Roadrunner Transportation Systems' CEO Discusses Q1 2013 Results - Earnings Call Transcript

Roadrunner Transportation Systems, Inc. (NYSE:RRTS)

Q1 2013 Earnings Call

May 1, 2013 4:30 pm ET

Executives

Mark DiBlasi – President and Chief Executive Officer

Peter Armbruster – Chief Financial Officer

Analysts

Ben Hartford – Robert W. Baird

David Ross – Stifel Nicolaus

Tom Albrecht – BB&T Capital Markets

Todd Fowler – KeyBanc Capital Market

Scott Group – Wolfe Trahan

William Greene – Morgan Stanley

Robert Sandt – Deutsche Bank

Operator

Greetings, and welcome to the Roadrunner Transportation Systems’ 2013 First Quarter Conference Call. Today’s call is being recorded. At this time, I will turn the call over to President and CEO, Mark Blasi. Please go ahead, sir.

Mark DiBlasi

Thank you. Good afternoon, everyone. Thanks for joining us today for our first quarter 2013 earnings conference call. With me today is Peter Armbruster, our CFO, and after some comments from Peter and me, we will open up the call to questions.

Before we begin, I’m going to turn it over Peter at this time to discuss the Safe Harbor Act. Peter?

Peter Armbruster

Thanks, Mark. Before we begin, I would like to remind everyone that a number of statements made today will be forward-looking statements that relate to future events or performance including our second quarter 2013 guidance. These statements reflect our current expectations, and we do not undertake to update or revise these forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied in these or other statements will not be realized.

Please be cautioned that these statements involve risks and uncertainties, many which are beyond our control, which could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include, but are not limited to, risks related to the integration of acquired companies; competition in the transportation industry; the impact of the current economic environment; our dependence upon purchased power; the unpredictability of and potential fluctuation of the price and availability of fuel; the effects of governmental and environmental regulations; insurance in excess of our prior experience level; and other Risk Factors set forth in our SEC filings.

Mark DiBlasi

Okay, thanks, Peter. I’m going to take a few minutes now to briefly discuss the strategic composition of the company for those of you who are not familiar with us, which we believe drives our long-term performance and provide some color on the quarter, current trends, and strategic initiatives in the business.

Our asset-light business model is positioned perfectly for continued market share gains. We provide a one-stop solution or à la carte service to meet each customer’s individual needs. We offer a full complement of solutions including customized and expedited LTL truckload, truckload and logistics, freight consolidation, inventory management, transportation management solutions, intermodal solutions and expedited services.

We utilize a proprietary web-enabled technology systems and a broad network of transportation providers comprised of both independent contractors and purchase power to serve a very diverse customer base. Although we service large national accounts, we primarily focus on small to mid-size shippers. Our business model is scalable and flexible and our cost structure is variable and requires minimal investment in transportation equipment and facilities, which enhances our free cash flows and return on our invested capital on assets.

We report three business segments, Less-Than-Truckload, Truckload and Logistics, and Transportation Management Solutions. These segments complement each others by allowing us to offer all services across all zip codes. By cross-selling each segment services, we’re able to build density in a more rapid rate and expand our operations into new geographic regions. The cross-selling aspect of our ability to sell these services positively impacts our organic growth.

We control a significant amount of capacity in our network by utilizing independent contractors and smaller carriers where we represent a substantial portion of their business. We believe this provides us with a strategic advantage over other non-asset-based providers as we expect capacity to continue to tighten in the future and drive considerable market share in our direction due to the fact that we are, in fact, a carrier and we have over 3,100 in paying contractors that are leased on and run exclusively for us.

Peter will go over some numbers in detail, but I’ll give you some business context by segment for the first quarter and the trends we’re seeing in the second quarter of 2013. In our LTL segment, new customer growth, expansion into new markets, and existing customer growth drove a $13.7 million or 11.5% increase in LTL revenues.

In 2012, we opened four new terminals; Baltimore, Philadelphia, Houston, and Boston. The start-ups went very smooth and we saw consistent growth in line with expectations throughout the first quarter in those four facilities. On August 10, 2012, we acquired Expedited Freight Systems or EFS, which is a Midwest region of the LTL carrier. Since that time we have integrated EFS into our LTL services and have seen nice growth with that service offering.

Tonnage was up 17.1% for the quarter. By month on a per day basis, tonnage was up 18.1% in January, 17.9% in February, and 15.4% in March. The first quarter was positively impacted by the EFS acquisition. Without EFS, tonnage growth for the quarter was 5.7% on a per day basis, up 5.7%.

First quarter of 2013 tonnage growth would have been more, but was negatively impacted by poor weather conditions experienced throughout the quarter and by Good Friday falling on the last day of the quarter versus traditionally falling in the second quarter of each year.

Revenue for run rate excluding fuel was down 4.8% due to the addition of EFS, due to their freight mix and the likes of calling EFS as a lower revenue per hundredweight, without EFS revenue per hundredweight would have been up 2.4%.

Our net revenue margins improved in the quarter by 28.5%, up from 25.8% in 2012 due to a comprehensive set of performance and service initiatives, as well as the addition of EFS in the new terminal openings that I previously mentioned.

Our line haul cost per mile excluding fuel was $1.24 and that’s been consistent for the last six quarters in row at $1.24, so we’ve able to hold our cost in terms of purchase transportation pretty significantly over the last two years.

Overall, our LTL operating ratio improved sequentially to 93.2 from 94.9 in the fourth quarter of 2012. In the first quarter, we experienced significantly worse weather conditions as compared to last year, as well as fewer operating days with the impact and the impact of Good Friday on the last day of the quarter.

In addition to our continued performance initiatives as we built density in new areas improved the mix and pricing of freight within our system and further absorb cost associated with the growth, we would expect greater improvement in our operating ratio as we move into 2013 and beyond.

Given the weather conditions in the first quarter as compared to last year’s very mild weather conditions, we’re confident that we could have seen as much as an 80 basis point improvement this quarter or posted about a 92 40R had it not been for those conditions.

In our Truckload and Logistics segment, we are pleased with how we performed there during the quarter. Revenues grew by 49.5% up to $146.5 million and operating income increased to 70.8% – increased by 70.8% to $9.7 million, up from $5.7 million in the first quarter of 2012.

Our acquisitions of D&E Transport, CTW Transport, R&M/Sortino, Central Cal., A&A and DCT contributed over $42.4 million of the revenue increase. Organic growth from existing businesses was $6.1 million or 6.2%. We see a tremendous amount of growth potential both organically and acquisition-related in our Truckload and Logistics segment and are making investments in personnel and infrastructure commensurate with our strategic objectives.

The addition of key personnel in advance of our growth is the same precise game plan we effectively utilize to grow Roadrunner from $150 million company in 2005 to $1.1 billion company in 2012.

As in our LTL segment, we have been very fortunate to consistently attract individuals to our team that we known well and have led high growth business units in transportation and logistics that are substantially larger than they are operating today. As a result, the teams that we have strategically assembled in each of our business units are highly motivated and efficiently – to efficiently to efficiently grow Roadrunner business and have the proven capability to do so. The strength in management teams also enhances the smooth integration of the multiple acquisitions that we’ve made over time and we’ll be making in the future.

For our TMS business, revenue grew by $0.8 million to $21.4 million, or 3.7% growth during the quarter. Organic growth, pricing in our February 2012 acquisition of Capital Transportation Logistics accounted for the 3.7% increase.

The operating leverage associated with this combined growth led to a 5% increase in TMS operating income, and our TMS operating ratio improved to an 89.2% from 89.3% in the prior year.

With regard to second quarter trends what we are seeing today, economy is still soft, transportation in general is still choppy and recent weather conditions continued to impact operations throughout the month of April.

However, we continue to grow and take market share. April LTL tonnage growth was 19.1% improved over the pervious year on a per day basis. And that’s with EFS if you take the EFS impact out of that we saw tonnage growth in April of 5% – positive 5%. The LTL rate environment has been consistent for the past several quarters. We continue to see rate negotiations stick between 3% and 4%.

Our Truckloads and Logistics business continues to perform well, pricing is stable in the 2% to 3% range. The integration of our fourth quarter acquisitions that I mentioned earlier went well and we are seeing additional growth opportunities from multiple cross-selling initiatives throughout the company.

Our TMS business was up slightly in April consistent with the first quarter. We did open two new terminals in LTL in April in Miami and Orlando and we now provide outbound service to the complete full State of Florida. This also not only gives us a new revenue stream from new locations but also positively impacts our line haul cost into and out of Florida.

With regard to acquisitions, we continue to have a significant pipeline of acquisition activity. We are in various spaces of diligence on several acquisitions. We are fully capable from a management standpoint to effectively assimilate each of these opportunities and just announced yesterday, our two most recent acquisitions of Wando Trucking and Adrian Carriers.

Wando is a nice tuck-in acquisition to our Truckload and Logistics segment primarily providing intermodal service in Southeast United States. Adrian is a – will complement our TMS segment by providing customer specific supply chain solutions with a heavy focus on international container management and intermodal solutions. This is the first of several opportunities that will allow us to bring an international presence to our collective customer base.

These two newest acquisitions as well as with all other acquisitions meet our core acquisition criteria and that is to continue to build critical mass from a geographic standpoint in each of our businesses, continue to broaden our capacity to more effectively utilize our network across all of our segments, continue to seek companies with complementary service offerings or new service offerings, and with similar business models that bring additional value to our customers, and that we can effectively cross-sell within our suite of services.

And finally, we only seek companies with strong management teams that fit well with us culturally and are immediately accretive to our operations. We made eight acquisitions in 2012 and two so far in 2013, bringing the total number of acquisitions by this management team to a total of 24, 14 of which have been acquired in the past two years.

As stated earlier, we continue to have a very robust pipeline of potential acquisitions, our differentiated strategy and our strong reputation in transportation community, as well as our proven ability to smoothly integrate each acquired company, our large factors as to why our pipeline is at such a high level.

In summary, we are very pleased with our first quarter results despite the impact of additional cost incurred related to the incremental weather, building lane density, which in total impacted our diluted earnings per share by about $0.02.

We continue to strategically position our company for long-term growth through an aggressive combination of organic and acquisition growth. We improved revenues by 27%. We increased operating income by 30% almost 31% to $19 million. We improved our operating ratio by 20 basis points to 93.6 and improved our earnings per share by 16%, up to $0.29, up from $0.25 in 2012.

And taking into account the impact of the additional shares issued in the December stock offering, we improved our earnings per share by 28%. We think that’s pretty significant. We continue to improve our low-cost high-quality business model and our comprehensive portfolio of services continues to provide a competitive advantage and enables profitable growth and value creation to our shareholders.

And at this time, I’ll turn it over to Peter to go over some more details with all of you.

Peter Armbruster

Thank you, Mark. I’ll begin by summarizing our first quarter results by operating segment. LTL purchased transportation cost as a percentage of LTL revenues for the first quarter decreased 2.7% from the first quarter of last year. This improvement was primarily a result of ongoing pricing and cost initiatives, net geographic regions, or new geographic regions, additional lane density, and the addition of EFS.

Our first quarter net revenues increased $7.1 million from the first quarter of 2012, driven by a 11.5% revenue growth and 270 basis points of net revenue margin expansion.

The EFS acquisition added incremental net revenues of $5.9 million. LTL personnel and related benefits increased $3.5 million from the first quarter of 2012, primarily due to a shift from outside temporary dock labor to employee dock labor, compensation associated with new personnel hired to accommodate growth and drive business performance and the addition of EFS.

LTL other operating cost increased $2.7 million primarily due to the addition of EFS. Our LTL operating ratio for the first quarter improved sequentially to 93.2% from 94.9% in the fourth quarter of 2012. We were still able to show improvement in our operating ratio over the fourth quarter last year, despite experiencing load inefficiencies due to inclement weather. Excluding load inefficiencies, our first quarter operating ratio would have been in the low 92s. For 2013, our LTL segment operating income improved 6.2% or $0.5 million to $9million from $8.5 million in 2012.

Overall, truckload and logistics net revenues for the first quarter were 33.5% of truckload and logistics revenues compared to 33.8% for the first quarter of 2012. The truckload and logistics net revenue percentage was impacted by the additions of D&E, CTW, R&M/Sortino, Central Cal, A&A and DCT in the 2013 quarter and the shift from company-owned equipment to independent contractors within our newly acquired truckload companies. Collectively, the acquisitions added incremental net revenues of $15.7 million.

Within our truckload and logistics business, operating income increased to $9.7 million from $5.7 million in the first quarter of 2012. Due to continued performance initiatives and insurance costs levels, the truckload operating ratio improved from 94.2% in the first quarter of 2012 to 93.4% in the first quarter of 2013.

Within our TMS business, revenues increased to $21.4 million from $20.7 million in the prior year. TMS operating income increased by $0.1 million quarter-over-quarter and our TMS operating ratio improved to 89.2% for the first quarter of 2013 from 89.3% last year.

On a consolidated basis including inter company eliminations and corporate expenses, revenues increased by $62.8 million or 26.5% to $299.4 million during the first quarter of 2013.

Other operating expenses excluding transaction cost increased from $52.8 million in the first quarter of 2012 to $70.5 million in the first quarter of 2013. In addition to the items discussed above the acquisitions in our LTL, Truckload and Logistics, and TMS segments contributed to a majority of the increase in other operating expenses.

Consolidated operating income for the quarter increased by $4.5 million or 30.7% to $19.1 million in the first quarter of 2013. Our consolidated operating ratio improved to 93.6% for the first quarter 2013 from 93.8% in the first quarter 2012. Our effective tax rate was 38.7% for the first quarter 2013, compared to 38.0% for the first quarter 2012. We would expect our tax rate to be at 38.7% for the remainder of this year.

Earnings per diluted share increased to $0.29 during the quarter, this was up $0.04 per diluted share or 16% from $0.25 last year. The impact on diluted income per share from our December 2012 stock offering of 3.9 million shares with $0.3 between years. Excluding the impact of the December 2012 stock offering, our diluted income per share would have increased $0.07 per share over the first quarter 2012, an increase of 28%.

In December 2012, we completed a public offering of 3.4 million shares of new common stock, and on January 2, 2013, the underwriter for our public offering exercised in full the over-allotment option to purchase an additional 525,000 shares of common stock.

For the quarter, our cash on hand increased $4.3 million from $11.9 million as of December 31, 2012, to $16.2 million at March 31, 2013. The net $4.3 million increase in cash included inflows of $8.5 million from the over-allotment and $8 million of cash flow from operating activities partially offset by $8 million of first quarter capital expenditures and a $4.25 million term loan principal payments.

Based upon the Adrian and Wando acquisitions, in our current IC levels, we would expect to incur an $10 million of net CapEx in the Q2 through Q4 of 2013. The CapEx primarily relates to the growth, replacement of equipment and continuous information technology upgrades. After transaction costs, we would expect minimal accretion from the Adrian and Wando acquisitions in Q2 2013. Additional shares from our common stock offering, the exercise of our over-allotment option and the increase in our stock price, increased our weighted average diluted common stock outstanding to 36.7 million shares for Q1, 2013, we have again considered the additional shares in our second quarter guidance.

At March 31, 2013, our leverage ratio continued to be well below two times. The company seeks to maintain a long-term pro forma leverage ratio under two times debt-to-EBITDA, although our leverage ratio may go above two times if certain acquisitions are completed.

2013 second quarter guidance, we anticipate our revenues for the second quarter to be in the range of $315 million to $340 million, representing an increase of 20% to 30% from the second quarter of 2012.

Further, we expect diluted income per share available to common shareholders to be between $0.35 per share and $0.38 per share compared to diluted income per share available to common stockholders of $0.32 in the prior year’s quarter. The impact on diluted income per share from our December 2012 stock offering of 3.9 million shares will be approximately $0.04 between years.

Excluding the impact of the December 2012 stock offering, our guidance would have increased $0.07 to $0.10 per share over the second quarter of 2012, an increase of 22% to 31%. That concludes our prepared remarks, and we will begin our question-and-answer part of the call.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Ben Hartford with Robert W. Baird. Please proceed.

Ben Hartford – Robert W. Baird

Guys, good quarter. Mark, could you provide some context about the phase at which you believe that you can build up the LTL footprint to mature, I know you guys have talked about, kind of 30 service centers, but you’ve added six facilities over the course of last year or so. How quickly do you think you can reach maturity on the LTL side?

Mark DiBlasi

Well, as I’ve said in the past, our goal is to add somewhere between two to four terminals a year over the course of the next three to four years. We do not intend to go into partially populated areas. Florida was a primary area, there is not a lot of outbound freight comes out of Florida, but by creating a situation which we do generate outbound freight from Florida, not only gives us a new revenue stream, but it gave us a significant cost reduction in terms of our line haul cost into Florida and out of Florida, so that was the double benefit with that.

With regard to your question of being a mature, I don’t foresee us adding more than another five to eight terminals over the course of the next few years. And again, those will be in the more heavily populated locations throughout the United States with a key emphasis on those areas that will complement our cost structure with regard to line haul.

Ben Hartford – Robert W. Baird

Okay. And assuming there are no change in the footprint on the LTL side from the end of the first quarter I guess into the early second was the [two-fourth] at, Peter, the other operating expense in the segment, are there any one-time cost and nature aside from weather that we should think about, is it $28 million, $29 million operating expense number good number or good base to build off of – for the balance of 2013?

Peter Armbruster

I think that’s pretty standard for the rest of the year. Again with the poor days, we did that one less business days, we did have one less business day. We had 63 business days in Q1 and in Q2, we have 64 business day, so that – just with that additional business day, there will be a slight increase.

Ben Hartford – Robert W. Baird

Okay. A couple of quick ones if I could, Mark, and you guys have sort of unique insight, I think in terms of your business profile, any softness that are of note from end markets here into 2Q, whether it’s on the industrial side, within the LTL component that you can see or even thinking about the truckload and maybe your insight into the refrigerated market? I mean, anything of note from an end market perspective that stands out as being weak into 2Q or weaker than expected?

Mark DiBlasi

You know, like I said earlier overall all of our business segments, there was some choppiness and some seasonality that impacted several of them. Intermodal trade was significantly down in the month of March, and I think that had to do with how the Chinese New Year impacted us for comparative year-over-year. We did have a significant last year first quarter, because the weather was so nice, and we had tougher comp this year.

We are very pleased with how we performed compared to those tougher comps. We are seeing good pricing in our refrigerated operations, in the 3% to 8% range, which we feel pretty good about and as we’ve told before we do like the refrigerated side of our business, that’s why we’ve expanded it so greatly. We have and are continuing to add a lot of capacity not only in our LTL segment, but in our truckload segments as well, because we have a demand from our customer base to fill that demand.

So we’re pretty confident in our ability to grow going forward. But I think first quarter was choppy. It was a little bit choppy because of – we still have weather, heck, we still have, I think there’s 6 inches of snow in Minneapolis this morning, so and it’s in May, so there is still some weather impact although not as severe, but a total impact to the company as what we saw in February and March.

Ben Hartford – Robert W. Baird

Okay. And then one last, I mean you guys are hitting well in terms of the share gains on the LTL side, because of finding the acquisitions and talking in nicely. I guess the only question I would have on the TMS and LTL logistics sort of if we look at organic growth in those segments a little bit below your targets for double-digit growth on the revenue side in those two areas. I mean any thoughts to that what’s driving the below trend growth and what can help catalyze that growth in?

Mark DiBlasi

Yeah, on the TL side a little bit below where we wanted to be, but again that’s we put that off on the choppiness. We are seeing nice growth in April on the truckload side, so we’re pretty confident that the weather impact on the truckload side was the majority of that in the fist quarter.

On the TMS side, yeah, we do not see the – I think I reported 3.7% and 3.8% growth. That’s due in large part. We brought on lot of new businesses and lot of new customers in our TMS cycle. However, we have three large customers that in their own industries have seen a relatively – well, actually no growth. So they have negative growth year-over-year and set a positive growth.

So although we are still bringing on new accounts and growing the business, we are not getting any benefit from the economy with regard to a couple of major accounts in terms of their internal organic growth. So that’s what it’s delayed that sum. But we are pretty confident with what we have in the pipeline that we will be able to continue to grow TMS as well, plus the fact that a few of the upcoming or potential acquisitions that are in the pipeline today, we’ll complement our TMS segment and be able to expand in TMS at a greater level than we have over the course of the last two years.

Ben Hartford – Robert W. Baird

Okay. Thanks for the time.

Operator

And your next question comes from the line of David Ross of Stifel Nicolaus. Please proceed.

David Ross – Stifel Nicolaus

Yeah, yes, good afternoon, gentlemen

Mark DiBlasi

Hey, Dave

Peter Armbruster

Hi, Dave

David Ross – Stifel Nicolaus

Mark, can you talk a little bit about, the Adrian deal yesterday, the international container intermodal management piece, it’s somewhat of a new business for you guys. It’s a business that I am not too familiar with either. How fragmented is that industry segment? Are there any big players in that market and kind of what’s the opportunity for growth?

Mark DiBlasi

Well, just like everything in truckload and intermodal in particular, it’s high fragmented. Adrian is very, very good at what they do. They’ve been in business since ‘79. They manage container management and container management systems. They have the state-of-the-art management system that they have developed, the software that goes along with that as well. They serve some very large national manufacturers and managed their complete – it’s a customized management of their complete container need with regard to their imports and their export.

So it’s a nice business. It gets us into the international roam that we believe we can build upon, and as I said earlier, some of the opportunities on our plate coming forward if due diligence plans out as we expect, we’ll complement that and we’ll have even a greater presence in terms of an international presence, and this is the first of a few acquisitions that could really propel us into the international market.

David Ross – Stifel Nicolaus

Are there any big national players in that market or do you have the opportunity maybe through acquisition to grow into kind of the largest in that field?

Mark DiBlasi

I think as I said earlier, it’s pretty fragmented. I am sure there are some larger national players that do that, but again, the market itself is large and fragmented. So we think there’s tremendous runway to grow the business?

David Ross – Stifel Nicolaus

And then, when you look at the cross sell opportunities you expand the different business segments. Do you have a figure like what percent of customers do business with more than one Roadrunner segment and how that’s changed overtime?

Peter Armbruster

Yeah, currently we are about 12%, 13% of our customer base – use us for multiple services. We are currently in the process of changing over from a percent because we’re going to change over to a percent of revenue rather than a percent of customer base because we have a very large customer base. So if you add a 100 customers to a very large customer base, it doesn’t move the percentage very much, but it will move the revenue very much because generally larger customers have a need for the multiple services.

So overtime, we’ll start to transition away from a percent of customers to a percent of the total revenues and we’ll start to report that possibly with the next earnings. But we have seen growth, we went from about 9% or 10% at the beginning of last year to 12% to 13% of our customer base today, and we’re very pleased. We think we’re still in infancy of our abilities to cross sell and really capitalize on all the services we provide, but going forward, we are pretty pleased with what we’ve been to accomplish so far.

David Ross – Stifel Nicolaus

Okay. And then so in the last call, which was in February, you said that January LTL tonnage of 21.5%, but then today, the number is 18.1%, just wanted to know what the difference was? Where there some accounting issues? Was that like a per day, did you have kind of…

Peter Armbruster

We are not in there.

David Ross – Stifel Nicolaus

So on the February 6th call, you said that January LTL tonnage was up 21.5% year-over-year and then today you said that it was up 18.1% year-over-year?

Peter Armbruster

Yeah, that would have been just on a per day basis change I believe.

David Ross – Stifel Nicolaus

Okay, so the overall number versus the per day number?

Peter Armbruster

Right, exactly.

David Ross – Stifel Nicolaus

Okay, well, thank you very much.

Mark DiBlasi

Okay.

Operator

And your next question comes from the line of Tom Albrecht with BB&T Capital Markets. Please proceed.

Tom Albrecht – BB&T Capital Markets

Hey, guys, pardon the cold here. I wanted to kind of flip Ben’s question around and think more about where demand might be building. We know about the influence of weather and that, but as you talk with your customers or your salesmen give you feedback, what is your sense that things could get really busy in May and June, and I’m not trying to use that as a forecast for the whole year, but just kind of looking out into the rest of the quarter, as we kind of shift from what I call blowers to mowers?

Mark DiBlasi

Yeah, if you look at just the trend that Dave just stated on, we saw a downward trend from January to February to March in terms of tonnage, and now we’re back to an upward trend in April. We see that as a positive. We’re fairly optimistic about what to expect in May and in June. I’ll give you a little more color in terms of pricing, and I said pricing in LTL was 3% to 4%. In the first quarter, pricing was closer to 3%, but in April, pricing is now closer to 4%.

So we’re seeing increased ability to get better pricing in the last four to five weeks than we were earlier on this year. I think that has to do with the concern over capacity and potential capacity constraints coming forward, so I think we’re going to see a better pricing environment. I believe that carriers like us that have the capacity you are going to take more market share, because we have that capacity. We are going to do it in a positive pricing environment. I’m optimistic that May and June are going to expand beyond what we saw in April and be more positive growth from what we saw in April. And then third quarter and fourth quarter and again, all this kind of depends on what’s going on in the economy.

Tom Albrecht – BB&T Capital Markets

Sure

Mark DiBlasi

But third quarter and fourth quarter, we are pretty optimistic about the kind of growth we would experience in the company especially keeping in mind that all the acquisition we made last year or six of the eight acquisitions we’ve made last year were in the Truckload segment. Those are starting to now grow at the type of growth and expansion that we anticipate or that we expect once we make acquisitions. We’ve integrated them and now we’re starting to reap some of the benefits of the support and the scope that we bring to those operations in terms of growing their driver base, increasing their revenues, increasing their account base. So we’re expecting that organic growth internal to those new businesses that we acquired last year to start paying off in bigger dividend this year.

Peter Armbruster

Yeah, when we do the organic growth calculation, we do not include that as organic growth until one year after the acquisition. So there maybe a lot of growth during the year – the year after we did the acquisition, but we do not count that as organic growth.

Tom Albrecht – BB&T Capital Markets

Right, right. Okay, that’s helpful. Thank you for the commentary.

Operator

And your next question comes from the line of (inaudible). Please proceed.

Unidentified Analyst

And actually I think I’m good at this point, the questions have been addressed, but like to talk to one, you mentioned in the quarter, I guess, without some of those headwinds, you could have seen a warm improvement close to 80 basis points. I know some weather persisted into Q2, but would you expect maybe that that’s something that you could look for going forward into the second quarter here now?

Mark DiBlasi

We would expect without the weather headwinds and some of the density impact of our new terminal openings to dissipate and improve on the LTL side as well as overall company operating ratio.

Unidentified Analyst

Okay.

Mark DiBlasi

We continue every quarter to do record revenues and record operating income. We improved year-over-year in terms of the total company. We’re a little disappointed in LTL in particular. We were 30 basis points worse than last year. But again, as I said, we feel like the headwinds caused us about 80 basis points. So without that headwind, we were very confident that we would improve over last year’s number by 50 basis points.

Unidentified Analyst

Okay.

Mark DiBlasi

But going forward into second and third quarter, borrowing anything out of the ordinary at this point, we don’t foresee. We would expect to see improvements there.

Peter Armbruster

Yeah, our net revenue margins improved almost 1% since the first quarter until the last year, Q1 and Q2, our LTL net revenue margin was at 25.8% both quarters. So we’ve seen an improvement this year in net revenue margin the second quarter versus the first.

Unidentified Analyst

Great. And if I could also just clarify one other thing, on yield, you mentioned, excluding EFS that was up 2.4% in the quarter, was that excluding fuel or inclusive?

Mark DiBlasi

That was excluding.

Unidentified Analyst

Excluding, okay. All right. Thank you very much.

Operator

And your next question comes from the line of (inaudible). Please proceed.

Unidentified Analyst

Thanks. Good afternoon and congratulations on the good quarter. Mark, I guess, sticking with the LTL operating ratio, I am curious if you have a way of thinking about, it feels like that your business model is still favorable where you’re getting increases on the LTL revenue per hundredweight we’re able to hold your Linehaul cost.

You’re pretty much flat, but I would also think that you’re picking up some margin improvement because of the efficiencies as you get some of the terminals of the capacity, do you have a way of breaking out the margin improvements if excluded the cost kind of the 60 basis points to 70 basis points of year-over-year improvement. How much of that comes from greater efficiencies versus pricing in the – in Linehaul costs?

Mark DiBlasi

Well, it’s all a combination of the three, and to break it out by the individual segment, we don’t do that. It is the combination of the three. I can tell you that in terms of LTL, we continue to add a significant amount of new customers to our LTL account base. Our growth in the first quarter, I believe was around 13% or 14% in terms of new customer growth and we’ve been very positive quarter in and quarter out on the LTL segment bringing on new business.

So when you bring on that much new business that also has an impact on your freight mix and type of freight you are handling, rather than a carrier that’s not growing that has a same freight mix quarter in and quarter out. So there’s that dynamic as well. It also has an impact on our length of haul. It also has an impact on our rate per shipment. Those things are all impact that revenue per bill and the revenue per load as well.

Mark DiBlasi

When we taken in the efficiencies in terms of especially, your line haul efficiencies that can have a significant impact on your overall cost because obviously that’s the largest cost we have.

Unidentified Analyst

Sure. And I guess what I’m trying to get at is the I don’t want to oversimplify the business and think that gee, as along as you are getting positive increases in your revenue per 100 weight line haul costs are flat, that you’ll see margin improvement that there is other things in the business that are driving that?

Mark DiBlasi

Yeah, there is a lot of moving parts.

Unidentified Analyst

Right. Okay. That makes sense. And in, I guess, I am curious on the truckload side, I know that you have that refrigerated exposure, what’s your sense right now on some of the seasonal produces, has that started to move and what was the timing of that be this year, and what I feel like there is some comparison this year versus last year. So I guess, I am curious the comments that you had on what you are seeing in temperature control, it sounded like rates are good, but expectations for activity doesn’t move to the second quarter?

Mark DiBlasi

Well, we have become very large on – in the refrigerated size and we have so many operations that each one has various different stages of seasonality, and also including seasonality on our intermodal services and intermodal drayage especially in California. So they kind of level each other out. You get into one season and you move on to the next season. But April through October, you’ve got produce and meats, you’ve got frozen ice cream and yogurt, you’ve got a lot of that starting to move now, things of that nature.

So you move from one season to the next and that’s one of the reasons why we’ve diversified that, and we have such a diverse shipper base with all the acquisitions we made last year to take some of the seasonality out, so that we can roll from one season to the next without having highs and lows. We would expect, if you look at our numbers, we had significant growth in truckload, we would expect that quarter in and quarter out, because of the acquisitions plus the organic growth that we anticipate as well.

Unidentified Analyst

Okay. Thank you, and then just two last ones. For the revenue associated with Adrian, is that all going to come through the TMS segment or is there a portion of that that comes through truckload and logistics?

Mark DiBlasi

No, it will all come through the TMS segment.

Unidentified Analyst

Okay. And then the last one I had is, Peter, can you go over the CapEx comments that you made again at the end of the prepared remarks. I think I got it, there was $8 million here in the quarter, but I wasn’t sure about the comments about the $10 million if that was for each of the next couple of quarters, or if that was the remainder of the year?

Peter Armbruster

The $10 million is for the remainder of the year.

Unidentified Analyst

Okay.

Peter Armbruster

Based on our current IC level.

Unidentified Analyst

That makes more sense. Okay, thanks again for the time.

Peter Armbruster

Yeah.

Operator

And your next question comes from the line of Scott Group with Wolfe. Please proceed.

Scott Group – Wolfe Trahan

Hey, thanks. Good afternoon, guys.

Mark DiBlasi

Hey, Scott.

Peter Armbruster

Hi, Scott.

Scott Group – Wolfe Trahan

So the line haul costs have been pretty flat for few quarters now at $1.24 per mile. Mark, can you talk about what’s the visibility? Is that something you think can stay flat or do you see any risk of upward momentum there or upward pressure there?

Mark DiBlasi

Actually, I see it potentially going down based on some of the things we’re doing. But for eight quarters, I think the only quarter where we bumped up though about 25 was in the third quarter of 2011. Other than that, I think we’ve been a $1.24 since the second quarter of 2011 on through the first quarter of this year.

So we implemented some initiatives back in the end of 2010, beginning of 2011 to diversify and control and mitigate any additional increase in our line haul cost, and we’ve been very successful at doing that over the course of the last two years in particular. So we don’t see it going up, Scott, and if it does go up, you’re talking maybe a $0.01 a mile unless some major event occurs with the economy. So – and we think we can actually drive it down which is I can tell you right now that April is tracking right now. At $1.23. That may go up in – by the end of the quarter, but that’s where we are tracking today, which is a nice positive.

Scott Group – Wolfe Trahan

Yeah, for sure, that’s good to hear, and when it’s – the thought that it could come down, is that because you’re increasing the mix of owner, operators or is it because the third party outsourced is coming down?

Mark DiBlasi

Well, combination of both. It’s diversification of our purchase transportation, the increased utilization of independent contractors, the recruiting of more independent contractors, so all those things put together mitigate that cost and keep that cost at a static level.

Scott Group – Wolfe Trahan

Okay, that’s great. Just in terms of the acquisitions, I just wanted to get your sense on the market and your optimism on potential for future deals, I think if I remember correctly you did eight last year, two so far this year. Do you feel like there is a bunch more to come this year and should we be thinking more internationally now or more on the domestic side still?

Mark DiBlasi

Well, I can tell you that the pipeline is very full as I indicated in last conference call. We are in various stages of due diligence with several companies that meet our criteria that I went over on the call. Several of which complement existing service and a few which give us new services to be able to cross-sell. So we are very pleased with where we are at. We have really developed a preferred buyer situation where we have companies knocking in our door to look at them for acquisitions, because of the reputation we built in terms of an acquiring company and the way in which we go about supporting and integrating the companies that we acquire.

So I can tell you – and of course, due diligence turns could turn out on some and we may not be as far on, but I can tell you that we – if you look at our track record, we’ve made 14 acquisitions in the last two years. We’ve made 16 I think since the company went public. We are very good at it. We have a great team that works on acquisitions with the benefit of HCI, the private equity firm, that’s the major shareholder. They do a great job in partnering with us to do the diligence on these companies and they are the main reason why we are uniquely successful in terms of acquisitions in transportation.

So my answer is yes, we’re going to do a lot more. We’re going to be very successful at it. It will complement existing services and it will bring new services to us and as I mentioned on the call, Adrian brings an international flavor to our operations and we will pursue international further in some of the diligence we have with some of the potential opportunities on our plate right now.

Scott Group – Wolfe Trahan

Okay. Great. And then just last question, I think back to when you guys – first IPO, you gave us a lot of kind of longer-term targets and have done really a good job with those, on the margin side, you talked about a 6% near-term goal and you got there last year a longer-term goal as 7.5% EBIT margin. Is that still a realistic longer-term goal or because of some of the mix changes and mix with business and acquisitions, is that not something to think about over the next couple of years.

Mark DiBlasi

Well, as an overall company, do we think we’d get to a 7.5% margin, yeah, absolutely? We think we can improve upon that. We are not – we are at 936 now, it’s not a long stretch to get to a 925 and we think – our goal is to get well beyond that. Now, at what point in time we’re going to hit that, I can’t predict, but we – if you look at our track record of – since we’ve been a public company we have improved, every quarter from quarter-to-quarter-to-quarter, we will expect to continue to do that type of improvement.

Scott Group – Wolfe Trahan

Okay, great thanks for the time guys.

Operator

(Operator Instructions) And your next question comes from the line of William Greene with Morgan Stanley. Please proceed.

William Greene – Morgan Stanley

Yeah, hi there, good afternoon.

Peter Armbruster

Hi, Bill.

William Greene – Morgan Stanley

I am wondering, if we can ask a little bit about this hours of service rule that’s coming in the summer, do you think that’s going to have much effect on your business, I think I guess more on the truckload brokerage side, but just curious how you think that could effect your ability to get capacity and price of right change of rates and time that sort of thing?

Mark DiBlasi

Based on the analysis that we’ve done for company we don’t anticipate that is going to have much of an impacted on all on us, with regard to our independent contractors and our purchase transportation, we’re pretty confident its not going to have an impact, I do believe that will have an impact, a fairly significant impact on some companies and in particular the overall trucking industry will have a it, will have an overall impact, so that from my perspective is a positive, because what’s that’s going to do is create a capacity constraint, which means that those have the capacity like us we’ll take market share because of that capacity and we will do it in a positive pricing environment, so I actually think it will be a benefit to us and a not a negative.

William Greene – Morgan Stanley

Mark, can you just sort of expand a little bit, how do you mitigate the effect, if it hurts the industry overall, how do you get away with sort of not having any negative effect. What are you doing that’s different?

Mark DiBlasi

Well, you know a lot of companies bump up against the 70 hour rule, and this 34 hour restart is really going to a have a negative impact on their percent of utilization of their drivers, lot of them have their drivers switched their networks engineering to where they are maximizing the hours on the drivers. We think if any contractors, you don’t control those hours, the impact contractor control those hours and we don’t have a large independent contractors bumping up against the 70 hour rule, so that big impact is going to have some of the companies, it’s not going to impact Roadrunner because of our utilization of the contractors.

William Greene – Morgan Stanley

Okay, it makes sense good. Mark also I’m curious on whether you’ve seen any sort of wins that you can point to some of the Teamsters negotiations that were going on, has that been able to affect your business at all or now..

Mark DiBlasi

I would say we just can’t see it. I think especially on the LTL side of the business with what’s going on in those negotiations, lot of shippers just anticipate from the get go that is going to get resolved and they’re not going to devote any freight because of it, if that doesn’t get resolved, if it goes further on it gets extended, if there is a straight forward approved that might rattle some shippers, but I don’t think we’ve seen any shippers get rattled yet. So we continue to take market share, but it’s not because of any fewer of the labor action.

William Greene – Morgan Stanley

Okay. Great, all right thanks for the time.

Mark DiBlasi

Yeah.

Operator

And your next question comes from the line of Rob Sandt Deutsche Bank. Please proceed.

Robert Sandt – Deutsche Bank

Hey, good afternoon guys.

Peter Armbruster

Hey Rob.

Robert Sandt – Deutsche Bank

Could you I guess to expand a little bit on those question about the LTL tonnage trends. We saw you guys have an acceleration in the month of April, which contrast with the broader marketplace. If it’s not coming from kind of competitor wins because of the contract negotiation, could you expand a little bit in terms of the growth that you’re seeing from existing accounts as well as how much revenue that the tonnage that 13% to 14% growth in new customers that you had mentioned on the call is contributing to your overall tonnage growth in the month of April?

Peter Armbruster

You know the majority of that Rob is coming from the new customers coming onboard not because of existing customers growing. I mean, I can tell you that the economy hasn’t improved to a point where our existing account base – an account that used to ship pellets a week, six months ago they’re still shipping five pallets a week today, they are not shipping seven or eight, that’s hasn’t happened yet.

We’re waiting for that data to come when the economy improves to the point where peoples businesses pickup, but we’ve taken market share by adding new businesses in new accounts, some of that market share has come from some of the new territories we opened up, that’s – that we went in Boston and Philly and now in Florida. So that’s added some revenue. But that’s then a relatively small amount, because we really haven’t matured those operations yet, so basically to answer your question our growth in LTL has come from just providing great service to customers at a very reasonable price and taking market share and doing so.

Robert Sandt – Deutsche Bank

And I guess as we think out within the LTL segment, I would imagine you will start to see accelerating benefits from the four service centers that you’ve recently opened up. Can you give us a timeline in terms of the margin opportunity that opening a new service center represents for you guys over a three-month period, six-month period, and then a year?

Mark DiBlasi

Well, we can tell you that we – the way in which we open up new terminals, because we don’t put anything in the infrastructure, we don’t put anything in the personnel, we do it through our partnership with our delivery partners throughout the LTL network because of our unique business model. There is very little cost involved and in doing so those new terminals become profitable in a relatively short period of time. So we would expect them to be profitable no later than two months after opening…

Robert Sandt – Deutsche Bank

Right.

Mark DiBlasi

In many cases it’s three to four weeks.

Robert Sandt – Deutsche Bank

Yeah. And they get to NOI, that’s very close to our existing – somewhere existing terminals. So there is potential for larger expansion with those

Peter Armbruster

Yeah.

Mark DiBlasi

…new facilities.

Robert Sandt – Deutsche Bank

I would imagine as you density has that typically happened three, four months out or is this at the two-month kind of junction you’re already seeing a comparable or?

Mark DiBlasi

Yeah, usually, it’s a two month truck and you are starting to see a comparable OR and then you build upon that as you build density. And then you see, you build more density, you start to build direct loads, you cut down handlings, it all starts to improve upon itself.

Robert Sandt – Deutsche Bank

That’s really helpful. And then I guess, shifting over the recent acquisition of Adrian, does this open you up to a lot more customers or is it a very similar customer base as Roadrunner’s current book of business?

Mark DiBlasi

Well, it gives us new customers. It’s not a very – it’s not a real large customer base. It gives us new customers, but what it does, it gives us the ability to expand the services that Adrian provides to a very large customer base that we control. So we can expand what Adrian does to a lot more customers. And we can also take some of the large customer that Adrian services and then start to talk to them about cross-selling the multiple services that we have beyond the container management that Adrian does so well for them.

Robert Sandt – Deutsche Bank

I guess, Mark asked (inaudible) was a much overlap between your customer base and Adrian’s customer base?

Mark DiBlasi

No, new customer base. So, no overlaps. So a pure – a great opportunity for cross-selling and everything we cross-sell will be additional revenues.

Robert Sandt – Deutsche Bank

Makes sense, well, good luck.

Mark DiBlasi

Thanks.

Operator

At this time, there are no further questions in queue and I would now like to hand the call back over to Mr. DiBlasi for closing remarks.

Mark DiBlasi

Hey, well, thank you all for attending. We felt like as first quarters go, especially with the weather conditions and the way in which Good Friday fell, we had an excellent first quarter. We are very pleased with the pre-operating segments what the trends we are seeing so far in the second quarter in each operating segment and are very optimistic about how this quarter will play out it. We gave guidance for the first quarter of $0.27 to $0.29 and we hit $0.29.

We’ve given guidance for this quarter at $0.35 to $0.38, and we’ve been very successful over the course of the last several quarters of following within our guideline and generally on the high side. So obviously, we think we’re very – we’re positioned very well for the second quarter going forward and again very pleased with how we performed in the first quarter given the headwinds in our industry.

So with that, I’ll end the call. Thank you very much.

Operator

And ladies and gentlemen that does concludes today conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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