Landstar System - Q1 2017
April 27, 2017
Transcript
Operator (participant)
Good afternoon, and welcome to Landstar System Incorporated's Q1 2017 Earnings Release Conference Call. All lines will be on the 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, Joe Beacom, Vice President and Chief Safety and Operations Officer. And now I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin.
Jim Gattoni (President and CEO)
Thank you, Rita. Good morning, and welcome to Landstar's 2017 Q1 Earnings Conference Call. This conference call will be limited to 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. Before we begin, let me read the following statement. The following statement is a safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies, and expectations.
Such information is, by nature, subject to the 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. Our 2017 Q1 performance exceeded our expectations. Q1 revenue, gross profit, operating income, and diluted earnings per share were all first-quarter records.
During our February 2 year-end 2016 Earnings Conference Call, we provided 2017 Q1 revenue guidance to be in a range of $725 million-$775 million, and diluted earnings per share to be in a range of $0.70-$0.75. Revenue in the 2017 Q1 was $781 million, and diluted earnings per share was $0.77, both above the high end of the guidance. Revenue exceeded our expectations due to increased loads and revenue per load on loads hauled via truck. Loads hauled via truck in the 2017 Q1 increased 10% over the 2016 Q1, ahead of our mid to high single-digit growth expectation.
In comparing 2017 Q1 truck loadings to the 2016 Q1, the fact that January 1st, 2017 fell on a Sunday and January 1st, 2016 fell on a Friday, favorably impacted our productivity. We estimate that the occurrence of New Year's Day on a Sunday in 2017 versus a weekday in 2016, favorably impacted the number of loads hauled during the 2017 Q1 by approximately 2%. Excluding the favorable impact in January of the timing of New Year's Day, we saw consistent growth in truck volumes in each month of the quarter, with truck loadings increasing over the prior year month by 9%, 7%, and 9% in January, February, and March, respectively. The increase was broad-based among many customers and industries. Our customer base is highly diverse.
Revenue in the 2017 Q1 from our top 100 customers, based on 2016 revenue, was slightly lower than 2016, while revenue from all other customers increased 18% in the 2017 Q1 over the 2016 Q1. As it relates to revenue per load, we expected revenue per load on loads hauled via truck to be equal to or slightly below the 2016 Q1. Revenue per load on loads hauled via truck in the 2017 Q1 was 1% higher than the 2016 Q1.
The trend in revenue per load on loads hauled via truck improved each month of the 2017 Q1, as revenue per load was 2% lower in January 2017 as compared to January 2016, up slightly in February over prior February, and plus 3% in March over prior year March. The favorable trend in the growth rate in revenue per load on loads hauled via truck was partly due to easier March over prior year March comparisons and with favorable gains in unsided platform revenue per load in the 2017 Q1. In March 2017, we experienced a more normal seasonal uptick in revenue per load as compared to February, whereas in March 2016, revenue per load was lower than February. Historically, revenue per load in March is typically slightly higher than February.
The number of loads hauled via rail, air, and ocean carriers was slightly lower than the 2016 Q1, as softness in rail intermodal loadings was mostly offset by increased air and ocean loads. Revenue per load on loads hauled by each of these modes in the 2017 Q1 was below the prior year. Revenue per load on loads hauled via van equipment was 1% below prior year's Q1. The percent decrease was relatively consistent each month of the quarter. Revenue per load on loads hauled via unsided platform capacity increased 5% over the 2016 Q1. The percentage change improved each month as we moved through the quarter. The improvement was somewhat due to easier comparison to prior year's month-to-month trend.
The 5% quarter-over-prior-year-quarter increase was also partly attributable to a 2% increase in the average length of haul. Overall, we have experienced a normal seasonal uptick in revenue per load from December until the end of the Q1. The number of loads hauled via van equipment during the 2017 Q1 was 11% above the 2016 Q1, while unsided platform loadings increased 8%. Overall, volume increases were strong throughout each month of the quarter for both van and unsided platform equipment, but even more so in January as a result of the timing of New Year's Day in 2017 versus 2016, as previously mentioned. The number of loads hauled via Landstar-controlled trailing equipment was-...
mostly van equipment hauled by BCOs and drop and hook operations, with 34% of truck loadings in the 2017 Q1, an increase of 11% over the prior year quarter. Here's Kevin with his review of other Q1 financial information.
Kevin Stout (VP and CFO)
Thanks, Jim. Jim has covered certain information on our 2017 Q1, so I will cover various other financial information included in the press release. Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, increased 8% to $121.6 million and represented 15.6% of revenue in the 2017 Q1, compared to $112.2 million, or 15.8% of revenue, in 2016. The cost of purchased transportation was 76.3% of revenue in the 2017 quarter versus 75.9% in 2016. The rate paid to truck brokerage carriers in the 2017 Q1 was 55 basis points higher than the rate paid in the 2016 Q1.
Commissions to agents as a percentage of revenue were 13 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 by truck brokerage carriers. Other operating costs were $6.9 million in the 2017 Q1, compared to $7.4 million in 2016. This decrease was primarily due to decreased trailing equipment maintenance costs, as the age of the fleet has decreased over the past few years. The company currently has 11,223 trailers in its company-controlled fleet, a 5% increase over prior year, as the number of BCOs hauling Landstar trailing equipment has increased with the increased demand for drop and hook services.
Insurance and claims costs were $14.5 million in the 2017 Q1, compared to $14.2 million in 2016. Total insurance and claims costs for the 2017 quarter were 4.0% of BCO revenue, compared to 4.3% in 2016. The increase in insurance and claims compared to the 2016 period was due to increased severity of accidents in the 2017 Q1 as compared to the 2016 Q1. Selling, general, and administrative costs were $38.3 million in the 2017 Q1, compared to $34.6 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 comp plans.
The provision for incentive comp was $2.9 million in the 2017 Q1, compared to $200,000 in the 2016 Q1. As a result, SG&A expense as a percent of gross profit increased from 30.8% in the prior year to 31.5% in 2017. Depreciation and amortization was $9.9 million in the 2017 Q1, compared to $8.4 million in 2016. This increase was due to the increase in the number of company-owned trailers. Operating income was $52.3 million, or 43% of gross profit in the 2017 quarter, versus $47.9 million or 42.7% of gross profit in 2016. Operating income increased 9% year-over-year.
The effective income tax rate was 36.8% in the 2017 Q1, compared to 38% in 2016. The effective income tax rate, which has historically approximated 38.2%, was 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 $278 million. Cash flow from operations for the 2017 period were $62 million, and cash CapEx was $5 million. There are currently 1 million shares available for purchase under the company's stock purchase program. Back to you, Jim.
Jim Gattoni (President and CEO)
Thank you, Kevin. We continue to attract qualified agent candidates to the model. Revenue from new agents was $17.2 million in the 2017 Q1. Although below our target for new agent revenue, the agent pipeline remains full, and I expect to see improvement in new agent revenue in the upcoming quarters. We ended the quarter with 9,370 trucks provided by business capacity owners, 69 trucks below our year-end 2016 count. However, BCO utilization increased in the 2017 Q1, resulting in a 10% increase in the number of loads hauled by BCO truck capacity. During the 2017 Q1, we recruited more BCOs than we have in recent years' Q1s. However, we also experienced a slightly elevated BCO turnover rate.
We typically experience a net decrease in the number of trucks provided by BCOs during the Q1 of any year. Overall, the net decrease in the number of BCO trucks in the 2017 Q1 was consistent with the typical decrease we've experienced during the Q1 over the past 10 years. We expect continued strength in recruiting in 2017. We had a record number of third-party broker carriers haul freight on our behalf during the 2017 Q1. Our network is strong and continues to attract third-party truck capacity. During the 2017 Q1, we continued to have a challenging insurance and claim cost experience.
Although accident frequency was slightly below our historical frequency experience in the 2017 Q1, increased severity of accidents drove insurance and claim costs to 4% of BCO revenue, compared to 4.3% in the 2016 Q1, both periods well above our historical run rate of insurance and claims as a percent of BCO revenue. I continue to believe that insurance and claim costs will approximate 3.3% of BCO revenue over the long term. However, accidents in the trucking industry can be, can be severe and occurrences are unpredictable. Overall, I'm very pleased with the 2017 Q1 results. 2017 Q1 revenue increased approximately 10% compared to the 2016 Q1 on a 10% increase in the number of loads hauled.
Considering the continued soft U.S. economic environment, especially the soft U.S. manufacturing sector, the Landstar model continued to demonstrate how well we perform even in a soft economic environment, as we generated record Q1 revenue, gross profit, and diluted earnings per share. As it relates to our 2017 Q2 expectations, I anticipate the truck capacity will continue to be readily available in the 2017 Q2. Therefore, I expect gross profit margin to be in a range of 15.3%-15.6% in the Q2, assuming fuel prices remain stable and truck capacity remains readily available. Seasonally, revenue per load on loads hauled via truck in the Q1 is typically lower than the second, third, and Q4s.
During the Q1, we experienced a normal seasonal increase in revenue per load on loads hauled via truck. In early April, we have experienced a continuation of the seasonal trend. I expect those normal seasonal trends to continue in the 2017 Q2, and therefore, expect revenue per load on loads hauled via truck to be higher than the 2016 Q2 in a range of 1%-3%. I also anticipate the normal seasonal increase in number of loads hauled via truck from the Q1 to the Q2, after taking into account the favorable impact of the timing of New Year's Day in the Q1.
Therefore, I expect the number of loads hauled via truck in the 2017 Q2 to increase over the prior year Q2 in the mid- to high-single-digit percentage range. Based on the continuation of recent revenue trends, I currently anticipate 2017 Q2 revenue to be in a range of $820 million-$870 million. Based on that range of revenue, and assuming insurance and claim costs are approximately 3.3% of BCO revenue, I anticipate 2017 Q2 diluted earnings per share to be in a range of $0.84-$0.89. Our 2017 Q1 results were above expectations, even with the soft operating environment and low economic growth in the U.S.
Even with the soft pricing, 2017 Q1 diluted earnings per share were the highest Q1 diluted earnings per share in the company's history. We continue to focus on profitable load volume growth and increasing our available capacity to haul those loads. With continued load volume growth, we are well positioned for when the pricing environment improves. And with that, Rita, we are ready for questions.
Operator (participant)
Thank you. At this time, we will begin a question-and-answer session. If you would like to ask a question, please press star one on your phone. Once again, that's star followed by one to ask a question, and to cancel your request, press star followed by two. The first question in queue comes from Amit Mehrotra from Deutsche Bank. Your line is now open.
Jack Atkins (Research Analyst)
Hey, guys, this is Seldon Clarke on for Amit.
Jim Gattoni (President and CEO)
Hey, good morning.
Jack Atkins (Research Analyst)
Good morning. So I know you talked about the Landstar model and its ability to attract agents and stuff like that, but can you give me a little more color on what's driving this load growth? And is it, is it more shippers kind of heading to the spot market? Is it, you know, winning share?
Jim Gattoni (President and CEO)
Sure.
Jack Atkins (Research Analyst)
Can you give me a little more color there?
Pat O'Malley (VP and Chief Commercial and Marketing Officer)
This is Pat O'Malley. I would say it's all those things. Clearly, it's bringing on new agents. That's automatic market share. I think if you, if you harken back to Jim's opening comments, and he talks about being broad-based and across many industries and customers, I think that demonstrates the power of the model and the natural diversification that comes from using agents to generate revenue. So to answer your question, it is, it's, it's all of those.
Jack Atkins (Research Analyst)
Okay. And so is the current just like, looseness helping you guys take share? Kind of like just wondering if things tighten up and like, you have a little bit tighter of... I mean, the, the advantage of contract versus spot shrinks a little bit. Does that reduce your ability to take share, like, outside-
Jim Gattoni (President and CEO)
I don't think historically, whether it's in a tight market or a loose market, we see the impact on our load volumes. So I don't think it's a market condition other than our agents are executing well in the environment they're playing in right now.
Jack Atkins (Research Analyst)
Okay. Okay. All right. That's helpful. And then can you just talk about a little bit about the supply-demand dynamic in dry van versus flatbed and how kind of that has trended recently?
Jim Gattoni (President and CEO)
Well, I think on the van side, we're pretty consistent over the last, you know, even back into 2016. I think we're still seeing that consistency of, you know, more readily available capacity. But I'd say we're consistent about where we were on the van side back compared to Q1 of last year.
Jack Atkins (Research Analyst)
Okay.
Jim Gattoni (President and CEO)
I know... I think we're seeing a little bit of tightening on the flatbed side because we saw rates climbing, you know, as we moved through the quarter.
Jack Atkins (Research Analyst)
Right.
Jim Gattoni (President and CEO)
So I, you know, a little bit's coming regionalized. You know, you're looking at that Texas region is coming off a, to what I would consider, a pretty low point in the 2015, 2016 periods. So I think there's a little bit of that, you know, fracking business or oil and gas kind of... It's not picking up a lot, but it's starting to tighten up the flatbed side. So from a comparison standpoint, to sum up, I'd say that the vans are pretty consistent on the available capacity throughout 2016 and where we sit today, but it feels like a little bit of the flatbed market's tightening up a little bit.
Jack Atkins (Research Analyst)
Okay.
Jim Gattoni (President and CEO)
Nothing extreme, but I think that's where we're seeing some tightness.
Jack Atkins (Research Analyst)
So, you're kind of seeing people go back to that, like, I know you saw some capacity come into your end market just because of the fracking and stuff like that, so you're seeing some capacity, I guess, leave your end market and head back to the energy?
Jim Gattoni (President and CEO)
Well, clearly out in Texas, yes. I mean, clearly regionalized. I think, you know, I think that area for us grew about 18% in that region, and it was a lot of driven by the flatbed business going in and out of Texas.
Jack Atkins (Research Analyst)
Okay, great. That's very helpful. That's it for me.
Operator (participant)
... And our next question comes from Mr. Scott Group from Wolfe Research. Your line is now open.
Jim Gattoni (President and CEO)
Hey, Scott.
Scott Group (Managing Director and Senior Analyst)
Hey, thanks. Morning, guys. So, wanted to just follow up on capacity. So, Jim, you said you expect it to be readily available in the Q2. When you talk to the truckers, everyone seems to think it's going to get tighter in the second half of the year. I'm curious your thoughts on truckload capacity in the second half of the year. And as you think back historically, does flatbed tend to tighten first, and that's usually a good sign that it's about to come in dry van?
Jim Gattoni (President and CEO)
Yeah, I, you know, I would- I don't know where those comments come on the tightening in the second half unless someone really thinks there's gonna be an increase in demand. I mean, economically, I can't speak to what I think is gonna happen in the economy. I, I would expect, you know, what's going on with the administration and some of the things they're trying to do sound all great and, but when is that gonna kick in on regulation or tax or all the other stuff? I don't see manufacturing picking up over the next six months. If they're talking about the very back half in ELDs, yeah, maybe there's a pickup there in tightening. There aren't a lot of trucks coming out of the system. Demand is relatively stable.
I would say we're gonna stay in this market at least through the Q2 and into the third. So, yeah, I don't see that tightening of capacity anytime in the short term. And, what's leading the flatbed, I guess, what's driving is the consumer or heavy industry. You know, right now, it seems to be some of the industry, some of the oil and gas stuff driving that flatbed market. You know, if this infrastructure stuff kicks in or the wall kicks in, you'll see a tightening in the flatbed before you see the van, right?
Scott Group (Managing Director and Senior Analyst)
Right.
Jim Gattoni (President and CEO)
And we've seen, like, for a while, the van's been relatively chugging along flat. And to see the flatbed, that I do think that's a positive on the economic trends.
Scott Group (Managing Director and Senior Analyst)
Okay. And what is your latest kind of view on ELDs and your conversations with the truckers that you're dealing with on the brokerage side, or your ability to keep finding truckers? What are they telling you about ELDs, and what's your expectation for the market impact?
Joe Beacom (VP and Chief Safety and Operations Officer)
Hey, Scott, this is Joe. Right now, there's a big wait-and-see mentality from most of the small carriers, right? I think a lot of them are still optimistic that maybe Trump will take this thing and put it on the back burner or that OOIDA might come through with some court challenge that makes a difference. So I think there's a big wait and see with from the small guys. And as you know, a pretty good percentage of our brokerage capacity comes from small carriers. But if you think about it, you know, even our BCOs, not everybody's converted to an ELD as yet. They're waiting to see, and for a few reasons, but primarily, it's an additional cost to them, right? So right now, they're doing paper logs. They're getting along fine.
If you go to an ELD, it's 30-something dollars a month in airtime, and they're just trying to avoid the airtime. I think the mentality from most capacity providers, small prep capacity providers, is that they're agreeable to the fact, to the notion that they're gonna have to get it done, but they're gonna wait till the last minute. So I don't anticipate a huge exit of capacity from the overall marketplace or certainly amongst our BCO community. But I do think you will have some, but it'll be very late in the year, this year, and a big impact, probably a bigger impact in 2018.
Scott Group (Managing Director and Senior Analyst)
Okay, that's helpful. If I could just ask one last thing. Can you just remind us some of the cost comps, maybe by quarter on the IT rollout and agent convention and, and how those compare versus this year from a quarterly expectation?
Kevin Stout (VP and CFO)
Yeah, Scott. If you go back to our Q1 release, we, I highlighted a couple items there. We think the agent workflow IT project is gonna be similar to slightly up this year as compared to last year. I think we gave a range of $6.9 million-$9.5 million for the year. Obviously, incentive comp is a headwind this year. We, you know, that we're booking about $8-$9 million now on an annual basis. And as far as the convention goes, it was in the same period this year as compared to last year. It's a Q2 event in both. So you'll see that it's about $2 million that will hit in the Q2.
Scott Group (Managing Director and Senior Analyst)
Okay. Thank you, guys, very much.
Kevin Stout (VP and CFO)
Yep.
Operator (participant)
Our next question comes from Jack Atkins from Stephens. Your line is now open.
Jack Atkins (Research Analyst)
Hey, Jack.
Hey, guys. Good morning. Thanks for the time. Just wanted to dig in again on the strong volume growth, you know, just going back to the first questioner, because, you know, I think, you know, when you kind of compare your results versus other folks in the transactional market, you guys are clearly outperforming. And just kind of want to, if you could, kind of go back to that for a moment and just kind of think about sort of again, markets.I know, you know, you talked about strength both in van and unsided, but, you know, can you maybe kind of drill into that again, in terms of sort of what do you think really is sort of driving that volume growth, which, you know, I think is in a market that's really in equilibrium otherwise?
Jim Gattoni (President and CEO)
Well, I think there's a little bit of the uniqueness of our model, right, Jack? We, you know, our guys, they, as we always say, they eat what they kill, are small business owners, and our, our role here is to support them and give them the tools they need to succeed. And they're just hitting the market hard right now, and I think they're executing very well. And, you know, there's a... Like I said, there's a lot of demand for our trailing equipment and the drop and hook side. Flatbed's starting to lift a little bit compared to where we were. I think, you know, if you look back at 2015, 2016, heavy haul growth and load volume was negative every month for 2015 and 2016, except for maybe one or two months.
And we've just finally seen heavy haul start to lift a little bit. So I think there's a lot of, in our niche markets and some of the special stuff we do, is where we're getting that that penetration into into the marketplace. We're expanding into different, you know, some of the retail stuff, not that we're moving retail, but some of the large retailers are looking at us for some of those more lane-driven moves in when there's when they need capacity. So I think we're expanding in the in. And it's all about our agents bringing us into some new markets, and along with the growth in the flatbed side and the demand on our drop and hook services. So, you know, it's like we always say, it's very broad-based, and it continues to be that way.
The reason it's hard to describe, like, when we, as I said before, our top 100 customers in this Q1 were actually flat to down last to last year's Q1. The growth came from every customer that's smaller than that. And we just really expand our customer base in these type of environments. You know, it's customers doing $500,000 a year with us. It's those kind of customers currently driving it, and we penetrate into the smaller markets.
Jack Atkins (Research Analyst)
... Okay. Okay, Jim, thanks for that additional color. And then just for my follow-up question, you know, I'd like to ask sort of a bigger picture question about, you know, automation. And, and, you know, we've been hearing, you know, from accounts, the, you know, increasing concern with some folks that are tied to the brokerage industry around, you know, potential disintermediation from guys like an Amazon or an Uber, you know, as customers look for more rate visibility, more capacity visibility. I'm just sort of curious, you know, how you guys think that the industry is going to trend here over the next several years with regard to automation and a more of a focus on technology? And you know, how do you think Landstar plays into that going forward? Because I know you guys are investing in technology as well.
Jim Gattoni (President and CEO)
Yeah, putting Amazon aside, let's just talk about those, we call them digital freight matching or the Ubers of transportation. They're replicating what we have. I mean, we already, you know, we send out 250,000 load alerts a week. We're automated, right?
Jack Atkins (Research Analyst)
Right.
Jim Gattoni (President and CEO)
And our capacity can put in a submission of where they want to go, at what price they want to go there. All that technology that people are talking about exists today, and we're using it. So from a technology standpoint, it's really not a concern. What you're I think what we're dealing with is guys who are trying to get into the brokerage industry and just play a price game.
Jack Atkins (Research Analyst)
Yeah.
Jim Gattoni (President and CEO)
The bigger concern is, you know, it's hard to compete against companies that don't want to make money. That's really what we look at, right? Amazon being a different story, they already have scale, and they already have a network. That competition is probably a little more real than I think. I'm not saying that the digital freight matching companies aren't real, and we're not paying attention to some of the stuff they're rolling out. But Amazon is a little bit different in how they play into the game. But again, you know, we have assets, we have trailers in the system. We specialize in heavy specialized, that type of stuff. We're not necessarily in e-commerce. So, you know, do they -- are they going to go into our niche markets?
Maybe, but I think we can compete pretty well there. I mean, we're well positioned, you know, we're deep inside customers. We're part of the, you know, strategic plans of a lot of our customer base. So I think we're well positioned to compete against any of these guys. Amazon being the, you know, that's, that is the bigger picture, to take a look and watch what they're doing.
Jack Atkins (Research Analyst)
Okay, Jim, thanks very much for the insight.
Jim Gattoni (President and CEO)
Sure.
Operator (participant)
Our next question comes from Mr. Todd Fowler from KeyBanc Capital Markets. Your line is now open.
Jack Atkins (Research Analyst)
Great, thanks. Good morning, everyone. Jim, just a question about when you see, you know, the increase in the unsided business come back, given the higher revenue per load. You know, I understand that the splits on that are relatively the same, but are there other costs, you know, through the business to support that? Or when you're getting that higher revenue per load, and, you know, that additional revenue coming back, is essentially the operating margin better on that business? Is that a big contributor to the mix shift, as we think back to the margins that you guys had in 2014 and 2015?
Jim Gattoni (President and CEO)
It is not from a gross margin perspective. It may be slightly better, but it wouldn't be something you'd notice. So I don't think from a margin perspective, it's really about just it's a higher revenue per load, but it's not driving bigger margin. But when you the other piece you got to think about is, on the flatbed side, most of those trailers are provided by the BCOs, whereas on the van side, you know, 60% of the van, it's like, 60% of our van is on our trailers, but like 40% of the flat is on our trailers. So you have a higher PT rate, but lower operating costs.
Jack Atkins (Research Analyst)
Okay, got it.
Jim Gattoni (President and CEO)
So there's a little mix in there, but it moves so slow, you don't see it. That is not something you see transition within a 12-month period. It could be a long-term thing, but it, you, you wouldn't see the impact over the year.
Jack Atkins (Research Analyst)
Okay, that helps. But then on, like, the SG&A side and, like, the other operating expenses, there, there's no additional costs, or there's no unusually higher costs on the flatbed side. Those are relatively consistent.
Jim Gattoni (President and CEO)
Right. Yes.
Jack Atkins (Research Analyst)
Okay, got it. And then just a couple of quick ones on the Q2 guidance. Can you talk about the impact of the timing of the Easter holiday? We're obviously through that. So what sort of impact did that have for you on April, and how has that factored into the Q2 this year? And I know you gave some comments on insurance, and I think longer term, you're expecting it to be back at that normalized level of the 3.3% of BCO. But what are you expecting in the Q2 guidance?
Jim Gattoni (President and CEO)
We are, for insurance, we continue to expect the 3.3% be back to our normal historical trend, again, subject to, you know, the unpredictability of accidents. But on the effect of that Easter holiday, Kevin, it was, like, a couple thousand. We didn't mention it because it's, like, a couple thousand. It might be 2,000 loads at most on the impact of the way the holiday fell this year compared to last year. So it's not material to the quarter.
Jack Atkins (Research Analyst)
Okay, good.
Jim Gattoni (President and CEO)
Yeah.
Jack Atkins (Research Analyst)
I'm sorry, go ahead.
Jim Gattoni (President and CEO)
We talked about the reason we spoke, I spoke to the effect of January 1st, is because of sequential trend into the Q2. If you notice that we grew volumes 10%, you know, Q1 2017 over Q1 2016, and then we said mid- to high-single digits for the Q2, and that's really just to point out the reason we grew 10% was partly due to the about 8,000 loads we got in the Q1 due to the comparison.
Jack Atkins (Research Analyst)
Okay, so no big impact year-over-year.
Jim Gattoni (President and CEO)
No.
Jack Atkins (Research Analyst)
But when we think about the trend sequentially, that's where we're... And it's more on the, the New Year's holiday versus the Easter holiday.
Jim Gattoni (President and CEO)
Yeah, much bigger impact on the New Year's holiday than, than the Easter holiday.
Jack Atkins (Research Analyst)
Okay, sounds good. Nice quarter, guys. Thanks for the time.
Jim Gattoni (President and CEO)
All right. Thanks, Todd.
Operator (participant)
Once again, to all of our audio participants, if you'd like to ask a question, you may press star followed by one and record your name when prompted. Our next question in queue comes from Mr. Matt Elkott from Cowen. Your line is now open.
Matt Elkott (Analyst)
Hi, good morning, guys.
Jim Gattoni (President and CEO)
Morning.
Matt Elkott (Analyst)
Just what percentage of, of your BCOs do not have an ELD in their tractor today?
Joe Beacom (VP and Chief Safety and Operations Officer)
It's about right about 24%, Matt. This is Joe.
Matt Elkott (Analyst)
Hey, Joe. Okay, thanks. Now, I've always viewed you guys are really on the front lines of trucking because of the spot market because it's primarily, you know, an independent operator business, and it's diversified. And, you know, we all know how OOIDA feels about ELDs and how independent operators feel in general about ELDs. Is there any concern at Landstar that a significant percentage of that 24% just won't install the ELD, and therefore, your capacity will tighten, you know, materially, come this time next year?
Joe Beacom (VP and Chief Safety and Operations Officer)
Yeah, Matt, so we are in the process of talking to them. There's about 2,200 BCOs that don't have an ELD today. The reason they don't have one today is because they don't really have roadside violations for logbook, so we've not required them to get one. We are talking to them as we speak. We've talked to about half of them to find out what their plan is, to try to uncover the very questions that you just asked. It's a very, very small percentage that are really contemplating doing anything but waiting until the last moment, right? So, they understand they will have to get one. They accept that.
It's purely a big brother and a cost-related issue, but they don't intend to abandon the industry. They don't intend to leave Landstar in great numbers. They're just not anxious to absorb that $30 a month, or whatever it might be, in airtime charges unnecessarily when they're perfectly happy doing it on paper. That's the sentiment from the BCOs that we've talked to thus far. And again, that's over 1,000 BCOs that we've talked to one-on-one to get that assessment. So, and as it relates to, you know, the sentiment towards ELDs in general, there was a surprising positive sentiment from a large percentage of our BCOs when we started to implement ELDs pretty rigorously in 2013, and that really hasn't changed.
I think there is a fear and a more of a principled objection to ELDs, but once they're installed, the BCOs tend to adopt them, use them. We've done a pretty nice job of integrating them to provide some efficiencies in the way of fuel tax, as well as log submission. So, again, I think it's not gonna be a huge disruption at the end of 2017 for us on the BCO front.
Matt Elkott (Analyst)
Okay. I appreciate it. If I recall back in the 2014 timeframe, when the market was very hot, you know, I remember the utilization of BCOs, they were running very often. They were running more loads than typical because there was just so much freight available at good, you know, at attractive pricing. And then before the market really cooled off, they started to slow down, and the utilization started to slow because they had such a profitable, you know, quarter or two, that they didn't need to run as much, if I recall correctly. What I was thinking, or my concern is that they're getting in as much as they can right now. You guys are clearly outperforming on a volume perspective.
I mean, just generally speaking, my concern is that they're working, you know, as hard as they can now because they know that things may change over towards the rest of the year. But it sounds like you guys are very comfortable with where things are. So that was the genesis of the question. So I appreciate where you're coming from on that. Thank you.
Joe Beacom (VP and Chief Safety and Operations Officer)
My pleasure, Matt.
Operator (participant)
Our next question in queue comes from Mr. Todd Fowler from KeyBanc Capital Markets. Sir, your line is now open.
Todd Fowler (Analyst)
Great. Thanks, thanks for taking the follow-up. Jim or Kevin, I know you gave some comments on the cost side related to the IT rollout. But I think when we spoke at the Analyst Day a year or so ago, the thought process was gonna be it's a gradual rollout and see how the implementation goes. I was just wondering if you can give an update at this point, you know, how many agents are on the new platform and kind of what the feedback has been? And a little bit more of an update on kind of the timing over the next couple of years and kind of how the progress has been going.
Jim Gattoni (President and CEO)
Well, we're still kind of in a prototype atmosphere, where we have two agents utilizing the system. I will say we are a little bit behind. We hope to catch up over the summer this year, where we start a rollout to a limited number of agents, is kind of where we stand. Nothing that's unexpected. I mean, it's an IT rollout, and I think we're pretty happy with where we are on it. And we just have a lot going on. We have a big weekend coming up, doing some testing again. But it's ...
The two agents that are on it love the system, and all the agents we rolled it, we demonstrated at the convention two weeks ago, and they're very excited to be getting it. And we're just kind of more of a wait and see, and hopefully by the next call, I'll tell you that we're starting to, you know, put more agents onto the system.
Todd Fowler (Analyst)
Okay, so it sounds like at this point, you know, still on track with what you initially had thought, but maybe just a little bit of a more gradual from a timing perspective. And I guess, Jim, I'm asking a little bit, you know, no big change on the cost standpoint and the timing at this point.
Jim Gattoni (President and CEO)
No, no, no, no, no big change. We said 6.5-9.5 this year on the project. We expect those numbers kind of to continue for the next couple of years as we roll it out. But there's no change to the plan and no change to our expectations of how this is gonna roll out. We're probably 6-12 months behind of, you know, our planned 3-5-year project.
Todd Fowler (Analyst)
Okay. Okay, that helps. And then just to clarify, you know, with the agent convention, you know, coming in the Q2, SG&A in the Q1 was $38 million. The agent convention's typically, you know, $2 million-$3 million. So is that what we should expect for the step-up, Kevin, in the SG&A expense in the Q2? And then that comes down again in the third and fourth, or how do we think about just the SG&A costs as we move through the rest of the year?
Kevin Stout (VP and CFO)
Yes, that's right, Todd. The agent convention's $2 million-$2.5 million. All of that will be booked in the Q2, so there'll be no impact to the third or the fourth.
Todd Fowler (Analyst)
Okay. And then just the last one I had, and I apologize if you gave this, but was there any update on a CapEx number and where you stand from investing in the trailer fleet at this point?
Kevin Stout (VP and CFO)
You know, because of the CARB regulation, we've turned over our fleet over the past five years. We're gonna have dramatically less as far as CapEx goes. You know, we do the trailers by capital lease anyway, so you won't see that in the CapEx numbers on the cash flow. But we had $5 million CapEx in the Q1. Part of that was the Laredo facility we opened in January. But we still expect, you know, 8 to 8 million dollars, that's our run rate for on an annual basis, if you exclude the Laredo on you know for each quarter, probably $2 million CapEx.
Todd Fowler (Analyst)
Okay. Sounds good, guys. Thanks, thanks for the follow-up.
Operator (participant)
At this time, I show no further questions. Now, I'd like to turn the call back over to you, sir, for your closing remarks.
Jim Gattoni (President and CEO)
Thank you, Rita, and thank you, and I look forward to speaking with you again on our 2017 Q2 Earnings Conference Call, currently scheduled for July 27th. Have a nice day.
Operator (participant)
Thank you for joining the conference call today. Have a good afternoon, and please disconnect your lines at this time.