Landstar System Inc (LSTR) 2017 Q4 法說會逐字稿

Good afternoon, and welcome to Landstar System, Inc. Year-End 2017 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; 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, Joe. Good morning, and welcome to Landstar's 2017 Fourth Quarter Earnings Conference Call. This conference call will be limited to one hour. (Operator Instructions)

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, is 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 2016 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 information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information.

2017 was a great year for Landstar, highlighted by many new financial and operational records. Revenue in fiscal 2017 was an annual record of $3.6 billion and exceeded 2016 by 15% on the strength of increased loadings hauled via truck of 9% and increased revenue per load of 6%. Demand for our services was strong throughout the year. We had record loadings hauled via truck in 2017. The number of loads hauled via truck in 2017 first quarter, second quarter and third quarter exceeded the prior year quarters by 10%, 9% and 13%, respectively. The number of loads hauled via truck in the 2017 fourth quarter exceeded prior year by 3% or 10% when excluding loads from the extra week and favorable timing of Christmas in 2016.

Revenue per load on loads hauled via truck in 2017 exceeded prior year by 1%, 3%, 6% and 13% in the first, second, third and fourth quarters of 2017, respectively. The strength in spot market pricing that began at the end of the third quarter continued for the remainder of 2017, resulting in revenue per load approaching the record level reached in the fourth quarter of 2014. During 2017, we had a record 542 agents generate revenue in excess of $1 million. Revenue from new agents, defined as an agent who contracted with Landstar subsequent to January 1, 2016, was approximately $117 million in 2017. Gross profit was a record $544 million, 11% over 2016.

On the cost side, insurance and claim costs were 3.8% of BCO revenue, much higher than the 3.3% 5-year historical average expected in 2017. Additionally, selling, general and administrative costs were elevated mostly on a higher provision for incentive compensation as a result of exceeding targets in 2017. Despite the increased costs, operating income was $244 million, also an annual record and was 9% above prior year.

As it relates to net income, fiscal year 2017 was favorably impacted by $19.5 million from a onetime deferred tax liability reevaluation, resulting from the enactment of the Tax Cuts and Jobs Act, which increased 2017 fourth quarter diluted earnings per share by $0.46. Excluding the favorable impact of the Tax Act, 2017 net income would have been a record $158 million and diluted earnings per share would have been a record $3.75. We expect the Tax Cuts and Jobs Act will lower the company's effective income tax rate in fiscal 2018 to approximately 24.5% down from the prior rate of 38.2%, prior to any discrete items.

Overall, the 2017 fourth quarter operating environment was outstanding for Landstar. We saw significant increases in both the number of loads being hauled by truck and revenue per load. Industry-wide truck capacity tightened as we moved through the quarter, while we continue to have a strong broad-based demand for our services.

Our 2017 fourth quarter results established numerous Landstar financial records as the company set all-time quarterly records for revenue, gross profit, operating income, net income and diluted earnings per share. As to capacity, we ended the year with a number of trucks provided by BCOs, as we continue to work to attract high-quality BCO capacity to the network.

During our third quarter earnings conference call, we indicated we expected 2017 fourth quarter revenue to be in a range of $975 million to $1,025,000,000. Revenue in the 2017 fourth quarter is $1,052,000,000, leading to record quarterly gross profit of approximately $150 million in the 2017 fourth quarter. During our third quarter earnings conference call, we provided diluted earnings per share guidance of $0.98 to $1.03. Actual diluted earnings per share was $1.54 or $1.08 when excluding the favorable impact of the Tax Cuts and Jobs Act on the fourth quarter net income.

Our fourth quarter guidance called for loads to be above the 2016 fourth quarter in a high-single to low double-digit percentage range when excluding the estimated 30,000 truckloads included in the 2016 fourth quarter, resulting from the extra week and favorable timing of Christmas. The number of loads hauled via truck in the 2017 fourth quarter was 10% over the 2016 fourth quarter when excluding those 30,000 loads.

The increase in revenue was broad-based amongst many customers and industries. Our expectation was that revenue per load on loads hauled via truck would be higher than the 2016 fourth quarter in a low double-digit percentage range. Revenue per load on loads hauled via truck exceeded the 2016 fourth quarter by 13%, at the high end of our expectation. Growth in revenue per load on loads hauled via truck on a month-over-month prior-year month basis was 11%, 14% and 14% in October, November and December, respectively. These very strong revenue per load numbers represented above abnormal -- above normal seasonal uptick in revenue per load on loads hauled via truck from the end of the third quarter through the end of the fourth quarter. The tightening of truck capacity that began at the end of the third quarter resulted in revenue per load on loads hauled via truck to increase $50 from August to September. During the fourth quarter, truck capacity continued to tighten driving revenue per load on loads hauled via truck in December to $212 over September's revenue per load. Both the September from August increase and December from September increase were significantly above historical trends.

Revenue per load on loads hauled via van equipment was 13% above prior year's fourth quarter, while revenue per load on loads hauled via unsided/platform equipment increased 14% compared to the 2016 fourth quarter. Length of haul in the 2017 fourth quarter was 1% lower in the 2017 fourth quarter compared to the 2016 fourth quarter for loads hauled via both van and the unsided/platform equipment.

The number of loads hauled via Landstar-controlled trailing equipment, mostly van equipment hauled by BCOs and drop and hook operations, was 32% of truck loadings in the 2017 fourth quarter and increased 3% over the 2017 third quarter.

The number of loads hauled via rail carriers was 2% higher than the 2016 fourth quarter, the first quarter over prior-year quarter increase in 2017. The intermodal market was more competitive throughout 2017, and we continue to experience softness in rail intermodal loadings at several customers.

The number of loads hauled via air and ocean carriers increased 26% over the 2016 fourth quarter.

Gross profit increased approximately 13% compared to the 2016 fourth quarter. Gross profit margin decreased from 14.9% in the 2016 fourth quarter to 14.2% in the 2017 fourth quarter.

And here is Kevin with his review of other fourth quarter financial information.

Thanks, Jim. Jim has covered certain information on our 2017 fourth quarter, so I will cover various other fourth quarter financial information included in the press release.

Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, increased 13% to $150 million and represented 14.2% of revenue in the 2017 fourth quarter compared to $132.8 million or 14.9% of revenue in 2016. The cost of purchased transportation was 77.5% of revenue in the 2017 quarter versus 76.7% in 2016. The rate paid to truck brokerage carriers in the 2017 fourth quarter was 88 basis points higher than the rate paid in the 2016 fourth quarter.

Commissions to agents as a percentage of revenue were 16 basis points lower in the 2017 quarter as compared to 2016 due to a decreased net revenue margin, revenue less the cost of purchased transportation, on loads hauled via truck brokerage carriers.

Other operating costs were $6.2 million in the 2017 fourth quarter compared to $8.2 million in 2016. This decrease was primarily due to decreased trailing equipment costs and decreased contractor bad debt.

Insurance and claims costs were $16.2 million in the 2017 fourth quarter compared to $14.5 million in 2016. Total insurance and claims costs for the 2017 quarter were 3.7% of BCO revenue compared to 3.6% in 2016. The increase in insurance and claims compared to 2016 was entirely attributable to increased net unfavorable development of prior year claims in the 2017 period. We believe that insurance and claims costs will approximate 3.5% of BCO revenue, representing the historical annual average over the previous 5 years over the long term. However, accidents in the trucking industry can be severe and occurrences are unpredictable.

Selling, general and administrative costs were $47.4 million in the 2017 fourth quarter, compared to $37 million in 2016. The increase in SG&A costs was mostly attributable to an increase in the provision for bonuses under the company's incentive compensation plans and an increase in stock compensation expense due to increased assumed vesting of share awards related to the enactment of the Tax Cuts and Jobs Act in December 2017. The provision for incentive compensation was $6.9 million in the 2017 fourth quarter compared to $559,000 in the 2016 fourth quarter. As a result, quarterly SG&A expense as a percent of gross profit increased from 27.9% in the prior year to 31.7% in 2017.

Depreciation and amortization was $10.6 million in the 2017 fourth quarter compared to $9.7 million in 2016. This increase was due to the increase in the number of company-owned trailers during 2017. The company currently has 11,882 trailers in its company-controlled fleet, a 4% increase over prior year, as the number of BCOs hauling Landstar trailing equipment continues to increase with the increased demand for drop and hook services.

Operating income was $70 million or 46.8% of gross profit in the 2017 quarter versus $63.8 million or 48% of gross profit in 2016. The decline in operating margin was driven by the increase in the provision for incentive compensation and increased insurance and claims costs, offset by increased gross profit and decreased other operating costs. Operating income increased 10% year-over-year.

The effective income tax rate was 6.9% in the 2017 fourth quarter compared to 36.9% in 2016. The 2017 quarterly effective income tax rate was significantly affected by the reevaluation of deferred tax liabilities as a result of the enactment of the Tax Cuts and Jobs Act in December 2017. Excluding the impact of this revaluation, the effective income tax rate would have been 35% for the 2017 fourth quarter. The effective income tax rate, which has historically approximated 38.2%, was also impacted in both periods by tax benefits resulting from disqualifying dispositions of the company's common stock, and in 2017 by implementation of Accounting Standards Update 2016-09.

Looking at our balance sheet. We ended the quarter with cash and short-term investments of $291 million. The board declared a quarterly dividend of $0.15 per share, payable on March 16 to stockholders of record on February 19. This represents a 50% increase to the company's previous quarterly dividend. Cash flow from operations for 2017 was $139 million and cash capital expenditures were $15.6 million. There are currently 3 million shares available for purchase under the company's stock purchase program.

Back to you, Jim.

Thanks, Kevin. We continue to attract qualified agent candidates to the model. Revenue from new agents was $27 million in the 2017 fourth quarter.

As expected, we lost a minimal number of BCO trucks due to the ELD mandate. In fact, during the 2017 fourth quarter, we experienced the lowest truck turnover in 10 quarters and had the highest net BCO truck addition since the 2015 second quarter. And all of our active BCOs had installed ELDs by the December deadline. We ended the quarter with a record 9,696 trucks provided by business capacity owners, 257 trucks more than at year-end 2016 and 148 over the end of the 2017 third quarter. The number of loads hauled by BCO truck capacity in the 2017 fourth quarter was 2% below the 2016 fourth quarter. BCO productivity was 4% lower in the 2017 fourth quarter compared to the 2016 fourth quarter, mostly from the extra week in 2016. The 4% decrease in productivity was partly offset by the 2% increase in BCO trucks.

We had a record number of third-party broker carriers haul freight on our behalf during the 2017 fourth quarter. Our network is strong and continues to attract third-party truck capacity.

Our 2017 financial performance was outstanding. I am extremely pleased with the way we closed out the year. 2017 fourth quarter revenue increased approximately 18% compared to the 2016 fourth quarter. This result reflected strong volume gains and elevated pricing throughout the quarter.

During the first several weeks of 2018, strong volume and elevated pricing continues on our truckload services. Strong demand from the industrial sector, the ELD mandate and extreme winter weather across the country disrupting freight flow have all contributed to the strong start to 2018. The number of loads hauled via truck is currently running in a high single-digit percentage growth range over the same period of 2017. Revenue per load on loads hauled via truck also continues to be strong in the mid-teen digit percentage range over the same period of 2017.

I expect gross profit margin to be in a range of 14.7% to 14.9% in the 2018 first quarter compared to 15.6% in the 2017 first quarter, although I expect that truck capacity will remain tight as we move through the first quarter. We expect a decrease in gross profit margin as compared to the 2017 first quarter is mostly due to a greater percentage of revenue hauled via truck broker carriers. Seasonally, revenue per load on loads hauled via truck in the first quarter is typically lower than the fourth quarter. Over the past 5 years, revenue per load on loads hauled via truck has decreased an average of 5% from the fourth quarter to the first quarter.

Considering the current freight environment, we're expecting a smaller decrease in revenue per load in the 2000 (sic) [2018] first quarter and expect the fourth quarter to first quarter decrease to be in the range of 1 -- a decrease -- to decrease in a range of 1% to 4%. The lesser decrease is somewhat due to the disruption of freight transportation due to the recent extreme weather and also due to strong demand in the ELD mandate. I expect revenue per load to remain elevated through the remainder of the first quarter at a mid-teen digit percentage above prior-year first quarter.

Recent trends through the first few weeks of January show a continuation of strong volumes experienced throughout 2017. Assuming the current trends continue, I expect 2018 first quarter loads hauled via truck to be above the 2017 first quarter in a high single-digit percentage range. I currently anticipate 2000 (sic) 2018 first fourth quarter revenue to be $925 million to $975 million. And based on that revenue expectation and assuming insurance and claims costs are approximately 3.5% of BCO revenue, I anticipate 2018 first quarter diluted earnings per share to be in a range of $1.22 to $1.27.

The operating environment experienced in the 2017 fourth quarter exceeded our expectations. The momentum and demand for our service that began in the fourth quarter 2016 continued to strengthen through 2017. The increased demand combined with a significant increase in rates that started late in the third quarter contributed to the very strong fourth quarter revenue and gross profit. We reported record fourth quarter gross profit and the highest fourth quarter diluted earnings per share in the company's history.

We continue to focus on profitable load volume growth, increasing the number of agents and capacity providers in our network and enhancing the tools available to our network of agents, and capacity providers to enable them to effectively dispatch and haul more loads.

With that, Joe, we will open to questions.

(Operator Instructions) Our first question comes from Amit Mehrotra of Deutsche Bank.

I wanted to ask about the demand environment. I mean, you clearly touched on it a little bit. But clearly, the strength seems to be the driver of the strong performance. I mean, correct me if I'm wrong. I don't think the company has ever achieved a revenue per load growth in the mid-teens percentage range. So that's obviously very impressive. Clearly, a perfect storm of good stuff in the truckload market. But in that context, could you just break down the demand environment for us? Whether there is some specific pockets of strength, particularly maybe in the unsided business with the energy prices up? And I know also visibility is somewhat limited, but your thoughts on maybe how much of the strength -- the current strength do you think is sustainable based on just your experience looking at the past cycles and what's going on now?

Amit, this is Pat. I'll answer the question. In Jim's remarks he talked about the broad-based nature of the opportunities and the broad-based nature of the revenue growth. And I think you see the kind of the power of Landstar on display there. So because of our diversified network of agents, we're able to penetrate a lot of these different industries and accounts. And when those accounts and industries are up, again, it's just been a broad-based across many industries and customers at Landstar that we've seen the growth.

If we could think of one industry that's maybe not growing and that would be automotive alone. But again, it's not growing, but it's not declining either.

Got it. Yes, okay that makes sense. And then just one follow-up from me. Just if you could talk about the company's ability to, I guess, increase the BCO count in the current environment. That's number one. And then, two, kind of given this gap between when the ELD mandate went into effect into full enforcement, there is a percentage of capacity that maybe is waiting for last minute. Have you seen customers, shippers want to only do business with companies with carriers that are now fully ELD compliant? Or is there some flux there? Just trying to understand if there's this temporary dislocation that's been created in the truckload market because of this gap between the enforcement and when the mandate went into effect.

Amit, this is Joe. I'll take that -- take that question on the BCO count. Interest is -- remains strong. And if you think about the environment we're in where pricing goes up is on the rise. BCOs -- our BCOs are paid on a percentage of revenues. So when rates are going up, they are getting a pay increase every time the rate goes up, so that's a very attractive feature to the model. Fuel is moving higher. We passed through 100% of fuel surcharge to our BCOs. So I think from a recruiting environment and a retention environment, both of those bode well for growth as we move through 2018. Typically, in the first quarter, we're flat to down through the -- January we're actually flat so far, but typically that's not uncommon. We usually see a flatness or a slight decline in January. But I think the prospects for 2018 are actually pretty good. On the ELD front, as Jim stated, we had just a handful of BCOs that we lost over the ELD mandate and another very small handful who have yet to install that are currently inactive. I think our customers do expect that ELD equipped trucks service them, right, and to that extent, we honor that with our BCO fleet. And I think that there is some delay in enforcement that -- where you might have some operators in brokerage equipment that may or may not have put ELDs in or in the process of doing that. But certainly, I do think that expectation is there. But I also think that there is plenty of opportunity and a mechanism for that to happen as we move through the first quarter.

Our next question comes from the line of Jason Seidl of Cowen.

I also want to (inaudible) out something at your end markets and sort of the flatbed side of things. Looks like you had a lot of strengths in building products and metals. Where do you think that was coming from? Was it sort of broad-based? Was it anything in particular? And what are your thoughts on an infrastructure bill if that gets passed? And how that might affect Landstar's business going forward?

On the infrastructure bill, we generally -- it just -- it tends to tighten up flatbed capacity and maybe not directly for us. So it would tighten up a market that already feels little tighter than it's been over the last 2 or 3 years. So no direct impact that we would think from an infrastructure bill, but clearly, an indirect impact as more flatbed gets sucked into the -- any new projects that they're working on.

And in terms of breaking out the end demands for some of your flatbed business and what you're seeing there?

Jason, this is Pat. Again, very broad-based. You mentioned metals, building products, machinery. Those, again, we -- I really want to emphasize the diverse nature of the model and then all the different end markets that we're penetrating and then the customers within that. So if you look at those 3 segments, those 3 segments were up in the quarter. And we anticipate a similar strength as we go through the first quarter here in those segments as well. I think it's worth repeating that in January what we've seen is a high watermark for the number of requests from customers for information related to Landstar. And RFI comes in and typically following that RFI is a request for quoting on business. And so I think, again, it gives you an idea of just how diverse and broad-based the opportunities are, and how our model is set up to take advantage of that.

Our next question comes from the line of Matt Brooklier of Buckingham Research.

So I wanted to get back to the BCO growth in the quarter. You saw nice growth even despite loads being down, and obviously there was a difficult comp in the quarter. And not sure if you have this information, but can you talk to the pace of additions through fourth quarter, if potentially you saw more BCO addition towards the end of the year? What I'm getting at is, do you see any change in terms of your ability to add BCOs post the ELD mandate?

Yes, Matt, this is Joe. No -- the ELD mandate, I'll take you back. We've been requiring ELDs for all new BCOs since the end of 2012. So that -- adding BCOs into the network as a result of having to get an ELD really hasn't been anything new for us. So the pace of additions continued pretty steady. Our retention, as Jim mentioned, improved in the quarter. And again, I think that's a function of the system that we provide, but also just the general environment for freight and some of the, again, raising -- rising prices that were in the quarter, it just makes Landstar a great place to be for owner operators.

Okay. So I guess your sense is, it's the model and an increase in pricing and freight opportunities, which was probably the main contributor to this nice growth that we're seeing in...

Yes, I think overall, we believe we're the best place for an owner operator. I mean, we provide the level of freedom, the access to growth, the access to being a part of a system that provides freight that they can't get on their own or they can't get in many other systems that are out there. And I think that advantage that we see just heightens in an environment like we're seeing today.

Okay. And then, Jim, I think you touched on your gross margin expectations for first quarter. We're seeing kind of continued compression. You talked about mix, you talked about rising purchased transportation costs. Any thoughts as to when we may see some, I guess, alleviation in terms of the headwinds from a gross margin perspective? Should we just to be looking at spot pricing and getting through the bid season in terms of contract rate increases? Or is there any other dynamic that's outside of those factors which is maybe providing little bit more pressure on your gross profit margin?

Yes. Most of the pressure is probably coming more from mix, because we expect more brokerage revenue in the first quarter as compared to the prior year. I think when you look sequentially through maybe third quarter or fourth quarter, the spread between revenue per load and PT per load on a brokerage actually got better coming into the fourth quarter. So I think that we -- the revenue per load accelerated faster into the fourth quarter than the PT rate did because we closed that gap. So I think we're there now, and when you just speak to the brokerage piece of our business, there's not a lot of compression left in there. And I think we're starting to that point where pricing is now offsetting the increased pressure on the trucks from the tightening. So it's more of a mix for us, from our first quarter projection.

Our next question comes from the line of Jack Atkins of Stephens.

So I guess, Jim, let me kind of go back to the macro questions for a moment, because I think when we look at sort of your guidance for the first quarter, obviously, very encouraging. And then when we think about just the signs that we're seeing from the economy, it seems like things are accelerating. And then you layer on the tax reform to that and ELDs, it just seems like we're potentially at a point where we could see an extensive cycle this time versus what we saw in '14 and '15. And I'm just curious from your perspective, when you think about it, how are you thinking about this cycle playing out over the next 12 to 18 months?

I honestly don't see anything slowing us down. I mean, you got the ELD mandate, you got an industrial production in the U.S. increasing. It's -- the demand, as Pat said, is broad-based, and it slowly came on us, right? It wasn't like it popped and we expected it to go away. It started building in the end of the third quarter and flowed right through the fourth quarter. I think we're doing a great job on executing put more volumes. Pat's focus over the years has been to just focus on volumes, price will come. And I think now we're seeing that -- the results of the efforts Pat's putting in and his team. I expect -- do I expect this? Look, we're coming in -- the one thing is we're coming into January, probably one of the -- it was probably the lowest drop from December to January in price in the history of the company. And the only question I have is, will that price level elevate like it typically does throughout the year or we see more balanced pricing, because we've already got the increase built in. That's the one question I have for the remainder of the year. But from a volume and demand standpoint, the environment feels great for us right now. I don't see any hiccups from the volume side and price is strong. Will it climb into the back half of the year as typical or did we already get the price built in right now? That's kind of the question I have. But where I feel -- I mean, we're executing on all cylinders. I haven't -- I think we all feel pretty good about what the year is looking like.

Okay. That's helpful, Jim. And then when I think about the impact from a tax reform bill, I mean, obviously, it's going to have a positive impact to your cash flow. And so I was curious if you could comment on sort of your thoughts on capital allocation, the buyback. You guys have 3 million shares authorized, but I don't think you have executed on any of the buyback in 2017. Do you anticipate that changing in 2018? And then how do you think about your capital distribution? But then secondly, on the tax reform bill, does it change the calculus for some of the owner operators looking to affiliate with Landstar's BCOs? Could you possibly see your BCOs perhaps adding trucks because of some benefits around immediate expensing and depreciation that they both will flow to them through the tax reform bill?

Yeah, going with the last one first is I don't see that the impact on our BCO network as much, because 98% of our trucks is one guy. I don't see that group jumping in and buying a second truck. Maybe, but from my perspective, I don't see that happening, especially when like I said, of our 9,600 trucks, 9,200 of them are probably single owner operators, 9,000. From the question on -- the philosophy hasn't changed on our stock buybacks and our small dividend buybacks. We prefer the buyback program. And yes, we didn't buy any stock during 2017. We look at market multiples. We look at our multiple. We also look at -- the tax reform was speculation at the time, and you had the sense it was driving some of the market multiples, and until reality set in with the tax reform being, so we were kind of on the sideline throughout 2017. But our philosophy hasn't changed. We still want to focus on buybacks. And with -- clearly, we'll have -- in 2018, we'll have a increased cash flow based on the tax reform. And as part of that, we added $0.05 to our quarterly dividend and every year since 2004, we've -- ever since we started doing dividends. We also look at -- during the second half of the year, we've increased the dividend. So we left an opportunity to take a look, see how the year is going and see if we want to increase that quarterly. But we've still got the same philosophy.

Our next question comes from the line of Bascome Majors of Susquehanna.

I wanted to talk a little bit on the SG&A side with the incentive comp around $7 million for the fourth quarter. Looks like the full year probably came in around $20 million. Can you just confirm that number and walk us through what sort of expected accrual would look like in 2018, if that came down to more target levels? And when within the year you'd expect to maybe revisit and walk that accrual up if results were coming in above plan like they did last year?

Hey, Bascome, this is Kevin. I'll take that one. Yes, the number was $20 million for 2017. And like we've said in the past, it usually -- if we were going to get targets, our incentive comp number would be $2 million a quarter. So $8 million annual. So there is, I guess, you can say $12 million tailwind there. We would revisit it at the end of each quarter and try to get our best estimate for the annual number and try to get whatever we think the annual number is going to be into each quarter equally. So every quarter we're going to take a look at that. $20 million is probably the best number to put in for your model for the annual number for 2018.

I appreciate that. So -- and could you -- is there anything positive or negative on the SG&A side from your agent technology project this year versus last year? And could you kind of tally it all together? I mean, you've got these long-term margin targets out there for 70%-plus incrementals on net revenue growth within and reaching a 50% operating margin on that revenues. I mean, are those in your sights for 2018 given the results you expect?

Yes. Clearly, I think the incremental margin, based on what Kevin just said and that -- the tailwind of our bonuses should help us to get to that 70% to 80% incremental push through of any incremental gross profit growth should push through 70% or more down the operating income. Also, you got to look at the fact that our 2017, not that this is the perfect for insurance, but we're at 3.8% of BCO revenue, and we're projecting 3.5%. So you got a little bit of hopeful tailwind there as long as we're safe, and that should help us get us to that incremental margins. Our spending on tech continues at about a even rate between $8 million to $10 million a year, and that'll continue over the next couple of years. That'll put a little pressure on that 50% margin. So we push that 50% goal into 2020, to be 50% operating margin by 2020.

(Operator Instructions) Our next question comes from the line of Todd Fowler of KeyBanc Capital Markets.

Jim, maybe just a follow-up on your comments to Jack about expectations for the year. I mean, if I look at your first quarter guidance and I adjust for the tax rate, I mean, it almost feels like that you're expecting the first quarter to be comparable with fourth quarter, which is atypical for normal seasonal trends. I know that we're seeing strength here in January. But would your expectation at this point be that 2018 is going to be more linear from a quarterly standpoint? I know there is a lot of variability with ELDs and what could happen. But from a starting standpoint, I feel like we should think about things being more linear through 2018 or would you expect more of a ramp as we move through the second quarter and into the back half?

Yes, my thoughts are a little bit more linear because I think the first quarter anomaly is driven by a couple specific things, right? It's everybody is new -- anybody who put out an ELD late in the year is new to it, right? And I think that probably affects productivity in the short term or trucks sitting getting the ELDs put in are down a couple days, and then they got to learn how to use them. So that's kind of a phenomenon that's going on right now and it could continue until April 1. The weather, even though it wasn't a lot, for a couple days, there was some -- which would keep spot market rates up, any kind of disruption like that would keep the rates up in January and the strength of IP. So I sitting here today coming out of a real strong first quarter, I would -- on a pricing side, do I expect it to elevate into the back 3 quarters the way it has historically? To some degree, but not to the extent that it has in the past, because I think we started so strong. So from a comp basis sequentially, I think -- I don't know if it will elevate as we had before. But it's early in the year. We're dealing with only 4 weeks of results. So I think we are a little conservative on what I'm saying about the year. If it continues as is, we could have a very strong year, strongest in the history, clearly, I mean. But we'll see how it rolls out after the first quarter.

Yes. No, I mean, that makes a lot of sense to me and I think that that's probably the right pretty much work [for it]. And maybe one of the things just to help clarify in your model versus maybe some of the asset-based carriers. Correct me if I'm wrong, but I think about you just having maybe less contract exposure. So some of the asset base names that are talking about seeing rates improve as they sign the new contracts. That shouldn't -- you maybe have a less of a benefit from seeing contracts resetting in the second half of the year versus some of your asset-based truckload peers, is that correct?

Oh, absolutely, yes. We have contract rates in a lot of our -- with a lot of our customers. But when the market gets tight, the agent renegotiates the price. So we -- our contract rates are a lot like spot market rates. And it happens the other way too. If the shipper senses that there is rates going down, our agents react and bring the rates down. So we're little bit more subject to change in coming off a contract rates then, because it's a day-to-day transaction by transaction kind of in our world, lot of spot-type business.

Okay, good. That's helpful. Just from a -- a quick follow-up, do you have -- and maybe you gave these for the quarter fourth quarter, the monthly volume comps for October, November and December. And then do you have also have the 2017 January, February and March comps, so we understand what your comping is on a monthly basis for truck volumes?

We do, and Kevin can -- but I'm going to disclaim on the December '17...

That's right. You got the comp, so yes.

Just -- yes, just because October is clean, but this year I believe November had Thanksgiving, but it was in December last year, and so there is a little confusion in the number. And then we have the extra week in '16. But you didn't ask for '16, did you?

No. I was hoping to get what you saw in the fourth quarter of this year. And I understand that, that makes sense about...

I'm sorry. I got ahead of you. All right, Kevin go ahead.

Yes, volumes in October, November and December -- this is just for truck, year-over-year, 13%, 5% and then negative 5%.

And then what about January of '17? So what are you comping against in January, February and March this year?

The first quarter was 10%. Give me a second, I can find the other first quarter numbers.

Jim, maybe while Kevin looks at that, and if this isn't right, can you give a CapEx number for 2018? I don't know if you had that in the release or not?

Yes, about $40 million.

Okay. And that's mostly trailing equipment?

Yes, about $30 million of that is trailing equipment. So $8 million to $10 million on the true cash CapEx.

Load count? So load count for January?

By month and the quarter for last year.

Truckload count, January-over-January '16, Todd?

'17?

The '17 January, February and March, volume growth 15%, 7% and 9%.

Okay, good. Okay, great.

Remember last year, January had a -- the quirk in the calendar. So...

Okay. The quirk was there was what, that from a holiday timing.

It's the time of Christmas.

Yes. January 1 was a Sunday. So we almost had a full week of productivity in the first week of January in '17. That's how we end up with the 15%.

So what you're seeing in January right now is up against actually a more difficult comp in January of '17?

Absolutely.

Yes, yes.

And our last question comes from Scott Group of Wolfe Research.

So I think I heard BCO is flat so far in January. What about the number of approved and active broker carriers? And then do you have a view on at this point what -- how many of your brokers or what percent of your brokers have ELDs?

I'll take the last question first. We really don't have a way to have a true sense of all the carriers and whether or not they have ELDs. It's a -- if you think about it, it's a very difficult thing to validate. We rely on them by following the rules around ELDs just like they follow the rules around any other compliance-related item. And if there is a reason to believe that they don't have it, then we won't keep them as approved. But that's kind of how we think about that. And then, Scott, what was your first question? What was the other part of your question?

Just if you've seen any trend in the change in the number of approved broker carriers since the ELD mandate went into effect? I know you said BCO is flat. I'm wondering if broker carriers are flat or growing?

Carrier count continues to grow in the quarter.

And so far and post ELD?

Yes.

Okay. Okay. The -- was there any notable similar revenue in fourth quarter?

$17 million, and that's for services.

$17 million.

It is after services.

Okay. I know your incentive comp, there was a question earlier. I think it's tied to earnings per share. That target resets higher with the tax rate, correct?

Yes.

Okay.

And not in the way, but we couldn't pull it off.

Okay. And then just last thing, real quick. Did you give a January volume number? I know you said full quarter up high single, but what's January?

I think that's probably where it is just based on that. I think it was high single. We're looking at high-single digits for January.

So I mean, I guess my question is, when you talk about the demand, like if you think about some of the other transports so far, Robinson talked about slower volumes in January, Arkansas Best, rail volumes little bit worst in January. Why do you think you're seeing just something different than with some other carriers? And they've been blaming weather, I think, but...

Yes, well, it's superior management, clearly. Just kidding. That's a hard -- I think that's a hard question for us to answer, because we're looking at a daily load volumes coming through the system, and we don't break it down until the month is over and really pull it apart to see how we did and what commodities, what customers, what agents are driving it. As you said, it's -- for us, it's kind of broad based. But whenever there is weather disruption, we tend to get an elevation. And maybe the other guys don't see that because in our model, right, we got small business all around the country. And if there is a disruption, right, and the shipper knows that Joe Agent is right next door, he can call him and we'll get him a truck, right? So I -- it might just be a little different relationships that we have. Where Robinson is moving a lot of freight and they get disrupted, we're the guys that's stepping in when things get disrupted. So that's why I'm saying, weather might have a little bit to that volume driving in January, and maybe that'll subside a little bit. We're not seeing it as of last week, and the weather's been over for 3 weeks. So it just -- I think it just comes from the different business model and the fact that we've local presence, and we can react quicker on a -- if there is a little bit of disruption in freight patterns.

And our last question comes from Ben Hartford of Baird.

This is actually Zack Rosenberg on for Ben. Just had a quick one. The other revenue line item had a decent spike this quarter. And just wondering, it doesn't seem like that was the insurance side. But just wondering what drove that and what we can expect for the run rate going forward?

The only other thing in the -- this is Kevin. The only other thing in the other revenue are our premium revenues related to the insurance, and then we've got a very small amount we're putting in the Metro, the Mexico acquisitions, that number in there. But that's -- it's a very small. The only other thing in there is premium.

Okay. So it is all premium. And is that a good run rate going forward, that $16 million that we saw?

I think there is $2 million or $3 million of Mexico in there.

$2 million or $3 million, okay.

Yes. So you got to pull that out. So I would go with about $12 million run rate on that line. And then Mexico is $1 million a month, $2 million a month, something like that?

Yes.

Our new -- our Metro entity is probably $1 million to $2 million a month.

$2 million to $3 million, right.

$2 million to $3 million per month.

$2 million to $3 million per month.

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

Thank you, Joe. And thank you, and I look forward to speaking with you again on our 2018 first quarter earnings conference call currently scheduled for April 26, 2018. Have a good day.

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