Landstar System Inc (LSTR) 2015 Q1 法說會逐字稿

Good afternoon, and welcome to Landstar System, Inc.'s first-quarter 2015 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 Jim Gattoni, President and CEO; Kevin Stout, Vice President and CFO; 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 Jim Gattoni. Sir, you may begin.

Thank you, Dori. Good afternoon, and welcome to Landstar's 2015 first-quarter earnings conference call. This conference call will be limited to no more than one hour. Due to a high level of participation on these calls, I'm requesting that each participant have a two question limit. Time permitting, we can circle back for additional questions.

But before we begin, let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements.

During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations. Such information is 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 FY14, 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 information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information.

2015 first-quarter results included many first-quarter records. Revenue, gross profit, operating income and diluted earnings per share were all first-quarter records. Additionally, the number of loads hauled via truck and average revenue per load on those loads during the 2015 first quarter were both first-quarter records.

During our March 10 first-quarter mid-quarter update call, I stated that I was comfortable with our previously issued guidance of first-quarter revenue to be in a range of $750 million to $800 million. Based on that forecasted range of revenue, I anticipated diluted earnings per share would be in a range of $0.71 to $0.76.

A few days following that update call, a jury in state court in Arizona rendered a verdict of over $19 million against Landstar in connection with a tragic vehicular accident that occurred in 2011. Based on knowledge of the facts and the analysis of outside counsel received in advance of the trial, the Company did not establish a specific case reserve with respect to this matter at the time of its 2015 first-quarter mid-quarter update call.

During the trial and prior to the verdict, the parties entered into an agreement that limited the Company's financial exposure from the possibility of an adverse verdict to $4.5 million, and all parties waived all appellate rights following the trial. The verdict resulted in a pretax charge of $4.5 million, or approximately $0.06 per diluted share, to the Company's 2015 first-quarter earnings. Additional information describing the accident is included in a Form 8-K that Landstar filed with the Securities and Exchange Commission on March 16.

Demand for Landstar's transportation services was strong throughout the 2015 first quarter. First-quarter revenue was $762 million, which was $74 million, or 11%, above 2014 first-quarter revenue. Diluted earnings per share was $0.67, which was $0.06, or 10%, above 2014 first-quarter diluted earnings per share. As mentioned earlier, diluted earnings per share in the 2015 first quarter was negatively impacted by $0.06, attributable to the $4.5 million pretax charge related to the unfavorable verdict.

Truck transportation revenue, which was 93% of revenue in the 2015 first quarter, grew 10% over the 2014 first quarter. 2015 first-quarter revenue hauled via on-sited platform equipment, van equipment and less-than-truckload freight grew 4%, 13% and 17%, respectively, over the 2014 first quarter. Revenue hauled via railroads, which was 3% of revenue in the 2015 first quarter, increased 41% over the 2014 first quarter. Revenue hauled via air and ocean cargo carriers, which was 3% of revenue in the 2015 first quarter, increased 15% over the 2014 first quarter.

During our first-quarter mid-quarter update call, I stated that through the first eight weeks of 2015 revenue increased approximately 15% over the first eight weeks of 2014, mostly due to a 7% increase in both the number of loads and revenue per load on loads hauled via truck. I also stated that the daily trend in the number of loads hauled via truck during the first two weeks of fiscal March was inconsistent and expected the number of loads hauled via truck in March 2015 to exceed prior-year March in the low- to mid-single-digit range.

Loads hauled via truck in March 2015 exceeded March 2014 by 5%. Overall the number of loads hauled via truck in the 2015 first quarter increased 6% over the 2014 first quarter. As mentioned in our year-end earnings conference call, held on January 29, we expected the year-over-year growth rate in revenue per load to slow in March 2015, due to the exceptional growth in prior year's revenue per load from February to March.

Revenue per load on loads hauled via truck in fiscal March 2015 was 1% lower than March 2014. Revenue per load on loads hauled via truck in March 2015 was impacted by both mix, as heavy specialized services, which has a high revenue per load, was lower than anticipated, and the impact of lower diesel fuel costs on loads hauled via truck brokerage carriers.

I estimate that lower diesel fuel costs reduce revenue per load on loads hauled via truck brokerage carriers by approximately 6% in the 2015 first quarter, compared to the 2014 first quarter. Overall revenue per load on loads hauled via truck in the 2015 first quarter increased 3% over the 2014 first quarter.

During the 2015 first quarter, we net added more BCOs than on any other first quarter since 2006 and had the highest number of truck broker carriers haul Landstar loads compared to any first quarter in Landstar's history. Landstar ended the 2015 first quarter with a total truck capacity network of over 48,000 providers, nearly 8,000 over the 2014 first quarter, and approximately 2,000 over year end 2014. Both approved and active carrier count were at record levels at the end of the 2015 first quarter.

During the 2015 first quarter, BCO independent contractors hauled 191,000 loads and truck brokerage carriers hauled 196,000 loads, compared to 199,000 loads and 165,000 loads hauled by BCOs and truck brokerage carriers in the 2014 first quarter. Although we ended the first quarter with over 600 more BCOs as compared to the end of the 2014 first quarter, the number of loads hauled by BCOs was 4% below the number of loads hauled in the 2014 first quarter, as BCO utilization, measured in loads hauled per BCO per week, was 10% lower than the 2014 first quarter.

Regardless, the Company's ability to source capacity remains solid as a number of loads hauled via truck brokerage carriers increased 18% over the 2014 first quarter, more than offsetting the effect of the lower BCO utilization. New agent revenue, representing revenue from agents who joined the Company since January 2014, contributed $22 million of revenue in the 2015 first quarter, while revenue at existing agents increased 12% over the 2014 first quarter. The 2015 first-quarter freight transportation environment continued to provide significant opportunities to increase the account base and strengthen our relationship with customers.

The Company's top 100 customers, ranked by 2014 first-quarter revenue, comprised approximately 40% of 2015's first-quarter revenue. 2015 first-quarter revenue from those top 100 accounts increased $7 million over the 2014 first quarter, while customers beyond the top 100 increased $67 million. With over 25,000 bill-to customers, the Company's account base is highly diversified.

I will pass it over to Kevin for some financial information -- update.

Thanks, Jim. Jim has covered certain information regarding the 2015 first quarter, so I will cover various other financial information included in our press release.

Gross profit, representing revenue less the cost of purchased transportation and commissions to agents, was $115.4 million, or 15.1% of revenue, in the 2015 first quarter, compared to $105.5 million, or 15.3% of revenue, in the 2014 first quarter. The decrease in gross profit margin was attributable to an increase in the percentage of revenue hauled by truck brokerage carriers, which has a lower gross profit margin.

Overall, the cost of purchased transportation was 77% of revenue in both the 2015 and 2014 first quarters. While revenue on loads hauled by truck brokerage carriers was adversely impacted by the drop in diesel fuel prices, purchased transportation paid to truck brokerage carriers was also reduced.

The rate of purchased transportation paid to truck brokerage carriers, as a percentage of revenue in the 2015 first quarter, was 60 basis points lower than the rate paid in the 2014 first quarter, and 20 basis points lower than the rate paid in the 2014 fourth quarter, as the Company did a very good job of managing the cost of purchased transportation on truck brokerage freight. As you know fuel surcharges billed to customers on freight hauled by BCOs are excluded from revenue and passed 100% to the BCO.

Commissions to agents, as a percentage of revenue, were 18 basis points higher in the 2015 quarter, as compared to the 2014 quarter, due to an increased net revenue margin, or revenue less the cost of purchased transportation, on revenue hauled by truck brokerage carriers. Other operating costs were $7.7 million in the 2015 quarter, compared to $6.6 million in the 2014 quarter. This increase was primarily attributable to increased trailing equipment rental and maintenance costs.

Insurance and claims costs were $14.8 million in the 2015 quarter, compared to $11.9 million in the 2014 quarter. The increase in insurance and claims was primarily due to the $4.5 million cost of the verdict previously discussed by Jim. The 2014 first quarter had unfavorable development of prior-year claims of $1.9 million.

Selling, general and administrative costs were $37.2 million in the 2015 first quarter, compared to $35.6 million in the 2014 first quarter. The increase in SG&A costs was primarily attributable to increased employee wages and benefits and increased stock-based compensation, partially offset by a decreased provision for bonuses under the Company's incentive compensation program. Although SG&A dollars increased year over year, SG&A expense as a percent of gross profit decreased in the 2015 quarter, compared to the 2014 quarter, from 33.8% in 2014 to 32.3% in 2015.

Depreciation and amortization was $7 million in the 2015 first quarter, compared to $6.8 million in the 2014 first quarter. This increase was due to increased depreciation of trailing equipment related to the replacement of older fully depreciated equipment with new equipment.

As it relates to operating leverage, operating income was $49 million, or 42.5% of gross profit in the 2015 quarter, versus $45 million, or 42.7% of gross profit in the 2014 quarter. Despite the increased insurance and claims costs related to a single accident, operating income increased 9% year over year.

During the 2015 first quarter, 40% of incremental gross profit was passed to operating income. Had we experienced normalized insurance and claims cost of approximately 3.3% of BCO revenue during the first quarter, the Company's targeted pass-through of 70% would have been achieved. We continue to expect to pass 70% of incremental gross profit through to our operating income on an annual basis in 2015.

The effective income tax rate was 37.8% in the 2015 first quarter, compared to 37.5% in the 2014 first quarter. The effective income tax rate, which historically is 38.2%, was impacted in both periods by tax benefits resulting from disqualifying dispositions of the Company's common stock by employees who obtained the stock through exercises of incentive stock options.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $152 million. Cash flow from operations for the first quarter of 2015 was $49 million, and cash capital expenditures were $2 million.

During the 2015 period, we purchased 464,000 shares of Landstar common stock at a total cost of $31.3 million, and there are currently over 1.3 million shares available for purchase under the Company's stock purchase program. Trailing 12-month return on average shareholders' equity was 30% and trailing 12-month return on invested capital was 24%. At the end of March, shareholders' equity represented 83% of total capitalization.

Back to you, Jim.

Thanks, Kevin. Overall, Landstar had a very good first quarter. Industry fundamentals remain similar to those experienced in 2014. We continue to have strong demand for our services. I expect that strength to continue throughout the second quarter.

Year-over-year revenue comparisons for the 2015 second quarter become more challenging as compared to the 2015 first quarter over the 2014 first-quarter results, primarily due to the exceptionally strong revenue per load on loads hauled via truck in 2014.

I expect the pricing environment experienced in March 2015 to continue through the second quarter, which includes the impact of lower diesel fuel costs, the lower contribution of revenue attributed to heavy specialized service, and a stable supply-and-demand environment with tight truck capacity and strong, yet steady, demand. Assuming recent trends continue, revenue per load on loads hauled via truck in the 2015 second quarter should be similar to the seasonal all-time highs of the 2014 second quarter.

I anticipate second-quarter truck loadings to exceed prior year at a mid-single digit percentage. Based on the continuation of recent revenue trends, I currently anticipate revenue in the 2015 second quarter to be within a range of $830 million to $880 million. Based on that range of estimated revenue, I estimate diluted earnings per share to be in a range of $0.87 to $0.92.

With that, Dori, we will open it to questions.

Thank you very much, sir. (Operator Instructions)

Bill Greene, Morgan Stanley.

Jim, I wanted to ask you about the current market conditions. As you've seen, the spot markets seemed to have loosened up a fair amount. You guys did exceedingly well last year when spot markets were very tight. And actually here in the first quarter you have been quite well, and were still pretty tight. I know you don't have a crystal ball, but how do you think things evolve going forward when you see the spot markets trending as they are?

I think we're going to continue to see what we saw in March. I think it's going to be relatively stable. I think we're going to see pricing on a revenue-per-load basis. Historically what you typically see is maybe -- I like to look sequentially, right? Coming off the first quarter, going into the second quarter, we generally see a 2% to 3% revenue-per-load climb.

I'm looking more of maybe flat to maybe 1% because of the spot market conditions are loosening up a little bit. But I'd still say that from the van side, we still have pretty strong demand on the van side. And I don't want to say the flatbed is not strong. It is just kind of level to where it was next year. I would anticipate we're going to continue to see the steady -- kind of steady rate environment from March into the next quarter.

I think our volumes are going to -- we still have a lot of demand coming in for van and even on the flat side. I still think we will see that mid-single-digit growth rate on the volume, which is pretty strong in this environment.

That makes sense. Can you talk a little bit about how you think about driving more business to Landstar? One of the challenges that I always have with the models is that it almost looks like you kind of have to accept what comes in, and with an ROE at 30%, you'd sort of say like, well, gosh, is there a way that they can invest a bit more to grow a bit faster or maybe not? I'm just curious about your thoughts on that.

As we always talk about, there are certain ways to grow. You grow organically or you grow through acquisition. We often look at acquisition opportunities and hesitate to jump into a brokerage model that has company stores. There'd be a significant amount of account conflicts, and we really want to protect the model from the entrepreneurial spirit of our agent base, so we drive through organic growth.

We do it through agent -- adding agents to the system and making the agents we have more efficient and effective and helping them do sales calls. So, it is kind of the way we have organically grown in the past, and we're going to continue to focus on that. We've got some other tools in the pipeline.

We're working on enhancing the tools that they're using in the field to make the agents more effective, and hopefully those tools will actually be better pitches to new agents coming on board so we are working on some things internally to enhance the organic growth.

That is great. I appreciate the time. Thank you, guys.

Allison Landry, Credit Suisse.

This is Ken on for Allison.

Allison, your voice is a little different.

It got a little deeper overnight. I got to admit. So, just to throw it out here, I'm curious what the year-over-year benefit was that you realized Q1 as a result of shifting the timing of your annual agent convention? And, if we should assume that will be about $1.5 million headwind in Q2, or if not, what it should be? Thanks a lot.

The convention actually was in the first quarter both quarters and it was about $2 million in each quarter so there won't be any impact on the second quarter.

Okay. Perfect. Thank you. Just as a follow-up, if you -- so looking at the insurance and claims expense, I guess if you back out what the lawsuit settlement was, it looks like as a percentage of BCO revenue in Q1 it was about 2.9%. Would you expect a similar level in Q2, or should we still stick to your typical guidance of 3.1%?

We are actually at -- we re-ran it, the average of the last five years is now 3.3%. When we model we are modeling going forward at 3.3%.

Okay. Perfect. Great for clarification. That is all I have for you guys. Thanks a lot.

Jack Atkins, Stephens.

Good afternoon, guys. Thank you for taking my questions. So, Jim, I guess just kind of looking into the specialized business for a moment, the 11% decrease in loads in the 2Q on a year-over-year basis. That really kind of stood out to me at least. Can you maybe give us some color on what you think was driving that? Would you expect that activity to rebound as you move through the year?

Jack, this is Pat. I think that if you looked across the platform there were some -- a lot of talk coming into the quarter about oil and what impact that would have. Certainly that had some impact, there's no question about it.

There was some general softening across other industries. But there were also, within that oil business, accounts that really have taken off for us and also machinery accounts that have taken off. I think there is a lot of capacity that has kind of come back in the market that is now competing for some of the business.

But, as we mentioned at the fourth quarter call, that capacity is also now available to Landstar. I think Jim appropriately outlined in the quarter how we were able to source capacity to meet the needs of our customers. Going forward, we kind of expect about more of the same as we go forward through the year.

Okay, Pat, thank you for that. Just a follow-up, on the strong BCO adds in the quarter, you referenced that being the strongest quarter of adds since 2006. Just, again, what do you think is driving that?

Is there anything company specific that you guys are doing to sort of add to that BCO count? And, would you think as you look out over the course of the year that we should sort of similar high single-digit type growth rates there?

Jack, this is Joe. I think the additions of BCO is really if you think back to last year, we had a very good add year last year and a lot a good momentum last year really based upon the availability of freight.

I think thing being that we are a 100% third-party capacity organization, I think we do a lot of things to cater to whether it be carriers or BCOs, and a lot of that momentum from last year carried into this year. And again, I think it's just -- we just do the best we can to make it an environment where single owner operators or small fleets can really survive and thrive.

And, I think when you have so many of our BCOs doing so well in 2014, word-of-mouth is a very powerful recruiting mechanism In addition to a lot of the things that we're doing internally to better identify good candidates for Landstar, I expect, as we sit here today, the demand, the pipeline for future BCOs is pretty full. I don't see any sign of that weakening as we move into the second quarter.

Thanks very much for that color. Thanks again, guys, for the time.

Rob Salmon, Deutsche Bank.

Good afternoon, guys. Could you guys talk a little bit more about the BCO utilization? Have we seen any sort of uptick as we have moved into the month of April? I' m just curious if this is just the BCOs made a ton of money in 2014 and as a result they took a little bit longer of a holiday at the start of the year, or if it is some of the demand trends that have kind of kept them at bay?

This is Joe. I think you hit the nail on the head there. I think they did extremely well in 2014, and I think just on that alone I think we had not a rush to come back to work in the first quarter of 2015. I think some of the weather conditions may have also been a factor there. And as we sit here in April, April is not closed yet, but there really hasn't been any meaningful improvement in April.

Thanks for that. And then, Jim, you may have mentioned it in the prepared remarks, but did you give an update in terms of the agent additions who came on in the first quarter as well as kind of those who came on in 2014, and their overall contribution to the Q1 earnings -- the Q1 top line rather?

Yes, we refer to that as the new agent revenue guys who this is their first full quarter they were here. They contributed $22 million in revenue.

Okay. I appreciate the time.

(Operator Instructions)

Tom Kim, Goldman Sachs.

Can I ask you just a follow-up on the number of new agents? How does your pipeline look for Q2?

Tom, this is Pat. Our thesis remains the same. If you looked at last year and what we kind of said about the marketplace and the challenges that small businesses have, we continue to believe that, that is the case. The pipeline remains while seeded, and the number of agents that we're bringing on we are very satisfied with that, not only the number but the quality of the people that are coming on.

Great. That is helpful. I guess I'm just wondering with regard to the free cash flow generation how are you thinking about prioritizing some of that free cash flow distribution in terms of buybacks versus dividends and what about even the prospects of maybe a special divi?

From a -- I prefer, and we like the share buybacks. I think that is where we're going to focus and what we have done in the past. We have that small dividend, but I would expect that we're going to be focusing on the buybacks going forward over the near term.

Thank you.

Scott Schneeberger, Oppenheimer.

It's Daniel in for Scott. Can you take us little deeper on the end-market dynamics and what you're seeing that gives you confidence in sustained business trends into the second quarter?

The end markets, we are highly diversified. When you look at the breakdown of our industry sectors that we provide services to it is across the board. Even if you take where we talk about machinery as being one of the things we do it is about 20% of our business, of our revenue.

But within that category, the top 25 accounts only make up about 30% of the category. It is highly diversified. It is hard to break it down to end markets. That is kind of why we focus on, kind of split the flatbeds to the vans, and even inside the flatbeds we break it down to the heavy haul piece.

As an example, if you would just to pull apart the platform stuff for the quarter-over-quarter comparisons we have had 52 accounts first quarter this year over last quarter on the flatbed side, 52 customers who grew their revenue more than $250,000. We had 33 customers who grew it -- who decreased more than $250,000. And we had a significant amount of customers who kind of stayed consistent.

They are different industries, different sectors. It is -- unless there's a specific concentration in a given quarter where something really ramps up like wind, two or three years ago, we were talking about wind because it was really impacting revenue in the quarter significantly. And, we don't have much of that now.

It is just broad-based growth, and it is across-the-board industries right now. It is hard for us to -- a lot of times you will hear us talk about industrial production or the durable goods, stuff like that, more than we will talk about specific industries. Right now, it seems broad-based whether it is going up or down, it is not any specific customer or industries driving it.

Okay. Understood. Thank you.

Scott Group, Wolfe Research.

Good afternoon, guys. So why don't you just go back to the nice increase in BCOs and just wondering from your perspective, how much of this, in your mind, can you tell is like new capacity entering the market because of rates are high and fuel is low and guys can just make more money out there right now?

Scott, this is Joe. I think that one of the things we kind of try to keep track of is all of these new orders for trucks and the sales of trucks and up and down. It still seems to me like the majority of that is -- the great majority of that is replacement equipment.

I still continue to read and hear from other carriers the difficulty in finding drivers. And so until that really changes, I think most of the equipment is just going to replacement, and that is kind of, I don't know how that really changes unless the environment or the lifestyle of the trucker really changes materially.

From our standpoint, our guys generally have to have a year experience in the equipment they're driving, and a lot of the guys coming over are veterans.

That is helpful. And on the BCO utilization, outside of just missing out on some revenue, there is no cost impact to you guys from the BCOs having lower utilization, correct?

There is kind of an indirect cost, because we have about 8,800 trailers in the system, and they basically get used by the BCOs. So what happens if BCO utilization is below our expectations, you could have some trailing equipment not getting utilized. That is our asset. That is our asset risk. We have 8,800 trailers.

I think what you saw, if you look at other operating costs, we had a little bit of that cost sitting in there. Other operating costs were little bit higher. We had some trailers in there that weren't getting utilized. That is the only -- other than that, there's really no impact.

Okay. Last thing, quickly, your guidance for flattish pricing in the second quarter, what is that ex-fuel?

What is that ex-fuel -- on the brokerage side? Flattish.

You were talking about you're expecting revenue per load on your trucking business to be flat year over year in the second quarter?

Yes.

But that includes, at least on the brokerage side, negative fuel, correct?

Yes.

Scott, this is Kevin. That impact in the first quarter was, as Jim said, was about 6% year over year. If you assume the same thing, it is going to be $20 million to $25 million.

Of revenue in the quarter.

Okay. All right. Thank you, guys.

(Operator Instructions)

Kelly Dougherty, Macquarie.

Thanks for taking the question. Just two quick follow-ups on something you said earlier. The first when you said you expect more of the same in the heavy specialized stuff, does that mean the magnitude will be down double digits over the at least in the second quarter? Or, I'm not exactly sure what you meant by more of the same there.

We don't expect it to pick up. I think it was off the March run rate. We probably -- I don't want to say double digits, but we are probably not going to fly and start pushing it positive over the next couple of months. We don't anticipate that turning on a dime. We don't know of any new orders coming in right now to drive the heavy haul any different than it happened in this second -- first quarter.

Was the 11% decline down driven primarily by just less activity in the energy industry, or was it something else?

Part of it was wind. Part of it was a little bit of US government. Other than that, it was kind of widespread. It wasn't particularly any industry. There was some part that was wind towers and blades and some of it was government. The majority was just spread out across multiple customers.

Okay. Just a follow-up, I know you've talked for a while about the preference being the buybacks. How much cash are you comfortable carrying on the balance sheet, or kind of what is the minimum that you need? You are obviously generating a healthy amount. I'm just trying to size up what you might able to do from a buyback perspective.

It really doesn't come down to cash. If you think about it, we can -- this business -- this operates, we can run our working capital off the operations. We don't really have to borrow much money. We're comfortable.

We have certain -- the only thing we have is we have certain requirements when it comes to our insurance captive where we have to hold certain cash and investments as collateral for claims. That level is about, Kevin, $60 million, $70 million? Yes, $60 million or $70 million. That is kind of what our limit is. But we would be willing to take it down to $60 million or $70 million of cash. We would also be willing to revolver.

Right now we have about $190 million available under our unsecured revolving credit facility. We would also be willing to use that. It is cash plus availability on the revolver. Like I'm saying, we could probably take the cash down to about $70 million.

So it seems like a pretty good runway from a buyback perspective. And then I know it is a small part of the overall business, but it was a big increase in the first quarter, so just wondering about the loads hauled via something other than truck.

Is there been some kind of change, in maybe trying to grow rail, ocean, air, any of that business more than you have been in the past, or maybe the US West Coast port situation boosted that? Just help us think about the big increase there.

Kelly, this is Pat. If you think about last year first quarter and all of the disruptions in the rail service because of the weather, you have a real easy comp, that is part of it. The other part of it is we brought on some agents in that space that have produced pretty well for us. And we have had some good action with some existing accounts and some new accounts. But, by and large, it is really just an easy comp because of the weather in the first quarter last year.

Okay. No kind of move away from maybe we are heading up on some kind of growth limits on the trucking side, we're going to maybe see what else is out there?

No. Not all. As a matter of fact, we try to position ourselves well in each one of these verticals, but, no, there's nothing that says we're going to move away from truck and move into rail. It is just coincidental.

Okay. Thanks very much, guys.

Matt Young, Morningstar.

Good afternoon, guys. Thanks for taking my call. Just two quick questions. One on the intermodal you mentioned that came up a little bit. Do you guys generally, are you able to secure the capacity you want, are your agents generally able to service that when a customer ask you to move it on the rails? I know sometimes it can be difficult if you don't have a lot of scale.

Matt, this is Pat. Certainly in some markets there is the challenge for equipment. We haven't really experienced any of those challenges so far this year.

We also have a pretty aggressive program here where we are doing street turns where we can with agreement, whether it is in smaller markets or challenging markets or out on the West Coast. That is not to say we don't have some issues with it, but we try and manage that.

Okay. That is fair. And then, looking at the pool of third-party broker carriers, obviously that has been coming up for you in recent years. I'm just wondering if those truckers tend to sole-source with you guys, or are the using a lot of different intermediaries?

Yes, Matt, this is Joe. I think what our experience has been is that a lot of them try to work with us. They have a priority, but clearly if an is opportunity that is better for them on that given day, they are going to go to whoever has it. And we are working every day to try to get them to be more loyal to us and keep them in the network, so to speak. We have had some success with that.

But there is no metric or measurement whereby we would know that. Just from talking to them and working with them, we're just trying to make Landstar the priority, and we think we are having some success there.

Great. Okay. Thanks.

Todd Maiden, RBC Capital Markets.

I know in the past you've quantified, I think it was a 2% number that you used for your direct oil and gas exposure. I wanted to see where that is now, and then, also, if you had any insight into what your secondary exposure is, how big that could be, more along the lines of oil and gas related projects, infrastructure, construction, that sort of stuff? Is that number bigger or is it the same?

When we do oil and gas, we try and pick up anything related to the oil and gas industry, whether it be infrastructure or exploration or stuff like that. In the first quarter, here, I believe it stayed at 2%. If you just give me a second -- okay, yes, it looks like it's about 2% of revenue.

We also split out -- we look at that and then we look the other energy commodity groups, too. But actually, it says it's 2% but we grew it about, it looks like maybe 4% over the last year's first quarter. So it didn't directly impact us, but as Pat was talking before, the thing that might have impacted us is some of the flatbeds that were hauling some of this oil and gas stuff might have come into the industry, and so there's just a little more capacity available.

Directly, still, we don't think there is a big impact, but from capacity coming on the market I think is more of the impact. I can't quantify it, but I would bet there are some flatbeds out there available that weren't previously available to haul some of the freight we have.

Okay. Is that equipment ready to roll when it comes in? When it comes out of oil and gas? We have read anecdotal reports that some of it is little bit dated, and I guess because some of the projects were shorter haul in nature that the equipment may not be ready for, immediately ready for other applications.

Todd, this is Pat. It really depends on what they're doing. If they're working in the oil fields and they're providing product in an expedited fashion, then typically that equipment is not really positioned to go over the road.

On the other hand, those people that were pulling cargo that was pipes and pumps and the like into the oilfield in servicing US Steel or some other account, then they're going to be not as in great a demand as they previously were. So, the oilfield, the pure oilfield hauler, your thesis is correct. They are not typically competing with carriers like us and others for over-the-road transportation.

All right. And then last question. I know someone had mentioned the chance of a dividend earlier. You said that buybacks were the priority. Would you look at maybe a special dividend along the lines, not what you did last year, but the two years prior to that, which was considerably smaller than last year's, or is it really just buybacks now?

There were several reasons why the special dividends popped. One was the sale of the Southfield facilities in the end of 2013 generated a significant gain on sale and we distributed pretty -- I think it was $0.35 a share. We had the -- was it prior to that with the -- we thought the tax -- with the taxes that were going to, and we delayed -- we were going to cancel the smaller dividend, so we did kind of a special dividend at the end of 2012, I believe.

$0.50, yes.

$0.50 at the end of 2012, and so there were specific reasons about that one, too. And then, last year, what had happened last year, we ended up piling up cash on the balance sheet. Because, if you watched our stock run up from about May to December, we weren't chasing the run up. I want to say it went from like maybe mid-$50 up to $80 in the matter of three or four months.

We didn't chase that run up, and while it was happening we were piling cash up on balance sheet, so we made a decision to do a special dividend based on the cash that was on the balance sheet. Generally, we do a special when we have something, when we end up in a position with either a lot of cash on the balance sheet or something changes in the environment where you could see it happening.

At this point, I would think we're not talking about a special dividend in the short term, but I'm sure we will be discussing one every December and make a decision on whether we're going to do one or not.

All right. Thank you.

Thom Albrecht, BB&T.

Most of my questions have been answered, but I don't know if it was Pat or somebody that made an interesting comment that as some of the carriers that may have been tied to oil and gas started looking for freight that is a positive for your brokerage business. I'm just wondering though, as you look at the carriers that come into the brokerage arena, if you have a way to gauge kind of new fleets versus fleets that have been in business some time?

Thom, this is Joe. When you say, gauge them, what do you mean by that?

Just if you run any numbers where this fleet just was formed in 2014 or earlier this year, as opposed to having been in business several years. I don't know if you do that kind of data analysis when you approve a carrier to be part of the brokerage network?

We don't approve them in that fashion. No, we really don't. The only information that we calculate and provide to our agents is how many loads they have hauled for Landstar over a period of time. But on the way in the door, other than a safety check and insurance check and getting the contract and so forth, there really isn't a lot of history that we go and grab.

Okay.

Thom, I think those flatbed companies have a tendency to be smaller in nature, and therefore, they would use a company like Landstar as their sales force rather than going out and trying to knock on doors and generate business on their own.

Yes. I know some of them, one- and two-truck wonders that are out there.

A lot of them.

That's all I had. Thank you.

(Operator Instructions)

Allison Landry, Credit Suisse.

Just one more quick one for you here. It looks like the truck brokerage revenue, as a percentage of your total, has shifted to be a little bigger part of your business over the past few quarters, relative to BCO. Would do expect that to continue through the rest of the year given the lower utilization in BCO, or should we see it shift a little? Thanks.

If we were to assume that the BCOs are going to stay at low utilization, yes, I would expect brokerage to exceed BCO going forward. But, we are hoping that the BCOs will eventually get back and increase their utilization and get back to that 50% of the business.

Again, if we can keep growing brokerage, too, it is a battle to see who comes in first. Right? If it stays as is, I anticipate brokerage will continue to be bigger than BCOs, if utilization stays where it is.

All right. Perfect. Thanks a lot guys. I appreciate it.

Tom Kim, Goldman Sachs.

Thanks for letting me in for another one. I wanted to ask on the growth in commissions to agents, it grew faster than overall revenues in the quarter. I was just wondering if you could remind us how that works in terms of trying to size up the commission side of things?

This is Kevin. On the commissions, we actually as I stated in my prepared remarks, the rate paid to the truck brokerage carriers, the PT rate was actually down because of our shared arrangements with the agents. That is what drove that full 18 basis point increase, really a mix of additional or more brokerage revenue than BCO revenue.

All right. Great. Thank you.

Rob Salmon, Deutsche Bank.

Thanks for the follow-up. With regard to your BCO count, is it more dominated in the flatbed, or is it pretty evenly distributed between both the flatbed as well as the drive van segments?

We have more van operators in the fleet today. I would say probably 65/35, maybe even a little bit north of that. And the influx of BCOs that we had last year, and so far this year, tend to be more van than flat as well.

So a 65% van, 35% flat, rough split?

That's a rough split. Yes.

Thank you so much.

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

Thank you, Dori. We are looking forward to moving into this second quarter, and again, volume is strong right now. We're still seeing mid-single-digit growth rates. It is a tougher revenue per load count moving into the quarter, but we feel pretty good about the performance of the first quarter, and we see it carrying into the second quarter.

I look forward to speaking with you again on our second-quarter, mid-quarter update call, currently scheduled for June 4. Have a good day.

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