Landstar System, Inc. (LSTR) Q4 2014 Earnings Report, Transcript and Summary

James B. Gattoni - Chief Executive Officer and President L. Kevin Stout - Chief Financial Officer, Secretary, Vice President of Finance and Corporate Controller Patrick J. O'Malley - President-Landstar Carrier Group Joseph J. Beacom - Chief Safety & Operations Officer and Vice President

John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division Todd Clark Fowler - KeyBanc Capital Markets Inc., Research Division William J. Greene - Morgan Stanley, Research Division Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division Thomas Kim - Goldman Sachs Group Inc., Research Division Jack Atkins - Stephens Inc., Research Division Matthew S. Brooklier - Longbow Research LLC Allison M. Landry - Crédit Suisse AG, Research Division Robert H. Salmon - Deutsche Bank AG, Research Division Thomas S. Albrecht - BB&T Capital Markets, Research Division Matthew Young - Morningstar Inc., Research Division Matthew Frankel - Macquarie Research David Pearce Campbell - Thompson, Davis & Company Casey S. Deak - Wells Fargo Securities, LLC, Research Division Scott H. Group - Wolfe Research, LLC

Good afternoon, and welcome to Landstar System Inc.'s Year-End 2014 Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us 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 conference over to Jim Gattoni. Sir, you may begin.

Thank you, Dory. Good afternoon, and welcome to Landstar's 2014 Fourth Quarter and Year-End Earnings Conference Call. This conference call will be limited to no more than 1 hour. Due to a high level of participation on these calls, I'm requesting that each participant have a 2-question limit. [Operator Instructions] 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, I and the other members of Landstar's management team 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 2013 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. First off, I would like to say what a privilege it is to be able to lead this final earnings call for 2014 and then we look forward to an exciting 2015. Needless to say, I'm extremely pleased with the 2014 performance. As you may recall, in late December 2013, we sold the supply chain-based companies that had -- we had previously purchased in July 2009. The sale of those entities allowed us to get back to the basics and focus on the core of the Landstar model, to provide transportation management services through our network of agents and capacity providers. 2014 full year results including -- included many records. Annual revenue, gross profit, operating income and diluted earnings per share from continuing operations were all annual records. Additionally, the number of loads hauled via truck and average revenue per load on those loads during 2014 were both records. We net added more BCOs in 2014 than in any other year and also in 2014 had the highest number of truck broker carriers haul Landstar loads compared to any year in Landstar's history. Landstar ended 2014 with a total truck capacity network of over 46,000 providers, more than 1,300 over the 2014 third quarter and 6,700 over year-end 2013. Both approved and active carrier count were at record levels at the end of 2014. Agents joining the company in 2013 and 2014 contributed $121 million of revenue in 2014, while revenue at existing agents has increased 18% over 2013. We ended the year with a record 525 agents who contributed $1 million or more of Landstar revenue. During the year, we opened a new Dallas Fort Worth facility in support of our BCO network, provided new shipment tracking tools to the agent family and launched Landstar Connect, a smartphone-enabled GPS tracking tool available to BCOs and broker carriers to provide timely in-transit freight visibility. As discussed on our fourth quarter mid-quarter conference call held on December 4, 2014, we anticipated revenue for the 2014 fourth quarter to be in a range from $820 million to $840 million. We also anticipated that diluted earnings per share would be in a range of $0.79 to $0.82. Demand for Landstar's transportation services was very strong throughout 2014, and that strength accelerated through December. As a result, actual fourth quarter revenue and diluted earnings per share exceeded the upper end of our range of fourth quarter guidance. Fourth quarter revenue was $863 million, which was $171 million or 25% above 2013 fourth quarter revenue. Diluted earnings per share was $0.86, which was $0.31 or 56% above 2013 fourth quarter diluted earnings per share from continuing operations. The 2014 freight transportation environment provided significant opportunities to increase the account base and strengthen our relationships with smaller customers. The increase in fourth quarter revenue was broad-based across many industry segments, customers and geographic regions. The company's top 100 customers ranked by 2013 revenue comprised approximately 40% of 2014's total revenue. 2014 fourth quarter revenue from those top 100 customers increased $45 million over the 2013 fourth quarter, while our customers beyond the top 100 increased $126 million. With over 25,000 bill-to customers, the company's account base is highly diversified. The increase in demand for our truck transportation services that began in December 2013 continued throughout 2014. On a quarter over prior year quarter comparison, the number of loads hauled via truck during the first, second, third and fourth quarters of 2014 exceeded the same periods of 2013 by 4%, 9%, 11% and 11%, while revenue per load on loads hauled via truck increased 8%, 13%, 10% and 14% over the same periods. Truck transportation revenue in the 2014 fourth quarter grew 26% over the 2013 fourth quarter. 2014 fourth quarter revenue hauled via flatbed equipment, van equipment and less-than-truckload freight grew 28%, 24% and 17%, respectively, over the 2013 fourth quarter. Revenue per load on loads hauled via flatbed was -- equipment was 14% higher than the 2013 fourth quarter, while number of loads hauled increased 9%. Revenue per load on loads hauled via van equipment increased 14% over the 2013 fourth quarter, while the number of loads hauled increased 12%. Revenue per load on less-than-truckload freight increased 6% over the 2013 fourth quarter, while number of LTL loads hauled increased 11%. 2014 fourth quarter operating income was $61.1 million or 49% of gross profit. I will pass it to Kevin for more information on the income statement.

Thanks, Jim. Jim has covered certain information regarding the 2014 fourth 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 $124.7 million or 14.4% of revenue in the 2014 fourth quarter compared to $102.7 million or 14.8% in the 2013 fourth 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 higher rate of purchased transportation. Overall, the cost of purchased transportation was 77.5% of revenue in the 2014 fourth quarter, 77.3% in the 2014 third quarter and 77.2% in the 2013 fourth quarter. The rate of purchased transportation paid to truck brokerage carriers in the 2014 fourth quarter was 30 basis points lower than the rate paid in the 2014 third quarter and 10 basis points lower than the rate paid in the 2013 fourth quarter. Other operating costs were $6.4 million in the 2014 quarter compared to $6.2 million in the 2013 quarter. This increase was primarily attributable to increased trailing equipment costs related to growth and drop and hook trailer demand in the 2014 fourth quarter. Insurance and claims costs were $8.5 million in the 2014 fourth quarter compared to $13.5 million in the 2013 quarter. The decrease in insurance and claims was primarily due to unfavorable development of prior-year claims of $2.7 million in the 2013 quarter compared to favorable development of $500,000 in the 2014 quarter. The company also experienced a lower frequency and estimated severity of accidents occurring during the 2014 quarter as compared to the 2013 quarter. Selling, general and administrative costs were $41.7 million in the 2014 fourth quarter compared to $36.7 million in the 2013 fourth quarter. The increase in SG&A costs was primarily attributable to an increased provision for bonuses under the company's incentive comp program and an increase in stock-based compensation expense, both due to the excellent 2014 performance. Also the 2014 fourth quarter includes approximately $940,000 of expense related to the settlement of a contractual dispute with one of the company's key vendors. Although SG&A dollars increased year-over-year, SG&A expense as a percent of gross profit decreased in the 2014 quarter compared to the 2013 quarter from 35.8% in 2013 to 33.4% in the 2014 quarter. Depreciation and amortization was $7.2 million in the 2014 fourth quarter compared to $6.9 million in the 2013 fourth quarter. This increase was due to increased depreciation of trailing equipment as we replaced older fully depreciated equipment with new equipment. As it relates to operating leverage. Operating income was $61.2 million or 49.1% of gross profit in the 2014 quarter versus $39.7 million or 38.7% of gross profit in the 2013 quarter. Operating income increased 54% year-over-year and despite the increased SG&A costs, the company passed 98% of incremental gross profit to operating income. The effective income tax was 36.2% in the 2014 fourth quarter compared to 35.3% in the 2013 fourth quarter. The effective income tax rate, which historically is 38.2%, was impacted in both periods by favorable outcomes of various tax matters. Looking at our balance sheet. We ended the quarter with cash and short-term investments of $201 million. The company announced a special dividend of $1 per share in December of 2014 for a total amount of approximately $45 million payable on January 26, 2015 to stockholders of record as of January 12, 2015. Cash flow from operations for 2014 was $102 million, and cash capital expenditures were $11 million. During 2014, we purchased 940,000 shares of Landstar common stock at a total cost of $56.4 million, and there are currently over 1.8 million shares available for purchase under the company's stock purchase program. Trailing 12-month return on average shareholders' equity was 30%, and trailing 12-month return on invested capital was 24%. At December 27, 2014, shareholders' equity represented 81% of total capitalization. Back to you, Jim.

Thanks, Kevin. Overall, Landstar had an exceptional 2014. Heading into 2015, industry fundamentals remain similar to those experienced in 2014. Limited driver availability, regulation and a slight improvement in the economy should bode well for Landstar in 2015 as shippers look to providers who can access truck capacity. While the recent decline in the price of diesel fuel may impact pricing on revenue followed by truck brokerage carriers, I would anticipate the amount paid for purchased transportation for that revenue to decrease by a similar amount. Demand for the company's unsided/platform equipment remains very strong. Less than 5% of the company's $1 billion of unsided/platform revenue or less than 2% of total revenue is directly related to the oil and gas industry. A slowdown in exploration and production of oil and gas could, however, result in platform capacity entering markets where we compete. With that said, demand for our unsided/platform service remains strong. I do not expect significant pricing pressures in the unsided/platform market solely from the slowdown in oil and gas exploration and production. Both flatbed and van dynamics remained very strong at the beginning of January. We expect to continue to have strong pricing through the 2015 first quarter, with comparisons getting a little tighter towards the end of the quarter as revenue per load in the 2014 first quarter increase significantly into March. I anticipate first quarter truckloadings to exceed prior year at a mid-single digit percentage. Based on the continuation of the current revenue trends, I currently anticipate revenue in the 2015 first quarter to be within a range of $750 million and $800 million compared to $688 million in the 2014 first quarter. Based on that range of estimated revenue, I estimate diluted earnings per share to be in a range of $0.71 to $0.76. And Dory, we will open for questions.

[Operator Instructions] Our first question comes from John Larkin with Stifel. John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division: I had a question on the insurance, which according to my calculations at least, dropped from 2% of revenue in 2013 to 1% this year, that had a lot to do with the favorable margin trends year-over-year. And I heard the explanation of the unfavorable and favorable development, but even after that it looked like it was quite a bit better in 2014. How sustainable do you think that is at the 1% level? Or do you think, for modeling purposes, we're better off going back to the tried and proven more like 1.5% as a long run assumption?

I'll build our models. We usually use about a 5-year average of that insurance line compared to revenue or gross revenue [ph], basically. So we're a BCO revenue. I'll use 3.1%, all right, for the out quarters coming up. So I use 3.1% of BCO revenue, because 90-something percent of that, the insurance line is tied directly to BCO. John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. But do you think some of the safety programs and so forth that you've implemented may actually drive that number down a little bit at least over the long-term?

The safety programs have been implemented for a long time, and we're always all about safety. But I wouldn't say that we would see a significant change in that percentage over the next 12 months. John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then what makes you so confident that demand for the platform/unsided business will remain so strong even as the amount of drilling and fracking seems to tail off quite dramatically? There's an awful lot of flatbed equipment tied up in the shales or has been tied up in the shales over the last few years. Does that equipment typically get parked because it's more shorter haul equipment? Or do you see it actually beginning to come into your markets?

Well, I think some of it will probably come into our markets, but we still see strong demand coming across in the first 3 or 4 weeks of January. And I know our guys -- we have a group of -- internally here that works with flatbeds, for the flatbed carriers and with our agents who handle flatbed and with those customers. And we're still hearing good things from customers that are outside the oil and gas industry. So our feeling is if we do get a couple of more trucks coming into our market, they're just going to help source us -- help us source capacity. Utilization on an equipment is pretty high right now. Utilization might fall off a little bit, but I don't see it having significant pricing impact in the short-term. Now longer-term, we're pretty comfortable with the first quarter. Longer-term, we'll see how that plays out.

Our next question comes from Todd Fowler with KeyBanc Capital Markets.

Jim, I guess a little bit more follow-up on the flatbed side. It's definitely helpful for the additional information that you provided. But I think that a lot of us think about the pie chart that you had and the machinery and equipment being 20% of your markets. Can you talk a little bit more about if 2% of the total revenue is oil and gas, what are some of the other big buckets that you're moving machinery and equipment for so we get a sense of the strength or weakness of those markets?

Well, it's the big machinery movers in the country, right, but if you want -- it's very difficult to break down that machinery category because it's very diversified. The top 25 customers in machinery only makes up 30% of the category, and it's not in any specific area. It could be copper tubing or copper piping or it could be Deere tractors, Caterpillar tractors, government equipment. It's various customers in various industries using that flatbed. So I can't really get specific on the components of machinery because it's highly diversified.

Okay. So...

It's not oil and gas.

Okay, that helps. But part of the answer though is that you can't get specific, but it's a wide range and so you're not worried about having concentration in any one specific area there.

Exactly.

Okay. Good. That helps. And then can you talk about the strength with the brokerage business here in the fourth quarter, particularly the uptick in the loads? I'm just kind of curious what you saw in the market that drove that. It seems like it's stronger than the normal seasonal uptick, kind of what your view. Was that related to some of the port disruption? And I know we've talked about this in the past, but the ability to kind of carryforward some of that additional business that you've brought on into the coming year, or is that kind of a seasonal onetime phenomenon?

I think in my comments it was -- I said it was -- everything, it was pretty broad-based, no customer concentration, geographically spread out. It's difficult. It was just a very good demand market for us coming into the end of the year. And as you know, when demand increases and you got a limited number of BCOs, it just falls out to the broker carriers. There's nothing specific that drove it other than strong demand coming into the fourth quarter that I can point out.

And then do you have a view on the ability to kind of carry some of that forward? Do you typically see that that's sticky revenue that when you get some of that business, it stays with you for a period of time?

We're still seeing it stick with us. How's that? I don't -- through January, the freight flow is still very strong.

Our next question comes from Bill Greene with Morgan Stanley.

Jim, I wanted to ask your views on some of these factors that we think of is affecting the -- sort of the broader truck market. So when we look at class 8 orders or we look at sort of the reduction in some of the enforcement of hours of service, the fact that driver wages have gone up a little bit, do you view this as at all having an impact on '15? Or are things just so tight and so strong that even though there's been a market reaction perhaps here, it really won't much have impact on pricing this year?

The discussions around here about the suspension of 34 hour restart is that they can't just turn that right back on. It's going to take a while for guys to get back into that regular lane stuff and get back the hours they lost on the restart. They've been throwing around maybe a 2% productivity improvement here, but not right away, right. The -- what was the first part of that?

Well, I was just -- I'm just sort of looking these factors that we would assume over time drive supply growth. And things are very tight now and it doesn't feel like based on the comments you just made that there's any risk here. But how do you think about how this plays out?

Well, truck orders was the other thing. You said that...

Yes, truck orders.

I think the truck orders were higher than they've ever been. But I still feel that there's -- they can order trucks. I don't hear a lot of drivers coming into the market, so you're going to have to have available drivers to come into the market now. I do understand that there's some -- they are getting some in. The asset based guys are raising wages to the drivers, and they're going to get -- they're going to grow some of that. But I don't see that turning on a dime. Again, in the short-term, I don't think we're feeling a lot of pressure from trucks coming into the market. How that pans out over the next 6 to 12 months, we'll see.

Yes. When you think about the Landstar model and how it operates in the marketplace, do you feel like looking at things like the demand versus supply in the market is going to outweigh whatever we would worry about in any sort of end market? Obviously a lot of questions on energy, you tried to address those. But when I think back, because we all think of you as sort of industrial play, right. But when I think back to kind of we had an okay industrial market a couple of years ago, but you guys struggled a bit. So is it really the key here just making sure supply and demand? If those are doing all right, Landstar's going to do just fine?

Yes. We clearly like a tight supply and demand environment. And if there's something that changes that -- we go back to where we were in 2013 when we felt some softness, right. But our expectation now is the supply of trucks isn't going to grow significantly over the next 6 to 12 months. You may see a little bit of capacity coming into the market. But we're seeing pretty strong demand still. So I think you're still going to sit in a tight environment for a while. It may loosen a little bit with some of the factors you talked about like truck orders or the oil and gas reductions. The things -- and then the other thing you got to worry about is, talking about global economy and strong dollar, reducing exports. It's all those things we kind of sit around the table and talk about how it's going to impact us, but those are kind of longer-term to see how they're going to play out. But first quarter and maybe first 6 months, we're feeling good about that right now.

Our next question comes from Scott Schneeberger with Oppenheimer. Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division: Curious again in the machinery category. You addressed the energy, but specifically, you were talking more about upstream oil there. Wind has been a swing factor for you in years past, could you address that a little bit please, Jim.

Yes, I can, as I got handed a piece of paper. We -- it hasn't been as strong as it was in '14 -- '12, I'm sorry. If you recall, in 2012, we had done almost $80 million of wind. In the last 2 years, '13, '14, it was $28 million and $33 million. So we're not seeing a lot. We don't see much -- we see a similar year coming into 2015 like 2014 was, $33 million, but we don't see a lot of changes there going forward. Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division: Okay. And just following on the $3 billion of revenues here, certainly impressive. Looking out and targeting 2015, what are the -- sounds like you have a lot of confidence entering the year. Do you think it persists through the year? And what are the main end markets, I'm kind of looking at your mixed chart here where you think that gives you the most confidence, the main drivers?

Scott, this is Pat. I think you're going to continue to see -- we're going to continue to see strength in the automotive arena, strength in the chemical side. If you think about Landstar, each one of our BCOs has to have a hazardous materials endorsement. I think we're unique in that regard. I think we're going to continue to see some platform opportunities. There are some customer wins that we've had because of our ability to execute through the difficult times in '14. So we think that those end markets are going to continue to be strong for us. And it's all about executing. So to the extent we can bring on productive new agent locations and continue to service the accounts that we currently have, we anticipate having a good year in 2015. I think Jim has kind of outlined we feel really good about the first quarter. We'll see where it goes from there. But we think those end markets will play to our strengths.

Our next question comes from Tom Kim with Goldman Sachs.

Jim, you mentioned that purchased transport costs should come down with fuel surges easing. Given that purchased transport costs grew faster than revenues last year, should we anticipate purchased transport cost coming off faster than revenue growth this year?

If capacity stays tightened, I wouldn't expect that. It's really just the impact of the fuel pricing, the cost of diesel. I don't anticipate that broker piece of our business is going to loosen up so much that the x fuel rates drop. It's just an impact from fuel.

All right. That's fair. And then just with regard to confidence on the demand side, can you give us a sense of what percentage of your book of business is contracted, where you have some visibility out for 6 months or maybe even a year?

It's very little.

Our next question comes from Jack Atkins with Stephens.

I guess, first off, could you guys maybe give us month-by-month progression of loads and then revenue per load through the fourth quarter and also what you've seen so far in the month of January?

Jack, this is Kevin. Total truck volumes for October, November and December were 11%, 10% and 12%. And we've seen similar -- January has been very similar on both price and volume.

Okay. And then, Kevin, as far as the revenue per load, October, November, December, do you have that?

Yes. That's at 13%, 14% and 14% for October through December.

Okay, okay. And then you guys did a great job with new agent recruitment in 2014. Could you maybe comment about what you're expecting to see in 2015? And do you have a feel for -- do you expect more new agent revenue in 2015 than you had in '14? How should we think about that going forward?

Jack, this is Pat. I think the market conditions remain similar. And so if you think about the challenges that a small broker has, it's trying to differentiate themselves in the marketplace, service their customers and source capacity. And it's increasingly difficult for them to do that. So they've got to, we believe, turn to somebody to provide the underlying support, scales and systems that we have. In a marketplace that is very robust from a freight standpoint, but tight capacity, it's getting into that Landstar network that gives them access to capacity and some real visibility to the marketplace. So we think that the environment is going to be very similar to 2014. And so we expect to have similar results on the new agent revenue in '15.

Our next question comes from Matt Brooklier with Longbow Research.

Jim, I just wanted to circle back to the comment regarding January. It sounds like total truck volume and price growing at a very healthy clip here and similar to what Landstar saw in fourth quarter. Can you talk about what you're seeing with respect to drive-in? And then the second question being, what are the trends you're seeing in January within your flatbed operations?

If you look through the first couple of weeks of January, when I said that we saw truck volumes in mid-single digits, it's more -- it's probably upper single digits on the van side and more lower single-digit growth on the flatbed side on the growth over the prior year January.

Okay. That's helpful. And then we talked a lot about oil and gas and the potential deceleration in that market potentially shifting some capacity. Could Landstar -- could be a net -- could you benefit with that potential shift in maybe converting some of that capacity that weren't Landstar owner-operators, grow the BCO count? Could you potentially see some of the employees within oil and gas not driving trucks who would be considering truck driving job, potentially adding them to the BCO? I'm just trying to get a sense for if you could see a little bit of a tailwind in terms of adding BCOs with the decel on oil and gas?

Yes. Matt, this is Joe. I think that if you think about -- if some of the capacity that's tied up in oil and gas comes out of that dedicated work and wants to look at getting into something else that's pretty stable, I think Landstar is a pretty stable environment to be in, whether you're a carrier or whether you are a BCO. And I think we've got a lot to offer there, especially from the platform side if that's their equipment of choice. As it relates to non -- currently being a non-driver and getting into being the driving environment, that wouldn't necessarily be something that the BCO profile would be, because we require previous experience. But certainly -- and I've seen -- heard some evidence that the single owner-operator startups are increasing. So you could see some of that. And of course, that would then add to our carrier mix and again, just to add to the capacity base for us to draw from.

Our next question comes from Allison Landry with Crédit Suisse. Allison M. Landry - Crédit Suisse AG, Research Division: First, I just wanted to -- just given that you're providing some more transparency on vans versus flatbed, I was wondering if you could help us sort of maybe deconstruct the gross profit margins and EBIT margins of each, and whether either of these have improved or worsened directionally in the last couple of quarters.

To the -- other than the LTL, whether it's on a van or a flatbed, if it's hauled by our BCO, it's still under the same contract. So it's -- the -- so it's a fixed percentage. So you make more dollars off a flatbed because it earns more, it has a higher revenue per load. But your profitability is the same when you come down to gross profit. On the broker side, it's also very similar, because there's a negotiation between -- whether it's a flatbed or a van, there's a negotiation there too. So when you look at the PT rates we're paying to a broker on whether it's a van or flatbed, they're also very similar. So there's not a big difference in the margins by what the type of equipment is. What it really is whether it's a BCO or brokerage. You can understand that as brokerage is a negotiated rate, and the BCO is a contracted rate. So profitability, not significantly different between a van or a flat. But of course -- yes, the cost [ph] is a little higher because the revenue per load is higher. Allison M. Landry - Crédit Suisse AG, Research Division: What are you guys thinking in terms of CapEx for 2015 and maybe how that plays into allocations to shareholders?

Capital allocations. Well, we budgeted about $5 million for 2015, just cash CapEx, which is really just furniture and fixtures and some IT equipment. And we have 40 -- about $40 million or $45 million for about 1,800 new vans coming in to replace some existing vans. Those would be financed through capital leases, so it won't be a cash outflow. And then from a capital standpoint, we're going to do what we always do is we purchase shares, we just did a big dividend and look at opportunities from acquisitions. As everybody knows on the line, we don't see a lot of opportunities on the acquisition side, so we're going to use our capital to purchase stock or we should cut dividends. I favor the stock buyback.

Our next question comes from Rob Salmon with Deutsche Bank.

I guess, Jim, with regard to the buyback opportunity, obviously, the stock has come under a bit of pressure. Would you guys consider using the balance sheet a little bit more to support the shares, given the outlook?

We have in the past. It isn't something we wouldn't consider, we always consider that. If you think about it, if you look back at the last year, we ended up buying 940,000 shares. Sometime around second quarter, spent about $56 million and hadn't bought any shares from that point on. The stock ran from 56 to 80 and we weren't buying in a run-up to compete with investors. We're still -- we still favor buybacks. And yes, we will use the balance sheet to do it when we think it's appropriate and we see opportunity.

All right. And as a follow-up, I think I've missed the number of new agents that had joined Landstar in Q4. And can you talk a little bit about the pipeline that you're seeing right now?

Rob, I can't give you the number of the new agents that we brought on in the fourth quarter. I can tell you that the pipeline remains as robust as it was in 2014.

The number we gave was the -- that it was a -- we did $121 million in new agent revenue in 2014 for the year.

Next question comes from Tom Albrecht with BB&T. Thomas S. Albrecht - BB&T Capital Markets, Research Division: A lot of my questions have been answered, but do you have the annual turnover for the independent contractors, the number you end up putting in the 10-K?

Yes, Tom, this is Joe. It was right around 22% for the year. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And then, I think, Jim, when you were talking about insurance and claims, it had been probably closer to 3.5% of BCO revenues, excluding really bad or good quarters. You kind of talked around 3.1%. Was that just a slip of the tongue? Or are you actually beginning to think it could be just a little bit lower?

I think that it's going to be -- I think it's lower. It's starting to come down a little bit on that. Well, Tom, a little bit of what that was is revenue per load went up, and you don't really have more risk when the revenue per load goes up. So that's kind of what drove it. It wasn't that I'm expecting a lower total cost. What it really was is you're driving off of a revenue number. And when part of that revenue grows because of revenue per load, the risk isn't there. It really should be load count.

Our next question comes from Matt Young with Morningstar.

You mentioned something briefly about single owner-operator startups. Just to clarify then, are new entrants into the industry on the owner-operator side then showing hints of being more meaningful at this point? Or is it still too early to tell? I guess I'm just trying to get a sense of what signs of improvement in the pool of BCO candidates there would be.

Matt, this is Joe. Let me clarify. What I was trying -- meant to say was that we require a year of prior experience before we'll bring a BCO on board. In addition to a good safety record, a year of experience elsewhere. So I think the question previously was, would we take somebody who's in a non-driving job coming out of oil and gas production or -- and put them in a BCO truck? And the answer -- my answer to that was, no. Our requirements remain the same. Although if you look back at last year and the ability to attract interest from existing owner-operators and allow them to become BCOs, I think that interest still remains strong as we work through January with a net positive number in January and a lot of momentum coming from 2014.

And, I guess, along those lines then, with all the changes in pay and benefits and lifestyle perks among the other carriers out there, clearly there's a difference in niche. But are you finding it more competitive at this point over the last year with everybody talking about wages coming up? Competitive to recruit BCOs that is.

Yes. I guess I'd look at it this way, Matt. I mean, the wages increase and the sign on bonuses and the things that you hear about, a lot of that is aimed at company drivers, guys that don't necessarily own a truck or can really have a lot of option. I think in the owner-operator world, how we recruit and pay on a percentage when rates are doing, what rates have been doing, that's just a built-in rate increase that they get as soon as price changes. And I think that's very appealing. And if you couple that with some of the savings programs that we have around the purchasing of fuel and tires and so forth, I think whenever we're recruiting, we look at the whole package. Not only what are you making, but what are you saving, and where are you at the end of the year. And that picture that we can paint is -- remains pretty compelling.

Okay. So you're focusing more on the entrepreneurial drivers which wouldn't compete as much then with...

Yes, we're looking at the owner-operators or small fleets, not going into compete with company drivers who don't have a truck.

Our next question comes from Matthew Frankel with Macquarie.

A lot of them have been answered. But one the one sticks out is, we talked about the direct impact you have to the oil and gas industry, and it seems to be pretty minimal. But what about the indirect exposure? And not in the sense just in terms of equipment or infrastructure needed for that type of work, but also those areas of the country. Here, so much of your business seems to be small, midsize customers, it's all localized or a lot of it is localized. And those economies are really going to suffer with so many layoffs. I'm just curious, how much of your business is in the Houston area or in these regions?

Matthew, this is Pat. I think I'll harken back to the opening that Jim talked about, the revenue being from a broad base of customers, many industries and many different geographic regions. I would say to you that given the model, our agents can live in Houston, but they can ship from any location across the United States of America. So just because we have a concentration of agents in a single location doesn't necessarily mean that they're going to only be moving freight from that location. Yes, there could be some ancillary fallout from that, but if you look at some of the other areas, whether it's construction, forestry, turf, machinery, crane operators, if you look at those industries, look at where building is, both commercial and residential, those are really going along strong. We think that the capacity that will be impacted most dramatically by the oil and gas will be kind of a benefit for Landstar to be able to source that capacity to move the cargo that we have today. So we think -- I understand the ancillary potential damage, but we're so broad-based. I don't think it's going to have a material impact, and we don't see it at this time.

Okay. And then one last question is, if some of your -- the large asset-based truckers are able to grow their capacity base over the next year or so, a year or 2, at faster rates than you guys do with your owner-operators, is there any chance that you take that 1-year experience down to 6 months or 3 months or whatever it is to keep up?

Matthew, this is Joe. And I would say, no. I think we're pretty comfortable with that. And again, the way we're able to source brokerage capacity to satisfy customer demands, I think, is the right mix as we go forward.

Our next question comes from David Campbell with Davis & Co. David Pearce Campbell - Thompson, Davis & Company: Jim and Kevin, can you supply the second and third quarter revenue breakdown as you are now going to do it going forward in terms of vans and so forth? Is that available?

Yes. After the -- probably within an hour or 2 of this phone call, we are going to file an 8-K that provides the revenue by equipment type for each quarter back to 2000 -- first quarter 2012. So by the end of the day, it should be filed with the SEC. You'll be able to access that so you can change your models or whatever you want to do with that information.

Our next question comes from Casey Deak with Wells Fargo.

Question on the competition in the market. Obviously, '14 was a good year for brokers. And just through the month of January, are you seeing any change in how competitors are behaving? Is it still a rationale environment as far as rates are concerned in what they're going after?

We can only speak to what we're seeing in our rates, and our rates are still very strong. So we're not feel -- so we don't feel that anything has changed over the last 6 months about the competitiveness of people going after rate. There's no feeling. I don't think we have any sense of -- in January that anybody's changed the way they're going against rates.

Okay. And then are you seeing -- maybe on the customer front, are you seeing any pushback more from the shippers on rates? Or are they still just as quick to accept the increase? Or are you seeing any kind of change there?

Casey, this is Pat. I think our bid activity is roughly the same as it was last year. We had a couple of oil and gas companies come in and see if we would reduce rates. We said we wouldn't, because we don't think that the capacity in the marketplace would tolerate a lower price.

[Operator Instructions] Our next question comes from Scott Group with Wolfe Research.

So, Jim, just wanted to ask you a strategic question as you take over. Are there things that you're looking to do differently? Do you -- sounds like you're thinking about buybacks the same way. Do you think about acquisitions the same way? Or would you maybe want to get into do some more acquisitions? Or are there any modes that you're not in that you're more interested in, intermodal or something? Just curious on your thoughts there.

I think for a while I'm going to focus on the core, just supporting the agents and the capacity network. I think there's some things we need to do to get back to providing the tools that the agents need to be more effective and efficient, and I'm going to spend a little time on that. I think if we go back to 2009 when we acquired the supply chain companies and sold them at the end of 2013, and Henry had said it, it caused a lot of noise in our system. There was a lot of disruption to our network. And over the last year, we've been trying to remove that noise and really focus on the needs of the agent. That's where our focus is going to be for a while. That's not to say, if there's an opportunity comes across my desk on an acquisition, we'll look -- we will look at opportunities. But like in our business and the agent network and this model, it's difficult to find an opportunity that doesn't compete with our agents. So most of the focus will be on the core.

And then just in terms of some of like the longer-term targets, you guys talk a lot about net operating margin? Is 50% a goal there? When could that happen? How do you think about that?

I still believe that we'll hit our target of 50% by the end of 2017. And we're holding to that. We think we can get there. We believe that we can -- for every incremental dollar of gross profit, we can push 70% of that down to operating income. And we just grow gross profit in the mid-single digits over the next 2 or 3 years, we'll get there by '17.

And you think that's a good way to think about gross profit, mid-single digits the next few years?

Growth, yes, that's our target.

Our next question comes from Todd Fowler with KeyBanc Capital Markets.

Kevin, I'm not sure, maybe I missed this, but did you give what the additional incentive compensation number was in the fourth quarter?

It was about $6 million. $6.7 million.

$6.7 million. Okay. And then thinking about incentive comp into '15, you're coming off of a very good year in '14. Do the more difficult comparisons create a higher hurdle to hit a normalized level of incentive comp? Or does it reset and we should think about incentive comp as kind of that $7 million to $8 million on an annual basis and if you have another strong year it's something north of that?

No. The $7 million to $8 million, that's the way to put that into your model.

Okay. And then just from a timing standpoint, I think in the years past, there's been some unusual timing in the first quarter from your Agent Convention. Do have some expense for that this year? Or is that not going to be an issue in the first quarter?

No. It's comparable to 2014, the expenses in both the first quarters for 2014 and 2015. So no comparing.

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

So I'd like to thank everybody for their participation in today's call. And I look forward to speaking with you again on our first quarter mid-quarter update call currently scheduled for March 10. Have a good day.

Thank you for joining today's conference. That does conclude the call at this time. All participants may disconnect.