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 second quarter ended June 30, 2014.

Key financial highlights for the second quarter and first half of 2014 and 2013 were as follows:

(dollars in thousands, except per share data)       Three Months Ended June 30,       Six Months Ended June 30,
2014     2013     % Diff 2014     2013     % Diff
Total revenue $264,155 $244,783 7.9% $513,318 $480,183 6.9%
Revenue, excluding trucking fuel surcharge $218,908 $200,104 9.4% $424,504 $389,704 8.9%
Operating income $38,899 $31,925 21.8% $70,149 $57,469 22.1%
Net income $25,761 $18,939 36.0% $44,824 $34,122 31.4%
Earnings per diluted share $0.31 $0.24 33.5% $0.55 $0.43 29.1%

The company previously announced a quarterly cash dividend of $0.06 per share to shareholders of record on June 6, 2014, which was paid on June 27, 2014.

Kevin Knight, Chairman and Chief Executive Officer, commented on the quarter, ''We are pleased with our positive results as we continued to grow our revenue and improve our operating margin. During the second quarter, overall demand remained strong while capacity appeared to tighten. Both our trucking and logistics segments increased revenue and operating income meaningfully, when compared to the same quarter last year. In our trucking business, revenue per tractor increased 6.0%, year over year, with a 5.6% improvement in revenue per loaded mile, a 3.1% increase in our length of haul, a 140 basis point improvement in our non-paid empty mile percentage, and a 1.1% decrease in miles per tractor. In our logistics business, revenue growth was strong and gross margin percentage improved. We are encouraged by the positive momentum from our results over the past several quarters and feel well positioned for future growth and success by providing capacity to our customers, quality careers to our driving associates, and superior returns to our shareholders.''

The following chart reflects the financial performance of our trucking (asset based) and our logistics (non-asset based) businesses for the second quarter of 2014 and 2013.

(dollars in thousands, except operating ratio)       Three Months Ended June 30,       Six Months Ended June 30,
2014     2013     Diff 2014     2013     Diff
Trucking (Asset based)
Revenue, excluding trucking fuel surcharge $171,021 $160,956 6.3% $332,848 $318,659 4.5%
Operating Income $35,856 $29,403 21.9% $64,977 $52,637 23.4%
Operating Ratio(1) 79.0% 81.7% -270 bps 80.5% 83.5% -300 bps
Logistics (Non-asset based)
Revenue $47,887 $39,148 22.3% $91,656 $71,045 29.0%
Operating Income $3,043 $2,522 20.7% $5,172 $4,832 7.0%
Operating Ratio(1) 93.6% 93.6% Flat 94.4% 93.2% 120 bps
Consolidated
Revenue, excluding trucking fuel surcharge $218,908 $200,104 9.4% $424,504 $389,704 8.9%
Operating Income $38,899 $31,925 21.8% $70,149 $57,469 22.1%
Operating Ratio(1) 82.2% 84.0% -180 bps 83.5% 85.3% -180 bps
 

(1)Operating ratio is defined in our trucking segment as total operating expenses, net of trucking fuel surcharge, as a percentage of revenue before trucking fuel surcharge. Operating ratio is defined in our Logistics segment as total operating expenses as a percentage of total revenue.

In the second quarter, the operating ratio of our trucking segment improved to 79.0% from 81.7% in the same quarter last year. In the second quarter, operating income in our trucking segment improved 21.9% while our revenue, excluding trucking fuel surcharge, grew 6.3%. We continue to see positive results from our efforts to improve yield and drive operational efficiencies. Our dedicated business has also experienced meaningful revenue and earnings growth as we have seen an increase in opportunities to expand our dedicated fleet over the last several quarters. The used equipment market also remained strong and has led to an improved gain on sale of revenue equipment. Although the relationship between customer demand and industry wide supply of available trucks was favorable to the truckload carriers, the industry continues to be faced with multiple challenges that have led to higher costs, including rising driver pay, increased regulation, additional maintenance cost associated with the 2010 EPA emission engines, and rising equipment cost. We continue to intensify our cost control efforts in order to manage these inflationary pressures.

Our brokerage business increased revenue 64.1%, increased gross margin 69.5%, and increased operating income 53.1%, when compared to the same quarter last year. Our brokerage business continues to show meaningful growth as we continue to add additional headcount to enable us to source more capacity and to offer more solutions to our customers. Our intermodal business improved its operating ratio 470 basis points sequentially from the first quarter of 2014 and has now returned to operating profitably.

Developing and retaining high quality driving associates remains a significant challenge to the industry. Despite a strong freight environment, the current driver supply situation has been a headwind for adding additional capacity. Our driver development and training programs remain a primary focus area for our management team, and we feel well positioned to continue to make progress in the coming quarters.

The DOE national average diesel fuel price increased 1.6% when compared to the second quarter last year. Fuel remains a major cost focus for us as we continue our work towards cost effective, industry leading fuel economy while at the same time reducing the environmental impact of our operations.

Our tractor fleet remains one of the most modern fleets in the industry with an average age of 1.8 years. The used equipment market remained strong during the quarter and resulted in gain on sale of revenue equipment in the second quarter of 2014 of $4.6 million, compared to $1.6 million in the second quarter of 2013.

We have returned $78.8 million to our shareholders in the form of quarterly dividends over the two years ended June 30, 2014. We ended the quarter with $15.4 million of long term debt, and $605.0 million of shareholders' equity. Our year-to-date 2014 net capital expenditures were $61.3 million while our cash flow from operations was $77.9 million.

In the second quarter of 2014 Knight Transportation formed a new entity, Kool Trans, LLC (Kool Trans). Kool Trans is a full truckload temperature-controlled transportation company created to be attractive to professional drivers while providing high quality consistent service to our customers. We hired a former CEO of a large temperature-controlled truckload transportation company to lead and grow this business. Kool Trans will be marketed and operated separately from our Knight Refrigerated business. Through Kool Trans, we plan to provide additional refrigerated capacity to the market through a fleet of new trucks as well as our network of third-party carriers through our truckload brokerage.

Kevin Knight, Chairman and Chief Executive Officer, commented, ''We are excited about the growth opportunities we have with the creation of Kool Trans. We feel that the recent strength in the North American freight market, the tightening capacity, and our experienced leadership team will enable us to provide much needed capacity for our customers and generate meaningful returns for our stakeholders.''

The company will hold a conference call on July 23, 2014, at 4:30 PM EDT, to further discuss its results of operations for the quarter ended June 30, 2014. 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, ''Second Quarter 2014 Conference Call Presentation.''

Knight Transportation, Inc. is a provider of multiple truckload transportation and logistics services using a nationwide network of 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 owner-operators.

       
INCOME STATEMENT DATA: Three Months Ended June 30, Six Months Ended June 30,
(Unaudited, in thousands, except per share amounts)
           

2014

2013

2014

2013

REVENUE:
Revenue, before fuel surcharge $ 218,908 $ 200,104 $ 424,504 $ 389,704
Fuel surcharge   45,247         44,679     88,814         90,479  
TOTAL REVENUE   264,155         244,783     513,318         480,183  
 
OPERATING EXPENSES:
Salaries, wages and benefits 64,750 56,807 125,483 114,461
Fuel expense - gross 52,192 52,739 104,201 108,432
Operations and maintenance 17,156 15,919 34,176 31,828
Insurance and claims 7,462 7,295 14,885 14,450
Operating taxes and licenses 3,861 3,985 7,926 7,893
Communications 1,178 1,200 2,457 2,372
Depreciation and amortization 21,951 21,089 43,738 42,597
Purchased transportation 56,319 49,883 108,288 92,675
Miscellaneous operating expenses   387         3,941     2,015         8,006  
  225,256         212,858     443,169         422,714  
               
Income From Operations   38,899         31,925     70,149         57,469  
 
 
Interest income 109 96 222 205
Interest expense (87 ) (77 ) (204 ) (219 )
Other income (expense)   2,591         (168 )   3,457         53  
Income before income taxes 41,512 31,776 73,624 57,508
INCOME TAXES   15,496         12,712     28,276         23,010  
Net Income 26,016 19,064 45,348 34,498
Net income attributable to noncontrolling interest   (255 )       (125 )   (524 )       (376 )
NET INCOME ATTRIBUTABLE TO KNIGHT TRANSPORTATION $ 25,761       $ 18,939   $ 44,824       $ 34,122  
 
Basic Earnings Per Share $ 0.32 $ 0.24 $ 0.56 $ 0.43
Diluted Earnings Per Share $ 0.31 $ 0.24 $ 0.55 $ 0.43
 
Weighted Average Shares Outstanding - Basic 80,864 79,954 80,684 79,898
Weighted Average Shares Outstanding - Diluted 81,835 80,296 81,596 80,209
 
BALANCE SHEET DATA:

06/30/14

12/31/13

ASSETS (Unaudited, in thousands)
Cash and cash equivalents $ 103 $ 992
Trade receivables, net of allowance for doubtful accounts 121,903 116,391
Notes receivable, net of allowance for doubtful accounts 775 774
Related party notes and interest receivable 0 748
Prepaid expenses 13,750 15,026
Assets held for sale 10,500 16,476
Other current assets 11,611 11,066
Current deferred tax assets   3,942         3,359  
Total Current Assets   162,584         164,832  
 
Property and equipment, net 621,367 591,791
Notes receivable, long-term 3,991 4,047
Goodwill 10,247 10,257
Other assets and restricted cash   40,593         36,194  
Total Long-term Assets 676,198 642,289
 
Total Assets $ 838,782       $ 807,121  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 19,394 $ 14,354
Accrued payroll and purchased transportation 17,156 13,864
Accrued liabilities 18,140 19,062
Claims accrual - current portion 16,888 15,616
Dividend payable - current portion   181         168  
Total Current Liabilities 71,759 63,064
 
Claims accrual - long-term portion 9,668 8,889
Long-term dividend payable and other liabilities 2,407 2,486
Deferred tax liabilities 133,472 140,149
Long-term debt   15,362         38,000  
Total Long-term Liabilities 160,909 189,524
 
Total Liabilities   232,668         252,588  
 
Common stock 810 802
Additional paid-in capital 164,485 150,858
Accumulated other comprehensive income 8,118 4,582
Retained earnings   431,573         397,346  
Total Knight Transportation Shareholders' Equity 604,986 553,588
Noncontrolling interest   1,128         945  
Total Shareholders' Equity   606,114         554,533  
Total Liabilities and Shareholders' Equity $ 838,782       $ 807,121  
 
 
         
Three Months Ended June 30, Six Months Ended June 30,

2014

    

2013

      

2014

    

2013

    
(Unaudited) (Unaudited)
 
OPERATING STATISTICS % %
Change Change
Average Revenue Per Tractor* $42,938 $40,523 6.0% $83,546 $79,069 5.7%
 
Non-paid Empty Mile Percent 9.4% 10.8% -13.0% 9.5% 10.9% -12.8%
 
Average Length of Haul 497 482 3.1% 499 481 3.7%
 
Operating Ratio** 82.2% 84.0% 83.5% 85.3%
 
Average Tractors - Total 3,983 3,963 3,984 4,020
 
Average Trailers - Total 9,046 9,393 9,054 9,439
 
Net Capital Expenditures (in thousands) $55,632 $19,580 $61,358 $17,822
 
Cash Flow From Operations (in thousands) $41,365 $31,935 $77,852 $72,257
 
* Includes asset segment revenue excluding fuel surcharge.
 

** 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.

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.