Landstar System Inc (LSTR) 2014 Q3 法說會逐字稿

Good afternoon, and welcome to Landstar System Inc's third quarter earnings release conference call. All lines will be in a listen-only mode until the formal question-and-answer session. 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 and Chief Executive Officer; Jim Gattoni, President and Chief Financial Officer; Pat O'Malley, Vice President and Chief Commercial and Marketing Officer; and Joe Beacom, Vice President and Chief Safety and Operations Officer. Now I would like to turn the call over to Mr. Henry Gerkens. Sir, you may begin.

Thanks, Tori, and good afternoon, and welcome to the Landstar 2014 third quarter earnings conference call. This conference call will be limited 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 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 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 2013 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.

In our 2014 third quarter mid-quarter update call, I said that I was very comfortable with the then published range of analyst estimates, as published by First Call, of $0.78 to $0.82 per share, and the resultant consensus estimate of $0.80 per share. I'm happy to report that Landstar's 2014 third quarter earnings per share from continuing operations increased 32%, to a record $0.82 per share, compared to $0.62 per share from continuing operations in the 2013 third quarter. Additionally, 2014 third quarter revenue was a record $819 million, and increased approximately 21% over the $676 million generated in the 2013 third quarter.

It was truly a remarkable quarter. Truck transportation revenue continued to be very strong, as both load volume and revenue per load increased over 10% versus the prior year. Truck capacity remained tight throughout the quarter, as the economy continued to inch forward. And despite the tight capacity market and improving market conditions, Landstar continued to increase its available capacity base.

Trucks supplied by BCL capacity was 8,792 at the end of the 2014 third quarter, compared to 8,410 at the end of the 2013 third quarter, and 8,591 at the end of the 2014 second quarter. The number of approved and available truck broker carriers was 37,134 at the end of the 2014 third quarter, compared to 32,314 at the end of the 2013 third quarter, and 35,550 at the end of the 2014 second quarter. From a new agent revenue standpoint, revenue generated from all new agent locations and -- over the past year amounted to approximately $24 million in the 2014 third quarter.

Year to date through the third quarter, we have added approximately $81 million in new agent revenue. And more importantly, our pipeline of prospective new agents remains very strong. From agent recruiting to BCO and broker carrier recruiting to market share gains, and from just about every other metric, Landstar continues to outperform. I'm now going to turn the call over to Pat, Joe, and Jim for additional comments on the outstanding 2014 third quarter results. Pat?

Thank you, Henry. As noted by Henry, the 2014 third quarter revenue grew 21%, or approximately $144 million, when compared to the 2013 period, ending the quarter at approximately $819 million. The strong quarter-over-quarter revenue performance continues to be broad based across many accounts, agents, and product lines. Total truck transportation revenue increased 22%, from approximately $628 million in 2013 to over $767 million in 2014. Strong demand for van services continued through the quarter, and quarter over prior year quarter growth in revenue per load stayed consistent throughout the period.

In total, revenue in the van segment increased 24% quarter over prior year quarter, with nearly half the increase attributed to improved volume. Revenue in the unsided/platform service offering increased 20% in the 2014 third quarter, when compared to the 2013 period, with slightly more than half of the increase attributed to improved revenue per load. Load volume in the unsided/platform business remained reasonably consistent through the quarter, as demand from core industrials has improved, and we believe that these trends will continue throughout the fourth quarter. Currently, approximately 38% of Landstar's truck transportation revenue is generated using unsided/platform equipment.

Revenue in the LTL service offering increased 16% when compared to the third quarter of 2013. Year-over-year LTL load volumes increased in the quarter, and the improvement experienced in the second quarter carried over to the third quarter, as volumes in the LTL service offering increased in July, August, and September by 5%, 12% and 13% compared to the prior-year months. We continued to increase the number of agents and customers participating in this service offering. Strong volume trends, along with near record revenue per load in our truck service offerings, have continued thus far in the fourth quarter. Rail intermodal in the quarter increased a healthy 17% over the 2013 period.

New agent additions, account wins, and a more rational rail network produced year-over-year improvement in volumes, which were responsible for approximately two-thirds of the growth. As for new agent revenue, new agent additions remain very strong. In the 2014 third quarter, new agents produced over $24 million in revenue. This is nearly a 37% increase in new agent revenue over the 2013 third quarter. As a reminder, a new agent in the 2014 third quarter represents an agent who had contracted with Landstar after July 1, 2013.

This improvement in new agent revenue is a direct reflection of the quality and availability of new candidates, and our pipeline remains well seated. We expect to maintain this momentum for the balance of 2014. Revenue from our Top 10 accounts contributed approximately 15% of the total revenue for both the 2014 and 2013 third quarter. Our revenue gains outside the Top 100 accounts remains impressive, as approximately 70% of our year-over-year third quarter revenue growth came from customers not in our Top 100 in the prior year. This reflects the natural diversity of the Landstar model, and demonstrates the broad-based nature of the revenue growth.

While opportunities were positive across most industries. Similar to the second quarter, business in the automotive, government, and consumables sectors were particularly strong. As we mentioned, our growth has been broad based across many accounts, agents and product lines. The current environment provides a significant opportunity for our agents to build new customer relationships, and provide viable transportation solutions, in a capacity constrained environment. We believe the capacity shortage is systemic, and a byproduct of increased regulation, reduced productivity and a modestly improving economy. Joe?

Thanks. Pat. Landstar ended the 2014 third quarter with a total truck capacity network in excess of 45,000 providers, a significant increase of more than 1,700 in the quarter. This growth in capacity is attributable to effective recruiting and retention programs, and a strong freight environment. Given the ad hoc and unplanned nature of much of Landstar's freight mix, the size and scope of the network of providers is very important in sourcing capacity across a wide range of service offerings, often within a short window of time. From a truck capacity perspective, we remain well positioned to support new opportunities going forward.

The third quarter concluded with Landstar BCO comp up 362 BCOs over the prior-year period, increasing BCO truck count by more than 380 trucks. Consistent with the second quarter, this third quarter net increase is the largest in several years. BCO truck additions in the quarter were up over 10% from the 2013 third quarter, while terminations were 20% fewer. The Company continues to see BCO truck comp growth in the first few weeks of the 2014 fourth quarter. Both total approved carrier count, as well as active carrier count, were at record levels at the end of the 2014 third quarter.

Total approved carrier count increased approximately 15% over the prior-year period to more than 37,000, while active carrier count increased more than 19%, to over 25,000. Active carriers were defined as those carriers who have transported shipments for Landstar in the prior six months. Truckload volumes increased year over year by 12%, 8% and 11% in our van, platform and LTL service offerings. Overall BCO load volume improved 2% in the 2014 third quarter compared to the prior-year quarter, while loads hauled via truck brokerage capacity supporting the company's van, platform or LTL service offering increased 21% in the 2014 third quarter over the prior-year quarter.

This third-quarter load volume improvement in truck transportation is attributed to the ongoing and significant increase in capacity relationships, the high volume of quality loading opportunities attractive to Landstar capacity providers, and execution across the agent network in sourcing capacity to meet customer demand. Overall, the cost of purchased transportation was 77.3% of revenue in the 2014 third quarter, 77.2% in the 2014 second quarter, and 76.7% in the 2013 third quarter. As expected, a significant amount of the revenue growth is from truck transportation services hauled via truck brokerage carriers, under contracts that result in a variable margin.

The percentage of revenue on a fixed margin, which has a lower cost of purchased transportation than revenue on a variable margin, was 55% of revenue in the 2014 third quarter, 57% in the 2014 second quarter, and 60% in the 2013 third quarter. The sequential increase in the cost of purchased transportation as a percent of revenue was due to the increased revenue under variable contracts, while the increase compared to prior-year quarter was attributable to both a 60 basis point increase in the rate of purchased transportation paid to truck brokerage carriers and increased revenue under variable contracts.

The rate of purchased transportation paid to truck brokerage carriers in the 2014 third quarter was the same as the rate paid in the 2014 second quarter. We believe that the increase in the rate of purchased transportation paid to truck brokerage carriers, when compared to the prior year, was primarily attributable to a tight capacity environment. It should be noted that the increase in the rate of purchased transportation paid to truck brokerage carriers on revenue hauled under variable margin agreements was partly offset by a 10 basis point decrease in the rate of commission paid to agents for that same revenue.

Capacity remains tight, and demand is strong, resulting in improved pricing. And with that, increased price paid to capacity, benefiting Landstar, as expected, on the 55% of revenue that is generated on a fixed margin as we strive to protect the margin on revenue generated with a variable margin. We continue to have a strong participation in commitment around the Company's safety programs from agents, BCOs and employees. The resulting severity of crashes in the 2014 third quarter was higher when compared to the prior-year quarter, yet more than offset by the decrease in unfavorable development of claims experienced in the prior-year quarter.

The cost of insurance in the 2014 third quarter was 3.1% of BCO revenue. The Company continues on pace with the implementation of its electronic logging device initiative, with approximately 50% of the BCO fleet equipped with ELDs. We continue to see customers seeking reliable solutions that take into consideration a means to manage carrier selection, provide product visibility, and safely deliver on service requirements.

As customers continue to pursue and evaluate reliable and safe capacity providers, we believe our access to capacity and attention to safety and compliance is a competitive advantage that will be additive, in light of the additional regulation and exposure aimed at shippers, motor carriers, freight brokers and forwarders, which exist today, with more on the horizon. Over to you, Jim.

Thanks, Joe. Gross profit, representing revenue, less the cost of purchased transportation commissions to agents, was $121.1 million, or 14.8% of revenue, in the 2014 third quarter, compared to $103.8 million, or 15.4% of revenue, in 2013 third quarter. The increase in gross profit was attributable to increased revenue, partly offset by a lower gross profit margin into 2014 third quarter. Other operating costs were 5.4% of gross profit in the 2014 quarter, compared to 5.8% in the 2013 quarter.

The decrease in other operating costs as a percent of gross profit was due to increased gross profit and higher gains on sales of trailing equipment. As gains on sales of trailing equipment in the 2014 third quarter were approximately $1.2 million, compared to $600,000 in the 2013 third quarter. Partially offset by increased trailing equipment costs and an increased provision for contractor bad debt. Insurance and claim costs were 9.9% of gross profit in the 2014 quarter, and 12.9% in the 2013 quarter. Insurance and claim costs were 3.1% of BCO revenue in the 2014 quarter, compared to 3.9% in the 2013 quarter.

The decrease in insurance and claims cost as a percent of BCO revenue was attributable to lower unfavorable development from prior year claims in the 2014 quarter, partially offset by increased severity of claims, or cost per claim, in the 2014 quarter. Selling, general and administrative costs were 29.9% of gross profit in both the 2014 and 2013 quarters. The quarter over prior year quarter increase in absolute dollars of selling, general and administrative costs reported in the 2014 quarter was primarily attributable to a $4.6 million provision for incentive compensation, whereas the 2013 quarter had none.

Depreciation and amortization was 5.9% of gross profit in the 2014 quarter, compared to 6.9% in the 2013 quarter. This decrease was primarily due to increased gross profit in the 2014 quarter. Investment income was $332,000 in the 2014 quarter, compared to $366,000 in the 2013 period. The effective income tax rate was 37.5% in the 2014 quarter, compared to 37.7% in the 2013 quarter. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $178 million. Cash flow from operations for the 39 weeks ended September 27, 2014 was $72.6 million.

Cash capital expenditures was $9 million in the 2014 39-week period. During the 2014 39-week period, we have purchased 940,000 shares of Landstar Common Stock, at a total cost of $56.4 million. There are currently 1.8 million shares available for purchase under the Company's stock purchase program. Trailing 12-month return on average shareholders equity was 35%, and the 2014 trailing 12 months return on invested capital, representing net income divided by the sum of average equity plus average debt, was 29%. On September 27, 2014, shareholders equity represented 81% of total capitalization.

In summary, 2014 third quarter gross profit increased 17% over the 2013 third quarter, while operating income increased 28% over the same period. Operating margin was 49.2% in the 2014 third quarter. As it relates to operating leverage on an annual basis, our long term goal is to pass 70% of year-over-year increase in gross profit to operating income. Included in this significant increase in selling, general and administrative costs due to the 2014 third quarter provision for incentive compensation, the Company passed 75% of the 2014 third quarter growth in gross profit to operating income. We continue to expect that on an annual basis, approximately 70% of the growth in 2014 gross profit will pass through to operating income.

Looking at the 2014 fourth quarter guidance, certain items need to be considered when comparing the 2014 fourth quarter to the 2014 third quarter. The midpoint of the 2014 fourth quarter revenue guidance should result in 2014 fourth quarter gross profit that's very similar to the 2014 third quarter gross profit. There is currently significant customer demand for dropped van trailers as we head into the year end. Therefore, we plan to hold some of our trailing equipment longer than planned.

As such, we do not anticipate significant gains on trailers, trailer sales in the fourth quarter. As mentioned earlier, there are $1.2 million of gains on sales of trailer equipment in the 2014 third quarter. We assumed a 2014 fourth quarter effective income tax rate of 38.2%, higher than the 37.5% rate experienced in the 2014 third quarter. Back to you, Henry.

Thanks, Jim, and Pat, and Joe. Both the number of loads hauled via truck, and truck revenue per load, have been very strong in the first several weeks of the 2014 fourth quarter. I continue to be very optimistic, and believe the trends we have seen in the first nine months of the 2014 year will continue throughout the 2014 fourth quarter. Although it is my belief there will be a continuation of these positive trends for the balance of the 2014 fourth quarter, I am aware that historically, the fourth quarter of any year has been somewhat unpredictable.

As such, I would anticipate consolidated revenue for the 2014 fourth quarter to be in a range of $800 million at the low end to $840 million at the high end. Based on the revenue -- on that revenue range, I would anticipate earnings per diluted share from continuing operations for the 2014 fourth quarter to be in a range of $0.77 to $0.82 per share, which compares to $0.55 per diluted share from continuing operations in the 2013 forth quarter.

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

Thank you very much, sir.

(Operator Instructions)

Our first question comes from Bill Greene with Morgan Stanley.

(laughter) Ben, you changed your name?

Yes, exactly. So great quarter. I was curious, Henry, if you can talk a little bit about maybe some of the end market stuff? There's a lot of concern. I know this is more an international level, but nonetheless, about industrial trends and what's going on out there. Doesn't sound like you're seeing much of that. But maybe you could offer a little bit of thought and color there. Do you expect any kind of feedback loop that could affect your trends as you look forward?

At this point, I don't see anything. I think things are going very well, as I alluded to in my prepared comments, and we don't see anything. As a matter of fact, the -- in October, the revenue per load actually has gained strength from what we saw in the third quarter. And Pat, I don't know if you want to specifically add anything, as far as -- our flatbed business remains very strong, which is predominantly the industrial-based stuff that we're talking about. But anyway, Pat?

Bill, we read the same things you do, but all of our channel checks and customers that we meet with, we feel very comfortable. If you go back to our prepared remarks, where we talked about -- those markets remain strong, and we anticipate them being strong in the fourth quarter.

Yes. No, it makes sense. All right. So Henry, I have one last question for you. And that is, if there are one or two things on your to do list, before you pass the reins on, what would they be?

(laughter) There's one or two things on my to do list, what would I -- I've got to tell you. The -- I feel pretty comfortable at this point in time. In fact, very comfortable, as far as the team that is in place here, and the leadership team that is going to lead this Company forward. And I think things are in place that, for the future, is well se. So I'd like to change a few things I've done in the past. (laughter) But other than that, I think we're well positioned, and I think the individuals in this room are capable to lead this Company into the next horizon.

All right. Well (multiple speakers) tenure. And Jim, best of luck in the new role.

Thank you.

Our next question comes from Allison Landry with Credit Suisse.

Thanks, good afternoon. So from one of the other asset-based truckers that we've heard from, lower fuel prices is certainly something that's favorable for the trucking industry, particularly in light of some of the rail service issues. So just wondering if you could sort of speak to that. And if you think that that has a near term positive effect on demand for your services?

A couple things. As you well know, the cost of fuel is borne by the individual capacity owner at Landstar. So although we -- it doesn't have a specific effect on Landstar's financials or Landstar, it does have an intangible effect, in that it benefits the third party capacity we utilize. And therefore makes them more profitable. So there's a benefit there, and I don't see, at this point, things changing in that regard either. Pat or Joe?

The only thing I'd say, Allison, I think if we were not to go out and get the fuel surcharges when it was high, that would have had a detrimental effect, perhaps, on securing capacity. But as it comes down, I really don't see a whole lot of impact on our ability to source. I think it's a benefit, perhaps, to the individual capacity owner.

Okay, I guess I was more speaking in terms of demand, and if you think that that would actually help, from the demand side of the equation, as opposed to the cost side. But irregardless of that, you've seen double digit growth for the BCO and truck brokerage businesses, pretty much for the entire year. So how do -- as we're thinking -- starting to think about 2015, what's your sense for where you think a good revenue run rate would be? How sustainable do you think that the double-digit revenue growth is?

This is Jim. If you heard about Pat's -- if you heard Pat's remarks, Joe's remarks, our growth is about 50% coming from volume and 50% from revenue per load. And the revenue per load growth is low double digits. You don't anticipate if the balance of supply and demand stays where it is; I don't anticipate we're going to have a double-digit revenue per load growth.

If the environment from a demand standpoint, you could see the volume growth being around where it is. But I wouldn't anticipate, going into next year, you're going to be looking at 10% to 15% revenue per load growth. So if the balance in supply and demand stays where it is, you wouldn't anticipate a 20% revenue growth. But I'm a little more of a pessimist than Henry, so he may have an additional comment.

Yes. I think, Allison, I think the way you have got to look at this, quite frankly is, what's your view on the economy? If the economy continues to move forward, and no one adds capacity, capacity is going to cost more. Now does that continue? The revenue flow is very high. It's hard to predict that it can be that high, but we didn't think it was going to be this high in the forth quarter, either. So I think you've got to look at, what's your projection for economic growth? And there's no capacity coming into the market, so what you get from that equation is potentially increased revenue per load.

But as I said -- one of the other things I might add, and getting back to your demand question, which I thought you were attacking it from the cost side. Yes, I think as the cost of fuel decreases, I think there's more apt to create more demand from the truck side. I think that's logical. And when you think about Landstar, when you look at our Top 100 accounts, and we've got like 27 3PLs in our Top 100 accounts. The revenue from those 3PLs increased about 15%, and our revenue increased 21%. So you've got people looking for capacity from Landstar.

We've been able to actually grow our direct customers at a faster pace, if you will, than even the revenue growth we've seen from other 3PLs, because Landstar accesses capacity. And I think that's the Landstar advantage in this type of environment.

Okay, thank you for the answer.

Thanks.

Our next question comes from Jack Atkins with Stephens.

Good afternoon.

Hi, Jack.

Good afternoon, Henry. Thank you for the time. So I guess first off here, just to dig into the net revenue margin for a moment. It was down 60 basis points year-over-year. Can you maybe help us think about what -- I guess, why you guys are seeing net revenue margin compression?

I guess when I think about your model from a theoretical perspective, you got a significant portion of your business that's a fixed pay out, which should be rising with higher truckload rates. And also, you guys are mainly transactional or spot exposed. So I'm just trying to put the pieces together on why you guys are seeing that revenue margin compression, when others are seeing expansion?

If you look at -- year over year, we've got compression. But -- and I saw in the second quarter, there were some of the other broker carriers who were -- or the carriers saying that they were picking up their expanding margins coming into the second quarter, and maybe into the third quarter here. But some of them were also going the other way or staying flat. Sequentially, we held our margins to where it is. So our purchased transportation rate paid to broker carriers sequentially is now back in the balance.

I think if you're coming off a comp that was a little bit easier last year, because we were soft last year, if you recall. Our revenue was a little bit soft. But as to the fixed -- as to the component of our business on a fixed margin, remember, the margin doesn't change. We just make more dollars. So you're taking a fixed margin of, say, whatever that is, 17%, 15%, and holding. And that way, you're putting more dollars across.

Other thing to look at, though, and internally, we look at it a little bit this way is, our revenue had increased at a slightly lower percentage than the PT rate. But from a dollar standpoint, we made more gross profit per load than we did last year. So we're seeing improvement on what we're pushing through on a load-by-load basis.

Okay, that makes sense. And then guys, just from a capital deployment perspective, I know you all purchased almost 900,000 shares, or just over 900,000 shares, in the first couple quarters of the year. Could you maybe help us think about -- and Jim, maybe this is a question directly for you, just given the going forward. But how should we think about capital deployment here? I'm just a bit surprised you guys aren't a little bit more aggressive with buying back stock, given where interest rates are, given how strong your balance sheet is.

Yes, obviously, we're sitting on a lot of cash right now. We have a lot of availability on our revolver to be dipping into the market. But if you looked at some of what happened during the second or third quarter, we generally tell people we buy when things level off and sit still on the stock. And we climb throughout the quarter. So we do take that into consideration.

Do we spend time? We're -- we talk about share buybacks, dividends or acquisitions. Those are the three things you do with your available cash. And we're keeping an eye on it. Again, we're going to be opportunistic in the market, and during the quarter, we didn't buy any shares back as it was running up. We generally don't buy into a run-up. So we'll continue to deploy the capital the way we have in the past, and that's share buybacks.

Okay. I appreciate it guys, thanks so much.

Thanks, Jack.

Our next question comes from Scott Group with Wolfe Research.

Hey, thanks. Afternoon, and congrats Henry and Jim.

Thanks.

Wanted to ask about the -- on the BCO side. So nice traction growing the BCO counts, but didn't really see that translate into BCO load growth. And want to get your take on why we're not seeing it on the BCO side? And maybe high level, why you're seeing such a big difference right now between brokerage and BCO volume growth?

Scott, this is Joe Beacom. I'll take it. Our BCO growth was pretty nice in the quarter, and our load volume growth on BCOs was up just a little over 2% in the quarter, as well, so our expectation is, we're going to keep -- the fourth quarter has started. We continue to add BCOs, and we're always working on utilization and trying to provide more loading opportunities, and continue to grow the count.

But as you look at the universe of capacity out there, and as we've often said, I -- we continue to anticipate brokerage load volumes are going to grow faster than BCO load volumes, just by the nature of how much capacity is out there, from a BCO qualifiable perspective, versus brokerage capacity. So I don't -- what you saw in the quarter probably is indicative of what you're going to see going forward.

Yes, I think, Scott, again, you have got to understand that we don't view the business as two separate businesses, all right? It's -- we get one load, it's put out to both Boards. All right? It's first come, first serve. Our BCOs have made a lot of money this year. We don't force anybody to take any load. All right? So when we have more loads in the system, it's logical, because I've got a lot more broker carriers. That broker carrier load count is going to increase at a much faster pace than BCOs. Now we've been -- I know we've been trying to say this for a long time, but that's the way the model works. And Jim, do you want to add something?

Yes, Scott, you have to look at how many BCOs and how many loads they hauled, right? If you look at last year's -- a utilization kind of thing, the BCOs hauled about 23.6 loads per BCO last year in the third quarter. This year it's 23.1. So utilization is down about a half a load during the three months. Really hard to speak to that drop in half a load. But really, you have just got to track. They run about -- in slower months, they will run 1.7 loads per week, and in busy months, they will run 2 loads a week. And to be a half a load up, that's pretty consistent year over year, and I think you have got to look at it that way.

Okay, that makes sense. And then you mentioned that truck volumes and revenue per load are good in October. Do you just have the numbers on what that's tracking up, each of those, in October? And do you have the monthlies for the third quarter? That would be helpful, too.

You wanted the most recent October numbers?

Yes, so truckload growth and truck revenue per load growth in October, and if you have it.

So we base our trends off of daily load counts that we get, and really don't have anything other than that. It's running consistent with September, and where the quarter rolled out. We're looking at low double-digit revenue per load growth plus, not low double -- or mid to low double-digit load volume growth. But really, we don't really look at it.

We don't close the books every day, so we don't have that kind of detail that we would have at the end of the quarter. But I'll tell you to [put] -- like we said, revenue per load and load count on that side is both single -- sorry, low double digits, similar to what it was in the third quarter. And what was the follow-up question? Was it - what did you want for the third quarter? I didn't catch (multiple speakers). You want it by month?

If you have the month, that would be great. If I can get them offline, if you don't have them.

Total truck load count by month, the sequential increase over prior year?

Yes.

Okay, I'll give that to you. Load count. July was 13% over, August 10% over, and September 10% over. And revenue per load was 11, 11 and 9.

Okay, thank you, guys.

Our next question comes from Rob Salmon with Deutsche Bank.

Rob.

Congratulations, guys. Henry, a point of clarification for your commentary about the revenue per load trend strengthening. Was that by virtue of mix, where we're seeing a little bit faster growth with the platform business? Or is this both platform and van we're seeing acceleration off that 9% growth you just mentioned?

When you look at the daily load reports, as far as what we had in September versus what we see on the daily load reports in October, they are -- the revenue per load is better than what we saw, and which is what my comment was. The -- now where it's coming from, because I don't have the breakdown yet, because we haven't closed the books, because all of that is combined. I'd have to defer to Pat, if he's got an inclination, as far as whether it's coming from increased flatbed or heavy haul, or just in general, tight capacity.

Rob, it's been consistent all year. It's a nice mix of both van and flatbed. So it's not -- so in previous years -- there was one year in particular where heavy haul really skewed that. That's not the case this year.

And then Henry or Pat, I'm not sure which -- who this question is better directed to. But as I think about the BCO additions that you -- that have been coming on, clearly, what we're hearing from all the trucking carriers that it's very hard to find independent contractors. Has the profile of the BCO owner being a little bit older who comes to Landstar, has that changed at all? And can you give us any sort of commentary about the backdrop within California? What Landstar's exposure is there? And if you see any risk to the model, given what we've seen from a drayage provider who had to switch from owner operator to company driver there?

Rob, this is Joe. The BCO profile, so to speak, is pretty much the same. We're covering (technical difficulty) operators in the low 50s, from an age standpoint. And the way we -- the value of Landstar, and what we offer, it continues to be the same. Our standards continue to be the same. I just think it's -- this environment makes Landstar a great place to be for an owner/operator.

And then specific to California, if you're talking about the independent contractor designation, I think we've always stayed way within the boundaries of what's an owner/operator and what's not, by the nature of the [issues] and whatever loads they want to haul, when they want to haul, that kind of thing. So I -- we don't really see what's going on out there in the drayage environment impacting us. We just -- we're not big into the drayage market to begin with. But just how we operate the business, and how -- the level of independence that our owner/operators have, I think, is quite a bit different than some of what you're seeing out on the West Coast in the drayage world.

Yes, I think, Rob, one of the things, if I could just add to that, is that for -- we lease the tractor, number one. And we don't tell a guy what to do, where to go. And I don't have enough information, as far as the real background, as far as what the issues were, and I'm not going to comment on that. But there's no doubt in my mind that we are so far below the line, and we treat these -- our people as really independent contractors, truly independent contractors. So I'm not worried about that at all.

No, it makes sense. I know you guys don't do force dispatch or any of that stuff, but was just curious to get a little more color. And that was really helpful, thanks.

Okay.

Our next question comes from Todd Fowler with KeyBanc Capital Markets.

Hey, Todd.

Hey, Henry. Good afternoon, and congratulations once again. I wanted to come back to the conversation on the BCOs, with the growth here in the quarter. This is one of the strongest quarters that we've seen, from a BCO count standpoint, probably in a couple of years. And I wanted to get some expectations for maybe what that should do going forward?

And also some comments about, do the BCOs typically gain additional productivity as they mature, and as they spend more time in the network? Because we do look at some metrics like the loads per BCO, and those were down here this quarter. But I'm assuming it's just because you brought some more in in the quarter, and maybe the volume growth or the load count follows as they become more seasoned.

Yes, Todd, this is Joe. I think what you see is a couple of things. I think, yes, as we add more BCOs to the network, and we did see utilization a little bit down in the quarter. Some of that, I think, Henry touched on earlier. The rate has been up double figures this year. So did some guys maybe run a little less hard than they did a year ago? That certainly could be true, but I don't -- I really -- I would hesitate to say that the more seasoned they get, the more productive they get, or less productive.

It's really a function of how ambitious they want to be, and whether we have the opportunity. Clearly, this year, we have the opportunity. There's plenty of loads out there for them to haul, and they are making good money. And I think that's what's driving some of the increase. I think we get a lot of referrals from existing BCOs at how good life is at Landstar, and I think that's driving some of our count. So we're hoping to see that continue into the fourth quarter.

Okay, that helps. And then for my second question, Jim, I'm just trying to get a sense of -- this seems to be an unusual year with the SG&A line, given the comparisons and what's happened with the incentive compensation. Do you have a way that we can think about SG&A going into 2015? Either as a percent of revenue or what sort of growth we should model in? And I know that that can change, based on how your earnings come together. But just maybe at a high level, how we should think about SG&A going forward?

Excluding the incentive compensation, generally -- you know that 60% to 70% of our SG&A is headcount. Wages and benefits. All right. So you've got to assume, with raises and increase, and -- 3% to 5% increase in the -- without MICP type calculation. And then when you take into out incentive compensation, through the first nine months, we've given you the number. It's $11.2 million that we have through the first nine months.

A typical run rate is $7 million to $8 million. So that's how I think about it. On the ICP -- the incentive comp for a year. So you look at it without maybe a 3% to 5% growth rate over this year, due to raises and other type stuff. And then you've got to factor in the about $7 million to $8 million run rate on incentive comp for the next year.

And so for 2015, use the $7 million to $8 million. It's not that there's -- the comparisons become more difficult, so it could be a below normal year, because this was an above average year?

Once we -- when we set our targets, it's generally -- it's almost a -- we either pay or we don't pay. Right?

Okay.

It's generally a -- it's going to be pretty much toward the bottom end of $7 million if we pay, or at zero if we don't hit our targets.

Okay. I think that that's what I needed. Okay. Thanks a lot for the time, guys, and congratulations again.

Our next question comes from Jason Seidl with Cowen & Company.

Hey, Jason.

Hey, guys. Henry, I've got to admit, I was a little surprised when someone asked you, what would you like to see? I thought you were going to say a winning season from the Mets. But hey. (multiple speakers) Unfortunately, I think we might be waiting awhile for that. But when I'm looking at some of the things you're saying, a couple questions pop into my mind. Talk to me a little bit about the demand on the flatbed side. You guys did say that the wind business was extremely strong in the first nine months of this year. How much visibility do you have for 2015 for that type of business, off of such a strong, strong 2014?

Jason, this is Pat. I don't know that we ever used the word, extremely, when referring to the wind business. But the wind business has been about where we expected it this year. And for 2015, we expect it to be somewhat similar to this year. We just came back from a meeting with our largest provider in that segment, and we know what their business looks like. And I think that's really what's unique about the environment we're currently in.

When we're working with our customers, we are getting a much more collaborative nature with the customers. And they're giving us greater insight into their business plans, and we're collaborating on solutions. So whether it's platform fan, or across all these industry segments, what we're seeing from the shipping community is this notion of collaborating with the providers and sitting there -- and giving us insight into their plans, into their production schedules, so that we can help meet their capacity needs.

If you think about the model, and you think about the agent's role in all that, that puts us in a unique position to meet those demands for the shipping community.

Okay, that's great color. And I guess my follow-up here is more of, in your commentary, that you talked about the bulk of the growth here in the quarter coming from your customers below the Top 100. Is the way to think about that going forward, at least for your revenue per load, that your revenue per load might continue to grow at these levels, or slightly above these current levels? Given that those people tend to be higher margin type business? Or am I looking at it wrong?

Yes, I wouldn't necessarily think that, Jason. I think what it demonstrates again -- and I hate to keep harping on this. But it's really the model. We're naturally diversified. But what I think it says is that we're taking market share. That in these accounts that we had done maybe little or no business with, we're now doing more business. I don't know that they are more or less price sensitive. It could be a price sensitive shipper that we didn't do a lot of business with that, in this environment, is less price sensitive. I can't take it down that narrow. But what I think that stat says is that we are in a number of industries across a lot of different customers, and we're able to capture market share in those industries because of the model.

Okay. Fantastic, guys. Thanks for the time as always. Those are my two.

Jason.

Our next question comes from Kelly Dougherty with Macquarie.

Kelly.

Hey, how are you?

Good.

Thanks for taking the question. I just wanted to follow up on the SG&A question from earlier. How much more load volume or revenue growth, or whatever the appropriate metric is, can the model support at this current level of operating expense? Or how much more before you have to start adding more resources, and it's more than just a headcount -- or a compensation increase? You have to start adding heads, or systems, or anything like that?

Kelly, if we put it in perspective, we have 100 fewer employees today than we had back in 2008. Okay? So to lay more revenue on top of the model doesn't require a lot more people. If you think about the model, the agents, our sales force and our dispatcher, and we support them through administrative function, IT support and various other services we provide. But you could put a lot more revenue on this model and not have a significant increase into your G&A.

Yes, that's exactly what I was looking for; that was helpful. And then you guys talk about solid execution as a key to the strong performance. What exactly do you define as execution? Is it that ability to leverage it? Is it the magnitude of revenue growth or utilization? What are the key metrics that you focus most on?

I think when you look at what we look at, as far as the metrics that we need to make this Company go right, it's obviously agent adds, it's capacity adds. And I would -- and people who know me, I'm a strong believer that the agent adds are critical. It's problem 1a, and problem 1b is capacity. In this environment, capacity is king. And if you can source capacity, you're going to outperform all of the other companies out there. And I think what you've started to see is, because of the execution we've done on the operation side, as far as bringing in capacity, because our numbers are pretty strong.

And I think that's why, obviously, other 3PLs are coming to Landstar, also, is to provide capacity for them. So -- and it also is attracting additional business. So it's a combination -- but those are my -- I would say, my two metrics that, when you look at, operationally, what we need to be successful. Because when you think about our agent adds, we don't do a lot of acquisitions. But when you think about an agent add, that's like a mini acquisition. That's what we do. So those were the two. You guys got anything else you want to add to that?

No, you're perfect.

Okay.

That actually ties very nicely into my last real quick one. We shouldn't -- you definitely have a unique model, so M&A doesn't necessarily fit it as well as some others. We shouldn't be looking into you not buying back any stock as maybe you're saving up to change how you think anything about M&A?

No, no, we are not saving up for anything. (laughter) I think Jim addressed that question earlier pretty nicely. And then when we thought we had an opportunity, we were actually locked out from a window period. So -- but we'll be opportunistic as we've always been.

Sounds good. Thanks very much, and good luck.

Thanks.

Our next question comes from Ben Hartford with Robert Baird.

Good afternoon, guys.

Hey, Ben.

To continue down that path of potential acquisitions, maybe, Pat, this is a question for you. Is there a bias away from buying a full-fledged, freestanding, agent-based network that might come, hypothetically, onto the market? Because you would introduce retention concerns and other complications that just make it easier to go about the way that you guys have been going about adding agents? Which is more on a one-off type basis?

I guess the heart of the question is, is there anything regarding those types of networks that would include several agents? Is there anything about that type of an acquisition that is more difficult to you, based on prior experience? Or something else that we might not take into account?

I don't think we have any bias against that type of acquisition. We would always view, what's the cultural fit from that kind of an acquisition? Agent model, in and of itself, doesn't necessarily fit with Landstar. Just as we don't take every agent that wants to become one here at Landstar, because it doesn't fit culturally. So we don't have a bias against those enterprises. And in fact, would look at each and every one of them. But we would make certain that it fits culturally with the Company.

Another thing, it's -- in any acquisition, we have to make sure there's no account conflicts existing between our existing agent base and some of the larger agents at any potential acquisition.

Okay, that makes sense. And then segue to something different. You'd mentioned trailers at the beginning of the conversation. Capacity has been tight. It seems like trailer capacity has been tight for several reasons. And you're taking some measures on a short-term basis to alleviate that. But as we think about the model, as we think about 2015, is there any plan to meaningfully step up the amount of spend that you might allocate toward trailer purchases in 2015 and beyond? Because of changes to this, that or the other? Can you provide some perspective there?

Yes. This is Jim. The -- we've been, for the last three or four years, to be in compliance with the California Resource Boards aerodynamic requirements on trailers. I think everybody knows over the last four years, we have about 8,000 trailers, and we've been swapping those out equally over the last five years. So we anticipate that we will swap out the 1,400 more next year, just as a swap-out.

But we will add -- we probably anticipate adding another 500 to 800 trailers into next year. And that's -- at this point in time, that may go up or down as we finish out the year. But yes, for the first time in a while, we do expect to increase some of the trailer count through 2015. Okay, that's helpful. Thanks again, and congrats again, Henry and Jim. Thanks.

Our next question comes from Matthew Brooklier with Longbow Research.

Hey, Matt.

Thanks, good afternoon, and congrats Henry. Jim, congrats as well. So my question, we're back to BCOs. We're back to talking about capacity. You guys -- you had one of your best quarters, in terms of adding BCOs this quarter. Yet we're hearing, on the asset base side of things, finding Company drivers is still very difficult. And I'm just trying to get a sense for what's really enabled Landstar to find capacity and to find BCOs? Given the market in general has been very difficult? And I've got a follow-up after that.

Sure. Matt, this is Joe. I think that the BCOs that have come to Landstar, they are out there running their own business or running for somebody else, and they make a conscious decision to come here. So we're not starting somebody from scratch. So they are out there, and they've been out there, and operating for a year. Because we don't take them if they don't have a year's worth of experience, right? So they are making a conscious decision to come here.

What I think happened -- and we've been good about this, I think, going backwards -- but in this environment, I think it makes the job even easier. Once we get somebody to take a look at what the opportunity is here, get them a look at our load board, get them to lock at our L-cap program, get them to look at the agent network and all of the opportunity, our close rates improve. I think that's what has been a part of it, and retention. We're just not -- I think my stat was 20% fewer terminations year over year in the quarter. The environment just bodes well for that.

And it's not any one thing. It's a multitude of different things. We've got some pretty mature programs around our recruiting and retention efforts. And I think, in this environment, that just is being seen a little bit more significantly. And on the carrier side, the number that I focus on, the overall approved count is going up. That's great. But we really focus on growing that active count.

So -- and that number has grown pretty significantly. So not only do we have carriers that are approved, but we're actively reaching out to every new carrier to make sure that they continue to be active within the network. And working not with maybe the agent that loaded them the first time, but maybe another agent, so we can keep them active in the network. Those are the two things that I think are clicking pretty well right now here. And it has led to that growth, both in brokerage capacity, as well as BCO.

Okay, that's helpful. And then I guess my second question, it sounds like part of the ability -- aside from Landstar doing a very good job in terms of recruiting and retaining its BCOs. But part of the story here is, we've had a lift in the market. Volumes are better, pricing is even better than that. I'm just trying to get a sense for if the aggregate BCO market is starting to grow at this point in time?

Do you guys have a sense as to whether we're seeing more conversion of company drivers over to BCO? Or you have more people interested in becoming a BCO who weren't before, who are entering the industry? I'm just trying to get a sense for if the total BCO count is potentially expanding here? Given we've had a really nice environment, in terms of volume and price.

Sure. Yes, Matt, I would say this. I -- the -- there are some larger carriers out there that are starting to put into place significant lease purchase programs. So where they're selling off their tractors and trying to create owner/operators. I think there is potentially some opportunity there for owner/operators to come into the owner/operator environment, if you will. But I think it's pretty early in that. So we'll take a wait and see approach there. But absent that, I'm not sure that it's really growing. I think that's why things are capacity constrained. So I would say that around the growth of owner/operators.

Okay, appreciate the color.

Thanks, Matt.

Our next question come from Scott Schneeberger with Oppenheimer.

Hey, Scott.

Thanks, guys. Good afternoon, and great looking quarter. I missed the first few minutes, and I just heard in an earlier question, you had mentioned not extremely strong, but strong wind year to date in fourth quarter. Could you give a magnitude? Was it akin to 2012? You said 2015 will look like 2014, but just trying to get a feel for how strong it was this year? And what fourth quarter will feel like?

This is Jim. Somewhere there was a miscommunication. I don't believe we referred to strong wind, so I'm not sure how that got out. To put it in perspective, third quarter last year was about $8 million, third quarter this year is about $5 million of wind. So it hasn't been a big driver of our results.

Okay. And then any change to fourth quarter trend and into 2015? Or was that -- was -- just so I'm -- we're totally clear here, is that -- is there going to be a big back end to the year, and more in 2015? Or similar to what you're seeing?

Scott, this is Pat. We believe it will be about consistent with what we have seen this year.

Great, okay, thanks for clarifying that. And then just, I want to go around the horn on other end markets. It looks like you're very broad based, strong here, with these numbers. But could you speak to some of the strong areas and weak areas, if there are any, across the entire portfolio?

I think in our prepared remarks, what we mentioned, Scott was that, similar to the second quarter, government, automotive, were both strong. Consumables were strong, so that remains pretty consistent from the second quarter. I think we mentioned that it was -- and you kind of echoed it -- very broad based, but those were the areas that we were pretty strong, quarter over quarter.

Excellent, thanks. Sorry if I missed that earlier. And lastly, Henry and Jim, congratulations. An update on timing on CFO replacement? Or when we are going to get further Management change updates? Thanks.

We will let you know when that happens. (laughter)

Sounds good. All right. Thanks a lot.

Our next question comes from Matthew Young with Morningstar.

Hi, good afternoon. Thanks for squeezing me in. Could you just briefly talk about the -- what's going on with the LTL acceptance among the agent base? Are the agents still largely specializing in a specific mode? Or are you finding that there are more that are gravitating to multi-modal? And by that I mean, shifting between truckload and LTL?

Matt, this is Pat. I think what we found with LTL is, our agents are much more comfortable, because it's similar to truck. They are much more comfortable, because although their customer may not have international shipments, most customers, if they have truckload, they do have LTL. We've got a fairly good pricing from the service providers, and some underlying systems that help them execute that business relatively easy. So we've seen great acceptance on that product line from our agents, and good acceptance from our customers, as well.

And you've got -- and you have the capacity relationships you need at this point to grow (multiple speakers)?

Yes, if you think about it from those -- from their perspective, we've got a variable cost sales force out in markets that they don't even know exist.

Okay, great. That's all I had, thanks.

Thanks, Matt.

Our final question today comes from Thom Albrecht with BB&T.

Hi, guys, thanks for the question.

Hey, Thom.

Most of my questions have been answered, so just wanted to make sure a couple factual things are right. The gains in the third quarter of 2013, what were they? I know it was $1.2 million in this year.

$660,000, I believe.

Okay. And then, what was the incentive comp in this year's third quarter?

$4.6 million.

Okay. And what did you say to expect for Q4?

Similar.

Okay. That's all I had. Thank you.

Okay, Thom.

Thank you. And at this time, we have no further questions in queue. I'd like to turn the conference back over to you, Mr. Gerkens, for closing remarks.

Thanks, Tori, and thanks for everybody dialing in. And I'd look forward to talking to you again on our mid-quarter update call, which will be December 4, and will be my final call, if you will. And so I look forward to talking to you then, and update the -- how we're doing in the quarter. Thanks.

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