Knight-Swift Transportation - Q1 2014
April 23, 2014
Transcript
Operator (participant)
Good morning. My name is Kurt, and I will be your conference operator today. At this time, I would like to welcome everyone to the Knight Transportation first quarter 2014 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Speakers for today's call will be Kevin Knight, Chairman and CEO, Dave Jackson, President, and Adam Miller, CFO. Mr. Miller, the meeting is now yours.
Adam Miller (CFO)
Thank you, Kurt. Appreciate that. Good afternoon, everyone, and, thank you for, joining the call today. We have slides to accompany this call posted on our website at investors.knighttrans.com/events. Our call is scheduled to go until 5:30 P.M. 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 602-606-6349 following the call, and we will return your call. Again, that number is 602-606-6349. The rules for questions remain, the same as in the past. One question per participant. If we don't clearly answer the question, a follow-up question may be asked.
To begin, I'll first refer you to the disclosure on page two of the presentation. 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 One 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.
Now, I'll begin by covering some of the numbers in detail, including a brief recap of the first quarter. So, on to slide three. For the first quarter of 2014, we earned $0.23 per diluted share versus $0.19 from the previous year. Net income increased 25.6% year-over-year to $19.1 million, while our operating income increased 22.3% year-over-year to $31.3 million. Our revenue, excluding trucking fuel surcharge, increased 8.4% year-over-year to $205.6 million, and our total revenue increased 5.8% year-over-year to $249.2 million. Now, on to slide four. Knight continues to hold a very solid balance sheet. We ended the first quarter with $575 million of shareholders' equity and have returned approximately $79 million to shareholders through dividends over the last two years. Our fleet remains very modern, with an average tractor age of 1.9 years.
During the quarter, we paid down $26 million of our debt and ended the quarter with just $12 million of debt remaining. We also do not carry any off-balance sheet debt, including operating leases for trucks or trailers. We continue to maintain our unsecured line of credit of $300 million, which we believe provides us the flexibility to pursue all opportunities that are presented, including acquisitions as well as any organic growth. Now Dave Jackson will provide some additional insight into our first quarter results. Thank you.
Dave Jackson (President)
Thanks, Adam. Good afternoon, everyone. We'll start with, slide five. During the first quarter, we experienced strong demand for our truckload services. The flexibility and responsiveness of our service center, network, and operations enabled us to provide needed capacity to our customers. In addition to our nationwide fleet, we were also able to provide meaningful capacity through the sourcing of third-party capacity by our non-asset logistics businesses. We grew our revenue, excluding trucking fuel surcharge, by 8.4% compared to the first quarter of last year. In our trucking segment, we were able to improve our revenue per tractor by 5.1% by increasing our length of haul, operating with a record low empty mile percentage, and increasing our loaded rate per mile. This quarter marked the third consecutive quarter of year-over-year improvement in empty miles percentage.
When looking at our first quarter revenue growth over the last four years, we've averaged a compound annual growth rate of 11%, as illustrated by the graph on slide five. Next, if we move to slide six. The industry continues to be faced with multiple inflationary cost pressures, and we're focused on managing and mitigating these areas. We increased net income 25.6% when compared to the same quarter last year. When comparing first quarters over the last 4 years, our compounded annual growth rate for earnings is 24.6%, which is illustrated by the graph. Since coming out of the downturn in 2009, we've now averaged 10.1% year-over-year growth in net income over the last 17 quarters.
With the combination of the improved trucking environment and our internal initiatives, our team produced a very solid quarter in the first quarter of 2014. Now to slide seven. In the first quarter, our asset-based trucking businesses operated an 82.0% operating ratio, an improvement of 330 basis points year-over-year. We made year-over-year operating ratio improvement in each of our trucking businesses, which includes our dry van, refrigerated, and port services businesses.... These improvements were generally across all geographies, and we believe is evidence of an improved trucking environment. Our non-asset-based logistics businesses, again, experienced significant revenue growth year-over-year during the quarter, with 37.2% growth. Our brokerage business continues to find opportunities to grow with new customers as well as our existing customer base.
Brokerage grew revenue at 94.4%, gross margin increased 91.2%, and operating income increased 89.2% for the first quarter. Our intermodal performance was disappointing in the first quarter, and we expect sequential results to improve in the second quarter, with year-over-year improvement in the third quarter. Consolidated, our operating ratio for the first quarter improved by 170 basis points to 84.8%, with revenues excluding trucking fuel surcharges growing 8.4%, as mentioned. Now on to slide eight. Our efforts and focus on improving revenue per tractor have been productive. Over the last four quarters, we have experienced year-over-year improvement in revenue per tractor, excluding fuel surcharge, with that improvement continuing to strengthen, as demonstrated by the graph.
We continue to focus intently on improving and optimizing revenue production on a per tractor basis throughout our service center network. I'll now turn it over to Kevin Knight.
Kevin Knight (CEO)
Good afternoon, everyone, and appreciate you being on our call today. If we could move to slide nine. First of all, I want to thank all of our team members for the great work that went into our results this quarter. Improving our return on invested capital remains a priority for our company. Our internal initiatives centered around increasing our revenue per tractor, growing our brokerage, non-asset-based business profitably, and optimizing our network for efficiency, has resulted in a 100 basis point improvement in our trailing twelve months return on invested capital since the third quarter of 2013. Now to slide 11. Our team remains focused on executing at the highest level in each of our businesses, departments, and service centers. We have solid plans in place that we expect to continue to lead to improving year-over-year results.
Hiring and retaining quality driving associates remains the most significant challenge that our company and industry faces today. We have made significant investment in our driver development and retention efforts in our company. I'm pleased to tell you that the driving job at Knight is improving. In the last 12 months, we have significantly improved our driver pay and performance bonus, all in conjunction with the benefits our service center strategy creates to be a driving associate for Knight Transportation. The overall trucking environment was strong in the first quarter. We expect to see continued demand improvement for our services in the coming quarters. We're working to improve the density of our network, our revenue per loaded mile, and minimizing our unpaid empty miles. Now let's move to slide 11, if we could.
We feel as though 200 growth trucks, starting in the current quarter through the end of this year, is manageable. The key is driver development and retention, and we expect that to enable us to accomplish this. On the logistics front, our brokerage model continues to grow and develop as we increase the number of customers utilizing this service offering. It's developed into a very solid supporting business for us, and it is also having a positive impact on our overall capabilities with our customers. We continue to be active on the acquisition front, though have no updates at this time in that area, other than to say, we continue to be active in this area. I will now turn it to Dave to discuss guidance.
Dave Jackson (President)
Thank you, Kevin. Slide 12 is our final slide. We are updating our second quarter 2014 guidance to $0.25-$0.27 per diluted share. Our expected range for the third quarter of 2014 is $0.23-$0.26 per diluted share. Some of the assumptions made by management include rates to continue to be positive year-over-year, and for miles per tractor to be relatively in line with the year ago period. It also includes consideration for potentially volatile fuel prices. 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 Factors section of the company's annual report for a discussion of the risks that may affect results. This concludes our prepared remarks.
We would like to remind you that this call will end at 5:30 P.M. Eastern. We will answer as many questions as time allows. Please keep it to one question. If we're not able to get to your question due to time constraints, please call 602-606-6349, and we will do our best to follow up promptly. Kurt, we will now entertain questions.
Operator (participant)
Your first question comes from the line of Brad Delco from Stephens Inc. Your line is open.
Brad Delco (Managing Director and Research Analyst)
Good afternoon, Kevin, Dave, Adam. Thank you for taking my question. First question may be for you, Kevin. Can you talk about the environment in the first quarter and maybe what was unique from your business model perspective versus some of your peers in the industry? Was it spot? Were you in a better position geographically due to less exposure to weather, or what is it that you think really distinguished your results from your peers?
Kevin Knight (CEO)
Brad, that's a good question. I'll try to get it all, and if I don't, maybe Dave or Adam could help me with that. First off, I would describe the environment in the first quarter probably as strong as I remember. I'm getting a little older, so I'm not sure I remember all of them. That would be 38 first quarters that I've participated in this industry. So, but I don't remember having a market that seemed so strong. I do think, Brad, there were, you know, certainly the winter weather contributed to some of the disruption. I think, too, it's important to note that I would describe that as the irregular route truckload market.
I think sometimes people think we're all in the irregular route truckload market, but quite honestly, there aren't that many of us anymore that continues to be our primary focus in terms of the operation of our business. I would say maybe a differentiator maybe between us and some of our competitors is, you know, I would say about 45% of our trucks are based in the East, and 55% of our trucks would be based in the West. And so I think, you know, many of our competitors are probably closer to 60% or 70% or 75% of their equipment being, you know, based in the East, where weather had the greatest impact.
Probably the other thing that, that might be a bit unique about us is, you know, we, we tend to be underbooked every day. You know, that's, that's how we like to start. And, you know, we're, we're very cautious about the commitments that we make, and we want to make sure that, that we can fulfill those commitments, successfully for our customers. So when you look at our overall, product that we offer today, including, our IMC product and our brokerage product, we're probably even, less committed, as a percent than, than what we typically have been historically.
Now, that can work for you, or it can work against you, but we like the culture of coming to work every day, having to work, and having to figure out how to get the best loads that we can on our trucks, while at the same time taking care of the commitments that we have made to our customers. So I also think, you know, that the way our service center network is set up and the way our culture works in our company, I think it's also conducive to, you know, the results that we were able to produce in the first quarter, Brad. So hopefully, I answered your question.
Brad Delco (Managing Director and Research Analyst)
No, you did. That was very helpful. And, just, for time, I'll, I'll leave it at that. But thank you very much for the time.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Todd Fowler from KeyBanc Capital Markets. Your line is open.
Todd Fowler (Managing Director and Equity Research Analyst)
Great. Thanks. Good afternoon, everyone. I wanted to ask about the guidance, particularly looking at the third quarter relative to the second quarter. Historically, it seems like the earnings have been relatively flat, third quarter compared to the second quarter. I'm kind of curious as to why there's the step down at the midpoint in the guidance, third quarter versus second quarter this year.
Dave Jackson (President)
Yeah. I, I think, Todd, this is Dave, I'll take that question. When you look at the third quarter, or maybe I should back up, when you look at the quarters in general, you know, they've evolved and changed, and they, and what may have worked as the right approach in one quarter, may not necessarily be the same, the next quarter. And certainly, between the second quarter and the third quarter there, the market, and the demand dynamics, change and probably continue to change. If you look at our performance last year in the third quarter, particularly relative to the second quarter, we did experience a step down.
From where we sit today, given that that is the most recent third quarter we've experienced, where I think we earned $0.19, the guidance that we're giving of $0.23-$0.26 is, you know, that is, that is market... That's measurably higher than where we were at last year in the third quarter. So that's probably how I would choose to look at that and define that, as opposed to trying to compare it sequentially to the second quarter. Now, you know, we'll just have to kind of see how second quarter continues to play out. And that'll maybe give us a better feel for what to expect when third quarter comes. That's how we see it from now.
Todd Fowler (Managing Director and Equity Research Analyst)
But, Dave, last year, in the third quarter, you would have had the impact of Hours of Service that you wouldn't have had or you won't have sequentially this year.
Dave Jackson (President)
Yeah, not-
Yeah. Yeah, that, that-
Kevin Knight (CEO)
Well, not sequentially, but we'll still have that impact. So you know, it's just the way, you know, we look at it.
Adam Miller (CFO)
And I think, Todd, I mean, when we look at the sequential performance from second to the third quarter last year, I believe we've our earnings per share was down $0.05. And so, I mean, obviously, hours of service didn't make that full of an impact. And so I think there's still something to be said about how those quarters now play off each other.
Todd Fowler (Managing Director and Equity Research Analyst)
Okay. That helps. Just for my follow-up, what do you have for equipment gains in the second quarter? Thank you.
Kevin Knight (CEO)
You know, I would say, Todd, on our equipment gains, that it's gonna be stronger than what it was a year ago, and probably could be similar to what we experienced in the first quarter, and you know, then maybe tailing off after that, a bit. So, I would think that on a year-over-year basis, second quarter will be stronger. And then in third and fourth quarter, I would also expect them to be a bit stronger, but probably not nearly as significant as what we expect to see, or as what we saw in the first quarter, Todd.
Todd Fowler (Managing Director and Equity Research Analyst)
Okay. Thanks, Kevin. I'll turn it over.
Kevin Knight (CEO)
Okay.
Operator (participant)
Your next question comes from the line of Brandon Oglenski from Barclays. Your line is open.
Brandon Oglenski (Senior Equity Analyst)
Yeah, good afternoon, gentlemen. You know, Kevin, I wanted to see if we could talk about driver pay here. I mean, we've heard a lot of other truckload carriers, you know, really ramping up the rhetoric around recruiting drivers. Where are we on the pay schedule, and where are we on recruitment? Is that a real limiting factor right now in growth?
Kevin Knight (CEO)
Brandon, yes, it is the limiting factor on growth for our company, and I would say probably for our entire industry. So basically, we have been working over the last several years to make sure that we've got good recruiting and development efforts, not only as far as experienced drivers are concerned, but as far as inexperienced drivers are concerned. We continue to get the majority of our driving associates as experienced drivers. But we are continuing to get a larger number of drivers coming up through our Squire and our CDL programs, and I think we've got good momentum there.
In terms of driver pay, driver pay needs to go up at least 15% to 20% to 25%, as compared to where it is, if we, as an industry, are gonna be able to keep up with the trackable environment that we expect to grow over the next few years. So basically, our goal is to basically get our driver pay up fairly significantly over the next three to five years, especially as we are provided the opportunity to improve our yield and our rates. Going back to the second half of last year, we started an aggressive initiative to improve our driver bonus program, and we have seen a significant growth in the amount of pay that our driving associates have received through our driver bonus program.
In the first quarter of this year, we initiated a pay increase for our driving associates. In the second quarter of this year, we've initiated a pay increase for our driving associates, a base pay increase. We are very aggressively taking a large portion of what we're able to receive in terms of rates and making sure that we get that to our driving associates. Our goal is to continue, you know, down this path over the next two to three years to make sure that we're competitive as far as what the job should pay and also as compared to other industries. We are very committed as a company.
All of our businesses are behind us, all of our service centers are behind us, and we're, there's not a department that gets more of our leadership's focus right now than that specific area. So hopefully, Brandon, that answers your question.
Brandon Oglenski (Senior Equity Analyst)
No, it's very helpful. I mean, is the progress giving you hope that you can grow even a little bit more aggressively as we round out the year? Or is it still just challenging, even with the increase?
Kevin Knight (CEO)
Well, Brandon, I would say it's still challenging. We have an enormous amount of initiatives on the plate of our leaders, on the plate of our businesses, on the plate of our service centers around driver development and retention. And we recognize that, you know, there's an enormous amount of opportunity for growth in the market, though it is being inhibited by driver development. So for right now, I'm gonna be really proud of our team if we can increase our fleet by 200 as a result of the success in our driver development efforts, but would not want to predict at this time that it would be any more than that.
Brandon Oglenski (Senior Equity Analyst)
Appreciate it. Thank you.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Allison Landry from Credit Suisse. Your line is open.
Allison Landry (Senior Equity Research Analyst)
Hi, thank you for taking my question. Kevin, I just wanted to refer back to your comments a couple of minutes ago regarding driver pay needing to go up, you know, anywhere from 15%-25%, and this would likely take about three to five years to unfold. That sort of seems like a long timeframe and, you know, potentially having the impact of exacerbating an already problematic shortage situation. So as you think about that from a medium-term or a longer-term perspective, is there any point at which you might start to become worried that you may not be able to grow your fleet? And if so, how far away do you think that Knight is from having to deal with something like that?
Kevin Knight (CEO)
Well, first off, Allison, we've struggled to grow our fleet for, you know, the last couple or three years in terms of even, you know, 200 net gains. So, basically, yes, we are concerned about that. But, we feel confident as a company that the limiting factor for service, for us to increase our services is drivers. And, you know, you're seeing a lot of stuff in our market. You're seeing an elevated level of closings. You know, the increased regulations that we now have on our industry are certainly taking more drivers out of the system. The electronic on-board recorders are taking more available hours out of the system.
And so from our perspective, I think we're in the early innings of a prolonged environment of rate growth, and we will move as fast as that allows us to move. And we're in a very good position in terms of our profitability, so we can be on the high end of that if we think that is prudent. And so we're just gonna take what it gives us. We're gonna convert that to our drivers as rapidly as we can. If we can do it faster than three to five years, we will. But just based on our experience as a company and really our understanding of the pure irregular route truckload market, I think we've got a very good plan.
I think over time, this job is going to pay more than it does, because really, that irregular route is the most difficult one to execute, and we happen to do a very good job at that. I think in our space, that's where the biggest opportunities lie over the next three to five years. So we're just gonna keep working. We're putting a lot of effort into our Squire and our CDL programs, and we're gonna try to, you know, get more confident in our ability to grow our fleet. But that's what I have for you, Allison.
Allison Landry (Senior Equity Research Analyst)
Okay. Thank you. That was very thoughtful. I just had a quick follow-up question. In terms of what you're seeing in the brokerage division, could you maybe provide some commentary, you know, even directionally, with respect to the net revenue margins on a year-over-year basis, and/or sequentially?
Kevin Knight (CEO)
Yeah. Well, I would say that from a brokerage perspective, Allison, you know, first quarter was a phenomenal environment for that specific business. But we continue through the call here today to grow that business rapidly, even as we've worked our way beyond the weather. From our perspective, our gross margins have remained close to the same, but a little bit better. And we've seen that continue thus far into this quarter. And so we have a lot of confidence in that supporting business right now and feel like we're doing a very good job of executing in that particular business.
So, I would—my guess would be that we'll continue to be close to margin year over year, with maybe slightly improving that. And you probably won't see the same level of growth in the coming quarters as what we experienced in the first quarter, unless the market gets disruptive again, like it was this quarter.
Allison Landry (Senior Equity Research Analyst)
Okay. Fantastic. Thank you so much.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of John Larkin from Stifel Nicolaus. Your line is open.
John Larkin (Managing Director and Research Analyst)
Hey, good afternoon, gentlemen. Thanks for taking my question.
Kevin Knight (CEO)
Hey, John.
John Larkin (Managing Director and Research Analyst)
Of course. I wanted to dig in a little bit on that, that wonderful 4.9% improvement in revenue per loaded mile, which is by far the best number we've seen in a number of years from any carrier. And I was wondering if you could just clarify a little bit how much of that was what I would call good old-fashioned contractual price increase, how much of that was better freight selection, and how much of that was... You mentioned that you come in to work in the morning, and not all the trucks are already allocated, and you do have some flexibility, perhaps, to play the spot market a little bit. Could you parse that out for us a little bit on the 4.9% improvement?
Kevin Knight (CEO)
Yeah. First off, John, that's a very good question. You know, as we look at that, four point nine percent improvement, what I would say is generally the contract rate increases that we are getting are moving into the three to five percent range as compared to, you know, last year, where we would have estimated two to three percent. So depending on the freight, depending on, you know, how things have developed with that freight over the last several years, you know, we're now solidly in the three to five percent expectation as far as our contract freight is concerned.
And so a large part of the 4.9% would certainly be the work that we accomplished on rates in the fourth quarter of last year and the first quarter of this year. We also have, you know, a certain percent of our capacity that is not committed. Most of that capacity moves to our contract freight customers that we may have a backup matrix with, or that may call us and offer to pay deadhead, or may call and offer to pay us additional dollars in order to supply, you know, that capacity. So I wouldn't call it spot. I would call it basically demand that we receive from our customer base primarily.
And then certainly, you know, there is freight that comes, opportunities that come otherwise. So if I had to parcel the 4.9%, I would probably guess about half of it was from contract rates, and I would guess that probably about half of it was from the other that I just described.
John Larkin (Managing Director and Research Analyst)
Terrific. And is it fair to say that because you are not overbooked every morning, that the brokerage business is not the traditional overflow business? That's sort of a separate line of business where you're dealing with, in many cases, different customers?
Dave Jackson (President)
Yeah, John, this is Dave. You, yeah, you nailed it. It is a different type of a business than what you... A different type of brokerage than what you would see in maybe a traditional asset-based type of a business where it's more of an overflow. So, you have to remember, we have a very diverse group of customers. We've got people across the country, constantly outsourcing opportunities, hearing about opportunities with our broad customer base. And so, you know, we're constantly figuring out what loads should go on our trucks, where are the needs for our customers, so we can provide a high level of service.
What are the opportunities for our brokerage group to find third-party capacity to solve the many problems that constantly come up on a day-to-day business with our customers?
Kevin Knight (CEO)
Yeah, and I would just add, John, I think, you know, going back to the beginning when we started Knight, you know, we tried to pattern ourselves. You know, we kind of tried to take from the best and build what we thought was the best model, which probably ended up being a combination of Heartland and Swift because, you know, just Heartland has always been the leader as far as efficiency, and Jerry was always the leader as far as growth. I would say as we think about our brokerage business, we think a lot about C.H. Robinson, and maybe not so much C.H. Robinson today, but certainly the C.H. Robinson that became the C.H. Robinson that they are.
So as we try to build that business, we try to, you know, pattern ourselves after the people that have been the most successful in their areas of expertise. And certainly, we're a long way behind those guys, but we do feel like now, when we get a call, we have bona fide capacity available in every part of the country to, you know, to service those requirements. And of course, that's our goal.
John Larkin (Managing Director and Research Analyst)
Thanks very much for the color.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Chris Wetherbee from Citi. Your line is open.
Chris Wetherbee (Senior Research Analyst)
Thanks. Good afternoon. Maybe a couple quick questions on the underlying specifics of the guidance. Dave, just give us a rough sense of maybe so what are the rate, the underlying rate assumptions there, and I guess maybe the pace of the fleet growth when you think about the 200 new trucks that you want to add from where we are today?
Dave Jackson (President)
Yeah, I'll let Adam take that.
Adam Miller (CFO)
Yeah. So, on the growth in the fleet, I mean, we'll start bringing that on here in the second quarter, and that'll continue probably for the third quarter and maybe partially into the fourth quarter, but we usually don't add a lot of capacity near the end of the year. I think that the bulk of that's in the back half of the second and then probably in the third. Our expectation is that, you know, rates are going to continue to be positive. I don't know that we'd expect to see the 4.9%, as Kevin alluded to, on a year-over-year basis, but certainly, certainly in that 3%+ is where we would expect to see the rate per mile to come in at.
Chris Wetherbee (Senior Research Analyst)
Okay, so somewhere in that contract range, is the three to five still okay-
Kevin Knight (CEO)
Yeah.
Chris Wetherbee (Senior Research Analyst)
to be thinking about as far as?
Kevin Knight (CEO)
Yeah. Yeah, we would, we would, we, we would support that. And, and, you know, of course, that takes time to, to build fully, so it, it won't, you know, it'll come one negotiation at a time.
Chris Wetherbee (Senior Research Analyst)
Okay. That's very helpful. I'll leave it there. Thank you very much.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes from a line of a participant whose company affiliation was unable to be gathered. Rob Salmon, your line is open.
Dave Jackson (President)
Hey, this is Rob from Deutsche Bank.
Rob Salmon (VP and Senior Analyst)
It is, Dave. Thanks for taking my question. When I think you guys sort of highlighted that you're continuing to look for acquisitions at the beginning of the call. Obviously, the truckload operating environment has gotten stronger with spot rates up and contract rates up as much as they have been. Does that make it easier or harder for you guys to try and find a potential acquisition out there, as well as come to terms from a pricing perspective?
Kevin Knight (CEO)
Yeah, I would say neutral, Rob. I mean, we have as much on our plate right now as with regard to acquisitions as we have at any point in our history. And but you know, I think as long as we're working hard at it, I think that we will be successful in accomplishing or being part of this consolidation that we continue to see in our industry. So we are highly motivated to do something, and we need a reasonable third party to participate.
You know, we're gonna continue to work this, especially, you know, I think it's probably obvious to most of you that follow our company closely, that you know, our leadership is developing very well and taking on more of the responsibility of the day-to-day from me. As a result of that, it allows me to you know, spend more time in this specific area. So certainly, you know, it's gonna have a lot of attention from the top of our organization. And we do have access to significant capital, and we would like to put it to work, but we're gonna make sure that it's gonna work for our shareholders or has a very high probability that it will.
And if we find that, then we're gonna get her done. So that's how we look at it.
Rob Salmon (VP and Senior Analyst)
Kevin, when we think about just the dry part, powder that you have, what sort of size parameters are you guys looking at from the acquisition standpoint?
Kevin Knight (CEO)
Well, I would, I would really say, Rob, you know, probably all sizes. I mean, we're of a size now where, where if it's too small, you know, maybe, maybe we don't get much bang for the buck. But, but what I would say, Rob, is, is really the way, the way our business is built, it's, we're, we're not too big anywhere, and, we absolutely could, could take on something fairly sizable. But also, if we found a good 200, 300 truck operator, that, that could be very meaningful also, especially to whichever one of our truckload businesses that ended up inheriting, most of that in their operation. Or of course, we could just let it stand on its own and, and, work it, work it outside of the network.
So really, the field is open and with very few limitations. Our expertise as a company really is around efficient growth and operations. And so probably based on the pursuers you have in the non-asset-based space, we're probably not gonna compete with the multiples that they are willing to pay. But certainly, where we can create the most value to our shareholders is heavily asset-based, primarily company equipment operation. And so that's basically where our focus is, where we can acquire underperforming company trucks and convert that to a higher level of earnings?
Rob Salmon (VP and Senior Analyst)
Appreciate the color.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes on the line of Ken Hoexter from Bank of America. Your line is open.
Kevin Knight (CEO)
Hey, Ken.
Ken Hoexter (Managing Director)
Great. Good afternoon, Kevin, Dave, and Adam. Just when you think about the targets, Dave, that you set out in your prepared remarks, can you talk about what's included in that in terms of tractor growth? I mean, I know you started out the presentation talking about the difficulty of getting drivers to seat them, but what kind of growth have you built in there? And given your margins and where they are, do you feel like you can go and just grow the fleet a little bit faster and put pressure on, given where the market pricing is to grow the fleet right now and take advantage of that opportunity?
Dave Jackson (President)
Yeah. Well, Ken, I think, it's a great question. I think to piggyback a little bit what Adam just commented on, on what goes into the estimates and the targets, looking out throughout the year. From a growth perspective, you know, we're, we're still modeling out that 200 truck growth. To start this quarter, continue through the third quarter, and probably not finish until sometime in the fourth quarter. When we look at our business from a return perspective, there is-- there are very, very few, service centers in the, in the net- the large network of service centers that don't have the current economics to support or to justify reinvestment and growth in their fleet. So the challenge, as has already been stated, the main- the primary challenge is drivers.
I think our ability to raise rates to a level that allows us to pay drivers more is a significant advantage. And so if you look at the 4.9% loaded per mile improvement we had in the first quarter, and Kevin's comment that we've already twice raised the driver pay, in addition to what we had done on the bonus pay side, towards the end of last year, it demonstrates that we don't take very long to raise rates and put it where we feel like it's going to lead to the most the best growth opportunities for us, which is in drivers.
And so it's a major focus for us, in making sure that Knight Transportation is a place that drivers want to come to, and once they're here, that they want to stay, and that while they're here, they want to be productive and efficient. And so we continue to be highly focused on those initiatives. We're fortunate that we have great people that have bought into our goals, they've bought into our model, they've bought into our system, and so we have confidence that we're gonna be able to continue to attract and retain drivers, hopefully at a level that's maybe better than our peers, but that enables us to make the capital investment in equipment and to run more trucks at 80, in many cases, better than an 80 OR throughout our service center network. So, if I...
I hope that answers your question in terms of there's a willingness for us to grow faster, but the limiting factor is drivers at the moment.
Ken Hoexter (Managing Director)
I guess a relatively quick follow-up would just be, does that differ by division? Obviously, that's gonna be true for dry van, but does that change when you think about port or drayage, where you're doing more short-haul regional, where they can be home on a regular basis? Does that-
Dave Jackson (President)
It really doesn't-
Ken Hoexter (Managing Director)
have an overshare?
Dave Jackson (President)
It really doesn't change between all of the driving jobs and all of the businesses, so.
Kevin Knight (CEO)
Yeah, and I think, Ken, it's interesting, you know, this has been a universal comment by almost every participant in truckload, is, you know, that it's just really, really difficult as far as finding the drivers is concerned. And so, hey, we're putting everything in it that we can, including we're putting our money where our mouth is, and you know, we're working hard to, you know, be able to put ourselves in a position where we can. The good news is we seem to be in an environment, probably in the early stages, where we would expect that we'll be in for many years of solid rate improvement. And that, that's really the... That, that's really the gas that powers the engine.
Ken Hoexter (Managing Director)
Appreciate the insight and time. Thank you.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Scott Group from Wolfe Research. Your line is open.
Scott Group (Managing Director)
Hey, thanks. Afternoon, guys. So I don't think we heard much, if any, about kind of the current demand environment the past few weeks in April. Maybe if you can give us some color there. Is that what gives you the confidence that you can start growing the fleet without seeing any setback in utilization? Yeah.
Kevin Knight (CEO)
You know, Scott, I would basically say that, you know, we're more normalized now than what we were as a result of the disruptions of the winter weather, but we have seen continued improvement in demand, year-over-year, and continued improvement in revenue per truck, year-over-year on a more normalized basis. I will tell you that Aprils are typically the third worst month in trucking, January and February, and then April. And so, you know, we now are progressing into a much busier expectation as far as freight is concerned. We expect much more freight to be coming through the ports. We expect more freight to be coming from our beverage customers.
We expect much more freight to be coming as a result of the fresh vegetables and produce. And so, typically, Aprils are a little bit somber, but this has been certainly one of the better Aprils that I remember. So that's how we see it.
Scott Group (Managing Director)
Okay, good. And then just Kevin, I think I just heard you say multiple years of better pricing. What gives you that confidence?
Kevin Knight (CEO)
Well, I would say that, you know, we focus on what's happening in the overall economy as far as growth in truckloads. And we subscribe to a couple of products that are confidential, and you have to pay to receive them. But it basically, by reading that data, we really have been on a steady improvement of truckloads since the bottoming in 2009.
With the cap that we have on capacity because of the driver situation and because of intensified regulations... And if you look at the lack of interest in irregular route trucking by many in the space, I mean, many folks are closing the doors, many of the bigger competitors are moving more away from irregular route truckload and into other sectors. It just seems to me like we're approaching an environment that I don't really see anything on the horizon that's gonna change the momentum. So that would be my answer.
Scott Group (Managing Director)
Okay. Thanks, guys.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Bill Greene from Morgan Stanley. Your line is open.
Bill Greene (Managing Director)
Yeah. Hi there. Good afternoon-
Kevin Knight (CEO)
Hey, Bill.
Bill Greene (Managing Director)
Hey, good afternoon, and congrats on a great first quarter.
Kevin Knight (CEO)
Thank you.
Bill Greene (Managing Director)
So I wanted to, Kevin, I wanted to, ask you a question about acquisitions, and there's obviously been a lot of talk about the driver challenges. And I'm curious if you think that having more scale, more trucks, more size helps the driver situation, or does... In your experience, does it create a bigger challenge? I'm not quite sure sort of what advantage a much larger truck fleet in a short period of time kind of does. So maybe you can help me think that through a little bit.
Kevin Knight (CEO)
Well, you know, Bill, I think when we think of how we've built our business, we have tried to build a business that advantages economies of scale, but also operationally avoids diseconomies of scale. And I would say, on the driver side, with a large company, there's a significant opportunity to find yourself on the wrong end of economy of scale. And so what we have done is we have protected, you know, the service center model that we operate in all of our asset-based businesses very, very much. And really, when you go into any of our buildings, Bill, it looks like it's a small trucking company with great people and good equipment and so forth.
So basically, we believe that based on the way we've built our business, that we have mitigated any diseconomy of scale that there would be from a driver perspective. We've also, not only on experienced drivers, we've also in terms of our Squire program and our CDL program, we've also kept that you know working along those same lines as our business and by service center. So I believe that we because of the uniqueness of our model have created an advantage where we should be able to over time do better than others. And certainly, we've demonstrated that over the last 25 years, even though we probably find ourselves in as difficult environment as I can see.
So, I would say, naturally, more trucks would create a diseconomy of scale unless you understand it, guard against it, and build your business in a way that converts that into a strategic competitive advantage.
Bill Greene (Managing Director)
Yeah, that makes a lot of sense. The second question I had was just on the first quarter. I know this is gonna sound strange 'cause it was such a good quarter for you, but it... Was there any weather impact, even if it was just you felt like you got sort of extraordinary kind of revenues that you aren't sure will repeat? Like, how do you think about what a core number is, or is that a good number that you got that's really sort of how we should think about core?
Kevin Knight (CEO)
Well, I think, Bill, weather was less of a factor for us than it was, you know, many of our competitors. But I would say absolutely, it had a negative impact on our idle time. You know, our idle time was up probably 4-5 points over a year ago, and so it had a significantly negative effect on our idle time. We had many more service calls as a result of frozen trucks and you know, as far as their fuel gelling and so forth. And I mean, the number was significant, certainly the worst we've ever seen it. And we had some days, we had some days in Dallas where we couldn't work.
We had some days in Atlanta, and days in Charlotte, days in, you know, all of our various service centers that are in the Northeast and the Midwest, where basically we couldn't get much done. Even in some cases, we had days where people couldn't, you know, our leadership couldn't get to work. So, so any of those service centers. So, you know, I don't know if we could quantify it, but it was probably a penny or two, would be my guess. We certainly, you know, we didn't have any, what I would call, really serious accidents, which is a testament to the commitment of our people to be safe.
We have a process that we follow when we dispatch every truck in certain environments, and that was obviously effective. But nonetheless, we had a few jackknives. We had a few trucks that went over and you know, other incidents that come with very slick roads. But overall, you know, I couldn't be more proud of the job that our folks did. We had more slips and falls from a workers' compensation perspective, and you know, what did I miss, Dave? Was there-
Dave Jackson (President)
I-
Kevin Knight (CEO)
Was there any other areas?
Dave Jackson (President)
Yeah, no, I think, I think, you know, miles were down 1.3% for the quarter, and so in such a strong-
Kevin Knight (CEO)
In a very good environment.
Dave Jackson (President)
Demand quarter-
Kevin Knight (CEO)
Yeah, right.
Dave Jackson (President)
We otherwise wouldn't have normally seen that. I think-
Kevin Knight (CEO)
Although we had the hours of service difference year-over-year, so.
Dave Jackson (President)
The fourth quarter, we fared a little bit better year over year in miles than what we saw in the first quarter, and arguably just as good, if not better, in the demand environment. I think for what it's worth, you know, there certainly are weather issues and challenges that come every winter, and there's dynamics that change. They were clearly exacerbated in this quarter. But our folks figured out how to work their way around those issues the best that they could. And it's you know, and our folks weren't hiding behind anything and simply did their best. And you know, we have you know, we have facilities in Chicago, Indianapolis, Green Bay, in Eagan, Minnesota, in Columbus, Ohio, Carlisle, Pennsylvania, where they clearly had... What did I miss?
Kevin Knight (CEO)
Atlanta.
Dave Jackson (President)
Well, yeah, I hadn't got that far. Then you have cities that freeze over, like Atlanta and Dallas. And so, you know, we were clearly, those operations were affected, but those folks were dialed in, and we did our best.
Kevin Knight (CEO)
I would say the winter was especially mild in the West, it felt to me like. I mean, I don't remember, I don't remember, and I'm probably wrong, did 80 ever get shut down? Did we ever... Was there, what, maybe one day or two days where... And you know, typically, that's more often than that. The Pacific Northwest, you know, wasn't too bad, and Utah and Colorado weren't too bad. So, you know, I think that, you know, that's our best answer.
Bill Greene (Managing Director)
Yep. Well, that's great. Well, great job again. Thanks so much for the time.
Kevin Knight (CEO)
Thank you.
Operator (participant)
Your next question comes from the line of Art Hatfield from Raymond James. Your line is open.
Art Hatfield (Senior Equity Analyst)
Hey, afternoon, guys. I know we're running up against the clock, but thanks for taking my question. I just wanted to quickly kind of, if you could, delve into the 9.6% deadhead percentage in the quarter. Obviously, as you commented, a great number. But can you comment how much of that was people actually paying for deadhead miles in Q1? And if so, will that continue? And then, kind of finally, have you thought about it from the standpoint, over the long haul, for lack of better words, what could be a theoretical full employment level for that number? And if so, and you can get there, what are the tools that you use to get there? I know that's a lot, so,
Dave Jackson (President)
Yeah. Yeah. Okay, Art, I'll try and take that. So, I would... Let me start off by saying that the most helpful factor in empty miles is strong freight demand with a coordinated operating network, which we happen to have both of those. We bring a strong network that has close oversight in the decisions and in the freight selection that we make. And when we jam that full of a lot of loads, it usually leads to pretty good result, which, you know, 9.6% is close to an all-time high. I think you'd have to go back to when we had, like, less than 1,000 trucks to find that, last time we were that good.
So, now, there has been, there is one factor that has been very instrumental in helping us do that, and it is an optimization software tool that we, at various degrees, have had implemented now for some time, meaning a year or two at most. But by far, our usage was up with that tool. And so we've been very cautious and very careful in how we've tested that tool in the last several quarters. And the implementation and the level of usage was significantly higher. It was the most we've ever used it, used the recommendations coming from that tool in this first quarter.
As a result of that is lower, lower empty miles, and that's one of the reasons why we purchased the tool, why we use the tool, and it takes into account several factors in order to minimize the empty miles. We still have a ways to go in terms of usage and usage in all of our asset-based businesses, and so we do not use it in all three. We use it in one, and we only use it for about half of those loads. And so we clearly today have more conviction in using that as a part of the process that we go through when we select loads and when we dispatch loads and drive productivity on trucks. So those are the factors.
Of course, that last factor, the software, that we'll continue to use that in good, good times and in not so good times. As far as a long-term run rate, or over the long haul? Which was a bad pun, by the way. As we look forward, I don't know that our expectation is to always be under 10. It's not to be under 10%, but we wanna be, give or take, 10% or a little less.
Kevin Knight (CEO)
Yeah, and I would add, Art, that a bit of it came from paid deadhead, but probably more important in the way we optimize, we really—I mean, the system is an off-the-shelf system, but we put the decision-making into that system, and we do that based on the way we run our trucking business. And but to make that optimizer the most effective, you gotta have loads. And the more loads you have, the more efficient and the more effective that becomes at making sure that we're doing operationally what's best for our customers, what's best for our driving associates, and what's best for the company. Art, do you have a quick follow-up? Because otherwise-
Art Hatfield (Senior Equity Analyst)
No, just real quick on your comment about paid deadhead. I know that you probably got a lot of that in the first quarter 'cause of circumstances, but do you think, with the market being as tight as it is and will continue to be so, that that will be more commonplace?
Kevin Knight (CEO)
Well, it certainly could become more commonplace. I mean, you know, I think as you look at things, you know, as freight demand becomes stronger, you have opportunities to improve your overall freight base, and it certainly could become more common. But, you know, I still think, Art, we're a ways away from that becoming common practice. But anyway, it certainly could become more common.
Art Hatfield (Senior Equity Analyst)
Great. Hey, thanks for your time today.
Kevin Knight (CEO)
Thank you.
Dave Jackson (President)
Thanks, Art. Okay, Kurt, that, that wraps it up. We appreciate everybody joining our call today.
Kevin Knight (CEO)
Thanks again, guys, for being there with us.
Operator (participant)
This concludes today's conference call. You may now disconnect.