Landstar System - Q3 2015
October 22, 2015
Transcript
Operator (participant)
Good afternoon, and welcome to Landstar System Incorporated's third quarter 2015 earnings release conference call. All lines will be in 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 Mr. Jim Gattoni, President and CEO, Mr. Kevin Stout, Vice President and CFO, Mr. Patrick O'Malley, Vice President and Chief Commercial and Marketing Officer, Mr. Joe Beacom, Vice President and Chief Safety and Operations Officer. Now, I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin.
Jim Gattoni (President and CEO)
Thank you. Good afternoon, and welcome to Landstar's 2015 third quarter earnings conference call. This conference call will be limited to 1 hour. Due to a high level of participation on these calls, I am requesting that each participant have a 2-question limit. Time permitting, we can circle back for additional questions. But before we begin, let me read the following statement. The following is a safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies, and expectations.
Such information is by nature subject to uncertainties and risks, including, but not limited to, the operational, financial, and legal risks detailed in Landstar's Form 10-K for the 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. Before I go into my more detailed prepared remarks, let me touch on a few third quarter highlights. The number of loads hauled via truck increased 8% over the 2014 third quarter on strong demand for van and LTL services.
Excluding a significant award for flatbed services that began in April 2015, core unsided platform loading slowed into the third quarter, and heavy specialized services continued to be soft. Revenue per load on loads hauled via truck was 6% lower than the 2014 third quarter. We attribute that decrease to lower diesel fuel prices, a slight decrease in the average length of haul, and somewhat softer demand. Gross profit margin was 15.1%, compared to 14.8% in the 2014 third quarter, mostly due to a lower rate of purchased transportation paid to truck brokerage carriers. Now for my more detailed comments.
Revenue for the 2015 third quarter was $842 million, at the lower end of the range of previously issued guidance of $830 million-$880 million. Revenue in the 2015 third quarter increased 3% over the 2014 third quarter. The increase was a result of increased truck revenue of 2% and a 21% increase in rail, air, and ocean revenue. The increase in truck revenue was driven by an 8% increase in the number of loads hauled via truck over the 2014 third quarter, partly offset by a 6% decrease in revenue per load on loads hauled via truck brokerage carriers. Overall, revenue per load was negatively impacted by the effect of lower diesel fuel prices on loads hauled via truck brokerage carriers.
Revenue hauled via truck brokerage carriers comprised 50% of truck revenue in the 2015 third quarter. As it relates to revenue per load compared to the prior year, rates held relatively stable throughout the 2015 third quarter. Revenue per load on loads hauled via BCO capacity, which excludes the effect of fuel surcharges billed to customers, was only 2% below prior year's third quarter. That decrease is mostly due to a slightly shorter length of haul in the 2015 period. Revenue per load on loads hauled via broker carrier capacity, which includes the effect of fuel surcharges billed to customers, was 10% below prior year's third quarter. I estimate that the effect of lower diesel fuel prices decreased revenue per load by 6% on loads hauled via truck broker carriers.
Revenue per load was also impacted by a slight loosening of capacity compared to 2014. During the 2015 third quarter, loads hauled via van equipment remained strong. The number of loads hauled via van equipment increased 6% over the 2014 third quarter. There continues to be strong demand for transportation services requiring Landstar-provided van equipment. Approximately 1/3 of Landstar's truck revenue in the 2015 third quarter was hauled on Landstar trailer equipment, mostly drop and hook van services. The number of loads hauled via unsided platform equipment in 2015 third quarter was 14% above the 2014 third quarter, entirely due to a large award that began in April 2015 from one account in the automotive sector. Demand for heavy specialized services continues to be soft.
Overall, unsided platform loadings, excluding the loadings resulting from the award from the single account, softened during the 2015 third quarter. We expect the softness in the core unsided platform services to continue through the remainder of 2015. On a final note, as it relates to revenue per load on loads hauled via truck, we came into 2015 expecting slightly higher revenue per load as compared to 2014. Those expectations did not consider the significant drop in diesel fuel prices, which have decreased over 25% since year-end 2014. We also were well aware that the record revenue per load on loads hauled via truck in 2014 was going to make for tough comparisons.
Given the 6% decrease in revenue per load on loads hauled via truck in the 2015 third quarter, we executed on driving a 5% increase in third quarter gross profit. The increased revenue in rail, air, and ocean services compared to the 2014 third quarter was driven by strong execution by our existing agent base, increasing volumes hauled by those modes by 29% over the prior year quarter. Gross profit, representing revenue less the cost of purchased transportation and commissions, increased 5% over the 2014 third quarter. The 2015 third quarter gross profit margin increased to 15.1%, compared to 14.8% in the 2014 third quarter.
The increase in gross profit margin resulted mostly from a 143 basis point decrease in the rate of purchased transportation paid to truck brokerage carriers. During the 2015 third quarter, revenue per load on loads hauled via truck brokerage carriers decreased 10%, while the cost of purchased transportation on those loads decreased 11%. The decrease in the cost of purchased transportation paid to truck brokerage carriers was mostly the result of lower diesel fuel prices and partly due to a loosening of available capacity as compared to 2014. During the 2015 third quarter, we net added 133 trucks provided by BCOs and ended the third quarter with over 9,400 trucks provided by BCOs, the highest number of trucks provided by BCOs in Landstar history.
Additionally, we had the highest number of truck broker carriers haul Landstar loads compared to any quarter in Landstar's history. Landstar ended the 2015 third quarter with a total truck capacity network of over 51,000 providers, nearly 6,400 over the 2014 third quarter. Both approved and active truck broker carrier counts were at record levels at the end of the 2015 third quarter. New agent revenue, representing revenue from agents who joined the company after July 1, 2014, contributed $21 million of revenue in the 2015 third quarter, while revenue to existing agents increased 2% over the 2014 third quarter.
As it relates to the company's customer account base, the company's top 100 customers, ranked by 2014 third quarter revenue, comprised approximately 42% of the 2015 third quarter total revenue. 2015 third quarter revenue from those top 100 accounts increased 1% over the 2014 third quarter, while revenue of customers beyond the top 100 increased $19 million, or 4%, over the 2014 third quarter. With over 25,000 bill-to customers, the customer account base is highly diversified. From an industry standpoint, revenue from the automotive sector and hazardous materials both showed double-digit % growth over the 2014 third quarter, while energy-related freight and foodstuff decreased at a double-digit %.
The automotive increase was primarily due to one customer, while the decrease in foodstuffs was also mostly due to one customer. During the 2015 third quarter, automotive freight represented 12% of total revenue, hazardous materials was 7%, energy-related freight was 4%, and foodstuffs was 5% of total revenue. I will now pass it to Kevin for additional comment.
Kevin Stout (VP and CFO)
Thanks, Jim. Jim has covered certain information on our 2015 third quarter, so I will cover various other financial information included in the press release. Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, increased 5% to $126.8 million and represented 15.1% of revenue in the 2015 third quarter, compared to $121.1 million, or 14.8% of revenue, in 2014. The cost of purchased transportation was 76.7% of revenue in the 2015 quarter versus 77.3% in 2014.
The rate of purchased transportation paid to truck brokerage carriers in the 2015 third quarter was 143 basis points lower than the rate paid in the 2014 third quarter and 45 basis points lower than the rate paid in the 2015 second quarter. The decrease in the cost of purchased transportation was mostly due to the effect lower diesel fuel costs have on revenue and the cost of purchased transportation on freight hauled via truck brokerage carriers. The favorable impact of lower diesel fuel costs was somewhat offset by a decrease in the percentage of revenue contributed by BCOs in the 2015 third quarter, which has a lower cost of purchased transportation.
Commissions to agents as a percentage of revenue were 34 basis points higher in the 2015 quarter as compared to 2014 due to an increased net revenue margin, revenue less the cost of purchased transportation, on loads hauled by truck brokerage carriers. Other operating costs were $8.7 million in the 2015 third quarter, compared to $6.5 million in 2014. This increase was primarily due to increased trailer maintenance costs and decreased gains on the sale of used trailer equipment. The company has increased its company-controlled trailer fleet to 10,072 trailers, a 7% increase over prior year, as the number of BCOs hauling Landstar trailer equipment has increased with the increased demand for drop and hook services.
Insurance and claims costs were $10.5 million in the 2015 third quarter, compared to $12 million in 2014. Total insurance and claims for the 2015 quarter were 2.7% of BCO revenue, compared to 3.1% in 2014. The company experienced decreased severity of accidents in the 2015 period as compared to 2014. Selling, general, and administrative costs were $36.8 million in the 2015 third quarter, compared to $36.2 million in 2014. The increase in SG&A costs was primarily attributable to increased employee wages, increased professional fees, and increased stock-based compensation expense, partially offset by decreased provision for bonuses under the company's incentive compensation program. Although SG&A dollars increased slightly year-over-year, SG&A expense as a % of gross profit decreased from 29.9% in the prior year to 29% in 2015.
Depreciation and amortization was $7.2 million in the 2015 third quarter, compared to $7.1 million in 2014. This increase was due to the increase in the number of trailers. As it relates to operating leverage, operating income was $64 million, or 50.4% of gross profit in the 2015 quarter, versus $59.6 million, or 49.2% of gross profit in 2014. Operating income increased 7% year-over-year and was the highest third quarter operating income in Landstar history. During the 2015 third quarter, 77% of incremental gross profit was passed to operating income. The effective income tax rate was 37.8% in the 2015 period, compared to 37.5% in 2014.
The effective income tax rate, which historically is 38.2%, was impacted in both periods by tax benefits resulting from disqualifying dispositions of the company's stock. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $158 million. Cash flow from operations for the 2015 year-to-date period was $148 million, and cash capital expenditures were $4 million. During the 2015 year-to-date period, we purchased 1.7 million shares of Landstar common stock at a total cost of $113 million, and there are currently 2.6 million shares available for purchase under the company's stock purchase program. At the end of September, shareholders' equity represented 83% of total capitalization. Back to you, Jim.
Jim Gattoni (President and CEO)
Thanks, Kevin. Overall, Landstar had a very good third quarter. Currently, industry fundamentals remain similar to those experienced in the 2015 third quarter. We continue to have strong demand for our van services, while demand for unsided platform services, excluding the award from a specific account, continue to be somewhat soft. I expect the current freight patterns to continue throughout the fourth quarter and also expect the unsided platform services provided to the single account to continue throughout the remainder of the year. I expect the pricing environment experienced in the 2015 third quarter to continue through the fourth quarter, which includes the impact of lower diesel fuel costs, a lower contribution of revenue attributed to heavy haul services, and a stable supply and demand environment.
Assuming recent trends continue, I anticipate revenue per load on loads hauled via truck in the 2015 fourth quarter to be consistent with the 2015 third quarter, which would represent a decrease in an upper single-digit percentage as compared to the 2014 fourth quarter. Historically, the number of loads hauled via truck in the fourth quarter has been somewhat similar to the number of loads hauled in the third quarter. I expect that historical sequential trend to continue in the 2015 fourth quarter. Given that trend, I expect the number of loads hauled via truck in the 2015 fourth quarter to increase in a mid-single digit range compared to the 2014 fourth quarter.
Based on the continuation of recent revenue trends, I currently anticipate 2015 fourth quarter revenue to be in a range of $815 million-$865 million, with the midpoint of the range relatively equal to the company's 2015 third quarter revenue. In estimating the range of diluted earnings per share for the 2015 fourth quarter, we assume that insurance and claim costs in the 2015 fourth quarter would be equal to the recent historical run rate of 3.3% of projected BCO revenue. Based on the previously discussed range of revenue projected for the 2015 fourth quarter and reflecting 2015 fourth quarter insurance and claims at 3.3% of BCO revenue, we anticipate 2015 fourth quarter diluted earnings per share to be in a range of $0.85-$0.90. With that, we will open to questions.
Operator (participant)
Thank you, sir. At this time, we will begin the question-and-answer session. If you would like to ask question, please press star one on your touchtone phone. Once again, that is star one to ask question. To cancel your request, you may press star and then two. Our first question is coming from Ms. Allison Landry from Credit Suisse. Ma'am, your line is open.
Danny Schuster (Managing Director of Fund Advisory)
Hi, good afternoon. This is Danny Schuster on for Allison. Thank you for taking my question.
Jim Gattoni (President and CEO)
Sure, Danny.
Danny Schuster (Managing Director of Fund Advisory)
Great. I just wanted to ask on the automotive contract, is that a Mexico cross-border move? And have you gained any share given the rail service issues that have been prevalent in that region, you know, this year so far?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Danny, this is Pat O'Malley. It is not related to cross-border moves.
Danny Schuster (Managing Director of Fund Advisory)
Great. Thank you. And would you expect that to continue beyond 1Q16 at all? I guess you started moving those loads in April, so is that expected to run through for a 12-month timeframe, or should it go any further than that?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
We have a commitment to the end of the year, and we're working with the client to, at present, to see where it goes from there.
Danny Schuster (Managing Director of Fund Advisory)
Great. Thank you so much. I appreciate your time.
Operator (participant)
Next question is coming from Alex Vecchio from Morgan Stanley.
Alex Vecchio (VP)
Hey there. Good evening. Thanks for taking the questions. Hey, Jim, you noted that the unsided core volume softened in the third quarter. Could you maybe quantify exactly how much they were down on a year-over-year basis in the third quarter? And then, yeah, we'll kind of go from there.
Jim Gattoni (President and CEO)
Yeah, from a volume perspective, if you recall in the second quarter, the flatbed volumes, excluding that automotive client, were pretty much flat year-over-year, second quarter over second quarter. Where we stand now, and this is a volume comment, this is all based on number of loads. It slowed into the third quarter. Now, excluding that automotive business, we are down 4% in volumes compared to last year's third quarter. So it is slowed.
Alex Vecchio (VP)
Okay, that's helpful. And then, the fourth quarter guidance for total truckloads to be up mid-single digits year-over-year. Had you not won this contract, what would your core total truckloads, what would you have expected them to grow in the fourth quarter?
Jim Gattoni (President and CEO)
Negative. I don't really have that number. Probably somewhere in the negative mid-single digits.
Alex Vecchio (VP)
Okay, and that's, again, this is total truckloads, not just the unsided.
Jim Gattoni (President and CEO)
Yes. Yeah, that's just total truckload. That's-
Alex Vecchio (VP)
Okay, got it. Thanks. Then, just lastly here, you know, over the past three quarters, you've generated some strong incremental margins here, over 80%, and that's a bit above your target of 70%. Is that kind of the new normal, this kind of, you know, high 70s or low 80s, or should we kind of still stick to the 70% incrementals going forward?
Jim Gattoni (President and CEO)
Yeah, quarter, looking at it on a quarterly basis is a little bit tough because you've got such a, such a short window. It's over three months, right? And whatever happens in insurance can drive that. You know, if we, if our insurance number was higher, right, we would have eaten, eaten into that a little bit. And if our insurance number is lower, you know, it, you know, then you've got more incremental profits pushing through. I mean, if, if you think about the fourth quarter, you know, that's going to be a difficult comp for us because our, our insurance number in the fourth quarter of 2014 is only $8.5 million, right? So that will put pressure on that 70% target in the fourth quarter.
So on a quarter-to-quarter basis, you know, it fluctuates based on what happens in the volatility of insurance, and sometimes it's a little bit impacted on how much we have to put up for MICP and incentive compensation in any given quarter. But our target is still 70%. We're not going to come off of that. And that's kind of an annual target.
Alex Vecchio (VP)
Okay, great. I appreciate it. Thanks very much for the time.
Operator (participant)
Next one is coming from Jason Seidel from Cowen. You may begin.
Jim Gattoni (President and CEO)
Hey, Jason.
Jason Seidl (Managing Director)
Hey, guys. How's everything?
Jim Gattoni (President and CEO)
Terrific.
Jason Seidl (Managing Director)
A couple quick questions. Going back to that, new automotive client. You know, if you guys were to renew that contract, sort of the exact same way that you're seeing it now, what would you expect volumes to be? Because we've had a really, really strong automotive year right now. We've seen it. It's one of the few things that, that's going right in the rail industry, if you look at their numbers. Even if you got it again, would you expect those numbers to be up or down next year?
Jim Gattoni (President and CEO)
You're talking specific to flatbed or specific to that client?
Jason Seidl (Managing Director)
Just automotive in general, for your exposure on the flatbed side, assuming you got the same customer back next year.
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Jason, this is Pat. If provided we continue this contract next year, we would expect volumes to be the same as they are this year.
Jason Seidl (Managing Director)
All right, about flat volumes. Okay. And, you know, you, I think you, you mentioned that this client on the flatbed side, things are, things are down about 4%. What, what about the dry van market? How, how does that compare to the flatbed market if you parcel that out?
Jim Gattoni (President and CEO)
That actually is still going well. I mean, we're still, for the quarter, we're up 6% in volumes, and it's still driving on the van side. You know, we felt a little softness in flatbed for, you know, for months, right? But, you know, on the van side, we, we've been seeing mid- to upper-single-digit % growth for the last 18 months. And there's pretty high demand for drop and hook type operations, you know, where we leave trailers at a facility, and they load them up, and we set a truck in to haul it away. So that, that's still pretty strong. It's where we're seeing the softness really, truly is on the flatbed side.
Jason Seidl (Managing Director)
Okay. No, that's great color. I guess final question, when we think about, you know, your BCO count, going into 2016, you know, you obviously have done a fairly decent job of growing it this year. You know, with some of the market softening, is the BCO count going to soften, or are people just going to still sort of come to you guys as potential providers for freight?
Joe Beacom (VP and Chief Safety and Operations Officer)
Yeah, Jason, this is Joe. I think we'll continue to grow the BCO count, really predicated upon you know, if there's demand out there for their services, and clearly we expect that to be the case. I don't think we'll grow it as we have 2014, we grew at 500. This year, we're looking to grow it by a number of, even a little bit bigger than that. So I don't think we'll see that kind of growth, but I do think you'll see incremental BCO growth in 2016.
Jason Seidl (Managing Director)
Okay, that's perfect. I don't want to take up all your time. I, I do appreciate it, as always. I'll turn it over to somebody else.
Operator (participant)
Next one is coming from Jack Atkins from Stephens.
Jack Atkins (Research Analyst)
Good afternoon. Good afternoon, guys. Thanks, thanks for taking my questions.
Jim Gattoni (President and CEO)
Sure, Jack.
Jack Atkins (Research Analyst)
So, Jim, I guess if you could maybe talk just for a moment, you know, you guys sit in an interesting place with your customers for a view into the economy. Could you maybe just speak for a moment on what you're hearing from your customers about just the macro? I mean, obviously, the industrial economy seems to be a little bit more muted, but just, you know, would love to know what you're hearing from your customers around demand for peak season, and then as they look forward for the next, you know, call it, six months.
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Hi, Jack, this is Pat. As you know, we provide capacity and support to numerous customers during the holiday peak shipping season. At this point, they're all anticipating a similar, if not slightly up from last year, on the peak season business. What we're hearing from our industrial-based customers is the strong dollar has really impacted exports. The depressed commodities market has really impacted Cat and the, you know, large producers of machinery. Aerospace seems to be healthy. Energy seems to be reasonable. Oil and gas is down, and nobody looks for that to rebound. I think the customer base remains concerned about capacity. They've enjoyed this period of where it's balanced, but they're concerned that it could turn at any given moment.
Jack Atkins (Research Analyst)
Okay. Thanks for that, Pat. And then, you know, Joe, I guess the question for you on the BCOs. You know, if we get a final rule on the ELDs here in the next couple of days, how is Landstar approaching making the remaining owner-operators who don't have ELDs put one of those on? Is that going to be through the implementation period, or will you require something sooner? And then how do you think that impacts the BCO utilization once those ELDs are rolled out across the fleet?
Joe Beacom (VP and Chief Safety and Operations Officer)
Jack, good question. Our intent would be to allow for the entirety of the rollout period to let the remaining BCOs get their ELD. We're about 60% today, so to your point, about 40% to go. We would work with them across that time frame to get that done. And then from a productivity standpoint, we really haven't seen a marked difference between BCOs with an ELD or without. We really haven't seen that. It's really been pretty flat either way. So I think within the fleet, we really wouldn't see a significant change. Industry-wide, I'm not so sure how I can say that. I'm not sure how others operate, but here within the BCO community, it's been pretty even.
Jack Atkins (Research Analyst)
Okay, great. And then one, if I could squeeze one quick one in as well. You know, with, with the significant growth with one large automotive customer, are there any mix issues happening from a, from a revenue per load perspective in on-site equipment, or should we not think about that being, being part of the, part of the headwind there?
Joe Beacom (VP and Chief Safety and Operations Officer)
Yeah, that's not driving much of the revenue per load variances year over year. So, it's kind of consistent with what our normal flatbed rates are.
Jack Atkins (Research Analyst)
Okay, great. Thanks again for the time, guys.
Operator (participant)
Next one is from Matt Brooker from Longbow Research.
Speaker 17
Hey, thanks. Good afternoon. If you have the number or at least could talk to it, I think machinery makes up roughly, I think, 20% of your volume, maybe 15% of your total volume. I'm just curious to hear where those volumes are trending on the flatbed side of things.
Joe Beacom (VP and Chief Safety and Operations Officer)
We are looking that up.
Speaker 17
Okay.
Joe Beacom (VP and Chief Safety and Operations Officer)
Do you have a second question, or just wait for that one?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Yeah, machinery is about 14%-15%.
Jim Gattoni (President and CEO)
What direction did it move?
Speaker 17
Okay. And what, I guess, Do you have a volume number in terms of where that stands versus a year ago in 3Q?
Jim Gattoni (President and CEO)
It was pretty much flat, too. The volumes are pretty much flat to where we were last year.
Speaker 17
Okay. Okay, that's all I got. Thanks.
Operator (participant)
Next question is coming from Rob Salmon from Deutsche Bank. Sir?
Rob Salmon (VP and Associate Analyst)
Hey, good evening, and thanks for taking the question. Jim, with that automotive contract that you guys brought on, can you give us a sense of what sort of capacity, if any, that Landstar is allocating to that customer?
Joe Beacom (VP and Chief Safety and Operations Officer)
If you assume we're doing, well, I'll give you that. We did about 20,000 loads in the third quarter, about 60%, BCO broker. I'm sorry, 60% broker, about 40% are BCO capacity.
Rob Salmon (VP and Associate Analyst)
Was there any sort of, like, trailers that you're using from a drop and hook, which would, you know, really make it more-
Joe Beacom (VP and Chief Safety and Operations Officer)
It's BCO and broker-provided trailer equipment there. We may have a couple of old trailers in there, but it's not our trailer game.
Rob Salmon (VP and Associate Analyst)
Got it. I guess, switching gears over to the other operating expenses, Kevin, you, in your prepared comments, you had called out just kind of the higher levels of drop and hook, a little bit of maintenance on the trailer side, offset by less gains. If we're assuming no gains, what's a good number to use for that other operating expenses looking forward?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
$7.5 million to about $8 million would be my best guess for that.
Rob Salmon (VP and Associate Analyst)
Perfect. Those are my two.
Operator (participant)
Next question is coming from Todd Fowler from KeyBanc Capital Markets.
Todd Fowler (Managing Director)
Great, thanks. Hey, Jim, good evening. Hey, just a high-level question on the fourth quarter guidance. So is basically the difference between the third quarter and the fourth quarter this year almost entirely related to the insurance expense? Or is there something else going on sequentially between four Q and three Q?
Jim Gattoni (President and CEO)
It's just the way we do our insurance, we're using 3.3%. If you look at that number, what we were at $10 million, I think, or something in the third quarter, and the 3.3% calculation is gonna give us, like, $12 million or $13 million that in expense. That, that's really what's driving the variance on the per share.
Todd Fowler (Managing Director)
So basically, the bit of the softness that you're seeing in the unsided equipment, that gets offset by some of Todd's comments on the expectations for peak on the van side, so that washes on the revenue piece?
Jim Gattoni (President and CEO)
Yeah, yeah. I think we'll, you know, continue to flow through how we did through the third quarter. I think it'll be made up by that peak season stuff.
Todd Fowler (Managing Director)
Okay. And then I'm gonna take one more stab at the large customer win here this quarter, and I think what everybody's trying to get at is, you know, the potential impact if you don't have that in the numbers going into 2016. But can you give us just a sense, maybe in the third quarter, because it was in there for the whole quarter, of a revenue number that would have been associated? And if you could, you know, maybe even like an earnings per share number. And again, I think where that would be helpful is just as we try and think about if you retain that business or if you don't retain that business, what it could mean into 2016.
Jim Gattoni (President and CEO)
We'll give you the revenue number because there's some ins and outs-
Todd Fowler (Managing Director)
Sure
Jim Gattoni (President and CEO)
On EPS, and I don't want to carve it down to that level. But the revenue number in the third quarter was $35 million.
Todd Fowler (Managing Director)
Okay, that really helps. Thanks for the time tonight, guys.
Jim Gattoni (President and CEO)
Yep.
Operator (participant)
Our next one is coming from Scott Schneeberger from Oppenheimer.
Speaker 18
Hi, guys. It's Daniel in for Scott. I'm curious on alternative energy, if you can talk about the outlook there as we look into next year.
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
In the third quarter, this is Pat. In the third quarter, the wind business that we do was up year-over-year. Our line of sight as it relates to the fourth quarter is favorable.
Speaker 18
Okay, thank you very much. And then just generally, I'm curious on how you think about the spot markets next year. Any commentary there would be helpful.
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Well, you know, if you think about, you really got to look at what's going on in, in, in industrial production when you, when you think about Landstar. And, you know, I don't see any significant catalyst changing the environment over the next 12 to 18 months. You know, the catalyst people are talking about is not necessarily what's happening in the economy. It's gonna be happening, what's happening in the trucks and how it relates to regulation, right, and tightening capacity toward the end of 2016 or 2017, you know, and, and into 2017. That's really the catalyst I see coming up, maybe 12 to 18 months out. But, you know, there's the numbers coming out for projections of industrial production and manufacturing activity in the U.S. for next year is just kind of sluggish.
So I would expect the spot market to kind of remain where it is with not a lot of healthy pricing and, you know, volumes relatively, you know, to where they are, just slightly up. Now, you know, in this environment, we're still pushing van volumes pretty well as that demand for our trailer equipment is kind of offsetting any weakness and softness on the flatbed side. But that's what I'd expect looking out. I don't see a catalyst to drive the economy to get the spot market to pick up.
Speaker 18
Okay, great. Thank you very much.
Operator (participant)
Mr. Scott Group from Wolfe Research, your line is open.
Scott Group (Managing Director and Senior Analyst)
Hey, thanks. Afternoon, guys.
Jim Gattoni (President and CEO)
Hey.
Scott Group (Managing Director and Senior Analyst)
So why do you think you're not seeing any impact in productivity from the ELDs? We hear from everybody else that there's a big impact when you make the changeover. And then with the question on ELDs, do you change anything on the brokerage side in terms of how you source capacity with carriers that may or may not have ELDs yet?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Well, on the why we're not seeing a change in productivity, we address that on the BCO side. Our BCOs aren't running the wheels off the tractor, right? They're pretty selective in the freight they take. They're only running about 90 loads a year. They're not banging up against the hours of service rules, right? I don't think they're in a situation where they have to park their truck. Might they get hung up on a load where they have to park? Yeah, but I don't think that's what they do. I think they manage their time. When they were doing paper logs, they managed their time and had plenty of time to pick up and deliver and satisfy the hours of service requirements. Putting an ELD on them, I don't think that changed for them. On the second question?
Scott Group (Managing Director and Senior Analyst)
Just with on brokerage, like, do you change anything on the brokerage side with your carriers if they don't have ELDs?
Jim Gattoni (President and CEO)
No, we typically don't make that a requirement for anything. We look for visibility on shipments, and a lot of times they'll have a unit in the truck that accomplishes both. But really, we're looking for visibility, and as far as whether they're doing their logs in-cab or not is not anything we really get into.
Scott Group (Managing Director and Senior Analyst)
Okay. And then just want to clarify one of the comments about fourth quarter volume. So if you take out that auto contract, you would have had, like, 3% volume growth this quarter. And Jim, I think you said you'd have—you'd expect volumes ex that customer to be down a few percent in fourth quarter. Is that a comp issue? Is that just demand's getting worse? What can you just help us bridge that gap?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Well, I think because you saw that I think I said that if you pull that out of the third quarter, flats were down 4%, vans up about 6%. So maybe it would be flat to down as opposed to down.
Scott Group (Managing Director and Senior Analyst)
Okay, perfect. All right. Thank you.
Operator (participant)
Next one is coming from Matthew Young from Morningstar.
Matthew Young (Senior Equity Analyst)
Good afternoon, guys. Can you hear me?
Jim Gattoni (President and CEO)
Yeah, yeah.
Matthew Young (Senior Equity Analyst)
Oh, good, thanks. Hey, in the past, I think you guys have mentioned that agents have boosted penetration of smaller shippers, smaller accounts, ones that wouldn't historically use Landstar. Obviously, you probably got more of that last year when things tightened, and I'm guessing it's transactional in nature. Wondering if you're seeing that business stay with you, if you're still getting some of the loads that you received last year from smaller shippers because capacity was tight.
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Yeah, I think you were right on with saying that there seemed to be a lot more of that last year, where we were really getting penetrated into these accounts who would be talking to for two years and wouldn't use us, and then capacity got tight. Yeah, I think those accounts stayed with us. I think we're still serving those accounts.
You know, it's not, you know, it's, you know, you're not talking about a 10 million account, but someone who's given us $500-$1 million worth of revenue, we're still getting that. I don't think we've lost that. And you can see it because those small accounts are still, you know, kind of growing. They grew 4% in the third quarter, about $19 million of revenue. So, you know, once we get in and we prove the service that we can provide, they generally, the agents kind of stay into that, stay into those customers. It's just getting in the door, and once they get in, they're pretty good at servicing.
Matthew Young (Senior Equity Analyst)
Okay. Has there been any shift to, just because of worries over capacity? I know things have loosened a little on the spot side. Has there been a shift at all among large shippers to kind of lock in pricing at all over maybe worries over ELDs tightening capacity?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Not necessarily with us, no, 'cause again, we're doing a lot in the spot market. You know, on our committed, when we commit trailer stuff, we have locked up, you know, we kind of lock up rates, that's kind of committed for us. But there hasn't been a lot of long-term contract requests coming into us.
Matthew Young (Senior Equity Analyst)
Okay, so you're not getting more committed business or committed brokerage?
Jim Gattoni (President and CEO)
No.
Matthew Young (Senior Equity Analyst)
Okay. That's all I had. Thanks.
Operator (participant)
Next one is coming from Zach Rosenberg, from Robert Baird. Sir, your line is open.
Zach Rosenberg (Managing Director)
Hi, guys. Actually, all my questions have been answered, so thank you.
Jim Gattoni (President and CEO)
Great.
Operator (participant)
Next one is from Tom Albrecht, from BB&T.
Jim Gattoni (President and CEO)
Hey, Tom.
Tom Albrecht (Managing Director)
Hey, guys. Congratulations on fighting these tough trends. I got, just a little bit confused on your insurance comment. I understand, you know, a year ago, it was only $8.5 million. Were you trying to say that you- we should be thinking about modeling back to that 3.3% of revenues, just because that's been the five-year average, or you already know that it's going to be closer to $12+ million?
Jim Gattoni (President and CEO)
No, we do not know. Our - we just model on $3.3 million, 'cause you, as you know, it's, it's very unpredictable. There's nothing to tell us that it's gonna be... not gonna be $15 million, and there's nothing to tell us it's not gonna be $8 million at this point, right? So we just model it at $3.3 million. If we knew something, we'd probably say, "Hey, you know, we have a situation that we have to provide for in the third quarter, fourth quarter," but that's not the case. It's just modeling.
Tom Albrecht (Managing Director)
Okay. And then, as I think about load growth for the van side, it sounds like what you're saying is that the 275,000 van loads you had in the third quarter, kind of think about a comparable number for the fourth quarter, which obviously has a lower year-over-year growth rate, but sequentially, I mean, is that kind of what you're saying?
Jim Gattoni (President and CEO)
Yes, sequentially. Yes.
Tom Albrecht (Managing Director)
Okay. All right. Thanks very much.
Jim Gattoni (President and CEO)
Sure, Tom.
Operator (participant)
Next one is coming from Tyler Brown, from Raymond James.
Tyler Brown (Associate VP)
Hey, guys. Good afternoon.
Jim Gattoni (President and CEO)
Hey.
Tyler Brown (Associate VP)
Hey, Jim, just a real high-level question on the model, but can you kind of go over how the gross margin profile differs when you do provide the trailer equipment versus when the BCOs provide it themselves?
Jim Gattoni (President and CEO)
Yeah. There's about an 8% spread. If a BCO brings his own equipment, they generally get paid 75%. If we provide the equipment, you know, based on what contract they have with us, you know, then we'll pay them 65.
Tyler Brown (Associate VP)
Okay, so you get a small uplift on the gross margin split.
Jim Gattoni (President and CEO)
You got to, yeah, you got to get the uplift there, and our trailer cost is that in other operating costs and depreciation. So you still got that 8%, it's just in a different spot, right? Between maintenance and depreciation, it's similar percentage. It's just above, below the gross profit line.
Tyler Brown (Associate VP)
Ah, okay, perfect. And then, what, I'm just curious, but what percent of those BCO loads are on your equipment versus their own?
Jim Gattoni (President and CEO)
BCOs are doing about, there's about 60%-65% of BCO loads are on our equipment.
Tyler Brown (Associate VP)
Okay, perfect. And then, any comments on the agent pipeline?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
The agent pipeline remains what I'll refer to as robust. We've got a lot of interest and a lot of activity along those lines. We're satisfied with where we're at and where we anticipate being in the future.
Tyler Brown (Associate VP)
Okay, perfect. Thanks, guys.
Operator (participant)
If you would like to ask question, please press star one on your touchtone phone. Once again, that is star one to ask question. Our next question is coming from Kelly Dougherty, from Macquarie. Your line is open.
Kelly Dougherty (Senior Analyst)
Hey, guys. Thanks for taking the question. Just to touch back on, you know, commitments. I know you're obviously not looking to do anything long term, but as we head into, like, the last two months of the year into peak, are people more interested in getting committed capacity? And might that be something that you'd be open to?
Patrick O'Malley (VP and Chief Commercial and Marketing Officer)
Kelly, this is Pat. Certainly, in some of these peak situations, we're committing capacity to to that particular customer to handle the business that they've got. We're not uninterested in committed capacity, as long as it's priced right and we understand what those commitments are and what our obligations are under those commitments. I think what we were answering earlier is that we have not received from shippers a lot of bids that are trying to lock us in on capacity so that, you know, if the capacity equation turns, they'll have Landstar locked in. Again, certainly on the peak business, we have commitments that we've made to customers.
Jim Gattoni (President and CEO)
Yeah, it's more of a short term. It's November, December, and we'll commit trailers and capacity during peak season for certain customers.
Kelly Dougherty (Senior Analyst)
Sure. And then that kind of is what gives you the confidence that, you know, maybe you're, you're bucking some of the weakness on the industrial side of things, with van volume still being pretty high, but you have some of that at least committed, so you're, you're pretty confident in that number for the fourth quarter. Is that fair?
Jim Gattoni (President and CEO)
Yes.
Kelly Dougherty (Senior Analyst)
Okay, great. And just one quick follow-up on the ELDs. Do you have any sense for what percentage of your broker carriers are using ELDs now? And is that maybe fair to extrapolate toward, you know, the broader market?
Joe Beacom (VP and Chief Safety and Operations Officer)
Yeah, Kelly, this is Joe. We really don't have a good sense of what that number is. If you think 50% of our brokerage volume moves on carriers with 10 trucks or less, and my suspicion is that the majority of those carriers don't have ELDs, if that gives you any kind of insight. But beyond that, it's hard to say. We don't do a lot of volume with large carriers who you would expect to have ELDs already. So, if that helps, that's kind of what we have in hand.
Kelly Dougherty (Senior Analyst)
Does that kind of cause you concern about the brokerage model then? If you guys are, you know, arguably dealing with some of the carriers that would have the most economic hardship if they've got to run less miles than they are now, does that, you know, cause some concern about that side of the business?
Joe Beacom (VP and Chief Safety and Operations Officer)
Well, I think, you know, again, depends on what the rule says it when it comes out. One of the things that I believe they're supposed to look at is the affordability to the small business and kind of the timeframe. That's, I think, why they're giving them a couple of years to make that happen. Is it something that we'll watch closely? Absolutely. Is it something that I think you could say we're overly concerned about today? Not yet. I think maybe a little premature.
Kelly Dougherty (Senior Analyst)
Okay. Thanks, guys. I appreciate the color.
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 (President and CEO)
Well, thank you. And I hope everybody appreciated it. We limited our opening remarks to only 17 minutes. And with that, you know, I have decided to discontinue the company's historical practice of providing mid-quarter update calls. And as such, I look forward to speaking with you again on our 2015 fourth quarter and year-end earnings conference call, currently scheduled for January twenty-eighth. Thank you, and have a good day.
Operator (participant)
Thank you for joining the conference call today. Have a good afternoon. Please disconnect your lines at this time.