Landstar System Inc (LSTR) 2015 Q3 法說會逐字稿

Good afternoon and welcome to Landstar System Incorporated's third-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 Mr. Jim Gattoni, President and CEO; Mr. Kevin Stout, Vice President and CFO; Mr. Pat O'Malley, Vice President and Chief Commercial and Marketing Officer; Mr. Joe Beacom, Vice President and Chief Safety and Operations Officer. Now I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin

Thank you. Good afternoon and welcome to Landstar's 2015 third-quarter earnings conference call. This conference call will be limited to one hour. Due to a high level of participation on these calls, I am requesting that each participant had 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.

Before I go into my more detailed prepared remarks, let me touch on a few third-quarter highlights. The number of loads hauled via truck increased 8% over the 2014 third quarter on strong demand for van and LTL services. Excluding a significant award for flatbed services that began in April 2015, core unsided/platform loadings slowed into the third quarter and heavy specialized services continued to be soft.

Revenue per load on loads hauled via truck were 6% lower than the 2014 third quarter. We attribute that decrease to lower diesel fuel prices, a slight decrease in the average length of haul and somewhat softer demand. Gross profit margin was 15.1% compared to 14.8% in the 2014 third quarter, mostly due to a lower rate of purchased transportation paid to truck brokerage carriers.

Now for my more detailed comments. Revenue for the 2015 third quarter was $842 million, at the lower end of the range of previously issued guidance of $830 million to $880 million. Revenue in 2015 third quarter increased 3% over the 2014 third quarter. The increase was a result of increased truck revenue, up 2%, and a 21% increase in rail, air and ocean revenue.

The increase in truck revenue was driven by an 8% increase in the number of loads hauled via truck over the 2014 third quarter, partly offset by a 6% decrease in revenue per load on loads hauled via truck. Overall revenue per load was negatively impacted by the effect of lower diesel fuel races on loads hauled via truck brokerage carriers. Revenue hauled via truck brokerage carriers comprised 50% of truck revenue in the 2015 third quarter.

As it relates to revenue per load compared to the prior year, rates held relatively stable throughout the 2015 third quarter. Revenue per load on loads hauled via BCO capacity, which excludes the effect of fuel surcharges billed to customers, was only 2% below prior year's third quarter. That decrease was mostly due to a slightly shorter length of haul in the 2015 period. Revenue per load on loads hauled via broker carrier capacity, which includes the effect of fuel surcharges billed to customers was 10% below prior year's third quarter. I estimate that the effect of lower diesel fuel prices decreased revenue per load by 6% on loads hauled via truck broker carriers. Revenue per load was also impacted by a slight loosening of capacity compared to 2014.

During the 2015 third quarter, loads hauled via van equipment remain strong. The number of loads hauled via van equipment increased 6% over the 2014 third quarter. There continues to be strong demand for transportation services requiring Landstar provided van equipment. Approximately one-third of Landstar's truck revenue in the 2015 third quarter was hauled on Landstar trailer equipment, mostly drop and hook van services.

The number of loads hauled via unsided/platform equipment in 2015 third quarter was 14% above the 2014 third quarter, entirely due to a large award that began in April 2015 from one account in the automotive sector. Demand for heavy specialized services continues to be soft. Overall, unsided/platform loadings, excluding the loadings resulting from the award from the single account, softened during the 2015 third quarter. We expect the softness in the core unsided/platform services to continue through the remainder of 2015.

On a final note as it relates to revenue per load on loads hauled via truck, we came into 2015 expecting slightly higher revenue per load as compared to 2014. Those expectations did not consider the significant drop in diesel fuel prices which have decreased over 25% since the year end 2014. We also were well aware that the record revenue per load on loads hauled via truck in 2014 was going to make for tough comparisons. Given the 6% decrease in revenue per load on loads hauled via truck in the 2015 third quarter, we executed on driving a 5% increase in third-quarter gross profit.

The increased revenue in rail, air and ocean services compared to the 2014 third quarter was driven by strong execution by our existing agent base, increasing volumes hauled by those modes by 29% over the prior-year quarter. Gross profit representing revenue less the cost of purchased transportation and commissions increased 5% over the 2014 third quarter. The 2015 third-quarter gross profit margin increased to 15.1%, compared to 14.8% in the 2014 third quarter. The increase in gross profit margin resulted mostly from 143 basis point decrease in the rate of purchased transportation paid to truck broker carriers.

During the 2015 third quarter, revenue per load on loads hauled via truck brokerage carriers decreased 10% while the cost of purchased transportation on those loads decreased 11%. The decrease in the cost of purchased transportation paid to truck brokerage carriers was mostly the result of lower diesel fuel prices and partly due to a loosening of available capacity as compared to 2014.

During the 2015 third quarter we net added 133 trucks provided by BCOs and ended the third quarter with over 9,400 trucks provided by BCOs. The highest number of trucks provided by BCOs in Landstar history. Additionally, we had the highest number of truck broker carriers haul Landstar loads compared to any quarter in Landstar's history.

Landstar ended the 2015 third quarter with a total truck capacity network of over 51,000 providers, nearly 6,400 over the 2014 third quarter. Both approved and active truck broker carrier accounts were at record levels at the end of the 2015 third quarter.

New agent revenue, representing revenue from agents who joined the company after July 1, 2014, contributed $21 million of revenue in the 2015 third quarter, while revenue at existing agents increased 2% over the 2014 third quarter. As it relates to the Company's customer account base, the Company's top 100 customers ranked by 2014 third-quarter revenue comprised approximately 42% of the 2015 third-quarter total revenue.

2015 third-quarter revenue from those top 100 accounts increased 1% over the 2014 third quarter, while revenue at customers beyond the top 100 increased $19 million, or 4%, over the 2014 third quarter. With over 25,000 built to customers, the customers' account base is highly diversified.

From an industry standpoint, revenue from the automotive sector and hazardous materials both showed double-digit percentage growth over the 2014 third quarter, while energy related freight and foodstuff decreased at a double-digit percentage. The automotive increase was primarily due to one customer, while the decrease in foodstuffs was also mostly due to one customer. During the 2015 third quarter, automotive freight represented 12% of total revenue, hazardous materials was 7%, energy related freight was 4% and foodstuffs was 5% of total revenue. I will now pass it to Kevin for additional comment.

Thanks, Jim. Jim has covered certain information on our 2015 third quarter, so I will cover various other financial information included in the press release. Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, increased 5% to $126.8 million, and represented 15.1% of revenue in the 2015 third quarter. Compared to $121.1 million, or 14.8% of revenue in 2014.

The cost of purchased transportation was 76.7% of revenue in the 2015 quarter, versus 77.3% in 2014. The rate of purchased transportation paid to truck brokerage carriers in the 2015 third quarter was 143 basis points lower than the rate paid in the 2014 third quarter, and 45 basis points lower than the rate paid in the 2015 second quarter. The decrease in the cost of purchased transportation was mostly due to the effect lower diesel fuel costs have on revenue and the cost of purchased transportation on freight hauled via truck brokerage carriers.

The favorable impact of lower diesel fuel costs was somewhat offset by a decrease in the percentage of revenue contributed by BCOs in the 2015 third quarter, which has a lower cost of purchased transportation. Commissions to agents as a percentage of revenue were 34 basis points higher in the 2015 quarter as compared to 2014, due to an increase in net revenue margin, revenue less the cost of purchased transportation, on loads hauled by truck brokerage carriers.

Other operating costs were $8.7 million in the 2015 third quarter, compared to $6.5 million in 2014. This increase was primarily due to increased trailer maintenance costs and decreased gains on the sale of used trailing equipment. The Company has increased its Company controlled trailer fleet to 10,072 trailers, a 7% increase over prior year, as the number of BCOs hauling Landstar trailing equipment has increased, with the increased demand for drop and hook services. Insurance and claims costs were $10.5 million in the 2015 third quarter, compared to $12 million in 2014. Total insurance and claims for the 2015 quarter were 2.7% of BCO revenue, compared to 3.1% in 2014. The Company experienced decreased severity of accidents in the 2015 period, as compared to 2014.

Selling, general and administrative costs were $36.8 million in the 2015 third quarter, compared to $36.2 million in 2014. The increase in SG&A costs was primarily attributable to increased employee wages, increased professional fees and increased stock-based compensation expense, partially offset by a decreased provision for bonuses under the company's incentive compensation program. Although SG&A dollars increased slightly year over year, SG&A expense as a percent of gross profit decreased from 29.9% in the prior year to 29% in 2015. Depreciation and amortization was $7.2 million in the 2015 third quarter, compared to $7.1 million in 2014. This increase was due to the increase in the number of trailers.

As it relates to operating leverage, operating income was $64 million or 50.4% of gross profit in the 2015 quarter, versus $59.6 million or 49.2% of gross profit in 2014. Operating income increased 7% year over year and was the highest third-quarter operating income in Landstar history. During the 2015 third quarter, 77% of incremental gross profit was passed to operating income.

The effective income tax rate was 37.8% in the 2015 period, compared to 37.5% in 2014. 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 stock.

Looking at our balance sheet, we ended the quarter with cash and short-term investments of $158 million. Cash flow from operations for the 2015 year-to-date period was $148 million, and cash capital expenditures were $4 million. During the 2015 year-to-date period, we purchased 1.7 million shares of Landstar common stock at a total cost of $113 million, and there are currently 2.6 million shares available for purchase under the Company's stock purchase program. At the end of September, shareholders' equity represented 83% of total capitalization. Back to you, Jim.

Thanks. Overall, Landstar had a very good third quarter. Clearly, early industry fundamentals remain similar to those experienced in the 2015 third quarter. We continue to have strong demand for our van services, while demand for unsided/platform services, excluding the award from a specific account, continue to be somewhat soft. I expect the current freight patterns to continue throughout the fourth quarter and also expect the unsided/platform services provided to the single account to continue throughout the remainder of the year. I expect the pricing environment experienced in the 2015 third quarter to continue through the fourth quarter, which includes the impact of lower diesel fuel costs, a lower contribution of revenue attributed to heavy specialized services and a stable supply and demand environment.

Assuming recent trends continue, I anticipate revenue per load on loads hauled via truck in the 2015 fourth quarter to be consistent with the 2015 third quarter, which would represent a decrease in an upper single-digit percentage, as compared to the 2014 fourth quarter. Historically, the number of loads hauled via truck in the fourth quarter has been somewhat similar to the number of loads hauled in the third quarter. I expect that historical sequential trend to continue in the 2015 fourth quarter. Given that trend, I expect the number of loads hauled via truck in the 2015 fourth quarter to increase in a mid single-digit range compared to the 2014 fourth quarter. Based on the continuation of recent revenue trends, I currently anticipate 2015 fourth-quarter revenue to be in an range of $815 million to $865 million, with the midpoint of the range relatively equal to the Company's 2015 third-quarter revenue.

In estimating the range of diluted earnings per share for the 2015 fourth quarter, we assume that insurance and claim costs in the 2015 fourth quarter would be equal to the recent historical run rate of 3.3% of projected BCO revenue. Based on the previously discussed range of revenue projected for the 2015 fourth quarter, and reflecting 2015 fourth-quarter insurance and claims at 3.3% of BCO revenue, we anticipate 2015 fourth-quarter diluted earnings per share to be in a range of $0.85 to $0.90. And with that, we will open to questions.

Thank you, sir.

(Operator Instructions)

Allison Landry, Credit Suisse

Hi, good afternoon, this is Danny Schuster on for Allison. Thank you for taking my questions. Great.

I just wanted to ask on the automotive contract, is that a Mexico cross-border move and have you gained any share given the rail service issues that have been prevalent in that region this year so far?

Danny, this is Pat O'Malley. It is not related to cross-border moves.

Great, thank you.

And would you expect that to continue beyond 1Q 2016 at all? I guess you started moving those loads in April, so is that expected to run through for a 12 month time frame or should it go any further than that?

We have a commitment to the end of the year and we are working with the client at present to see where it goes from there.

Great, thank you so much, I appreciate your time.

Alex Becky, Morgan Stanley

Hey there, good evening, thanks for taking the questions. Jim, you noted that the unsided core volume softened in the third quarter, could you maybe quantify exactly how much they were down on a year-over-year basis in the third quarter and then, yes we'll kind of go from there?

From a buying perspective, if you recall in the second quarter the flatbed volumes, excluding that automotive plant, were pretty much flat year over year, second quarter over second quarter. Where we stand now, and this is a volume comment, this all based on number of loads, we were -- it slowed into the third quarter, now excluding that the automotive business, we are down 4% in volumes compared to last year's third quarter. So it has slowed.

Okay, that's helpful.

And then the fourth-quarter guidance for total truckloads to be up mid single-digits year over year, had you not won this contract what would your core total truckloads, what would you have expected them to grow in the fourth quarter?

Negative, I don't really have that number. Probably somewhere in the negative mid single digits

Okay and that's, again this is total truckloads, not just the unsided?

Yes that's just total truckloads

Okay, got it, thanks.

And then just lastly here, over the past three quarters you've generated some strong incremental margins here, over 80% and that's a bit above your target of 70%. Is that kind of the new normal? This kind of high 70%s or low 80%s or should we kind of still stick to the 70% incrementals going forward?

Yes. Looking at it on a quarterly basis is a little bit tough because it's such a short window, it's over three months, right, and whatever happens in insurance can drive that. If our insurance number was higher right, we would have eaten into that a little bit and if our insurance number is lower then you've got more incremental profits pushing through. And if you think about the fourth quarter, that's going to be a difficult comp for us because our insurance number in the fourth quarter of 2014 is only $8.5 million.

So that will put pressure on that 70% target in the fourth quarter. So on the quarter-to-quarter basis, it fluctuates based on what happens in the volatility of insurance and sometimes it's a little bit impacted on how much we have to put up for MICP and incentive compensation in any given quarter. But our target is still 70%, we're not going to come off of that and that's kind of an annual target.

Okay great, I appreciate it. Thanks very much for the time.

Jason Seidl, Cowen.

Hi guys, how is everything?

A couple of quick questions, going back to that new automotive client, if you guys were to renew that contract sort of the exact same way that you're seeing it now, what would you expect volumes to be? Because we've had a really strong automotive year right now, we've seen it, it's one of the few things that's going right in the rail industry if you look at their numbers. Even if you got it again, would you expect those numbers to be up or down next year?

You're talking specific to flatbed or specific to that client?

Just automotive in general for your exposure on the flatbed side. Assuming you got the same customer back next year.

Jason, this is Pat, provided we continue this contract next year, we would expect volumes to be the same as they are this year.

So that flat lines, okay.

And I think you mentioned that ex this client on the flatbed side, things are down about 4%. What about the drive end market, how does that compare to the flatbed market if you parse all that out?

That actually is still going well. I mean we're still for the quarter we're up 6% in volumes and it's still driving on the van side.

We felt a little softness in flatbed for months. But on the van side, we've been seeing mid to upper single-digit percentage growth for the last 18 months. And there's pretty high demand for drop and hook type operations where we leave trailers at a facility and they load them up and we send a truck in to haul it away, so that's still pretty strong. Where we're seeing the softness really truly is on flatbed side

Okay, that's great color.

I guess final question, when we think about your BCO count going into 2016, you obviously have done a fairly decent job of growing it this year, with some of the market softening is the BCO count going to soften or are people just going to still sort of come to you guys as potential providers for freight?

Yes Jason, this is Joe.

I think we'll continue to grow the BCO count, really predicated upon if there's demand out there for their services and clearly we expect that be the case. I don't think we'll grow it as we have -- 2014, we grew it 500 this year, we're looking to grow it by a number even a little bit bigger than that. So I don't think we'll see that kind of growth, but I do think you'll see incremental BCO growth in 2016.

Okay, that's perfect, I don't want to all of your time, I do appreciate it as always. I'll turn it over to somebody else.

Jack Atkins, Stephens

Good afternoon, guys. Thanks for taking my questions.

Jim, I guess if you could maybe talk for a moment, you guys sit in an interesting place with your customers for a view into the economy. Could you maybe just speak for a moment on what you're hearing from your customers about just the macro? Obviously the industrial economy seems to be a little bit more muted. But just would love to know what you're hearing from your customers around demand for peak season and as they look forward for the next, call it six months?

Jack, this is Pat.

As you know, we provide capacity and support to numerous customers during the holiday peak shipping season, and at this point, they're all anticipating similar if not slightly up from last year. On the peak season business.

What we're hearing from our industrial base customers is the strong dollar has really impacted exports. The depressed commodities market has really impacted cap in the large producers of machinery, aerospace seems to be the healthy, energy seems to be reasonable. Oil and gas is down and nobody looks for that to rebound. I think the customer base remains concerned about capacity, they've enjoyed this period of where it's balanced, but their concerned that it could turn at any given moment

Okay, thanks for that Pat.

And then Joe, I guess a question for you on the BCOs. If we get a final rule on ELDs here in the next couple of days, how is Landstar approaching making the remaining owner operators that don't have ELDs put one of those on? Is that going to be through the implementation period or will require something sooner.

And then how do you think that impacts the BCO utilization once those ELDs are rolled out across the fleet?

Jack, good question. Our intent would be to allow for the entirety of the rollout period to let the remaining BCOs get their ELD. We're at about 60% today, so to your point 40% to go. We would work at them across that timeframe to get that done.

And then from a productivity standpoint, we really haven't seen a market difference between BCOs with an ELD or without. We really haven't seen that, it's really been pretty flat either way. So I think, within the fleet, we really wouldn't see a significant change. Industry-wide, I'm not so sure I can say that, I'm not sure how others operate, but here within the BCO community it's been pretty even

Okay, great.

And if I can squeeze one quick one in as well. With the significant growth of one large automotive customer, are there any mix issues happening from a revenue per load perspective in unsided equipment or should we not think about that being big part of the headwind there?

Yes, that's not driving much of the revenue per load variances year over year, so it's kind of consistent with what our normal flatbed rates are.

Okay, great. Thanks again for the time, guys.

Matt Brooklier, Longbow Research

Good afternoon.

If you have the number or at least could talk to it, I think machinery makes up roughly I think 20% of your volume, maybe 15% of your total volume. I'm just curious to hear where those volumes are churning on the flatbed side of things?

We're looking that up. Do you have a second question or just wait for that one?

Machinery is about 14% to 15% with direction to move.

And I guess, do you have a volume number in terms of where that stands versus a year ago in 3Q?

It was pretty much flat to -- volumes are pretty much flat to where we were last year.

Okay. That's all I got, thanks.

Rob Salmon, Deutsche Bank

Good evening, thanks for taking the question.

Jim, with that automotive contract that you guys brought on, can you give us a sense for what sort of capacity, if any, that Landstar is allocating to that customer?

If you assume we are doing -- we did about 20,000 loads in the third quarter, about 60% BCO -- I'm sorry 60% for about 40% of our BCO capacity.

And was any sort of trailers that you're using from a drop and hook which would make them (multiple speakers).

It's BCO and provided trailing equipment. We may have a couple of old trailers in there, but it's not our trailer game.

Got it.

I guess switching gears over to the other operating expenses, Kevin, in your prepared comments you called out just kind of the higher levels of drop and hook, a little bit of maintenance on the trailer side, offset by less gains. If we're assuming no gains, what is a good number to use for that other operating expenses looking forward?

$7.5 million to about $8 million would be my best guess for that.

Perfect, those are my two.

Todd Fowler, KeyBanc Capital Markets.

Great, thanks. Hi, Jim, good evening.

A high-level question on the fourth-quarter guidance. So is basically the difference between the third quarter and the fourth quarter this year, is that almost entirely related to the insurance expense, or is there something else going on sequentially between 4Q and 3Q?

It's just the way we do our insurance using 3.3%. If you look at that number, we're at $10 million I think or something in the third quarter, and the 3.3% calculation is going to give us $12 million or $13 million in expense, that's really what's driving the variance on this per share.

So basically, a bit of the softness that you're seeing in the unsided equipment, that gets offset by some of Pat's comments on the expectations for peak on the van side. So that washes on the revenue piece?

Yes, I think we'll continue to flow through how we did through the third-quarter. I think it would be made up by that peak season stuff.

Okay. And then I'm going to take one more stab at the large customer won here this quarter. And I think what everybody is trying to get at is the potential impact if you don't have that in the numbers going into 2016.

But can you give us just a sense maybe in the third quarter because it was in there for the whole quarter, of a revenue number that would've been associated? And if you could, maybe like an earnings-per-share number. And, again, I think where that would be helpful is just as we try and think about if you retain that business or if you don't retain that business, what it could mean into 2016?

We'll give you the revenue number because there's some ins and outs and I don't want to carve it down to that level, but revenue number in the third quarter was $35 million.

Okay, that really helps, thanks for the time, guys.

Scott Schneeberger, Oppenheimer.

Hello, guys this is Daniel in for Scott.

I'm curious on alternative energy, if you can talk about the outlook here as we look into next year?

In the third quarter -- this is Pat. In the third quarter the wind business that we do was up year over year, our line of sight as it relates to the fourth quarter is favorable.

Okay, thank you very much.

And then just generally I'm curious on how you think about the spot markets next year, any commentary there would be helpful?

Well if you think about what's going on in industrial production when you think about Landstar, and I don't see any significant catalyst changing the environment over the next 12 to 18 months. The catalyst people are talking about is not necessarily what' happening in the economy, it's going to be happening, what's happening in trucks and how it relates to regulation right, and tightening capacity towards the end of 2016 or 2017, that's really the catalyst I see coming up, maybe 12 to 18 months out.

But the numbers coming out for projections of industrial production in manufacturing activity in the US for next years is kind of sluggish. So I would expect the spot market to kind of remain where it is, with not a lot of healthy pricing and volumes relatively where they are, just slightly up. Now in this environment we're still pushing van volumes pretty well, is that demand for our trailing equipment is kind of offsetting any weakness in the softness on the flatbed side. But that's what I would expect looking out, I don't see a catalyst to drive the economy to get the spot market to pick up.

Okay, great, thank you very much.

Scott Group, Wolfe Research.

Thanks, afternoon, guys.

So why do you think you're not seeing any impact in productivity from the ELDs. We hear from everybody else that is a big impact when you make the change over.

And then, with the question on ELDs, do you change anything on the brokerage side in terms of how you source capacity with carriers that may or may not have ELDs yet?

Why we're not seeing a change in productivity, we addressed that on the BCO side. Our BCOs aren't running the wheels off the track, right, they're pretty selective in the freight they take. They're only running about 90 loads a year, they're not banging up against the hours of service rules. I don't they're in a situation where they have to park their truck.

Might they get hung up on a load where they have to park? Yes, but I think that's what they do, I think they manage -- when they're doing paper logs, they manage their time and have plenty of time to pick up and deliver and satisfy the hours of service requirements. Put the ELD on them, I don't think that changed for them. And on the second question?

Just on brokerage, could you change anything on the brokerage side with your carriers if they don't have ELDs?

No, we typically don't make that a requirement for anything. We look for visibility on shipments and a lot of times they'll have a unit in the truck that accomplishes both. But really we're looking for visibility and as far as whether their doing the logs in cab or not is not anything we really get into.

Okay, and I just want to clarify one of the comments about fourth quarter volume. If you take out that auto contract you would've had 3% volume growth this quarter. And Jim, I think you said you'd expect volumes, expect customer to be down a few percent in fourth quarter. Is that a comp issue, is that it just demand is getting worse, can you just help us bridge that gap?

I think because you saw that I think I said that if you pull that out of the third quarter, flats were down 4%, vans up about 6%, so maybe we'd be flat to down as opposed to down.

Okay, perfect, thank you.

Matt Young, Morningstar.

Good afternoon, guys.

In the past, I think you guys had mentioned that agents of penetration of smaller shippers or smaller accounts, ones that wouldn't historically used Landstar. Obviously you probably got more of that last year when things tightened and I'm guessing it's transactional in nature. I'm wondering if you are seeing that business stay with you, if you're still getting some of the loads that you received last year from smaller shippers because capacity was tight?

Yes, I think you were right on with saying that there seemed to be a lot more of that last year. Where we were really getting penetrated into these accounts who we'd be talking to for two years and wouldn't use us. And then capacity got tight. I think those accounts stayed with us. I think we're still servicing those accounts. It's not -- you're not talking a $10 million account, but someone who has given us $500,000 to $1 million worth of revenue, we're still getting that.

I don't think we've lost that and you could see it because those small accounts are still kind of growing, they grew 4% in the third quarter, about $19 million of revenue. So once we get in and we prove the service that we can provide, they generally kind of stay into that -- stay into those customers. It's just getting in the door and once they get in they're pretty good at servicing.

And has there been any shift to, just because of over capacity, I know things have loosened a little on the spot side, has there been a shift at all among large shippers to kind of lock in pricing at all, over ELDs tightening capacity?

Not necessarily with us, no. Because again, we're doing a lot in the spot market. On our commit -- when we commit trailers stuff we have locked up, we kind of lock up rates, that's kind of committed for us, but there hasn't been a lot of long-term contract requests coming in to us.

Okay so you're not getting more committed business with the committed brokers.

No.

Okay that's all I have, thanks.

Jack Rosenberg, Robert Baird.

Hello guys, actually all my questions have been answered, so thank you.

Thom Albrecht, BB&T.

Hi guys, congratulations on fighting these tough trends.

I got just a little bit confused on your insurance comment. I understand a year ago was only $8.5 million, were you trying to say that we should be thinking about modeling back to that 3.3% of revenues? Just because that's been the five-year average or you already know that's going to be closer to $12 million plus?

No, we do not know, we just model on 3.3% because as you know it's very unpredictable. There's nothing to tell us that it's going to be -- not going to be $15 million and there's nothing to tell us it's going to be $8 million at this point. We just model it at 3.3%. If we knew something we'd probably say we have a situation that we have to provide for in the third quarter, fourth quarter, but that's not the case it just modeling.

Okay. And then as a think about load growth for the van side, it sounds like what you're saying is that the 275,000 van load you had in the third quarter, kind of think about a comparable number for the fourth quarter, which obviously has a lower year-over-year growth rate, but sequentially I mean is that kind of what you are saying?

Yes sequentially, yes.

Okay. All right, thanks very much.

Tyler Brown, Raymond James.

Hello, guys, good afternoon. Jim, just real high-level question on the model, but can you kind of go over how the gross margin profile differs when you do provide the trailing equipment versus when the BCOs provide it themselves?

Yes, there's about an 8% spread. If a BCO brings his own equipment they generally get paid 75%. If we provide the equipment, based on what contract they have with us, that we will pay them 65%

Okay, so you get a small uplift on the gross margin split?

You've got to get the uplift there and our trailer cost is another operating cost and depreciation. So you've still got that 8%, it's just in a different spot. Between maintenance and depreciation it's similar percentage, it's just above, below the gross profit line.

Okay, perfect. And then I'm just curious what percent of those BCO loads are on your equipment versus their own?

BCOs are doing about, there's about 60% to 65% of BCO loads that are on our equipment.

Okay perfect, and then any comments on the Asia pipeline?

The Asian pipeline remains what I will refer to as robust, we've got a lot of interest and a lot of activity along those lines, we're satisfied with where we are at and where we anticipate being in the future.

Okay, perfect, thanks, guys

(Operator Instructions)

Kelly Dougherty, Macquarie.

Hey guys, thanks for taking the question.

Just to touchback on commitments, I know you're obviously not looking to do anything long-term. But as we head into the last two months of the year and to peak, are people more interested in getting committed capacity and might that be something that you'd be open to?

Kelly, this is Pat.

Certainly in some of these peak situations we're committing capacity to that particular customer to handle the business that they've got. We're not uninterested in committing capacity, as long as its priced right and we understand what those commitments are and what our obligations are under those commitments.

I think what we were answering earlier is that we have not received from shippers a lot of bids that are trying to lock us in on capacity, so that if the capacity equation turns, they'll have Landstar locked in. Again, certainly on the peak business we have commitments that we've made to customers.

It's more of a short term, it's November, December and we'll commit trailers and capacity during peak season for certain customers.

Sure, and then that kind of is what gives you the confidence that maybe you're bucking some of the weakness on the industrial side of things, with end buying still being pretty high. But you have some of that at least committed, so you're pretty confident in that number for the fourth quarter, is that fair?

Yes

Okay, great.

And just one quick follow-up on the ELDs. Do you have any sense for what percentage of your broker carriers are using ELDs now, and is that maybe fair to extrapolate towards the broader market?

Yes, Kelly, this is Joe. We really don't have a good sense of what that number is. If you think 50% of our brokerage value moves on carriers with 10 trucks or less, and my suspicion is that the majority of those carriers do not have ELDs. If that gives you any kind of insight, but beyond that it's hard to say. We don't do a lot of volume with large carriers who you would expect to have ELDs already, so if that helps that's kind of what we have in hand.

Does that kind of cause you concern about the brokerage model then, if you guys are arguably dealing with some of the carriers that would have the most economic hardship if they've got to run less miles than they are now? Does that cause some concern about that side of the business?

Well I think, again, it depends what the rule says when it comes out. One of the things that I believe they're supposed to look at is the affordability to the small business and kind of the timeframe, that's I think why they're giving them a couple of years to make that happen.

Is it something that we'll watch closely? Absolutely. Is it something that I think you could say we're overly concerned about today? Not yet, maybe a little premature.

Okay, thanks, guys. I appreciate the color.

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. And I hope everybody appreciated it, we limited our opening remarks to only 17 minutes. And with that I have decided to discontinue the Company's historical practice of providing mid-quarter update calls. And as such, I look forward to speaking with you again on our 2015 fourth-quarter and year-end earnings conference call, currently scheduled for January 28. Thank you and have a good day.

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