Landstar System - Q1 2015
April 23, 2015
Transcript
Operator (participant)
Good afternoon, and welcome to Landstar System, Inc.'s first quarter 2015 earnings release conference call. All lines will be in a listen-only mode until the formal question-and-answer session. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are 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 Mr. Jim Gattoni. Sir, you may begin.
Jim Gattoni (Former President and CEO)
Thank you, Dory. 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, 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 2014 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. 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 pre-tax 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 sixteenth. 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 pre-tax 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 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 a 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 29th, 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 reduced 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 in 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 the 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'll pass it over to Kevin for some financial information update.
Kevin Stout (VP and CFO)
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, incremental gross profit was passed to operating income. Had we experienced normalized insurance and claims costs 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 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 twelve-month return on average shareholders' equity was 30%, and trailing twelve-month return on invested capital was 24%. At the end of March, shareholders' equity represented 83% of total capitalization. Back to you, Jim.
Jim Gattoni (Former President and CEO)
Thanks, Kevin. Overall, Landstar had a very good first quarter. Industry fundamentals remained 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, a 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, Dory, we will open to questions.
Operator (participant)
Thank you very much, sir. At this time, we will begin the question-and-answer session. If you would like to ask a question, please press star one on your Touch-Tone phone. Once again, that is star one to ask a question. To cancel your request, press star two. Our first question comes from Bill Greene with Morgan Stanley.
Jim Gattoni (Former President and CEO)
Hey, Bill.
Bill Greene (Managing Director)
Yeah. Hi there. Good afternoon. I'm good. How are you?
Jim Gattoni (Former President and CEO)
Good.
Bill Greene (Managing Director)
Hey, Jim, I wanted to ask you about the current market conditions. As you see, the spot markets seem 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, even quite well, and we're 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?
Jim Gattoni (Former President and CEO)
Well, I think we're gonna continue to see what we saw in March. I, I think it's gonna be relatively stable. I, I think we're gonna see pricing on a revenue per load basis. Historically, what you typically see is maybe... And I, I like to look sequentially, right? So coming off the first quarter, going into the second quarter, we generally see a 2% to 3% revenue per load climb. I, 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, you know, we, we still have pretty strong demand on the van side. And I don't want to say that the flatbed's not strong, it's just kind of level to where it was next year.
But I'd anticipate that we're gonna continue to see this steady, kind of steady rate environment from March into the next quarter. And I think our volumes are gonna still—we still have a lot of demand coming in for van and even on the flat side. So I, I still think we'll see that mid-single digit, you know, growth rate on a volume, which is pretty strong in, in this environment.
Bill Greene (Managing Director)
Yeah. No, that makes sense. Can you talk a little bit about
... how do you think about driving more business to Landstar? Like, one of the challenges that I always have with the model is that it almost looks like you kind of have to accept sort of 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? And so I'm just curious about your thoughts on that.
Jim Gattoni (Former President and CEO)
Well, as we you know, as we always talk about, you know, there are certain ways to grow. You grow organically, or you grow through acquisition, right? And we often look at acquisition opportunities and hesitate to jump into a brokerage model that has company stores. There'd be significant amount of account conflicts, and we really want to protect the model from the entrepreneurial spirit of our agent base. You know, so we drive through organic growth, and we do it through, you know, adding agents to the system and making the agents we have more efficient and effective and helping them do sales calls. You know, so it's kind of the way we have organically grown in the past, and we're going to continue to focus on that.
We, you know, we've got some other tools in the pipeline. We are 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.
Bill Greene (Managing Director)
That's great. I appreciate the time. Thank you, guys.
Operator (participant)
Next question comes from Allison Landry with Credit Suisse.
Speaker 15
Hi, thanks. This is Ken on for Allison. How are you guys doing today?
Jim Gattoni (Former President and CEO)
I'm good. How are you?
Speaker 15
Good. Good. Thanks. So-
Jim Gattoni (Former President and CEO)
Allison, your voice sounds a little different. Allison, your voice is a little different.
Speaker 15
It got a little deeper overnight, I got to admit. So just starting out here, curious what the year-over-year benefit was that you realized in 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.
Jim Gattoni (Former President and CEO)
The convention actually was in the first quarter of both quarters, and it was about $2 million in each quarter, so there won't be any impact on the second quarter.
Speaker 15
Okay, perfect. Thank you. And 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%. So would you expect a similar level in Q2, or should we still stick to your typical guidance of 3.1%?
Jim Gattoni (Former President and CEO)
We're actually at 3. We, you know, we reran it. That's where, you know, the average of the last 5 years is now 3.3. So when we model, we're modeling, we're modeling going forward at 3.3.
Speaker 15
Okay, perfect. Great for clarification. That's all I got for you guys. Thanks a lot.
Jim Gattoni (Former President and CEO)
Yeah.
Operator (participant)
Next question comes from Jack Atkins with Stephens.
Jack Atkins (Research Analyst)
Hey, good afternoon, guys. Thanks for taking my question.
Jim Gattoni (Former President and CEO)
Sure, Jack.
Jack Atkins (Research Analyst)
So Jim, I guess just kind of looking into the specialized business for a moment, you know, the 11% decrease in loads in the 2Q on a year-over-year basis, that really kind of stood out to me at least. Could you maybe give us some color on sort of what you think was driving that? And would you expect that activity to rebound as you move through the year?
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
Jack, this is Pat. I think that, if you looked across the platform, there was some a lot of talk coming into the quarter about oil and, 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 are also, within that oil business, accounts that really have taken off for us, and also machinery accounts that have taken off. So I think there's a lot of capacity that's 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. And I think Jim appropriately outlined, you know, 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.
Jack Atkins (Research Analyst)
Okay. Okay, Pat, thank you for that. And then just to follow up, you know, on the strong BCO adds in the quarter, you know, you referenced that being the strongest quarter of adds since 2006. You know, just again, what do you think is driving that? Is there anything sort of company specific that you guys are doing to sort of add to that BCO count? And would you think that, you know, as you look out over the course of the year, that we should expect sort of similar high, single-digit type growth rates there?
Joe Beacom (VP and Chief Safety and Operations Officer)
Jack, this is Joe. I think the additions of BCOs, really, if you think back to last year, we had a very good add year last year and a lot of good momentum last year really based upon the availability of freight. And I think, you know, being that we're a, you know, 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, you know, 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, you know, 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, and I don't see any sign of that weakening, as we move into the second quarter.
Jack Atkins (Research Analyst)
Okay, Joe, thanks very much for that color, and thanks again, guys, for the time.
Joe Beacom (VP and Chief Safety and Operations Officer)
Yep.
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
Yeah.
Operator (participant)
Our next question comes from Rob Salmon with Deutsche Bank.
Rob Salmon (VP and Senior Analyst)
Hey, good afternoon, guys.
Jim Gattoni (Former President and CEO)
Hey, Rob, how are you doing?
Rob Salmon (VP and Senior Analyst)
Pretty good. You know, could you guys talk a little bit more about the BCO utilization? Have we seen any sort of uptick as we've moved into the month of April? You know, I'm 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's some of the demand trends that that's kind of kept them at bay?
Joe Beacom (VP and Chief Safety and Operations Officer)
... Yeah, Rob, 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's not closed yet, but there really hasn't been any meaningful improvement in April.
Rob Salmon (VP and Senior Analyst)
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, their overall contribution to the Q1 earnings, to Q1 top line, rather?
Jim Gattoni (Former President and CEO)
Yeah, we refer to that as the new agent revenue guys who this is their first full quarter that they're here. So they contributed $22 million in revenue.
Rob Salmon (VP and Senior Analyst)
Okay. Appreciate the time.
Operator (participant)
Once again, to ask a question, please press star, then one. Our next question comes from Tom Kim with Goldman Sachs.
Tom Kim (Senior Industrials Equity Research Analyst)
Hi, good morning. Hi, can I ask you just to follow up on the number of new agents? How does your pipeline look for Q2?
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
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's the case. The pipeline remains well seated, and the number of agents that we're bringing on, we're very satisfied with that. Not only the number, but the quality of the people that are coming on.
Tom Kim (Senior Industrials Equity Research Analyst)
All right, great. That's helpful. And I guess I'm just wondering, you know, 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, you know, the prospects of maybe a special divvy?
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
I prefer the, and we like the share buybacks. I think that's where we're going to focus, what we've done in the past. You know, we have that small dividend, but I'd expect that we're going to be focusing on the buybacks going forward over, you know, over the near term.
Tom Kim (Senior Industrials Equity Research Analyst)
Okay, thank you.
Operator (participant)
Our next question comes from Scott Schneeberger with Oppenheimer.
Daniel Robert Imbro (Research Analyst and Finance Professional)
Hi, guys. It's Daniel in for Scott. Can you take us a little deeper on the end market dynamics and what you're seeing that gives you confidence in sustained business trends into the second quarter here?
Jim Gattoni (Former President and CEO)
Well, you know, it, the end markets, we're highly diversified. When you look at the breakdown of our industry sectors that we provide services to, it's across the board, right? When, you know, even if you take where we talk about machinery as being one of the things we do, it's about 20% of our business, of our revenue. But within that category, the top 25 accounts only make up about 30% of the category, so it's highly diversified. So it's hard to break it down to end markets. You know, that's kind of why we focus on, you know, the, the kind of split the flatbeds to the vans, you know, and then we, even inside the flatbeds, we break it out the heavy haul piece.
You know, as an example, if you were just to pull apart the platform stuff for, for the quarter-over-quarter comparisons, you know, we've had 52 accounts, first, second, 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 less, who were, who decreased more than $250,000. And we had a significant amount of customers who, who kind of stayed consistent, and they're, they're different industries, different sectors. So it's, it's 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 the revenue in the quarter significantly, and it... We don't have much of that now.
It's just broad-based growth, and it's across the board industries right now. So it's hard for us to. You know, a lot of times you'll hear us talk about industrial production or the, you know, durable goods, stuff like that, more than we'll talk about specific industries. Right now, it's just, it seems broad-based, whether it's going up or down, it's not any specific customer or industry is driving it.
Daniel Robert Imbro (Research Analyst and Finance Professional)
Okay, understood. Thank you.
Operator (participant)
Next question comes from Scott Group with Wolfe Research.
Jim Gattoni (Former President and CEO)
Hey, Scott.
Scott Group (Managing Director and Senior Equity Research Analyst)
Hey, afternoon, guys. So why don't you just go back to the nice increase in BCOs, and just wondering for your, 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's low and guys can just make more money out there right now?
Joe Beacom (VP and Chief Safety and Operations Officer)
Scott, this is Joe. I think that, you know, one of the things that we kind of try to keep track of is all 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, you know, 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's kind of... I don't know how that really changes unless the environment or the lifestyle of the trucker really changes materially.
Jim Gattoni (Former President and CEO)
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.
Scott Group (Managing Director and Senior Equity Research Analyst)
Okay, that's helpful. And on the BCO utilization, outside of just missing out on some revenue, there's no cost impact to you guys from the BCOs having lower utilization, correct?
Jim Gattoni (Former President and CEO)
Well, 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 know, you could have some trailing equipment not getting utilized. That's our asset, right? That's our asset risk. We have 8,800 trailers. So 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 a little bit higher. We had some trailers in there that weren't getting utilized... but that's the only impact. Other than that, there's really no impact.
Scott Group (Managing Director and Senior Equity Research Analyst)
Okay. And then just last thing quickly, your guidance for flattish pricing in the second quarter, what is that ex fuel?
Jim Gattoni (Former President and CEO)
What is that ex fuel on the brokerage side? Oh, that, like, what do you flattish-
Scott Group (Managing Director and Senior Equity Research Analyst)
So you're talking about, you're expecting revenue per load in on your trucking business to be flat year-over-year in the second quarter?
Jim Gattoni (Former President and CEO)
Yes.
Scott Group (Managing Director and Senior Equity Research Analyst)
But that includes, at least on the brokerage side, negative fuel, correct?
Jim Gattoni (Former President and CEO)
Yes.
Kevin Stout (VP and CFO)
Yeah, Scott, this is Kevin. That impact in the first quarter was, as Jim said, was about 6% year-over-year. So if you assume the same thing, it's gonna be $20 million to $25 million.
Jim Gattoni (Former President and CEO)
Of revenue on the quarter.
Scott Group (Managing Director and Senior Equity Research Analyst)
Okay. All right. Thank you, guys.
Operator (participant)
Once again, if you would like to ask a question, please press star, then one on your Touch-Tone phone. Our next question comes from Kelly Dougherty with Macquarie.
Kelly Dougherty (Senior Finance Professional and Equity Analyst)
Hi, thanks for taking the question. Just two quick follow-ups on something you said earlier. The first, where 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.
Jim Gattoni (Former President and CEO)
We don't expect it to pick up. I think it was off the, the March run rate. Yeah, we probably, I don't want to say double digits, but we're probably not gonna 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 the first quarter.
Kelly Dougherty (Senior Finance Professional and Equity Analyst)
That's fair. Was the 11% decline down driven primarily by just less activity in the energy industry, or was it something else?
Jim Gattoni (Former President and CEO)
Part of it was wind, and part of it was a little bit of U.S. government, but other than that, it was kind of widespread, so it wasn't particular to any industry. There was some part that was wind towers and blades, and some of it was government, but the majority of it was just spread out across multiple customers.
Kelly Dougherty (Senior Finance Professional and Equity Analyst)
Okay. And then just to follow up on, you know, 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're obviously generating a healthy amount. I'm just kind of trying to size up, you know, what you might be able to do from a buyback perspective.
Jim Gattoni (Former President and CEO)
Yeah, it really doesn't come down to cash. If you think about it, you know, we can. This operates, you know, we can run our working capital off the operations. We don't really have to borrow much money, so we're comfortable. 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. And that level's about, Kevin, $60million to $70 million?
Kevin Stout (VP and CFO)
Yeah.
Jim Gattoni (Former President and CEO)
$60million or 70 million, so that's kind of what our, our limit is. But we'd be willing to take it down to $60million or 70 million in cash. We'll also be willing to jump into the revolver. You know, right now, we have about $190 million available under our unsecured re- unsecured revolver, revolving credit facility. So we'd be- we'd also be willing to use that. So it's, it's, it's cash plus availability on the revolver, and, and like I'm saying, we could probably take the cash down about $70 million.
Kelly Dougherty (Senior Finance Professional and Equity Analyst)
Wow! So it seems like a pretty good runway from a buyback perspective. And then I know it's 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. You know, is there been some kind of change in maybe trying to grow rail, ocean, air, any of that business, you know, more than you had been in the past, or maybe the U.S. West Coast port situation boosted that? Just kind of help us think about the big increase there.
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
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-
Kelly Dougherty (Senior Finance Professional and Equity Analyst)
Okay.
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
You've got a real easy comp. That's part of it. The other part of it is, we've brought on some agents in that space that have produced pretty well for us, and we've had some good action with some existing accounts and some new accounts. But by and large, it's really just an easy comp because of the weather in the first quarter last year.
Kelly Dougherty (Senior Finance Professional and Equity Analyst)
Okay, so no kind of move away from, hey, maybe we're hitting up on some kind of growth limits on the trucking side. We're gonna-
Jim Gattoni (Former President and CEO)
Oh.
Kelly Dougherty (Senior Finance Professional and Equity Analyst)
Maybe see what else is out there.
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
No, not at all. As a matter of fact, you know, we try to position ourselves well in each one of these verticals. But no, there's nothing that says, "Oh, we're gonna move away from truck and move into rail." It's just coincidental.
Kelly Dougherty (Senior Finance Professional and Equity Analyst)
Okay. Thanks very much, guys.
Operator (participant)
Our next question comes from Matt Young with Morningstar.
Matt Young (Senior Equity Analyst in the Industrials Sector)
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? Your agents generally able to service that when a customer asks you to move it on the rails? I know sometimes it can be difficult if you don't have a lot of scale.
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
Matt, this is Pat. Certainly in some markets, there's a 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're doing street turns where we can with equipment, whether it's in smaller markets or challenging markets or out on the West Coast. So, I'm not-- that's not to say we don't have some issues with it, but we try and manage that.
Matt Young (Senior Equity Analyst in the Industrials Sector)
Okay, that's fair. And then looking at the pool of third-party broker carriers, obviously, that's been coming up for you in recent years. Just wondering if those truckers tend to sole source with you guys, or are they using a lot of different intermediaries?
Joe Beacom (VP and Chief Safety and Operations Officer)
Yeah, Matt, this is Joe. I think what our experience has been is that a lot of them try to work with us. You know, they have a priority, but clearly, if an opportunity that is better for them on that given day, they're gonna go to whoever has it. And we're working every day to try to get them to be more loyal to us and keep them in the network, so to speak, and we've had some success with that. But, you know, there is no metric or measurement whereby we would know that. But just from
... talking to them and working with them, we're just trying to make Landstar the priority, and we think we're having some success there.
Matt Young (Senior Equity Analyst in the Industrials Sector)
Great. Okay, thanks.
Operator (participant)
Our next question comes from Todd Maiden with RBC Capital Markets.
Todd Maiden (Equity Research Analyst)
Hey, guys.
Jim Gattoni (Former President and CEO)
Hey.
Todd Maiden (Equity Research Analyst)
Hey. 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, you know, where that is now, and then also, if you had any insight into what your secondary exposure is, you know, how big that could be, you know, more along the lines of, oil and gas-related projects, you know, infrastructure, construction, that sort of stuff. Is that number bigger, or is it the same?
Jim Gattoni (Former President and CEO)
Well, 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. Yeah, it looks like it's about 2% of the revenue. We also split out... We look at that, and then we look at other energy commodity groups, too. But actually, this is 2%, but we grew it about, 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 is some of the, 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. So directly, still, we don't think there's a big impact, but, you know, from capacity coming to the market, I think it's more of the impact. Can't quantify it, but I'd, I'd bet that there's some flatbeds out there available that weren't previously available to haul some of the freight we have.
Todd Maiden (Equity Research Analyst)
Okay. Is that equipment ready to roll when it comes in, when it comes out of oil and gas? I mean, we've heard anecdotal reports that some of it's a little bit dated and, you know, I guess, because some of the projects were shorter haul in nature, that it, you know, the equipment may not be immediately ready for other applications.
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
Todd, this is Pat. It really depends on what they're doing, right? 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 oil field and servicing U.S. Steel or some other account, then they're going to be not as in great a demand as they previously were. So the oil field, the pure oil field hauler, your thesis is correct. They're not typically competing with carriers like us and others for over-the-road transportation.
Todd Maiden (Equity Research Analyst)
All right. And then last question: I know someone had mentioned you know the chance of a dividend earlier. You know you said that buybacks were the priority. I mean would you look at maybe a a special dividend along the lines not what you did last year but the the two years prior to that which was you know considerably smaller than last year's? Or is it is it really just buybacks now?
Jim Gattoni (Former President and CEO)
There were several reasons why the special dividends popped, and one was the sale of the Southfield facilities in the end of 2013, generated a significant gain on sale, and we distributed, I think it was $0.35 a share. We had the... Was it prior to that, with the, we thought the tax-
With the tax.
With the taxes that were going to go, and we were gonna delay our dividend. We were gonna cancel the smaller dividend, so we did a kind of a special dividend at the end of 2012, I believe.
Todd Maiden (Equity Research Analyst)
$0.50, yeah.
Jim Gattoni (Former President and CEO)
$0.50, the end of 2012. So there was specific reason about that one, too. And then last year, what had happened last year, you know, we ended up piling up cash on the balance sheet because if you watched our stock run up from about May to December, you know, we weren't chasing the runup. I, I, I want to say it went from, like, maybe mid $50 up to $80 in a matter of three to four months. So we didn't chase that runup. And while that was happening, we were piling cash up on the balance sheet, so we made a decision to, you know, do a special dividend based on the cash that was on the balance sheet.
So 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, you know, in the environment where you can see it happening. But at this point, I would think, you know, we're not talking about a special dividend, you know, in the short term, but, you know, I'm sure we'll be discussing one every December and make a decision on whether we're going to do one or not.
Todd Maiden (Equity Research Analyst)
All right. Thank you.
Operator (participant)
Next question comes from Tom Albrecht with BB&T.
Tom Albrecht (Equity Research Analyst)
Hey, guys. Most of my questions have been answered, but, you know, I don't know if it was Pat or somebody that kind of made an interesting comment that as some of the carriers that may have been tied to oil and gas start looking for freight, that's 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 sometime?
Joe Beacom (VP and Chief Safety and Operations Officer)
Tom, this is Joe. When you say gauge them, what do you mean by that?
Tom Albrecht (Equity Research Analyst)
Well, just, you know, if you run any numbers where this fleet just was formed in 2014 or earlier this year, you know, as opposed to having been in business several years. I, I don't know if you do that kind of data analysis when you approve a carrier to be part of the brokerage network.
Joe Beacom (VP and Chief Safety and Operations Officer)
We don't, 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 that they've hauled for Landstar over a period of time, right? But on the way in the door, other than a, you know, a safety check, an insurance check, and then getting a contract and so forth, there really isn't a lot of history that we go and grab.
Jim Gattoni (Former President and CEO)
Tom, 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.
Tom Albrecht (Equity Research Analyst)
Oh, yeah. No, I, I know some of them, 1 and 2 truck wonders that are out there, so.
Joe Beacom (VP and Chief Safety and Operations Officer)
A lot of them, yeah.
Tom Albrecht (Equity Research Analyst)
All right, that's all I had. Thank you.
Joe Beacom (VP and Chief Safety and Operations Officer)
Bye, Tom.
Operator (participant)
Once again, to ask a question, please press star, then one on your touchtone phone. Our next question comes from Allison Landry with Credit Suisse.
Speaker 15
Hey, guys. Thanks. Just one more quick one for you here. It looks like the truck broker-- your truck brokerage revenue as a percentage of your total has, you know, shifted to be a little bigger part of your business over the past few quarters relative to BCO. Would you 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.
Jim Gattoni (Former President and CEO)
If we were to assume that the BCOs are going to stay at low, low utilization, yes, I would expect brokerage to exceed BCO going forward. But, you know, we're hoping that the BCOs will eventually get back and increase our utilization and, you know, get back to that 50% of the business. Again, if we can keep growing brokerage, too, it's a battle to see who comes in first, right? So, you know, if it stays as is, I anticipate brokerage will continue to be bigger than BCOs, if utilization stays where it is.
Speaker 15
All right, perfect. Thanks a lot, guys. I appreciate it.
Operator (participant)
Our next question comes from Tom Kim with Goldman Sachs.
Tom Kim (Senior Industrials Equity Research Analyst)
Hi, thanks for letting me in for another one. I just wanted to ask on the growth in commissions to agents. It grew faster than overall revenues in the quarter, and I was just wondering if you could just remind us how that works in terms of, you know, trying to size up the commission side of things. Thanks.
Kevin Stout (VP and CFO)
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. And, because of our shared arrangements with the agents, that's what drove that full 18 basis point increase. Really a mix of, you know, additional, or more brokerage revenue than BCO revenue.
Tom Kim (Senior Industrials Equity Research Analyst)
All right, great. Thank you.
Operator (participant)
Our next question comes from Rob Salmon with Deutsche Bank.
Rob Salmon (VP and Senior Analyst)
Hey, 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 dry van segments?
Jim Gattoni (Former President and CEO)
We have more van operators in the fleet today. I would say probably 65-35, maybe even a little bit north of that. The influx of BCOs that we had last year and so far this year tend to be more van than flat as well.
Rob Salmon (VP and Senior Analyst)
A 65% van, 35% flat, rough split?
Jim Gattoni (Former President and CEO)
That's a rough split, yeah.
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
Perfect. Thanks so much.
Operator (participant)
At this time, I show no further questions. I would like to turn the call back over to you, sir, for closing remarks.
Jim Gattoni (Former President and CEO)
Well, thank you, Dory. You know, we're looking forward to moving into the second quarter, and we, you know, again, volume, volume is strong right now. We're still seeing mid-single-digit growth rates, and, you know, it's just a tougher revenue per load comp moving into the quarter, but we, we feel pretty good about the performance of the first quarter, and, 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 fourth. Have a good day!
Operator (participant)
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.