Knight Transportation Reports Fourth Quarter and Annual 2016 Revenue and Earnings

Wednesday, January 25, 2017 2:01 pm MST

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 fourth quarter ended December 31, 2016.

The following table reflects key financial highlights for the fourth quarter and full year of 2016 and 2015.

     
(dollars in thousands, except per share data) Three Months Ended December 31, Twelve Months Ended December 31,
2016   2015   Chg 2016   2015   Chg
Total Revenue $289,098 $290,739 -0.6% $1,118,034 $1,182,964 -5.5%
 
Revenue, excluding trucking fuel surcharge $264,464 $265,972 -0.6% $1,028,148 $1,061,739 -3.2%
 
Operating Income $34,736 $43,652 -20.4% $148,479 $178,000 -16.6%
Adjusted Operating Income(1) $37,186 $43,652 -14.8% $150,929 $185,163 -18.5%
 
Net Income, attributable to Knight $22,161 $29,235 -24.2% $93,863 $116,718 -19.6%
Adjusted Net Income, attributable to Knight(2) $23,671 $29,235 -19.0% $95,373 $121,113 -21.3%
 
Earnings per diluted share $0.27 $0.36 -23.6% $1.16 $1.42 -18.4%
Adjusted earnings per diluted share(2) $0.29 $0.36 -18.4% $1.17 $1.47 -19.9%
 

The company previously announced a quarterly cash dividend of $0.06 per share to shareholders of record on December 2, 2016, which was paid on December 27, 2016.

Dave Jackson, President and Chief Executive Officer, commented on the quarter, “The freight environment continues to show signs of improvement as we experienced more non-contract opportunities during the fourth quarter of 2016 when compared to the same quarter last year. This resulted in continued year over year improvements in average miles per tractor and brokerage load count. Although our revenue per total mile continued to be down year over year, we experienced stronger sequential revenue per total mile growth from third quarter to fourth quarter this year when compared to the same period last year. With declining new truck orders, a weak used equipment market, and additional regulatory burdens expected to phase in during 2017, we expect continued improvement in the supply/demand relationship in the coming quarters.

“Our adjusted earnings per diluted share for the quarter were $0.29, compared to our adjusted earnings per diluted share of $0.36 in the same quarter last year. During the quarter, revenue per loaded mile, excluding fuel surcharge, decreased 1.2%, which negatively impacted our results by approximately $0.02 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 $0.05 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 36.1% versus 34.9% for the fourth quarter of 2015, which negatively impacted our results by approximately $0.01 per share. These negative items were partially offset by cost control efforts that resulted in combined savings of approximately $0.02 per share across several administrative departments.

"During the fourth quarter of 2016 we accrued $2.5 million of expense ($1.5 million after-tax) related to expected settlement costs for two class action lawsuits involving employment-related claims in California and Washington. We have provided adjusted financial information that excludes these expenses from our results of operations. We believe the comparability of our results is improved by excluding these infrequent expenses that are unrelated to our core operations."

The following table reflects our consolidated financial performance and that of our trucking and our logistics segments for the fourth quarter and full year of 2016 and 2015.

     
(dollars in thousands) Three Months Ended December 31, Twelve Months Ended December 31,
2016   2015   Chg 2016   2015   Chg

Consolidated

Revenue, excluding trucking fuel surcharge $264,464 $265,972 -0.6% $1,028,148 $1,061,739 -3.2%
Operating Income $34,736 $43,652 -20.4% $148,479 $178,000 -16.6%
Adjusted Operating Income(1) $37,186 $43,652 -14.8% $150,929 $185,163 -18.5%
Adjusted Operating Ratio(1) 85.9% 83.6% 230 bps 85.3% 82.6% 270 bps
 

Trucking Segment

Revenue, excluding trucking fuel surcharge $202,747 $204,321 -0.8% $810,358 $830,710 -2.4%
Operating Income $30,582 $39,343 -22.3% $135,181 $162,143 -16.6%
Adjusted Operating Income(3) $33,032 $39,343 -16.0% $137,631 $169,306 -18.7%
Adjusted Operating Ratio(3) 83.7% 80.7% 300 bps 83.0% 79.6% 340 bps
 

Logistics Segment

Revenue $61,717 $61,651 0.1% $217,790 $231,029 -5.7%
Operating Income $4,154 $4,309 -3.6% $13,298 $15,857 -16.1%
Operating Ratio 93.3% 93.0% 30 bps 93.9% 93.1% 80 bps
 

In the fourth quarter, the trucking segment achieved an adjusted operating ratio of 83.7% compared to 80.7% from the same quarter last year. We continue to improve the utilization of the fleet, as average miles per tractor improved 0.7% on a year over year basis. Revenue per tractor, excluding fuel surcharge, decreased 0.4%, year over year, as lower average revenue, excluding fuel surcharge, per loaded mile offset the improvement in average miles per tractor. Higher net fuel expense, less gain on sale of revenue equipment, and higher driver related expenses were the main factors negatively impacting 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 fourth quarter of 2016, the logistics segment produced an operating ratio of 93.3% compared to 93.0% for the same quarter last year. Our logistics segment consists of brokerage, intermodal, and other logistics services. Revenue was essentially flat despite exiting our agriculture sourcing business in the first quarter of 2016. Compared to the same quarter last year, load volumes in our brokerage business increased 8.2% while gross margin percentage contracted 50 basis points. Brokerage revenue increased 6.3% when compared to the same quarter last year as increased load volume was offset by a 1.7% decline in revenue per load. 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 consolidated return on capital.

The used equipment market remained soft during the quarter and resulted in gain on sale of revenue equipment in the fourth quarter of 2016 of $0.7 million, compared to $3.2 million in the fourth quarter of 2015. The average age of our tractor fleet is 2.2 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.

Over the last twelve months ended December 31, 2016, we have returned $59.5 million to our shareholders in the form of quarterly dividends and stock repurchases. We ended the quarter with $8.0 million of cash, $18.0 million of long-term debt, and $786.5 million of shareholders' equity. Our net capital expenditures during 2016 were $89.0 million, while our cash flow from operations was $243.4 million. We expect our net capital expenditures in 2017 to be within a range of $95.0 to $110.0 million, which will primarily be used to replace existing tractors and trailers that will reach our current trade cycle during the year. We do not plan to grow our asset-based tractor fleet internally until we see significant strength in customer demand combined with stronger non-contract and contract rate markets.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting. The objective of this update is to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for us beginning January 1, 2017, with early adoption permitted.

During the fourth quarter of 2016, we elected to early adopt the new guidance. The primary impact of adoption was the recognition of excess tax benefits as a reduction to income tax expense rather than paid-in capital, for all periods in 2016. The early adoption requires a recast of consolidated financial statements previously issued during 2016, the year of adoption. Therefore, our three months ended March 31, 2016, June 30, 2016, and September 30, 2016 now reflect an excess tax benefit, recorded as a reduction to income tax expense instead of additional paid-in capital, of $446,640, $243,433, and $416,697, respectively.

The company will hold a conference call on January 25, 2017, at 4:30 PM ET, to further discuss its results of operations for the quarter ended December 31, 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, “Fourth 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 December 31, Twelve Months Ended December 31,

2016

2015

2016

2015

(Unaudited, in thousands, except per share amounts)
REVENUE:
Revenue, before fuel surcharge $ 264,464 $ 265,972 $ 1,028,148 $ 1,061,739
Fuel surcharge   24,634       24,767     89,886       121,225  
TOTAL REVENUE   289,098       290,739     1,118,034       1,182,964  
 
OPERATING EXPENSES:
Salaries, wages and benefits 83,197 84,148 333,929 334,069
Fuel expense - gross 34,881 32,505 129,696 152,752
Operations and maintenance 19,360 18,790 76,246 80,855
Insurance and claims 8,111 8,556 34,441 33,632
Operating taxes and licenses 4,083 4,957 18,728 18,911
Communications 958 1,028 4,182 4,095
Depreciation and amortization 29,675 28,295 116,160 111,023
Purchased transportation 65,091 64,585 233,863 246,864
Miscellaneous operating expenses   9,006       4,223     22,310       22,763  
Total operating expenses   254,362       247,087     969,555       1,004,964  
           
Income from operations   34,736       43,652     148,479       178,000  
 
 
Interest income 50 84 309 460
Interest expense (155 ) (284 ) (897 ) (998 )
Other income   337       1,808     4,939       9,042  
Income before income taxes 34,968 45,260 152,830 186,504
INCOME TAXES   12,496   *   15,668     57,592   *   68,047  
Net income 22,472 29,592 95,238 118,457
Net income attributable to noncontrolling interest   (311 )     (357 )   (1,375 )     (1,739 )
NET INCOME ATTRIBUTABLE TO KNIGHT TRANSPORTATION $ 22,161     $ 29,235   $ 93,863     $ 116,718  
 
Basic Earnings Per Share $ 0.28 $ 0.36 $ 1.17 $ 1.43
Diluted Earnings Per Share $ 0.27 $ 0.36 $ 1.16 $ 1.42
 
Weighted Average Shares Outstanding - Basic 80,127 80,938 80,362 81,491
Weighted Average Shares Outstanding - Diluted 81,140 81,747 81,228 82,467
 
           
BALANCE SHEET DATA:

12/31/16

12/31/15

ASSETS (Unaudited, in thousands)
Cash and cash equivalents $ 8,021 $ 8,691
Trade receivables, net of allowance for doubtful accounts 142,167 131,945
Notes receivable, net of allowance for doubtful accounts 560 648
Prepaid expenses 13,244 17,320
Assets held for sale 9,634 29,327
Other current assets 8,159 14,215
Income Tax Receivable   8,406       41,967
Total Current Assets 190,191 244,113
 
Property and equipment, net 802,858 803,643
Notes receivable, long-term 3,047 3,419
Goodwill 47,031 47,050
Intangible Assets, net 2,575 3,075
Other long-term assets, restricted cash and investments   32,823       18,932
Total Long-term Assets 888,334 876,119
 
Total Assets $ 1,078,525     $ 1,120,232
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 18,006 $ 14,818
Accrued payroll and purchased transportation 25,017 23,776
Accrued liabilities 16,722 21,609
Claims accrual - current portion 18,633 19,471
Dividend payable - current portion   272       349
Total Current Liabilities 78,650 80,023
 
Claims accrual - long-term portion 13,290 11,508
Long-term dividend payable and other liabilities 1,854 2,164
Deferred tax liabilities 178,000 174,165
Long-term debt   18,000       112,000
Total Long-term Liabilities 211,144 299,837
 
Total Liabilities   289,794       379,860
 
Common stock 802 810
Additional paid-in capital 223,267 * 205,648
Accumulated other comprehensive income - 2,573
Retained earnings   562,404       529,367
Total Knight Transportation Shareholders' Equity 786,473 738,398
Noncontrolling interest   2,258       1,974
Total Shareholders' Equity   788,731       740,372
Total Liabilities and Shareholders' Equity $ 1,078,525     $ 1,120,232

* Reflects the impact of the Company’s adoption of ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting, to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences. The adoption impacted the income statement by reducing the income tax expense, while reducing additional paid-in capital in the balance sheet for all periods of 2016.

 

   
Three Months Ended December 31, Twelve Months Ended December 31,

2016

 

2015

% Change  

2016

 

2015

% Change
(Unaudited) (Unaudited)
OPERATING STATISTICS
 
Average Revenue Per Tractor** $ 42,744 $ 42,927 -0.4 % $ 172,185 $ 173,329 -0.7 %
 
Non-paid Empty Mile Percent 12.7 % 12.7 % 0.0 % 12.5 % 12.0 % 4.2 %
 
Average Length of Haul 491 497 -1.2 % 498 503 -1.0 %
 
Adjusted Operating Ratio (1) 85.9 % 83.6 % 85.3 % 82.6 %
 
Average Tractors - Total 4,743 4,760 4,706 4,793
 
Average Trailers - Total 12,570 12,154 12,288 11,789
 
Net Capital Expenditures (in thousands) $ 12,945 $ 40,562 $ 89,001 $ 149,414
 
Cash Flow From Operations (in thousands) $ 51,663 $ 49,126 $ 243,354 $ 205,765
** 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,
2016       2015 2016     2015
(Unaudited, in thousands)
 
Total revenue $ 289,098 $ 290,739 $ 1,118,034 $ 1,182,964
Less: Trucking fuel surcharge 24,634       24,767 89,886     121,225
Revenue, excluding trucking fuel surcharge $ 264,464       $ 265,972 $ 1,028,148     $ 1,061,739
Operating expense 254,362 247,087 969,555 1,004,964
Adjusted for:
Trucking fuel surcharge (24,634) (24,767) (89,886) (121,225)
Accrual for class action lawsuits (b) (2,450)       - (2,450)     (7,163)
Adjusted operating expenses 227,278       222,320 877,219     876,576
Adjusted operating income $ 37,186       $ 43,652 $ 150,929     $ 185,163
Operating ratio 88.0% 85.0% 86.7% 85.0%
Adjusted operating ratio (a) 85.9% 83.6% 85.3% 82.6%
 
(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,
2016       2015 2016     2015
(Unaudited, in thousands, except per share amounts)
 
Net Income attributable to Knight $ 22,161 $ 29,235 $ 93,863 $ 116,718
Adjusted for:
Accrual for class action lawsuits (net of tax)(b) 1,510       - 1,510     4,395
Adjusted net income attributable to Knight $ 23,671       $ 29,235 $ 95,373     $ 121,113
 
Weighted Average Shares Outstanding - Diluted 81,140 81,747 81,228 82,467
 
Earnings per diluted share $ 0.27 $ 0.36 $ 1.16 $ 1.42
Adjusted for:
Accrual for class action lawsuits (b) 0.02       - 0.02     0.05
Adjusted earnings per diluted share $ 0.29       $ 0.36

 

$ 1.17

***

  $ 1.47
*** Footing variance due to rounding
 
(3)                            
Non-GAAP reconciliation
Operating ratio and adjusted operating ratio for trucking segment (a)
 
Three Months Ended December 31, Twelve Months Ended December 31,
2016       2015 2016     2015
(Unaudited, in thousands)
Trucking
Total revenue $ 227,381 $ 229,088 $ 900,244 $ 951,935
Less: Trucking fuel surcharge 24,634       24,767 89,886     121,225
Revenue, excluding trucking fuel surcharge $ 202,747       $ 204,321 $ 810,358     $ 830,710
Operating expense 196,799 189,745 765,063 789,792
Adjusted for:
Trucking fuel surcharge (24,634) (24,767) (89,886) (121,225)
Accrual for class action lawsuits (b) (2,450)       - (2,450)     (7,163)
Adjusted operating expenses 169,715       164,978 672,727     661,404
Adjusted operating income $ 33,032       $ 39,343 $ 137,631     $ 169,306
Operating ratio 86.6% 82.8% 85.0% 83.0%
Adjusted operating ratio 83.7% 80.7% 83.0% 79.6%
(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 fourth quarter of 2016, we accrued $2.5 million of expense ($1.5 million after-tax) related to two class action lawsuits involving employment related claims. 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

Connect with us: Connect With Us on FacebookConnect With Us on TwitterConnect With Us on LinkedInConnect With Us on YouTube