Knight-Swift Transportation Holdings Inc. (KNX) Earnings Call Transcript & Summary

Good morning. My name is Liz, and I will be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation investor call on the acquisition of AAA Cooper. [Operator Instructions] Speakers for today's call will be: Dave Jackson, President and CEO; Adam Miller, CFO and President of Swift; and Reid Dove, CEO of AAA Cooper. Mr. Miller, the meeting is now yours.

Thank you, Liz, appreciate that. And good morning, everyone, and thank you for joining the call. We're pleased to be here with the AAA Cooper team in beautiful Dothan, Alabama, and appreciate Reid and the AAA Cooper team hosting us this morning. We have slides to accompany this call posted on our investor website. And as a note, we are not planning to discuss second quarter results or our current market trends. We will be providing market updates in the second quarter earnings release later this month. So I just wanted to make sure we communicated that before we hit the Q&A section. Our call is scheduled to go until 11:15 a.m. Eastern Time. Following our commentary, we hope to answer as many questions as time will allow. If we're not able to get to your question due to time restrictions, you may call (602) 606-6349. During this call, we'll have some prepared remarks regarding the recent acquisition of AAA Cooper and we'll then entertain questions. [Operator Instructions] And now we'll turn it over to Slide 2. And I'll read the disclosure on Slides 2 and 3, sorry. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1A Risk Factors and Part 1 of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Now you can turn to Slide 4. And I'll turn the call over to Reid Dove, CEO of AAA Cooper.

Thank you, Adam. This is an exciting time for the AAA Cooper team members and customers. AAA Cooper was founded over 70 years ago in Dothan, Alabama by my grandfather, John "Red" Dove. The company has grown from those humble beginnings to a leading LTL carrier. Our operations are primarily LTL and dedicated contract carriage. We also offer brokerage, fleet maintenance and international services. Today, we focus primarily in the Southeastern and Midwestern United States and have relationships across the U.S. and Mexico. With nearly 3,000 trucks and 7,000 trailers, 70 service centers and over 3,400 doors, we expect to generate approximately $780 million of revenue this year, $140 million of EBITDA and $80 million in operating income. Behind these numbers, our people are our biggest asset. I can't say enough about the hard-working, dedicated men and women who make AAA Cooper what we are today. The capability of our team to grow and perform was key to Knight-Swift's interest in AAA Cooper. And the opportunity for our people to thrive and advance in their careers and lives was key to our interest in partnering with Knight-Swift. AAA Cooper will continue to operate independently, and I will continue to lead as the CEO. We will benefit from being part of a supply chain leader that will allow us to pursue new opportunities to accelerate our growth and improve our efficiencies. We see opportunities for growth through network expansion, building out our freight density and expanding our rapidly growing dedicated services business. While we are already large for our sector, the scale achieved by combining with Knight-Swift will assist with the economies of scale, cross-selling customers and sharing best practices. I truly believe both companies will benefit. We're extremely happy to join Knight-Swift family of companies, and I look forward to what the future holds for all of us. Moving to Slide 5. Our focus on safety, service, innovation, sustainability and employee development has led us to be recognized and highly regarded both within and outside of the industry. This slide shows some of our recent accolades, including being named the Home Depot 2020 LTL Carrier of the Year. We've been named by Forbes as one of America's Best Midsize Employers for the last 5 years in a row. We've been a SmartWay Partner since its inception. For the last 5 years, AAA Cooper Transportation has been part of the G75 list, which is comprised of companies that go above and beyond to ensure their global supply chains are sustainable and that their operations are socially and environmentally friendly. We take safety seriously and are one of the safest carriers in our space. We were an early adopter hair follicle testing and have both inward- and outward-facing cameras in our trucks. Our technology is cutting-edge. Our proprietary ACTION TRAC technology is the LTL industry's only continuous shipment visibility technology. Finding a partner that would align with our culture and support with great programs we have developed was critical for us. And we believe that we found that ideal situation with Knight-Swift. With that, I'll turn it back to you, Adam.

Thank you, Reid. I can't tell you how excited we are to have Reid and the rest of the AAA Cooper team join the family of companies that make up Knight-Swift. On Slide 6, I will walk through the financial terms of the deal. The total transaction value was $1.35 billion and included: cash consideration of $1.3 billion; $10 million of Knight-Swift's stock; and the assumption of approximately $40 million of net debt. The agreement also includes a 338(h)(10) election, which will result in a meaningful tax deduction in the first year of the transaction. The financing was provided by Bank of America under a new $1.2 billion term loan A with similar terms to our existing credit facility, including a floating rate structure that is currently at an interest rate of 1.1%. We expect the transaction to be accretive to our adjusted earnings per share in the back half of 2021 by $0.13, which excludes the impact of the amortization of intangibles. Based on the current AAA Cooper forecast, which does not include synergies, we expect the 2022 accretion to be approximately $0.29 to our adjusted earnings per share. We plan to provide more comprehensive update to our guidance in the upcoming second quarter earnings release. Now on to Slide 7. Having a strong balance sheet and a disciplined approach to capital allocation has been a long-standing strategy at Knight and now at Knight-Swift. Our goal is to allocate capital efficiently and in a high-return area that leads to long-term value for our shareholders. From the beginning of 2018 through the first quarter of 2021, Knight-Swift has generated $3 billion of cash from operations and $1.4 billion of free cash flow. We take a balanced approach to allocating capital and have actively put capital to work across organic growth and maintenance CapEx, acquisitions, share repurchases, debt repayment and dividends. AAA Cooper is the sixth acquisition we have made since the Swift merger in 2017 and is certainly the largest. All the acquisitions, small and large, are meant to both complement our core set of services and provide a platform to continue to grow our company. Our long-term targeted leverage ratio is 1 to 1.25 turns of EBITDA. And over the last several quarters, we have been trending well below these levels. We were well positioned to put our balance sheet to work and make this strategic acquisition. Our estimated adjusted leverage ratio following the AAA Cooper acquisition will be 1.44x, which is above our long-term target but remains conservative. If we include the operating lease portfolio we assumed in the 2017 Swift merger, our leverage following the AAA Cooper acquisition is lower than 2017 levels. We feel fully confident in our ability to generate meaningful future free cash flow that will allow us the flexibility to pay down debt and/or allocate capital to future acquisitions or share buybacks. And I will now turn it over to Dave Jackson.

Thank you, Adam and Reid, for your comments. We appreciate all of you and your interest in this transaction. I'll continue to Slide 8. Over the last several quarters, we've been vocal about our interest in growing our company through acquisition, including the LTL market. As we evaluated different means of entering the market, there were three main objectives or requirements. And as a full truckload provider with a limited experience in LTL, we understand and appreciate the differences between operating a full truckload operation versus a less-than-truckload operation. We felt the best way to begin our LTL growth platform was to start with an excellent foundation, a proven, successful LTL provider with leaders who understand the business and run it the right way with an excellent employee culture. Given our size and ability to invest, an important requirement was an LTL provider with meaningful market share. Part of a strong LTL foundation includes a financially successful LTL company, one whose success could be replicated or further scaled. We found these requirements and accomplishments with AAA Cooper. We are excited and feel very fortunate for this foundational partner in our LTL growth platform. We feel strategically positioned to drive future growth through the AAA Cooper platform. We plan to provide capital to organically grow the existing service center network and find acquisition opportunities to complement the network of AAA Cooper. In LTL, density of freight is a significant factor to success. At Knight-Swift, our wide-ranging variety of customers developed over decades also ship LTL freight. This will provide an opportunity to expand services offered to our customers. Although the LTL and TL markets differ, we believe there are capacity and pricing trends and business intelligence tools between truckload and LTL that both Knight-Swift and AAA Cooper can learn from each other to make us more effective in the markets we serve. Next, we'll move to Slide 9. As I mentioned in the previous slide, leadership was a -- was such a critical factor in our decision of where to invest and with whom to partner. Consistent with our previous acquisition strategy, AAA Cooper will continue to run as a separate brand, led by Reid Dove and a strong group of experienced leaders in Dothan, Alabama. Reid has spent most of his adult life in the AAA Cooper business and has been a CEO for over a decade. We were impressed with Reid from day 1. Not only does he have the experience and connection with the customers and employees of AAA Cooper, but he's also an honest and good man who focuses on doing what's right for AAA Cooper and its employees. We are excited to have Reid join our Board of Directors and look forward to what he will bring to the entire Knight-Swift organization. Reid is also supported by many outstanding leaders with great experience. To name just a couple, Charlie Prickett is the President and Chief Operating Officer; and Michelle Lewis is the Chief Financial Officer. The Knight-Swift team was able to get to know both Charlie and Michelle through the diligence process and couldn't be more excited to have them continue to help run the AAA Cooper business. Charlie brings 3 decades of transportation experience. And his fingerprints are all over many of the technology-related operational efficiencies within AAA Cooper. Michelle's financial and accounting leadership and expertise became evident through the due diligence process. Both Charlie and Michelle are supported by an amazing group of leaders and a team of 4,800 individuals that make AAA Cooper such a great company. The confidence we have in the team to execute and grow the business provided us the conviction to make such a significant investment in the future of Knight-Swift. Next, on to Slide 10. Growth and diversification continue to be a primary focus for us. Our revenue mix continues to evolve over time as we acquire companies and grow our businesses organically. Asset-based full truckload remains core to our success. We're the industry leader. And as our historical margins, we generate strong free cash flow and returns well above our cost of capital. Nevertheless, while we've been successful with acquisitions, organic growth can be difficult due to demographics in the market, where drivers and rates and volumes can be volatile. We're excited to add a new segment of LTL revenue that will represent 14% of our pro forma revenue base and represent our second-largest segment. We targeted LTL because the market is growing due to e-commerce and supply chain trends. Driver retention is more favorable. And even though volumes can be cyclical, the rate structure has less volatility. Additionally, the equipment have longer lives, which can improve the free cash flow profile compared with full truckload at similar operating margins. For these reasons, we believe LTL offers a strong line of business to leverage the growth platform. Now if you look at the chart on the right side of the slide, when we combine the full year expected revenue from AAA Cooper with the expected revenue from Knight-Swift, our full truckload trucking revenue is now 63% of the total while the LTL and other non-trucking segments account for more than 1/3 of our revenue at 37%. This is important because this revenue is often less cyclical than full truckload. Moving forward, we expect the non-truckload trucking segments to outpace the growth of our core truckload businesses. We're quite optimistic that our new rail intermodal contract will drive growth and profitability in that segment. And we've recently added to our brokerage capability with the UTXL acquisition. Additionally, the opportunity to use our scale to provide additional services to third-party capacity providers continues to offer interesting possibilities. On to Slide 11. This slide provides additional support on why we're interested in the LTL space. The top chart illustrates the Stephens LTL revenue per shipment index trends from 2004 through the first quarter of 2021. You'll notice that LTL is less cyclical than full truckload with the only different rates coming during the Great Recession. A large amount of infrastructure and fixed costs required for LTL carriers makes it more challenging for new entrants or even additional capacity from current carriers to quickly enter the market, which has resulted in a relatively small number of meaningful providers for the approximately $42 billion LTL industry. The chart on the bottom shows the market based on the Transport Topics 2021 list of LTL carriers. Notice the top 5 carriers comprise 53% of market share, the top 10 make up 75% of the market share and the top 20 make up 87%. Less fragmentation, more consistent revenue per shipment, stronger organic growth foundation and lower maintenance CapEx per revenue dollar, combined with higher barriers to entry, are contributing factors in LTL stocks trading at much higher multiples than the typical truckload stocks. Slide 12 is somewhat of a recap of what we've discussed in the rationale and strategy throughout this call. If you consider how we're now positioned across the transportation industry, the size and scope of our truckload, dedicated and refrigerated network, along with our margins, are unmatched in the industry. Our Logistics segment is experiencing substantial growth while at the same time maintaining industry-leading margins. Our Intermodal business is significant and improving. And now we have a momentous step in the LTL space with AAA Cooper, a profitable, well-run company with excellent leadership that gives us a solid platform to grow in the LTL space, a space that's benefiting and will continue to benefit, as mentioned, from the expanding shift to e-commerce. AAA Cooper can leverage our capital to take more advantage of these opportunities. We've discovered and proven through results that there are economies of scale that can come with size in the truckload industry. We believe that also applies to the LTL space and expect many synergies both on the revenue and expense side. One of the exciting aspects of working on a deal with AAA Cooper since the beginning of the year was how well the two teams have worked together from day 1 on the plan to maintain everything that makes AAA Cooper such a strong and successful brand while cataloging a clear path toward revenue and cost synergies. We believe there are substantial areas where we can leverage and unify our purchasing power, optimize our equipment and real estate, share customers and market insights and leverage technology development and investment. For AAA Cooper, we expect a mid-80s adjusted operating ratio as the baseline for generating our targeted returns. We expect to get there over the next 3 years. Similar to our experience with the 2017 Knight-Swift merger, we believe there is opportunity in excess of our 3-year goal. And I can tell you that Reid, Charlie and Michelle's teams and ours are both very competitive and driven to be the best in our fields. We believe that this immediately accretive acquisition and the growth platform it represents will contribute to significant value creation for our shareholders. And with that, Liz, we will answer questions, time permitting.

[Operator Instructions] Our first question comes from Jason Seidl. Sorry, our first question comes from Allison Landry.

So I know you guys said that you'd give us more detail on the Q2 earnings call. But hoping you could maybe just sort of give us a sense for the relative size of the revenue versus cost synergy opportunity. And then with respect to the network optimization piece, if you could provide some additional color on what you mean by that. Is there an opportunity for Knight to in-source some of the LTL linehaul?

Allison, I think as we approach the synergies, most immediately, we'll probably see progress on the cost side. Our target is to get to that mid-80s, call it, an 85% adjusted operating ratio in 3 years. And so some immediate wins will hopefully come due to purchasing power. The revenue ones probably come over time just with more exposure to bid opportunities, to business intelligence tools. And so that will be something that we're -- won't be necessarily be forced. That's where we share information. And historically, with previous acquisitions and mergers, sharing of information can just be a very powerful tool. So I would probably focus the target on us seeing this business to the mid-80s from an operating ratio perspective. Now when you talk about other efficiencies, and we're going to be very careful to allow the existing truckload and now this LTL business to operate independently. As we find the ways to take advantage of efficiencies, we'll be very careful and deliberate on that. But there is no immediate or there are no plans to try and merge operationally these types of businesses in a way that can disturb what are already two very, very successful businesses. And so if you think on the truckload side, this isn't a desperate move, where we need some way to get to the low 80s or upper 70s in our linehaul truckload fleet. We're already in those spots. And this is an LTL business that's already now performing in the upper 80s to begin with. So there aren't big, drastic changes that need to happen. But our experience has been that when you take smart people that are in tune with their business and were exposed to more information, we find new ways to become efficient.

Our next question comes from Tom Wadewitz with UBS.

And congratulations to everybody on the deal. It sounds like a really compelling fit for you. I wanted to get a sense of -- I don't know if this is for Reid or -- maybe for Reid and then I don't know, Dave, Adam, if you want to jump in. How do you think about the difference of the opportunity as a regional LTL versus the opportunity if you had a fully national network? And is that something that would say, hey, that's part of the longer-term game plan that you start with regional and high-quality deal, it makes sense, but then you really want to go national, not by 20 years of organic expansion, but by kind of fitting together with other pieces?

Well, yes, I'll take the first part of that and then he can take the second. This is Reid. I think the shippers, the way they purchase LTL in the market, they typically have -- if they have a regional presence for their needs, typically they lean more on the regional carrier side. If they have a national presence, then obviously they would do the same there. Generally, you have -- most certainly, the large shippers have both. And so typically, you would see a few national carriers in a portfolio for a shipper, along with some regionals. And they do that for different reasons, one is for purchasing leverage and others is just to have the redundancy in the program. And so that has been that way for quite some time. So I don't think the -- there's necessarily a different -- a right recipe on that because it is quite common. As it relates to expansion -- and we have some areas that we have -- we're looking at prior to this conversation getting going several months ago. And we will talk about that as we go in the future. But as far as AAA Cooper itself becoming a national carrier, that is not necessarily our plans with this agreement. And it's more likely that we'll grow in a combination of organic growth and perhaps some additional acquisitions in the future.

Yes. Tom, I would just add that I suspect that other LTL firms, regional LTL firms, will watch closely how this works. And I think we've tried to be abundantly clear in the communication thus far, and we're only a couple of hours into this publicly, about the independents. And so over time, as this plays out, I think others will watch. And our conviction will hopefully grow to want to add other regions. And there may be other interest to join the way that we do it. And so those are all very real possibilities. And in the meantime, I think Reid said it well that there are locations for incremental organic growth for this regional LTL firm.

Our next question comes from Ravi Shanker with Morgan Stanley.

A couple of follow-ups. Just on the last point on the growth side, Dave or Reid, do you envision ACT becoming a top 10 player in the LTL space and over what time frame? And also, kind of how do you manage the algorithm of getting to that 85% OR but also kind of pushing the top line? I mean, I think some LTLs have gone after OR, others have gone after growth. Dave, how do you try to keep that in balance?

Well, the goal would be, yes, to be a top 10 provider over time. And so what we know is collectively, as a consolidated entity, we're going to continue to generate significant free cash flow. And that opens up opportunities for us to grow. We feel like unlocking some synergies, leveraging technology perhaps in ways that hasn't been done before, over time will lead to hopefully some advantages OR-wise and also greater conviction for us to continue to grow this business. So we're just getting started. I think the piece, Ravi, that I would point you to is we're starting with an unbelievable foundation, not unlike what we've done on the truckload side. If you think about the growth and development of the Knight business, it started in 1990 developing a business that can operate and achieve its double-digit return on tangible assets over time. That's the foundation upon which we've done other acquisitions. Barr-Nunn is an example, that was done back in 2014, or Knight to Knight-Swift merger with the Knight management team assuming leadership for the Swift business that was 4x its size. And now that business is performing with double-digit returns and industry-leading margins. And shortly after that, the merger, we acquired Abilene Motor Express at Richmond, Virginia that continues to operate independently. But it continues to operate in the low 80s from an operating ratio perspective. And so that was done on a solid, sure foundation. Out of here in Dothan, Alabama, that's what we're getting in AAA Cooper. And so that's very interesting to us. And so we'll see in future years to what degree and at what pace we can continue to grow and find our way to the top 10 and both inorganically and somewhat organically.

Yes. And I would just add, the AAA Cooper team has already had some nice trajectory and momentum around the growth side of the business. And so our estimates when we talk about 2024 is still keeping a growth pace that's high single digits. But while you're doing that, driving more efficiencies to the bottom line. And we think what the strategy that AAA Cooper already has will lead to that. But then we can support them with some synergy opportunities both on the cost side and then some of the revenue efficiencies we believe we'll be able to pick up.

Our next question comes from Todd Fowler with KeyBanc Capital Markets.

Congratulations on the deal. I was wondering if you can maybe speak to how you're viewing the CapEx profile with AAA Cooper now, what your kind of view is maybe annual maintenance CapEx related to AAA and how you're viewing real estate purchases going forward, so how we should think about the CapEx requirements with the business.

Yes. From a CapEx perspective, it doesn't meaningfully change our overall CapEx. It's probably in that $60 million to $70 million range on an annual basis. And they would have -- and they would generate meaningful cash flow to be able to manage that CapEx and would lead to additional free cash flow as well. When we look at terminal network, that's going to be a case-by-case scenario, where we see opportunities to grow. I think Reid mentioned there's a couple of areas already that we've identified and would look to find an opportunity to see if there's a fit from a growth standpoint. But AAA Cooper is going to generate enough cash flow to support their business. And again, we'll have some excess capital to put to work to generate returns.

So Adam, from a modeling perspective, should we use $60 million to $70 million? Or should we put something on top of that just as a ballpark for putting something in there for real estate on an annual basis?

Yes. You'd probably use $60 million to $80 million.

Our next question comes from Jason Seidl with Cowen.

Dave, Reid and respective teams, congratulations on the deal. I wanted to focus, Reid, a little bit on your coverage map. You have 21 states there, but it looks like they might not all be full state coverage. Can you give us an idea out of the 21, how many are full state?

Sure. So if you take across -- if you take El Paso across to the Outer Banks of North Carolina down to Key West, we have every ZIP code in those markets. In the states of Illinois, we have three locations in Chicago. We have Indianapolis in Indiana and Cincinnati and then Lexington and Louisville in Kentucky. So anything south of those would be every ZIP code. And then those other markets are just major markets that we've been in for many years now that are robust freight centers and ones that we feel like we've got a very good growth path ahead of us then.

So as you look out, you mentioned you may not want to cover all the states. But is it sort of a goal now to try to get full state coverage in the states that you're already in?

That's a good question. Perhaps if the density allows for it. I mean, right now, we think we have growth opportunities in those individual states and those individual cities. We also have growth opportunities in existing cities. Let's take Houston, for instance, where we'll open a second facility in Houston soon next year, and we have multiple facilities in some of the larger markets. So it's not just outside of our current core operating area. There are ways to do that within and serve those communities better as they are now. But certainly, there's an opportunity if we choose to go down that path. Managing the growth is very important. And we typically want to make sure we're growing at a rate that allows for the fixed cost to be elongated. But at the same time, we've got to make sure that we're doing right by our people and making sure that we culturally don't get to the edges of too many hours and things of that nature. It's very, very important to us that we do this at the correct pace. And that's why I think Adam's comments of that upper single-digit are very responsible ways and responsible ways to grow in our business. And hopefully, that gives you a little help on. And of course, the dedicated services business is running parallel to that, so make sure we mention that in the process. And that business is growing at a very nice rate. And we have lots of runway ahead of us and deals that are in process right now that, that revenue has not been realized yet. But we believe that to be in the reasonable near future, certainly starting in '21.

Dave, I have one question for you here. As you look out now, once you take these guys under the Knight-Swift umbrella, you're going to have the largest truckload footprint, now an LTL footprint, a growing intermodal presence and obviously a growing logistics presence. When you look at your customer-facing profile in the years to come, is there going to be a bundled service offering? Or are these all going to still be completely independent when you look at bids for customers?

Yes. I appreciate the question, Jason. I think the supply chains are so customized customer-by-customer. And in fact, in many cases, they handle different types of transportation in different ways and by different groups. I don't know how much bundling ever really works in this B2B kind of world. I do think though that we're positioning ourselves to be a provider that can provide tremendous value to a supply chain to not just look at things within the walls or silos that we -- that the industry has kind of operated. But we can look to try and create efficiencies for customers that work for us and maybe that work for them as well. I think something you could kind of take out of this is that we've been very deliberate, even patient to find the right kind of transactions, the right kind of businesses to fit our model. Some have wondered why we haven't been more aggressive at buying back our stock, given the kind of multiple valuations that we've seen, given outstanding performance in the business. And so we've been preparing for a transaction such as this. We're already preparing for the next transaction. That's the conservative nature of what we are and what we do. Regardless of where the valuation goes, you can't argue with the free cash flow that we're able to go put to work and you can't argue with the track record. And so we'll continue to assemble what we think is a business that creates value for customers across the entire chain, as you pointed out, whether it be intermodal or whether it be LTL or truckload. And within those worlds, it gets -- there's even more variety. An example would be our brokerage business is growing very, very quickly right now. Well, on top of that, there's brokerage where we're using a third-party truck and trailer. And then there's brokerage where they're taking advantage of efficiencies unique to us and our 60,000 trailers on the truckload side for us to use the power and for them to come and move loads in trailer pools where we own the trailer. And so we're finding ways to bring those efficiencies to the surface for customers. And our belief is that not only does it work for customers, but clearly we're able to do it the way that works for our returns and for our shareholders.

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

Dave, would you see this as a changing strategy in terms of your thoughts on an outlook for the truckload opportunity? Or do you see it as a benefit from the shifting supply chain to local distribution? Was this something a customer asked access for? Maybe just a little background on why the move and your thoughts on moving, shifting to LTL. And then as an aside, you threw out the new rail contract with UP. Any details you're providing on that?

Okay. Thanks, Ken. So the first thing I would tell you is this move is consistent with what a growth company would do. And we're a growth company. That's why we didn't buy back $1 billion worth of stock. We're a growth company. And we just added a run rate of, call it, $780 million annually of growth. Second of all, the second objective is we're going to create shareholder value. And part of the way we do that is being a growth company. Part of the way we do that is generating returns that exceed our weighted average cost of capital. And what LTL uniquely offers us is a lower beta, less volatile, more consistent earnings stream. And so it helps us overall as a company. I think, in some cases, we've been painted with a broad brush that our business, because we're predominantly full truckload and we know how to get yield in a strong market, that somehow we're even more transactional and that we move with the whims of the truckload market. Well, the data would suggest that that's not true based on what our earnings per share has done over the last few years. You can look at how high it went up in '18, what the downturn was, look at what the expectations are again with what we did in '20, what the expectations are for '21. And what you'll find is EPS is not nearly as volatile to the negative side as the rate market was. And so LTL helps us in our efforts to be a growth company and to grow at avenues that can create the maximum amount of value for our shareholders long term. Our beta has been elevated since the merger with Swift. This type of income growth should come at a premium because of we hit a bunch of those targets, a bunch of those issues before with the type of income this is, the barriers to entry that exist in this space. And so this accomplishes multiple objectives towards achieving what we're trying to do long term to create value for our shareholders.

But just to add, I mean buying truckload companies is still a core competency of ours and it will still be part of our strategy. It's just not the only strategy we would have. I mean, we've seen AAA Cooper, we recently bought UTXL, a logistics company, the first logistics company that we purchased. So Ken, it's still -- we still are interested in truckload businesses, but that's not the only thing we're interested in. On the UP contract, we're not providing any granularity there. Just, we were long partners with BNSF. They were great partners. We just felt like long term into -- starting the next year, the UP will be our partner in the West. And we feel that positions us to be successful in providing service to our customers and generating returns in that business. That's all we're saying right now on that, Ken.

Our next question comes from Rob Salmon with Wolfe Research.

Could you talk a little bit about AAA Cooper's historical growth rates, kind of whether it's top line or kind of service center expansion over time and how you're thinking about that looking forward as you grow to become a top 10 carrier?

Yes. I don't know that we're going to dive back into the history of growth. I think they've been a consistent grower. Really, I've got the data back from 2016. We'd expect to see growth in that high single-digit rate over the foreseeable future, Rob, is what I think we talked about from a financial standpoint.

Yes. And they have the burden of being part of a public company now going forward. I'm sure Reid is just loving this call as much as we are of being a public company.

It's my first one, it's delightful.

Yes, you love it. And so the good news is he's not burdened with having to be a public company historically, so...

And in terms of achieving that high single-digit top line growth rate that you're talking about, Dave, how should we think about number of service centers that you're adding in that? I want to say you guys were speaking about, call it, $60 million, $80 million annually in terms of investment. How many kind of incremental capacity footprint do you see that?

Yes. I would say that the team has identified some locations that would make sense. We alluded to a second location in Houston. There's at least one other city that seems to be at the top of the list and an obvious place to go and begin a presence. And so this will be deliberate. And the ability to continue to grow within the existing infrastructure that exists today, that's also an option. So yes, I'm not going to speak -- we're not going to make any kind of a commitment at this point on how many we'll open and where those will be. But there's a pathway, there's an interest for that. And the business has changed. It's not a private business anymore. It's now part of a public company and with more backing and more diversity, if you will, and more ability to build density in new locations. And so we'll just kind of feel that out and see what feels right. And it's the AAA Cooper team that will drive that. And our experience has been, and we believe it will be the same here, is that as we offer services and a willingness to support, they'll have more of an aggressive appetite than maybe even we would have, but we'll be here to support along the way, so...

Our next question comes from Brandon Oglenski with Barclays.

So Dave, I want to come back to, I think, a few of the responses from earlier. But it does look like strategically, you're getting much more exposure to scheduled network businesses. So I guess, can you just talk to that forward outlook? Because I think 34% of your revenue now is going to be LTL, intermodal or asset-light logistics. How do you see all these interacting in the future?

Well, the good news is none of these businesses is successful dependent on another one. So we don't have a -- we don't prop up a certain business that works at the expense of some other part of our business. And so that's always been an important thing to us. And so these stand-alone businesses will continue to be successful while we're increasing our efforts to connect on another with technology to use new tools. And there's new software development that can allow you to connect divergent business units and look at data in a more holistic way and to create more efficiency. And so that's kind of a secondary piece that you do after you've already got successful business verticals that are growing. We alluded to the fact of third-party carrier services. And that's because we're leveraging this massive infrastructure that we've set out to new maintenance or to provide fuel discounts or to provide insurance within the captives and our understanding of risk management. And so those are growing very, very quickly. But of course, each one needs to stand on its own. And so as a company going forward, our ability to make technology investments that can benefit the whole group becomes more important and we're seeing more success as a result of that. You saw we acquired 80% of Eleos Technologies earlier this year. That's a very important open platform that allows us to communicate to the truck and more importantly, to the driver in the vehicle, whether they be our company employee, whether they be an independent contractor or even a third-party carrier. And so there are powerful technologies that we can create over time that we'll be doing kind of in the background while the day-to-day businesses are what continue to provide the kind of earnings per share that we've grown to be accustomed to.

And I would just add, the business standalone are successful, but they also don't operate in a vacuum. We have leaders that work very closely with each other and share best practices and look for ways to optimize our overall network to provide solutions to customers. So I think we'll continue to do that with the ACT brand as well the AAA Cooper brand. So we're excited about what the future holds for our customers and for our shareholders.

Great. Well, we appreciate the -- we're at the end of the time slot that we had allowed for this, 11:15 Eastern Time. So we appreciate the interest and the questions. And if you have further questions, we would direct you to call Madison at (602) 606-6349. Thank you, Liz. We'll turn it back to you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.