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 fourth quarter and year ended December 31, 2015.

Key financial highlights for the fourth quarter and annual period of 2015 and 2014 were as follows:
(dollars in thousands, except per share data)       Three Months Ended Dec 31,       Twelve Months Ended Dec 31,
  2015       2014     % Chg   2015       2014     % Chg
Total revenue $ 290,739 $ 317,468 -8.4 % $ 1,182,964 $ 1,102,332 7.3 %
Revenue, excluding trucking fuel surcharge $ 265,972 $ 273,653 -2.8 % $ 1,061,739 $ 925,985 14.7 %
 
Operating income $ 43,652 $ 52,782 -17.3 % $ 178,000 $ 162,722 9.4 %
Adjusted operating income (1) NA NA NA $ 185,163 $ 162,722 13.8 %
 
Net income, attributable to Knight $ 29,235 $ 32,938 -11.2 % $ 116,718 $ 102,862 13.5 %
Adjusted net income, attributable to Knight (2) NA NA NA $ 121,113 $ 102,862 17.7 %
 
Earnings per diluted share $ 0.36 $ 0.40 -10.2 % $ 1.42 $ 1.25 12.9 %
Adjusted earnings per diluted share (2) NA NA NA $ 1.47 $ 1.25 17.1 %
 

The company previously announced a quarterly cash dividend of $0.06 per share to shareholders of record on December 4, 2015, which was paid on December 21, 2015.

Dave Jackson, President and Chief Executive Officer, commented on the quarter, "During the fourth quarter we experienced a less robust freight environment when compared to the same quarter last year. The contracted portion of our freight volume remained relatively stable, however, non-contract opportunities were challenged by falling load counts and additional competition. This led to a decline in consolidated revenue, excluding trucking fuel surcharge, of 2.8%. Our diluted earnings per share were $0.36, which benefited from a lower effective tax rate by approximately $0.03 per diluted share. Our profitability, cash flow generation, and return on capital remained strong, but exceptional performance during the fourth quarter of 2014, in which our revenue, excluding trucking fuel surcharge, grew 32.6% and our net income grew 63.9%, resulted in a difficult comparison for 2015. Both our trucking and logistics segments continue to operate at industry leading levels as we continue to enhance our logistics capabilities to meet the supply chain needs of our customers. We also continue to explore growth through acquisition and believe the current environment should yield opportunities."

The following chart reflects our consolidated financial performance and that of our trucking and our logistics segments for the fourth quarter and annual period of 2015 and 2014.
(dollars in thousands)       Three Months Ended Dec 31,       Twelve Months Ended Dec 31,
  2015         2014       Chg   2015         2014       Chg
Consolidated
Revenue, excluding trucking fuel surcharge $ 265,972 $ 273,653 -2.8 % $ 1,061,739 $ 925,985 14.7 %
Adjusted operating income (1) $ 43,652 $ 52,782 -17.3 % $ 185,163 $ 162,722 13.8 %
Adjusted operating ratio (1) 83.6 % 80.7 % 290 bps 82.6 % 82.4 % 20 bps
Trucking
Revenue, excluding trucking fuel surcharge $ 204,321 $ 208,739 -2.1 % $ 830,710 $ 715,712 16.1 %
Adjusted operating income (3) $ 39,343 $ 46,934 -16.2 % $ 169,306 $ 147,424 14.8 %
Adjusted operating ratio (3) 80.7 % 77.5 % 320 bps 79.6 % 79.4 % 20 bps
Logistics
Revenue $ 61,651 $ 64,914 -5.0 % $ 231,029 $ 210,273 9.9 %
Operating income $ 4,309 $ 5,848 -26.3 % $ 15,857 $ 15,298 3.7 %
Operating ratio 93.0 % 91.0 % 200 bps 93.1 % 92.7 % 40 bps
 

In the fourth quarter, the trucking segment achieved an adjusted operating ratio of 80.7% compared to 77.5% from the same quarter last year. Revenue per tractor, excluding fuel surcharge, decreased 3.7%, year over year, attributable to a 1.5% decline in average revenue per loaded mile, an 0.8% decrease in average miles per tractor, while our average length of haul increased 4.0%. During the quarter we increased driver pay in specific geographies, which resulted in higher driver pay inflation. Although the freight environment remains less robust we are experiencing improved average miles per tractor in the first half of January this year, when compared to the same period last year. Contract pricing is relatively firm despite the more competitive freight environment and lack of non-contract opportunities. We remain focused on improving the productivity of our assets, developing our freight network, and intensely controlling cost.

During the fourth quarter of 2015, brokerage revenue, which is the largest component of our logistics segment, decreased 5.5% when compared to the same quarter last year. Load volume grew by 49.7%, but was offset by a decline in revenue per load as a result of lower fuel surcharge, a shorter length of haul, and less non-contract opportunities. Gross margins expanded 90 basis points compared to the fourth quarter last year as we continue to leverage enhanced technology to procure transportation. In the fourth quarter, the logistics segment produced an operating ratio of 93.0% compared to 91.0% for the same quarter last year. During the quarter, operating income was negatively impacted as a result of lower commodity prices that negatively impacted our sourcing business as well as costs associated with the startup of our expanded logistics and transportation management offering. We plan to continue to invest in our logistics service offerings in order to provide more solutions to our customers, while improving our return on capital.

Attracting and retaining high quality driving associates remains a significant industry challenge. Although the current shortage of qualified driving associates has been, and will continue to be, a headwind for adding additional capacity, we have experienced a reduction in our open tractor count.

Our tractor fleet remains one of the most modern fleets in the industry with an average age of 1.7 years. The used equipment market remained soft during the quarter and resulted in gain on sale of revenue equipment in the fourth quarter of 2015 of $3.2 million, compared to $3.6 million in the fourth quarter of 2014.

During the fourth quarter of 2015 we did not purchase any shares of our common stock. We currently have approximately 5.8 million shares available under our stock repurchase authorization. During 2015 we returned $65.2 million to our shareholders in the form of quarterly dividends and stock repurchases. We ended the quarter with $8.7 million of cash, $112.0 million of long term debt, and $738.4 million of shareholders' equity. For the full year of 2015 our net capital expenditures were $149.4 million, while our cash flow from operations was $202.3 million. Given the current market, we do not have plans to grow the tractor fleet organically in 2016 and therefore expect lower net capital expenditures in the range of $85.0-$100.0 million.

The company will hold a conference call on January 27, 2016, at 4:30 PM EDT, to further discuss its results of operations for the quarter ended December 31, 2015. 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, "Fourth Quarter 2015 Conference Call Presentation."

Adjusted operating income, adjusted operating ratio, adjusted net income attributable to Knight, and adjusted earnings per diluted share (EPS) 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 December 31, Twelve Months Ended December 31,

2015

2014

2015

2014
(Unaudited, in thousands, except per share amounts)
REVENUE:
Revenue, before fuel surcharge $ 265,972 $ 273,653 $ 1,061,739 $ 925,985
Fuel surcharge   24,767     43,815     121,225     176,347  
TOTAL REVENUE   290,739     317,468     1,182,964     1,102,332  
 
OPERATING EXPENSES:
Salaries, wages and benefits 84,148 81,036 334,069 271,815
Fuel expense - gross 32,505 48,336 152,752 203,758
Operations and maintenance 18,790 20,078 80,855 71,558
Insurance and claims 8,556 8,718 33,632 31,133
Operating taxes and licenses 4,957 5,708 18,911 17,972
Communications 1,028 1,278 4,095 4,899
Depreciation and amortization 28,295 26,471 111,023 92,893
Purchased transportation 64,585 69,736 246,864 238,041
Miscellaneous operating expenses   4,223     3,325     22,763     7,541  
Total operating expenses   247,087     264,686     1,004,964     939,610  
       
Income from operations   43,652     52,782     178,000     162,722  
 
 
Interest income 84 132 460 458
Interest expense (284 ) (391 ) (998 ) (730 )
Other income   1,808     3,524     9,042     9,380  
Income before income taxes 45,260 56,047 186,504 171,830
INCOME TAXES   15,668     22,747     68,047     67,809  
Net income 29,592 33,300 118,457 104,021
Net income attributable to noncontrolling interest   (357 )   (362 )   (1,739 )   (1,159 )
NET INCOME ATTRIBUTABLE TO KNIGHT TRANSPORTATION $ 29,235   $ 32,938   $ 116,718   $ 102,862  
 
Basic Earnings Per Share $ 0.36 $ 0.40 $ 1.43 $ 1.27
Diluted Earnings Per Share $ 0.36 $ 0.40 $ 1.42 $ 1.25
 
Weighted Average Shares Outstanding - Basic 80,938 81,376 81,491 80,947
Weighted Average Shares Outstanding - Diluted 81,747 82,713 82,467 82,042
 
 
BALANCE SHEET DATA:              

12/31/15

12/31/14
ASSETS (Unaudited, in thousands)
Cash and cash equivalents $ 8,691 $ 17,066
Trade receivables, net of allowance for doubtful accounts 131,945 143,531
Notes receivable, net of allowance for doubtful accounts 648 1,020
Prepaid expenses 17,320 17,423
Assets held for sale 29,327 23,248
Other current assets 14,215 13,345
Income Tax Receivable 41,967 19,432
Current deferred tax assets   -         3,187
Total Current Assets   244,113         238,252
 
Property and equipment, net 803,643 752,046
Notes receivable, long-term 3,419 4,065
Goodwill 47,050 47,067
Intangible Assets, net 3,075 3,575
Other assets and restricted cash   18,932         37,280
Total Long-term Assets 876,119 844,033
 
Total Assets $ 1,120,232       $ 1,082,285
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 14,818 $ 19,122
Accrued payroll and purchased transportation 23,776 34,127
Accrued liabilities 21,609 20,604
Claims accrual - current portion 19,471 18,532
Dividend payable - current portion   349         200
Total Current Liabilities 80,023 92,585
 
Claims accrual - long-term portion 11,508 11,505
Long-term dividend payable and other liabilities 2,164 2,513
Deferred tax liabilities 174,165 162,007
Long-term debt   112,000         134,400
Total Long-term Liabilities 299,837 310,425
 
Total Liabilities   379,860         403,010
 
Common stock 810 818
Additional paid-in capital 205,648 185,184
Accumulated other comprehensive income 2,573 12,231
Retained earnings   529,367         479,527
Total Knight Transportation Shareholders' Equity 738,398 677,760
Noncontrolling interest   1,974         1,515
Total Shareholders' Equity   740,372         679,275
Total Liabilities and Shareholders' Equity $ 1,120,232       $ 1,082,285
 
 
Three Months Ended December 31,         Twelve Months Ended December 31,

2015

2014
% Change

2015

2014
% Change
(Unaudited) (Unaudited)
OPERATING STATISTICS
 
Average Revenue Per Tractor* $ 42,927 $ 44,583 -3.7 % $ 173,329 $ 171,510 1.1 %
 
Non-paid Empty Mile Percent 12.7 % 11.5 % 10.4 % 12.0 % 10.1 % 18.8 %
 
Average Length of Haul 497 478 4.0 % 503 492 2.2 %
 
Adjusted Operating Ratio (1) 83.6 % 80.7 % 82.6 % 82.4 %
 
Average Tractors - Total 4,760 4,682 4,793 4,173
 
Average Trailers - Total 12,154 11,441 11,789 9,732
 
Net Capital Expenditures (in thousands) $ 40,562 $ 57,526 $ 149,414 $ 178,834
 
Cash Flow From Operations (in thousands) $ 45,626 $ 60,120 $ 202,265 $ 177,187
 
* 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 December 31, Twelve Months Ended December 31,
  2015     2014     2015     2014
(Unaudited, in thousands)
 
Total revenue 290,739 317,468 1,182,964 1,102,332
Less: Trucking fuel surcharge   24,767     43,815     121,225     176,347
Revenue, excluding trucking fuel surcharge   265,972     273,653     1,061,739     925,985
Operating expense 247,087 264,686 1,004,964 939,610
Adjusted for:
Trucking fuel surcharge (24,767 ) (43,815 ) (121,225 ) (176,347)
Accrual for class action lawsuits (b)   -     -     (7,163 )   -
Adjusted operating expenses   222,320     220,871     876,576     763,263
Adjusted operating income   43,652     52,782     185,163     162,722
Operating ratio 85.0 % 83.4 % 85.0 % 85.2%
Adjusted operating ratio 83.6 % 80.7 % 82.6 % 82.4%
 
 
(2)
Non-GAAP reconciliation
Adjusted net income attributable to Knight and adjusted earnings per diluted share reconciliation:
 
 
Three Months Ended December 31, Twelve Months Ended December 31,
  2015     2014     2015     2014
(Unaudited, in thousands, except per share amounts)
 
Net Income attributable to Knight $ 29,235 $ 32,938 $ 116,718 $ 102,862
Adjusted for:
Accrual for class action lawsuits (net of tax) (b)   -     -   $ 4,395     -
Adjusted net income attributable to Knight $ 29,235   $ 32,938   $ 121,113   $ 102,862
 
Weighted Average Shares Outstanding - Diluted 81,747 82,713 82,467 82,042
 
Earnings per diluted share $ 0.36 $ 0.40 $ 1.42 $ 1.25
Adjusted for:
Accrual for class action lawsuits (b) $ 0.00   $ 0.00   $ 0.05   $ 0.00
Adjusted earnings per diluted share $ 0.36   $ 0.40   $ 1.47   $ 1.25
 
 
(3)
Non-GAAP reconciliation
Operating ratio and adjusted operating ratio for trucking segment (a)
 
Three Months Ended December 31, Twelve Months Ended December 31,
  2015     2014     2015     2014
(Unaudited, in thousands)
Trucking
Total revenue 229,088 252,554 951,935 892,059
Less: Trucking fuel surcharge   24,767     43,815     121,225     176,347
Revenue, excluding trucking fuel surcharge   204,321     208,739     830,710     715,712
Operating expense 189,745

205,620
789,792

744,635
Adjusted for:
Trucking fuel surcharge (24,767 ) (43,815 ) (121,225 ) (176,347)
Accrual for class action lawsuits (b)   -     -     (7,163 )   -
Adjusted operating expenses   164,978    

161,805
    661,404    

568,288
Adjusted operating income   39,343    

46,934
    169,306    

147,424
Operating ratio 82.8 % 81.4 % 83.0 % 83.5%
Adjusted operating ratio 80.7 % 77.5 % 79.6 % 79.4%
 
 

(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.

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