Knight Transportation Reports Third Quarter 2016 Revenue and Earnings

Category:

Wednesday, October 26, 2016 4:01 pm EDT

Dateline:

PHOENIX

Public Company Information:

NYSE:
KNX

PHOENIX--(BUSINESS WIRE)--Knight Transportation, Inc. (NYSE: KNX), one of North America’s largest and most diversified truckload transportation companies, today reported revenue and net income for the third quarter ended September 30, 2016.

The following table reflects key financial highlights for the third quarter and first nine months of 2016 and 2015.

 
(dollars in thousands, except per share data)       Three Months Ended September 30,       Nine Months Ended September 30,
  2016     2015   Chg   2016     2015   Chg
Total Revenue $ 280,530 $ 300,122 -6.5 % $ 828,936 $ 892,225 -7.1 %
Revenue, excluding trucking fuel surcharge $ 256,243 $ 269,930 -5.1 % $ 763,684 $ 795,767 -4.0 %
 
Operating Income $ 36,934 $ 46,426 -20.4 % $ 113,742 $ 134,348 -15.3 %
Adjusted Operating Income(1) $ 36,934 $ 46,426 -20.4 % $ 113,742 $ 141,511 -19.6 %
 
Net Income, attributable to Knight $ 23,350 $ 30,283 -22.9 % $ 70,595 $ 87,484 -19.3 %
Adjusted Net Income, attributable to Knight(2) $ 23,350 $ 30,283 -22.9 % $ 70,595 $ 91,879 -23.2 %
 
Earnings per diluted share $ 0.29 $ 0.37 -21.7 % $ 0.87 $ 1.06 -17.6 %
Adjusted earnings per diluted share(2) $ 0.29 $ 0.37 -21.7 % $ 0.87 $ 1.11 -21.5 %
 

The company previously announced a quarterly cash dividend of $0.06 per share to shareholders of record on September 2, 2016, which was paid on September 30, 2016.

Dave Jackson, President and Chief Executive Officer, commented on the quarter, “The freight environment remained moderate in the third quarter of 2016 when compared to the same quarter last year. We continued to see improvement in our asset utilization and experienced more favorable supply/demand dynamics as the third quarter progressed. We are beginning to see more non-contract opportunities in the first few weeks of October. With significantly declining new truck orders, the weak used equipment market, and additional regulatory burdens expected to phase in during the next year, we expect continued improvement in the supply/demand relationship in the coming quarters.

“Our focus remains on improving the productivity of our assets in our trucking segment and expanding load volumes and margins in our logistics segment. During the third quarter, when compared to the same quarter last year, we improved our miles per tractor 1.6% and grew our brokerage load volumes 7.0%. In certain markets, capacity began to tighten during the quarter, which resulted in our brokerage gross margins contracting by 140 basis points.

“Our earnings per diluted share for the quarter were $0.29, compared to our earnings per diluted share of $0.37 in the same quarter last year. During the quarter, revenue per loaded mile, excluding fuel surcharge, decreased 2.1% while our non-paid empty mile percentage increased 30 basis points, which negatively impacted our results by approximately $0.04 per share when compared to the same period last year. Less gain on sale of revenue equipment, increased net fuel cost, and lower other income also negatively impacted our results by approximately $0.02 per share. Driver pay continues to be inflationary when compared to the same quarter last year, which resulted in a $0.01 per share impact during the quarter. The effective income tax rate for the quarter was 38.4% versus 37.2% for the third quarter of 2015, which negatively impacted our results by approximately $0.01 per share.”

The following table reflects our consolidated financial performance and that of our trucking and our logistics segments for the third quarter and first nine months of 2016 and 2015.

 
(dollars in thousands)       Three Months Ended September 30,       Nine Months Ended September 30,
  2016       2015     Chg   2016       2015     Chg

Consolidated

Revenue, excluding trucking fuel surcharge $ 256,243 $ 269,930 -5.1 % $ 763,684 $ 795,767   -4.0 %
Operating Income $ 36,934 $ 46,426 -20.4 % $ 113,742 $ 134,348 -15.3 %
Adjusted Operating Income(1) $ 36,934 $ 46,426 -20.4 % $ 113,742 $ 141,511 -19.6 %
Adjusted Operating Ratio(1) 85.6 % 82.8 % 280 bps 85.1 % 82.2 % 290 bps
 

Trucking Segment

Revenue, excluding trucking fuel surcharge $ 204,269 $ 211,816 -3.6 % $ 607,611 $ 626,389 -3.0 %
Operating Income $ 34,439 $ 42,710 -19.4 % $ 105,647 $ 122,800 -14.0 %
Adjusted Operating Income(3) $ 34,439 $ 42,710 -19.4 % $ 105,647 $ 129,963 -18.7 %
Adjusted Operating Ratio(3) 83.1 % 79.8 % 330 bps 82.6 % 79.3 % 330 bps
 

Logistics Segment

Revenue $ 51,974 $ 58,114 -10.6 % $ 156,073 $ 169,378 -7.9 %
Operating Income $ 2,495 $ 3,716 -32.9 % $ 8,095 $ 11,548 -29.9 %
Operating Ratio 95.2 % 93.6 % 160 bps 94.8 % 93.2 % 160 bps
 

In the third quarter, the trucking segment achieved an adjusted operating ratio of 83.1% compared to 79.8% from the same quarter last year. Revenue per tractor, excluding fuel surcharge, decreased 0.8%, year over year, attributable to a 2.1% decrease in average revenue, excluding fuel surcharge, per loaded mile, a 1.6% increase in average miles per tractor, and a 30 basis point increase in non-paid empty mile percentage. Increased driver related expenses, higher net fuel expense, less gain on sale of revenue equipment, and higher claims costs negatively impacted our operating results when compared to the same period last year. We remain focused on improving the productivity of our assets, developing our freight network, and intensely controlling our costs.

During the third quarter of 2016, the logistics segment produced an operating ratio of 95.2% compared to 93.6% for the same quarter last year, with revenue declining 10.6%. Our logistics segment consists of brokerage, intermodal, and other logistics services. The year over year revenue decline in the third quarter was primarily a result of exiting our agriculture sourcing business in the first quarter of 2016. Compared to the same quarter last year, our gross margin percentage in our brokerage business contracted 140 basis points while load volumes increased 7.0%. Brokerage revenue declined 4.5% when compared to the same quarter last year as increased load volume was offset by a 10.7% decline in revenue per load as a result of lower fuel surcharge, a shorter length of haul, and lower non-contract pricing. We plan to continue to invest in and grow our logistics service offerings, which require comparatively little capital investment, as we seek to continue to improve our return on capital.

Attracting and retaining safe, high-quality driving associates remains a priority. Our driver development and training programs remain a focus area for our management team, and we feel well positioned to continue to make progress around the development of our driving associates in the coming quarters.

The used equipment market remained soft during the quarter and resulted in gain on sale of revenue equipment in the third quarter of 2016 of $1.6 million, compared to $2.3 million in the third quarter of 2015. The average age of our tractor fleet is 2.0 years, which has increased from 1.8 years from the second quarter of 2016. With rising new equipment prices and a weak used equipment market, we have extended the expected trade cycle of our tractors. We have been proactive in managing our preventative maintenance program with a goal of mitigating the additional maintenance cost associated with a slightly older fleet.

During the third quarter of 2016 we repurchased 117,044 shares of our common stock for $3.3 million. We currently have approximately 4.3 million shares available under our stock repurchase authorization. Over the last twelve months ended September 30, 2016, we have returned $59.5 million to our shareholders in the form of quarterly dividends and stock repurchases. We ended the quarter with $3.9 million of cash, $52.0 million of long-term debt, and $764.6 million of shareholders' equity. During the first three quarters of the year our net capital expenditures were $76.1 million, while our cash flow from operations was $189.2 million. We expect to continue to generate meaningful free cash flow (which we define as cash flow from operations minus net capital expenditures) as we do not plan to grow our tractor fleet until we see significant strength in customer demand combined with stronger non-contract and contract rate markets.

The company will hold a conference call on October 26, 2016, at 4:30 PM EDT, to further discuss its results of operations for the quarter ended September 30, 2016. The dial in number for this conference call is 1-855-733-9163. Slides to accompany this call will be posted on the company’s website and will be available to download prior to the scheduled conference time. To view the presentation, please visit http://investor.knighttrans.com/events, “Third Quarter 2016 Conference Call Presentation.”

Adjusted operating income, adjusted operating ratio, adjusted net income attributable to Knight, adjusted earnings per diluted share (EPS), and free cash flow are non-GAAP financial measures and are not intended to replace financial measures calculated in accordance with GAAP. These non-GAAP financial measures supplement our GAAP results in evaluating certain parts of our business. We believe that using these measures affords a more consistent basis for comparing our results of operations from period to period. The information required by Item 10(e) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934 and Regulation G under the Securities Exchange Act of 1934, including a reconciliation to their most directly comparable financial measures calculated in accordance with GAAP, is included in the tables at the end of this press release.

Knight Transportation, Inc. is a provider of multiple truckload transportation and logistics services using a nationwide network of business units and service centers in the U.S. to serve customers throughout North America. In addition to operating one of the country’s largest tractor fleets, Knight 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.

 
INCOME STATEMENT DATA:
 
     

Three Months Ended September 30,

      Nine Months Ended September 30,

2016

2015

2016

2015

(Unaudited, in thousands, except per share amounts)
REVENUE:
Revenue, before fuel surcharge $ 256,243 $ 269,930 $ 763,684 $ 795,767
Fuel surcharge 24,287 30,192 65,252 96,458
TOTAL REVENUE 280,530 300,122 828,936 892,225
 
OPERATING EXPENSES:
Salaries, wages and benefits 82,688 85,514 250,732 249,921
Fuel expense - gross 34,616 39,795 94,815 120,247
Operations and maintenance 19,781 20,390 56,886 62,065
Insurance and claims 9,251 8,149 26,330 25,076
Operating taxes and licenses 4,546 3,373 14,645 13,954
Communications 976 849 3,224 3,066
Depreciation and amortization 29,129 28,204 86,486 82,728
Purchased transportation 57,069 62,115 168,772 182,279
Miscellaneous operating expenses 5,540 5,307 13,304 18,541
Total operating expenses 243,596 253,696 715,194 757,877
       
Income from operations 36,934 46,426 113,742 134,348
 
 
Interest income 83 140 259 377
Interest expense (182) (220) (742) (714)
Other income 1,389 2,335 4,602 7,234
Income before income taxes 38,224 48,681 117,861 141,245
INCOME TAXES 14,558 17,946 46,202 52,379
Net income 23,666 30,735 71,659 88,866
Net income attributable to noncontrolling interest (316) (452) (1,064) (1,382)
NET INCOME ATTRIBUTABLE TO KNIGHT TRANSPORTATION $ 23,350 $ 30,283 $ 70,595 $ 87,484
 
Basic Earnings Per Share $ 0.29 $ 0.37 $ 0.88 $ 1.07
Diluted Earnings Per Share $ 0.29 $ 0.37 $ 0.87 $ 1.06
 
Weighted Average Shares Outstanding - Basic 80,040 81,127 80,284 81,678
Weighted Average Shares Outstanding - Diluted 80,792 82,005 80,985 82,714
 
 
BALANCE SHEET DATA:
     

09/30/16

     

12/31/15

ASSETS (Unaudited, in thousands)
Cash and cash equivalents $ 3,886 $ 8,691
Trade receivables, net of allowance for doubtful accounts 131,489 131,945
Notes receivable, net of allowance for doubtful accounts 574 648
Prepaid expenses 16,671 17,320
Assets held for sale 18,347 29,327
Other current assets 8,507 14,215
Income Tax Receivable   8,845         41,967
Total Current Assets 188,319 244,113
 
Property and equipment, net 813,179 803,643
Notes receivable, long-term 3,198 3,419
Goodwill 47,035 47,050
Intangible Assets, net 2,700 3,075
Other assets and restricted cash   32,783         18,932
Total Long-term Assets 898,895 876,119
 
Total Assets $ 1,087,214       $ 1,120,232
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 18,904 $ 14,818
Accrued payroll and purchased transportation 21,262 23,776
Accrued liabilities 16,539 21,609
Claims accrual - current portion 20,288 19,471
Dividend payable - current portion   298         349
Total Current Liabilities 77,291 80,023
 
Claims accrual - long-term portion 12,336 11,508
Long-term dividend payable and other liabilities 1,854 2,164
Deferred tax liabilities 177,201 174,165
Long-term debt   52,000         112,000
Total Long-term Liabilities 243,391 299,837
 
Total Liabilities   320,682         379,860
 
Common stock 800 810
Additional paid-in capital 219,593 205,648
Accumulated other comprehensive income - 2,573
Retained earnings   544,192         529,367
Total Knight Transportation Shareholders' Equity 764,585 738,398
Noncontrolling interest   1,947         1,974
Total Shareholders' Equity   766,532         740,372
Total Liabilities and Shareholders' Equity $ 1,087,214       $ 1,120,232
 
 
      Three Months Ended September 30,                           Nine Months Ended September 30,    

2016

2015

% Change

2016

2015

% Change

 

(Unaudited)

 

(Unaudited)

OPERATING STATISTICS
 
Average Revenue Per Tractor* $ 43,501 $ 43,863 -0.8 % $ 129,444 $ 130,398 -0.7 %
 
Non-paid Empty Mile Percent 12.4 % 12.1 % 2.5 % 12.4 % 11.7 % 6.0 %
 
Average Length of Haul 500 505 -1.0 % 500 505 -1.0 %
 
Adjusted Operating Ratio (1) 85.6 % 82.8 % 85.1 % 82.2 %
 
Average Tractors - Total 4,696 4,829 4,694 4,804
 
Average Trailers - Total 12,325 12,021 12,194 11,668
 
Net Capital Expenditures (in thousands) $ 40,660 $ 69,242 $ 76,056 $ 108,852
 
Cash Flow From Operations (in thousands) $ 55,639 $ 49,172 $ 189,163 $ 156,639
 
* Includes trucking segment revenue excluding fuel surcharge.
 
 
GAAP to Non-GAAP Reconciliation Schedules:
(1)
Non-GAAP reconciliation
Adjusted operating income, operating ratio, and adjusted operating ratio reconciliation (a)
 
      Three Months Ended September 30,       Nine Months Ended September 30,
2016       2015 2016       2015

(Unaudited, in thousands)

 
Total revenue $ 280,530       $ 300,122   $ 828,936       $ 892,225
Less: Trucking fuel surcharge 24,287       30,192 65,252       96,458
Revenue, excluding trucking fuel surcharge $ 256,243       $ 269,930 $ 763,684       $ 795,767
Operating expense 243,596 253,696 715,194 757,877
Adjusted for:
Trucking fuel surcharge (24,287) (30,192) (65,252) (96,458)
Accrual for class action lawsuits (b) -       - -       (7,163)
Adjusted operating expenses 219,309       223,504 649,942       654,256
Adjusted operating income $ 36,934       $ 46,426 $ 113,742       $ 141,511
Operating ratio 86.8% 84.5% 86.3% 84.9%
Adjusted operating ratio (a) 85.6% 82.8% 85.1% 82.2%
 
 
(2)
Non-GAAP reconciliation
Adjusted net income attributable to Knight and adjusted earnings per diluted share reconciliation:
 
Three Months Ended September 30, Nine Months Ended September 30,
2016       2015 2016       2015
(Unaudited, in thousands, except per share amounts)
 
Net Income attributable to Knight $ 23,350 $ 30,283 $ 70,595 $ 87,484
Adjusted for:
Accrual for class action lawsuits (net of tax)(b) -       - -       4,395
Adjusted net income attributable to Knight $ 23,350       $ 30,283 $ 70,595       $ 91,879
 
Weighted Average Shares Outstanding - Diluted 80,792 82,005 80,985 82,714
 
Earnings per diluted share $ 0.29 $ 0.37 $ 0.87 $ 1.06
Adjusted for:
Accrual for class action lawsuits (b) -       - -       0.05
Adjusted earnings per diluted share $ 0.29       $ 0.37 $ 0.87       $ 1.11
 
 
(3)
Non-GAAP reconciliation
Operating ratio and adjusted operating ratio for trucking segment (a)
 
Three Months Ended September 30, Nine Months Ended September 30,
2016       2015 2016       2015

(Unaudited, in thousands)

Trucking
Total revenue $ 228,556 $ 242,008 $ 672,863 $ 722,847
Less: Trucking fuel surcharge 24,287       30,192 65,252       96,458
Revenue, excluding trucking fuel surcharge $ 204,269       $ 211,816 $ 607,611       $ 626,389
Operating expense 194,117 199,298 567,216 600,047
Adjusted for:
Trucking fuel surcharge (24,287) (30,192) (65,252) (96,458)
Accrual for class action lawsuits (b) -       - -       (7,163)
Adjusted operating expenses 169,830       169,106 501,964       496,426
Adjusted operating income $ 34,439       $ 42,710 $ 105,647       $ 129,963
Operating ratio 84.9% 82.4% 84.3% 83.0%
Adjusted operating ratio 83.1% 79.8% 82.6% 79.3%
 

(a) Operating ratio as reported in this press release is based upon total operating expenses, net of fuel surcharge, as a percentage of revenue before fuel surcharge. We measure our revenue, before fuel surcharge, and our operating expenses, net of fuel surcharge, because we believe that eliminating this sometimes volatile source of revenue affords a more consistent basis for comparing our results of operations from period to period.

(b) During the second quarter of 2015 we accrued $7.2 million of expense ($4.4 million after-tax) related to two class action lawsuits involving employment related claims.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements generally may be identified by their use of terms or phrases such as "expects," "estimates," "anticipates," "projects," "believes," "plans," "intends," "may," "will," "should," "could," "potential," "continue," "future," and terms or phrases of similar substance. Forward-looking statements are based upon the current beliefs and expectations of our management and are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Accordingly, actual results may differ from those set forth in the forward-looking statements. Readers should review and consider the factors that may affect future results and other disclosures by the Company in its press releases, stockholder reports, Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.

Contact:

Knight Transportation, Inc.
David A. Jackson, President and CEO
or
Adam W. Miller, CFO
602-606-6315