,441
Fuel surcharge
(18,813
)
(14,534
)
(71,656
)
(17,576
)
Revenue, excluding fuel surcharge
111,511
91,861
398,509
112,865
Total operating expenses
117,652
101,814
440,038
124,464
Adjusted for:
Fuel surcharge
(18,813
)
(14,534
)
(71,656
)
(17,576
)
Adjusted Operating Expenses
98,839
87,280
368,382
106,888
Adjusted Operating Income
$
12,672
$
4,581
$
30,127
$
5,977
Adjusted Operating Ratio
88.6
%
95.0
%
92.4
%
94.7
%
____________
(1)
Pursuant to the requirements of Regulation G, these tables reconcile segment GAAP operating ratio to segment non-GAAP Adjusted Operating Ratio.
(2)
The reported results do not include the results of operations of Swift and its subsidiaries on and prior to the merger with Knight on September 8, 2017 in accordance with the accounting treatment applicable to the transaction.
(3)
The reported results do not include the results of operations of Abilene and its subsidiaries on and prior to its acquisition by Knight on March 16, 2018 in accordance with the accounting treatment applicable to the transaction.
(4)
During the fourth quarter of 2018, the Company incurred impairment charges related to the Company airplane of $2.2 million. This impairment was allocated between the Knight Trucking and Knight Logistics segments based on each segment’s use of the asset.

Hammer Fiber Optics Holdings Corp to Acquire American Network, Inc.

Hammer Fiber Optics logo 2.jpg

Hammer Fiber Optics Holdings Corp to Acquire American Network, Inc.

Piscataway, N.J. January 29, 2019 – Hammer Fiber Optics Holdings Corp (OTCQB: HMMR) announced today that it will acquire the equity of American Network, Inc. a New York CLEC. American Network obtained its NYS CLEC license in 1997 and has a number of interconnection agreements, wholesale agreements and numbering assets that will aid Hammer in its growth plans in the north eastern United States. “American Network’s assets are complimentary to Hammer’s existing assets in New York and New Jersey,” said Erik Levitt, Hammer’s CEO. Hammer’s “Everything Wireless” strategy includes four key components: high speed fixed wireless, based on Hammer’s proprietary AIR™ technology, OTT, mobility and smart city. Hammer’s wholesale voice, wholesale SMS and hosting practice forms the foundation of the Everything Wireless platform. “In acquiring American Network we are continuing to solidify our platform,” said Kristen Vasicek, Hammer’s COO.

Hammer subsidiaries possess CLEC licenses in several states including New York, New Jersey and Florida as well as a nationwide CMRS license and have access to a number of other states via its joint venture agreements with partner CLECs. “We plan to continue to expand our footprint in the north east, south east, south and north western United States throughout fiscal 2019 and fiscal 2020, focusing on markets where we can deploy our wireless technology both as an operator and in partnership with other operators through our MNSP program,” added Levitt.

Hammer is acquiring all of the equity of American Network is exchange for common stock and payables associated with the expenses of the transaction. The acquisition is non-dilutive to common shareholders. The transaction is expected to close in February pending necessary approvals.

About Hammer

Hammer Fiber Optics Holdings Corp. (OTCQB:HMMR) is a telecommunications company investing in the future of wireless technology. Hammer’s “Everything Wireless” go to market strategy includes the development of high-speed fixed wireless service for residential and small businesses using its wireless fiber platform, Hammer Wireless® AIR, Over-the-Top services such as voice, SMS and video collaboration services, the construction of smart city networks and hosting services including cloud and colocation. For more information contact Frank Pena at [email protected]

 

TROV Trovagene and PoC Capital Enter Agreement to Fund Clinical Development of Onvansertib in Metastatic Colorectal Cancer (mCRC)

 

Trovagene receives “may proceed” notification from FDA for Phase 1b/2 trial of Onvansertib in combination with standard-of-care in patients with mCRC harboring KRAS mutations

SAN DIEGO, CA – January 29, 2019 – Trovagene, Inc. (Nasdaq: TROV), a clinical-stage oncology therapeutics company, developing drugs that target cell division (mitosis) for the treatment of leukemias, lymphomas and solid tumor cancers, today announced an agreement with PoC Capital, LLC, to fund clinical development of Onvansertib, Trovagene’s first-in-class, 3rd generation oral and highly selective Polo-like Kinase 1 (PLK1) inhibitor in a Phase 1b/2 clinical trial in patients with metastatic Colorectal Cancer (mCRC). Trovagene submitted an Investigational New Drug (IND) application and protocol to the FDA on December 19, 2018, and received a “study may proceed” notification from the FDA, 28-days later, on January 16, 2019. The trial will be conducted at two prestigious cancer centers in the U.S.; USC Norris Comprehensive Cancer Center and The Mayo Clinic.

“We are excited to provide investment to support additional clinical trials for Trovagene’s PLK1 inhibitor, Onvansertib,” said Daron Evans, Managing Director of PoC Capital. “Patients need as many treatment options as possible to keep cancer in remission. Early data suggests that Onvansertib works synergistically with multiple approved treatments in a number of different cancer types, and that biomarkers may help identify patients most likely to respond to treatment. That lines up as a win-win-win for patients, doctors and payors.”

“Our agreement with PoC Capital is an important milestone achievement and allows us to further the clinical development of Onvansertib in an indication of high unmet medical need in mCRC,” said Dr. Thomas Adams, Chief Executive Officer and Chairman of Trovagene. “Approximately half of mCRC patients have a highly aggressive tumor that harbors the deleterious KRAS mutation which has been previously non-druggable and therefore treating this patient population has been challenging. Our preclinical in-vitro and in-vivo data indicates that tumors harboring KRAS mutations are more sensitive to Qnvansertib-induced tumor death. Furthermore, Qnvansertib has significant synergy in combination with irinotecan, as well as Avastin®(bevacizumab), both of which are components of the standard of care treatment regimen that will be used in our trial. We believe Onvansertib in combination with standard of care could yield important clinical benefit to patients who otherwise have limited therapeutic options.”

Colorectal cancer (CRC) is the second leading cause of cancer mortality in the U.S. Despite significant progress in the treatment of mCRC, the majority of patients with metastatic disease succumb to the disease. Therefore, improving the treatment options and effectiveness is critical in changing the outcomes for this patient population. KRAS is a common mutation in the CRC population and approximately 50% of patients with CRC carry RAS mutations. In the U.S.,

Trovagene Inc. | 11055 Flintkote Avenue | San Diego | CA 92121 | Tel.: USA [+1] 888-391-7992

 


 

FOLFOX (5-flourouracil, leucovorin, oxaliplatin) and FOLFIRI (fluorouracil, leucovorin, irinotecan) are standard-of-care options for patients with metastatic CRC in the first-line setting, irrespective of the Kras mutation status. The majority of CRC patients respond to first-line therapy with a response rate of > 50%. The efficacy of second-line therapy in terms of survival prolongation and response remains very limited, particularly in the Kras-mutated population, where treatment options are more restricted. FOLFIRI (a chemotherapy regimen of irinotecan, fluorouracil [5-FU], and leucovorin) + Avastin® (bevacizumab) in the second-line setting is the standard treatment in US. The response rate in the second-line setting is less than 5% as reported in a large international trial of bevacizumab in the second-line setting. This is a significant opportunity for Onvansertib to provide clinical benefit for patients who are faced with a poor prognosis and who have limited therapeutic options.

About the Phase 1b/2 Clinical Trial of Onvansertib in mCRC

In this open-label, Phase 1b/2 trial, Onvansertib in combination with standard-of-care FOLFIRI and Avastin® is being evaluated for safety and efficacy. The trial, A Phase 1b/2 Study of Onvansertib (PCM-075) in Combination with FOLFIRI and Bevacizumab for Second-Line Treatment of Metastatic Colorectal Cancer in Patients with a Kras Mutation, will enroll up to 44 patients with a Kras mutation and histologically confirmed metastatic and unresectable disease. In addition, patients must have failed treatment or be intolerant of FOLFOX (fluoropyrimidine and oxaliplatin) with or without Avastin® (bevacizumab). The trial is being conducted at two prestigious cancer centers: USC Norris Comprehensive Cancer Center and The Mayo Clinic Arizona.

About Onvansertib

Onvansertib is a first-in-class, 3rd generation, oral and highly-selective adenosine triphosphate (ATP) competitive inhibitor of the serine/threonine polo-like-kinase 1 (PLK 1) enzyme, which is over-expressed in multiple cancers, including leukemias, lymphomas and solid tumors. Separate studies with other PLK inhibitors have shown that inhibition of polo-like-kinases can lead to tumor cell death, including a Phase 2 study in Acute Myeloid Leukemia (AML) where response rates of up to 31% were observed when combined with a standard therapy for AML (low-dose cytarabine-LDAC) versus treatment with LDAC alone with a 13.3% response rate. A Phase 1 open-label, dose escalation safety study of Onvansertib has been completed in patients with advanced metastatic solid tumor cancers and published in Investigational New Drugs. The maximum tolerated dose (MTD) or recommended Phase 2 dose (RP2D) in this trial was 24 mg/m2.

Onvansertib targets the PLK1 isoform, only (not PLK2 or PLK3), is orally administered, has a 24-hour drug half-life with only mild to moderate side effects reported. Trovagene believes that targeting only PLK1 and having a favorable safety and tolerability profile, along with an

improved dose/scheduling regimen will significantly improve on the outcome observed in previous studies with a former panPLK inhibitor in AML.

Onvansertib has demonstrated synergy in preclinical studies with numerous chemotherapies and targeted therapeutics used to treat leukemias, lymphomas and solid tumor cancers, including FLT3 and HDAC inhibitors, taxanes, and cytotoxins. Trovagene believes the

 


 

combination of its targeted PLK1 inhibitor, Onvansertib, with other compounds has the potential to improve clinical efficacy in Acute Myeloid Leukemia (AML), metastatic Castration-Resistant Prostate Cancer (mCRPC), Non-Hodgkin Lymphoma (NHL), Triple Negative Breast Cancer (TNBC), as well as other types of cancer.

Trovagene has an ongoing Phase 1b/2 clinical trial of Onvansertib in combination with low-dose cytarabine or decitabine in patients with relapsed or refractory Acute Myeloid Leukemia (AML) that was accepted by the National Library of Medicine (NLM) and is now publicly viewable on www.clinicaltrials.gov. The NCT number assigned by clinicaltrials.gov for this study is NCT03303339. Onvansertib has been granted Orphan Drug Designation by the FDA in the U.S. and by the EC in the European Union (EU) for the treatment of patients with AML.

Trovagene has an ongoing Phase 2 clinical trial of Onvansertib in combination with Zytiga® (abiraterone acetate)/prednisone in patients with metastatic Castration-Resistant Prostate Cancer (mCRPC) who are showing signs of early progressive disease (rise in PSA but minimally symptomatic or asymptomatic) while currently receiving Zytiga®. The trial was accepted by the National Library of Medicine (NLM) and is now publicly viewable on www.clinicaltrials.gov. The NCT number assigned by clinicaltrials.gov for this study is (NCT03414034).

About Trovagene, Inc.

Trovagene is a clinical-stage, oncology therapeutics company, using a precision medicine approach to develop drugs that target mitosis (cell division) to treat various types of cancer, including leukemias, lymphomas and solid tumors. Trovagene has intellectual property and proprietary technology that enables the Company to analyze circulating tumor DNA (ctDNA) and clinically actionable markers to identify patients most likely to respond to specific cancer therapies. Trovagene plans to continue to vertically integrate its tumor genomics technology with the development of targeted cancer therapeutics. For more information, please visit https://www.trovagene.com.

About PoC Capital, LLC

PoC Capital, LLC seeks to invest in small, public life science companies whose product candidates have the opportunity to improve patient well-being. Strong management teams, clear mechanisms of action, and well-validated product development plans are key components of the investment thesis. Specifically, PoC Capital provides funding for companies to execute proof-of-concept clinical trials, which serve to unlock the value of development-stage assets through safety and efficacy validation. For more information, please contact [email protected]

Forward-Looking Statements

Certain statements in this press release are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words such as “anticipate,” “believe,” “forecast,” “estimated” and “intend” or other similar terms or expressions that concern Trovagene’s expectations, strategy, plans or intentions. These forward-looking statements are based on Trovagene’s current expectations and actual results could differ materially. There are a number of factors that could cause actual events to differ materially from those indicated by such forward-looking statements. These factors

 


 

include, but are not limited to, our need for additional financing; our ability to continue as a going concern; clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results; our clinical trials may be suspended or discontinued due to unexpected side effects or other safety risks that could preclude approval of our product candidates; uncertainties of government or third party payer reimbursement; dependence on key personnel; limited experience in marketing and sales; substantial competition; uncertainties of patent protection and litigation; dependence upon third parties; our ability to develop tests, kits and systems and the success of those products; regulatory, financial and business risks related to our international expansion and risks related to failure to obtain FDA clearances or approvals and noncompliance with FDA regulations. There are no guarantees that any of our technology or products will be utilized or prove to be commercially successful. Additionally, there are no guarantees that future clinical trials will be completed or successful or that any precision medicine therapeutics will receive regulatory approval for any indication or prove to be commercially successful. Investors should read the risk factors set forth in Trovagene’s Form 10-K for the year ended December 31, 2017, and other periodic reports filed with the Securities and Exchange Commission. While the list of factors presented here is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements. Forward-looking statements included herein are made as of the date hereof, and Trovagene does not undertake any obligation to update publicly such statements to reflect subsequent events or circumstances.

Trovagene Contact:

Vicki Kelemen

VP, Clinical Development and Investor Relations

858-952-7652

[email protected]

 

CGIX Cancer Genetics, Inc. Announces Proposed Public Offering of Common Stock

Rutherford, N.J.— January 28, 2019 – Cancer Genetics, Inc. (Nasdaq: CGIX), a leader in enabling precision medicine for immuno-oncology and genomic medicine through molecular markers and diagnostics, today announced that it intends to offer and sell, subject to market and other conditions, shares of its common stock in a public offering. The offering is subject to market and other conditions, and there can be no assurance as to whether or when the offering may be completed, or as to the actual size or terms of the offering.

 

H.C. Wainwright & Co. is acting as the exclusive placement agent for the offering. The offering is being conducted as a “best efforts” offering and the placement agent is not obligated to purchase any securities.

 

Cancer Genetics intends to use the net proceeds from this offering to pay any amounts we are required to pay to our lenders, and if any proceeds remain available, to pay certain costs previously incurred by us in connection with our strategic initiatives and to fund working capital and other general corporate purposes.

 

A shelf registration statement on Form S-3 relating to the public offering of the shares of common stock described above was filed with the Securities and Exchange Commission (“SEC”) and was declared effective on June 5, 2017. A preliminary prospectus supplement describing the terms of the offering will be filed with the SEC and will form a part of the effective registration statement. Copies of the preliminary prospectus supplement and the accompanying prospectus relating to the offering may be obtained, when available, from H.C. Wainwright & Co., LLC, 430 Park Avenue 3rd Floor, New York, NY 10022, or by calling (646) 975-6996 or by emailing [email protected] or at the SEC’s website at http://sec.report. The final terms of the offering will be disclosed in a final prospectus supplement to be filed with the SEC.

 

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. Any offer, if at all, will be made only by means of the prospectus supplement and accompanying prospectus forming a part of the effective registration statement.

 

About Cancer Genetics, Inc.

 

Cancer Genetics, Inc. is a leader in enabling precision medicine in oncology through the use of biomarkers and molecular testing. Cancer Genetics is developing a global footprint with locations in the US and Australia. We have established strong clinical research collaborations with major cancer centers such as Memorial Sloan Kettering, The Cleveland Clinic, Mayo Clinic, Keck School of Medicine at USC and the National Cancer Institute.

 

The Company offers a comprehensive range of laboratory services that provide critical genomic and biomarker information. Its state-of-the-art reference labs are CLIA-certified and CAP-accredited in the US and have licensure from several states, including New York State.

 

Forward-Looking Statements

 

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements pertaining to Cancer Genetics, Inc.’s expectations regarding future financial and/or operating results, the proposed offering of Cancer Genetics, Inc.’s shares of common stock, including as to the consummation of the offering described above, the size of the offering and the use of net proceeds therefrom, potential for our tests and services and future revenues or growth in this press release constitute forward-looking statements.

 

Any statements that are not historical fact (including, but not limited to, statements that contain words such as “will,” “believes,” “plans,” “anticipates,” “expects,” “estimates”) should also be considered to be forward-looking statements. Forward-looking statements involve risks and uncertainties, including, without limitation, risks with respect to our ability to complete a strategic transaction, risks with respect to our need and ability to obtain future capital to satisfy our obligations to our lenders and creditors, risks inherent in the development and/or commercialization of potential tests, risks of cancellation of customer contracts or discontinuance of trials, risks that anticipated benefits from consolidation efforts and/or acquisitions will not be realized, uncertainty in the results of clinical trials or regulatory approvals, uncertainties with respect to evaluating strategic options, maintenance of intellectual property rights, risks with respect to maintaining our listing on Nasdaq, and other risks discussed in the Cancer Genetics, Inc. Form 10-K for the year ended December 31, 2017 and Form 10-Q for the quarter ended September 30, 2018, along with other filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date hereof. Cancer Genetics, Inc. disclaims any obligation to update these forward-looking statements.

 

Investor Contacts:

Lee Roth / Carol Ruth

The Ruth Group

Tel: 646-536-7012 / 7004

Email: [email protected] / [email protected]

 

Media Contact:

Kirsten Thomas

The Ruth Group

Tel: 508-280-6592

Email: [email protected]

 

Principal Announces Fourth Quarter and Full Year 2018 Results

Release:     On receipt, Jan. 29, 2019
Media Contact:    Erica Jensen, 515-362-0049, [email protected]
Investor Contact:    John Egan, 515-235-9500, [email protected]
Company Also Announces Common Stock Dividend
Company Highlights
• Fourth quarter 2018 net income attributable to Principal Financial Group, Inc. (PFG) of $236.5 million, or $0.83 per diluted share
• Fourth quarter 2018 non-GAAP operating earnings1 of $316.1 million, or $1.11 per diluted share
• Assets under management (AUM) of $626.8 billion, down 6 percent from fourth quarter 2017
• Company declares first quarter 2019 common stock dividend of $0.54 per share; a 6 percent increase over first quarter 2018
(Des Moines, Iowa) – Principal Financial Group® (Nasdaq: PFG) today announced results for fourth quarter and the full year of 2018.
•
Net income attributable to PFG for fourth quarter 2018 of $236.5 million, compared to $841.8 million for fourth quarter 2017. Net income per diluted share of $0.83 for fourth quarter 2018 compared to $2.87 in prior year quarter. For the 12 months ending Dec. 31, 2018, net income attributable to PFG of $1,546.5 million, or $5.36 per diluted share, compared to a record $2,310.4 million, or $7.88 per diluted share, for the 12 months ending Dec. 31, 2017. 2017 net income includes a $568.3 million net benefit from the Tax Cuts and Jobs Act in fourth quarter and a $410.8 million benefit from a real estate exchange with one of our joint venture partners in third quarter.
•
Non-GAAP operating earnings for fourth quarter 2018 of $316.1 million, compared to $350.8 million for fourth quarter 2017. Non-GAAP operating earnings per diluted share of $1.11 for fourth quarter 2018 compared to $1.19 for fourth quarter 2017. For the 12 months ending Dec. 31, 2018, record non-GAAP operating earnings of $1,597.5 million, or $5.53 per diluted share, compared to $1,478.6 million, or $5.04 per diluted share, for the 12 months ending Dec. 31, 2017.
•
Quarterly common stock dividend of $0.54 per share for first quarter 2019 was authorized by the company’s Board of Directors, bringing the trailing twelve-month dividend to $2.13 per share, a 10 percent increase compared to the prior year trailing twelve-month period. The dividend will be payable on Mar. 29, 2019, to shareholders of record as of Mar. 4, 2019.
“While macroeconomic conditions presented challenges in the fourth quarter of 2018, full year 2018 non-GAAP operating earnings were a record $1.6 billion and increased 8 percent over 2017 reflecting the strong execution of our strategy across our diversified businesses,” said Dan Houston, chairman, president and CEO. “We continued to balance investments for growth with expense discipline, demonstrating our commitment to creating long-term value for shareholders.  In total, we deployed $1.4
____________________________________
1 Use of non-GAAP financial measures is discussed in this release after segment results. Non-GAAP operating earnings for total company is after tax.
billion of capital in 2018 as we returned more than $1.2 billion to shareholders through share repurchases and common stock dividends and we committed $140 million to strategic acquisitions. Looking to 2019 and beyond, I am confident that we are well-positioned to address changing customer needs and to capitalize on the substantial growth opportunities in our markets around the world.”
Other highlights
Fourth Quarter
•
Retirement and Income Solutions (RIS) sales of $5.7 billion, $3.8 billion in RIS-Fee and $1.9 billion in RIS-Spread, including $1.0 billion of pension risk transfer sales.
•
Principal International (PI) generated net cash flow of $0.7 billion, marking the 41st consecutive quarter of positive net cash flow. In addition, China had $2.2 billion of positive net cash flow, which is not included in reported net cash flow.
•
Specialty Benefits sales of $104 million increased 27 percent over the year ago quarter.
•
Continued strong capital deployment of $372 million including $210 million to repurchase 4.4 million shares of common stock.
Full Year 2018
•
We continue to execute on our accelerated investment in digital business strategies as we intensify our focus on the customer experience, direct to consumer offerings and our use of data science in investment research. As discussed at our Nov 15th Investor Day, this investment is positioning us for future growth.
•
RIS-Fee net cash flow of $2.9 billion driven by $13.8 billion of sales and a 9 percent increase in recurring deposits from the prior year.
•
RIS-Spread sales of $7.4 billion, including $2.7 billion of pension risk transfer sales.
•
Principal Global Investors (PGI) pre-tax return on operating revenues less pass-through commissions2 was a strong 35.6 percent on a trailing twelve-month basis.
•
Principal International generated net cash flow of $35.9 billion in Asia, including $32.9 billion in China which is not included in reported net cash flow.
•
Specialty Benefits had record pre-tax operating earnings of $289.0 million, record sales of $386.7 million, and a full year loss ratio of 61.5 percent, favorable to our 2018 guided range of 62-68 percent.
•
Individual Life sales increased 7 percent over the year ago period with more than 60 percent of sales from the business market.
•
Deployed $1.4 billion of capital, above our 2018 guided range of $900 million to $1.3 billion. This included:
â—¦
$650.0 million to repurchase 11.8 million shares of common stock;
â—¦
$598.6 million of common stock dividends, including the $0.54 per share common dividend paid in the fourth quarter; and
â—¦
$140.0 million in strategic acquisitions, including expansion in Asia and a digital advice platform.
•
Strong capital position with estimated statutory risk-based capital (RBC) ratio for Principal Life Insurance Company in our targeted range of 415 to 425 percent at year-end.
2 The company has provided reconciliations of the non-GAAP measures to the most directly comparable U.S. GAAP measures at the end of the release. The company has determined this measure is more representative of underlying operating revenues growth for PGI as it removes commissions that are collected through fee revenue and passed through expenses with no impact to pre-tax operating earnings.
Segment Results
Retirement and Income Solutions – Fee
(in millions except percentages or otherwise noted)
Quarter
Trailing Twelve Months
4Q18
4Q17
% Change
4Q18
4Q17
% Change
Pre-tax operating earnings3
$92.0
$126.6
(27)%
$514.4
$526.8
(2)%
Net revenue4
$386.7
$412.6
(6)%
$1,621.1
$1,594.3
2%
Pre-tax return on net revenue5
23.8%
30.7%
31.7%
33.0%
•
Pre-tax operating earnings decreased $34.6 million as unfavorable equity market performance caused a decline in fees and other revenues as well as higher deferred acquisition cost (DAC) amortization expense.
•
Net revenue decreased $25.9 million primarily due to lower fees and other revenues as a result of equity market declines.
Retirement and Income Solutions – Spread
(in millions except percentages or otherwise noted)
Quarter
Trailing Twelve Months
4Q18
4Q17
% Change
4Q18
4Q17
% Change
Pre-tax operating earnings
$79.3
$75.1
6%
$366.2
$373.0
(2)%
Net revenue
$136.7
$124.2
10%
$549.3
$544.2
1%
Pre-tax return on net revenue
58.0%
60.5%
66.7%
68.5%
•
Pre-tax operating earnings increased $4.2 million primarily due to higher net revenue from growth in the business.
•
Net revenue increased $12.5 million primarily from growth in the business.

____________________________________
3 Pre-tax operating earnings = operating earnings before income taxes and after noncontrolling interest.
4 Net revenue = operating revenues less benefits, claims and settlement expenses less dividends to policyholders.
5 Pre-tax return on net revenue = pre-tax operating earnings divided by net revenue.

Principal Global Investors
(in millions except percentages or otherwise noted)
Quarter
Trailing Twelve Months
4Q18
4Q17
% Change
4Q18
4Q17
% Change
Pre-tax operating earnings
$100.5
$124.1
(19)%
$553.2
$469.7
18%
Operating revenues less pass-through commissions
$316.9
$335.3
(5)%
$1,571.1
$1,284.8
22%
Pre-tax return on operating revenues less pass-through commissions6
32.0%
37.3%
35.6%
37.0%
Total PGI assets under management (billions)
$393.5
$430.9
(9)%
PGI sourced assets under management (billions)
$189.2
$219.2
(14)%
Pre-tax operating earnings decreased $23.6 million primarily due to lower operating revenues less pass-through commissions and additional expenses, primarily severance related. Record full year pre-tax operating earnings increased $83.5 million predominately due to an accelerated performance fee in third quarter.
•
Operating revenues less pass-through commissions decreased $18.4 million as a result of lower management fees due to a decline in assets under management from unfavorable market performance and negative net cash flow.
Principal International
(in millions except percentages or otherwise noted)
Quarter
Trailing Twelve Months
4Q18
4Q17
% Change
4Q18
4Q17
% Change
Pre-tax operating earnings
$54.2
$78.3
(31)%
$255.7
$330.0
(23)%
Combined7 net revenue (at PFG share)
$212.5
$238.1
(11)%
$939.7
$922.0
2%
Pre-tax return on combined net revenue (at PFG share)
25.5%
32.9%
27.2%
35.8%
Assets under management (billions)
$155.5
$160.7
(3)%
•
Pre-tax operating earnings decreased $24.1 million as growth in the business was more than offset by unfavorable encaje performance and foreign currency translation as well as lower than expected inflation in Brazil.
•
Combined net revenue (at PFG share) decreased $25.6 million as growth in the business was more than offset by unfavorable encaje performance and foreign currency translation as well as lower than expected inflation in Brazil.
____________________________________
6 Pre-tax return on operating revenues less pass-through commissions = pre-tax operating earnings, adjusted for noncontrolling interest divided by operating revenues less pass-through commissions.
7 Combined net revenue: net revenue for all PI companies at 100% less pass-through commissions. Prior to 1Q 2018, pass-through commissions were not excluded from this definition. The company has determined combined net revenue (at PFG share) is more representative of underlying net revenue growth for PI as it reflects our proportionate share of consolidated and equity method subsidiaries. In addition, using this net revenue metric provides a more meaningful representation of our profit margins.

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Specialty Benefits Insurance
(in millions except percentages or otherwise noted)
Quarter
Trailing Twelve Months
4Q18
4Q17
% Change
4Q18
4Q17
% Change
Pre-tax operating earnings
$74.5
$62.6
19%
$289.0
$255.5
13%
Premium and fees8
$558.9
$520.6
7%
$2,169.5
$2,021.1
7%
Pre-tax return on premium and fees9
13.3%
12.0%
13.3%
12.6%
Incurred loss ratio
60.1%
61.9%
61.5%
63.1%
•
Pre-tax operating earnings increased $11.9 million from favorable claims experience and growth in the business.
•
Premium and fees increased $38.3 million reflecting strong retention, sales, and in-group growth.
•
Incurred loss ratio was favorable and better than the 2018 guided range.
Individual Life Insurance
(in millions except percentages or otherwise noted)
Quarter
Trailing Twelve Months
4Q18
4Q17
% Change
4Q18
4Q17
% Change
Pre-tax operating earnings
$33.1
$48.3
(31)%
$154.6
$129.2
20%
Premium and fees
$269.1
$268.3
0%
$1,091.8
$1,082.3
1%
Pre-tax return on premium and fees
12.3%
18.0%
14.2%
11.9%
•
Pre-tax operating earnings decreased $15.2 million primarily due to unfavorable claims experience in the current quarter relative to favorable claims experience in the prior year quarter. Full year pre-tax operating earnings increased $25.4 million due to favorable claims and volatility from the impacts of the 2017 and 2018 actuarial assumption reviews.
•
Premium and fees increased $0.8 million compared to a strong year-ago quarter.
Corporate
(in millions except percentages or otherwise noted)
Quarter
Trailing Twelve Months
4Q18
4Q17
% Change
4Q18
4Q17
% Change
Pre-tax operating losses
$(54.7)
$(61.5)
11%
$(178.6)
$(210.5)
15%
•
Pre-tax operating losses decreased $6.8 million due to lower expenses.
____________________________________
8 Premium and fees = premiums and other considerations plus fees and other revenues.
9 Pre-tax return on premium and fees = pre-tax operating earnings divided by premium and fees.

Forward looking and cautionary statements
Certain statements made by the company which are not historical facts may be considered forward-looking statements, including, without limitation, statements as to non-GAAP operating earnings, net income available to PFG, net cash flow, realized and unrealized gains and losses, capital and liquidity positions, sales and earnings trends, and management’s beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company’s annual report on Form 10-K for the year ended Dec. 31, 2017, and in the company’s quarterly report on Form 10-Q for the quarter ended Sept. 30, 2018, filed by the company with the U.S. Securities and Exchange Commission, as updated or supplemented from time to time in subsequent filings. These risks and uncertainties include, without limitation: adverse capital and credit market conditions may significantly affect the company’s ability to meet liquidity needs, access to capital and cost of capital; conditions in the global capital markets and the economy generally; volatility or declines in the equity, bond or real estate markets; changes in interest rates or credit spreads or a sustained low interest rate environment; the company’s investment portfolio is subject to several risks that may diminish the value of its invested assets and the investment returns credited to customers; the company’s valuation of investments and the determination of the amount of allowances and impairments taken on such investments may include methodologies, estimations and assumptions that are subject to differing interpretations; any impairments of or valuation allowances against the company’s deferred tax assets; the company’s actual experience could differ significantly from its pricing and reserving assumptions; the pattern of amortizing the company’s DAC and other actuarial balances on its universal life-type insurance contracts, participating life insurance policies and certain investment contracts may change; changes in laws, regulations or accounting standards; the company may not be able to protect its intellectual property and may be subject to infringement claims; the company’s ability to pay stockholder dividends and meet its obligations may be constrained by the limitations on dividends Iowa insurance laws impose on Principal Life; litigation and regulatory investigations; from time to time the company may become subject to tax audits, tax litigation or similar proceedings, and as a result it may owe additional taxes, interest and penalties in amounts that may be material; applicable laws and the company’s certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests; competition, including from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance; technological and societal changes may disrupt the company’s business model and impair its ability to maintain profitability; a downgrade in the company’s financial strength or credit ratings; client terminations, withdrawals or changes in investor preferences; inability to attract and retain qualified employees and sales representatives and develop new distribution sources; an interruption in telecommunication, information technology or other systems, or a failure to maintain the confidentiality, integrity or availability of data residing on such systems; international business risks; fluctuations in foreign currency exchange rates; risks arising from participation in joint ventures; the company may need to fund deficiencies in its “Closed Block” assets; the company’s reinsurers could default on their obligations or increase their rates; risks arising from acquisitions of businesses; and loss of key vendor relationships or failure of a vendor to protect information of our customers or employees.
Use of Non-GAAP financial measures
The company uses a number of non-GAAP financial measures that management believes are useful to investors because they illustrate the performance of normal, ongoing operations, which is important in understanding and evaluating the company’s financial condition and results of operations. They are not, however, a substitute for U.S. GAAP financial measures. Therefore, the company has provided reconciliations of the non-GAAP measures to the most directly comparable U.S. GAAP measure at the
end of the release. The company adjusts U.S. GAAP measures for items not directly related to ongoing operations. However, it is possible these adjusting items have occurred in the past and could recur in future reporting periods. Management also uses non-GAAP measures for goal setting, as a basis for determining employee and senior management awards and compensation and evaluating performance on a basis comparable to that used by investors and securities analysts.
Earnings conference call
On Wednesday, Jan. 30, 2019, at 10:00 a.m. (ET), Chairman, President and Chief Executive Officer Dan Houston and Executive Vice President and Chief Financial Officer Deanna Strable will lead a discussion of results and the impacts on future prospects, asset quality and capital adequacy during a live conference call, which can be accessed as follows:
•
Via live Internet webcast. Please go to principal.com/investor at least 10-15 minutes prior to the start of the call to register, and to download and install any necessary audio software.
•
Via telephone by dialing 866-427-0175 (U.S. and Canadian callers) or 706-643-7701 (international callers) approximately 10 minutes prior to the start of the call. The access code is 5384726.
•
Replay of the earnings call via telephone is available by dialing 855-859-2056 (U.S. and Canadian callers) or 404-537-3406 (international callers). The access code is 5384726. This replay will be available approximately two hours after the completion of the live earnings call through the end of day Feb. 5, 2019.
•
Replay of the earnings call via webcast as well as a transcript of the call will be available after the call at principal.com/investor.
The company’s financial supplement and slide presentation is currently available at principal.com/investor, and may be referred to during the call.
About Principal®10
Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals – offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. To find out more, visit us at principal.com.

____________________________________
10 Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

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Summary of Principal Financial Group, Inc. and Segment Results
Principal Financial Group, Inc. Results:
(in millions)
Three Months Ended,
Trailing Twelve Months,
12/31/18
12/31/17
12/31/18
12/31/17
Net income attributable to PFG
$
236.5
$
841.8
$
1,546.5
$
2,310.4
Net realized capital (gains) losses, as adjusted
79.6
33.5
51.0
(307.3
)
Other after-tax adjustments
0.0
(524.5)
0.0
(524.5)
Non-GAAP Operating Earnings*
$
316.1
$
350.8
$
1,597.5
$
1,478.6
Income taxes
62.8
102.7
357.0
395.1
Non-GAAP Pre-Tax Operating Earnings
$
378.9
$
453.5
$
1,954.5
$
1,873.7
Segment Pre-Tax Operating Earnings (Losses):
Retirement and Income Solutions
$
171.3
$
201.7
$
880.6
$
899.8
Principal Global Investors
100.5
124.1
553.2
469.7
Principal International
54.2
78.3
255.7
330.0
U.S. Insurance Solutions
107.6
110.9
443.6
384.7
Corporate
(54.7)
(61.5)
(178.6)
(210.5)
Total Segment Pre-Tax Operating Earnings
$
378.9
$
453.5
$
1,954.5
$
1,873.7
Per Diluted Share
Three Months Ended,
Twelve Months Ended,
12/31/18
12/31/17
12/31/18
12/31/17
Net income
$
0.83
$
2.87
$
5.36
$
7.88
Net realized capital (gains) losses, as adjusted
0.28
0.11
0.17
(1.05
)
Other after-tax adjustments
0.00
(1.79)
0.00
(1.79)
Non-GAAP Operating Earnings
$
1.11
$
1.19
$
5.53
$
5.04
Weighted-average diluted common shares outstanding (in millions)
285.2
293.5
288.8
293.1
*U.S. GAAP (GAAP) net income attributable to PFG versus non-GAAP operating earnings
Management uses non-GAAP operating earnings, which is a financial measure that excludes the effect of net realized capital gains and losses, as adjusted, and other after-tax adjustments the company believes are not indicative of overall operating trends, for goal setting, as a basis for determining employee and senior management awards and compensation, and evaluating performance on a basis comparable to that used by investors and securities analysts. Note: it is possible these adjusting items have occurred in the past and could recur in future reporting periods. While these items may be significant components in understanding and assessing our consolidated financial performance, management believes the presentation of non-GAAP operating earnings enhances the understanding of results of operations by highlighting earnings attributable to the normal, ongoing operations of the company’s businesses.

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Selected Balance Sheet Statistics
Period Ended,
12/31/18
12/31/17
Total assets (in billions)
$
243.0
$
253.9
Stockholders’ equity (in millions)
$
11,456.0
$
12,921.9
Total common equity (in millions)
$
11,390.0
$
12,849.3
Total common equity excluding accumulated other comprehensive income (AOCI) other than foreign currency translation adjustment (in millions)
$
11,695.6
$
11,765.3
End of period common shares outstanding (in millions)
279.5
289.0
Book value per common share
$
40.75
$
44.46
Book value per common share excluding AOCI other than foreign currency translation adjustment
$
41.84
$
40.71
Principal Financial Group, Inc.
Reconciliation of U.S. GAAP to Non-GAAP Financial Measures
(in millions, except as indicated)
Period Ended,
12/31/18
12/31/17
Stockholders’ Equity, Excluding AOCI Other Than Foreign Currency Translation Adjustment, Available to Common Stockholders:
Stockholders’ equity
$
11,456.0
$
12,921.9
Noncontrolling interest
(66.0)
(72.6)
Stockholders’ equity available to common stockholders
11,390.0
12,849.3
Net unrealized capital (gains) losses
(207.3)
(1,455.1)
Net unrecognized postretirement benefit obligation
512.9
371.1
Stockholders’ equity, excluding AOCI other than foreign currency translation adjustment, available to common stockholders
$
11,695.6
$
11,765.3
Book Value Per Common Share, Excluding AOCI Other Than Foreign Currency Translation Adjustment:
Book value per common share
$
40.75
$
44.46
Net unrealized capital (gains) losses
(0.74)
(5.03)
Net unrecognized postretirement benefit obligation
1.83
1.28
Book value per common share, excluding AOCI other than foreign currency translation adjustment
$
41.84
$
40.71

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Principal Financial Group, Inc.
Reconciliation of U.S. GAAP to Non-GAAP Financial Measures
(in millions)
Three Months Ended,
Trailing Twelve Months,
12/31/18
12/31/17
12/31/18
12/31/17
Income Taxes:
Total GAAP income taxes (benefits)
$
11.2
$
(528.1
)
$
230.7
$
(72.3
)
Net realized capital gains (losses) tax adjustments
38.0
16.2
71.4
(209.1
)
Tax benefit related to other after-tax adjustments
—
594.5
—
594.5
Income taxes related to equity method investments and noncontrolling interest
13.6
20.1
54.9
82.0
Income taxes
$
62.8
$
102.7
$
357.0
$
395.1
Net Realized Capital Gains (Losses):
GAAP net realized capital gains (losses)
$
(112.2
)
$
(39.9
)
$
(75.4
)
$
524.2
Recognition of front-end fee revenues
3.7
$
(0.1
)
0.4
(0.2
)
Market value adjustments to fee revenues
—
—
0.1
(0.1
)
Net realized capital gains (losses) related to equity method investments
(0.5
)
(1.0
)
(5.4
)
1.4
Derivative and hedging-related adjustments
(16.4
)
(14.1
)
(64.9
)
(59.4
)
Sponsored investment fund adjustments
4.9
1.8
12.9
6.3
Amortization of deferred acquisition costs
(25.7
)
11.8
(25.6
)
47.4
Capital gains distributed – operating expenses
21.0
(15.3
)
15.7
(38.9
)
Amortization of other actuarial balances
(14.0
)
1.7
(1.4
)
7.6
Market value adjustments of embedded derivatives
6.9
4.9
18.5
48.1
Capital gains distributed – cost of interest credited
8.8
(0.1
)
(1.3
)
(16.1
)
Net realized capital gains (losses) tax adjustments
38.0
16.2
71.4
(209.1
)
Net realized capital gains (losses) attributable to noncontrolling interest, after-tax
5.9
0.6
4.0
(3.9
)
Total net realized capital gains (losses) after-tax adjustments
32.6
6.4
24.4
(216.9
)
Net realized capital gains (losses), as adjusted
(79.6
)
(33.5
)
$
(51.0
)
$
307.3
Other After-Tax Adjustments:
Contribution to PFG Foundation
Pre-tax
$
—
(70.0
)
$
—
(70.0
)
Tax
—
26.2
—
26.2
Tax Cuts and Jobs Act:
Pre-tax
—
—
—
—
Tax
—
568.3
568.3
Total other after-tax adjustments
$
—
$
524.5
$
524.5

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Principal Financial Group, Inc.
Reconciliation of U.S. GAAP to Non-GAAP Financial Measures
(in millions)
Three Months Ended,
Trailing Twelve Months,
12/31/18
12/31/17
12/31/18
12/31/17
Principal Global Investors Operating Revenues Less Pass-Through Commissions:
Operating revenues
$
355.4
$
375.5
$
1,736.3
$
1,444.4
Commission expense
(38.5)
(40.2)
(165.2)
(159.6)
Operating revenues less pass-through commissions
$
316.9
$
335.3
$
1,571.1
$
1,284.8
Principal International Combined Net Revenue (at PFG Share)
Pre-tax operating earnings
$
54.2
$
78.3
$
255.7
$
330.0
Combined operating expenses other than pass-through commissions (at PFG share)
158.3
159.8
684.0
592.0
Combined net revenue (at PFG share)
$
212.5
$
238.1
$
939.7
$
922.0

Starbucks Q1 Election Proxy Voting

In the Q1 Starbucks Proxy Vote, shareholders are enabled to vote For, Against, or Abstain from voting for the following directors and policies. Voting is due by 03/19 2019 / 5:00PM ET.

MEETING LOCATION : WAMU Theater next to CenturyLink Field, 800 Occidental Avenue South, Seattle, Washington

The following PDF documents may be valuable in making your voting decision:

1. Election of Directors
Vote All Directors: FOR
1.01 Rosalind G. Brewer
MANAGEMENT RECOMMENDED VOTE: FOR

1.02 Mary N. Dillon
MANAGEMENT RECOMMENDED VOTE: FOR

1.03 Mellody Hobson
MANAGEMENT RECOMMENDED VOTE: FOR

1.04 Kevin R. Johnson
MANAGEMENT RECOMMENDED VOTE: FOR

1.05 Jorgen Vig Knudstorp
MANAGEMENT RECOMMENDED VOTE: FOR

1.06 Satya Nadella
MANAGEMENT RECOMMENDED VOTE: FOR

1.07 Joshua Cooper Ramo
MANAGEMENT RECOMMENDED VOTE: FOR

1.08 Clara Shih
MANAGEMENT RECOMMENDED VOTE: FOR

1.09 Javier G. Teruel
MANAGEMENT RECOMMENDED VOTE: FOR

1.10 Myron E. Ullman, III
MANAGEMENT RECOMMENDED VOTE: FOR

2.
Advisory resolution to approve our executive officer compensation
MANAGEMENT RECOMMENDED VOTE: FOR

3.
Ratification of selection of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2019
MANAGEMENT RECOMMENDED VOTE: FOR

4.
True Diversity Board Policy
MANAGEMENT RECOMMENDED VOTE: AGAINST

5.
Report on Sustainable Packaging
MANAGEMENT RECOMMENDED VOTE: AGAINST

CUSIP : 855244109