Landstar System Inc (LSTR) 2009 Q4 法說會逐字稿

Good afternoon and welcome to the Landstar System, Inc.'s year-end 2009 earnings release conference call. (Operator Instructions). Today's call is being recorded. If you have any objections, you may disconnect at this time.

Joining us today from Landstar are Henry Gerkens, Chairman, President and CEO; Jim Gattoni, Vice President and Chief Financial Officer; Pat O'Malley, Vice President and Co-Chief Operating Officer; Jim Handoush, Vice President and Co-Chief Operating Officer; and Joe Beacom, Vice President Safety Compliance and Security.

Now I would like to turn the call over to Mr. Henry Gerkens.

Good afternoon and welcome to the Landstar 2009 fourth-quarter and year-end earnings conference call. This conference call will be limited to no more than one hour. Please limit your questions to more than no more than two questions each when the question and answer period begins.

But before we begin let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call I and the other members of Landstar's management team may make certain statements containing forward-looking statements, such as statements which relate to Landstar's business objectives, plans, strategies and expectations.

Such statements are by nature subject to uncertainties and risks including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2008 fiscal year described in the section, Risk Factors, and other SEC filings from time to time.

These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking statements. And Landstar undertakes no obligation to publicly update or revise any forward-looking statements.

I am pleased to report that I believe the worst is over. The 2009 fourth-quarter revenue trends appear to have signaled a positive turnaround. But before I talk about the fourth-quarter, let me recap the entire year for you.

In the first three quarters of 2009 Landstar's consolidated revenue decreased approximately 28% compared to the revenue generated in the first three quarters of 2008. The number of loads hauled was down almost 15%. And revenue per load was down anywhere from approximately 10% to 22%, depending on the mode of transportation.

As we entered the 2009 fourth-quarter we began to see imputing trends. Overall load volume in October of 2009 versus October of 2008 was only down 2%. And revenue per load on a sequential basis began to stabilize. Load volume in November of 2009 over November of 2008 increased slightly, and revenue per load showed some signs of sequential improvement.

December 2009 load volume over December 2008 load volume increased 13%, and revenue per load amounts showed sequential improvement. Our total revenue outlook at the time of our 2009 fourth-quarter mid-quarter update call, called for a total revenue decline in a range of 10% to 14% when compared to the 2008 fourth-quarter.

Overall fourth-quarter consolidated revenue was only 9% below the 2008 fourth-quarter, a dramatic turnaround from the year-to-date third-quarter decline, and better than our mid-quarter estimates.

More importantly, the revenue trend throughout the quarter showed continuous improvement as a result of improving economic conditions and new revenue from agent additions.

Total consolidated revenue declined 20% in October of 2009 versus October of 2008, only 9% in November of 2009 versus November of 2008, and increased 2% in December 2009 versus December 2008.

In the 2009 fourth-quarter all automotive-related revenue and revenue generated from our substitute line haul business increased 23% and 47%, respectively, over the 2008 fourth-quarter. Revenue declines occurred in most other sectors; however, the rate of decline in just about all cases decelerated from those experienced in the 2009 third quarter versus the 2008 third quarter.

Landstar finished the year with 405 agents, who generated over $1 million in revenue versus 484 in 2008. The decline in $1 million agents was almost entirely due to the 2009 negative operating environment, as 93 agents who did more than $1 million in Landstar revenue in 2008 generated less than $1 million in 2009.

In the 2009 fourth-quarter Landstar did terminate its relationship with one rail intermodal agent, who generated approximately $20 million in 2009 revenue; however, only contributed approximately $800,000 in net revenue. In the 2009 fourth-quarter we signed on five new agents who had a prior revenue run rate of at least $1 million.

Overall for the 2009 full year new revenue from 2008 and 2009 agent additions amounted to approximately $94 million. I am very pleased with our recruiting efforts in 2009. And with an improving economy I would expect these new agents to add further revenue growth in 2010. Additionally, our agent pipeline of prospective new agents remains very deep.

During our fourth-quarter mid-quarter update call I stated that our operating income would be negatively impacted by increased insurance claims expense. However, despite an anticipated increase in insurance claims expense, I still expected that Landstar's fourth-quarter diluted earnings per share would be in the previous range of earnings guidance of $0.37 to $0.42 per share. The unusual increase in fourth-quarter insurance claims expense was $7.3 million or $0.10 per share, and was more than initially expected. It was partially offset by a lower than anticipated provision for income taxes of $0.01.

Landstar's actual fourth-quarter diluted earnings per share was $0.37. Absent any the unusual increase in insurance claims expense, and the total effect of the decreased provision for income taxes of $0.03 per diluted share, earnings per diluted share would have been $0.44 per share.

The total quarter-over-quarter increase in insurance claims expense largely related to several claims that settled for more than originally expected, and increased reserve levels for certain cases that preexisted at the beginning of the quarter due to adverse development in those cases. Jim will further discuss the increase in insurance claims expense in his comments.

During the fourth-quarter we purchased approximately 665,000 shares of our common stock at a cost of approximately $24 million. For the entire 2009 year approximately 1.6 million shares were purchased at a cost of approximately $56 million. I am now going to turn it over to Jim for his financial review.

Thanks, Henry. Henry has already discussed revenue for the fourth-quarter. I will cover other financial information included in our release. Investment income was $314,000 in the 2009 quarter compared to $653,000 in the 2008 period. The $339,000 decrease in investment income was due to a lower rate of return on investment held by the insurance segment in the 2009 fourth-quarter.

Purchased transportation was 75.5% of revenue in the 2009 fourth-quarter compared to 76.2% in the 2008 fourth-quarter. The decrease in purchased transportation as a percentage of revenue was primarily due to transportation fee revenue from the recently acquired entities, which does not incur purchased transportation costs, partially offset by increased rates paid to purchased transportation -- paid for purchased transportation to truck brokerage carriers, and increased less-than-truckload sub line haul revenue, which tend to have a higher cost of purchased transportation.

Commissions to agents were 7.8% of revenue in the 2009 quarter compared to 8.1% of the 2008 quarter. This decrease was primarily due to decreased gross profit, representing revenue less the cost of purchased transportation on revenue hauled by truck brokerage carriers.

Other operating costs were 1.4% of revenue in the 2009 quarter compared to 1.2% in the 2008 quarter. This increase was primarily attributable to $832,000 of other operating cost incurred by the recently acquired companies in the 2009 fourth-quarter.

Insurance and claims costs were 3.1% of revenue in the 2009 quarter compared to 1.5% of revenue in the 2008 quarter. This increase was primarily attributable to $4.8 million of adverse development in the 2009 fourth-quarter on four claims from prior years, three of which settled in the 2009 fourth-quarter, plus adverse development of 2009 claims incurred prior to the 2009 fourth-quarter.

In addition, although the 2009 frequency representing accidents per million miles of the Company's commercial liability accident was the lowest in the Company's history, the favorable frequency of accidents was more than offset by increased severity of accidents in 2009. I strongly believe the Company's safety first business emphasis provides safe and reliable transportation service to the Company's customers, and are aligned with the financial objectives of the Company's non-asset-based variable cost business model.

The volatility in insurance expense, as described in our SEC filings, primarily results from the $5 million self-insured retention limit of commercial trucking claims, and the severity and unpredictability of occurrences. We annually review the economics of maintaining a $5 million self-insured retention versus purchasing insurance coverage for claims in excess of $1 million.

Management believes purchasing coverage for claims in excess of $1 million would generally reduce the volatility insurance and claim cost quarter over quarter. However, management also believes over the long-term it is significantly more favorable financially to continue to maintain a $5 million self-insured retention than to purchase insurance coverage for claims exceeding $1 million.

Selling, general, administrative costs were 6.2% of revenue in the 2009 quarter compared to 5.3% of revenue in the 2008 quarter. Selling, general and administrative cost of $33.9 million in the 2009 quarter included $3.9 million of costs incurred by the recently acquired companies. Excluding, selling, general and administrative costs of the acquired companies, the 2009 fourth-quarter selling, general and administrative costs were $2.3 million or 7% less than those 2008 fourth-quarter.

There was no provision for bonuses included in the 2009 fourth-quarter, as 2009 bonus targets were not achieved. Depreciation and amortization was 1.1% of revenue in 2009 fourth-quarter compared to 0.9% in the 2008 fourth-quarter. The same (inaudible) was due to the effect of decreased revenue, increased appreciation on Company-owned trailing equipment, and amortization of intangible assets attributed to the acquired companies.

Interest and debt expense was $937,000 in the 2009 quarter compared to $1.7 million in the 2008 quarter. The decrease in interest expense was due to lower interest rates and lower borrowings outstanding under the Company's senior credit facility during the 2009 fourth-quarter.

The effective income tax rate was 31.1% in the 2009 quarter compared to 37.3% in the 2008 quarter. The decrease in the effective income tax rate was primarily attributable to the recognition of benefits for several uncertain tax positions that had reached the statute of limitations in the 2009 fourth-quarter.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $110 million. Cash flow from operations was $145 million during 2009. And at December 26, 2009, shareholders equity represented 74% of total (technical difficulty).

We entered 2010 with positive momentum, and are cautiously optimistic. The revenue trends experienced in December 2009 are continuing to improve into the first four weeks of the 2010 first quarter.

Revenue for the first four weeks of 2010 has increased approximately 7% over the first four weeks of 2009. The new productive agents added in 2009, coupled with an improving transportation environment, should foster growth in 2010.

In addition, our 2009 organizational and structural changes, along with the acquisitions of A3i and NLM, should promote growth not only in Landstar's truck business, but more importantly in it's intermodal, international, warehousing and supply chain solutions areas. I am very excited given the improving economic conditions and our current strategic direction.

Based on the current revenue trend continuing throughout the first quarter of 2010, I would anticipate 2010 first-quarter consolidated revenue to increase in a mid-to upper single-digit range over the 2009 first quarter. And I would anticipate earnings per diluted share to be in a range of $0.28 to $0.32 per share.

In summary, we are happy to say goodbye to 2009 and welcome in the new year. It is our long-term goal that we get back on track to yearly double-digit revenue increases, improving margins and growing earnings-per-share at a rate higher than the rate of revenue increase. I believe we have positioned ourselves just to do that.

With that, I will take some questions.

(Operator Instructions). Tom Wadewitz, JPMorgan.

It is actually Alex Johnson in for Tom. Two questions. The first, in regards to the insurance claims, what level are you expecting in the first quarter in terms of how much you accrued for and your expectation there?

The answer to insurance always is, it is based on your accident frequency and severity, and looking at what facts might have changed in pre-existing reserves. So that is a question you can't answer directly, other than typically we have said all along that insurance and claims expense runs anywhere from 1.5% to 3% of revenue. And that is the way you have got to look at it.

Then it really depends on how many accidents you get into. If there is a change in fact pattern, vis-a-vis changing some of the pre-existing reserves. And then those accidents that you do have, how severe it is.

What drove the severity of the claims this time around?

As I said, we had -- as Jim said, we had four claims that actually settled in -- was it four, Jim?

Three settled.

Three settled in the quarter for more than we had on the books. And we had some existing claims on the books at the beginning of the quarter that we had a change in fact pattern where we had some adverse development in those cases, and we upped those reserves.

If you think about an accident though, sometimes it is just luck of the draw. Someone could bump against one of our wheels or -- that would be the best thing -- our worst, you could end up under -- between the tires. It is frequent -- we controlled frequency very good this year. We were at the lowest frequency in our history. The problem is some of the accidents we had just turned out to be unfortunate. You end up under a trailer and it is just -- it is all circumstances of what the result of the accident.

I will switch gears a little bit and then I will get back in queue. On the cost side you mentioned that there was no bonus accrued in the fourth-quarter. I am just wondering at the current rate of profitability what comes back in terms -- specifically in terms of bonus in 2010, and any other cost items that would come back in 2010?

Jim, you want to answer that?

If we achieve targets, it is probably about $6 million in bonus, somewhere $5.5 million, $6.5 million.

And that was zero in all of 2009?

The full year we had none in '09.

Todd Fowler, KeyBanc Capital Markets.

Just as a quick follow-up to that last question, in the first-quarter guidance that you gave out do you have some anticipation that there will be some incentive comp or some bonus in that number?

Yes.

If the number is $5.5 million to $6.5 million is that something that would occur evenly throughout the year -- then is that the best way to think about that?

Yes (multiple speakers). Basically, yes.

Henry, with some of the areas that you talked about seeing some strength here in the quarter -- you had auto, you had substitute line haul, and it sounds like everything else is starting to improve. What is your expectation for the tail, or basically how strong those things will continue as we get into 2010? Is that something that with what you're seeing from an activity rate that you would expect those new markets to continue to carry or is that something that you could have a build or replenishment and then see that drop off a little bit once you see some restocking?

Look, I am actually pretty optimistic -- cautiously optimistic, I said. But the economy is still I think a little bit fragile. We have started to see some things change and that is important. In fact, one of the other categories, I believe it was machinery and equipment, actually increased slightly in the fourth-quarter -- I mean, very slightly quarter-over-quarter.

But as I said before, in all the other commodities they were still down, but a nice improvement from where they were. So we think with what we have done as far as bringing in some of the new agents, we have purged some agents. So the location count is down a little bit. But when you look at that, I think the location count is only down year-over-year 4%. When you had an overall revenue decline of 24%, I think that we did pretty well.

Even with the capacity piece, when you look at that as far as only being down 6%, considering revenue fall off, all that -- we did a pretty good job as far as holding onto things. And we clearly moved some really good productive agents into the system. So we are looking for, hopefully, some good things. But again, based on what happened in 2009, I don't want to go any further than right now what we see for the first quarter. But, Jim, you've got some --.

I think it was appliances and furniture.

Appliance and furniture.

It wasn't machinery.

It was appliance and furniture.

Sure. I know that makes sense to me, but as far as how far ahead you want to look. Just to follow up on the comment about the agent locations and the capacity. There is really nothing to read in there that the agent locations are down. The capacity is down. It is a function of you getting rid of some of the underperformers, replace them with better performers.

We go through this once a year. Look, you had a tough year also. So as I said, what you look at the numbers overall compared to the revenue decline, things actually worked pretty well. Capacity is going to flex back up as soon as revenue comes in the system, and we are actively working on agent every day. So I'm not worried about any of that stuff.

Then just my last one and I will turn it over to somebody else. Just so I've got the comparisons straight. I think that I have in my notes that volumes were down in the first quarter, basically down like 19% in January. I think 15% February, 16% in March. Are those numbers right? And then how does that also look as we get into the second quarter from a monthly standpoint?

Jim, you got those? This is last year, right?

Are you saying this is '09 over '08?

'09, yes, exactly. So what are we comping against when you talk about where volume is coming out here in January at this point?

You said 19, 15 and 16, I think?

Right.

That's true.

Okay, I will let have somebody else have it. Thanks guys.

Ed Wolfe, Wolfe Research.

I don't know about you, but I had a fender bender a year ago and my insurance keeps going up, and it wasn't my fault. Is at some point, even if it is not your fault, if you have big claims, does that impact of the go forward? And how do you think about that part of the equation for insurance?

I think anytime -- logic would tell you anytime that you have insurance costs where the insurance company has to basically pay money, you can probably expect that your premiums are going to go up. Remember, this is a deductible that we carry, so from a premium standpoint, as long as nothing pierces the level, I wouldn't expect major increases, unless there is a general type industry type thing they're going to do.

So I hear you, but it depends on if you pierce that level, usually is when you'll get banged.

What level is that?

Well, we carry a $5 million deductible. So it pierces the $5 million level, where the insurance company is going to have to kick in some money, that is usually when they come back and will increase your premiums the following year.

Does somebody say to you at some point you have to accrue more though when you are self-insuring yourself at these levels? Is that in your estimates when yiou go forward in the first quarter, for instance?

We always make an estimate as far as when we move forward as far as what our insurance and claims are going to be. And that is just part of how we do it. Jim, I don't know if --.

Twice a year we have a third-party actuary calculate their estimate of what our plan costs are. And that is what we -- we book within the range of what they say those results are. The estimate really includes accident that would have happened prior to cut off. So if our cut off was December 26, if there was an accident that day, the estimate would include that. It wouldn't include anything for anything subsequent to that. It is what is the cost of claims on that date. And we have actuary coming to look at our trends, how our estimations are doing, and they come up with an estimate, and we book within that range.

When is the next time that is due?

We typically do it over the summer. So we recently had two within the last six months, and then we will get through the first two quarters and probably do it again.

That's helpful. Henry, I noticed at the end of the release you talked about long-term growth rate of mid-double digits for revenue, if you look out the next 3 to 5 years I think it might have been. How do you get there? If I look back at the last five years before '09, it has been a bit below that, and you're on a higher base now. Can you walk me through what --?

We don't update. If you strip out -- if you go back -- I believe if you go back to '04, '05, '06, strip out the FAA, I think you start to see some double-digit revenue increases without the FAA stuff that we had back in those years.

You got to remember, we are a little bit different company now, I think, with the acquisitions. And what I think that is going to mean to our overall transportation services that we provide, we think we are sitting pretty good at this point in time. We've got, I think, the expertise and the service offerings that we haven't had before. We have evolved, I think, to a different type of transportation company.

That is what I'm looking for. Can you discuss when you think about that 15% or so how much of it is the traditional BCO growth, how much is the traditional brokerage, and how much is new products, and how you think about that?

How I think about that is one is going to feed the other. But I would anticipate that you would increase some of the other services at a faster rate than your traditional, if you will, truckload service.

Let's take the BCO piece of that, for example. Our BCO count fluctuates anywhere from probably 8000 to 9500 BCOs thereabouts, or in that range over a continuum of time. That is going to grow, I think, probably in conjunction with a piece of that with the economy. We just can't get enough guys qualified in. But on the other hand when you look at some of the supply chain solutions stuff where we are going to hopefully control information and therefore control freight, that is going to attract more brokerage type business. So I would expect that to grow at a much faster clip than some of the other stuff.

It is not to say that BCO revenue is not going to grow, because I think, again, as I control that information through our supply chain solutions companies with A3i and NLM, that is going to grow. It also is going to feed the intermodal. It is also going to feed the international. I have talked about warehousing before also -- it is very slow off the ground. I think with our restructuring of the -- and rebranding quite frankly of the national accounts group to corporate sales solution, and restructuring that whole group under Jim Handoush, as far as having product expertise in-house to help our agents sell this stuff.

One of the big underestimates -- that I underestimated, or overestimated I should say, was our agents' ability basically to sell all of our services. We recognized that during this year. We have taken different approaches as far as how to educate and staff internally to have our agents make that sale. Again, I keep going back to the supply chain solutions piece, because that all fits in.

We are pretty comfortable and confident as far as how we are structured right now, and how are you going to attack the marketplace. Specific numbers, I am not going to lay on that. Our strategic -- what we are trying to do is get to that -- back to that goal. But I think you'll see the other pieces grow at a faster clip than your traditional stuff that we do. A long-winded answer, sorry.

I know, but it was helpful. Then just last follow-up on that and I will let someone else have it. When you talk about the supply chain solution, how big is that revenue now, and ideally how big can that get?

I am going to turn it over to Jim for a second. We purchased A3i really like a venture capitalist. They had no customers. We are currently working with a number of opportunities. Obviously as you probably know, it is a little longer sell. We acquired them in beginning of July. We've got a number of good opportunities working there. I believe they will be landed hopefully within the first six months of this year.

We also with LMN, they have traditionally worked in the auto business. And we have worked with them in the past. I don't know what their fee revenue was -- first (multiple speakers). It was $10 million since we have required them. I would expect that -- about half the year I would expect that to increase.

What I like about that business also is the fact that is very adaptable to the other business that we have. They don't have the sales channel that we have. So as I said, I think we've got a lot of good things going.

Okay, thanks. I will let someone else have it. Thanks for the time.

John Barnes, RBC Capital Markets.

Let's see, can you talk a little bit -- I am sorry if I missed this -- it was bouncing around a little bit. But talk a little bit about how many agents you finished with the year, kind of agent additions in 2009. And as things have begun to stabilize some, can you talk a little bit about the agent pipeline as restarting 2010, and what you think you achieve in 2010?

As I said, overall agent locations were down about 4% year-over-year. When you think about how many people had a very difficult (technical difficulty) that is pretty logical that you lose your low performers. If I looked at last year's million-dollar agents, 92 of those guys that generated $1 million in '08 didn't generate $1 million in '09. On the other hand, of all the productive agents that we had this year, 12 of those guys actually generated over $1 million. And of that total $94 million increase accounted for like, I think it was 33% of it.

And it takes some time to assimilate into the system. So when you add up all those people that we -- those productive guys that I talked about on previous conference calls, I think with an improving economy they are all going to contribute to further revenue growth next year.

As it relates to the pipeline, again, and I have said this before, we review that constantly. And Pat O'Malley is here. Pat is part of our structure in all the agents. The field operations now report up through to Mr. O'Malley. So Pat.

If you think about some of the advantages of becoming a Landstar agent, whether it is our cutting-edge technology with our acquisitions that is a very attractive component for prospective agents to come in and be able to sell additional services to their customers.

So you look at where the credit crunch is and some of the difficult times people had in 2009, that has really served as a springboard for us. We see the quality of the candidates that are contacting Landstar increasing. We see the revenue base -- the potential revenue base they could bring to Landstar, a very solid -- we are very optimistic about the agent pipeline that we have. It is very robust with quality candidate.

Very good. Henry, last quarter somebody asked a question about your insurance line item starting to trend up a little bit. Then obviously it was more severe this quarter. I think last quarter you answered that was a natural extension of more business being done through your BCO network versus brokerage. Would you expect that to balance out a little bit as the economy begins to recover and maybe brokerage takes on a larger piece of the business? Or do you anticipate the split between BCO and brokerage staying where it is now, and therefore naturally the insurance line maybe it is at the higher end of that 1.5% to 3% range you were talking about?

Obviously, when we have more brokerage, the effect of that decreases the insurance as a percentage of revenue. And clearly that is going to happen. With a depressed freight environment that we saw in 2009, BCOs, because as I have always said before, they really get the first shot only because they see the pricing, and they can react faster. So we clearly had to move to more revenue being contributed by BCOs.

Now as our revenue pipeline increases and there is more demand and we start increasing, I expect that brokerage would grow at a faster clip only because there is only X amount that our BCOs can haul. They will get good loads and everything, but therefore what is going to happen is as a percentage of revenue that will have an effect of pushing it down.

Now as far as accident frequency and severity, that is -- as Jim was saying, you have an accident, you're going to have an accident. Our objective and our strategy has always been to attack frequency. Our frequency rate this year was 2.01 million miles driven. That is all accidents. That is the lowest we ever had. We did a real good job on that. We just happened to have some bad facts that developed over in the fourth-quarter, quite frankly, as far as certain case reserves that it was prudent basically to book to where we thought that was going to be settled. And that is exactly what we did.

It is hard to predict that going forward, other than generally it is going to be between 1.5% to 3% of revenue. The more brokerage that I have in the numbers, obviously has an impact to lower that number. I hope that answers your question.

Sure, thanks. I appreciate that. Then lastly, could you give us a little color on rate per mile for band and flatbed and where that is in the fourth-quarter versus a year ago?

You got that, Jim?

I have that. Just one SEC. Rate per mile on vans?

Yes, and flatbed.

Q4 over Q4 -- for the quarter van was down 13%, flats was down 17%.

Is that fuel adjusted or is that inclusive of fuel?

Inclusive of fuel for brokerage. BCO -- if you look at -- you want to look at BCO without fuel, because they don't have fuel in there. The BCO van was down 11%. BCO flat was down 14%. If that helps.

That's awesome. Yes, thanks. I appreciate it, guys. Thanks.

Nate Brochmann, William Blair & Co.

I wanted to ask a little bit of a deeper dive, Henry, in terms of the look at some of the other service offerings, whether Intermodal, international, etc., in terms of clearly there has been a little bit of a pickup in terms of cross-selling and the agents' willingness to learn some of those other modes. Are there anything else that you have going on in your playbook that you expect to increase the revenue from some of those other areas this year and beyond?

As I said before, one of the things that we did this year is -- if you go back to 2008 in the fourth-quarter, we created the business unit specialists. You've got 2009, which was by everybody's -- just a horrible, horrible year as far as the freight environment. So it is hard to judge as far as how successful that was.

One thing we did realize is that -- or I did -- I think we have overestimated the agents' ability to sell that. So what we needed to do was increase their awareness and put the expertise onboard here, which we did. We restructured and put some people onboard here that we think will help them make that sale. We want them to go into that customer and ask for all their freight. We want all the freight, because we can handle it.

So the restructuring of the national accounts -- or not the restructuring, but rebranding as corporate sales solutions, I think goes a long way into that. And Jim, if you want to comment that is (multiple speakers). (technical difficulty).

Some of the subtle changes we made over the last couple of years are really coming to fruition. We recognized clearly where we made some missteps. And the restructuring really kind of united everyone out in the field, so it was a positive influencer. Meeting with the agents and really understanding the corporate -- the overall corporate strategy.

If you look at the air and the oceanside, for example, even though those markets were down significantly in 2009, ocean loadings were up 1% and overall air revenues were up. A lot of that, even though it is on a small base, a lot of that contributed to the fact that we are building greater and greater awareness within our agency family because of the changes we made, the added support structure, both in-house and out in the field.

So we feel very well-positioned going into 2010 that trend will continue. And then the recent acquisitions are really going to complement that. Our sell is at a much higher level in the shippers organization now. And we are selling the complete package of Landstar and our full capabilities.

And as that brand awareness of Landstar starts to change from a truckload carrier to more of a 3PL supply-chain provider who can provide all the services, as that brand awareness changes, it makes it much easier for our agents and our field and our corporate sales people to sales Landstar and all of its capabilities to clients.

One of the things -- we have gone through, for example, meetings with internal employees, where we are planning a road trip that basically is going to visit with all our agents. But the main thrust of what we are trying to get to is that when we were structured as two companies basically, the carrier group, if you will, and Landstar Global Logistics, we functioned as two companies. The message is we are one company. Every agent is capable of selling every service. And we no longer referred to Landstar Global Logistics and we no longer refer to the carrier group. We are Landstar. That is the most important message that I think we can get out.

We just got to make sure that our total agent base understands that we have now the proper mechanisms in place here at corporate to help them make that sale. I don't want to be in competition with each other. Which if you go back in Landstar's history, we went through that with the carrier group when we put Ranger and Inway and Ligon together. So we know how to do this, but there is always some -- people get nervous when you start talking about that stuff. But the fact of the matter is the true power of Landstar comes to play when we act as a united front.

While it is kind of early in that move, can you have some antidotal evidence from some eager customers who are eager to accept that new mentality in terms of giving you more freight and other modes than they did historically?

It is an interesting question, and I think as we go out and talk to more and more customers, either alongside our agents or through the corporate sales group, we recognize that Landstar really wasn't -- our full service offering really wasn't made aware to the client. So as we start sitting down with clients now and really exposing them to everything we have to offer, they are very pleased. Because, one, they have a great relationship with the existing agent and the services that he is performing for them today. And like all clients, they are trying to downsize the number of vendors they use.

So they are very pleased in the fact that we can provide them with these alternative services under one umbrella. And the fact that from an agency standpoint that small business owner really services that client better than any other employee-based company.

So we really have an advantage there. We just need to expose and build awareness in those clients. And we have had very, very good success here over the last six months. And I think 2010 is really going to show that penetration.

My second question is kind of talking about your cost base right now, Henry, in terms of -- obviously you have taken some costs out and looked at some ways to do things more efficiently during the past year. And we talked about clearly obviously some variable things like bonuses and salaries coming back a little bit, which already appear to be included in your guidance.

But how much of the cost and better efficiencies that you have gained over the last year do you think are sustainable? You used to say that pretty much like every three years or so that you could probably improve your margins by 100 basis points. Whether that might be a little -- whether we could accelerate that just with some volume improvement over the next three years?

Volume improvement along with some price improvement is going to cure all. So, yes, that is always my objective. And more directly answer your question, I don't plan to add back a lot of the things that we cut. There are certain things I'm going to go after, i.e., revenue. We've got some people that we put on the supply-chain side, because I think that is a real opportunity for us. But we don't plan to add back much of what we cut last year at all. Because we recognize, as I said before, although I am -- I feel good about what is happening, I am cautiously optimistic, as I said. Because I just -- there is a lot of things going on that are beyond our control that potentially could work against us from an economic standpoint.

But I do think we have the right forces in play. And I think -- so to answer your question, no, I don't plan on adding anything back, other than we've got some people in plan and people that were actually hired on the supply-chain side.

Matt Brooklier, Piper Jaffray.

If I think back to your guys mid-fourth-quarter conference call, you indicated that volumes were going to be, I think, ending the quarter miserly modestly positive. I'm looking at today's report, you put up something close to a 5% growth rate in total in terms of total loads. It feels like you guys saw a nice pickup in the second half of fourth-quarter. I just wanted to hone in terms of what drove that strength or that acceleration in the second half of fourth-quarter, if we look at it for maybe a product perspective or from a verticals perspective.

I think the biggest drivers, Jim, and you can correct me if I'm wrong, the biggest drivers of volume increase was our substitute line haul business, automotive, and as I said, appliance -- furniture and appliances were up also. And those were actually increases over the prior quarter. Those are the things that really drove it. The other things were down, but when you compare from a sequential standpoint, they were down -- all of them were down to a lesser degree, which is a good positive thing.

As we move into January, my total revenue -- volumes as I said, were up -- load count is up 13% in January. That in January, right?

Yes, in January. Yes.

Yes, January. And my total revenue was up 7%. As we move through the quarter, if you recall last year, we had a dramatic pricing fall off in March. I don't believe that is going to happen this year. It all bodes well for the whole first quarter at this point in time. But again, I'm a little bit leery about going further than that.

If I hone in on the substitute line haul product, would you describe that pickup and that acceleration, is it across-the-board, is it with all transport providers? Are there some specific, I guess, marketshare shifts that are driving that particular product?

I would say it is not across-the-board in the substitute line haul.

So it is fair to say that there are some industry specific issues or industry specific marketshare shifts that drove some of the strength in that particular product?

I would say that is correct.

Again, the substitute line haul and the strength there, you have seen that continued into first quarter, at least in the first four weeks?

Now I do anticipate that to ratchet down as we go through the quarter. But if you recall, that business fell way off in 2009. But I don't think you're going to see those same -- the level of increase that we've had. Again, you entered the holiday season. And although we are seeing increased volumes now, and I still think you might get some increased volumes, I just don't know if it is going to be as -- the level is going to be as high in that particular segment.

Thus far in the first quarter have you guys have been active in terms of repurchasing Company stock?

No.

Jon Langenfeld, Robert W. Baird.

Can you just give a little bit of an update on the agents? You talked a little bit about this, but I guess I struggle a bit but why agents -- if they haven't joined you thus far, why they would want to join you right now -- now that we are past the bottom, let's say. So could you talk a little bit about the mindset of the agent that may join in the next let's say 12 months?

It is no different than when we were recruiting agents when the economy was booming. I said that I think when the economy is where it was in '09, I think we were able to basically get more people onboard. But I will let Pat answer. It is no different than what we had in the past.

The other thing we have to offer now, which we didn't have to offer before, is a solution -- a mechanized solution that they can tap into with A3i and NLM, and that is I think very critical. But go ahead.

I think that all the things that people found appealing about Landstar through the years, whether it is our cutting-edge technology, our great name in the marketplace, our unparalleled support systems, I think those all continue to sell agents.

What Henry mentioned and I mentioned earlier when we were talking to John Barnes, the new acquisitions have brought a different kind of agent to us. One that is more interested in providing supply chain solutions to their customers, because their customers are demanding it.

You heard Jim talk earlier about how customers don't want to have a variety of providers and vendors. They want to scale that back. So agents are finding, or people that have their own operating authority are finding that they are getting squeezed out of opportunities. They may have provided great service to this customer over the years, but only in one segment. Maybe that segment was in truckload. Now they find that they can provide all those services with Landstar, coupled with the supply-chain solution through these acquisitions. That makes us a very attractive place for them to land.

Good explanation. Thank you. As far as the intermodal agent that you mentioned that you had lost, what was the timing on that, and how long ha that revenue been with you?

December. And the revenue had been with us maybe three, four years, thereabouts.

Was that a mutual departure, or how does something like that happen? I know it is not a big deal to the bottom line, I'm just trying to understand the dynamics behind it.

We initiated the termination. Let me leave it at that.

Any thoughts on intermodal in general? A lot of changes in the landscape out there in terms of the underlying providers, does that alter your use of -- or your ability to grow the intermodal footprint?

Everything we have discussed earlier I think is going to help us grow in every segment. And the new breed of agents that Pat is talking about that we're able to bring on now is going to sell more strategic, comprehensive solutions. So when a customer is looking out, again, they are not just looking out towards one particular mode of service. They're looking out towards everything.

At the same time it is that mid-level account that really is just on our sweet spot, that really doesn't do a lot of intermodal, for example, today, because they haven't really been exposed to it. Our agents are touching those type of customers every day. So as we expose those customers to all the services that we have to offer, we believe we are going to go in every segment, including intermodal.

I think Jim hit right on the button. The opportunity in intermodal comes from all the agents who don't utilize intermodal. We've got intermodal agents, and a great group of intermodal agents that have X amount of volume. What I need to do is -- we need to put more volume on the table in total. And the way we get there is by making -- getting our agents that don't utilize intermodal to think about intermodal. Because I think it is just a great opportunity for us, and actually a good opportunity for additional business for all the intermodal providers out there. So we look at that as just a tremendous opportunity.

Good. Then last question. Do you have the cash flow from operations and CapEx for the year?

The cash flow from ops is $145 million. The CapEx, I believe the cash CapEx was $2.5 million. Hold on one sec. I am sorry, it is $2.7 million, cash CapEx.

Any big change in terms of total CapEx cash and capital leases in 2010 versus 2009?

We are going to end up purchasing this building in March for [2 -- $21] million. Other than that there it is a pretty routine year.

Okay, so the $21 million will be -- that will be cash CapEx?

Yes.

Donald Broughton, Avondale.

It is certainly a tragedy, but in the past when we have had horrific events such as the hurricanes that has proven something that you have been able to help assist those people in need, and in the process generate a little revenue because of your relationships with the government. Currently given what is happening in Haiti, do you think there is any opportunity for you to help them with their logistics? And, if so, what kind of an incremental revenue do you think we can boost -- do you think we could anticipate?

Right now most of the -- that stuff is being done by the military. There has been some bids that have been given out. We have done some air. We have done some ocean, if you will. And we have done a handful of truckloads down to the port. But there is really nothing major that has been actually offered and bid on. There was some bids -- actually there was some big bids that were put on, but they were pulled off the table, because they weren't -- FEMA didn't have the funding.

So basically it is all really all being done by the military. Obviously we stand ready when needed. But there is some, but very -- I would even -- it is not material.

Nothing compared to what we saw with say Katrina?

No, not even close.

(Operator Instructions). Alex Brand, Stephens.

I think you guys gave rate for dry and flat. But volume trends, do you have those for dry versus the flats in the quarter?

I do. Hold on one second. The vans were plus 7%, flats were off 10%. That doesn't include our expedited business or certain other stuff. That is the traditional drive van and flat bed business.

With respect to flat bed business, I am assuming that Arrow going away didn't benefit you guys much. But it sounds like you got other -- that there are large players out there that are struggling. We heard today there may be some more layoffs at a large competitor. Are you seeing capacity movement and/or maybe priced starting to firm or move up in the flat bed market yet?

We are seeing some tightening of flat bed capacity.

Has it started to affect the price yet?

Not materially, no.

Just one more question, if I could then. The load count in the quarter, it looks like the brokerage loads were up a lot more sequentially than BCO loads. Is that just typical initial phases of a recovery, which I think is something that is part of an answer you gave earlier, or was there something specific that was driving that trend?

You want to repeat the question for a second?

I missed that. I'm sorry. Could you just repeat that?

Basically brokerage loads versus your BCO load count, what would have maybe driven the much greater sequential improvement in broker loads?

(inaudible). It is a load count question. I think the answer is substitute line haul drove the increase in brokerage.

Okay, that is helpful. Thank you, Henry. That is all I have.

Chris Harrell, Capco Asset Management.

So I had a question about some numbers you gave I guess a while back in the depths of the downturn, where you guys estimated a down 20% revenue would give you something like $80 million to $100 million, maybe a little better than $100 million in earnings. (multiple speakers).

Our sensitivity analysis.

Yes, about $1.65 to $2.12 or something. So I know revenue was down a little more than that sensitivity analysis, but I was wondering if you could highlight the major differences in what you actually did compared to that range, particularly things at the higher end of the range?

In what regard? The revenue was down 24% (technical difficulty) full year.

Right. So maybe another 5 points of revenue -- so $100 million. So at your contribution margin maybe that $17 million of the difference. I'm trying to come up with somewhere between maybe $15 million and $45 million of (multiple speakers).

You've got to remember, we --

Insurance claims?

Jim you're going to have to -- that is a question I don't think I can --.

I can call Jim back later, if it is not easy to do here.

That might be something you might want to do. I do know when we went through the year our targets, as far as our reduction in SG&A, X the acquisitions, were hit in each of the first quarter, second quarter, third quarter and fourth-quarter. Jim is going to have to get back to you on --.

That's fine. I guess what I am wondering is, let's say just a hypothetical again in sensitivity, let's say your revenues are up 10%. So you pick up a couple of hundred million dollars in revenue. Just working through the contribution margin, it seems like it would add back maybe -- or increase earnings maybe $0.40. Maybe you don't have -- you have a better insurance claims environment. I'm just wondering if there is any other things that you would call out that were significant that might not be recurring next year that were pulling that number down?

Just one thing to consider -- this isn't all of the reason. But if you did that sensitivity analysis at a point of 20% revenue decline EPS was going down 21%. There is a certain level of fixed cost that if you accelerate the revenue decline beyond 20%, EPS goes down faster. So at a 24% decline I would expect probably a faster decline in EPS than 24%. Because you just can't get that -- the SG&A cost. It is mostly hedged. We didn't really do anything to adjust hedge much, other than have a hiring freeze. So that is part of the (technical difficulty).

How about the acquisitions?

I'm sorry, go ahead.

I'm sorry. I was just saying, how about the acquisitions? What did that end up impacting earnings this year or was it significant?

Slightly positive, less than $0.01. As we said, it wasn't going to be very much additive, but it was a breakeven. It was just slightly positive.

If revenues did snap back fairly -- strong, may be the wrong word -- but if they were up 10%, would you expect a fairly dramatic snap back in profitability?

I believe profitability will grow at a faster rate, if that is your question.

Okay. I tell you what, I will leave it there. I will catch up Jim later. Thanks guys.

Neal Deaton, BB&T Capital Markets.

A quick question here. I hate to get you to repeat something, but at the beginning of the call when you said automotive and substitute line haul was up, were the percentages 23% and 43% respectively or did I flip flop that?

That sounds about right. Hold on a second. 23% and 47%, that is correct.

47%, okay. So auto was up 23%.

That's correct.

You ended the year with -- did you say 405 million agents?

405 $1 million agents.

Versus 484.

Right. I made the statement that 92 of those agents that generated over $1 million in 2008 were under $1 million in 2009. And really all due to the economic environment.

Touching on something one of the other guys asked, the air cargo revenue, the revenue per load, obviously it is off of a low base, but it was up pretty sharply. Is that just where you're partnering and outsourcing that, and you're seeing a lot of business from Asia to the US, for example? Or what is driving the growth in that one particular mode, if you will?

(technical difficulty) that led to several large air charters that we [moved] during the quarter.

I think it broke up for a second. Several large air charters?

Yes.

Okay, okay. Then one other maintenance question. The $231 million was noncontrolling interest. That is just the minority interest payment?

Yes, old-school accounting, that is what I would have called it, minority interest, but that is new accounting terms for me. (technical difficulty). That is minority interest back when I was a CPA.

Thanks, that sounds good. Thanks guys. Have a good night.

Tom Wadewitz, JPMorgan.

Tom, you made it all the way back, or is this Alex?

It is still Alex. Sorry to disappoint you. I've got two questions -- two quick questions. I appreciate you getting them in at the end here. In terms of the -- following up on the substitute line haul, I understand you're saying that there is still strength moving into 2010 here. But you also mentioned that the comps are easy. What if we looked at it on a month-to-month sequential basis, how would January look versus December -- or January versus December? (multiple speakers) as opposed to December versus November? Can you give a little more granularity on that?

Jim might have November to December and whatnot, but logically based on because you're dealing with peak season type shipping patterns, I would have expected that November was much bigger than October, and December was bigger than November. Now you move into January, I would imagine that has slid down quite a bit, although still better than what we did the prior year.

I would anticipate February probably to drop off a little bit. And then you start to get -- and I'm talking sequential -- and then probably flat. But again compared to the prior year, because the prior year was way off that you probably still have some growth there.

I guess the second part of the question -- maybe I should have asked this upfront -- would be, how does that compare to historical trends? But maybe that is easier if I had just asked Jim about that.

Historical trends -- it is interesting (multiple speakers). Typically substitute line haul picks up in the fourth-quarter. It is a seasonal thing. Last year's fourth-quarter however everything dropped off. So we used to refer to October, or September through December, as the peak shipping season. Then probably the last three years, four years, whatever happened to it. Now this year, at least from our standpoint, things sort of came back pretty nicely. But I think it is generally those terms under normal circumstances.

Then the last question, I promise. You mentioned the potential new customers for A3i in the first six months here. What is the profit potential from those customers?

I don't want to put anything specifically, but we've got a number of good opportunities, and let just let me leave it there.

Was A3i profitable in the fourth-quarter (multiple speakers).

(multiple speakers) We bought as a venture capitalist. They had no customers.

Yes, that makes sense. Okay, thank you.

I think that's it, right?

That's correct. At this time we have no additional questions.

Okay, well I want to thank everybody for dialing in. I look forward to speaking to you all again on our first-quarter, mid-quarter update call, which I believe is scheduled for March 1, 2010. With that, I will say goodnight. Thank you.

Thank you for joining today's conference. That does conclude the call at this time. All participants may disconnect.