Good afternoon. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Knight Transportation Second Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' comments there will be a question-and-answer session. [Operator Instructions].

Speakers for today's call will be Dave Jackson, President and CEO; and Adam Miller, CFO. Mr. Miller, the meeting is now yours..

Thank you, Ian, and good afternoon everyone and thank you for those who have joined the call. We have slides to accompany the call posted on our website at investors.knighttrans.com/events. Our call is scheduled to go until 5:30 PM Eastern Time. Following our commentary, we hope to answer as many questions as time will allow.

If we're not able to get to your question due to time restrictions, you may call 602-606-6315 following the call, and we will return your call. Again, that number is 602-606-6315. And the rules for questions remain the same as in the past. One question per participant, and if we did not clearly answer that question a follow-up question may be asked.

More often than not, we end up with people in the queue that are not able to answer questions. So we ask again, you keep it to one question per participant. I will now go to Slide 2 where we have disclosure, and I'll also read the following.

This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions and uncertainties that are difficult to predict.

Investors are directed to the information contained in Item 1A, Risk Factors, or Part 1 of the company's Annual Report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ.

During the second quarter of 2015 the company accrued $7.2 million of expense, $4.4 million after-tax, that's related to expected settlement costs for two class action lawsuits involving employment-related claims.

We have provided adjusted financial information that excludes these expenses from our results of operations as we believe the comparability of our results is improved by excluding these infrequent expenses. Now I'll cover some of the numbers in detail, including a brief recap of the second quarter results starting with Slide 3.

For the second quarter of 2015, our adjusted diluted earnings per share was $0.39 versus $0.31 from the previous year. Adjusted net income increased 24.3% year-over-year to $32 million while our adjusted operating income increased 25.4% year-over-year to $48.8 million.

Revenue, excluding trucking fuel surcharge, increased 22.7% year-over-year to $268.6 million, and our total revenue increased 14.3% year-over-year to $301.8 million.

Now on to Slide 4, we ended the quarter with over $700 million of stockholders equity and over the last 12 months we've returned over $50 million to shareholders through dividends and recent stock buyback. During the second quarter of 2015 we purchased approximately 1.0 million shares of our common stock for just over $30 million.

We continue to maintain a modern fleet and have an average tractor age of 1.7 years, and we currently have $85 million outstanding on our unsecured $300 million line of credit which leaves us with meaningful amount of capacity for additional investments.

Now on to Slide 5, Knight continues to deliver consistent growth and this quarter marks the 23rd consecutive quarter with year-over-year revenue growth excluding fuel surcharge. We generated this growth by expanding our service offerings, growing organically, and making strategic acquisitions.

This growth comes without sacrificing earnings or margins as illustrated by our 8.3% three-year compounded annual growth rate of our adjusted earnings as well as our industry leading operating ratio. This has resulted in improving return on invested capital which is 14.8% over the most recent trailing 12-month period.

We have a solid balance sheet with 10.8% debt to capitalization ratio which again positions us with significant capacity to deploy capital towards growth opportunities, acquisitions, share buybacks, as well as enables us to pay a consistent dividend to our shareholders.

Now on to Slide 6, as illustrated by the graphs over the last four years we have demonstrated our ability to consistently grow our revenue.

During the second quarter we continued to grow our consolidated revenue year-over-year as a result of improvements in our revenue per tractor, growing capacity organically and through acquisition, and growing our logistic segment. We continue to focus on operational efficiencies and expanding our service offerings.

Stock market opportunities were less robust than the year ago; however, we continue to improve our yield through our contract rates. Our service center network and marketing efforts have enabled us between both of our segments, the flexibility to react to the needs of our customers and provide needed capacity.

Now on to Slide 7, we continue to deliver strong earnings growth as we execute our plan to provide the regular route capacity in the markets we serve while diligently managing our cost per mile and cost per transaction. As the graphs demonstrate, we have generated double-digit compounded annual growth in our earnings over the last four years.

Our team continues to have an intense focus on our internal initiatives to improve our business with the combination of an industry leading trucking segment, and a profitably growing logistic segments, we are optimistic about continued positive results. I'll now turn it over to Dave Jackson for some additional comments on the second quarter..

Thanks, Adam. Good afternoon, good evening everybody. We'll move to Slide 8, in the second quarter our asset-based trucking businesses operated at 78.8% operating ratio which represents the fifth consecutive quarter with a trucking OR in the 70s.

We continue to see positive results from our internal initiatives centered around improving yield, increasing productivity, and managing our cost per mile. Our non-asset based logistics businesses again experienced significant revenue and income growth year-over-year during the quarter with 17.5% revenue growth and 20.8% operating income growth.

It's important to point out that our brokerage business, which is the largest piece of the logistics segment, grew 31.3% despite the declines in fuel prices and a much shorter length which had a negative impact in top line revenue. Load volumes increased 64.3% in our brokerage business on a year-over-year basis.

In terms of profitability, our logistics segment operated at a 93.5% operating ratio. Our logistics performance continues to confirm the opportunities for growth, as well as the value provided to our customers through our offering of brokerage and intermodal services in addition to our asset based services.

Now on to Slide 9, each of our business segments is designed in a way to yield double-digit returns on invested capital. These current businesses include dry van truck load, refrigerated truck load, port and rail, truck load drayage, various forms of dedicated brokering freight using subcarriers and intermodal services.

We continue to evaluate additional services that can be provided through our model adding, expanding, and evolving our services in the transportation space will continue. We avoid deploying capital into areas that we do not believe will yield high returns that will also - that will at least meet or exceed our weighted average cost of capital.

However, this isn't the only requirement we also want to see a pathway for long term revenue growth and incremental ROIC improvement.

In each of our businesses we are built with a culture that values measurements, that values people; we believe we have the right strategies that can enable us to scale these up and grow on a consistent basis for many years into the future.

This graph on Slide 9 demonstrates our progress in incrementally improving already industry leading returns on invested capital or ROIC when comparing second quarters over the last five years.

Keep in mind we purchased an asset-based carrier in Barr-Nunn in the fourth quarter of 2014 and have incrementally improved year-over-year despite that large capital investment, this is atypical in our industry.

Now on to Slide 10, from our perspective here are more graphs demonstrating our consistent top and bottom-line growth in our two segments; trucking and logistics.

We believe that owning assets and having an extensive and growing network of subcarriers that can provide quality capacity on-demand is a more efficient model to solving customer needs as compared to only having assets or only relying on subcarriers.

We're investing in our logistics capability so as to be able to provide even more sophisticated solutions and efficiencies. We believe that our model brings efficiencies to the marketplace and therefore represents a significant growth opportunity for our company in nearly any freight market.

We have demonstrated the ability to grow organically in our logistics business and our near-industry leading cost per transaction levels. We have an efficient way to leverage our network.

We believe both, our cost efficiency and cost per transaction basis in the logistic space, and our ability to grow the topline in this business position us well for future profitable growth. Now on to Slide 11, our team remains focused on executing at the highest level in each of our businesses, departments and service centers.

We have various initiatives in place that we expect to continue to lead to improving operating results. The second half of 2015, we're putting greater emphasis and focus on improving the revenue production on the existing fleet of over 4,800 tractors.

Specifically we want to see improvement in the back half of 2015 from miles per tractor perspective; this means we will likely see organic growth in more of the 3% to 4% range for the entire 2015 year.

When you couple that with the fourth quarter of 2014 acquisition, that will still put us in the 14% to 15% fleet growth range for the year 2015 as compared to last year. Hiring and retaining quality driving associates remains the most significant challenge for the industry and represents a significant opportunity for our company.

We've significantly improved our pay and performance bonus for driving associates over the last several quarters. Not only do we remain committed to further improving pay for our driving associates but are investing in technology and our service centers in a way to improve the experience for our drives over the road.

Now let's move to Slide 12, and we'll get more specific in targeting our growth. We expect to see similar year-over-year fleet growth continue in the third quarter which would be in that 19% to 21% on a year-over-year.

We will lap the Barr-Nunn acquisition after the third quarter and would expect overall fleet growth as previously mentioned in that 14% to 15% range when compared to 2014. Our logistics segment continues to grow rapidly and has become a meaningful complement to our trucking segment.

We expect additional growth opportunities to continue in that business as we continue to work with our customers. And as mentioned, we continue to evaluate and pursue opportunities to grow our company through acquisitions. I'll now turn it over to Adam to discuss guidance..

Thanks, Dave. Slide 13 is our final slide where we discuss guidance. Based on the current truck load market, as well as recent trends we are - our previously announced third quarter 2015 guidance of $0.33 to $0.36 per diluted share.

Then we are also establishing our expected range for the fourth quarter of 2015 which is $0.37 to $0.39 per diluted share. I'll list some of the assumptions that we've made to come to these levels of earnings. First, as Dave mentioned, growing our average tractor count to approximately 14% to 15% from where we ended 2014.

We expect total rate per mile to continue to improve year-over-year in that 3% to 5% range; we expect to run similar miles per tractor as we did last year without beginning to improve on the back half of the year. We continue to grow our logistics segments at 25% plus range while operating with a low to mid 90s.

And then the remainder of 2015, our guidance is relatively conservative with regards to fuel as we do not expect to experience the same benefits of declining fuel price as we experienced in the fourth quarter of 2014.

So we remind you that last year in the fourth quarter we estimated a $0.03 per share benefit from the rapidly falling fuel prices that occurred in that time period. We also expect driver wages and hiring related costs to continue to be inflationary.

And we also expect our third quarter and fourth quarter gain on sales to be modestly lower than the prior year, not that the market isn't still strong but the timing of when we pull equipment out and when we trade to sell it may impact that.

And as far as our tax rate, we expect that to normalize in 2015 to the mid 39% percent range excluding any unusual items. So these estimates represent management's best estimates based on current information available.

Actual results may differ materially from these estimates; we would refer you to the risk factor section in the company's annual report for the discussion of the risks that may affect the results. So this now concludes our prepared remarks. We would like to remind you this call will end at 5:30 Eastern Time.

We will answer as many questions as time will allow. Again, please keep it to one question. And if we're not able to answer your question, you may ask a follow-up and then - if we don't get to your question due to time constraints, please call 602-606-6315 and we will do our best to follow-up promptly. And Ian, we will now entertain questions..

And our first question comes from the line of Todd Fowler with KeyBanc Capital Markets; your line is now open..

Great, thanks, good afternoon, Dave and Adam.

I guess Dave, maybe to start, kind of thinking about the fleet growth and the change in the guidance, I know it's not a significant adjustment but you're obviously expecting the fleet to grow a little bit less, and it sounds like there is a little bit more focus on utilization, which different at the turn at the midway point compared to where you kind of start at the years you think about the growth of the fleet and the utilization?.

Well, Todd, if you look closely at our miles you will see that although we've made meaningful improvements for several quarters on revenue per truck basis, you will see that the miles piece hasn't kept pace certainly with the rates and most often has been down slightly.

And so the cumulative effect of that is we feel like we've got an opportunity to make the fleet a little more efficient, to get a little more revenue per tractor, and we feel like we have the tools to be able to do that.

Being in a fleet market like we've been in, there is opportunities for us to further build density and we think that there is a way to take advantage of that.

And there is no doubt that anytime your growing and especially when you're going against the grain, when the driver side is so difficult, there is - that sometimes can make it difficult to improve on the per truck basis like you would like.

So we're going to have a healthy focus, even a greater focus I should say than we have previously, and rather than growing organically we're going to try and get little bit more out of what we already have. When we think we can compensate for what we don't bring in in trucks, with hopefully improvement on the trucks that we have.

The other thing I would say to that Todd is that the driver pay is up, very healthy, if you look over the last - almost two years now.

And so - I think we feel like we're in a pretty good spot, we're still up on a year-over-year basis and if we're not trying to go grow in other couple of hundred to 300 trucks in a fairly short amount of time then that probably doesn't put quite as much pressure in the short term for us there, but so as kind of the outlook we have all-in-all, we're still going to grow on a year-over-year basis and the mid-teen which feels pretty good..

So, just to maybe kind of paraphrase that Dave, it's not that there is a big change to the second half outlook or anything like that, it's more of a function of the capacity you've brought onboard, both through acquisitions and through retaining drivers and then getting that utilization upto a level where you wanted to be?.

Yes, that's right..

Okay, good. Well, that's the one - I'll stop at that one and turn it over to somebody else. Thanks for the time..

Thanks, Todd..

Our next question comes from Tom Albrecht at BB&T Capital Markets. Your line is open..

Excuse me guys, got a little summer cold here. So I just want to know a couple of things in the guidance comments between what was second half and maybe what was full year.

Adam, when you talk about 3% to 4% organic truck growth, is that a full year number now or just primarily the second half for the year?.

Tom, that's a full year number. So when we're looking at truck growth, we're looking at what the average tractor count was for 2014, and what the average tractor count will be for the end of 2015.

And factoring how of that came from acquisition of Barr-Nunn versus how much came organically?.

Okay.

And then when you reaffirmed your 25% logistics growth, is that the full year number or you're reaffirming that for the second half of the year you get back to that after growing 17.5%?.

I'll take that Tom. That number is - we've had that number for several quarters, that's kind of a longer term number, we have quarters that we breakout much higher than that. Fourth quarter of last year was 90% growth, we continue to stamp out the 25% plus.

So it is a longer term number, I'll tell you that our growth the way we do brokerage, we are largely transactionally based, and we've seen those transactions of a shorter length of all, I think we're not the only ones that have seen that.

And so I think that what you will see from us is still very healthy volume and to the degree that the market could bear with some longer length of hall or that there is a little stronger smart activity, then you will see that number kind of jump up and down a little bit.

But if I - if we were forecasting for the rest of the year, 25% is a number that's more than an annual number and we'll be working hard to keep at that number through the back half of the year.

We've got our - work it out for us a little bit just given how strong the spot was last year and it's not clear how much spot we're going to see in the back half of this year..

Right. And lastly, and then I'll jump in the queue.

On the miscellaneous operating expenses, obviously that's where the $7.2 million accrual was, but if I net that out and the net gains or take out the gains on sale of equipment in this year's second quarter and the year ago period, it still looks like it was about $8.1 million and that up until the first quarter had been more like $5 million to $6 million a quarter expense now.

Q1 with $7 million, this quarter over $8 million, what's going on there - is that kind of the new run rate for that category?.

I think in that category we also have legal fees associated with spending some of the claims that we reserve for which we didn't pull out from the adjusted - normal legal expenses. So you had a couple of million there of legal fees related to those claims that wasn't included in the adjustment..

Okay, I'll jump in the queue. Thank you..

Our next question comes from the line of Brad Delco with Stephens. Your line is open..

Good afternoon, Dave..

Hi, Brad..

Thanks for taking my questions.

Dave for you, the lower fleet count, I'm wondering - I guess, maybe this is for Adam, is there an update in CapEx guidance for the year? And then just to tag on to that, did that give you more confidence in kind of adjusting your priorities for use of capital and how should we think about the share buyback versus pursuing acquisitions for the rest of the year?.

I'll catch on the CapEx, I think CapEx wise we're still fairly comfortable with the $160 million that we projected for the year, it may come down slightly.

I think part of it will be just timing of when we put trucks into service and bringing new ones that we've already ordered and it will be taking delivery of but we made the first sum of those out to next year in terms of replacing older trucks. I think overall CapEx shouldn't materially change from what we expected it to be..

And is that net or is that gross?.

That's net..

And then for the second part of your question Brad, you saw we disclosed in the quarter that we purchased about $30 million worth of our stock. We continue to have an open authorization to purchase an additional $6.4 million shares under the current authorization that we have.

I think the way we would look at it is we're a business that wants to grow and wants to put the capital at play and if we feel like a good investment because of a lack of an acquisition or lack of organic growth at the time is in our own company, we'll buy back shares and obviously do that in the second quarter.

So we clearly reserve the right to do that in the future, and in an ideal world we would put a significant amount of capital to play every year either in the form of an acquisition or a returning capital to our shareholders just because of the level of capital efficiency that we have in that kind of cash flow from operations that we're able to generate.

I hope that answers your question..

No, it doesn't, I'll leave it at that and turn it over to somebody else. Thanks guys for the time..

Okay, thanks Brad..

Our next question comes from the line of Chris Wetherbee with Citi. Your line is now open..

Thanks, good afternoon guys..

Hi, Chris..

Embedded in the guidance, I mean if you could give us little bit of strength of sure how you're thinking about the spot market in 3Q and into 4Q in terms of the guidance range that you've laid out and then, if you don't get sort of bit of an acceleration at the spot market, how should we be thinking about 2016 in terms of sort of a rate environment, maybe even sort of your approach from a fleet growth perspective, I know I'm sort of asking for a little bit further out but just want to get a rough sense of maybe how you're thinking about this set up because in the back half as well as 2016?.

Well, Chris, I'll try to answer all five of those, very discrete there.

When we look at spot, we would - we look at the first half of this year and we clearly have seen less spot volume, I think that's been well documented, there was significant effort in the preceding months to secure carrier capacity and I think that the shipping community has done a good job of securing capacity and we've seen that they've done that at higher rates, some of the highest contractual rates on a year-over-year basis that we've collectively seen in the industry's history.

And so as we looked at the back half of the year we would expect to continue to see those contract rates playing out.

In the third quarter there isn't a whole lot of seasonal demand to that quarter in any year, so we would not expect to see a lot of spot, probably see a continuation of what we've seen happen in the first half of the year from a spot to contract ratio perspective.

Now when it comes to the fourth quarter, I think that's the one that is interesting, last year was - it was an unbelievable year from the spot perspective, the demand was very acute, we would not expect to see that same level of demand from a spot perspective, however, there is a chance that the fourth quarter could play out different than the first three quarters of this year, just given that there are some indications that the consumers are little bit stronger.

Consumer demand, consumer spending, correlates very nicely with truck load demand.

If we look at just how the changes in consumer behavior, and we look at how that has impacted, how we buy and maybe more importantly, when we buy, and whether it's the Amazon effect, or whatever you want to call it, but online shipping has seems to have changed things a little bit and in trucking when it's so far meant to us is in the fourth quarter of '13.

And then of course fourth quarter of '14, we saw a much more compressed, very strong peak shipping season that we haven't seen really since '07, and so I would expect to see that again in '15 and I think that certainly has something to do with demand that could be a little bit better this year than last year from a consumer perspective but it may have more to do with just the behavior that we're accustomed to getting things, sometime same day but certainly within a day or two.

And, so you don't need to start Christmas in a garage, and - I hope my kids aren't listening, couple of months in advance and you can kind of wait until little bit later.

So I don't claim to totally understand that but something has changed because we've seen two consecutive years of the same kind of pattern of a much more compressed holiday to shipping season, and that might continue to play out in a way that creates a more favorable fourth quarter, I think clearly the environment we feel in the fourth quarter will be a factor and what the 2016 bid season looks like, that really gets going in the first quarter of '16.

So obviously you've got a new mandate that we expect will be announced here at the end of September that will be on the minds, and customers have enjoyed a little bit of relief because the fuel surcharge in oil is half of what it was a year ago and so surcharges are off and they are down significantly and giving them a little budget space hopefully.

And there is tremendous value in quality capacity because people like to be able to rely on shorter inventories, they like to rely on trailer pools, they like to maximize efficiency in every aspect of the supply chain and sometime it takes high quality carriers to do that and we've seen the customers been willing to pay for that a little bit.

So if we have a strong Q4 from the spot perspective, that probably builds very well, all-in-all, I think the range is low to mid-single digit increases in 2016 and whichever end of that range will probably be determined by what the fourth quarter feels like..

Okay, that was very comprehensive answer to my five questions. So I appreciate the time..

Yes, there you go. Thanks, Chris..

Our next question comes from Brendon [ph] with Barclays. Your line is open..

Dave, thanks for the response to that question there.

As much as I want to ask you a long term question, obviously the stock just didn't behave good today and investors have been worried about truck load stocks for six months now, and obviously, I think just the weaker industrial Dave that we're seeing across some of the other transports is possibly that the things could be slower on the retail side too.

So just - how can we take this conveyance in spot rate that I was looking at that are deteriorating more this summer, when was that conversation, and just what does it convey for the freight markets and what are we missing or is there good reason to be cautious here on truck load markets?.

I think that's a good question, and I think everybody is trying to kind of figure this out, from an investor perspective there is clearly a lot of confusion out there.

There seems to be - for whatever reason, a great deal of momentum in the trucking stocks, both to the benefit that we saw last year and maybe the other way now that I'm not sure how much of that is rational or not, I'm really, my job is to keep my head down and keep snapping [ph] out earnings growth and improving the return on invested capital and that's where we felt very optimistic about our abilities to do that.

We feel like that there is certainly growth opportunities in the logistic space that we're really - I mean we're just barely cracking into that that can really lead to - I hate to say game changing but I mean it can change the complexion of how we operate, the returns we get, and our ability to grow.

So I mean we are just very excited about all those opportunities. Now you have - we do have an announcement we're expecting from the DOTE about that lease we mandated on September 30 that we assume would go into effect about two years from that timeframe.

And that will go a huge way towards improving the safety in this industry which we need, and as a result of that it also levels the playing field.

And so I think that that's not very long term, in fact, the effects of that are not very long term, are not really far away, they are arguably the near term that we begin to see the effects of a more level playing field.

And so I think if one were to look a little too - as I've said before, through the key hole, you might miss what is really developing and really going on, and then by the way I mean we've as an industry we've been able to absorb largely a hand-off if you will from an industry led recovery with all of - largely what was going on with oil, and as that is kind of subsided as oil obviously to date drifted into up at 40s.

It's been a boom to the consumer and so we've had this stimulus if you will that tip consumers and hopefully we'll bode well, when I look at the majority, almost all of the goods we hold, they are being purchased by consumers and so the consumer confidence started the year off very, very strong, and - but the problem was the industrial recovery had it stopped in its tracks and so trucking is navigated pretty well, now the trucking stock prices haven't navigated the hand-off from an industrial lead recovery if you will to maybe more but looks like the early signs of a possible consumer driven recovery.

The stocks didn't handle it very well, but if you look at the income statements, we've actually as an industry have done pretty well through this, and boy, we could really - what would it look like if we had little more consumer piece on top of the regulatory supply limiting type factors that we know are out there without even - I maybe haven't mentioned yet, just the driver demographic issues that the industry is challenged with.

So I think the best way I can tell you the way I think is that we bought back $30 million from diverse stock last quarter..

Well, I think that's all Dave. I appreciate it..

Okay, thanks Brandon..

Our next question comes from the Miken [ph] with Bank of America Merrill Lynch. Your line is open..

Great, good afternoon.

Hi, Dave, just within the outlook you talked about getting back to 25% on the logistics side, what happened this quarter slow at 17%, was there anything in particular, what gets that - you talked about some of the opportunities and huge opportunities can - can you talk a bit about what - where you get that and kind of what opportunities, is it more on brokerage, is it more model, where do you see that and how do you get that growth?.

Well, what would have happened is, you have brokerage that grew 31.3%, so they are north of the 25%, they more than carried their way - I think a relevant number there is that the volumes or the loads that we booked were up over 64% year-over-year.

So we touched a record number of loads for us, and it's just sometimes, you have a shorter hall nature and fuel is down big as well, so you didn't see that all transfer in the revenue line but still it was over 30%.

Our intermodal business was down about 16% on a year-over-year basis, so - now that's a business that a year ago I think we decided our press release at 99 OR, we were at 89 and change OR and this go around.

So it's profitable, it's just a smaller business and so that's a business that doesn't have the same growth trajectory but it gets lumped into logistics.

There is some other things that we have in logistics, primarily some sourcing activities, related activities, they are not trucking but would fall into the logistics segment and they were not up year-over-year as well.

And so I think if you look at logistics at 17.5% and try and draw conclusion on brokerage, that's maybe not the right way to look at it I would suggest.

I think that's why we try to go to great lengths to spell out exactly what brokerage was up and in this case we even gave the volumes just or even more perspective, and that is by far the fastest growing, it's the largest within the logistic space and it's the one that - that obviously was the most bullish about when we talked about logistics growth..

So just to clarify, when you talk about that 25% long term, do you think we get that snap back and I just want to understand when you talked about your second half within your target range there, your EPS range, is that billed in coming back into that range or does it take a little while to get back in that historical target?.

We said 25% plus or it was at least a couple of years now, and we usually dramatically exceeded it but we've always known that there is going to be a time where factors change like they have here, we're booking even more lows than every by long ways and yet because of fuel and a few other factors that it just didn't register the same top line number.

So we're comfortable leaving the 25% plus for now, we're going to have our work cut out towards in the third quarter, and to some degree in the fourth quarter to make sure that we're north of that number for the whole logistics business.

And like I said I think a couple of questions ago in the fourth quarter of last year we grew that - we grew brokerage by 90% and so that's not - we're used to tough calls but that's a particularly challenging comp and so if we have a stronger spot, our transaction to market in the fourth quarter, I like our chances, I like that momentum will bring into that, but - I'm giving you more of an answer than you might look forward but we're comfortable on a longer term over a 12-month basis talking about rolling 12-months, the 25% plus logistics is possible and we think we'll be there..

Great, thanks Dave and Adam. Thank you..

Thanks..

Our next question comes from Kelly [ph] from Macquarie. Your line is now open..

Hi, thanks for taking the question.

Can you give us some color on - can you hear me?.

We got you Kelly, yes, go ahead..

Okay, sorry.

Can you help us think about the trade-offs between - on one hand there is less robust every year spot activity but I think the availability of spot capacity given the shippers is a lot more up, so there is less activity but there is also less capacity out there so how to think about what Knight offers, how valuable it is especially as you go into - you were talking about the peak holiday season this year?.

Yes, I think it's a good question. I think what we look at like the second quarter for example, where we see the way that that rolls out, May was a little slow to come around and June we thought might have the chances of maybe catching up and whether the cooler weather may have been a factor in that.

So we thought maybe in June we would see that spot market come back and try and catch up a little for May, it didn't seem to ever catch up for May so - but I think had we seen a little bit stronger, more acute demand.

Yes, your point of - I'm understanding you right, your point of, almost everything is already committed, so when there really is a need for spot business, it might be very - it might be up, I can't say this is the right way, it might be up at a significant premium, even to higher contractual rates.

So my point in talking about May and June is, I don't think that we've really seen that happen, we have seen - we did see spot rates in some cases where we saw the spot where it was every bit what it was last year, we didn't see as much of it.

And so I think that - and you know, that kind of spot opportunities we saw last year were unlike what we have maybe ever seen.

And so it's - I follow your logic and I think there is a chance that we could see if we see real acute tightness where we could see some opportunities where it really pays to have premium but have not - the premium was so high last year I'm not sure that it transcends that degree of premium, even more so..

So that was really kind of more of our perspective of just versus year-over-year but conceptually 2014 was such an anomaly, if you look at 2015 versus any other years in the recent past then you're really comfortable with the model that you guys have, even if there is less spot activity than there has been in the recent past..

Well, I think maybe - let me try and restate that a little bit, if we were - if you look at the spot even from a comp basis, I think there are some folks that believe that it's like - I don't know, half of our business is spot or even a third of our business was spot, that was not the case and on the asset base side, it was even less, I mean we've talked in the past about a number of - maybe 75% of our - we will be 75% committed, our brokerages was largely uncommitted and so excuse that number little bit, the asset base side would be even more committed.

So when we talk about the spot fees, we probably don't have quite as much exposure, so everybody thought that we did but we have a healthy enough amount and we have the ability to kind of flex with it, to move with it, so we can get enough exposure and enough rate where we can move the needle.

When you can get contractual rates, that's the best way to do it, and the easiest way sustainably to do it, it doesn't happen all that often. And, so we have - this year going into what we have the majority of our trucks have been able to hold those into higher contractual rates.

Now the small minority of loads that are going to do spot is going to be even smaller opportunities fiscal [ph] round that paid a healthy premium but some of them still were/will.

So when you - maybe a better way to put it into perspective would be to look at like a two year stat, and like an example is, if you looked at the second quarter, if you would have looked at revenue per loaded mile in the second - for the last two years, our rates are up per loaded mile by 12.5%, that's revenue per loaded, per total mile is up about 11.5%, and so you have - it will have in front of me what the fourth quarter looks like but you've kind of get a balance those two out a little bit, and that probably gives you an idea of where the market is.

Now I would just reiterate that the primary competitive advantage for our company for Knight Transportation is our operating cost per mile, and it's lower than those that we've compared against and compared to and that's how we get the returns that helps us to justify reinvestment and growth in the fleet and making acquisitions.

So we're not the highest, we feel like we're - built in flexibility because of our model, we're able to move with it. We feel like we devote a lot of time to trying to understand the market and then just do the best we can give the market that we're in.

And so - all I can say is we're paying attention, we're not just trapped in one immovable model if you will, but we have flexibility and we'll adjust, adapt, and predict, and that's the move that we're in right now and I think hopefully, when people look at our earnings, but people really look at over a two year period, you will see how much ground we've made up, both on the revenue side without compromising on the cost side.

And so often times that leads to a premium multiple for our stock and so people have decide where that is and how that fits in and what that's worth..

That's really helpful Dave. Can I just ask one really quick one, can you give us a number, what percent of your customers are using U4 [ph] brokerage and the asset based side.

Sorry, just to kind of get out how much growth run rate there is just from your current customers?.

Yes, we have about a 1,000 active customers and approximate less than a third of them use us for brokerage and asset based..

Thanks very much..

You bet, thank you..

Our next question comes from the line of Tom [ph]. Company was not provided but your line is open. Please state your company's name..

Yes, hey Dave, hey Adam..

This is Tom [ph] from UBS, right?.

Yes, that is correct. I didn't - I'm calling from the airport and I guess didn't get all the information in, but anyways..

We're set now..

I wanted to see if you - I mean I guess we think about next year if you say, well the stock market doesn't pick up or economy is not strong enough, and maybe you get a little less REIT versus a lot getting a lot of contract REIT this year.

I was thinking, how would the inflation potentially look because we think about what the margin could do, I think about both the price and the inflation in terms of driver pain, so forth.

So, any thoughts on if the market doesn't pick up a lot spot wise and maybe you get 3% rate instead of 4% or 5%, is there a chance that the inflation slows down and that you could still see kind of flatter improving margins in that set environment?.

Yes, I think it's going to take work but we're in an environment where we just - we have to be more efficient, just to be prepared for whatever is out there, whatever maybe coming.

So that's where we're at, that's arguably what we do best and so from a cost perspective and to be very, very efficient, when you're in kind of a glowing growth mode, and customers have very serious needs, you do what it takes to be able to go do that for you or for them and that's not always the most efficient way.

So we are aggressively attacking cost a bit, we're better off for that and based on my last answer I kind of talked about cost per mile and just our belief Tom is that given the intense competitiveness of this industry, that if we can have the lowest operating cost, the most efficient operation, and that also includes the lowest transactional cost on the brokerage side because we don't measure that obviously in a per mile cost.

Then that sets us up to be fairly resilient in up and down maracas, and more importantly, sets us up to be a long term grower, and maybe even consolidate or sort through acquisitions and leveraging some of the efficiency.

So, that's kind of how we think from an inflationary perspective, trucker wages has been the most inflationary, we're laughing some very healthy increases so they are not as inflationary, they won't, they don't expect driver wages to be quite as inflationary in the back half of the year given what a lot of what we've already done, used our new equipment is inflationary, but we're seeing improvements in fuel economy that are helping to offset some of that.

And so I'd feel like we have a solid handle on the inflationary side, now if we were to see a small interest rate hike happen here in the back half of the year, it would have a nominal effect on us from - because of our debt position, probably it becomes a bigger challenge for those that are little more debt laden in our space, probably not the first quarter point of course, but then all the other good things that come with that from a staller perspective, probably further pressure, commodities, I think as we've already seen which is a good thing for us because our second biggest cost is fuel and it's down meaningfully.

So I'm not as scared about inflation, back half of this year as maybe we have been in other years..

Okay.

So on driver pay, you think that the pace of increase might slow a bit in the second half and then in 2016 potentially as well?.

I'm not quite ready to say that, that's just something that we evaluate on a quarter-to-quarter basis. I'm just saying that we're now starting to lap some pretty healthy increases in driver pay.

Our decision to slow the organic growth puts us in a spot where we've - it might allow us to be just slightly more deliberate, but that's in connection with several others things that we've spent and invested on the driver front that might not necessarily be driver compensation but other things to help and support our drivers.

So, I hope that answers your question..

It does, I appreciate it. Thanks for the time..

Thanks, Tom..

Our next question comes from the line of Allison Landry. Company name was not available on the recording. Can you please accompany the phone question..

Thanks. It's Allison Landry from Credit Suisse. I just had a question, so given that your valuations in the sector of contracted pretty considerably.

Are you seeing locations in the market that maybe are creating some additional opportunities on the M&A front versus six or nine months ago?.

Well, I don't think that the M&A will - I'm not sure that they track so real-time if you will.

I think that most of the companies that are of the size that we have dialogue with, you have folks that either started those companies or have been there for multiple decades now and so it's a very - it's a much deeper, much more personal kind of decision as opposed to maybe buying or trading a stock kind of a thing.

And so what I'd say is we have several parties that we have ongoing dialogue with and I think some of it is about finding the right win-win situation and some of it probably is them getting comfortable and understanding us and clearly some of it is - some of these folks being ready to sell and so much has happened just in the last 12 months alone that there is a lot through them to think about.

I think a lot of these folks had such good fourth quarters and fuel dropped and that was such a benefit to carriers, and everybody kind of trying to make sense of where everything is and so - I think there is a lot of people that are thinking that are maybe scratching their heads and trying to look forward to the future and see what that looks like it means to them.

And so we're - our job is, and what we're trying to do is just have a lot of dialogue, be very open minded, and so I think that what's happened in trucking stock so far this year, probably I'm not sure that does have a huge impact either way..

Okay. Thank you for the time..

Thanks, Allison..

And your next question comes from Jason Seidl from Cowen and Company. Now your line is open..

Well, I must have done something right, they got my company. Hey guys, I want to focus a little bit on - just marketplace itself, there is obvious rumors today that UBS maybe buying one of the larger brokers that's out there, obviously we've seen XPO consolidate some industry, as well as echo.

It seems like there is a lot of very large handful of large companies that are forming right now and are probably just going to continue to grow.

Does that sort of force your hand going forward to trying to aggressively grow your logistics offering? Are customers asking you to do more going forward?.

I don't think it's forcing our hand, I think we look at it and think - internally we think gosh, we're - we have capability/expertise to help shippers with solve some of these problems. We really have relationships with them.

And we think we can do in a more efficient manner and largely we're the ones that have been us asset based carriers over the years given opportunity to this entire industry because we say no sometimes when customers won't offer us a load.

And so it's no surprise that now us and we just hit our 10-year anniversary since we opened brokerage and it was started little slow but it's really gaining some steam and momentum here.

And clearly, you have a lot of other large legacy asset base folks that have figured out how to get into this space and so I think that it's a good fit for those that are already involved in the truck load, for us to be involved in everything that has to do with truck load.

I think what you will find is there are synergies available for those that own equipment, this doesn't exist for those that don't own - that just don't own any equipment.

And so we like our position, we clearly have some opinions on where it's going to go and how the most value is going to be provided in the future, particularly with the small carriers. And so we'll continue to roll that out, all I can say is we are just in the very early stages of what this might look like.

And we have a long ways to go to catch up if you want to just compare other loan asset brokerage to the non-asset brokers. I think a day may come where this full truck load service just gets viewed as one piece and instead of it's bifurcated as it so far has been.

And in that kind of a world, I like being a guy whose already got a double-digit return on an asset based business, I wouldn't want to be somebody who has never had to own assets and has to figure out how to go get double-digit returns on assets to compliment a non-asset business. So we'll have to see where that goes like where we're positioned..

I think a lot of people who had owned assets would like to have a double-digit return.

I just want a clarification question, you mentioned what the drop at energy price is being a boon to consumers, I was wondering if you could share maybe some of your initial discussions with your customers about what the peak season might look like in terms of demand?.

We have some customers who have begun to talk about it, who begun to set themselves up to make sure that they have capacity but we'll have a lot more of those discussions between now and Labor Day. So it's still a little early, I think people are just recovering from getting through the buildup through 4th of July type thing.

So we don't - I don't have the best view of that just yet..

Okay, fair enough. Gentlemen, thank you for the time as always..

Thanks, Jason..

And now I'd like to turn the call back over to Dave Jackson..

Okay. Thank you, Ian. I appreciate everybody's participation and interest today, and wish you all the best. Take care..

This concludes today's conference call. You may now disconnect..