Knight Transportation Posts Record Revenue and Net Income for the Third Quarter of 2005
For the quarter, total revenue increased 28%, to $146.2 million from $114.1 million for the same quarter of 2004. Revenue, before fuel surcharge, increased 20%, to $127.4 million from $106.1 million for the same quarter of 2004. Net income increased 23%, to $15.5 million from $12.6 million for the same period of 2004. Net income per diluted share increased to $0.27 from $0.22 for the same quarter of 2004.
“Revenue growth came from a combination of improved asset utilization, expansion of our fleet and network of service centers, and approximately 45 days of revenue from our August acquisition of Edwards Bros. Inc., a refrigerated carrier based in Idaho Falls, Idaho.”
For the nine months ended Sept. 30, 2005, total revenue increased 27%, to $402.2 million from $315.6 million for the same period of 2004. Revenue, before fuel surcharge, increased 21%, to $358.2 million from $296.5 million for the same period of 2004. Net income increased 30%, to $43.2 million from $33.3 million for the same period of 2004. Net income per diluted share increased to $0.75 from $0.58 for the same period of 2004.
Chairman and Chief Executive Officer Kevin P. Knight commented on the quarter:
"We are encouraged by another quarter of record revenue and earnings as we continued to execute our operating model focused on leading growth and profitability. For the quarter, we achieved revenue growth of over 20% before fuel surcharge, and an operating ratio of 80.4%. The strength of our operating model was highlighted recently by being named to the Forbes Magazine list of 200 Best Small Companies in America for the 11th consecutive year.
"Revenue growth came from a combination of improved asset utilization, expansion of our fleet and network of service centers, and approximately 45 days of revenue from our August acquisition of Edwards Bros. Inc., a refrigerated carrier based in Idaho Falls, Idaho.
"Our geographic expansion continued with the recently announced opening of our 23rd service center in Reno, Nev. Reno was our third new dry van service center in 2005, joining Chicago in March and El Paso in June. In addition, our acquisition of Edwards Bros. added approximately 140 tractors and 224 trailers to our Knight Refrigerated subsidiary.
"Also during the quarter, we initiated brokerage operations under Knight Brokerage LLC, a wholly owned subsidiary. We view Knight Brokerage as a natural extension of our customer offerings and look forward to providing a nonasset-based capability to service our customers' freight when the shipments do not fit our asset-based model, or when all of our available internal capacity in the desired area has been allocated to other shipments.
"As a result of our geographic expansion and acquisition of Edwards Bros., our average tractors operating for the third quarter increased 16% over the same quarter of 2004. Even with the larger fleet and entering new markets, we were able to improve pricing and asset productivity. Our average revenue per loaded and total mile, before fuel surcharge, increased 5.5% and 5.3%, respectively, without sacrificing length of haul, which was up 3.2%. Revenue per tractor before fuel surcharge improved 3.4%, as higher rates overcame an approximately 1.9% decrease in average miles per tractor. We believe a continuation of the favorable relationship between shipping demand and truck capacity, as well as good freight selection, allowed us to generate more revenue with fewer miles per tractor. Approximately 1/2 of the decrease in miles per tractor was attributable to loads lost by our Gulfport, Miss., and Katy, Texas, service centers related to hurricanes, as explained below.
"In addition to expanding our revenues, we continued our focus on controlling costs. For the quarter, we achieved an operating ratio of 80.4%. This was the same operating ratio as the third quarter of 2004, which we consider a major accomplishment given the challenges of rapidly escalating fuel prices and the effects of hurricanes Katrina and Rita that our personnel overcame.
"Rapidly escalating fuel prices have been a significant challenge for our industry. The Department of Energy's Retail On-Highway Diesel Prices for the U.S. national average price of fuel increased $.735 per gallon, or 40% between the average prices for third quarter of 2004 and the third quarter of 2005. The recent volatility and high level of current fuel prices has made evident certain deficiencies in some customer fuel surcharge programs. Despite increasing fuel surcharge billings by 136% compared to the same quarter last year, we are intensifying our efforts to improve deficient fuel surcharge arrangements to mitigate the negative impact on earnings due to increases and volatility in fuel prices. Net of fuel surcharge collection, we estimate that higher fuel prices affected our earnings by $.025 per diluted share, for the quarter.
"The two hurricanes also had a measurable effect on the quarter. Many observers still view Knight as a company operating mostly in the southwestern United States. However, Katy, Texas, is our second-largest service center and Gulfport, Miss., is our fourth-largest service center, measured by the number of tractors assigned to each. Accordingly, we experienced significant disruption to our operations and a loss of freight volume for several weeks, as well as the expense of temporarily moving our operations personnel from those two service centers to our emergency command center in Kansas City so they could continue to serve customers and manage our tractors and driving associates during the most challenging period. We estimate the overall impact to our earnings was approximately $900,000 pre-tax for the quarter. This amounts to about 70 basis points on our operating ratio, or just under 1 cent per diluted share. Our structures and assets sustained minimal damage and are fully operational now. I'd like to express my sincere appreciation for the strong showing by our associates, especially our associates along the Gulf Coast, and the response of all of our associates with the assistance they demonstrated to those experiencing hardships.
"We continued to make significant investments in revenue equipment to support our growth. Including our Edwards Bros. acquisition, we added a total of 180 company tractors in the quarter, while replacing an additional 166 existing company tractors. We anticipate growing our fleet by an additional 100 to 150 tractors over the remainder of 2005. Also including our Edwards Bros. acquisition, we added 368 trailers, of which 131 were replacements of existing trailers. For the quarter, we invested $37.3 million in net capital expenditures. At Sept. 30, 2005, our balance sheet reflected $27.2 million in cash, no debt, and $333.7 million in shareholders' equity.
"As previously announced, during the quarter we disposed of our 17% interest in Concentrek Inc. We recognized an approximately $551,000 pre-tax gain on the transaction, which is recorded under 'other income' and did not affect our operating ratio. The gain amounted to just over 1/2 cent per diluted share for the quarter."
The company also commented on the modified federal hours of service regulations that became effective on Oct. 1, 2005. The primary modification to the regulation is a requirement that drivers using the sleeper berth provision must take at least eight consecutive hours in the sleeper berth during their 10 hours off-duty. Under the previous regulations, drivers could split their 10 hour off-duty time in the sleeper berth into two periods, each of which being not less than two hours. The company believes that the new restrictions may have a modest negative impact on mileage productivity compared with the prior regulations, as a result of not being able to stop the 14 hour clock.
The company will hold a conference call on Oct. 20, 4 p.m. ET, to further discuss its results of operations for the quarter ended Sept. 30, 2005. The dial-in number for this conference call is 800-350-3624 (please note that this is a new number).
Knight Transportation Inc. is a short- to medium-haul, truckload carrier headquartered in Phoenix. The company serves most of the United States through its regional operations in Phoenix; Tulare, Calif.; Salt Lake City; Portland, Ore.; Las Vegas; Denver; Kansas City, Kan.; Indianapolis; Katy, Texas; Gulfport, Miss.; Charlotte, N.C.; Memphis, Tenn.; Atlanta; Carlisle, Pa.; Lakeland, Fla.; Chicago; El Paso, Texas, Idaho Falls, Idaho; and Reno, Nev. The company transports general commodities, including consumer goods, packaged foodstuffs, paper products, beverage containers, imported and exported commodities, and refrigerated goods.
INCOME STATEMENT DATA:
Three Months Nine Months
Ended Ended
Sept. 30, Sept. 30,
(Unaudited, in thousands,
except per share amounts)
2005 2004 2005 2004
-------- -------- -------- --------
REVENUE:
Revenue, before fuel surcharge $127,444 $106,109 $358,241 $296,521
Fuel surcharge 18,744 7,947 43,996 18,996
-------- -------- -------- --------
TOTAL REVENUE 146,188 114,056 402,237 315,517
-------- -------- -------- --------
OPERATING EXPENSES:
Salaries, wages and benefits 41,934 34,441 118,047 96,904
Fuel expense - gross 37,051 21,879 93,084 59,011
Operations and maintenance 9,067 7,234 24,869 19,022
Insurance and claims 4,916 5,376 17,221 15,978
Operating taxes and licenses 3,112 2,476 9,006 7,066
Communications 1,009 912 2,936 2,653
Depreciation and amortization 13,328 10,463 38,423 28,935
Lease expense - revenue
equipment 67 634 67 2,903
Purchased transportation 8,585 7,560 22,196 21,697
Gain on sales of equipment (464) - (1,783) -
Miscellaneous operating
expenses 2,571 2,305 7,198 6,253
-------- -------- -------- --------
121,176 93,280 331,264 260,422
-------- -------- -------- --------
Income From Operations 25,012 20,776 70,973 55,095
-------- -------- -------- --------
Other Income 551 - 551 -
Interest income 188 132 442 339
-------- -------- -------- --------
739 132 993 339
-------- -------- -------- --------
Income Before Income Taxes 25,751 20,908 71,966 55,434
INCOME TAXES 10,300 8,350 28,800 22,150
-------- -------- -------- --------
NET INCOME $ 15,451 $ 12,558 $ 43,166 $ 33,284
======== ======== ======== ========
Net Income Per Share
- Basic $ 0.27 $ 0.22 $ 0.76 $ 0.59
- Diluted $ 0.27 $ 0.22 $ 0.75 $ 0.58
Weighted Average Shares
Outstanding
- Basic 56,865 56,402 56,810 56,332
- Diluted 57,829 57,747 57,810 57,534
BALANCE SHEET DATA:
9/30/2005 12/31/2004
----------- -----------
ASSETS (Unaudited, in thousands)
Cash and cash equivalents $ 26,867 $ 25,357
Accounts receivable, net 72,499 58,733
Notes receivable, net 240 171
Inventories and supplies 3,138 2,332
Prepaid expenses 6,318 5,215
Income tax receivable - 3,216
Restricted cash 6,555 -
Deferred tax asset 8,123 7,493
----------- -----------
Total Current Assets 123,740 102,517
----------- -----------
Property and equipment, net 331,001 287,930
Notes receivable, long-term 276 77
Goodwill 8,119 7,504
Other Assets 2,119 4,839
----------- -----------
Total Assets $ 465,255 $ 402,867
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 10,055 $ 5,044
Accrued payroll 5,192 4,558
Accrued liabilities 10,274 5,684
Dividends payable 1,138 -
Claims accrual 23,615 23,904
Other liabilities 6,555 -
----------- -----------
Total Current Liabilities 56,829 39,190
Other liabilities 250 -
Deferred Income Taxes 74,510 72,660
----------- -----------
Total Liabilities 131,589 111,850
----------- -----------
Common stock 569 567
Additional paid-in capital 85,010 82,117
Retained earnings 248,087 208,333
----------- -----------
Total Shareholders' Equity 333,666 291,017
----------- -----------
Total Liabilities and Shareholders'
Equity $ 465,255 $ 402,867
=========== ===========
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2005 2004 2005 2004
----------- ----------- ----------- ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
OPERATING
STATISTICS % %
Change Change
Average
Revenue
Per Loaded
Mile(a) $1.642 $1.556 5.5% $1.633 $1.521 7.4%
Average
Revenue
Per Total
Mile(a) $1.451 $1.378 5.3% $1.439 $1.349 6.7%
Empty Mile
Factor 11.6% 11.4% 1.8% 11.9% 11.4% 4.4%
Average
Miles Per
Tractor 28,308 28,834 -1.9% 84,012 86,116 -2.4%
Average
Length of
Haul 582 564 3.2% 571 549 4.0%
Operating
Ratio(b) 80.4% 80.4% 80.2% 81.4%
Average
Tractors
- Total 3,078 2,646 16.3% 2,945 2,535 16.2%
Tractors -
End of
Quarter:
Company 2,926 2,497 2,926 2,497
Owner -
Operator 241 256 241 256
----------- ----------- ----------- ----------
3,167 2,753 3,167 2,753
Trailers -
End of
Quarter 7,749 7,142 7,749 7,142
Net Capital
Expendi-
tures
(in
thousands) $37,328 $41,410 $74,924 $92,650
Cash Flow
From
Operations
(in
thousands) $22,008 $28,670 $75,280 $74,720
(a) Excludes fuel surcharge.
(b) 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. Revenue from fuel surcharge is available on the accompanying statements of income. 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.
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 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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