Landstar System Inc (LSTR) 2010 Q1 法說會逐字稿

Good afternoon and welcome to Landstar System Inc.'s first-quarter 2010 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, Co-Chief Operating Officer; Jim Handoush, Co-Chief Operating Officer. Now I would like to turn the meeting over to Mr. Henry Gerkens. Sir, you may begin.

Thanks, Terry, and good afternoon and welcome to the Landstar 2010 first-quarter earnings conference call. Again, this conference call will be limited to no more than one hour. In addition, please limit your questions to no more than two questions each when the question-and-answer period begins.

Before I 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 other members of Landstar's management 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 2009 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.

The 2010 first quarter was a very, very good quarter for Landstar and a great start to 2010. The freight environment is markedly better than one year ago. The improved environment and our 2009 strategic initiatives are certainly starting to pay dividends.

In our 2010 first-quarter mid-quarter update call, I stated that I expected consolidated revenue for the 2010 first quarter over the 2009 first quarter to increase in a range of 10% to 13%. I also stated that I anticipated earnings per diluted share for the 2010 first quarter over the 2009 first quarter to increase in a range of 15% to 20%.

The actual first-quarter 2010 over first-quarter 2009 revenue increase was approximately 17%. Earnings per diluted share for the 2010 first quarter was $0.34 per share, a 26% increase over the earnings per diluted share reported in the 2009 first quarter and $0.02 per diluted share above the upper end of our updated earnings guidance.

First, let's talk a little bit about first-quarter revenue. Not only did revenue increase in each month of the 2010 first quarter over each corresponding month of the prior year first quarter, but those revenue increases were progressively stronger with each month. As I said on the first-quarter mid-quarter update conference call, January 2010 over January 2009 revenue increased 8% and February 2010 over February 2009 revenue increased 12%. The March 2010 revenue over March 2009 revenue increased an impressive 27%. In fact, the number of loads hauled in March of 2010 was the highest number of loads hauled in any month of March in Landstar history.

Quarter over prior-year quarter revenue increases were generated in most of our commodity [groupings]. Some of our largest quarter over prior-year quarter revenue increases were generated in our substitute line haul service offering, as revenue more than doubled. All automotive-related revenue was up 36%, appliances and furniture was up 11%, and metals was up 21%.

From a mode perspective, overall truck transportation revenue increased 19% quarter over prior year quarter, as revenue generated through broker carriers increased 34% and revenue generated through BCOs increased 9%, while revenue generated through ocean cargo carriers increased 3%.

Revenue generated by our newly-acquired supply chain solutions companies contributed an aggregate of $5.1 million in fee revenue in the 2010 first quarter. And although a much smaller number, warehousing fee revenue doubled quarter over quarter.

These increases were partially offset by decreased revenue hauled by air cargo carriers and the anticipated decrease in intermodal revenue due to the loss of one large intermodal agent in December. One point about our intermodal revenue decline, despite the loss of the revenue generated by that one intermodal agent, total intermodal revenue for the 2010 month of March was approximately equal to the total intermodal revenue generated in March of 2009. That is a very good sign.

Total truck transportation revenue represented 92% of consolidated revenue in the 2010 first quarter versus 91% in the prior-year first quarter. Aggregate truck transportation load volume in the 2010 first quarter increased 20% over the 2009 first quarter, and it was 1,900 more loads hauled than in the 2009 first quarter.

Additionally, the 2010 month of March was 6,500 loads higher than the number of loads hauled in the 2008 month of March, another very good sign.

Truck transportation revenue per load was $1,457 in the 2010 first quarter versus $1,479 in the 2009 first quarter. However, revenue per load in March 2010 was 3% better than the revenue per load in March 2009, yet another good sign.

Our agent location count at the end of the 2010 first quarter was 1,372, compared to 1,366 at the end of the 2009 fourth quarter. Additionally, during the 2010 first quarter, we added four agents who had a prior run rate -- revenue run rate of at least $1 million. Agent revenue from all new agent locations added over the past year amounted to $19.3 million in the 2010 first quarter.

As I said before, the Landstar team did an excellent job during 2009 in adding new quality, productive agents to our system. Our pipeline of prospective agents -- new agents remains deep.

In addition, we continue to make great progress in agent acceptance and customer awareness regarding selling all Landstar service offerings from our traditional truckload services to our intermodal services to our international services to our warehousing services to complete supply chain solutions. From a profit-and-loss standpoint, operating income in the 2010 first quarter increased 19% over the 2009 first quarter. Operating margin was 5.2% in the 2010 first quarter, compared to 5.1% in the 2009 first quarter.

It should be noted that there was no accrual for bonus payments in the 2009 SG&A amounts, whereas 2010 included an accrual of approximately $2.4 million for anticipated bonus payments. Jim?

Thanks, Henry. Investment income was $285,000 in the 2010 quarter compared to $425,000 in the 2009 period. The $140,000 decrease in investment income was due to a lower amount of investments held by the insurance segment during the 2010 first quarter.

Purchased transportation was 76.1% of revenue in the 2010 first quarter, compared to 74.9% in the 2009 first quarter. The increase in purchased transportation as a percent of revenue was primarily due to increased less-than-truckload substitute line haul revenue, which tend to have a higher cost of purchased transportation, and increased rates paid for purchased transportation to truck brokerage carriers. Commissions to agents were 7.4% of revenue in the 2010 quarter, compared to 8.2% in the 2009 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 2010 quarter, compared to 1.6% in the 2009 quarter. This decrease was attributable to the effect of increased revenue and lower rental costs for traveling equipment, partially offset by $832,000 of other operating costs incurred in the 2010 first quarter by the recently acquired companies.

Insurance and claims costs were 2.2% of revenue in the 2010 quarter, compared to 1.9% in the 2009 quarter. The increase in insurance and claims as a percent of revenue is primarily due to increased severity and frequency of commercial trucking claims generally from adverse weather condition in the 2010 first quarter compared to the 2009 first quarter and increased costs of cargo claims in the 2010 first quarter.

Selling, general, and administrative costs were 6.7% of revenue in the 2010 quarter, compared to 7.3% of revenue in the 2009 quarter. Selling, general, and administrative costs of $36.8 million in the 2010 first quarter included $3.9 million of costs incurred by the entities acquired in the 2009 third quarter. Excluding selling, general, and administrative costs and fee revenue of the acquired companies in the 2010 first quarter, selling, general, and administrative costs were 6.1% of revenue in the 2010 first quarter.

The decrease in selling, general, and administrative costs as a percent of revenue, excluding the fee revenue and costs incurred by the acquired companies, was primarily due to the effect of increased revenue and lower customer bad debt in the 2010 first quarter, partially offset by the provision for bonuses under the Company's incentive compensation programs in the 2010 first quarter.

Depreciation and amortization was 1.1% of revenue in the 2010 first quarter, compared to 1.2% in the 2009 first quarter. This decrease was primarily due to the effect of increased revenue.

Interest and debt expense was $854,000 in the 2010 quarter, compared to $1.2 million in the 2009 quarter. The decrease in interest expense was primarily due to lower average borrowings under the Company's senior credit facility and lower capital lease obligations during the 2010 first quarter. The effective income tax rate was 38.2% in the 2010 quarter, compared to 38.4% in the 2009 quarter.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $107 million. Cash flow from operations was $24 million during the 2010 first quarter. At March 27, 2010, shareholders' equity represented 72% of total capitalization. Back to you.

Thanks, Jim. I am very excited and confident as we move into the 2010 second quarter. An improving economy and tightening capacity, coupled with the strategic actions initiated in 2009 bode well for Landstar's future growth.

From a short-term perspective, assuming the current trends we have experienced continue, I would anticipate 2010 second-quarter revenue to increase over the second-quarter 2009 revenue in an upper teen to low 20% range. Given that revenue estimate, I would expect diluted earnings per share for the 2010 second quarter to be in a range of $0.44 to $0.49 per share, which would represent a 26% to 40% increase over the 2009 second quarter diluted earnings per share amount.

From a longer-term perspective, I believe Landstar has positioned itself to take advantage of all opportunities. The consolidation of the carrier group and global logistics field and administrative organizations, the 2009 acquisitions of our supply chain solution companies, and our refocused marketing and sales efforts should provide the platform for continued future growth. In addition, these strategic moves should only augment our ability to recruit new agents.

To repeat, our three- to five-year goals are to achieve a cumulative average revenue growth rate in a mid-teen range, to increase annual operating margins, and to grow diluted earnings per share at a slightly higher rate than the rate of revenue increase. I believe Landstar is very well positioned to accomplish these goals.

And with that, Terry, we can open it up for questions.

(Operator Instructions). Justin Yagerman, Deutsche Bank.

This is Rob on for Justin. You guys had indicated that you had seen some solid supply-chain revenue in the first quarter. Could you give us a little bit more visibility in terms of what the driver -- what was that revenue, and if you have any sort of update in terms of contracts that you guys were looking to target in that (multiple speakers)

The revenue was generated -- so, remember, we have two supply-chain solutions companies, one NLM, one A3i. The revenue was generated all through NLM, and that was largely some of the automotive companies and a few others. As far as A3i, we do have a number of items that we're working on currently. We do expect A3i to generate some revenue in the second quarter.

And with the NLM, are you also seeing some crossover now in terms of it driving load growth through your Landstar -- your broader Landstar truck and BCO count?

I think we're starting to see some of that. In fact, we just completed a project where there's going to be complete integration, where the agents are going to be able to basically have access to the NLM system to create additional capacity sourcing for them. In fact, that is scheduled to go live next week.

Got you. That's very helpful. And then, you had briefly mentioned the substitute line haul business, that you grew revenue substantially. Could you give us a sense how that's trending thus far in April and also if that was driven just by increased business with overall -- with your underlying customers or did you -- were you able to kind of find some new customers in that segment?

It really is increased business with our existing customer base that we provide that service for. And as it relates as far as how we see that in April, it still remains strong. It probably is a little bit lighter than what we saw in March, but still pretty strong compared to the prior year.

Jon Langenfeld, Robert W. Baird & Company, Inc..

From the customer's perspective, are they starting to approach you yet with solutions, questions about the rates? Not being able to find capacity? Are you seeing that? And then, how are you managing or how are you helping the agents realize that it's time to get out there and increase the rates?

A very good question because what you've got is the capacity basically saying I want more and the customer saying, well, wait a minute, I'm not sure I want to give you more.

I think it's a matter of time before that dynamic changes where customers are going to start to basically give in. As we've said, we've got our revenue per load, although again off a small base, is up 3%. Pat, I don't know if you want to add anything to that.

Jon, clearly customers -- anecdotally, I can tell you that some customers have rushed out some of their bidding that they'd anticipated doing in the summer. They are doing it now because they think the capacity is going to be tight and they think they can get more favorable pricing today.

We have had customers come to us asking us to move additional freight. I can think of two examples where they have come to us and said, listen, forget about what the old pricing is. What's the pricing going to take to get equipment today, and it's primarily on the platform side.

And if you think about our agents, they are closest to the action. They are getting feedback from the capacity on a daily basis about what it's going to take to move the loads, so they are probably closer to the pricing than anybody is. Because they know what it's going to take to move it and they communicate that back to the customer.

Thanks, and then the follow-up question. With regards to non-variable costs, costs that maybe have more of a stair-step function to them, we have the incentive comp. Anything else we should be thinking about on that front?

Jim?

No, not necessarily. You've just got to remember for the first two quarters this year, we have the supply-chain -- the acquired companies' G&A rolling through, but other than that I can't really think of much that's unusual, other than the incentive comp.

Ed Wolfe, Wolf Trahan & Co..

Henry, can you talk a little bit to why the truck brokerage revenue per load is up more than the BCO -- up five and change and the BCO is down six?

My guess is it's going to be the fuel surcharge.

Yes, I was just checking to see. My guess is fuel surcharge, but we are checking it out.

Yes, I know that's part of it, but it seems like an awful lot for just fuel to have one up five and one down six, basically. And then, I guess the same question would be trying to understand that -- do you have the numbers for March? I think the equivalent is -- $1,447 was the quarter for BCOs revenue per load. What was that number like in March? And for truck, it was $1,471 for the quarter. What was that like for March?

To answer the first question, if you pull -- the rate per load on brokerage was over 5% compared to prior year's quarter. 2% if you take out fuel.

So it would've been up two and BCO still would've been down six, so I guess still the question, why is one going up faster than the other so much?

The brokers haul a higher percentage of flatbed than they do -- BCOs higher -- haul a higher percent of van business than they do flat bed. Brokers are in the flat bed sides, which is where you are seeing the capacity pressure.

Okay. So rates are going up faster in flatbed than in drive-in is what you're saying?

It's a mix, yes.

Okay. And what is the difference in the mix, in the BCO versus the brokers drive-in to flat, roughly?

Hold on one second. I've just got to do some math.

Sorry, I know -- they said there would be no math, but I'm breaking the rules. I'm sorry.

Van side, BCOs are hauling about 80% of it. And on the flat side, it's about 60%.

Well, then, I'm confused by the [extra]. Who is hauling 80%? I'm sorry.

BCOs are hauling 80% of the vans, BCOs are hauling 60% on the flats.

Perfect. Do you have the numbers for March, Jim? The revenue per load by BCO and truck brokerage?

Can you just repeat that question? I just was looking at numbers.

Yes, the total revenue per load as you reported it for the full quarter was $1,447 for BCO and $1,477 for truck brokerage, and I'm trying to figure out what those same numbers look just for the month of March. Kind of the directional move here in yield.

I've got you. The BCO was $1,468 in March.

That's what you [asked].

You had the BCO and do you have the same for the brokers?

$1,479.

Then last one and I'll turn it over. When you think about leverage on the operating margin, entering in your guidance longer term you talk about mid-double-digit revenue growth and some margin improvement. How soon until we see that margin improvement? Should we see it assuming the mid- to 20% revenue growth for second quarter? I'm assuming at the higher end of the range you do start to see some margin improvement, and where does that leverage come from?

Ed, our model hasn't changed. The leverage comes from not adding SG&A costs. We've had this -- when you pour a bunch of revenue over the fixed SG&A costs that we have, and you've got some things masking it this year because you don't have comparability as far as the bonus accruals, but the fact of the matter is you don't have to add a lot of people, and as you start growing revenue, in addition to that as the supply-chain solutions companies take off, you've got a much higher margin on that piece that will fall to the bottom line.

So from a longer-term perspective, we're pretty confident we're going to be able to grow margins. In addition to that, I think you're going to start to see that -- I mean, it was 5.2 versus 5.1 in the first quarter, but you will see again an expansion of margins in the second quarter.

So you think we can get beyond the seven seven we had in 2005, the last peak?

Yes, I've always answered that question the same way. My objective is to go as best we can, and as we go down the road, it depends on where the supply-chain solution comes in, but yes. Our objective would be to be at a higher margin than that, yes.

And what's the timeframe to get there?

And now I wish I had a crystal ball. I don't have that, actually.

Todd Fowler, KeyBanc Capital Markets.

Henry, can you talk a little bit about your conviction in the second-quarter guidance? I know that for the past couple of quarters, there's been a lot of volatility in weekly results, monthly results, and I think that the way you have approached laying out your guidance at the start of the quarter has been to be relatively conservative and then come in line with that, and if things pick up obviously to have a little bit of upside.

That looked like kind of what you've laid out here for the second quarter. It seems like you've got some conviction that things are going to continue with where we've been in March, where we're trending in April. Can you talk about where that stems from? And then, what would your expectation be -- or what's baked into that guidance that -- do things continue to sequentially improve from where we have ended -- where we're at in April right now into May and June, and kind of the magnitude of strength that you are anticipating as we get into the summer months?

Well, yes, if you take it back, March over March was a 27% increase. And each month is incrementally -- had a larger increase.

Based on what we see based on talking to agents, based on what Pat and Jim tell me as far as what's going out when they talk to their field guys, based on talking to customers, based on every statistic that I look at, things are just picking up, and I know what we did last year as far as setting the stage for 2010. I'm just pretty confident that that's -- that we're going to hit those numbers.

And if we see a sequential improvement in May like we're seeing in -- like we saw from March over February, do you feel that there is still upside to where you've guided right now for the second quarter?

Hey, look. Yes, there is upsides. I am smiling. The -- it's -- as I said once before, thank God 2009 is over. Things are going in the right direction. Yes, there can clearly be upside.

No, I'm not trying to get us too far ahead of ourselves. I'm just kind of curious as to the conviction, and this looks like pretty good guidance, I guess, is my approach.

The follow-up that I have, Jim, I think you talked about this a little bit, but looking at commissions to agents as a percent of revenue, historically that's bumped around kind of that 8% level. Here during the first quarter, it looks like it's around the 7.5% level. I know that mix can impact that. Can you talk a little bit more about commissions to agents as a percent of revenue and how that should trend? What impact [of it] here in the quarter and how that should trend throughout the year?

Remember, a lot of it has to do with how much we're paying the truck, so I can tell you that in the first quarter, excluding the substitute line haul brokerage business, the true brokerage non-substitute line haul, we paid the capacity about 210 basis points higher this year than we paid last year, right? But remember, we either share that with the agents or the agents -- it's all agent cost.

So what happens is you end up having -- it drives down -- as PT climbs on the truck brokerage, your commission rate goes down. So I think if -- what I looked at was, in the quarter -- I go back to my notes -- overall, the PT rate went -- from the first quarter last year, went up 1.2 and commissions went down by 0.8. So you pretty much have -- it's not exactly equal, because we do share in some of that tightening capacity where you're paying the trucks a little bit more, but a lot of it, it's just -- we just don't take the exposure as much as a company who has taken -- for every penny they have to pay a truck extra, it goes right to their bottom line. We kind of are sharing it with agents. So, simply said, as PT goes up, commissions come down.

Okay, and a lot of that is a function of -- really you've got some good strength in the loads that you're moving in the brokerage piece of the business. That was particularly strong, and then PT would've been a little bit higher and that's really the driver of what's going on in the commission side.

Yes.

Right.

Thanks a lot for the time, guys. I'll talk to you soon.

Tom Wadewitz, JPMorgan.

I don't know if you'd indicated some of the monthly numbers in terms of change in base pricing in either BCO or brokerage, or if you're willing to do that. I think you've talked about that a little bit in the past. I know, one of the earlier questions asked you. But can you get some of those numbers just to get a sense of what pricing ex-deal did in the quarter?

Do you know specifically which numbers? Is it -- do you want -- I can give you brokerage by month without fuel.

Sure, that would be great.

It was -- without fuel -- well, without fuel it was $1,355 in January. Dipped to $1,329 in February. And back to $1,349 in March. Now, there is a lot of mix in there because you're doing flats and van mix for the brokers, and I don't have it split. I just have it in total.

Do you have a sense of what that was year over year?

Yes, last March it was $1,270.

$1,270, and then February and January?

$1,366 in January and $1,317 in February.

$1,317 in terms of base rate. Okay. That's helpful. Henry, what's your view on the market right now in terms of both flatbed and drive-in? Do you think it's essentially in balance? Do you think it's already difficult to find the capacity to cover the loads and what -- given those views, what do you think happens with price -- spot market pricing in those two markets to look in the next couple of months?

I will let Pat answer that question. I always answer the questions, but, Pat, why don't you answer the question?

Tom, I think that there is a noticeable tightening of capacity on the platform side. I don't think there is any question about that. I think the jury is still out on the van capacity and just -- there's a balance there. But clearly on the platform side, there is a capacity shortage.

I think just fundamentals of supply and demand, then, will state that there will be some price pressure and those people that want their shipments moved are going to have to increase their prices. And I think Jim sort of demonstrated some of that pricing in those numbers that he just gave you. So, I clearly -- clearly on the platform side, there is a capacity shortage.

Yes, our view, Tom, is that as you move through the next couple of months you're going to see some increased pricing overall.

So in the spot market, you could see mid-single digits or you think you'll see more than that?

You know, Tom, I wouldn't want to speculate. Depending upon the geographic region, if you look at the Midwest, Chicago started feeling this -- or, excuse me, the Midwest started feeling this platform capacity shortage in about mid-February, and you're seeing it spread throughout the country, in the Steel Belt, down South. There will be some price increases. I wouldn't want to speculate on what those will be.

Chris Ceraso, Credit Suisse.

You mentioned in your opening remarks, Henry, how things finished up relative to your mid-quarter guidance. Can you give us a little bit of color on what changed, both in terms of revenue -- and then also, on the mid-quarter call it sounded like while volume and revenue was going up, you weren't really expecting to see much of that improvement drop through. But here, it looks like some of it did. So maybe just some background on what changed from the mid-quarter to the end of the quarter.

Let me back up a second. Dropped through meaning dropped through to the bottom line?

Yes, yes. I mean, it sounded like, at the mid-quarter, you took your revenue and your volume expectations up, but didn't change your EPS number.

I think -- Jim, I think we did increase that EPS. I think we (multiple speakers) we moved it up to the top, I think, and so we clearly thought there was going to be a fall through to the bottom line. It's just the way our model works.

I think the -- what changed from a -- revenue just got stronger. And it was stronger in a lot of different categories. Our mid-quarter update, as I recall, was March 1. We had just started the month of March, if you will. And I think I was pretty confident at that point in time, although a little bit cautious because March does make the quarter. Typically, January and February are the slower of the months.

I mean, we had our -- one of our largest loading days of the year -- or the largest loading day of the year in March. So, I couldn't point to one sector, although -- substitutes -- line haul was strong, automotive was strong, I mentioned furniture and appliances, metals, consumer products was strong. We did some special work for one of our clients.

You know, everything just picked up at a more dramatic pace. When you think about the first-quarter mid-quarter update, January was 8% over and February was, what, 12% over. But in March, it was a 27% increase I think is what I -- . So, it was just a big month, and with what we see going on in April, those trends as far as increasing -- it just -- it's more of the

Okay. Can you comment on the truckload price, spot versus contract? Are you starting to see contract prices move up? We know spot prices are going up, but what's happening with contracts?

Pat?

Chris, as we complete bids on new business we take into consideration the tightening capacity and price it accordingly.

So where -- can you give us some numbers, some background, or I mean -- where are contract rates coming in relative to where spot rates are?

Well, I think, as Pat said, people are trying to come in for contract renewals now and asking to hold price because they are anticipating what's going to happen. Spot rate market from a flatbed standpoint, as Pat said, is dramatically higher and it really drove the 3% increase overall that we had in the truckload transportation.

The vans, I think as Jim alluded to, are flat. We haven't seen the tightening capacity there, but we anticipate that's going to happen. We're just pretty bullish as far as generally what the volumes are going to look like, and I think at a certain point in time, pricing overall is going to go up, and we are starting to look at that now. I don't know if you've got anything else to add to that, Pat.

No.

John Barnes, RBC Capital Markets.

Henry, I was kind of curious, as you looked at your revenue in the first quarter, and your customer base specifically, did the revenue increase come from new types of customers? Was there a big mix shift in your business? And could we see even further revenue growth as maybe more of your traditional customer base comes back? I think you actually highlighted the first increase in revenue growth from the third-party capacity providers, that type of thing. So, have you seen a little bit of a shift in your customer base and do you think (multiple speakers)

Well, we had a very big, as I said -- the business we did with our substitute line haul, which is really an indication, I think, of the overall economy and the overall freight market, if you will, doubled, so we did a lot of work for those customers.

Obviously with the agents we brought on last year, that's all new business for Landstar and that was 19 million. And you hit it right because it's very similar to what we went through a number of years ago when we built a customer -- existing customers weren't shipping, but we went out and we basically brought in a whole bunch of new agents, and what that's going to happen -- you're going to have the effect of the new agents, and as the economy starts to pick up, it's almost a doubling up of effect. That's what leads us to believe or leads me to believe how confident I am in the numbers that we gave because it's just -- things right now are going on all cylinders.

I don't want to push you too far outside your comfort level and I know somebody has already asked the question about upside to your earnings guidance, but as you look at how this year should progress, you've got fairly easy comps, at least for the first three quarters, maybe for all four quarters. Do you see anything on the horizon now that says, hey, we're just benefiting from the super-easy comps in the first half and things are going to get a lot more difficult for us in the back half, or at this point do you just feel like this is the beginning of some kind of sustainable recovery?

A lot of thoughts embedded in that. The -- clearly the fourth quarter of last year, things started to pick up a little bit. But I think as we progress through the quarter -- through the year, we are pretty confident as far as what we've done.

Again, I don't have that crystal ball as far as something could happen. You've got a lot of things that are going to happen, potentially with -- I don't know what the administration is going to do, for example. And that always scares me.

So there's a lot of things out there that I think are tentative, and I've sort of backed away from full-year guidance again because I just don't know what -- to me, that's the big unknown is what legislation, regulation, control, whatever you want to call it might come down from the administration, in which case it could affect numbers. Right now, we feel pretty comfortable as far as what we did, what we're doing, and what we can control, and absent any of those unforeseen things and the economy continues, we are positioned very well, John. And so, I am fully comfortable and confident as far as what we've got going.

Matt Brooklier, Piper Jaffray & Co..

I think you talked about it earlier in your prepared comments, but I wanted to get a little bit more color on your intermodal volumes in first quarter. It sounds like you guys had an agent leave. Wondering when that agent left. I guess how many volumes or intermodal loads he took with him? Just trying to get a better sense because we know that intermodal volumes were up pretty healthily.

Yes, and it was -- and Jim, you can correct me if I'm wrong, but it was our largest intermodal player. And that person left in December, and I'm not going to comment any more about that because we do have some litigation with that individual. So we'll just leave that aside.

But my point being that on the intermodal front was that if you looked at the month of March alone, when you looked at numbers in March of last year, which includes that agent's revenue and numbers this year, they were virtually equal. So that tells me that things are picking up from that front also, which ties in to what you are seeing. So, we are confident in that also.

I mean, can you talk about the load counts in first quarter 2010 versus first quarter 2009, ex that agent?

I'm not going to go into ex that agent because I'm going to back away from talking about anything to do about that agent, and I don't want to indicate what those were. (multiple speakers)

All right, I don't want to get you in trouble. Second question, looking forward it feels like things have picked up materially. What is the CapEx budget for this year and are you guys starting to think about potentially having to spend a little bit more money? It feels like capacity is tight. It's tighter on the flatbed side. Are you guys -- do you need to go out and start purchasing more equipment to support your flatbed business or any other parts of your business on the trailer side?

Not to my knowledge. I think right now we've -- brokerage was a large part of our -- I think that grew 34% in the first quarter. If we had more orders coming in for some of the specialized equipment, we wouldn't hesitate to put those orders in. But I don't believe there is additional -- other than what we've got in the plan which, Jim, is --

Yes, we're looking at replacing about 600 van trailers and maybe adding a couple of flats, but there's nothing outside the norm. It's maybe $18 million to $20 million. Plus we just did complete the purchase of the building in March for $21 million.

Right, right. So it sounds like you guys aren't planning to add net capacity on the trailer side at this point in time (multiple speakers), despite kind of the inflection in volume growth in first quarter?

Right, yes.

David Campbell, Thompson Davis & Company.

I just wanted to ask about insurance costs. You mentioned weather being a factor in the first quarter, the severity of the weather. Is that the only thing going on and that we should be going back to what would be regarded as normal second-quarter insurance costs because weather shouldn't be a problem?

In general, insurance costs are going to run 1.5% to 3% of our revenue historically, and we closed out the quarter at 2.2%. Weather was a -- frequency causes severity and the weather causes frequency, so that's really what we saw in the first quarter. Tough to talk about what's going to happen in the second quarter because it is insurance and accidents are unpredictable, but generally our guidance is 1.5% to 3% of revenue.

Right. And the growth in substitute line haul, is that primarily less-than-truckload or do you do some truckload as well?

It's all less-than-truckload for LTL carriers.

Great. Thanks for -- my other questions have been answered.

(Operator Instructions). Chaz Jones, Morgan Keegan & Co., Inc..

Question on the supply side. Do you think the market is healthy enough now that we have kind of shut the window on failures or is there an opportunity if we see fuel run up to 350 to still see supply come out of the market?

You know, great question, and I have been so wrong over the last two years on capacity and things like that that I venture to take a guess, but I think if fuel were to run up, I think that could cause some problems for some carriers that are weak right now. I can -- that would be my answer. Pat, I don't know (multiple speakers)

No question about it, that's an impact.

Yes, I mean, I wouldn't think that within a couple of months that all of these zombie trucking companies become healthy, and it just kind of begs the question of supply and demand are kind of in balance, then there's still an opportunity for supply to come out. The healthier carriers could really see some significant pricing increases.

Look, I think there's -- clearly over the next -- depending on where fuel goes, depending the implementation of CSA 2010 when that actually takes hold, I think that's probably going to drive some capacity out of the marketplace and I think that's been pushed back until later on this year or early next year, but all of those factors I think over -- within a year, I think it potentially causes capacity to come out if fuel goes up also, so yes.

Then my follow-up, anything to report on the contract pipeline of A3i?

Jim?

(Inaudible question - microphone inaccessible) overall basis the pipeline is strong and growing. We've -- I think the alignment of our field organization and our corporate sales group and the education process that we've gone through with our agent family and our employee base is really taking shape, and that pipeline continues to grow and we're very excited about it.

Okay, great. Nice quarter, again.

Neal Deaton, BB&T Capital Markets.

Just one quick clarification question. I believe it was Tom that asked earlier about the revenue per loads, just what they were for March, isolating them. And I believe, if I heard you correctly, it was $1,468 for BCO.

Hold on, Jim is getting his --

Yes.

Okay, and then the other number you gave, the $1,479, was that for truck brokerage carriers?

Yes.

Okay. And then, I guess overall, if rates were up 3%, was that -- if you look at the year-ago figures for those two groups, was it pretty comparable? In other words, was BCO up about -- was that about a 3% increase and truck brokerage too, or how does the -- what's the split there?

Repeat the question for Jim so he can --

I'm not sure I understood it.

Oh, I'm sorry. I was waiting for you guys. Basically I was just saying, if the yields were up 3% in the month of March, was that about the same for both BCO and truck brokerage or was one of those figures higher than the other one, like, disproportionately bringing up the average?

Brokerage brought the average up. Remember, they do more -- again, it's a mix thing because they do more flats (multiple speakers)

Okay.

You know, the question's BCO versus broker, and it really is not -- the more relevant question is the split as far as where flats were and where vans are. Because (multiple speakers)

Okay. (multiple speakers) And I remember now, and you gave that figure and that explains why the -- why it's a little higher in that one group just because they have a higher concentration of flat beds.

That's correct.

Okay, and then the bonus accrual figure you said was, I think, $2.4 million?

Correct.

What -- I was thinking that it was going to be a little bit lower than that. For some reason, we were thinking it was going to be about $1.5 million per quarter.

We are obviously anticipating better results, and accounting rules would require me to accrue what I have to do on a pro rata basis.

[Fund] rate is $6 million a year when we hit targets; if we exceed targets, it --

Okay. So really it's just a product of having a (multiple speakers)

Good results.

More favorable outlook.

Yes.

Good deal. That's all I have. Have a good evening. Thanks.

Ed Wolfe, Wolfe Trahan & Co.

Just a quick follow-up. Jim, can you give us some of the cash flow numbers? What was cash from operations and CapEx in the quarter?

$24 million was cash from ops, and I think we had $22 million in CapEx, cash CapEx (multiple speakers)

That's a net number?

Well, no, that was just -- that's $22 million cash CapEx.

Remember, we had an option to buy the building at the end of year 10 of this lease of the building we're in. So, we took -- and that's what that represents.

$21 million of that was the building, and there is like $1 million of capital for IT and stuff.

Okay. And I'm sorry if you said it already, but has the guidance changed for the full year yet?

I've never given guidance for the full year.

Okay, can you give some expectation for CapEx guidance for the full year?

Oh, CapEx guidance.

Yes.

The $22 million for the first quarter, we have replacement equipment of maybe another $18 million to $20 million of -- but it's replacing existing trailing equipment.

So all in, $40 million, give or take, for the year?

Yes.

And is there something net off that if you're selling equipment or is that a good net number, give or take?

That is not a net. That does not include what we'd sell the trailers for, but I don't know what that number would be.

At this time, I show no further questions. I would like to turn the call back over to you, sir, for closing comments.

Thanks, Terry, and maybe what I'll do is I'll go around the room, and Jim Handoush, you want to add any closing comments?

Just to say that [we're all] excited about the direction we're going in and a lot of the changes that Henry spoke about -- in his opening remarks are really taking shape and hold, and we're very, very excited about the remaining three quarters of the year.

Pat?

I'm fine. Thanks, Henry.

Jim?

It's nice to be out of 2009 and what appears to be a very healthy transportation environment. I think things are really moving in the right direction. I think we've had a [doctor of] production, which drives a lot of our freight, and going in the right direction, so it's just a good feeling and we'll see it continue throughout the second quarter.

All right. With that, I want to wish everybody a great afternoon. I want to thank everybody for tuning in, and our second-quarter mid-quarter update call is on May 21. 2 PM, Jim, is that correct?

Yes.

2 PM, May 21. Talk to you guys later. Thanks a lot. Bye.

Thank you for joining the conference call today. Have a good afternoon. Please disconnect all lines at this time. Thank you.