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Roadrunner Transportation Systems, Inc. (NYSE:RRTS)

J.P. Morgan Aviation, Transportation and Defense Conference

March 5, 2013 1:10 pm ET

Executives

Mark DiBlasi – President and Chief Executive Officer

Peter Armbruster – Vice President, Chief Financial Officer, Secretary and Treasurer

Analysts

Allan Roach – Watco Companies, LLC

Joseph P. Adams – Fortress Investment Group LLC

Unidentified Analyst

Okay, great. So the next presentation we have here is will be from Roadrunner. We have the CEO, Mark DiBlasi who is going to present and we have Peter Armbruster, the CFO as well. And so, I think they’ve got 20 or 25 minutes and we’ll have plenty of time for some Q&A afterwards. So Mark and Peter, thank you for joining us today. We appreciate having you here and look forward to your comments.

Mark DiBlasi

Okay, thanks, and I appreciate it, if I can get the screens up. Okay, well, good afternoon, everyone. I’ll tell you a little bit about Roadrunner Transportation Systems. Today, we are a leading asset based – leading non-asset based solutions provider in both LTL truckload and TMS. Few year ago, five or six years ago in particular, all we did was long haul LTL. Today, we do – we still do long haul LTL. We also do truckload, truckload logistics, truckload brokerage, free consolidation inventory management, transportation management solutions, as well as intermodal and intermodal drayage.

So we’ve significantly diversified the company over the course of the last five years. Five years ago, we were a $300 million company. We’ve grown that company, this company through acquisition and organic growth. Till last year, we achieved just shy of $1.1 billion in revenues, so pretty significant growth. The fastest growing transportation-based company in the U.S. over the course of the last three years.

We’ve done as I said through significant acquisition, as well as through organic growth. We have become a preferred buyer in the transpiration market. We made 15 acquisitions since we took the company public in May of 2010. We made eight acquisitions last year alone, and we have a very robust pipeline going forward into 2013 and 2014.

We also have a very significant organic growth. Last year, we grew from $843 million in revenues to $1.073 million and 27% revenue growth. Of that 27%, 9% of that was organic growth and 18% was through the acquisitions. We have a very broad geographic footprint. We cover all of the United States through all of our operating segments. We have a very comprehensive service offering, scalable and has a variable cost structure.

We do utilize and are considered an asset light carrier. We are a carrier and we’re asset light in the way in which we use independent contractors much different than you might think of a brokerage operation. We do brokerage to some degree. But we are, in fact, a carrier and we control the assets in terms of independent contractors.

As you see later on in the presentation, we have over 3,100 independent contractors that run exclusively for us. We have a very efficient business model because of the way in which we utilize independent contractors, not only in LTL, but in truckload and as well as intermodal. And we do provide very strong free cash flow, as well as a very high return on invested capital.

The leadership team we’ve built up over time, I came to the company in January of 2006, a year after, it was acquired by a private equity firm. We grew the company significantly, as I just described, and expanded the service offerings, as I said, also very significantly.

Over that time, we’ve added personnel to support the growth that we’ve experienced, and I’ll go into more detail on the personnel. But suffice it to say that all of our people we brought on board have extensive experience in transportation and have learned much larger companies or segments of companies in their career. So as we continue to grow, we are very confident in our ability to manage the size of a company.

As I mentioned, we have organic strategies and acquisition strategies. We’ve extended our market share significantly through organic growth. In 2011, we grew at plus 15%. As I said, last year, we grew at 9% revenue growth. Since we’ve implemented and increased the service offering, we now cross-sell all of those service offerings. We have multiple customers that use us for multiple segments of our business. About 12% of our account-based use us for two or more for our services whereas a few years ago, very slight amount of our existing customers used us for more than one service.

We’ve cross trained all of our sales personnel and as we add companies and businesses to our service offering, we cross train our whole sales force to cross-sell that business. That translates into a pretty significant organic growth when you do that. Obviously, over time we’ve improved the efficiencies of the company that we’ve acquired and continue to move forward.

We do believe in a significant amount of dedicated capacity. As I said, we have 3,100 independent contractors that run exclusively for us. We’ve grown that number from the middle of the recession a few years ago of 1,100 ICs to over 3,100 independent contractors today, and we’ve done that through organic growth with ICs, as well as through the acquisitions we’ve made.

In terms of the acquisition strategy, I’ll get into the actual profile in a few moments. But we have significantly extended and expanded our service offerings. As I said earlier, 100% of our revenue five years ago was long haul LTL. In 2013, about 42% of our revenues would be long haul LTL. About 49% will be truckload and logistics, and about 7% or 8%, 9% would be transportation management solutions.

So we’ve significantly diversified the services we provide to our shipper base, we’ve significantly increased our shipper base. Today, we have over 35,000 shippers that ship with us through our operating segments.

And we will continue to be very acquisitional going forward. As I said last year, we made eight acquisitions. This year the pipeline is more robust than it’s ever been. So we would anticipate a similar amount if not more acquisitions in 2013. In terms of revenue growth, you can see how we compare to other asset light peers, and as well as earnings per share growth, as I said, we’ve been the fastest growing transportation-based company in the U.S. for the last couple of years. We would expect to continue to do so. In our operating segments, we do report as a public company in the LTL segment, truckload and logistics segment, as well as TMS transportation management solutions.

Last year, we did 500 – a little over $500 million in LTL, just about $500 million in truckload and logistics and about $90 million in transportation management solutions. We do focus on small to midsized shippers. We do have a very large shipper base of over 35,000 shippers. We don’t have any one account that generates more than 3% of our revenues throughout our network and the only operating silo the word I point out that we’re at 18%.

In terms of an operating industry sector is our refrigerated – our truckload operation about 75% of our truckload fleet is reefer. So that makes up that 18%. But again there is no one customer that’s more than 3% of our revenue base. So we do focus on the small midsized shippers.

With significant flexibility, we have over 10,000 purchase transportation providers, truckload providers that service our truckload, as well as our LTL business segment. And as I said earlier, we have over 3,100 independent contractors that run exclusively for us in our LTL segment, our truckload segment, as well as our intermodal drayage segment. It’s a variable cost, money. It’s a variable cost model and it works very efficiently.

I’ll break it down into the individual segments. As I said earlier, LTL was the core business and but we use LTL in a much more different manner than what you are used to in terms of the asset-based LTLs. We’ve run a non-asset based LTL and non-asset in the way in which we use independent contractors.

We use a point-to-point business model where we consolidate freight at origin and move it on to destination. We only have 23 terminals nationwide, but we delivered to 100% of the zip codes throughout the United States. We do that through a network of our own terminals, as well as through a network of delivered partners that we’ve developed over the course of the last 30 some years, the actual LTL company has been in business since 1981.

We have very efficient transit times. We consolidate origin. We don’t run it from a satellite system through a break bulk, to another break bulk to another satellite to the end user, like the asset-based carriers that you’re familiar with do. We consolidate origin then we dispatch with teams direct to destination, whether it would be a Roadrunner facility or to a delivery partner to effect the final destination to the consignee. In doing that, we have much fewer handlings, much less delay in terms of the transit times.

Generally, when we dispatch our loads from origin to destination, there were team drivers. So our transit time is very, very competitive. The real benefit we have in terms of this business model is the way in which we use independent contractors. A 100% of our pickup and delivery fleet are independent contractors based. And they are paid based on the amount of work that they do, it’s a very effective and very productive workforce. They provide the driver, the tractor, and the trailer to us in P&D. In our long haul segment, about 55% of our dispatches were with independent contractors, the other 45% today are with purchase transportation.

The real benefit there is we don’t run empty miles. We don’t even measure empty miles, because of our business model. We run a balanced operation with our independent contractor workforce, and we’ll re-imbalance, we use purchase transportation.

So, for example, if I have 20 loads from Chicago going to LA, and 10 coming back to Chicago. In an LTL, that business is very repetitive. The asset-based carrier has to run 20 loads from Chicago to LA and ten other drivers back. But he is stuck with 10 pieces of equipment out in LA. He has got to get that equipment back to Chicago next week, because it’s very repetitive. How does he do that? He has to run empty miles or he has to run backhaul. There is a whole lot of cheap freight just to get as equipment position throughout the United States.

In my business model, I run 10 ICs from Chicago to LA, I run the same 10 back from LA to Chicago unbalanced. Where I’m imbalanced, I have 10 extra in Chicago, they have to get to LA. I put on purchase transportation. I contract with one of the 10,000 other carriers out there that move my freight from – in that example from Chicago to LA.

And as I said, I have over 10,000 carriers that I utilize. I do use big carries as well as small carries. And over the course of 30 years, we’ve been able to identify the backhaul lines that those carriers need to move in and match those up with our (inaudible). So my cost per mile is much lower, because I’m a very large truckload shipper with my LTL business to the truckload providers.

And in doing so, I don’t have to reposition any equipment. I don’t have to run any empty miles or haul any cheap backhaul freight within my network, which makes me much more competitive from a cost perspective with my LTL business model, compared to any asset-based business model. And again, we handle the freight less. Our transit times are very competitive in certain links much more than competitive. And that’s how we built the LTL business over the course of last several years.

The Truckload and Logistics segment, again we report LTL, truckload and logistics, and TMS. Truckload and Logistics itself is made up on three segments; truckload services, which comprises new traditional truckload business, as well as truckload brokerage. We do run about 1,300 of our 3,100 ICs are in the truckload services segment as well.

About 75% of that fleet is refrigerated; about 10% is dry van. About 15% is flatbed and heavy haul. So we have a wide variety we like that refrigerated business, because it gives you a lot of flexibility. There is a significant demand today for refrigerated units, as well as it gives you the flexibility.

You can haul refrigerated freight and you can haul dry van freight on a reefer. If you are a dry van carrier, you can only hold dry van freight. You don’t have the capability of hauling refrigerated freights. So we like the flexibility of that being a refrigerated provider provides to us and to our customers. And we’ve grown that business pretty significantly in the last two years.

Four of the last acquisitions in the last two years have been in the refrigerated truckload business concentrated in the center of the United States. We have about 15 truckload offices and about 75 brokerage offices in our truckload services division. Intermodal services are primarily intermodal drayage. We are not an IMC. We provide service to the IMCs. Some of the IMCs that you’re familiar with are very large customers of ours.

We do have a national presence. We have over 20 terminals – 20 intermodal terminals throughout the U.S. where we service the rail heads, as well as the ports. In our freight consolidation inventory management, that’s a logistics branch of the truckload and logistics segment. What we do there is we provide service to the suppliers to big box retailers. So the suppliers are customer, the supplier that has to move his product to Costco or Wal-Mart or Kroger or any large big box retailer. And we focus on food stuffs primarily, although we’ve expanded that since we’ve acquired this company. But that’s a business where we provide the consolidation and then guaranteed must arrived by dates for the shipper.

So if you are a small shipper and you have to give your product into 46 different Wal-Mart DCs every week, we allow you to send a truckload of your goods to us, we then consolidate it, move into the 46 DCs with couple of 100 other shippers and are very effective in doing that for you whereas if you were to do it on your own, you have to send 46 shipments LTL to the various different Wal-Mart DCs which will be very costly and very time consuming for a shipper.

What we do is by consolidating we really minimize the time that they have to spend in terms of providing that service to their shipper or to their customer which is Wal-Mart. Our shipper is our customer and that’s the supplier to the big box retailer. So very effective model and there’s only four consolidators out there that do that in terms of competition.

That makes up this third leg of truckload and logistics. And then thirdly, our TMS, which is our transportation management solutions. That’s your traditional, customer focused, customized TMS. It’s not transactional; it’s not what you’re doing. You’ve created an IT system that provides an optimization schedule for a shipper and they go in and use you and a half a dozen other 3 PL’s to move their freight. It’s a long-term sale where you go in and you identify the customers need and then you put together a customized solution for that customer.

It’s a very sticky business. You have very little turnover once you sign up a customer. But it’s a much longer – might take four, five, six weeks with large accounts, maybe a few months before they’re signed up and ready to go with you. It’s not an overnight deal or the transactional businesses. So very effective with the fee-based model and again, it’s about 9% or 10% of our overall revenue in 2013.

If you take all those segments together, we’ve cross trained our sales group. We have over 100 salespeople in LTL, over 100 truckload dispatchers and agents that have a daily contact with shippers. And we’re actually about 30 to 40 TMS personnel. So they’ve all been cross trained in all segments of the business and when they go in they identify.

It’s a very easy sell when you’re already doing business with a customer in a certain segment to go and ask that customer for the opportunity to serve him in other segments. He would be amazed that how many shippers who let’s say, ship LTL have truckload needs, have intermodal needs. Lot of LTL shippers are distributors where they’re bringing in 500 cans a year from the Far East. They got to get that and so you have intermodal operation.

There is a tremendous amount of opportunities in freight consolidation and inventory management to consolidate truckload, as well as LTL. So whereas two years ago, we didn’t cross-sell anything then this year, we have about 12% of our account base that utilize us for multiple services and we expect to be able to grow that pretty significantly over the course of the next few years.

And again, that cross-selling opportunity really drives internal organic growth, because you’ve got an existing customer who is now using you for multiple services. We have a very simple, but very effective acquisition profile when we look at companies. And if you follow transportation, you’ll know that M&A and transportation usually doesn’t end very well.

As I said, we’ve made 15 acquisitions since the IPO. We’ve made 22 acquisitions over the last six years. We’ve made eight acquisitions alone. They’ve all been successful. They’ve been success, because we follow a profile that works pretty well for us.

First of all that the company has to be well run, well managed, and profitable, we’re not looking to take a poorly run company or poorly managed company and think that we can take it and improve it and turn it around. We’re not in the turnaround business.

So we’re looking for well run, well managed profitable businesses. Business is where the management team is going to stay in tact after the sale. So once we acquire them, we generally keep the management team in tact with some type of run-out program over the course of the next two, three or four years.

We look for companies that are going to be non-asset or light asset-based in your business model, which ties indirectly with what we do from a non-asset based model, the utilization of independent contractors.

We look for companies that are going to either complement an existing service. So it’s a nice tuck-in acquisition or give us a new service that we can now cross-sell in addition to our existing services and that’s how we’ve grown the company and expanded those services over the course of the last five years.

We look for companies that are only going to be immediately accretive. We are not looking to acquire something and then have it be accretive to two years down the road. It’s going to be at a multiple, this is going to be immediately accretive going forward. And more significantly and more – the reason why we’ve been so successful is the final profile.

And that is the company has to be and has to have a very solid cultural fit with us and our management team. If there is not a strong cultural fit, we’ll walk away from the deal. We do the diligence, I can tell you that we’ve done the financial diligence, the operational diligence, and if through that diligence we feel like the management team is not in tune with what we want to do and how we want to grow and how we want them to grow, we’ll walk away from the deal.

And because we have that philosophy and only bring on those type of customers or those type of accounts that have that strong cultural fit that’s why we think we’ve been so successful not only in acquiring them, but in integrating them. And that’s the key to any acquisition, how well you do it integrating them and making them part of your company. And as I said, we’ve been very successful with that. If you look at our track record, there is a list there of the accounts we’ve made since we took the company public, again, a very successful and very significant amount of acquisitions that have helped us grow.

We have become and have created a reputation in transportation as a preferred buyer. We’re very good at what we do. We have a very good reputation. I can tell you that every time we make an acquisition, my phone is ringing the next day and the next week, for several weeks of companies that are coming to us, wanting us to take a look at them for acquisition. So the pipeline has been significantly fluid for the last year, year and a half. And as I said right now, our pipelines are as full as it’s ever been.

We are very well positioned for continued growth. As I said, we’re a high growth company, both acquisitional, as well as through organic growth. We grew it, like I said, 9% in 2012. Our customer growth over the course of last three years, three year ago, we grew our customer base 34%, then 24%, then 17%. We are currently growing at about 19%, almost 20% customer growth so far this year in 2013.

As I said earlier, we cross-sell all of our services that we now provide and that provides for additional organic growth. We also have the ability to – we only have 23 outbound terminals in our LTL network. We will continue to add two to three terminals a year over the course of the next four or five years. So we’re never going to have 300 terminals, but five years from now, we may have 30 to 35 terminals. And we did that in a very unique manner.

We don’t go in and put in a Roadrunner managed and Roadrunner operation with Roadrunner owned equipment or Roadrunner provided personnel. We partner with our delivery partners and open up new territories very effectively. We take a delivery partner who has been working with us for several years with a proven track record of service and when we open up a new territory like we did over the course of the last few years we opened in New York, Baltimore, Philadelphia, Boston, Houston, and Memphis. When we open those up, we went to a delivery partner, partnered with them to be a pickup partner. The only cost of Roadrunner is the revenue split that we share with them on the freight that they pickup.

And density is king in transportation and you’re asking, well, how do you build the density? We’ve done so much business over the years and have grown significantly with our three PL’s. About 30% of our revenues come from third-party logistics companies. So when we go into a new territory, we tell those three PL’s that we’re business with them and we do business with dozens of them.

Turn on the zip codes on this date and in course of about three to four weeks, everyone of those terminals that I mentioned were profitable going forward and that’s a very significant way in which to open up terminals, which we have the ability to do and no one else has. So it’s a very effective manner.

The old days, you have to go and put a sales team in. You have to build density, it will take you six months to a year to make a terminal profitable, we’re doing in three to four weeks. And as I said, we probably add, two to three terminals a year over the course of next to four to five years. But our goal is not to be everything to everyone or be every place, we are only going to be in the major metros, where we can grow our business and build density going forward.

I talked a lot about acquisitions. We do have a very selective acquisition strategy, which I covered. I talked about the pipeline. We’ll continue to be very aggressive in terms of acquisitions going forward for the next several years. Our cost structure, as I said, with our independent business model and our asset-light business model that cost structure is very competitive to any asset-based carrier, they can’t touch my price, because my cost is so much lower than theirs. That gives me a huge competitive advantage going forward, and that’s why we’ve been able to take significant market share over the course of last several years. I get a lot of questions on – get a lot of question on capacity and what’s constraining the industry?

There is all kinds of increased regulation especially in transportation. You’ve got drivers that are retiring the average driver ages well into the 50s. You’ve got a potential economic uptick, that’s going to happen at some point in time. Hopefully, sooner than later, I’ve been waiting for that. But that will not come, you’re going to see capacity get very tight in transportation.

I think personally that there is a equilibrium right now between supply and demand and any slightly uptick in the economy is going to create a lot of capacity constrains and those carries that have the capacity are going to take market share and they’re going to do it in a very positive pricing environment.

Those transportation-based companies they don’t have capacity, the brokers of the world. They’re going to see their market shares squeeze somewhat, because when capacity tightens, pricing is going to go up. We also have a lot of focus on safety and liability. You’ve got CSA, you got EOBRs, you’ve got the hours of service that are going to affect supposedly at July 1.

All those are going to have an impact on the driver pool and driver pool across all transportation is going to be impacted by that. So what you’d look at, you’ve got to look at companies that are good at recruiting and retaining independent contractors. The average turnover in the industry is over 110%, annualized turnover.

Over turnover at Roadrunner is about 50%. We’re one of the best. There is in terms of driver retention and driver turnover, by being at half of what the industry averages. And if the industry averages at 110%, you can imagine that there are several companies out there that have turnover of 150%, 200%, 250%. We had to bring in a lot of those independent contractors to us.

We’ve built up over time a very significant reputation, because we’ve always used independent contractors in our history. And up until last year actually, we didn’t even have recruiters working for us, because all of our ICs came to us by word of mouth.

We’ve since added about five or six recruiters. And again we do a very good job of recruiting and retaining those ICs, which again going forward, when capacity gets tight and it’s constrained, the key would be the driver and won’t be the number of tractors you have, it won’t be the number of terminals of doors that you have like you used to measure in the old day.

Capacity is going to be measured by drivers. If you don’t have capacity, you don’t have those drivers in there. If you don’t have a good system to retain drivers, you’re going to be at the mercy of your turnover, and if you’ve a high turn over you’re not going enjoy the volume that you will if you don’t have the turn over like we have. So we’re very confident that. And our ability to recruit, as I said, in the middle of the recession, we had about 1,100 ICs over the course of last three years. We tripled that number to 3,100 independent contractors and we will continue to grow that as we go forward.

I’ve talked about the management team, as I said I won’t go through all these. The bottom line as we’ve developed and brought on board very significant experience in transportation. All these people have operated and managed much larger operations than it currently managed for us at Roadrunner. So as we grow, we will grow into the abilities of the people we manage.

Lot of growth companies outgrow their personnel and that’s not our situation. We brought these people on board, as we’ve grown; we’ve not added a whole lot of cost until we got to a level where we needed the expertise that we brought on board. We’re very confident in this management team’s ability to grow the business and transition it into a much larger entity.

In terms of performance, as I said, we’ve been the fastest growing transportation company. You can look at our revenue growth over the last four year, over 30-year CAGR, so pretty significant. Operating income and margin corresponds with that. Significant growth in margin, so significant improvement in our operating ratio, you will not find another transportation-based company with these kind of trends.

In terms of revenue last year, again 27% growth, 9% of which was organic, 18% of which was through acquisitions. Our operating income grew 47% and our earnings per share grew 41%. We expect to continue these types of trends going forward.

In terms of our capitalization, we do generate a significant amount of free cash flow. We don’t want to exceed two times EBITDA in terms of debt-to-EBITDA. We’re currently at 1.7, although that’s our guideline. We will exceed two point if the right opportunity comes across. We currently have about $145 million to $150 million in revenues available to us to make acquisitions going forward.

We did an equity offering in December of this past year that did a couple of things for us. It improved our flow as well as it gave us a lot of dry powder moving forward for acquisitions. And as I’ve said many times, we have a lot of opportunities there.

In terms of the overall going forward, we’ve achieved in the five year period, we’ve become a $1.1 billion company. We would expect in the next two to three years to become a multibillion dollar company. And two to three years after that, we would expect to be in the $4 billion to $5 billion range with the type of growth and the acquisitions that we’ve proven we have the ability to do.

We will continue to build out LTL. We’ll continue to grow significantly in truckload and logistics. The opportunity for acquisition is very strong in truckload and logistics, not so much in LTL because there’s not a lot of non-asset based or light asset-based LTLs out there.

But in TMS and in truckload and logistics, there are significant amount of opportunity. Truckload in itself is a $300 billion market, very fragmented. Even the largest carriers only have about 2% to 3% of the total market. So there are tremendous opportunities for continued growth through acquisitions.

And once we acquire a company, we expect it to grow pretty significantly growing forward and we’ve been able to add that to our overall organic growth as well.

So with that, I will open it up to any questions that you might have.

Question-and-Answer Session

Unidentified Analyst

Great. So I have one or two here and then I’ll try to quickly turn it over to the audience. We’ve been asking all the transport companies that in this track today just about what you’re seeing in demand in terms of January, February and kind of maybe your outlook for the economies? So when any comment you can offer on just kind of how you see demand trend so far and what your framework might be for how we think freight may trend in 2013?

Mark DiBlasi

Yeah, right now we feel pretty positive about what we’ve seen in January and February. I mentioned on my earnings call at the beginning of February that our LTL growth was about 6.5% tonnage, which I think was pretty significant compared to other public LTLs that I’ve read about. So we saw a nice growth there in terms of organic growth.

On the pricing side in LTL, we’re still seeing in the 4% to 5% pricing range, holding steady, able to get that type of pricing. In truckload, we’re seeing 2% to 3%, whereas our cost, we’ve been able to mitigate and keep very consistent. Over the last eight quarters, our purchase transportation cost per mile and IC cost per mile blended has been at $1.24 for eight quarters in a row. So we’ve been able to hold that very steady and enjoy the increases in our truckload rates as well as our LTL rates. So that’s what we’ve seen.

I think overall from our customer perspective, there’s not a very, but somewhat of a positive attitude today versus what we saw maybe half way through the second half of 2012. Some of that had to do with the election and what was going on politically in terms of the economy.

But I think there’s an overall positive attitude with regard to the economy and where that’s going to go and I think that bodes well for transportation because as I said earlier, I think you’re going to see a tightening of capacity when the economy improves and carriers like us that control that capacity, we’re going to do it in a very positive pricing environment. So we’re very optimist about what we see in the near-term and then the second half of this year in particular.

Unidentified Analyst

Can you also offer a thought on what your leverage might be to housing? Obviously, you talked a lot about refrigerated in truckloads maybe not in truckload, but if you look across the broader business and maybe within LTL, do you have significant sensitivity to, let’s say, if there is a pickup in housing starts?

Mark DiBlasi

Well, with me, there is a positive attitude about what’s going on housing as well. We are not a pure housing carrier. But we haul a lot of durable goods, non-durable goods, chemicals, supplies, and things of that nature. So when housing improves, the overall economy improves and that will put freight on our trucks.

I can tell you that our existing customer base, we’ve grown significantly and we’ve done it by taking market share, not by our existing customer base growing, because the economy hasn’t grown. When that day comes, and it’s going to come, you’re going to see pretty significant growth, not only for us, but for other carriers.

But in particular for us, because we’ve added such a large amount of customers over the course of the last few years; so if you take a very large customer base now all of a sudden has positive growth internally instead of just us growing by taking market share. We’re pretty optimistic about what we see for Roadrunner going forward.

Unidentified Analyst

Okay. So even though it’s not maybe a direct connection, you can still expect to see if housing starts continue to improve and that generate some freight that you would see?

Mark DiBlasi

Absolutely.

Unidentified Analyst

Okay. Do we have questions from the room? We have one in the back and then one in the middle afterwards.

Allan Roach – Watco Companies, LLC

Yeah, enjoyed your presentation. Allan Roach with Watco Companies. A question current and pending driver legislation, work hours, insurance, all the hurdles that – especially independents have…

Mark DiBlasi

Right.

Allan Roach – Watco Companies, LLC

It seems like that will actually strengthen your ability to continue to find these contractors. I think this can be harder and harder to be a standalone independent, just would like to hear your thoughts on that?

Mark DiBlasi

Yeah, I agree with that. A lot of the asset-based public carriers are looking forward to the day when there is more controls like EOBRs and things that nature, because they think that a lot of independent contractors run illegal.

The reality is in companies like ours, obviously we don’t allow them to run illegal. So we think that the legitimate guys, it will have any impact on that driver base in the industry. There will be guys that do run illegal that will be out of the network. So companies that run them, they’re going to struggle and they’re not going to have the capacity that shippers have enjoyed.

So the shippers are going to have to go to carriers like me and several others for that capacity. So that’s what I say, when capacity tightens up, carriers with that capacity are going to take market share, and they’re going to do it in a very positive pricing environment. But I think over time, it’s just like anything. You’re going to have more drivers to get into the business. If they can make a live-in, if a guy can make a live-in being a driver in with us, he can do a lot of different things. We have a lot of options for them because of the different segments we provide.

But they will be at a rate that’s higher than it is today. My cost of driver is going to go up. But that cost is going to be transitioned over to my shippers as well. So my cost, my shipper is going to out pace the cost to me in terms of purchased transportation.

So I’m very optimistic about how that will play out. But it will have a definite impact in the industry and you’ll see more signing bonuses and you’ll see better rates per mile and better revenue splits with, in my case contractors, in other cases employees, in order to get that personnel to drive those trucks, because trucking is not going to go away. It may consolidate a lot, but it’s not going to go away and you’re going to have capacity and needs going forward.

Unidentified Analyst

Got on in the middle of the room or yeah, maybe in the back, I guess sent to the middle of the room.

Joseph P. Adams – Fortress Investment Group LLC

Thanks, Joe Adams from Fortress. What is it that you like about the drayage business and how does that fit in with your other trucking operations?

Mark DiBlasi

Drayage is a very fragmented business and most of your dray competitors are regionalized more mom and pop type operations. We have a national presence, so we have a presence in 20 locations throughout the U.S. We obviously cover all the major rail hedges as well as the ports.

We have a very strong relationship with the IMCs, the people that control the rail business. And we’ve been able to grow that. We do provide very good service on a drayage. So we’re able to get a better rate than the typically dray operation. Although that’s competitive, if people want to care about price, they’re probably not going to use my model service, but they care about service they will.

Because it’s so fragmented, there is lot of opportunities to continue to grow. That is since we acquired our first dray company in early 2011, we’ve acquired three others. So we’ve been able to tuck in acquisitions very nicely with that business and expanded and grow that revenue as well.

And it also ties in very well with the other things we do. A lot of dray companies have truckload needs as well as LTL needs and when you to start to cross sell that you can have a very solid dray company that all of a sudden now is doing truckload with you or LTL with you and vice versa. So it’s a real effective cross-sell and there’s a lot of opportunities continue to grow that. We’ve taken advantage of that and lot of our shippers that use us for multiple services; dray is one of those services. Drayage itself is not a very high margin business. You have to do a lot of dray, a lot of volume in order to make money at it. But we’re able to do that. So we think we can continue that and build that out as we go forward.

Unidentified Analyst

Okay, and then if we come down to the middle of the room, we had one.

Unidentified Analyst

(inaudible). I just wanted to see if you get a little more granular on the type of acquisitions that you’re looking for, because you’ve touched – you just mentioned dray. You did a little flatbed. You did more reefer. What would be your first choice if you had to fill? Are we looking geographically or we looking just industrywide?

Mark DiBlasi

The first choice goes back to that profile in terms of – and the very first choice is the culture of fit, because no matter what you buy, if you have a good culture of fit, it’s very difficult to integrate it. And if it’s difficult to integrate, it doesn’t add any value to you. So you got to make sure, you have the culture of it.

You go beyond that, it depends on our circumstance. When we got into the refrigerated truckload, we had a very solid presence on the eastern seaboard in east of the Mississippi since 2006 through about 2009. But then we knew we needed a bigger presence in the central United States and the West Coast.

So when we acquired our first acquisition in the Midwest was a company called Bruenger. When we acquired that company in early 2011 and when we acquired, that company had 150 tractors, but today it has 240 tractors. So we were able to add 90 pieces of equipment to that company, because there was demand for that equipment. So immediately went into service and immediately was effectively utilized.

Since that time, we’ve added three other refrigerated carriers in the central United States. So now we have a very strong presence on the Eastern Seaboard, east of the Mississippi and now through the central United States. Eventually, we’ll probably have some more presence on the West Coast as well. But in truckload, you don’t have to be in a specific geographic location because we’re all in truckloads all over the United States.

But in terms of the specific, there’s a lot of opportunities out there in terms of what we’re doing in terms of acquisition. If they meet that profile I gave, our goal is not to acquire companies just to see it hit a certain revenue number in terms of an annualized revenue number.

That does no good for us. We’re looking for companies that are going to build out our corporation and be accretive and add value and be a very eager – something that we can cross-sell or definitely want to cross-sell if it’s something either adds a new service or is going to compliment an existing service.

In our pipeline today, we have all of those types of accounts. We also have some accounts or some companies that we’re looking at will give us the new service that we don’t have, maybe go into expediting or into international or freight forwarding. There’s a lot of things in transportation that we don’t do today that we can expand upon going forward.

Unidentified Analyst

Great. And I think with that, we’re going to wrap up. So Mark and Peter, thank you very much.

Mark DiBlasi

Sure, thank you.

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