Good afternoon. My name is Latwinde, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2012 earnings release call. [Operator Instructions] Thank you. Speakers for today's call will be Mr. Kevin Knight, Chairman and CEO; Dave Jackson, President; and Adam Miller, CFO. Mr. Miller, the meeting is now yours.

Thank you, Latwinde, and good afternoon everyone, and thanks for joining our call today. I hope you've had a chance to print out the slides that we posted along with the press release. The slides that will accompany this commentary are available on our website. The actual lab address is investor.knighttrans.com/events. Our call is scheduled to go until 5:30 p.m. Eastern Time. Following our commentary, we'll 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. The rules for questions remain the same, as in the past. One question per participant. If we do not clearly answer the question, a follow up question may be ask. So, to begin, I'll first refer you to the disclosure on Page 2 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 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. Now I'll begin by covering some of the numbers in detail, including a brief recap of the fourth quarter results starting with Slide 3. The fourth quarter of 2012, total revenue increased 8.1% year-over-year to $242.3 million. Income from operations decreased 2.3% year-over-year to $28.6 million, while net income increased 1.3% year-over-year to $17.7 million. Our net income per diluted share was $0.22 and was up 1% when compared to the same quarter last year. And now onto Slide 4. For the fiscal year 2012, total revenue increased 8.1% year-over-year to $936 million. Adjusted income from operations increased 12.2% to $112.2 million, while our adjusted net income increased 12.9% to $68 million. Our adjusted net income per diluted share increased 15.5% to $0.85 for the year compared to $0.74 per share for 2011. Now onto Slide 5. We finished 2012 with $490.2 million of stockholders equity, and over the previous 24 months we have returned $155.2 million to shareholders through dividends and repurchased shares. We continue to maintain a modern tractor and trailer fleet with an average tractor age of 1.9 years, and we continue to have available, $150 million unsecured line of credit with a rate of LIBOR plus 62.5 basis points, and at the end of the year we had $80 million outstanding on this line of credit. Dave Jackson will now review slides providing additional insight to the fourth quarter and the full year 2012 results.

Thanks, Adam and good afternoon, everyone. Now to Slide 6. Revenue continues to trend positively as we recorded the highest revenue, in a single quarter, in our company's history. The graph on the left of Slide 6 illustrates the progress made in our top line revenue growth, excluding trucking fuel surcharge in the fourth quarter of each of the last 3 years. As demonstrated by the graph on the right, we have experienced solid revenue growth, excluding tracking fuel surcharge, in 2012, as we continue to add capacity and grow our non-asset based businesses. All of this growth has come internally with our acquisition. Now onto Slide 7. Here we illustrate the fourth quarter earnings growth over the last 3 years. As seen by the graphs on the left, the earnings trend has been positive, especially when considering the full year of 2012, despite what continues to be a static economic environment. Now onto Slide 8. We continue to compare favorably to our closest truckload industry peers in terms of revenue and operating income growth for 2012. This year-over-year improvement has come through organic growth in our business without acquisitions, as mentioned. Although we compare well with our peers, our 2012 results of 8.1% revenue growth and 12.9% adjusted income growth are shy of our internal growth goals of 10%-plus revenue growth in 15%-plus income growth. Now moving to Slide 9. The top graph here shows the annual revenues, excluding tracking fuel surcharge going back to our first full year as a public company, which was 1995. We've had 4 small tuck-in acquisitions that are noted on the slide over the 18-year period. We also show the corresponding EBITDA, operating income and net income for the same period in the graph below. When looking over this period, a few things are apparent. We've had very consistent revenue growth over time in spite of prolonged challenging operating environments that the industry has faced. One can see how our business responds to earnings opportunities as we look at the income chart through the '04 to '06 boom period. And looking at both graphs, you can see that we have been successful in building our top line while not compromising improving income. In addition to this operating performance and demonstrating our growth track record, KNX or Knight Transportation shareholders have benefited from $211.6 million in cash dividends paid since 2004. Our trailing annual dividend yield is 4.5% and our 5-year average dividend yield is 1.1%. I'll now turn it over to Kevin.

We saw revenue growth in each of our truckload service offerings. Slide 10 is a rundown of each of those services. We saw double-digit growth in our port and rail services, in our brokerage and in our intermodal services. Intermodal growth of 97.5% was especially strong and operated profitably for the third consecutive quarter. For the quarter, we improved revenue by 8.1%. We continue to find multiple solutions across our multiple truckload services for our customers. Moving to Slide 11. In prior quarters, we have often provided more detail into our OR for our different service offerings. For the purposes of reporting and disclosure, we have decided to combine our asset-based services, which includes drive-end truckload, refrigerated truckload, port and rail services, truckload, and dedicated truckload into our asset base classification. We have included in our non-asset base classification our brokerage, our intermodal, which as you know we own no intermodal equipment as far as containers, and non-trucking revenue. The operating statistics that we have included in each earnings release, historically, follows this theme and that it is a combination of the operating stats of our asset base services and does not include our non-asset based services. Our asset-based business improved their OR from an 84.6% to an 83.6% for the 2012 year while growing 6.6%. Our non-asset based businesses OR was 94.7%, up 100 basis points from 93.7% a year ago, for the 2012 year, with 22.2% revenue growth. In a low-growth economic environment top line revenue growth pressures efficiency. Pursuing revenue in the current environment requires upfront investment that we believe will lead to long-term earnings growth. Consolidated, our operating ratio for the year improved by 60 basis points to 85.1% with total revenues growing 8.1%. Moving to Slide 12. Our network is designed to grow and service multiple truckload modes at high levels of efficiency, as measured by on-time service, cost per mile and cost per transaction. There continues to be opportunity for us to improve the productivity of our tractor fleet in a strengthening economy. We will continue to make improvement on our revenue per mile. We remain vigilant on cost control in every department and in each of our services. We believe there are further opportunities to improve cost. We continue to evaluate acquisition opportunities. And I will now turn it back to Dave to discuss guidance.

Thank you. Slide 13 is our final slide. For the first quarter of 2013, we reiterate our guidance of the $0.17, to $0.20 per diluted share, and our expected range for the second quarter of 2013 is $0.23, to $0.25 per diluted share. Some of the assumptions made by management include rates to continue to be slightly positive year-over-year and for utilization 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. [Operator Instructions] 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. We will now entertain questions.

[Operator Instructions] Your first question is from the line of William Greene from Morgan Stanley.

Can I just ask about some of the current trends? Can you talk, at all, about what you've seen in January from maybe a load perspective or even a rate perspective? Are things shaping up okay for you in January?

Bill, this is Kevin. I would say yes. I would say -- I think, generally, we feel a little more optimistic about 2013 than maybe we did a month or 2 ago. And I would probably say that -- of course, the first quarter is never anything to write home about, but I do believe that -- we believe that there's going to be -- that 2013 will be a better year than 2012. It may start off a little slow. But based on the way things have started, we're feeling like '13 has a good chance of being a better year than 2012. And I think we probably, Bill, even have more confidence today, as far as improving rates, than we did maybe a few months ago. So I think that we're a little more optimistic there than maybe what we have been.

When you look at your contract bids you're getting this quarter, are the rates materially better than they were, let's say for fourth quarter? Is that what gives you confidence?

As we work through each of our bids, which you know we are working on them all the time. Of course, this is a season where we do that. We're committed to basically taking our contract rates up through those bids, in the range of 2% to 3.5% depending on the overall quality of the freight. And that's what we're doing and that's what we expect to continue to do.

Your next question is from the line of Nathan Brochmann from William Blair & Company.

A little bit on the -- just kind of on the margin side. Kevin, obviously, on the asset side you still put up really great numbers. What kind of investments -- I mean, obviously, we know that you're growing those business, but what kind of ancillary things do you think that you're doing, still, to grow the non-asset side and when do think that, that starts going the other way for you? And then, also, in terms of just the asset business. What do you think you need there to continue to drive the productivity and the leverage?

Yes. Well, I would say, on the asset base side, Nate, that number one, we just need a little bit better environment. I mean, anytime you continue to grow your fleet, it makes it a little more challenging, especially in a low-growth environment, to operate as efficiently as what you would hope to do. So, from an asset-base perspective, we've continued to buy trucks and buy trailers, and continue to basically invest in growth. But we really haven't had the economic environment to take full advantage of that. We have seen, in the market, many of our competitors have reduced their fleets significantly. And you can see that, that really helps when it comes to improving those efficiencies, and we've chosen not to do that for our company. And so we were hoping, that as we move through 2013, that we'll have enough economic strength to where we'll be able to start to improve the efficiencies of those investments. As far as the non-asset based side, Dave, do you want to...

Yes. Maybe, Nate, I'll chime in there for a moment. I'd say, in terms of -- in seeing the margin improve year-over-year in that business, that's where we've seen very strong growth between intermodal and brokerage. And those are the businesses where we're investing in technology in both cases. We've started off with a healthy technology investment in the intermodal side, that we need more skill to help with that. We've made investments in people in those businesses and we're getting our foot in the doors and building consistency which, in a non-asset based world, long-term, we believe turns into improved margins. And so I would say from a gross margin standpoint, we're within a couple of points of our target in our businesses. And so we are excited and we feel comfortable with the kind of investments that we're making, that it will lead to the kind of long-term margin that we're after.

Great. And, Kevin, just one clarification in terms of needing a better environment to really show that productivity. Do you think that you need something greater than like 2% GDP environment to really show that, both on the productivity and pricing or is that something less than that?

I would say it's driven by 2 things, Nate. When you look at the GDP, certainly 2% is better than 0. 2.5% would really be good. But I think the bigger issue is really the heads-on capacity that we continue to compete with. And as I look at what's going on in the capacity area, I mean, there's thousands and thousands of trucks that have been taken out by some of our larger competitors in the main areas where we compete. And so I think that is very advantageous and is going to continue to help us, eventually, end up in a position where we have an opportunity to improve the throughput of our business in the kind of way that we think we're prepared to do. So I don't really just look at the GDP. I mean, certainly, we would like a stronger number. The one that came out today was somewhat concerning, but when you look at government spend being most of that, or all of it, and you look at it without that, it would've been in that 2% to 2.5% range. I think that's an area that will lead to better opportunities for us. But again, I think the bigger factor is the capacity that we still see coming out of the truckload space, that I think is going to be even more helpful.

Your next question is from the line of Ken Hoexter with Bank of America Merrill Lynch.

Kevin or Dave, can you talk a bit on your thoughts on still growing 4% to 6%? What's built into your targets? Do you see that accelerating if you're starting to see the environment pick up a bit? Sounds like you're a little bit confident. And then, revenue per tractor was still down despite that environment. So does that mean you're growing too fast relative to the what the market can take or maybe just give a little thoughts on the yield side there.

Okay, Ken, I'll take that. In terms of the growth side, I would not say that we're feeling like that's a number that's accelerating. Last year we sat here and talked about a 3% or 4% to 7% range. You see that throughout the year. We were bumping somewhere between the 5% to 6% range. It's kind of how we were year-over-year. We're not sitting in a spot, now, where we feel like that number will be accelerated from what we see starting 2013. And part of the reason for that is, I think, tied to your second question which is -- you see that revenue per truck is under a little bit of pressure. We see that and feel that. And so there's a delicate balance we feel, between improving on a revenue per truck while still adding trucks in places where it makes sense for us to grow our business. So we want to grow, we have a business where we always have service centers that are performing at a level where they deserve to grow. But overall, on the whole, we want to see that revenue per track on the positive tick. And when we see it on the positive tick, and solidly on the positive tick, then we begin to think about accelerating that growth.

So, I guess, just to take it a step further. Then what is built in? I guess, is it still that same kind of level that's built into 2013 target ranges?

Yes.

Your next question is from the line of Chris Wetherbee from...

Just wanted to maybe follow-up on that, I guess. When you think about the progression, I guess. So we should we be thinking about fleet growth kind of still in that, give or take, 5% range of your basis in the first half. I just want to make sure I understood that, Dave.

That would be correct. And that give or take, I would say, that 3% to 5%, if we don't feel like we're going to get revenue per truck improvement and when we begin to see or expect revenue per truck improvement then we move closer to that, the upper end of the range, the 7% of the range. So, right now, we're trending. Year-over-year we ended the quarter at a -- up 5.4%, I believe is the number.

Yes. And I would say, Christian, that number is probably going to be lighter in the first quarter, second quarter and probably stronger in the third and fourth. It's how we would forecast it.

Okay, that's helpful. That makes sense. And just one follow-up, just on the pricing side. In the fourth quarter, on a revenue per mile basis, just want to get a rough sense of kind of how that rate was trending. I think you give us some color on what you think kind of the rates could be for '13. Just want to get a sense, that 2% to 3.5% rate range that you talk a bit what about for '13, how does that compare to where you kind of ended the year? I just want to get a rough sense of the progression there.

That would be stronger than how we ended the year. And so, I would say, Christian, we're going to be a little stronger in our rate effort this next year as compared to last year, and tow the line a little stronger than maybe what we did this past year, as far as our negotiations are concerned. And push that number forward in a little more strong fashion would be how I see it happening.

Your next question is from the line of Scott Group with Wolfe Trahan.

Dave or Kevin, can you give us a sense on how utilization was in the quarter? And I guess the question is, as we think about -- we take the midpoint of the guidance, basically it implies 4 quarters in a row of flat earnings despite growing the fleet. Why not cut the fleet a little bit in the near term? Cut the utilization and pricing back where you want it and then start growing it again later in the year.

Well, Scott, we could and we might. But we certainly could do that. It's really not part of my DNA. I always feel like we can grow our fleet and I feel like we can improve our rate, and I feel like we can improve our utilization if we all have the intensity and the effort that we need in our business and our businesses. Now we have seen, and we watch very closely, what our competitors do. And we have seen, from those that are reducing the size of their fleet, they have been more effective in improving their utilization and they have been more effective in improving their revenue per mile. But that will be in front of us every month as we proceed through 2013. And so, what could happen as a result of us being stronger, in terms of increasing our revenue per mile? It may put us in a position where we would be better served to not grow our fleet as a result of how that all comes together. But we certainly have an eye on it, we're not doing what we do blindly in any way, shape or form. I've shared with you how I tend to lean. But we absolutely, positively think about that all the time.

Your next question is from the line of John Barnes with RBC Capital Markets.

Just in terms of your fleet growth, and I'm sorry if I missed this, but can you provide us with maybe a little bit of color as to how you think about it into the individual asset divisions? I mean, should we expect either similar type of fleet growth in dry van and refrigerators in '13 as we saw in '12 or is there going to be a little bit more emphasis placed on one versus the other?

John, I would say that we'll probably have a little more emphasis in our dry van fleet growth and our port services fleet growth than we would our refrigerated fleet growth. And of all of those businesses, our refrigerated group operated the least efficiently in the fourth quarter. Although they did make significant improvement, sequentially, from the third quarter. So if I was to handicap it right now, I would say our fleet growth would lean more in our dry van business and our port services business, and probably also in dedicated, in our various segments. I think, from a non-asset based perspective, you'll continue to see significant growth in our intermodal offering, because we're still small there, and you'll continue to see stronger growth in our brokerage business there also. And so, really, that's basically how I see it, John.

Okay, all right. Obviously, you continue to hear, through the industry, that people are having the difficulty on the driver recruitment side. You're one of the few that's actually growing your fleet. So can you just talk a little bit about what you're having to do, from a recruitment and retention standpoint? Is there going to have to be further emphasis, and by that I mean additional money spent, on recruitment and retention in order to continue to grow the fleet?

Well, I would say you are already seeing additional money spent in order for us to grow the fleet. And that's one of the costs that -- even though you're not getting more efficiency or more volume through the building, as you're building out more trucks and more drivers, we are spending more to develop our drivers. I mean, several years ago, we relied solely on recruiting experienced drivers. Today, we recruit experienced drivers. We put drivers out of CDL schools, and programs into our Squire training program and we also have, although small, our own CDL program to continue to develop those sources. So you are seeing that expanse, and we're spending more money, John, not only on the growth of our fleet but just to maintain the fleet that we have, while at the same time, doing a good job as far as -- with all the regulations that we have, that are different than several years ago. So there's no question that, that has added some additional cost and will continue to add some cost.

Your next question is from the line of Justin Yagerman with Deutsche Bank.

Kevin, you said it wasn't as good, in terms of rate, is the 2% to 3% that you're looking for. What did revenue per total mile do in Q4 of this year?

Well, revenue per total mile, Justin, we were up only 0.6%, we were up 0.9% in loaded, we were up 0.6% in total, though we improved our length of haul by 2.6%. So when I think in terms of overall yield, I would say that our yield was up about 1.5 points, and is how I would look at it, Justin.

Okay. And then can you give us a breakdown, in terms of your average tractor count between owner operators and company trucks in the fourth quarter?

Yes. We give you some operating stats there in the press release. And so what we give you is the end of the quarter, which would not be remarkably different [indiscernible] 3,627 [indiscernible] and 507 owner operators.

Kevin, you talked a little bit about the driver and recruitment pressures that you guys are facing. How do you think about just general cost inflation, as you think about 2013? Obviously, decent amount of headwinds out there. Where would you peg that? And besides driver pay and trucks, is there anything else that's on your radar in terms of thinking about cost for this coming year?

Well, certainly, Justin, not only do you have trucks and not only do you have the driver pressures, but certainly, healthcare is one that we'll continue to wrestle with as we understand how everything's going to work going forward and how it affects us. Certainly, but there are areas, there are multiple areas that we can also take cost out and we've done an okay job this year but we expect to do a better job in that area next year. I think there's areas where we can -- that don't need inflation. I think we can continue to make improvements in our safety. I think we can continue to make improvements in our operations and maintenance costs, and I know we can continue to make improvements in our fuel economy. So I think we've got some really good opportunities out there even though we're in an inflationary environment to take costs out.

Did you guys talk to a number, in terms of the change in total miles per average tractor? Your utilization. What was that down in the quarter?

It was down, I think 1.4%, Justin.

And then last. You guys have $80 million of debt. That's not something we've typically dealt with, with you guys for a little while. How should we think about your priorities in terms of cash? Are you going to pay that off before you do anything else or you going to think about share buybacks, and maybe as we get deeper into '13, another special dividend? How should we think about that cash being used?

Go ahead, Dave. Dave wants to answer, Justin. So haul away.

Just like you, we're not accustomed to the $80 million of debt either. So we would intend to pay that off. That's debt that's a very, very low interest. Now it's floating, this interest rate. So even though it's a low interest rate, we'd just as soon that keep shrinking and using free cash flow to do so. In terms of -- the reason that we have that is because of what we return to shareholders and because our commitment to keeping a young fleet. And so we still have some inventory of used trucks, we'll continue to sell, that will help offset that gross CapEx number as we offset that and help with free cash flow. We probably are looking, next year, at a net CapEx number somewhere, give or take, the $90 million range, which would be less than what we saw this year in 2012. And so we expect to generate some healthy free cash flow. In terms of stock buyback or dividends, we evaluate those from time to time, but clearly, the pecking order right now would be to pay off the debt first, and those items remain well down on the list.

Did you also mention, Dave, that our CapEx will be a little bit lower this year.

I did.

Your next question is from the line of Tom Albrecht of BB&T.

Well, how many service centers do you have? And then more importantly, I've got a rate follow-up question.

Yes, we have 31 service centers, Tom. And out of those -- some of those 31 do multiple services. Some of them do all of them. But as far as locations, we have 31.

When it comes to the freight rates and what's going on in the marketplace, I know you expressed a bit more optimism than 30 to 60 days ago. But I'm just really wondering, given the fourth quarter trends, it seems like the shipping community senses that looseness in capacity. And so, even if you get an okay rate, what percentage of the time are you having to rework your surcharge in a way that's not as advantageous as it was previously?

Well, Tom, I would say this. Our customers are very good negotiators. But we believe, very strongly, that the capacity balance is -- there's not oversupply there and there's not going to be oversupply. And I believe that, really, we provide a lot of value and I think we can do better in that area than what we have done this past year. And that is going to be a significant focus for us. And I believe, more importantly, it's going to be a significant focus for our peers. And so even though we're not all that excited about the overall economy, the underlying trends are that, hey, there isn't a lot of extra trucks out there. And so, basically, we're going to put our rates in. We will do some negotiation where we have to. But at the end of the day, we are committed to improving our rates in the range of that 2.5% to 3.5%. And that's just the way we're going. That's just the way we're going to approach it. Now what was the other thing that you talked about, Tom?

The fuel surcharge. I mean, you kind of rolled that all in your answer.

Well, no, not really. The fuel surcharge is different. And we see customers changing their programs and so forth, and doing some modifications, but we just add it to the rate. I mean, we just make sure that between the rate and the fuel surcharge, that basically we're in good shape. And a lot of them do it for budgeting purposes, a lot of them do it because they want to identify their fuel a little more clearly. I'm sure some of them do it, trying to just improve their overall cost. But at the end of the day, that's basically how we look at it. So you'll have -- you could have, with some customers, Tom, where more of the overall revenue will go into your regular rate, and we've got many customers that are putting more of it into the surcharge. So it really just depends on the philosophy of our customer.

All right, I'll get out of the queue, but what's your revenue per tractor goal, per quarter, where you'd really feel comfortable growing, 41,000?

Well 41,000 would be really good, Tom. We don't expect to see 41,000 in the first quarter. But I think that's a reasonable goal for second and third, for our business, but that'll take some work.

Your next question is from the line of Chris Ceraso from Credit Suisse.

A few sort of housekeeping questions. It should go pretty quick. I didn't think catch if you gave miles per tractor as a productivity measure. So could you give us that?

We just give revenue per tractor for the quarter, not including fuel, Chris.

But what we did say, Chris, was that it trended -- it was negative 1.4%. So if you have a model of some sort, that would help you.

Okay. And then just a couple of other items the P&L. There was $1.2 million of other income. If you can give us an income of what that was. And supplies and maintenance was up quite a bit. If you can let us know what drove that increase.

As far as our operations and maintenance, a lot of that is in the operations side, Chris. A big chunk of that is tolls. Needless to say, we've got states that are trying to figure out whatever they can do to enhance their revenues. We haven't been as good on our maintenance cost as what we had been in previous quarters, so that has been a bit inflationary for us. And then, of course, a lot of what we're doing, from a driver development standpoint, also hits that specific area. And I don't know, Dave or Adam, if you've got anything else to add to that.

Yes. The increase in the other income relates to some investment activity and some dividend income we received through some investments that we have outstanding.

Is that one-time type of stuff, Adam?

Yes, yes. I wouldn't expect that moving forward.

Yes. From time to time is how I would describe it.

Your next question is from the line of Todd Fowler with KeyBanc.

Hey, I just wanted to come back to the guidance and kind of make sure I understand some of the moving parts. So it sounds like you're a little bit more optimistic about the environment. You're doing some rate work, you've got a larger fleet and you got growth in some of the other non-trucking businesses, but you got flat earnings year-over-year in the first quarter and really kind of into the second quarter. Is the headwind, that's working against you, is that on the cost side and so there's cost pressures that are coming in that's offsetting some of the rate increase expectations or do you really look at that as needing better utilization to really see the earnings growth? And then lastly, how do you think about getting back to that 15% longer-term growth?

Yes. I would say, Todd, that basically we need more productivity and we need more revenue per mile. And if we see that, then those numbers would improve based on what we've given for guidance, would be our hope. So therein lies the key. Although we do have some areas where our cost, as a result of us focusing a little more on growth than maybe the environment is willing to give us, we have not done as good a job there as we could have done otherwise. So, basically, we have some things, in 2013, that we're going to work on very diligently especially in the next month or 2, as we're waiting for the year to build in terms of strength. So that's how I, basically, see things from that perspective. Dave, do you have something to add there?

Maybe, Todd, just an insight here, as we look at how the year kind of plays out, when you're really comparing these quarters to what happened last year. Last year, we saw more meaningful rate improvement in the first quarter, and it kind of decelerated as the year went on, particularly when you look at what we would consider to be the adjusted loaded rate per mile, and so -- you can could go back -- and we've given you the rate per mile and if you take that length of haul, you take 1/3 of it and a longer length of haul, you would add it to the rate. If it was a shorter length of haul, you would subtract a 1/3 of the length of haul, right? If you go back, you'll see that last year first quarter, so the first quarter ended 2012, our revenue, adjusted revenue per loaded mile, was up 4%. So that's what we're going up against. And as Kevin mentioned earlier, our adjusted revenue per loaded mile, ending the fourth quarter of 2012, was more like 1.5%. And so, as the year played out in 2012, we went from 4%, year-over-year adjusted, in the first quarter, 2.1% in the second quarter, 1.2% in the third quarter and then 1.5% in the fourth quarter. And so, this year, as we see it play out, we feel -- when we talk about the way we feel about rates today, it will take a little time for that effort to fully materialize as we work through the bids and as we work through this. And then on top of that, we're going up against a year where we made pretty good improvement this time of the year. So when you look at both fleet growth, when you look at revenue per mile improvement, you may see those a little on the lower end during the first 2 quarters of the year. And the way we see it now -- and, hey, this is an uncertain time, it's hard to know it's going to happen, but we would expect to see the rate opportunity improve as the year goes on, which is the opposite of how it played out in 2012.

That makes a lot of sense. And does some of that come down to the timing of contract renewals or are you looking at it based on kind of expectations for the market and potential changes in hours of service? Or is just the fact that, you've seeing some of the rate increases moderate a little bit and now it's time to kind of sharpen the pencil and go back and get more rate?

Bingo.

The answer is yes.

You're on point, Todd. We just got to flush that bird out of the bushes now.

Your next question is from the line of Tom Wadewitz from JPMorgan.

Wanted to -- I mean, I guess you've had a number questions on rates and kind of how you're viewing it, and optimism. Earlier in the call you talked a little bit about January, and I think you're more optimistic today than you were a couple of months ago. Have you seen freight pick up in January or is that optimization more what you're kind of hearing from customers about their plans? What is it, specifically, aside from an increased focus on rate, that gives you more optimism, today, versus a few months ago?

I would say that the first of the year has started off pretty normally. So we were kind of thinking that things might not be very good in the first quarter. And quite honestly, things are okay. So I would say, Tom, from that perspective, that's what I'm going off of. In terms of rates, we feel very confident that we're organized and that we're providing the level of service, and that we have the overall service offering in place, to where the value that we're creating for our customers allows us, on the low side, be in that 2.5% range, and on the high side, 3% or a little bit more. And I also believe that capacity has continued to come out of our space. And I think we're going to just keep our head down as far as rates, just do our rate work, hope that we maintain everything that we have and grow some. But some may go by the wayside and we may have to replace it. But at the end of the day, Tom, that's the way we're going to approach it. And we are going -- we love our customers, we appreciate everything they do for us. Though this is a challenging business, it's a difficult business, there aren't that many people that are that good at it. There certainly aren't that many people that want to do it, as used to be, and so we believe that all those things are going to put us in a good position to, basically, succeed.

Okay. Great. And a brief follow-up on the brokerage side. You had 11% revenue growth in the fourth quarter, in brokerage. Wondered if you could comment on how you think that might look in 2013, whether that kind of accelerates and decelerates. Then, also, maybe a comment on gross margin in fourth quarter, whether that was improving sequentially or off a little bit.

Yes. We would expect, in 2013, for that number to be bigger. We're not happy with 11% growth from that business, and so it's a business that we're getting better and better at. Our buying capabilities are getting deeper and deeper, and we're earning the respect of our customers as a legitimate brokerage outlet or opportunity for them. And so we feel like we've really not even scratched the surface and we clearly have not hit the tipping point that we believe exists for us to really grow that business much more aggressively. So, as we look in 2013, that's a business we expect to grow 25%-plus, and so, there, we have things in motion to do that. Now our goal is to grow that while maintaining a respectable gross margin. And so, in the fourth quarter gross margin was not materially different than what it was sequentially or year-over-year. It was slightly improved but not by much. That's a business where we're very interested in more than just the top line, but we're interested in running a business that has a very competitive cost per transaction, is how we look at it. Because we feel like it can make us -- help us to be competitive long-term and in a much more meaningful way. I hope that helps, Tom.

Your next question is from the line of Ben Hartford for Baird.

I'm wondering if you could just provide maybe a summary of the shipper's perspectives going into the year and maybe your confidence about being able to improve rates in '13 relative to '12, or at least '13 being a better environment than '12. And if you could balance how they perceive the current truckload environment from a capacity standpoint. Maybe some of the risks from the hours of service changes midyear, the dynamics from a vendor consolidation standpoint and then where they stand from a demand standpoint. Could you maybe summarize or characterize what their point of view might be at the moment for '13 and into '14?

Yes, I think our customers' point of view is they're going to do everything they can to continue to improve the efficiencies of their overall network. And I believe that, really, our customers realize that there are some very valid reasons why rates in our industry have to go up. And so they're going to work as hard as they can to get as much as they can for as low a cost as they can. And that's what they should do. And I would just say we're going to work as hard as we can to get the rate that support our ability to continue to grow and develop our business. And so I think when we're in an environment where the economy is improving, ever so slightly, more people are going back to work. We do have the government spending less but we still have -- the rest of the world's got to move forward. I really believe that there's going to be enough demand to where we'll -- by the time we get to the second half of this year, that -- I think, if our customers can keep their rates in the 2% to 3% growth range, they should be very happy.

And then if I could, just build on the question earlier, about the year starting out normally. Any reason to think that February and March, either will or won't, continue to trend normally from a demand standpoint?

No.

Your next question is from the line of John Larkin with Stifel Nicolaus.

A couple of questions for you. One, I'll start out with a follow-up to Justin Yagerman's question. I thought I heard say, Kevin, that revenue per total mile, when you look at total miles, was up 0.6%. And that, on a loaded mile basis, it was up 0.9%. And then you said that way you think of it is that you have generated 1.5%, overall, and then when Dave went through the sequential rate increases by quarter, he again came to 1.5% in the fourth quarter. I guess I don't understand the relationship between the 0.6%, the 0.9% and the 1.5%.

Yes. Well, I'll try to clarify that, or Dave could. He's capable also. But, John, we also, when we think of yield, we look at length of haul. So, basically, our length of haul, on average, was up 2.6% in the fourth quarter. And so what our line of thinking is we drop 1/3 of that to what we feel like we've done in terms of rate increases. So, on the other hand, if you had a carrier that reported that they had, say, 2% or 2.5% in rate increase but if their length of haul digressed by, let's say 3%, then I would look at it -- if they had a 2% revenue per mile increase, but if they lost 3% on their length of haul, then I would look at that like their rates were up 1%. Because the longer your length of haul, typically the less the load pays and the shorter your length of haul, the more that the load pays.

Okay, now that verifies it. And then maybe I'll finish with my primary question. There's been a lot of discussion around rates here this evening. And what I'm hearing from some of the other truckload carriers is that they're putting in place what I'll call, yield management systems, that sort of enhance the revenue per loaded mile or revenue per total mile. By virtue of helping you select not only what load to take today, but how to position the trucks to the load you take 2 days from now will be better than the load you might otherwise have available to you. Does Knight have a similar program, internally, to use some technology to do a better job with selecting which loads to handle on a particular day?

We do John. We have an optimization system that is supposed to do just that, and from what we can tell, it's useful in doing just that. And then, of course, because of the decentralized model, we have people in tune with those close markets also very involved with those decisions.

So the benefit of those systems would be reflected in the numbers we've been talking about. So 1.5% increase in the fourth quarter would include the optimization affect also.

That's correct, but I wouldn't say that we're at full 100% optimization there. I think these are systems that you build intelligence into, then as the market changes, you're constantly updating and evaluating. And so it constantly is a work in progress, but we do have a tool that does help us.

So a lot of benefits are going to be realized in the future. Is that what you're...

No, I think some of those, clearly, we have realized. But we believe that there still is further potential for improvement within the system that we have.

Your final question comes from the line of Art Hatfield from Raymond James.

I'll try and make this as quick as possible. But you guys kind of touched on this. But just looking at a couple of numbers, and these are kind of growth rates for revenue and expenses x fuel. For the full year 2012 revenues x fuel were up at about 8%, expenses grew at about 11% clip. In Q4, revenue x fuel was up approximately 8%, but expenses grew at a clip of about 14% x fuel. And I know you talked a little bit about what you need to do on the expense side and revenue side. Can you address when you think or really what needs to happen, where we can flip that around, where revenue starts to grow faster than expenses? And maybe one of the biggest problem areas is they create that headwind right now.

By the end of first quarter 2013, Art. I got a few people smiling at me, Art. It's going to improve. And what was the other part of your question?

What do you need to do to make that turnaround? And I guess, what are the biggest areas that are creating that drag right now?

Well, first off, we can do better in our equipment and maintenance cost. We can be more efficient in our driver development cost and we can do better in our insurance cost. And we can do better in our fuel costs, too. We' just got to have -- we've got to have more of an edge in those areas, and we will. Thank you. And, Latwinde, we'll turn it back to you. And thanks everybody for being with us today.

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