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Roadrunner Transportation Systems Inc. (NYSE:RRTS)

Q4 2013 Earnings Call

February 6, 2014 4:30 PM ET

Executives

Mark DiBlasi – President and CEO

Peter Armbruster – VP, CFO, Secretary and Treasurer

Analysts

Todd Fowler – KeyBanc Market

Tom Albrecht – BB&T

David Ross – Stifel Nicolaus

Scott Group – Wolfe Trahan

Bill Greene – Morgan Stanley

Rob Salmon – Deutsche Bank

Nate Brochmann – William Blair & Company

Art Hartfield – Raymond James

Operator

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

Mark DiBlasi

Thank you. Good afternoon everyone. Thanks for joining us today for our fourth 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. But before we begin, I am going to turn over to Peter now 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 first quarter 2014 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 of 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 on purchase power; the unpredictability of and potential fluctuation in the price and availability of fuel; the effects of governmental environmental regulations; insurance in excess of our prior experience level and the other Risk Factors set forth in our SEC filings.

Mark DiBlasi

Okay, thanks Peter. Just as info in the fourth quarter, we saw a lot of activity in the quarter, a lot of positives and negatives that impacted our performance in the quarter. What I wanted to go in this call and we would be doing that is I want to provide to the group, lot of clarity and clear understanding of what went on the quarter, lot of the pluses and minuses that we faced in the quarter, so that by the end of this call you have clear understanding. So we are going to go into a little bit more detail on this call than we have in previous calls just to make sure that we cover all of those – all of that activity that happened in the fourth quarter.

With that said, I am going to take a few minutes to briefly discuss that strategic composition of the company for those of you not familiar with us, which we believe drives long-term performance and provides some color on the quarter, current trends and strategic initiatives that are going on in the business today. Our asset light business model is well positioned for continued share, market share gains. We provide a one-stop solution to each customer’s individual needs. We offer a full complement of solutions, including customized and expedited less-than-truckload, truckload and logistics, freight consolidation, inventory management, transportation management solutions, intermodal solutions, expedited services, international freight forwarding, customs brokerage and comprehensive global supply chain solutions. We utilize proprietary web-enabled technology systems and a broad network of transportation service providers comprised of both independent contractors and purchase power. We serve a very diverse customer base. Although we do service large national accounts, we primarily focus on small to midsized shippers. Our business model is scalable and flexible and our cost structure is variable and it requires a minimal investment in transportation equipment and facilities, which enhances our free cash flow and returns on our invested capital and assets.

We report in three business segments, less-than-truckload, truckload and logistics, and transportation management solutions. These segments complement each other by allowing us to offer all services across all zip codes. By cross-selling each segment’s services, we are able to build density at a more rapid rate and expand our operations into new geographic regions.

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 that this provides us with a strategic advantage over other non-asset-based providers as we expect capacity to continue to tighten in the future. We are a carrier, very clear, with over 3,500 drivers in our fleet, 83% of which are independent contractors. And we have purposely grown this fleet in anticipation of tightened capacity in the future.

Overall, our fourth quarter had several factors, which impacted results both positively and negatively. Although organic and acquisition related growth led to a 24.4% increase in fourth quarter revenues and a 21.6% increase in net revenues over the fourth quarter of last year, we have reported lower-than-expected diluted income per share due to the net impact of the following factors. Peter will cover off some of these factors in more detail with the following as an overview of the major items.

We experienced continued unfavorable accident claims development in the quarter due to the severity of accidents, increasing cost to pay and sell claims and the corresponding increased reserves required to claims in process. And general accident claims expenses have accelerated to unprecedented levels throughout the industry. This resulted in insurance and claims expense that was approximately $3.8 million greater than the prior quarter causing a $0.06 impact on our diluted income per share. Peter will highlight in a moment our plans to mitigate these costs in the future.

Our LTL growth predominantly came from recently opened terminals with lower freight density and net revenue margin as compared to our legacy terminals. This impact on our LTL segment was approximately $0.02 EPS reduction in our diluted income per share. Final valuations of definite live intangible assets related to the Marisol International and the Adrian Carriers acquisitions increased amortization expense by approximately $1.5 million or $0.01 diluted income per share in the fourth quarter.

Our freight consolidation business had startup costs related to a significant new customer award that continued to beyond normal startup period and additional cost incurred due to a third-party customer order system issue that we encountered. These additional costs impacted fourth quarter diluted income per share by $0.01.

Lastly, external factors such as the severe weather experienced throughout the United States during the month of December in compliance with new hours of service rules impacted revenue growth and operational efficiencies across all of our segments to the tune of $0.02 income per share. We expect the accident claim expense and lower freight density in our LTL business to have an effect on future results and have considered such in our Q1 guidance that Peter will go over as well as the effect of January weather conditions, which impacted our business greater than any single month in recent years. These factors were partially offset by a net reduction in contingent earn-out reserves of $2.6 million related principally to two acquisitions, where fourth quarter performance trends and the future outlook for these businesses required a fair market value adjustment of the expected earn-out payments. These adjustments also impacted our effective tax rate by lowering it in the quarter to 29.2% from 38.8% in the fourth quarter of 2012. If you add that all up the net negatives were $0.12 and the net positives were $0.08 just as inflow.

Now, I will give you some business context by segment from the fourth quarter and trends we are seeing so far in the first quarter of 2014. In the LTL segment new customer growth expansion into new markets and existing customer growth drove a $5.7 million or 4.4% increase in LTL revenues. Tonnage for the quarter was up 5.3%. By month on a per day basis, tonnage was up 7.6% in October, 1 .7% in November and 3.6% in December. Revenue per hundredweight excluding fuel was up 1.4%. Including fuel it was up 0.3%. Weight per shipment was down 1.2% and pricing was stable in the 2% to 3% range for the quarter. Our line haul cost per mile excluding fuel was $1.24 which was the same as the previous year.

LTL headwinds in the fourth quarter were attributed to the following circumstances. And again I will repeat these. LTL revenue growth was primarily due to the growth at the newly opened terminals resulting in lower incremental margins due to the lack of density as compared to our long-term legacy terminals. During the month of December LTL revenue and tonnage growth was significantly impacted by weather. During the quarter our LTL segment experienced approximately $2.3 million of additional costs related to increased insurance costs as I mentioned earlier and redundant dock costs incurred to handle internal freight. LTL pricing in the quarter was tracking as I said in 2% to 3% range. However, that’s down from the 3% to 4% range that we were experiencing in the first half of 2012.

Combination of the above issues resulted in LTL operating ratio deteriorating from 94.9 in the fourth quarter of last year to 96.1 in the fourth quarter of 2013. We anticipate our organizational restructuring announced in late December and our continued efforts to upgrade our sales and safety risk management personnel as well as our focused initiatives on fourth quarter headwinds will drive our LTL performance improvements from the quarter in 2013 and Peter will give you a few more details in a moment.

In our truckload logistics segment, truckload revenues grew by $36.7 million or 25.6% from the prior year fourth quarter. Incremental revenues from 2000 – from our 2012 and 2013 acquisitions accounted for $23.1 million of the increase with the remaining $15.7 million representing organic growth of 9.5% from existing businesses. Truckload revenues and operating costs in this year’s fourth quarter were negatively impacted by the weather, sluggish economic conditions, increased costs associated with hours of service rules and a relatively flat pricing environment. During the quarter, our truckload segment also experienced $2.4 million in additional costs related to increased insurance cost compared to the prior year fourth quarter. And as mentioned previously startup costs related to a significant new customer award that continued beyond the normal setup period and additional costs incurred to us by a third party customer order system issue.

Our truckload operating ratio deteriorated from 92.8% in the fourth quarter 2012 to 93.6% in the fourth quarter of 2013, primarily due to the issues I have just outlined. The addition of key management personnel to execute our truckload growth strategy as well as the greater percentage of revenue growth in our truckload services and drayage business, which have a lower operating margins than our warehousing business also impacted our operating ratio. However, the positive impact of the acquisitions and organic revenue growth led to a 12.3% increase in our truckload operating income quarter-over-quarter. We continue to see substantial growth opportunities both organically and acquisition-related in our truckload logistics segments and have positive momentum in addressing the issues encountered during the fourth quarter.

TMS revenues in the fourth quarter of 2013 increased $30.9 million or 130% to $54.7 million from $23.8 million for the fourth quarter of 2012. The improvement of revenue was primarily due to Adrian and Marisol acquisitions that I mentioned earlier. Significant growth opportunities continue to be identified with the addition of our international services, additional costs, training cost and final valuations of intangible assets associated with those two acquisitions, as well as lower cost margins in these businesses resulted in an operating ratio decline from 88.2% in 2012 to 93.0% in 2013.

Overall, we continue to take advantage of increased cross selling and growth opportunities across all of our operating segments. Revenues from customers using multiple services are now at 40% of our total corporate revenues, up sequentially from 35% last quarter, up from 33% in quarter prior to that. So we saw a nice jump in our cross selling growth from the third quarter to the fourth quarter. And we can attribute that to the addition of our international services. Fourth quarter trends from our perspective the economy is still sluggish and has been severely impacted by significant nationwide weather events throughout January. That said, we are still gaining market share and continuing to grow tonnage and revenue. In January our LTL tonnage growth was up 1% over the previous year despite tougher comps as last year’s weather was much less severe than what we experienced so far this year.

The LTL rate environment continues to trend in 2% to 3% range. However, initial pricing in the month of January is on the higher side of that range than on the lower side which is where we finished 2012, excuse me 2013. We opened two new terminals recently in Altoona and Allentown, Pennsylvania giving us full coverage of the state of Pennsylvania. These sites joined the nine terminals opened during 2013 and bringing our total LTL terminal count to 41 terminals. These openings have gone smoothly and are growing month-over-month producing positive operating results. As we build density in these locations, incremental margins will improve as we build that density.

Although we continue to significantly grow our truckload segment, we have been impacted by weather in January as well and as well as a flat but stable pricing environment and continued increases in costs due to the hours of service rule changes that took place last year. There is however, potential for improved truckload pricing dependent upon potential capacity constraints as a result of the weather impacted – impact that we saw in January. We have seen – we have already seen some evidence of this, but it remains to be seen how significant it will be. We are also seeing some very recent – within the last few weeks some very recent traction with regard to contractual pricing. The spot market pricing did improve in January based on again the weather and the impact that that has. But we are also seeing some positive traction in our contractual pricing as well, which is encouraging.

Our TMS business was up significantly in January consistent with the fourth quarter, due to the previously mentioned acquisitions. With regard to acquisitions, there has been some concern expressed about the lack of acquisition activity over the past four months. We have had some opportunities that we pulled away from over the period as a result of our diligence findings. We firmly believe that the consequences of a bad acquisition are even greater in terms of human capital than the financial impact and approach each opportunity accordingly. Having said that, our pipeline is extremely strong and our activity level is very high as we are in various phases of diligence on several acquisitions. We are fully capable from a management standpoint to effectively assimilate the opportunities that we are currently exploring. And I can assure you that we will see some activity in that area in the near future assuming diligence goes as planned.

Each acquisition opportunity must be core acquisition criteria, which include continuing to build critical mass from a geographic standpoint in each of our businesses, continuing to broaden our capacity to more efficiently utilize our network across all operating segments, continuing to seek companies with complementary service offerings or new service offerings and with similar business models that bring additional values to our customers and that we can effectively cross sell within our suite of services. And finally, we only seek companies with management teams that will fit with us culturally and that are immediately accretive.

We made eight acquisitions in 2012. We made six in 2013 bringing the total number of acquisitions by this management team to 28 in total, 18 of which have been acquired in the past two and a half years. Our differentiated strategy and our strong reputation in the transportation community as well as our proven ability to smoothly integrate each acquired company are large factors as to why our pipeline is at such a high level. In summary our fourth quarter results were impacted by some specific factors. And on a net basis were slightly below our expectations. The momentum in our business continues to be positive and we continue to strategically position our company for long-term growth. Through a combination of organic and acquisition growth, we improved revenues in the fourth quarter by 24.4% over the year and year-over-year by 26.8%, an increase of $288 million. We have added services and scale to an already robust business model. We also continue to prove that our lower cost, high-quality business model and our comprehensive portfolio of transportation solutions provides a competitive advantage and enables profitable growth and value creation to our shareholders.

And let me say relative to Peter’s guidance, which he is going to go over in a few moments, despite the near-term headwinds that I have just covered, we are still a very high growth company both through organic and acquisitional growth. We expect to continue to grow top line growth significantly as well as bottom line profitability moving forward.

With that, I will turn over to Peter.

Peter Armbruster

Thank you, Mark. I will begin by summarizing our fourth quarter results by operating segments. Our fourth quarter LTL net revenues increased $1.1 million from the fourth quarter of 2012 driven by a 4.4% revenue growth. Our net revenue margin decreased from 28.1% in the fourth quarter of 2012 to 27.7% in the fourth quarter of 2013 primarily due to the revenue growth at our recently opened terminals, which have a lower net revenue margin in the December 2013 load inefficiencies due to the weather.

Our LTL results were impacted by a $1.8 million increase in insurance and claims expense over the prior year quarter and a $500,000 increase in redundant dock costs incurred to handle new terminal freight. As discussed on previous earnings calls, our auto liability and worker comp programs have self-insured retention levels that must be met before insurance coverage takes effect. Certain individual claims developed up to our retention levels during the quarter for both LTL and truckload. In 2013, our LTL insurance and claims expense increased $4.5 million over 2012. This increase in insurance and claims negatively impacted our 2013 LTL operating ratio by 80 basis points.

During 2013, our truckload insurance and claims expense increased by $3.6 million over 2012. This increase in insurance and claims negatively impacted the truckload operating ratio by 50 basis points. The combined 2013 LTL and truckload increased insurance and claims expense over 2012 was $8.1 million causing a $0.13 negative impact on 2013 diluted income per share and a 60 basis point negative impact on the company’s overall 2013 operating ratio. To help mitigate these costs going forward, we have completely restructured the safety departments for all operating segments. Each segment has a dedicated safety person, professional, leading new initiatives to drive results. The overall initiatives are directed by our recently hired Vice President of Safety, (Michael Hall). Michael has extensive background on safety, having previously led the safety efforts at FedEx Ground and DHL.

In addition to addressing insurance costs from a safety or prevention perspective, we also address claims and risk mitigation by restructuring our risk management department to mitigate the amount paid out after an event. We are in the final stages of hiring of Vice President of Risk Management to lead these initiatives. Although we are not aware of any specific first quarter accidents given the industry conditions and our claims experience, we would expect our 2014 insurance and claims expense to impact our diluted income per share by approximately $0.02 in the first quarter, which has been taken into account in our guidance and between approximately $0.05 and $0.06 for the full year. The combination of the above issues resulted in our LTL operating ratio decreasing from 94.9% in the fourth quarter of 2012 to 96.1% in the first – in the fourth quarter of 2013 and our LTL operating income decreasing from $6.6 million in the fourth quarter of 2012 to $5.2 million in the fourth quarter of 2013.

Overall, truckload and logistics net revenues for the fourth quarter were 31.8% of truckload and logistics revenues compared to 32.9% for the fourth quarter of 2012. Truckload and logistics fourth quarter net revenue percentage was impacted by the additions of Central Cal, ANA, DCT, Wando TA Drayage, G.W. Palmer, and yes plus the shift from company-owned equipment to independent contractors within our newly acquired truckload companies. Collectively, the acquisitions added incremental revenues of $23.1 million during the quarter. Our truckload results were impacted by a $1.9 million increase in insurance and claims expense over the prior year quarter and a $500,000 of continuing startup costs related to the previously discussed significant new business award. The $2.4 million additional costs were offset by $1.5 million contingent purchase price adjustment related to an acquisition not expected to meet earn-out hurdles for 2013 and 2014.

Within truckload and logistics, operating income increased to $11.5 million from $10.3 million in the fourth quarter of 2012. Our operating ratio deteriorated from 92.8% in the fourth quarter of 2012 to 93.6% in the fourth quarter of 2013 primarily due to the issues outlined above. Truckload and logistics operating margin was also impacted by the addition of key management personnel to execute our truckload and logistics growth strategy as well as a greater percentage of revenue growth coming from truckload brokerage, truckload services and drayage business, which have lower operating margins than our warehousing business also impacted the decline in operating ratio during the fourth quarter.

In 2014, we expect our truckload brokerage, truckload services and drayage business to continue to grow at a rate greater than our warehousing business. Within TMS, revenues increased to $54.7 million from $23.8 million in the prior year due to our 2013 acquisitions of Adrian Carriers and Marisol International. TMS operating income increased to $3.8 million from $2.8 million in 2012. Final valuations of definite live intangible assets related to the Marisol and Adrian acquisitions resulted in increased acquisition amortization of approximately $500,000 sequentially from the third quarter 2013 to the fourth quarter 2013. After adjusting for additional acquisition amortization expense reported during the fourth quarter, we would expect our total company first quarter 2014 depreciation and amortization to be approximately $4.8 million as compared to the $5.1 million in the fourth quarter 2013.

Our corporate expenses, excluding transaction cost increased from $1.8 million in the fourth quarter 2012 to $2.4 million in fourth quarter 2013. The increase was due to additions through corporate wide integrated sales team, IT costs developed and integrated IT platform and the addition of other key management personnel to execute our overall integrated growth strategy. We would expect an increase of $300,000 in corporate expenses, excluding transaction cost in the first quarter 2014 over the fourth quarter 2013 as we continue to add to the areas mentioned plus additional costs incurred to restructure and solidify our corporate-wide safety and risk management areas.

On a consolidated basis, including intercompany eliminations and corporate expenses, revenues increased by $71.9 million or 24.4% to $367 million during the fourth quarter of 2013. Consolidated other operating expenses, excluding transaction costs increased from $69.8 million in the fourth quarter 2012 to $86.9 million in the fourth quarter of 2013. In addition to the items discussed above, the acquisitions in our truckload and logistics and TMS segments contributed a majority of the increase.

Consolidated operating income for the quarter increased $400,000 or 2.5% to $18.2 million compared to the fourth quarter of 2012. Our consolidated operating ratio declined from 94.0% for the fourth quarter 2012 to 95.0% in the fourth quarter 2013. Our effective tax rate dropped from 38.8% for the fourth quarter of 2012 to 29.2% for the fourth quarter 2013 due to a $1.5 million tax benefit related to contingent earn-out adjustments. We would expect our 2014 tax rate to return to 38.7%. Fourth quarter 2013 net income available to common stockholders increased 17.7% over the prior year quarter to $11.2 million. Fourth quarter diluted income per share available to common stockholders was $0.29 equal to the prior year quarter.

Our December 2012 and August 13, 2013 stock offerings increased the weighted average diluted shares outstanding for the three months ended December 31, 2013 by 4.6 million shares and impacted diluted income per share by $0.04 from the prior year quarter. For the quarter, our debt decreased $13.2 million from $205.8 million at September 30, 2013 to $192.6 million at December 31, 2013. At December 31, 2013 after a $2.2 million principal payment, we had $170.6 million term debt outstanding and $22 million outstanding on our revolver.

Our $5.4 million cash on hand at December 31, 2013 plus our $164.1 million available on our revolver at December 31, 2013 will allow us to fund near and medium term growth initiatives. At December 2013, our leverage ratio as defined in our credit facility continued to be well below two times. We seek to maintain the long-term pro forma leverage ratio and the two times debt to EBITDA range although our leverage ratio may go above two times if certain acquisitions are completed.

2014 first quarter guidance, we anticipate our revenues for the first quarter will be in the range of $350 million to $370 million representing an increase of 17% to 25% from the first quarter of 2013. We expect diluted income per share available to common stockholders to be between $0.27 and $0.30 per share compared to our diluted income per share available to common stockholders of $0.29 in the first quarter 2013. Our diluted income per share guidance range reflects approximately $0.02 for the effects of severe weather experienced in January throughout the United States.

In addition, the guidance reflects the expected headwinds associated with building density in our LTL terminals and increased insurance costs previously discussed. The guidance also reflects our August 2013 stock offering which will increase the weighted average diluted shares outstanding in the three months ending March 31, 2014 by approximately 1.5 million shares and will impact diluted income per share by $0.01 from the first quarter 2013. That concludes our prepared remarks and we will begin our question-and-answer part of the call.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Todd Fowler of KeyBanc Market. Please proceed.

Todd Fowler – KeyBanc Market

Good afternoon. I guess just starting with insurance, Mark, I am curious to know what’s changed in the business by the insurance, was the experience was so unfavorable this year? Is it related to some of the acquisitions? Is it the nature of the freight, I guess, I am just trying to understand what’s driving the increased amount of frequency on the claims side?

Mark DiBlasi

Yes. Todd, to answer your question, it’s more to do with what’s going on in the industry than it is specific to Roadrunner. Roadrunner’s accident frequency is still one of the best in the industry. Our accident frequency is 0.43 per million miles. The industry average is 0.76. So we are almost half of what the industry average is. That being said, obviously our cost has gone up as we indicated. What we have seen in the course of the fourth quarter in particular, but really throughout 2013 is that settlements on claims in the industry have been significantly higher than they have been in previous years. And that has seen a lot more of litigation taking place, a lot more claims that used to be settled at lower amounts that are being settled now for much higher amounts. I could give you half a dozen examples of claims that should have settled for $50,000 or $75,000 that now are selling for $250,000 to $300,000. So those smaller claims that used to be relatively insignificant are now becoming much more significant. And as Peter alluded to, we have restructured our safety and our risk management departments in order to address that.

Now, we are enforcing a two-prong attack to be very proactive to prevent accidents from occurring. And then on a reactive scale, much more aggressive in our risk management activity to reduce those higher claims that we are seeing occur in the industry. So that’s kind of what’s occurred and that’s why we have kind of baked that into our guidance going forward, because it’s foolish to think that what we saw in the fourth quarter is going to end just because we crossed over into a new year. We know that we need to be much more proactive in reducing that claim cost, but that as the industry goes, so goes all of us. And we need to make sure that we have baked a certain percent of that in. That’s why Peter gave you specific numbers for the first quarter as well as a $0.05 to $0.06 range for the rest of the year.

Todd Fowler – KeyBanc Market

And there was actually one of my follow ups, so the $0.07 to $0.08 of incremental insurance expense for 2014, that’s basically reserving more based on what your prior experience was? And I guess how are you correlating that with some of the initiatives that you put into place to mitigate some of this expense? I mean, is that taking a conservative approach on the reserving side and if you are able to develop a more favorable experience that, that would come down in the future?

Mark DiBlasi

Yes. Even though, we have restructured and we are well into our mitigation process, we believe it’s going to take us some time to really change and improve our safety performance although as I said it’s one of the best in the industry already. But then also on the risk management side, be able to mitigate those costs and get some wins in terms of those, what used to be smaller claims back down into the smaller claims range. Peter, you got a comment on that?

Peter Armbruster

Yes. So, with the guidance, it was $0.02 in the first quarter of 2014. And right now, we would expect $0.66 for the full year of 2014. So that’s $0.04 beyond the $0.02 in the first quarter.

Todd Fowler – KeyBanc Market

Okay. I am sorry I thought it was $0.06 in addition to the $0.02 that helps. Thank you. I mean, I guess Peter this is probably for you as well. I am just trying to put together the pieces of the earn-out adjustment during the quarter. In the release, you talk about the $2.6 million and then you talk about there was another or there was $1.5 million of that within the truckload segment. Where does the other $1.1 million from the earn-out fall from a segment standpoint or is that in corporate expense?

Mark DiBlasi

No, it was primarily in the LTL segment.

Todd Fowler – KeyBanc Market

Okay.

Peter Armbruster

That the remaining portion was…

Todd Fowler – KeyBanc Market

Okay. And then the $2.6 million that would have been gross of the tax, there is an additional $1.5 million tax benefit and that’s what drove the tax rate lower in the quarter?

Mark DiBlasi

Correct, that’s correct.

Todd Fowler – KeyBanc Market

Okay.

Peter Armbruster

Yes, $2.6 million is pretax, correct.

Mark DiBlasi

Yes. Let me also clarify that when we say that the two specific acquisitions resulted in those earn-out issues. It doesn’t mean that they perform poorly for us, it just meant that they didn’t achieve the thresholds that they needed to in order to trigger those earn-out payouts.

Todd Fowler – KeyBanc Market

Right. Now, that the makes sense. And then just a couple of last quick ones, I guess on thinking about getting the terminals up to density or getting off to a level of density, where they are running at the same sort of margin level as the existing network. What would your expectation be from a timing standpoint? Is that something that’s going to take another two quarters or is that something we are going to go through in 2014? And I know that you have just opened a couple additional terminals I am just trying to get a sense of how long we can expect this drag from the new terminal openings?

Mark DiBlasi

Yes. You are going to see that drag for a while dependent upon the terminals that we are talking about. For example, New York, Baltimore, Philadelphia, Boston, those terminals are going to get to an acceptable margin much quicker than Altoona, Allentown, Kansas City and Buffalo just as example, because obviously they are going to grow at a much greater pace because of the population base than the smaller market terminals that we have opened. So that being said, it’s going to as we move forward every quarter we would expect to see those margins improve. And of course we are going to push for that, especially in our larger facilities, our larger growth markets, but it will take time. But again those smaller markets, they are not going to have as significant an impact as the larger markets. So the quicker we can move the larger markets the better off we will be, but it will take a period of time to build that density. Those terminals are all profitable just the fact that you’re still dispatching partial trailers, you’re still running a significant amount of freight into intermediate terminals in order to combine and better utilize low factor with that freight and that’s where the additional cost comes in.

Todd Fowler – KeyBanc Market

Okay, then helps because I don’t remember having the conversation about the startup cost with some of the New York, New Jersey or the Boston terminal so that make sense about the density. You know, Mark, the last one I have it and just curious to get your thoughts, I mean there is a lot of talk about here in the market, tightening in the fourth quarter, remaining tight here in January. How would you expect your model to perform, if we move through ‘14 and we see maybe a tighter market and what were used too over the past couple of years? Can you kind of talk about some of the puts and takes with your model and what you’d expect to see from a high level perspective, if that was where the year was to unfold?

Mark DiBlasi

Well, everything we’ve done over the course of the last two years is to build capacity into a model both in the LTL and truckload and the drayage operations and we have. And we’ve done that on purpose, because we’re very confident that in a tighter capacity market. We’re going to be able to take – continue to take market share and do it in a much better pricing environment and with better experience in the past. Other than what people don’t recognize sometimes is that as a non-asset based carrier, we’re not asset because you utilized independent contractors. We’re not non-asset because we’re brokering a lot freight, that’s not the case, 83% of our freight is done with our own independent contractors. For a significant amount of offerings is handled by power that we control and we’re very optimistic about what that means to our business model as capacity tightens, as I mentioned earlier, we’re seeing some traction now with contractual business, which is encouraging and obviously we’re seeing good traction with spot market, but how long that lasts because of the weather remains to be seen, now is the economy continues to improve or improved at the higher rate than it has, capacity is going at very tight, very quickly and that will have a significant impact on pricing throughout the industry and we expect to take full advantage of that and it will be very beneficial to our business model.

Todd Fowler – KeyBanc Market

Okay, thanks a lot for the time. I appreciated.

Mark DiBlasi

Sure.

Operator

The next question comes from the line of Tom Albrecht, BB&T. Please proceed.

Tom Albrecht – BB&T

Hi, guys, good afternoon.

Mark DiBlasi

Hi, Tom.

Tom Albrecht – BB&T

I wanted to just clarify a few thanks so, I thought last quarter, one of the earn out callbacks was also in the LTL segment so just to clarify that two quarters in a row that the LTL is experience that.

Mark DiBlasi

Yes, that’s correct, yes, to stimulate any other type reserve at the end of each quarter, we evaluate what that contingent purchase price liability is based upon the projected results for that company and so there was an adjustment in the fourth quarter also.

Tom Albrecht – BB&T

Same acquisition.

Mark DiBlasi

Same acquisition.

Tom Albrecht – BB&T

Right. And then that I hear 41 terminals is that what you said.

Mark DiBlasi

That’s correct.

Tom Albrecht – BB&T

Okay. And then I know you gave us a lot of color on the insurance from that, I guess two things, one is that’s not a separate line item, I know you gave us the year-over-year increase, but what was insurance like either in Q4 or for the whole year as an absolute figure.

Mark DiBlasi

The total insurance in claims, it’s over $20 million in the $22 million to $23 million range, what’s the exact amount is, not sure, but it’s in excess of $20 million.

Tom Albrecht – BB&T

And that’s for all of last year.

Mark DiBlasi

Correct.

Tom Albrecht – BB&T

Okay. And then you talked about corporate expense being 300,000 higher from the fourth quarter, but again that’s not a pure line item so, which line, you’re trying to get it to adjust a little bit.

Mark DiBlasi

The segment, we have our three segments, LTL, truckload, and TMS. And then we also report a line called corporate expenses, which are general overall.

Tom Albrecht – BB&T

Yes. Okay, yes, I was just looking at the income statement so, let me go back to one of Todd’s questions, Mark, I think you did a good job explaining the settlement in that in our litigious society, but I guess what we’re trying to get a feel on is whether maybe just some under estimation of some of the claims in the acquired companies that they developed more worse than companies you owned for a longer period of time.

Mark DiBlasi

No, really we’ve not seen in any kind of increase their, Tom. It’s really have been in the in the sitting down at the insurance companies and seeing how reserves had been assigned. The fact that you’ve had significant settlements in the industry that has screwed a lot of people especially the insurance companies, you never heard the $10 million or $15 million settlement, we’ve had a couple of those this last year. So, that’s really kind of have an impact overall on the industry, and Peter, if you could add some other comments.

Peter Armbruster

Yes, plus we had some accidents specifically in the fourth quarter, that we setup reserves for. Also, our insurance renewal took effect in August and with, our rates went up and so that was reflected in the fourth quarter numbers also.

Tom Albrecht – BB&T

So, okay. I guess sort of a line of thinking and it’s sometimes too cynical, but you no such thing is one bad quarter. As you get past this first quarter and obviously weather is very real. What is your confidence level and beginning to grow our earnings again because you’re basically calling for flattish to down slightly in Q1. What was your conference to be able to post double-digit growth in earnings from the June quarter onward?

Mark DiBlasi

Well, I’ll tell you, if you do the math on some of things we’ve taken to the guidance, you’re talking about $0.05, $0.06 above the guidance we gave and maybe we’re being conservative because December were so bad and with regard to whether January is very bad with weather, the first week of February, I have operations all with country to-date that are running on minimal operation because of the weather constraints. Now overtime that business may come back and next week those same shippers might put out double with the normal due to makeup for this week, but we all know that doesn’t always happen, So, we’ve been relatively conservative going forward for the first quarter based on what we’ve seen that obviously can change with – to get to your point we are very confident in our ability as a company to get back to that double-digit growth that we were experiencing with regard to those margins and earnings and in our business model as I told Todd especially we see capacity tighten up in the industry, which I believe it will, we’ll do that, we’ll see – finally see some pricing that will be very positive. Now for us for everyone in the industry, but that will translate into significant improvement in those earnings.

Peter Armbruster

Yes, I just look at our guidance for the first quarter, our operating ratio is 93.6 first quarter of last year and you can just see from our guidance that we’re expecting to add a lots of go up, little bit higher in the first quarter because of the weather hours of service, but overall, our 2013 operating ratio was 93.7 and we would expect for the full year to again start bringing that down closer to the 93 level for the full year.

Tom Albrecht – BB&T

Okay, that’s all I have and thank you about that and I jump back in the queue. Thank you.

Mark DiBlasi

Thanks, Tom.

Operator

The next question comes from the line of Ben Hartford, Baird. Please proceed.

Unidentified Analyst

Hi guys. This is Kent. I wanted to maybe talk a little bit about some of the management changes that are going on and maybe just start off a little bit for some of the frame in high levels of the movement of Brian to the COO roll and what you envision sort of the benefits of this type of alignment has?

Mark DiBlasi

Yes, obviously, we made that announcement at the end of the year when Scott Dobak left the company, we’ve restructured the even beyond Brian’s restructuring we structured the LTL in both the operations and the sales component of the business. Brian is taking in very direct control position right now with regard to LTL and many of his prior truckload and drayage responsibility and passed on to Pat McKay who is the President of our truckload services operation. Overtime, we will are in the process right now looking for an Executive Vice President of sales to look at the overall corporate performance in all sales aspects of the company, but what we’ve been able to do in the course of the last month, month and half is really reenergized the sales component as we reenergized the operations with the changes that we’ve made and Brian has a very high energy, high integrity individuals whose had an extremely successful track record in every job that he has ever taken. We are extremely confident to position himself well over the course of last 6 to 7 years with our company to take on the role of Chief Operating Officer. And I am extremely confident in his ability to really drive some results, especially from the operation going forward and that’s something we have lacked a little bit when we were just managing the three operating segments by individual presidents.

Now, we will have a little more oversight in those three operating segments. And we will also have oversight from the perspective of sales in those operating segments as well. So we are very pleased with the way that’s turned and very pleased obviously we have had our kick off meetings in multiple segments over the course of the month of January. There is a high level of intensity, reenergized, motivated operational and sales workforce. So we are very pleased with how we think that restructuring is going to play out throughout 2014.

Unidentified Analyst

Yes, and then maybe in terms of like I believe you are going to put new heads in the different segments, is there a timeframe in terms of the hiring of those presidents?

Mark DiBlasi

We are not in a big hurry to do so. We have some internal candidates we are looking at for those two things TMS and LTL. But we are very confident in what we have now in our structure. But in time by mid-year we would expect to have a president in TMS and in LTL, reporting directly to Brian.

Unidentified Analyst

Okay, and then I guess the final line of question here, in terms of the 40% of the revenue that’s using multiple services that seems like a pretty good growth that you had there. Is there opportunity maybe to grow that a little bit stronger in 2014 now that you have got some of this cross-selling training going on at Marisol?

Mark DiBlasi

Yes, if you going back and look and I think if you’ve looked at our notes, the notes from previous earnings call, I think in the first quarter we were at 31% then 33% in the second and then 35% in the third and then we jumped to 35% to 40% in the fourth. And as I said earlier that’s attributable to adding that international component to our business. One of our existing customer base we are very pleased with the addition of our international components. And because many of our customers have international needs, so now we are starting to utilize those customers in multiples – more customers in multiple services which is what we saw then jump. That being said, we would anticipate that going forward in 2014 we will drive that percentage from 40% to a much higher level by year end. I can’t predict at this point time, but I can tell you that overall our goal as a company is to get to 60% to 70% of our total revenues being cross sold across multiple operating services.

Unidentified Analyst

And then in terms of maybe the anyway that you guys are in terms of cross selling at Marisol are you guys couple innings in or most of the way through your opportunities in terms of touching those accounts?

Mark DiBlasi

No, we are in the first maybe in the second inning when it comes to opportunities that international brings to us. And I can tell you that in our acquisition pipeline there would be more activity in that area as we go forward in the next few years.

Unidentified Analyst

Alright, thanks guys.

Operator

Question comes from the line of David Ross of Stifel. Please proceed.

David Ross – Stifel Nicolaus

Hey gentlemen.

Mark DiBlasi

Hey Dave.

Peter Armbruster

Hi Dave.

David Ross – Stifel Nicolaus

On the TMS side of things, there is a big difference 7% and 12% margins. So I know there are some new acquisitions in there and it changes the margin profile of the segment. But I wanted to see there is any one-time in there and what you guys are expect it to settle out absent any future acquisitions, which can also different margin profiles. And again change the margin of the TMS segment. Is it reasonable to think you can get that back to 10% or is it more kind of in the high-single digits now as a run rate?

Mark DiBlasi

Yes, I think it’s in the high single digits Dave. As we bought on the international component, they don’t have the margins that we had in just the 2PL or 3PL business that we used to enjoy. And then the Adrian carriers, which is international drayages that company in particular has good margins for drayage. But compared to the normal 3PL margins it’s not there. We’ll continue to build that out, we’ll continue to expand in that area as well. So the growth a significant amount of growth is going to continue to come from international especially with future acquisitions. And then 3PL business, I think I mentioned two calls ago that we had lost a relatively large size 3PL and that’s still filtering through. So in terms of the year-over-year growth we’ve been relatively flat with our base 3PL business, which back last year levels only 6% or 7% of our total revenues as a company. This year we would anticipate that the TMS business will become 15% to 18% of our total revenues and that will continue to grow especially with future acquisition. So we are going to continue to build that and grow that top line significantly, but as we grow it some of the businesses that tie into TMS are going to be lower margin businesses. So to think we are going to be down in the 87%, 86% OR range, which is what we were targeting for and we just had 3PLs is not as realistic as it was.

Peter Armbruster

There was – we talked about the definite life amortization. We did have an additional $300,000 expense above the normal level in the fourth quarter. So that impacted the OR a little bit in the fourth quarter.

David Ross – Stifel Nicolaus

Okay. And then Mark, can you talk a little bit more about the redundant LTL dock cost, just kind of explain from an operational standpoint exactly where that $500,000 came from and when that should go away?

Mark DiBlasi

Yes, it’s a combination of – because of lack of density you still have to make trailer cuts to provide service to customers out of those facilities that we opened over the course of the last year, year and a half. That being said, that means you are cutting partials. So anytime you are hauling air, you are not making money on the area. So that’s one component. The other component is the dock, the redundant dock costs. So when you run a low from let’s say Altoona or Allentown into Cleveland that freight has to be handled again in Cleveland. So, then that intermediate point incurs that dock cost and they load that freight is out to a final destination, which is in many cases the West Coast or the Southwest. So those – that type of dock cost is what we are talking about when it comes to redundant dock costs. And we do that with all of those facilities. Now, some of the facilities have gone to the point where they are a little bit larger and making to build some directs, which benefits us. But many of them still have to load, for example New York will load a trailer a night or possibly two trailers a night, in Chicago where the whole two or three trailers have to be broken every night and be consolidated – I don’t want to use the term broken, but be consolidated every night so that it can be then reconsolidated on multiple destination trailers that are built at Chicago.

David Ross – Stifel Nicolaus

Okay. It’s just more like a traditional LTL where you are just doing more hub and spoke type work rather than the traditional Roadrunner direct loading that you are used to when you had fewer terminals and a lot of density?

Mark DiBlasi

That’s correct. It’s exactly.

David Ross – Stifel Nicolaus

That makes sense. Peter real quickly, tax rate in 2014 are you still looking kind of the 38.5%, 39% range did something that happened in the fourth quarter change that, so it might be lower?

Peter Armbruster

Yes, we had the tax benefit related to the contingent earn-outs in the fourth quarter, but overall our guidance for 2014 would be a tax rate of 38.7%.

David Ross – Stifel Nicolaus

Okay. And then just going back to insurance, real quick, did you have more problems with Roadrunner owner operators or the third party drivers in the quarter, has that been kind of an issue where you see more out of one side than the other?

Peter Armbruster

No, it was Roadrunner owner operators both in our LTL and truckload segments, we had the impact.

Mark DiBlasi

In drayage.

Peter Armbruster

In drayage, but nothing outside carriers.

David Ross – Stifel Nicolaus

And if you talked about the self-insurance level at truckload and LTL what that is and is it different between the two segments?

Peter Armbruster

No. It’s both the same at $0.5 million.

David Ross – Stifel Nicolaus

And no plan to revise that upwards?

Peter Armbruster

Our insurance goes up for renewal in August and at that time we’ll take a look at that.

Mark DiBlasi

But until that point in time it still $0.5 million

Peter Armbruster

Yes.

David Ross – Stifel Nicolaus

Excellent, thank you very much.

Operator

A question from the line of Scott Group, Wolfe Research. Please proceed.

Scott Group – Wolfe Trahan

Hey thanks, good afternoon guys.

Mark DiBlasi

Hey Scott.

Scott Group – Wolfe Trahan

So you guys gave some really helpful color on kind of some of the moving parts good and bad but bigger picture here Mark do you think that this is kind of just what the model has become when you are growth so quickly and making a lot of deals that, that issues like this or just bound to start popping up from time-to-time and we should expect kind of more or the same year or do you really think that there is something in a more temporary here and maybe along those lines, what do you think now is the right way to think about top-line and bottom-line growth or top-line growth and margins going forward.

Mark DiBlasi

Well interesting part of the question. As a started out the call, I talked about all the activities taken place in the fourth quarter that was unusual compared to previous quarters, and I truly believe that I can’t say there is a one-time event, but those events are not normal. We don’t spend all the time talking about those events through a quarter, but they were significant and I kind of brought it down to very basic term from my perspective and we had $0.12 worth of – $0.12 to $0.13 worth of headwinds and $0.08 worth of tailwinds for a net loss of $0.04 to $0.05 and that’s how I look at it. I don’t think we’re going to see that in the first quarter, I don’t think we’re going to see that in the second quarter, we know right now that we will have weather in the first quarter. We know that we have some insurance issues in the first quarter, but all the all know and all the other stuff that it took place we would anticipate that going forward. That is not a part of the structure of our business model and I say that we’ve been running this business model. We made significant acquisitions over the course of time and in fact we’ve even made acquisition for the last – basically the last six months.

So, to say that a good component and we’re going to see this noise going forward in the future, I think we’ll be an area and making that connection going forward. That being said to your second point of the question, I believe that we can continue to grow and we’ll continue to grow significant top-line revenue. We will continue to improve the operation in the growth of those companies that we’ve acquired that will drive improvements in margins overtime. We will continue to bring on accretive companies to our acquisition pipeline and again I know we’ve not made one in six months, but I can tell you that our pipeline has never been fuller, we’ll be making some in the near future dependent upon diligence.

We did not make any in the fourth quarter, specifically because we are very good in diligence and we much rather turn down a deal that do a bad deal and that was the case and specifically at the end of last year with three counts or three companies that we were looking at. And rarely do we find one that doesn’t work out well and what we had treated that fell through at the tail end of that so, we’re still extremely confident in our business model and our ability to grow and manage that growth effectively and all that being said have that dropped to the bottom-line and improved those margins as well. We still anticipate as a company that we will continue and be able to drive our operating ratio down to lower levels year end, year-over-year. This was the first year in the past for that we missed the ability to do and we missed it by 20 basis points. So, we think we’ll be back on track in 2014 driving that or are down and continue to have incremental improvement as we grow the company.

Scott Group – Wolfe Trahan

That’s helpful, Mark so just the follow-up there, do you feel like you want it be out there more aggressive making acquisitions or is this kind of the issue of the best quarter. So that make you say, I want to kind of fix this first before we start aggressively making deals. I guess maybe the way of asking this, do you think that, would you want to make a deals this year like I’ve done the past couple of years or do you think it needs to be a little bit less to fix what you got first and then the deals.

Mark DiBlasi

Now the deal – each individual deal is separate from itself summer small, summer medium, summer large. The six we did last year, two of which are medium sized and three which we are very small. We look at the top – look at the purchase price we spent about $90 million, $94 million, I think last year. In previous year, we spin up to $100 million, $130 million, Peters numbers that he just gave we got about $170 million out there available for acquisition. We’re going to utilize and we don’t put that money to work and we’re very confident in our ability to bring on acquisition and continued operate the company very well, very effective and drive good margins.

Scott Group – Wolfe Trahan

Okay. Just last thing on this idea you talked about a little bit I just want to kind of make sure understanding it well. The idea truckload rates that are starting move up in LTL that’s rates are little bit at the lower end of the range and maybe just refresh on what you guys have done to better protect the model from a gross margin perspective and then did you give us kind of the number on what you’re doing with your independent contractors and rates for 2014 if there is any adjustments.

Mark DiBlasi

Yeah, obviously over the course of the last several years we did increase a literally thousands of carriers that we currently utilized from where we were a few years ago. Over the course of last few years truckload rates have gone up at a slower pace than LTL rates. And we have increased the number of independent contractors that we utilized not only in the LTL business, but significantly in the truckload operations as well. As we acquired truckload operation some of which have been asset-based, we have converted them and transition them to a non-asset based business model by utilizing independent contractors. So all the effort together, really mitigate any kind of cost. So at this point, we’re very – there is very little concern on our part with regard to purchased power pricing going up to a level that would penalize us on the LTL side where we are using purchased power.

Scott Group – Wolfe Trahan

Okay, alright, thanks guys.

Operator

Next question comes from the line of Bill Greene, Morgan Stanley. Please proceed.

Bill Greene – Morgan Stanley

Hi, there, good evening guys.

Mark DiBlasi

Hi, Bill.

Bill Greene – Morgan Stanley

Mark, I was hoping you could offer a little more color on some of the comments you made just about the underlying economic trend, you sort of suggested that the economy remained sluggish from your perspective. Some of the other metrics out there kind of suggest that it’s actually improved a fair amount. So I’m curious kind of what you’re and why you sort of expressed at that way.

Mark DiBlasi

It’s a little bit money because of the weather impact especially in December and January and what we’ve seen so far here in February so a couch my comments because of the weather. But overall, we still are seeing pricing improved in January of what we saw in the fourth quarter of last year both in LTL and as I mentioned in truckload. I’m cautiously optimistic that the pricing is going to continue to improve, but I’m hopeful that is not just weather related. I can tell you that some of the spot market situations in both truckload or in truckload have been clearly weather related because power gets us position and creates the situation where customers need to have loads from point A to point B in their loan, whole lot might do that simply because there is no power available and if you got the power available you’ve been reap the benefits of that.

So, we’ve seen some of that, but whether or not that’s maintains and continues remains to be clean, I’m optimistic that will be the case and I’m optimistic because as I said on our contractual business that be some market business, but on the contraction business which is in the majority of our business. We do some brokerage but it’s not anywhere near maybe 10% of our truckload services. We’re seeing nice improvements in some of our contractual business and hopefully that will continue and that’s the case – that’s because of the tightening capacity industry, the shippers understand that there is a capacity constrains out there and everything we’ve been geared towards doing for the last two years, hopefully, we’re going to paying out in 2014.

But I’ll tell you, I wouldn’t expected to see the economy improved significantly back in 2012 that didn’t happen, 2013 that didn’t happen. For me to say that it’s going to happen in 2014, I’m not willing to step out and say that yet.

Bill Greene – Morgan Stanley

I agree. Good reasons to be gun shy. On the pricing dynamic even though, you’ve got a lot under contract, do you have an ability to revisit that pricing dynamic quickly. If you think the market supports the more pricing dynamic and we see much better pricing for you like in the second quarter, could it happen that fast.

Mark DiBlasi

All of the total dependent upon capacity and yes, the answer to your question is yes, even though you have contractual arrangement with customers if capacity constraints were very tight that doesn’t mean those rates are mean anything, the key is having the power for the customer when customer needs it and you give that power to the customer that’s won’t pay the biggest price so, capacity gets tight, very quickly, pricing will go write up with it. It regards contractual obligations.

Bill Greene – Morgan Stanley

Yeah, on the LTL and the new terminals when you look at kind of how your terminals are arranged now around the country, do you feel like you hit all the big market so like going forward as you open more terminals, we need to keep this in mind that they’ll be ramp for them because presumably went to the most attractive and largest markets first, but maybe that’s not true so, any thoughts on that.

Mark DiBlasi

Yeah, you’re not going to see a lot of terminals open up in the future and if you can recall a year ago or year and half ago I would tell you that we would open two to three terminals a year, we opened up nine terminals last year so said we decided earlier last year we said there is no reason to hold back in these markets, that’s open these terminals and moved forward so the terminals that we would have opened up over the course of 2013, ‘14, and ‘15, we opened them all up in 2013. So, they are up and running – if we open one or two this year, I don’t know that we’ll do that. So, now our goal is to get them buildup and build the density and improved those margins so, you’re not going to see as opened nine terminals in 2014, if you see is open any at all. I mean, let’s face it, we opened Altoona and Allentown right, those are really small market, but what that is give us full state coverage in Pennsylvania. That was the motivating factor there. They’re not going to generate tremendous amounts of business although, they give us coverage – full coverage in that state, which is led some of our customers who are demanding and we provided that so, that’s kind of – we kind of jump again and what ahead of our previous philosophy with regard to opening terminals and that’s why you saw so many opened last year.

Bill Greene – Morgan Stanley

Yeah, that makes sense. Okay, one last question, just on the insurance reserves not that you are going to have in therapy if you do better than that, could that be a source of upside surprise. Could you actually reverse this or do you know that this will get spent and this change – these changes are making really our 2015 event?

Mark DiBlasi

No, if we do better in 2014, we would not have to adjust for 2014 estimates.

Bill Greene – Morgan Stanley

I just been, I could you have lower expenses in claims ratio so that – this becomes a source of upside surprise to the EPS or doesn’t not work that way.

Mark DiBlasi

Yeah, if you go better less accidents in 2014, you would have less expense so we will do better.

Bill Greene – Morgan Stanley

Okay, okay, alright, that’s great. Thanks for the time.

Operator

We have a question from the line of Rob Salmon, Deutsche Bank. Please proceed.

Rob Salmon – Deutsche Bank

Hey, good evening guys.

Mark DiBlasi

Hi, Rob.

Rob Salmon – Deutsche Bank

I guess a quick follow-up to the question line there, when I’m thinking about your truckload business, traditionally you’ve had a lot of stability by virtue of the read for exposure within that end market. Given the tightening that we’ve been seeing and driving, can you give us an update in terms of the mix between tractors that are actually currently hauling refer freight versus once you might shift into the dry side of the business.

Mark DiBlasi

I don’t have the exact numbers there, Rob. As you know about 75% of my fleet is refrigerated, but one of the advantages of running heavily refrigerated fleet is you can all have refrigerated goods and you have dry van. For the percent of dry van freight for calling on a refer boxes I had to do some research on that but right now I’d say it’s a relatively small.

Rob Salmon – Deutsche Bank

Okay.

Mark DiBlasi

Is does mean we can’t utilize that equipment for dry van, but I’d rather how refrigerated goods because they generally pay a much better rate in dry van goods. Now that doesn’t mean that we will go forward and acquire more dry van companies, we have some dry van company in our pipeline that will continue to build out the overall truckload services group.

Rob Salmon – Deutsche Bank

That makes sense. In the prepared remarks, you’d called out some truckload startup cost on that you incurred in Q4. Can you talk little bit about the revenue opportunity from those new business wins and is that fully hitting in Q1 or when with that the fully ramped up.

Mark DiBlasi

Yeah, the cost was a new business win in our consolidation business, warehousing a consolidation business which has very nice margin. That extended ramp-up was completed in the fourth quarter so won’t see more cost from that going forward. We should just see the benefit of that new business going forward.

Rob Salmon – Deutsche Bank

And so is that fully incorporate in the Q1 guidance?

Mark DiBlasi

Yes.

Peter Armbruster

Yes.

Rob Salmon – Deutsche Bank

And then with regard to the line haul rates with an LTL, can you give us an update of what you guys are baking into the guidance for Q1 and those are kind of increased about penny per mile sequentially from Q3.

Mark DiBlasi

Yeah, from Q3 was about 23, which was down a penny from the previous year, Q4 was about 24, which is a same as a previous year. So far in the first five weeks of 2014, we’re actually running about a half a penny cheaper less than the same side within 2013 so, we have a – we did about 24 in the first quarter of 2013 so that’s what we have baked into the guidance. We don’t anticipate that’s going to go up in the first quarter. It could as the year progresses with capacity gets tight as we discussed in this call that cost made a lot, but pretty confident in fact extremely confident that our pricing will offset any of that incremental cost.

Rob Salmon – Deutsche Bank

Mark, when I think about the accelerated rollout of the terminals in 2013, is that predicated on your believes that the truckload capacity Canada will tighten and you guys will end up actually saving money by virtue of being able to use more of the ICs are moving freight from inbound and outbound from some of those terminals.

Mark DiBlasi

Yeah, like I said that – those terminals are possible, some are much more than others, but the other thing those terminals do help us with is the ICs – the utilization ICs, the recruitment of ICs, running ICs and lanes have never had in the past at IC rates versus purchased transportation rates. There was a lot of benefits with opening those terminals now that open will be able to improve those margins as I said going forward.

Rob Salmon – Deutsche Bank

That makes sense. I appreciate the time guys.

Operator

The question is from the line of Nate Brochmann, William Blair & Company. Please proceed

Nate Brochmann – William Blair & Company

Good evening, gentlemen.

Mark DiBlasi

Hey, Nate, how are you doing?

Nate Brochmann – William Blair & Company

I’m doing well, thanks, how are you guys?

Mark DiBlasi

Good, good.

Nate Brochmann – William Blair & Company

Hey, couple of things, one obviously mainly little bit new to the story, but could you talk a little bit more in detail obviously we’ve been through now lot of releases and I’ve heard a little bit about whether here and there, but in terms of the real impact on your business is at the extra handling to maintain service levels, is it losing and getting a few loads delayed in terms of the top-line impact. Could you talk a little bit more specifically just in terms of the puts and the takes and the weather as it related to December and now through January for you guys.

Mark DiBlasi

Yeah, lot – this impacts lot of transportation companies, but bottom-line is first of all, you don’t pick-up the revenue because your shippers not open, then you can deliver the revenue you’ve got because they don’t have the docks clear out from snow would take several days. That incurs a significant dock cost because all that freight is sitting in a trailer at new yard and you’ve got your docks at for freight because you can’t go delivered or you can’t dispatch it because you’ve got weather situation so you have extended or significantly increased dock costs and then you had line haul costs that you are incurring because now you have to cut that freight service because of customers in California could care less if it’s snowing in New York and all he cares it’s rates getting deliver to us customer in New York. So, we still have to run freight and make service side, but you have a situation where everything is that of sync and I’m talking about the industry not necessarily specifically talking Roadrunner hear that everything that is thinking you got power in the workplace and trail is in the wrong places, you got docs and full trailers that a full that occurs additional dock costs clerical costs, customer service cost, claims cost, line haul cost, and then that on top of the back as you’re not picking up any freight any given day because Chicago might be shut down because they had six inches of snow or slow going and what normal customer might pump out in a given day, they pump about 50% of what they would have because half of their workforce to ensure toward. So, all that said those where the cost coming in terms of overall transportation and that impact not only LTL, but LTL is particular in drayage in particular, but it also impacts truckload.

Nate Brochmann – William Blair & Company

Obviously it hurts you guys little bit more being on the one call side rather than some of the shorter haul guys.

Mark DiBlasi

Right.

Nate Brochmann – William Blair & Company

Okay, fair enough. And then just kind of like the Bill’s question and you guys kind of took it in the pricing direction, but in terms of just if we excluded the weather, I know it’s hard to exclude the weather and the impact in terms of what’s delayed and what’s not, but it feel we had some momentum kind of picking of in terms of just overall volume starting about mid-November and through about now or again if we kind of exclude the weather from the volume perspective. How are you guys feeling about that in terms of the folks that you’re talking to in terms of just 2014 being better than 2013 in terms of just overall industry volume in terms of at least the folks you’re talking to in terms of just in 2014 been better than 2013 in terms of just overall industry volume in terms of folks you’re talking to?

Mark DiBlasi

The overall consensus from the customers that we’re talking to is positive and again the weather has had impact on that in December and January for hard to tell. But as I said we had we saw growth in specifically LTL in the first month of January. Against very easy comp difficult comps for last year, because we didn’t have weather last year. Nothing like we have this year, so we still grew in the face of very tough weather conditions so that being said. On optimistic that the shipper base that there is going to grow this year which is translate into tightening capacity, which will translate into more freight any better pricing environment.

Nate Brochmann – William Blair & Company

And then just final question on the contingent liabilities I mean on the earn outs and in terms of the specific acquisition now that you had kind have two quarters in terms of just adjustments. And totally understand just relative to expectations and maybe those were high benchmarks, but are we nearing the end of the potential the earn out program – or is that earn out period for that specific acquisition or do we still have a ways to go in terms of potential further adjustments?

Mark DiBlasi

No, with the LTL we are complete with that and other ones, we just evaluate on a quarterly basis.

Nate Brochmann – William Blair & Company

Okay. Then in terms of another one was one in truckload.

Mark DiBlasi

Great.

Nate Brochmann – William Blair & Company

Got it. Okay, great. That’s helpful. Thank you.

Mark DiBlasi

Okay.

Operator

Next question comes from the line of Art Hartfield of Raymond James. Please proceed.

Art Hartfield – Raymond James

Good afternoon, Mark and Peter. I’ll try to brief just I want to just quick question on acquisitions. Mark, I think you would mentioned is there some you recently walked away from and you felt like maybe the number that you walked away from was unusual. Are you seeing maybe change you would mention you have a strong pipeline but are you seeing maybe change for kind quality to value of you’re getting at one point in time. Isn’t there anymore maybe we should be thinking about accretion going forward on some of your deals not being as good as it has been historically?

Mark DiBlasi

No, that’s not the case at all our deals are just as accretive as they have been multiples are just good they have been in the past. We recently walked away from those deals because in the diligence some of the data in the information that the seller provided within accurate, when we got the accurate information that’s order to deal. So, nothing to do with accretion or the valuation of the company that as I said our pipelines very full, We still companies knocking on our door for purchase opportunities because of the reputation we build up in the industry. And we are doing deals at the same multiple levels that you see as doing the past. And I think the next few do you see will confirm that to.

Art Hartfield – Raymond James

Great, thanks. That’s all I have got tonight. Thanks guys.

Mark DiBlasi

Okay.

Operator

Ladies and gentlemen, we’ll now from the call back over to Mr. Mark DiBlasi. Please proceed.

Mark DiBlasi

Well, thank you guys for being on the call. We wanted to, as I said at the beginning of the call, we wanted to give some a lot of detail, a lot of color, I think we were able to do that in the call as well as in the Q&A portion. I want to leave you with the fact that as a company, as the corporation, we are still adamant about the business model and the growth expectations that we have as a company with regard to organic growth and acquisition growth. The fourth quarter organic growth was 27% of the total. For the year, our organic growth was 25% of the total. We would expect to see that same type of percentages in terms of organic growth as compared to acquisition growth in 2014 and beyond. We are seeing the highest levels of integration and communication of our opcos that we have ever seen. So we are very positive and very encouraged by the integrated solutions, the cross-selling opportunities, the way in which different operating companies are talking and working with each other to complement each other, that’s working according to plan and as I said in an all-time high.

And combine that with the fact that we have reenergized our sales and our ops team, we are very, very optimistic about where we believe and we always have been where we believe we can take this company. And as I said earlier, we intend to continue to be a high growth company, not only on the top line, but in terms of the profitability of the bottom line and we would expect to continue that for the next several years. In the next few years, we will become a multi-billion dollar company and we expect to continue to grow that.

So that being said, I thank you all for being on the call and we will talk soon. We are starting into the conference cycle of the year. We have several conferences that Peter and I will be attending over the course of the next three months or so. And I am sure we will get an opportunity to sit down and talk with many of you on this call as well as many of our investors. So thank you and all of you have a good day. Take care.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great rest of your day.

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