Jim Gattoni - President and CEO Kevin Stout - VP and CFO Pat OMalley - VP and Chief Commercial and Marketing Officer Joe Beacom - VP and Chief Safety and Operations Officer.

Bill Greene - Morgan Stanley Ken Ryan - Credit Suisse Jack Atkins - Stephens Rob Salmon - Deutsche Bank Tom Kim - Goldman Sachs Daniel Hultberg - Oppenheimer Scott Group - Wolfe Research Kelly Dougherty - Macquarie Matt Young - Morningstar Todd Naden - RBC Capital Markets Tom Albert - BB&T Allison Landry - Credit Suisse Bob Salmon - Deutsche Bank.

Good afternoon, and welcome to Landstar System Inc.'s First Quarter 2015 Earnings Release Conference Call. All lines will be in a listen-only mode until the formal and 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 & Marketing Officer; and Joe Beacom, Vice President and Chief Safety & Operations Officer. Now I would like to turn the call over to Jim Gattoni. Sir, you may begin..

Thank you, Dory. Good afternoon, and welcome to Landstar's 2015 first quarter earnings conference call. This conference call will be limited to no more than 1 hour. Due to a high level of participation on these calls, I'm requesting that each participant have a two question limit. Time permitting we can circle back for additional questions.

But before we begin, let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements.

During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations.

Such information is by nature, subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2014 fiscal year, described in the section Risk Factors and other SEC filings from time-to-time.

These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking information, and Landstar undertakes no obligation to publicly update or revise any forward-looking information.

2015 first quarter results included many first quarter records, revenue, gross profit, operating income and diluted earnings per share were all first quarter records. Additionally, the number of loads hauled via truck and average revenue per load on those loads starting in 2015 first quarter were both first quarter records.

During our March 10 first quarter mid-quarter update call I stated that I was comfortable with our previously issued guidance of first quarter revenue to be in the range of $750 million to $800 million. Based on that forecasted range of revenue I anticipated diluted earnings per share would be in a range of $0.71 to $0.76.

A few days following that update call a jury in state court in Arizona rendered a verdict of over $19 million against Landstar in connection with a tragic vehicular accident that occurred in 2011.

Based on knowledge of the facts and the analyses of outside counsel received in advance of the trial the company did not establish a specific case reserve with respect to this matter at the time of its 2015 first quarter mid-quarter update call.

During the trial and prior to the verdict the parties entered into an agreement that limited the Company’s financial exposure from the possibility of an adverse verdict to $4.5 million and all parties waived all appellate rights following the trial.

The verdict resulted in a pre-tax charge of $4.5 million or approximately $0.06 per diluted share to the Company's 2015 first quarter earnings. Additional information described in the accident is included in a Form 8-K that Landstar filed with the Securities and Exchange Commission on March 16th.

Demand for Landstar's transportation services was strong throughout the 2015 first quarter. First quarter revenue was $762 million which was $74 million or 11% above 2014 first quarter revenue.

Diluted earnings per share was $0.67 which was $0.06 or 10% above 2014 first quarter diluted earnings per share, as mentioned earlier diluted earnings per share in the 2015 first quarter was negatively impacted by $0.06 attributable to the $4.5 million pre-tax charge related to the unfavorable verdict.

Truck transportation revenue, which was 93% of revenue in the 2015 first quarter, grew 10% over the 2014 first quarter. 2015 first quarter revenue hauled via on sited platform equipment, van equipment and less than truck load freight grew 4%, 13% and 17% respectively over the 2014 first quarter.

Revenue hauled via railroads which was 3% of revenue in the 2015 first quarter increased 41% over the 2014 first quarter. Revenue hauled via air and ocean cargo carriers, which was 3% of revenue in the 2015 first quarter increased 15% over the 2014 first quarter.

During our first quarter mid-quarter update call, I stated that through the first eight weeks of 2015 revenue increased approximately 15% over the first eight weeks of 2014 mostly due to a 7% increase in both the number of loads and revenue per load on loads hauled via truck.

I also stated that the daily trend in the number of loads hauled via truck during the first two weeks of fiscal March was inconsistent and expected the number of loads hauled via truck in March 2015 to exceed prior year March in the low to mid single-digit range. Loads hauled via truck in March 2015 exceeded March 2014 by 5%.

Overall the number of loads hauled via truck in the 2015 first quarter increased 6% over the 2014 first quarter.

As mentioned in our year-end earnings conference call held on January 29th, we expected the year-over-year growth rate in revenue per load to slow in March 2015 due to the exceptional growth in prior year’s revenue per load from February to March. Revenue per load on loads hauled via truck in fiscal March 2015 was 1% lower than March 2014.

Revenue per load on loads hauled via truck in March 2015 was impacted by both mix as heavy specialized services which has a high revenue per load was lower than anticipated and the impact of lower diesel fuel cost on loads hauled via truck brokerage carriers.

I estimate that lower diesel fuel costs reduce revenue per load on loads hauled via truck brokerage carriers by approximately 6% in the 2015 first quarter compared to the 2014 first quarter. Overall, revenue per load on loads hauled via truck in the 2015 first quarter increased 3% over the 2014 first quarter.

During the 2015 first quarter, we net added more BCOs in on any other first quarter since 2006 and are at the highest number of truck broker carriers haul Landstar loads compared to any first quarter in Landstar’s history.

Landstar ended the 2015 first quarter with a total truck capacity network of over 48,000 providers, nearly 8,000 over the 2014 first quarter and approximately 2,000 over year-end 2014. Both approved and active carrier count were at record levels at the end of the 2015 first quarter.

During the 2015 first quarter BCO independent contractors hauled 191,000 loads and truck brokerage carriers hauled 196,000 loads compared to 199,000 loads and 165,000 loads all by BCOs and truck brokerage carriers in the 2014 first quarter. Although we ended the first quarter with over 600 more BCOs as compared to the end of the 2014 first quarter.

The number of loads hauled by BCOs was 4% below the number of loads hauled in the 2014 first quarter, as BCO utilization measured in loads hauled per BCO per week was 10% lower than the 2014 first quarter.

Regardless the Company’s ability to source capacity remained solid as a number of loads hauled via truck brokerage carriers increased 18% over the 2014 first quarter more than offsetting the effect of the lower BCO utilization.

New agent revenue representing revenue from agents who joined the Company since January 2014 contribute 22 million of revenue in the 2015 first quarter, while revenue at existing agents increased 12% over the 2014 first quarter.

The 2015 first quarter freight transportation environment continued to provide significant opportunities to enter the account base and strengthen our relationship with customers. The Company’s top-100 customers ranked by 2014 first quarter revenue comprised approximately 40% of 2015’s first quarter revenue.

2015 first quarter revenue from those top-100 accounts increased $7 million over the 2014 first quarter, while customers beyond the top-100 increased $67 million. With over 25,000 bill-to-customers, the Company’s account base is highly diversified. And I’ll pass it over to Kevin for some financial information update..

Thanks, Jim. Jim has covered certain information regarding the 2015 first quarter, so I’ll cover various other financial information included in our press release.

Gross profit, representing revenue less the cost of purchased transportation and commissions to agents was $115.4 million or 15.1% of revenue in the 2015 first quarter compared to 105.5 million or 15.3% of revenue in the 2014 first quarter.

The decrease in gross profit margin was attributable to an increase in the percentage of revenue hauled by truck brokerage carriers, which has a lower gross profit margin. Overall, the cost of purchased transportation was 77% of revenue in both the 2015 and 2014 first quarters.

While revenue on loads hauled by truck brokerage carriers was adversely impacted by the drop in diesel fuel prices, purchased transportation paid to truck brokerage carriers was also reduced.

The rate of purchased transportation paid to truck brokerage carriers as a percentage of revenue in the 2015 first quarter was 60 basis points lower than the rate paid in the 2014 first quarter and 20 basis points lower than the rate paid in the 2014 fourth quarter.

As the Company did a very good job of managing the cost of purchased transportation on truck brokerage rate. As you know fuel surcharges billed to customers on freight hauled by BCOs are excluded from revenue and past 100% to the BCO.

Commissions to agents as a percentage of revenue were 18 basis points higher in the 2015 quarter as compared to the 2014 quarter, due to an increased net revenue margin or revenue less the cost of purchased transportation on revenue hauled by truck brokerage carriers.

Other operating costs were $7.7 million in the 2015 quarter compared to 6.6 million in the 2014 quarter. This increase was primarily attributable to increased trailing equipment rental and maintenance costs. Insurance and claims costs were $14.8 million in the 2015 quarter compared to $11.9 million in the 2014 quarter.

The increase in insurance and claims was primarily due to the $4.5 million cost of the verdict previously discussed by Jim. The 2014 first quarter had unfavorable development of prior year claims of $1.9 million. Selling, general and administrative costs were $37.2 million in the 2015 first quarter, compared to 35.6 million in the 2014 first quarter.

The increase in SG&A costs was primarily attributable to increased employee wages and benefits and increased stock-based compensation partially offset by a decreased provision for bonuses under the Company's incentive compensation program.

Although SG&A dollars increased year-over-year, SG&A expense as a percent of gross profit decreased in the 2015 quarter compared to the 2014 quarter from 33.8% in 2014 to 32.3% in 2015. Depreciation and amortization was $7 million in the 2015 first quarter compared to 6.8 million in the 2014 first quarter.

This increase was due to increased depreciation of trailing equipment related to the replacement of older fully depreciated equipment with new equipment. As it relates to operating leverage operating income was $49 million or 42.5% of gross profit in the 2015 quarter versus 45 million or 42.7% of gross profit in the 2014 quarter.

Despite the increased insurance and claims cost related to a single accident operating income increased 9% year-over-year. During the 2015 first quarter 40% of incremental gross profit was passed to operating income.

Had we experienced normalized insurance and claims cost of approximately 3.3% of BCO revenue during the first quarter the Company's targeted pass through of 70% would have been achieved. We continue to expect to pass 70% of incremental gross profit through to operating income on an annual basis in 2015.

The effective income tax rate was 37.8% in the 2015 first quarter compared to 37.5% in the 2014 first quarter.

The effective income tax rate which historically is 38.2% was impacted in both periods by tax benefits resulting from disqualifying dispositions of the Company's common stock by employees who obtained the stock through exercises of incentive stock options.

Looking at our balance sheet we ended the quarter with cash and short-term investments of $152 million. Cash flow from operations for the first quarter of 2015 was $49 million and cash capital expenditures were $2 million.

During the 2015 period we purchased 464,000 shares of Landstar common stock at a total cost of $31.3 million and they're currently over 1.3 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 the end of March shareholders' equity represented 83% of total compensation.

Jim?.

Thanks Kevin. Overall Landstar had a very good first quarter, industry fundamentals remained similar to those experienced in 2014. We continue to have strong demand for our services. I expect that strength to continue throughout the second quarter.

Year-over-year revenue comparisons for the 2015 second quarter become more challenging as compared to the 2015 first quarter over the 2014 first quarter results, primarily due to the exceptionally strong revenue per load on loads hauled via truck in 2014.

I expect the pricing environment experience of March 2015 to continue through the second quarter which includes the impact of lower diesel fuel costs, a lower contribution of revenue attributed to heavy specialized service and a stable supply and demand environment with tight truck capacity and strong yet steady demand.

Assuming recent trends continue, revenue per load on loads hauled via truck in the 2015 second quarter should be similar to the seasonal all-time highs of the 2014 second quarter. I anticipate second quarter truck loadings to exceed prior year at a mid single-digit percentage.

Based on the continuation of recent revenue trends I currently anticipate revenue in the 2015 second quarter to be within a range of $830 million to $880 million, based on that range of estimated revenue I expect diluted earnings per share to be in a range of $0.87 to $0.92. And with that Dory we will open to questions..

Thank you very much, sir. At this time, we will begin the question-and-answer session. [Operator Instructions] Our first question comes from Bill Greene with Morgan Stanley..

Jim I wanted to ask you about the current market conditions, as you see the spot markets seem to have loosened up a fair amount, you guys did exceedingly well last year when spot markets were very tight, and actually here in the first quarter you're doing quite well, and we're still pretty tight.

I know you don’t have a crystal ball but how do you think things evolve going forward when you see the spot markets trending as they are?.

Well I think we are going to continue to see what we saw in March, I think it's going to be relatively stable. I think we're going to see pricing on a revenue per load basis.

Historically what you typically see is maybe, I like to look sequentially right, so coming off the first quarter going into the second quarter we generally see a 2% to 3% revenue per load climb. I'm looking more at maybe flat to maybe 1%, because of the spot market conditions are loosening up a little bit.

But I'd still say that from a van side, we still have pretty strong on the van side and I don't want to say it's a flat but it’s not strong, it’s just kind of level to where it was next year.

But I'd anticipate that we're going to continue to see the steady kind of steady rate environment from March into the next and I think our volumes are going to still. We saw the lot of demand coming in for van and even on the flat side.

So I still think we will see that mid single-digit growth rate on a volume which is pretty strong in this environment..

Can you talk a little bit about how you think about driving more business to Landstar, like one of the challenges that I always have with the model is that it almost looks like you kind of have to accept sort of what comes in and with an ROE at 30% you sort of say like well gosh is there a way that they can invest a bit more to grow a bit faster or maybe not.

And so I am just curious by your thoughts on that?.

Well as we always talk about there is certain ways to grow, you grow organically or you growth through acquisitions, right.

And we often look at acquisition opportunities and hesitate to jump into a brokerage model that has company stores, there would be significant amount of account complex and we really want to protect the model from the entrepreneurial spirit of our agent base. So we drive through organic growth.

And we do it through adding agents to the system and making the agents we have more efficient and effective and helping them to sales calls. So it's kind of the way we've organically grown in the past, we’re going to continue to focus on that. We have got some other tools in the pipeline.

We’re working on enhancing the tools that they are using in the field to make the agents more effective. And hopefully those tools actually do better pitches to new agents coming on-board. So we’re working on some things internally to enhance the organic growth..

Next question comes from Allison Landry with Credit Suisse..

This is Ken on for Allison how are you guys doing today?.

I am god how are you?.

Good, good, thanks..

Your voice sounds a little, different. Allison your voice is little different..

I think it got a little deeper overnight, I got to admit. So sort of out here curious what the year-over-year benefit was realized Q1 as a result of shifting the timing of your annual agent convention. And if we should assume that will be about 1.5 million headwind in Q2 or if not what it should be? Thanks a lot..

Now the convention actually was in the first quarter of both quarters and it was about 2 million in each quarter. So there won't be any impact on the second quarter..

And just as a follow-up, if you, so looking at the insurance and claims expense I guess if you’d back out with the lawsuit settlement it looks like as a percentage of BCO revenue in Q1 is about 2.9%.

So would you expect a similar level in Q2 or should we still stick to your typical guidance of 3.1%?.

We re-ran it, the average realized by the year is now 3.3. So when we model we’re modeling going forward at 3.3..

Next question comes from Jack Atkins with Stephens..

So Jim I guess just kind of looking into the specialized business for a moment the 11% decrease in loads on a year-over-year basis. Is that really going to sit up to me at least, could you maybe give us some color on sort of what you think was driving that.

And would you expect that activity to rebound as you move through the year?.

Jack this is Pat, I think that if you looked across the platform there were some a lot of talk coming into the quarter about oil and what impact that would have certainly that had some impact there is no question about it, there were some general softening across other industries but they are also within that oil business accounts that really have taken off for us, and also machinery accounts that have taken off.

So I think there is a lot of capacity that has kind of come back in the market that is now competing for some of the business. But as we mentioned at the fourth quarter call that capacity is also now available to Landstar and I think Jim appropriately outlined in the quarter how we were able to source capacity to meet the needs of our customers.

Going forward we kind of expect about more or the same as we go forward through the year..

And then just to follow-up on the strong BCO adds in the quarter, you referenced that being the strongest quarter for adds since 2006.

Just again what do you think is driving that? Is there anything sort of something specific that you guys are doing to sort of add that BCO account? And would you think as you look out over the course of the year that we should expect sort of similar high single-digit type growth rate there?.

Jack this is Joe. I think the additions of BCOs really if you think back to last year we had a very good add year last year and a lot of good momentum last year, really based upon the availability of freight.

And I think being that we’re 100% third-party capacity organization, I think we do a lot of things to cater to whether it be carriers or BCOs and a lot of that momentum from last year carried into this year.

And again I think it's just we just do the best we can to make it an environment where single owner operators or small fleets can really survive and thrive.

And I think when you have so many of our BCOs doing so well in 2014 word of mouth is a very powerful recruiting mechanism in addition to a lot of the things that we’re doing internally to better identify good candidates for Landstar.

I expect as we sit here today that demand the pipeline for future BCOs is pretty full, and I don't see any sign of that weakening as we move into second quarter..

Our next question comes from Rob Salmon with Deutsche Bank..

Could you guys talk a little bit more about the BCO utilization, have we seen any sort of uptick as we moved into the month of April, I am curious if this is just that BCO has made a ton of money in 2014 and as a result they took a little bit longer of holiday at the start of the year or if it's some of the demand transit that’s kind of kept down at bay?.

This is Joe. I think you hit the nail on the head there, I think they did extremely well in 2014, I think just on that alone I think we had not a rush to come back to work in the first quarter of 2015.

I think some of the weather conditions may have also been a factor there and as we sit here in April, April is not closed yet, but there really hasn’t been any meaningful improvement in April..

And then Jim you may have mentioned it in the prepared remarks, but did you give an update in terms of the agent additions who came on in the first quarter as well as kind of those who came on in 2014 their overall contribution to the Q1 earnings, Q1 top-line rather?.

Yes, we refer that as the new agent revenue guidance who this is their first full quarter that they are here. So they contribute 22 million of revenue..

[Operator Instructions] Our next question comes from Tom Kim with Goldman Sachs..

Can I ask you just a follow-up on the number of new agents, how does that pipeline look for Q2?.

This is Pat.

Our thesis remains the same, if you looked at last year and what we’ve kind of said about the marketplace and the challenges that small businesses have we continue to believe if that’s the case, the pipeline remains well seated and the number of agents that we’re bringing on we’re very satisfied with that, not only the number, but the quality of the people that are coming on..

And I guess I am just wondering with regard to the free cash flow generation, how are you thinking about prioritizing some of that free cash flow distribution in terms of buybacks versus dividends and what about even the prospects of maybe a special divi?.

I prefer the -- and we like the share buyback. So I think that’s what we’re going to focus what we have done in the past, we have that small dividend. But I’d expect that we’re going to be focusing on the buybacks going forward over the near-term..

Our next question comes from Scott Schneeberger with Oppenheimer..

It's Daniel Hultberg for Scott.

Can you take us a little bit deeper on the end market dynamics, on what you're seeing that gives you confidence in sustaining business trends into the second quarter here?.

As you know the end markets we’re highly diversified, when you look at the breakdown of our industry sectors that we provide services to it's across the board.

Even if you take where we talk about machinery as being of the things we do it's about 20% of our business of our revenue, but within that category the top 25 accounts only make about 30% of the category.

So it's highly diversified, so it's hard to break it down to end markets that’s kind of why we focus on kind of split the flat beds to [vans] and even inside the flat beds we break it out the heavy haul piece.

And as an example if you were just to pull apart the platform stuff for the quarter-over-quarter comparisons we’ve had 52 accounts, first quarter this year over last quarter on the flat bed side, 52 customers who grew their revenue more than $250,000 we had 33 customers who decreased more than $250,000.

And we had a significant amount of customers who are trying to stay consistent and there are different industries, different sector.

So it's -- unless there is a specific concentration on a given quarter where something really ramps up like wind, two or three years ago we’re talking about wind because it's really impacting the revenue in the quarter significantly and then we don’t have much of that now it's just broad-based growth and it's across the board industries right now.

So it's hard for us to -- a lot of times you’ll hear us talk about industrial production or the durable goods stuff like that more than we’ll talk about specific industries. Right now it seems broad-based whether it's going up or down it's not to any specific customer industry is driving it..

Next question comes from Scott Group with Wolfe Research..

So why don’t you just go back to the nice increase in BCOs, just wondering from your perspective, how much of this in your mind can you tell us new capacity and during the market because of rates are high and fuel is low and guys can just make more money out there right now?.

This is Joe. I think that one of the things that we kind of try to keep track of is all these new orders for trucks and the sales of trucks and up and down.

It still seems to me like the majority of that is -- the great majority of that is replacement equipment, I still continue to read and hear from other carriers that difficulty in finding drivers and so until that really changes I think most of the equipment is just going to replacement and that’s kind of I don’t how that really changes unless the environment or the lifestyle of the trucker really changes materially..

And from our standpoint our guys generally have to have a year experience in equipment they are driving and a lot of guys coming over are veterans..

And on the BCO utilization outside of just missing out on some revenue there is no cost impact you guys from the BCOs having lower utilization, correct?.

There is kind of an indirect cost. We have about 8,800 trailers in the system and they basically get used by the BCOs. So what happens at BCO utilization is below expectations, you could have some trailing equipment not getting utilized that’s our asset risk we have 8,800 trailers.

So I think what you saw if you look at other operating cost we had a little bit of that cost sitting in there. Other operating costs were a little bit higher. We had some trailers in there that weren’t get utilized. But that’s the only -- if other than that, there is really no impact..

Okay.

And then just last thing quickly your guidance were flattish pricing in the second quarter, what is that ex-fuel?.

What is that ex-fuel? On brokerage side? Flattish --.

You’re expecting revenue [loading] on trucking business to be flat year-over-year in the second quarter..

Yes..

But that includes at least on the broker side negative fuel, correct?.

Yes. Scott this is Kevin. That impact in the first quarter was as Jim said was about 6% year-over-year. So if you assume the same thing it’s going to be $20 million to $25 million..

[Operator Instructions] Our next question comes from Kelly Dougherty with Macquarie..

Hi. Thanks for taking the question. Just two quick follow ups on something you said earlier, the first you said you expect more of the same in the heavy specialized stock, does that mean the magnitude will be down double-digits over at least in the second quarter or I’m not exactly sure even by more at the same there..

We don’t expect it to pick I think it was of the March run rate. I don’t want to say double digits but we’re probably not going to fly and start pushing the positive over the next couple of months. We don’t anticipate that turning on a dime.

We don’t know if any new orders coming in right now to drive the heavy haul any different than it happened in the first quarter..

Was there 11% decline down driven primarily by just less activity in the energy industry or was it something else?.

Part of it was win and part of it was a little bit of U.S. government but other than that it was kind of widespread so wasn’t particular any industry. There was some part that was went towers and blades and some of it was government but the majority was just spread out across multiple customers..

Okay. And then just a follow up on I know you talked for while without the preference being the buyback, how much cash are you comfortable carrying in the balance sheet or kind of what is the minimum that you need you’re obviously generating healthy amount, just kind of trying to size up what you might be able to do it from a buyback perspective..

It really doesn’t come out in cash. If you think about it we can -- this operates we can run our working capital of the operations we only have to borrow much money. So we’re comfortable.

The only thing we have as we have certain requirements when it comes to our insurance captive where we have to hold certain cash in investments as collateral for claims and that level is about 60 million or 70 million. So that’s kind of what our limit is. But we’d be willing to take it down to 60 million to 70 million cash.

We’d also be willing to jump into the revolver. Right now we have about 190 million available under our unsecured revolving credit facility. So we’d also be willing to use that. So it’s cash [possibility] on the revolver and like I’m saying we can take the cash down about $70 million..

So it seems like a pretty good runway from a buyback perspective. And then I know it’s small part of the overall business but it was a big increase in the first quarter.

So just wondering about the [indiscernible] something other than truck, is there been some kind of change and maybe trying to grow real ocean here, any of that business build more than you have been in the past or maybe your West Coast port situation boosted that. Just kind of help us think about the big increase there..

Kelly this is Pat. If you think about last year first quarter and all of the disruptions in the rail service, because of the weather. So you’ve got a real easy comp. The other part of it is we’ve brought on some agents in that states that it produce pretty well for us and we’ve had some good action with some existing accounts and some new accounts.

But buying a large it’s really just an easy comp because of weather in the first quarter of last year. .

Okay.

So no kind of move away from heading up on some kind of growth when the some truck inside or going to maybe else is out there?.

Not at all as matter of fact we try to position ourselves well in each one of these verticals. But no there is nothing that all are going to move away from truck and move into rail. It’s just coincident..

Our next question comes from Matt Young with Morningstar..

Good afternoon guys. Thanks for taking my call. Just two quick questions one on the intermodal you mentioned that came up a little bit, do you guys generally are you able to secure the capacity one your agency generally able to service that when the customer ask you to move it on the rails.

I know sometime it can be difficult if you don’t have a lot of scale..

Matt this is Pat. Certainly in some markets there is a challenge for our equipment. We haven’t really experienced any of those challenges so far this year. We also have a pretty aggressive program here where we’re doing street turns where we can with equipment whether it's in in smaller markets or challenging markets are out on the West Coast.

That's not to say we don’t have some issues with it, but we try and manage that..

Okay, that's fair and then looking at the pool of third party broker carriers obviously that's been coming up for you in recent years, just wondering if those truckers tend to sell source with you guys or are they using a lot of different intermediaries?.

Yes, Matt, this is Joe, I think what our experience has been is that a lot of them try to work with us, they have a priority but clearly if an opportunity that is better for them on that given day they're go to whoever has it and we’re working every day to try to get them to be more loyal to us and keep them in the network so to speak and we’ve had some success with that but there is no metric or measurement whereby we would know that, but just from talking to them and working with them we're just trying to make Landstar the priority and we think we're having some success there..

Our next question comes from Todd Naden with RBC Capital Markets..

You've quantified I think it was 2% number that you used for your direct oil and gas exposure, I wanted to see where that is now and also if you had any insight into what your secondary exposure is, how big that could be, more along the lines of oil and gas related projects, infrastructure, construction, that sort of stuff.

Is that number bigger or is it the same. .

Well when we do oil and gas we try and pick up anything related to the oil and gas industry whether it be infrastructure or exploration and stuff like that. In the first quarter here I believe it stayed at 2%, if you just give me a second, okay, yes, it looks like it's about 2% of revenue.

We also split out, we look at that and then we look at other energy commodity groups too, but actually the [indiscernible] is 2% but we grew it about looks like maybe 4% over the last year's first quarter so it didn’t directly impact us, but as Pat was talking before the thing that might have impacted it are some of the flatbeds that we're hauling some of this oil and gas stuff might have come into the industry and so there's just a little more capacity available, so directly still we don’t think there's a big impact but from capacity coming into the market I think it's more the impact.

Can’t quantify it but I'd bet that there's some flatbeds out there available that weren't previously available to haul some of the freight we have..

Is that equipment ready to roll when it comes in, when it comes out of oil and gas..

We read anecdotal reports that some of it's a little bit dated and I guess because some of the projects were shorter haul in nature that the equipment may not be ready for, immediately ready for other applications..

Todd, this is Pat. It really depends on what they're doing right, if they're working in the oilfields and they're providing product in an expedited fashion then typically that equipment is not really positioned to go over the road.

On the other hand those people that were pulling cargo that was pipes and pumps and the like into the oilfield and servicing US Steel or some other account then they're going to be -- then it's not in as great demand as they previously were, so the pure oilfield hauler your thesis is correct, they're not typically competing with carriers like us and others for over the road transportation..

And then a last question I know someone had mentioned the chance of a dividend earlier, you know you said that buybacks were the priority, would you look at maybe a special dividend along the lines, not what you did last year but the two years prior to that which was considerably smaller than last year's or is it really just buybacks now. .

There were several reasons why the special dividend popped and one was the sale of the South Field facilities in the end of 2013 generate a significant gain on sale and we distributed, I think it was $0.35 a share.

Was it prior to that with the -- with the taxes that were going to go and we delayed our dividend, we were going to cancel the smaller dividend so we did a kind of a special dividend at the end of '12 I believe..

$0.50 yes..

$0.50 at the end of '12, so there was specific reason about that one too and then last year, what had happened last year we ended up piling up cash in the balance sheet because if you watched our stock run up from about May to December, we weren't chasing the run up, I want to say one from like maybe mid $50 up to $80 in a matter of three or four months, we didn’t chase that run up and while that was happening we were piling cash up on the balance sheet so we made a decision to do a special dividend based on the cash flow on the balance sheet.

So generally we do a special when we have something, when we end up in a position with either a lot of cash on the balance sheet or something changes in the environment where you could see it happening but at this point I would think we're not talking about a special dividend in the short term but I'm sure we'll be discussing one every December and make a decision on whether we're going to do one or not..

All right, thank you..

Next question comes from Tom Albert with BB&T. .

Hey guys, most of my questions have been answered but you know I don’t know if it was Pat or somebody that kind of made an interesting comment that as some of the carriers that may have been tied to oil and gas start looking for freight, that's a positive for your brokerage business, I'm just wondering though as you look at the carriers that come into the brokerage arena, if you have a way to gauge kind of new fleets versus fleet that have been in the business some time?.

Tom this is Joe, when you say gauge them what do you mean by that?.

If you run any numbers where this fleet was formed in 2014 or earlier this year as opposed to having been in business several years. I don't know if you do that kind of data analysis when you approve a carrier to be part of the brokerage network. .

We don't approve them in that fashion, we really don't.

The only information that we calculate and provide to our agents is how many loads that they haul for Landstar over a period of time, right? But down the way in the door other than a safety check and insurance check and then getting the contract and so forth there really isn't a lot of history that we go and grab. .

Those flat bit companies have a tendency to be smaller in nature and therefore they would use a company like Landstar as their sales force rather than going out and trying to knock on doors and generate business on their own. .

I know some of them one and two truck wonders that are out there. .

[Operator Instructions]. Our next question comes from Allison Landry with Crédit Suisse..

Just one more quick one for you. It looks like the truck brokerage revenue as a percentage of your total has shifted to be a little bigger part of your business over the past few quarters relative to BCO.

Would you expect that to continue through the rest of the year given the lower utilization in BCO or should we see it shift a little?.

If we were to assume that the BCOs are going to stay at low utilization, yes. I would expect brokerage to exceed BCO going forward. But we’re hoping that the BCOs will eventually get back and increase our utilization and get back to that 50% of the business.

Again if we can keep growing brokerage too as [battle and see] comes in first, right? So if it stays as is I anticipate brokerage will continue to be bigger than BCOs if utilization stays where it is. .

Our next question comes from Tom Kim with Goldman Sachs. .

Just wanted to ask on the growth in commissions to agents, it grew faster than overall revenues in the quarter. I was just wondering if you could just remind us how that works in terms of size up the commission side of things..

This is Kevin. On the commissions we actually as I stated in my prepared remarks, the rate pay to the truck brokerage carriers the PT rate was actually down. And because of our share arrangements with the agents that’s what drove that full 18 basis points increase, really a mix of additional or more brokerage revenues in BCO revenue. .

Our next question comes from Bob Salmon with Deutsche Bank..

Thanks for the follow-up.

With regard to your BCO account is it more dominated in the flatbed or is it pretty evenly distributed between both the flatbed is also drive end segments?.

We have bore van operators in the fleet today, I would say probably 65-35 maybe even a little bit north of that. And the influx of BCOs that we had last year and so far this year tend to be more van than flat as well. .

So is 65% van, 35 flat is the rough split. .

That’s a rough split, yes. .

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

We are looking forward to moving into the second quarter, and again volume is strong right now we’re still seeing mid-single-digit growth rates and it's just a top of revenue per load top moving into the quarter, but we feel pretty good about the performance of the first quarter and we see it carry into the second quarter.

I look forward to speaking with you again on our second quarter mid-quarter update call currently scheduled for June 04th. Have a good day. .

Thank you for joining today's conference call. That does conclude the call at this time. Have a good afternoon. Please disconnect your lines at this time..