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Landstar System (NASDAQ:LSTR)

Q1 2014 Earnings Call

April 24, 2014 2:00 pm ET

Executives

Henry H. Gerkens - Chairman, Chief Executive Officer, Member of Safety and Risk Committee and Member of Strategic Planning Committee

Patrick J. O'Malley - President-Landstar Carrier Group

Joseph J. Beacom - Chief Safety & Operations Officer and Vice President

James B. Gattoni - President, Chief Financial Officer and Principal Accounting Officer

Analysts

William J. Greene - Morgan Stanley, Research Division

Jason H. Seidl - Cowen Securities LLC, Research Division

Scott H. Group - Wolfe Research, LLC

Jack Atkins - Stephens Inc., Research Division

Robert H. Salmon - Deutsche Bank AG, Research Division

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Aaron M. Reeves - BB&T Capital Markets, Research Division

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division

Matthew S. Brooklier - Longbow Research LLC

Kelly A. Dougherty - Macquarie Research

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Matthew Young - Morningstar Inc., Research Division

Thomas Kim - Goldman Sachs Group Inc., Research Division

Operator

Good afternoon, and welcome to Landstar System Inc.'s First Quarter Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time.

Joining us today from Landstar are Henry Gerkens, Chairman and Chief Executive Officer; Jim Gattoni, President and Chief Financial Officer; Pat O'Malley, Vice President and Chief Commercial and Marketing Officer; and Joe Beacom, Vice President and Chief Safety and Operations Officer.

Now, I would like to turn the call over to Mr. Henry Gerkens. Sir, you may begin.

Henry H. Gerkens

Thanks, Dory, and good afternoon, and welcome to the Landstar 2014 first quarter earnings conference call. This conference call will be limited to no more than 1 hour. [Operator Instructions]

Before we begin, let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, I and other members of Landstar's management, may make certain statements containing forward-looking statements, such as statements which relate to Landstar's business objectives, plans, strategies and expectations.

Such statements are, by nature, subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2013 fiscal year described in the section Risk Factors and other SEC filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking statements, and Landstar undertakes no obligation to publicly update or revise any forward-looking statements.

In our 2014 first quarter mid-quarter update call, I stated I was very comfortable with our previously announced estimated range of revenue guidance for the 2014 first quarter of $640 million to $690 million and that I was also comfortable with our range of estimated diluted earnings per share from continuing operations guidance of $0.56 to $0.61 per share.

As reported in this morning's press release, actual revenue for the 2014 first quarter was $688 million, at the upper end of our revenue range and 10% above the prior year first quarter revenue. Diluted earnings per share from continuing operations was $0.61 per share, also at the upper end of our guidance range and 10% above the prior year first quarter.

It should also be noted that the 2014 first quarter included an approximate $0.03 per share impact for the annual Landstar Agent Convention held in the 2014 first quarter versus being held in the 2013 second quarter, and an approximate $0.03 impact from a provision for incentive compensation in the 2014 first quarter versus no provision in the 2013 first quarter. Both the 2014 first quarter revenue and earnings per share amounts were the highest first quarter amounts generated in Landstar history. In short, the 2000 first quarter was an outstanding quarter for Landstar.

Let me make a few comments about our revenue performance. As I said, consolidated revenue in the 2014 first quarter was approximately $688 million, up approximately $65 million from the revenue generated in the prior year quarter. The increase was driven by improved demand in Landstar's overall account base, new agent revenue and increased pricing.

The 2014 first quarter revenue from truck transportation increased 12% over the prior year first quarter as load count increased 4% and revenue per load increased 8%. On a current year, month over prior year month basis, January truck transportation revenue increased 6%, February revenue increased 9% and March revenue increased a very healthy 19%. Total van truck transportation revenue increased 16% over the 2013 first quarter revenue, split equally between load volume and revenue per load, while platform revenue increased 7% over the 2013 first quarter, 2% due to increased load volume, 5% due to increased revenue per load.

Revenue hauled by BCOs in the 2014 first quarter increased 13% over the 2013 first quarter, while revenue hauled by broker carriers increased 11% over the prior year quarter. Revenue hauled by BCOs was 50% of consolidated revenue in the 2014 first quarter versus 49% in the prior year first quarter, and revenue hauled by broker carriers represented 44% in the current year quarter versus 43% in the prior year quarter.

Additionally, total revenue generated from new agent additions was $18.8 million in the 2014 first quarter versus $13.6 million in the 2013 first quarter.

At this point, I'm going to ask Pat O'Malley to add some more color around our 2014 record first quarter revenue performance. Pat?

Patrick J. O'Malley

Thank you, Henry. As noted by Henry, the 2014 first quarter revenue was approximately $688 million compared to the 2013 first quarter of approximately $623 million. The year-over-year revenue increase was broad-based across many accounts, agents and product lines.

Total truck transportation revenue increased 12% from approximately $575 million in 2013 to over $645 million in 2014. Transportation demand in the van segment has been strong the entire quarter, while platform and heavy haul opportunities started to improve mid to late February and have increased for the balance of the first quarter. These trends have continued thus far in the second quarter.

Revenue from our top 10 accounts contributed approximately 16% of the total revenue for the first quarter in 2014 and 2013. With few exceptions, the year-over-year revenue in the 2014 first quarter in these accounts were up. This segment of accounts reflect the natural diversity of the Landstar model and demonstrate the broad-based nature of the revenue growth.

As we've previously outlined, there has been continued decline in business from the United States government. In the first quarter of 2014, demand in the van segment was very robust as evidenced by a 77% increase in customer requests for spotted trailers. These requests were from a mix of new and existing accounts, representing numerous industries and verticals.

As demand for van services remained strong in the quarter, year-over-year revenue per load increased sequentially throughout the first quarter. In total, revenue in the van segment increased 16% year-over-year with nearly half of the increase attributed to improved volume. Business in the automotive sector was particularly strong in the quarter as Landstar developed and delivered unique solutions to combat weather and capacity-related disruptions to their supply chain.

Revenue in the platform segment increased 7% in the 2014 first quarter when compared to the 2013 period. As we mentioned, year-over-year volumes began to increase mid to late February and have continued for the balance of the quarter. Pricing in this segment followed a similar pattern. Transportation demand for core industrials have improved year-over-year and revenue attributed to power generation and energy projects increased as well. While overall volumes in the platform segment were up year-over-year, improvement in loadings in the heavy/specialized area outpaced those in the general platform category.

In the second quarter, we believe that business generated from the industrial base will continue to show year-over-year improvement. We are confident in our position as an industry leader in this segment and understand the elements that conspire to limit competition. Currently, approximately 34% of Landstar's truck transportation revenue is generated using unsided/platform equipment. While it's difficult to determine the impact the inclement weather had on the truck segment, we believe the capacity shortage is systemic and a byproduct of increased regulation, reduced productivity and a moderately improving economy.

As for intermodal, the weather impact was clear and well documented by public statements from the railroad and intermodal providers. Landstar, too, was impacted with equipment shortages, decreased transit times and delays at major switching yards. That said, accounted industry diversification are natural given the Landstar business model.

Our proven execution, large stable of industry experts and collaborative methods have positioned Landstar as a go-to provider for transportation solutions. We are encouraged by the market share gains in the secondary and tertiary accounts served by our agents, and we should continue to benefit as any economic recovery will positively impact transportation and the industrial piece.

A brief update on LTL. Revenue in the LTL segment decreased 1% when compared to the first quarter of 2013 as improved pricing helped offset the impact of losing a high-volume LTL customer in May of last year, who assumed the transportation management function that was previously performed by a Landstar agent. We continue to increase the number of agents participating in this service offering and the number of quality carriers that are added to our base of capacity providers. We anticipate continued improvement in this segment as we secure new business, add agents and the elimination of the aforementioned headwind.

As for new agent revenue. We continued to improve our results by bringing on productive new agents. Revenue produced by new agents in the 2014 first quarter increased 39% over the 2013 first quarter and was approximately 2.8% of the total revenue compared to 2.2% in the previous year. As a reminder, the new agent in the 2014 first quarter represents an agent who had contracted with Landstar after January 1, 2013. This improvement in new agent revenue is a direct reflection of the quality and availability of new candidates and our pipeline remains well seeded.

In addition, the number of new agents contracted in the first quarter of 2014 was higher than any quarter in 2013 and nearly 40% higher than the 2013 first quarter. We continue to believe the environment is challenging for small independent brokers and difficult to solve without support.

Whether it's cash flow, high capacity or inferior systems, this segment of industry remains fertile ground to recruit productive new agents. We are confident that our scale, systems and support will help us maintain momentum in adding productive new agents for the balance of 2014. Henry?

Henry H. Gerkens

Thanks, Pat. As it relates to truck capacity, we ended the seasonally slower 2014 first quarter with a total capacity base of an excess of 40,000 carriers compared to 39,622 at the end of the 2013 first quarter. Trucks provided by BCO capacity was 8,424 at the end of the 2014 first quarter versus 8,348 at the end of the 2013 first quarter.

I'm now going to turn it over to Joe Beacom for a capacity, safety and overall operations update. Joe?

Joseph J. Beacom

Thank you, Henry. The first quarter concluded with Landstar BCO count up 71 BCOs over the prior year period. Historically, we have seen a larger decline in BCOs in the first quarter with the 2014 first quarter count decline of just 5 BCOs, being the fewest in the last several years.

BCO additions in the quarter were flat to the prior year, with a net improvement in BCO count coming from 24% fewer terminations. Both total broker carrier count, as well as active broker carrier count, were at record levels at the end of the 2014 first quarter. Active carriers are defined as those carriers who have transported shipments in the prior 6 months.

Landstar ended the 2014 first quarter with a total truck capacity provider network in excess of 40,000 providers, an increase of several hundred in the quarter. Given the ad hoc and unplanned nature of much of Landstar's freight mix, the size and scope of the network of capacity providers is very important in sourcing capacity across a wide range of service offerings, often within a short window of time. From a truck capacity perspective, we remain well positioned to support new opportunities going forward.

BCO load volume improved 5.9% in the 2014 first quarter compared to the prior year quarter, the result of a 6% improvement in BCO truck utilization. Truck utilization is defined as average number of loads per truck.

Loads hauled via truck brokerage capacity utilizing van, unsided and platform equipment increased 7% in the 2014 first quarter over the prior year quarter, offset by a 20% decline in brokers' LTL freight volume, primarily driven by one specific customer. This first quarter load volume improvement in truck transportation is attributed to the increase in loading opportunities attractive to Landstar capacity providers.

We continue to see customers seeking reliable solutions that take into consideration a means to manage carrier selection, provide product visibility and deliver on service requirements. The standards and methodology Landstar deploys to source the capacity made available to our customers, we believe, is a competitive advantage, one that performs particularly well in times of increasing demand.

The cost of purchased transportation increased to 77% of revenue in the 2014 first quarter from 76.7% in the 2013 first quarter. The percentage of revenue on a fixed margin, which has an overall lower cost of purchased transportation than revenue on a variable margin, decreased to 59% of revenue in the 2014 first quarter from 61% of revenue in the 2013 first quarter.

The rate of purchased transportation paid on revenue under agreements that results in a variable margin increased 60 basis points over the 2013 first quarter, primarily from a 70 basis point increase in the rate of purchased transportation paid to Truck Brokerage Carriers in the 2014 first quarter.

We believe that the increase in the rate of purchased transportation paid to truck brokerage carriers was primarily attributable to a spike in demand that we started to see in December of 2013. It should be noted that the increase in the rate of purchased transportation paid to truck brokerage carriers on revenue hauled under variable margin agreements was partly offset by a 50 basis point decrease in the rate of commissions paid to agents for that same revenue.

As capacity tightened, we saw pricing improve. And with that, price, space and capacity increased, benefiting Landstar and approximately 60% of the revenue that is generated on a fixed margin, while pursuing rate increases in order to protect the margin on revenue generated through a variable margin.

Turning to safety. Weather impacted DOT crash frequency in the quarter. The resulting severity of these crashes has been moderate, with the cost of insurance in the quarter at 3.5% of BCO revenue, consistent with our historical average and a credit to the company's safety culture.

We continue to have strong participation and commitment around the company's safety programs from agents, BCOs and employees. The company continues on pace with the implementation of its select product logging device initiative, with approximately 40% of the BCO fleet equipped with EOBs. Each of the 7 CSA basic scores for each Landstar carrier is below the threshold established by FMCSA.

As customers continue to pursue and evaluate capacity providers, we believe this level of safety and compliance performance is a competitive advantage, and that will be additive in light of the additional regulation and exposure aimed at shippers, motor carriers, freight brokers and forwarders which exist today with more on the horizon.

Henry, back to you.

Henry H. Gerkens

Thanks, Joe. I'm going now turn the call over to Jim Gattoni, President and Chief Financial Officer, for a detailed financial review. Jim?

James B. Gattoni

Thanks, Henry. We've already discussed certain information regarding the 2014 first quarter. I'll cover various other financial information included in our first quarter release.

Gross profit representing revenue less the cost of purchased transportation commissions to agents was $105.5 million or 15.3% of revenue in the 2014 first quarter compared to $96.4 million or 15.5% of revenue in the 2013 first quarter. The increase in gross profit was attributable to increased revenue, partially offset by a decrease in the 2014 first quarter gross profit margin.

The decrease in 2014 gross profit margin was due to an overall 90 basis point increase in the rate of purchased transportation paid to truck brokerage carriers in the 2014 first quarter over the 2013 first quarter, partially offset by a decrease in the rate of commission paid on net-net revenue, plus an increase in the percent of revenue hauled by BCO independent contractors, which is a higher gross profit margin than our other transportation services.

Other operating costs were 6.2% of gross profit in the 2014 quarter compared to 5.4% in the 2013 quarter. This increase was primarily attributable to lower gains on sales of trailering equipment in the 2014 first quarter compared to the 2013 first quarter.

Insurance and claims costs were 11.2% of gross profit in the 2014 quarter compared to 12.2% in the 2013 quarter. The decrease in insurance and claims as a percent of gross profit was primarily due to lower unfavorable development of prior year claims in the 2014 quarter compared to the 2013 quarter.

Selling, general and administrative costs were 33.8% of gross profit in the 2014 first quarter and 32.7% of gross profit in the 2013 quarter. The increase in selling, general and administrative costs as a percent of gross profit was primarily due to a $1.9 million provision for bonuses under the company's incentive compensation program in the 2014 first quarter, whereas no provision was reported in the 2013 first quarter and the timing of the annual agent meeting, which was held in the 2014 first quarter and in 2013, held in the second quarter. Approximately $2.3 million in cost was reported in the 2014 first quarter for the annual agent meeting.

Depreciation and amortization was 6.4% of gross profit in the 2014 first quarter compared to 6.7% in the 2013 first quarter. This decrease was primarily attributable to increased gross profit in the 2014 first quarter.

Investment income was $363,000 in the 2014 quarter compared to $374,000 in the 2013 period. The effective income tax rate was 37.5% in the 2014 first quarter compared to 37.3% in the 2013 first quarter.

Looking at our balance sheet. We ended the quarter with cash and short-term investments of $150 million. 2014 first quarter cash flow from operations was $13.7 million. Cash capital expenditure was $732,000 in the 2014 first quarter.

During the 2014 first quarter, we purchased 637,000 shares [indiscernible] of our common stock at a total cost of $37.1 million. There are currently over 2.1 million shares available for purchase under the company's stock purchase programs. Trailing 12-month return on average shareholders' equity is 35%, and 2014 first quarter return on invested capital represent income divided by the sum of average equity plus average debt was 28%. As of March 29, 2014 shareholders' equity represented 83% of total capitalization.

As it relates to our second quarter range of diluted earnings per share guidance of $0.73 to $0.78 per diluted share, there are a few items to highlight. Landstar reported gains on sales of trailering equipment of $1.7 million in the 2013 2nd quarter. We are currently projecting approximately $700,000 of gains in the 2014 second quarter.

The 2014 second quarter projection includes a provision for incentive compensation, whereas no provision was included in the 2013 second quarter. The provision for incentive compensation reduced the 2014 second quarter projected range of diluted earnings per share by approximately $0.03. The 2013 agent meeting was held in the second quarter at a cost of $2.3 million, reducing 2013 second quarter diluted earnings per share by $0.03.

Back to you, Henry.

Henry H. Gerkens

Thanks, Jim. As I stated in this morning's press release, the rate of revenue increase through the first several weeks of the fiscal 2014 second quarter has accelerated over the rate of revenue increase experienced in the 2014 first quarter versus the 2013 first quarter. Both the load volume and revenue per load remains strong. All current indications point to a very strong second quarter and 2014.

Assuming a continuation of current trends, right now, I would anticipate 2014 second quarter consolidated revenue to be in a range of $750 million to $800 million. Based upon that range of estimated revenue and insurance and claims expense at the 5-year historical average of 3.5% of BCO revenue, I would anticipate 2014 second quarter diluted earnings per share to be in a range of $0.73 to $0.78 per share.

In summary, I believe that the current operating environment greatly favors the Landstar model. In addition, with our reconfigured field organization now in place and fully staffed, the concentrated coverage and additional boots-on-the-ground approach should provide additional revenue opportunities over the coming quarters.

Finally, although we fell short of our $3 billion 2013 annual revenue goal, it certainly appears to be within our reach in 2014. And with that, Dory, I'll take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Bill Greene with Morgan Stanley.

William J. Greene - Morgan Stanley, Research Division

Henry, can I just ask you a little bit of clarity on this guidance? The revenue guidance is really strong, and yet I would've thought that the margin, i.e. the flow through to the bottom line, would have been stronger given how good the first quarter was. Can you give us any of the further assumptions in there, or just help us think about the moving parts there?

Henry H. Gerkens

Well, I think if you look at the -- look at -- we did -- what we did in the second quarter of last year and you look at our operating margin, it was 46.7%. On the upper end of our range, it's 47.9%. And at the lower end of our range, it's 47.1%. Now there's a couple of things within those numbers that you need to also understand. Last year, we had, I think Jim mentioned it, $1.7 million of gains on sales of equipment. We're not factoring in that. So that obviously has an impact. In addition, on the upper end of the range, I mean, the way our model works, the better your income, the more -- actually, -- the more incentive comp you'll accrue. And you've also got to look at the fact that when you get to the fourth quarter, the incentive comp thing sort of balances out because we booked a whole bunch of incentive comp in the fourth quarter of 2013 where you didn't have anything in the current quarters or quarters 1 through 3. So on an annual basis, I mean, it's a much better look at, because you do have these inconsistencies, if you will. But that's the way our model is, is that you don't accrue anything unless you believe you're going to make numbers. And that, that has been our model. And Jim, do you want add anything to that?

James B. Gattoni

Yes, there's another thing in there, too. It's -- you got a little confusion on the incentive comp and the offsetting convention that's going to be within the second quarter last year, we don't have it this year. But again, think about the way we project the insurance and claims expense of 3.5% of BCO revenue, clearly, BCO revenue is climbing. And even though we -- last year, 2013, the second quarter came out about 3.5% of BCO revenue on the insurance line. But in the projection, we have -- we're projecting significantly more BCO revenue, so therefore projecting a little bit more insurance cost also at this point. Just -- that's just the methodology we use, is the best answer.

Henry H. Gerkens

I think really, the most important thing you take away from all of this -- I mean, the goal that we set at the beginning of last year, I believe, to be at a 50% operating margin, is still clearly within reach, all right? You've got a couple of ins and outs in the quarter, but by no means, I mean, our important thing is we're just flowing a lot of the gross profit right to the bottom line. Our model hasn't changed. And clearly, that's how we get our operating leverage. And some people should -- maybe should look at it maybe before incentive comp because that gives you -- because that takes that out of the equation. Other people, hopefully, in their models, have taken out and restated the prior years for NLM and that sale. But by no means, I mean, this is the quarter and guidance. I think the guidance is strong, I think the quarter was strong, and -- but that's the answer.

Operator

Our next question comes from Jason Seidl with Cowen.

Jason H. Seidl - Cowen Securities LLC, Research Division

A couple of quick ones. Number one, on the platform business, obviously, it wasn't quite as strong in the quarter. Can you talk about the pricing trends that you've seen there, and do you think they could improve as we go forward?

Henry H. Gerkens

Pat, do you want to...

Patrick J. O'Malley

Jason, as we went through the quarter, we saw pricing about flat from where it was sequentially. We saw it go up in February and then slightly down in March compared to -- so January, up slightly; February, up from January; and then March, down just slightly from February. But we anticipate continued pricing increases across the platform side for the year.

Jason H. Seidl - Cowen Securities LLC, Research Division

So do you think the choppiness was just due to the -- demand was a little bit less than say, the van business?

Patrick J. O'Malley

Jason, let me give -- that was the heavy haul pricing. Let me give you platform. Platform pricing was up sequentially through the quarter.

Jason H. Seidl - Cowen Securities LLC, Research Division

Okay, that's good color. I appreciate that. And secondly, on the bonuses, I apologize, I had missed this. Are we to expect some of the accruals into the coming quarters here as well?

Henry H. Gerkens

Well, it depends on how well we do, all right. The better we do, obviously, you've got more of a little incentive that you book. But again, I think from a comparative standpoint, so you're always going to -- assuming we perform, you will have bonus accruals in the second and third quarters and there were none in the second and third quarters of last year. On the other hand, in the fourth quarter of last year, there was a bonus, a large -- a fairly large bonus accrual, and that starts to then even out once you get to the fourth quarter. So it's a headwind in quarters Q2 and Q3, becomes a little bit of a tailwind in Q4.

Jason H. Seidl - Cowen Securities LLC, Research Division

And I'm assuming that, Henry, that you guys have some bonus accruals in your estimates?

Henry H. Gerkens

Oh, absolutely.

James B. Gattoni

Both high and low estimates have bonus accrual.

Operator

Our next question comes from Scott Group with Wolfe Research.

Scott H. Group - Wolfe Research, LLC

So Henry, you talked about accelerating revenue in April. Can you put some numbers around that in terms of volume and yield? And do you have that broken out between van and platform? That would be great, too.

Henry H. Gerkens

I don't have that broken out. I can tell you that both volume and revenue per load, every -- I got to tell you, you had -- in March, you had a little bit, you had Easter in March last year, you've got Easter this year. And I was expecting, for example, Good Friday to have a very large fall off. The fall off was a little bit. And I also expected, for example, this last Monday after Easter that you'd have a pretty big fall off. In fact, revenue was up. I mean, every day, revenue has been pretty strong, revenue per load is still -- it's better. The increase is better than what we've seen in the March increase. Everything is pointing to just, as I said before, a very strong second quarter from both a load standpoint and a volume standpoint. And that's really about -- I don't have the breakout between van and flatbed handy.

Scott H. Group - Wolfe Research, LLC

Okay. And Henry, you made a reference to it being a great environment for Landstar's model. Can you expand on that a little bit? Are you just talking about the fact that you guys have more business than like a traditional broker that's fixed margin? Is that what you're talking about? And it looks like...

Henry H. Gerkens

Yes, Scott. I mean, you're on the right track. If.

It -- when you think of Landstar, you can't think of us as a true broker. I mean, 50%, and if you want to count the broker just on a fixed margin, 60% of our business is on a fixed margin. So what you've got is a very tight capacity market in which, therefore, from a brokerage standpoint, any of the broker -- pure brokers out there are going to pay more for that capacity, as we will. And then what you do, you go out and you try to secure price increases to offset that. And price increases -- the pricing environment is large. So what happens when you get those price increases, now you go back to our 60% of our business on that fixed margin, as Joe talked about. Well, that just flows right through to the gross profit dollars, and that's what gets leveraged then to the bottom line. So yes, it greatly favors Landstar's business model. In addition, I just feel, right now, we're starting to see the industrial base come back. I think you saw Caterpillar's report this morning, when you talk about the heavy equipment stuff that was strong. I think you're going to see that from other -- we can see that now. So we just think, right now, the environment is perfect. In addition, our whole recalibration, if you will, and how we put our field organization together as we entered this year is now fully staffed, in place, and I just think that's going to yield even better results than we saw in the first quarter from new agent revenue. So I think right now, we've got all things working in a very positive direction.

Scott H. Group - Wolfe Research, LLC

Yes, that's good color. I guess where I was going with the question was maybe just can you bring us back to the last time we saw this, a really tight capacity environment where rates were going up, maybe '04, '05, or '06? Was there pressure from either BCOs or agents to give them a bigger percent of the revenue? Did you have to make adjustments then? Do you think, in this environment, you may have to make some adjustments on the fixed margin percent side of the business?

Henry H. Gerkens

No. Think about what we're saying. I mean, if it's $1 a mile, all right, just -- and that will be pretty low, understand, but making it simple, if I'm paying 75% of that $1 to a BCO and all of a sudden, rates go up to $2 a mile, well, he just doubled his money, all right, on the same percentage, I mean that's the way our model works. So no, we wouldn't do that.

Operator

Our next question comes from Jack Atkins with Stephens.

Jack Atkins - Stephens Inc., Research Division

So I guess, well, my first question, just going back to the guidance for a moment, it's at mid point of your revenue range, you're looking for 14% revenue growth. Could you maybe break that out between what you're assuming on the pricing side and what you're assuming on the load growth side for a moment?

Henry H. Gerkens

Jim?

James B. Gattoni

It was -- sequentially, for March, we are -- we didn't anticipate significant revenue per load growth, 1% or 2%. So -- and the rest of it is coming from volume. But remember, a sequential -- the way I look at revenue per load, it's not really comped to prior year, it's really a comp of what happened in March. So I've withdrawn that slightly, maybe 1% or 2%, but I -- but it was mostly coming from a volume sequential growth, and that's kind of how you get there. And you've got to factor that to prior year.

Jack Atkins - Stephens Inc., Research Division

Okay, okay, that all makes sense. And then I guess, for my follow-up question, I'm just curious how you guys think about sort of the utilization of your BCO fleet. It seems like most of the growth, just from the commentary, that seems like where the major area of growth is. And as you look at your weekly loads per BCO, I'm just sort of curious with the ELB rollouts and the regulatory environment as it is, how do you think about the utilization of that fleet? And at what point do we -- maybe need to consider being more aggressive expanding that BCO fleet?

Henry H. Gerkens

I'll let Joe comment in a couple of minutes, but a couple of things. I mean, utilization, as far as the BCO, I got to tell you, again, the BCO makes his own decision as far as what load he wants to haul when the -- and if he wants to work. The rates are strong right now. So you're seeing BCOs basically going out and hauling revenue. And that's, again, just the way the model works. They see a strong environment, so they're basically working hard. As far as recruiting, yes, I wish I could get every qualifiable owner operator in here. In fact, I've said it many times before, I'm not sure why anybody would not want to be in this particular system, other than the fact it's a little bit more difficult of a system because you're making your own decisions, and we're not really telling you what to do and where to go. Some people aren't cut out for that. But we would love to bring on more BCOs, and we have an active recruiting program. And maybe Joe, you want to touch base a little bit on some of the things we're doing there.

Joseph J. Beacom

Sure. Yes, Jack, I'll just kind of echo what Henry said, as it relates to BCO productivity. I mean, given the number of loading opportunities that are out there and the rate with which they can move around, I think it's hard to resist. And we really saw a nice -- a lot of activity from the BCO fleet in the first quarter, we expect that to continue. From a recurring perspective, on one hand, it's absolutely true. We pay percentage, so when the rate goes up, their compensation goes up, and that's a great recruiting benefit for Landstar. But yes, our adds are pretty much flat, as I earlier stated. And what I think you're seeing is that, in this environment, the times are good even at places that maybe aren't historically as strong as we are. So you're just taking a little bit more to get guys out of those other systems and over to Landstar. And some of that, I believe, is a function of it still is a little tough to get credit -- the used truck market is not plentiful and the rates that they're paying, the prices you're paying for used equipment are pretty high. So I think as more company -- hiring companies rotate out their used trucks and those enter the market, I think you'll see perhaps more owner operators come from that. And I also -- we also see schools being started or running a little bit heavier pace than some of the company -- hiring companies. And then they're turning some of their equipment into a lease purchase opportunity. So when those lease purchase agreements are up at some of the other larger carriers, those make good owner operator candidates for somebody like Landstar. So it's a little bit longer-term look. But that's kind of the environment, as I see it.

Operator

Our next question comes from Rob Salmon with Deutsche Bank.

Robert H. Salmon - Deutsche Bank AG, Research Division

I guess with regard to my first question, as I'm thinking about the overall flatbed outlook, could you walk us through the sequential trends in terms of the load growth in the quarter, and kind of what your expectations are for mix -- for the guidance that you guys provided for Q2?

Henry H. Gerkens

Sure. I'm going to turn to Jim and Pat for that specific stuff.

James B. Gattoni

Load volume in January -- I'll give the numbers, you can do the percentages. On the -- just platform, right, total platform, unsided?

Robert H. Salmon - Deutsche Bank AG, Research Division

Yes, that's right.

James B. Gattoni

All right, 26,900 January loads; 31,200, February; and 43,700 in March this year.

Robert H. Salmon - Deutsche Bank AG, Research Division

And Jim, can you give us last year too?

James B. Gattoni

Yes, last year, was 26,600 in January; 31,300 in February; 42,300 in March.

Henry H. Gerkens

And as we look to April, Pat, what are you anticipating?

Patrick J. O'Malley

We're seeing -- as I mentioned in my remarks, Rob, we continue to see the industrial base and the opportunities within that industrial base grow. We talked about -- specifically, about energy and wind energy projects. We continue to see that, certainly, in the year-over-year aspect grow so far here in the second quarter as well.

Robert H. Salmon - Deutsche Bank AG, Research Division

Great. I mean, that should provide some nice benefit to revenue per load on the mix side as we look out. My second question, kind of gets back to a tighter trucking operating environment. Can you give us a sense of how the agent addition perspective kind of plays out in an environment where the, I guess, the income side could be potentially higher, both where they are and kind of how Landstar does in terms of signing on new agents in that type of environment?

Patrick J. O'Malley

Rob, I think that if you look at the current environment, it's rich with opportunity for Landstar, simply because if you're a small broker out there, or you're at another system, and you've got all these opportunities that are being presented to you by your customers, because demand is great, but you can't capitalize on those, because you don't have the necessary cash flow or you don't have the sophisticated systems, or you don't have the great reputation in order to capture that business. If you're load's out there on a public load board, along with Landstar and some other large brokers, your load is going to be ignored, because Landstar's viewed as a quality, high-priced, creditworthy customer. And so what we see in this environment is agents saying, "Listen, not only am I kind of tapped out in terms of my growth opportunity, but I can't capture the business that I'm being offered by my current customers. And they're going to start looking elsewhere." And so, this becomes a pretty nice alternative for them to come to Landstar where they have better systems, superior support, and we've got an opportunity with our increased sales people here to help them capture that. And if you look at our capacity sourcing tools that are inherent in our systems, they're pretty sophisticated compared to what they have. So that environment, for an agent, is -- this environment, I should say, for a prospective agent is pretty good for Landstar.

Operator

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

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Henry, I guess what I wanted to ask about was with some of the increased volume that you saw on the van side, I think about your business as being a little bit more transactional. It sounds like that the volume strength was broad-based, but how sticky do you think that business is? Is this with existing customers that have more volume? Or was this the opportunity to help out customers who weren't able to find capacity? And then how does that manifest itself to becoming recurring business going forward?

Henry H. Gerkens

It's a very good question. I think there's a lot of things that go into the mix here. And I think the way I've looked at the first quarter and into April, I think we said that the revenue growth from a customer standpoint was very broad-based. As a matter fact, if I recall the numbers correctly, I think our top 25 grew about 2%. The bulk of our growth, quite frankly, was in our 100th and greater customer, which was like 10%, which tells me, because that is our bread and butter, the secondary, tertiary markets, which tells me it's a combination of what we've done in the field, what we've done with new agents. The other thing that I don't know if you caught that, but Pat, basically said, I mean we had a very large customer last year that we lost in May, and that -- we cycle out of that problem in May, because all of these numbers right now are despite the fact that we lost the customer last year. So I mean, I think, generally, I think there was a lot of issues in the first quarter with supply chain disruptions. I think productivity caused by hours of service, I think, caused some things. We've developed a lot of good relationships at this point. And Landstar's always been a go-to carrier, and we've seen this continue and accelerate as I've said into April. And right now, what we're hearing from our field people, from our agents, is that they anticipate this for -- Pat -- Pat, I don't know.

Patrick J. O'Malley

If you look at it, Todd -- it's a good question, but if you look at it, in our top 50 accounts for the quarter on the van side, 6% -- 3 of those came from agent additions. They were new agents that we've brought on that brought those accounts, so that's -- your incremental revenue, Henry's talked about that for years, that, that's one way we're able to take market share. And then also in that, our other accounts that we haven't previously done business with, where our salespeople, our agents have gone out and positioned themselves well within the accounts. But I think that, certainly, some of it's opportunistic, but we believe that from that superior execution, we're going to be able to keep that business. One thing it introduced to us, they're typically healthy.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay. So maybe just to kind of paraphrase what I heard, it is some new agent additions, it's some new customers, but also it's maybe your existing customers moving a little bit further down in the route guide or having more volume, and that's where you were able to pick up some additional volume here in the quarter?

Patrick J. O'Malley

All of that.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay. And then just for my follow-up, Jim, on the SG&A for the second quarter, is it right to think about, on a dollar basis, if it was $35.6 million in the first quarter, taking the $2.2 million out for the agent convention. Is there anything else that we need to think about on the SG&A line into the second quarter?

James B. Gattoni

I think -- yes, I think that's it. It's -- yes, the only variance should -- there should be the convention.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay. And then the incentive comp on the high end versus the low end, obviously.

James B. Gattoni

At the high end, obviously, there's little bit higher incentive comp than on the low end.

Operator

Our next question comes from Aaron Reeves with BB&T Capital Markets.

Aaron M. Reeves - BB&T Capital Markets, Research Division

This is Aaron Reeves in for Tom Albrecht. I just had a quick question, and I was just curious about what percentage of your brokerage business would you classify as truly spot versus committed?

Henry H. Gerkens

Pat?

Patrick J. O'Malley

I would think that the majority of the brokerage business we knew is spot rather than committed, Aaron.

Aaron M. Reeves - BB&T Capital Markets, Research Division

Okay. Could you ballpark that, maybe give us an idea percentage-wise?

Patrick J. O'Malley

75, probably higher.

Aaron M. Reeves - BB&T Capital Markets, Research Division

Fair enough.

Patrick J. O'Malley

I vote higher.

Aaron M. Reeves - BB&T Capital Markets, Research Division

Just one other question, too. I was just curious, with your guidance, what kind of net revenue margin are you implying with your guidance?

Patrick J. O'Malley

Typically, you see a little bit more, when business picks up in the second quarter, you see a little tighter margins. So a little bit lower than the $15,300 we've put up. You're talking about net revenue. Our net revenue margin's gross profit margin assets, revenue less TQ less commission.

Henry H. Gerkens

Yes, be careful. I mean, people talk about net revenue margin when they're referring literally revenue less -- revenue in capacity -- purchased transportation. Every piece of purchased transportation we have, we have an agent commission, so our numbers are different than any other typical broker that you might look at, and that's why we refer to it as our gross profit margin, because we do have agent commission in there also.

Operator

Our next question comes from Scott Schneeberger with Oppenheimer.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

I want to start off asking just -- you mentioned seeing strength in alternative energy and auto, could you take us a level deeper in those, and then perhaps touch on some other verticals that underlie the -- your confidence?

Henry H. Gerkens

Patrick?

Patrick J. O'Malley

Well, Scott, I'd -- it's hard to dig a lot deeper in each 1 of those 2 verticals. I mean, I think the automotive is fairly self explanatory. It's the big 3 and some other ancillary companies that we provide support to. On the alternative energy and the energy period, if you will, we're providing a lot of services across kind of a broad landscape. There's one customer in particular that we provide a lot of transportation services for in that segment on the wind side. But I think one of the things that's important to note here is let's compare this to 2013, with 2013 first quarter, some of those industrial base customers we had in the top 10 really didn't do well. They did significantly worse in the 2013 first quarter compared to the 2012 first quarter. We've seen a rebound in some of those providers here in the first quarter of 2014.

Henry H. Gerkens

I think when we talk about machinery and equipment as a large category for us, we're about 18%. And I think last year or last quarter, as we've talked about, within that category, are top accounts, and even though they represent on an individual basis, because I've got no account over 5% of our revenue, but the top 3 within that category that we've mentioned before were all up pretty significantly in the quarter, because you do have a little bit of industrial base rebound. Again, I refer to Caterpillar, who reported today. I think they reported strength in heavy equipment, for example. So, I mean, that's the type of stuff we do, and that, obviously -- if those accounts do well obviously, that should spill over to Landstar.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

That's helpful. And then just following up on the wind, I think that was something held a lot of promise in the beginning of last year, and as you just mentioned, started slow. Could you just give us a feel of how that performed in the back half of last year? And perhaps thoughts on what you're seeing now on how this year may compare?

Henry H. Gerkens

I don't think we saw much until the fourth quarter last year, Scott. It was pretty slow. For example, the largest provider of that stuff that we carried for was up 81% in the first quarter.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

Got it. And that -- I think you were doing some big levels in 2012. Can we look to get back to those levels? There were some advantages on -- with tax breaks?

Henry H. Gerkens

Yes, I don't think you're going to get back to those levels, but it should be significantly higher than what we did last year.

Patrick J. O'Malley

The build protections from those people are not equal to the 2012 number.

Operator

Our next question comes from John Larkin with Stifel.

John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division

Henry, a couple of years ago you had laid out an operating income over gross profit margin target that I thought was somewhere in the order of 45%?

Henry H. Gerkens

Correct.

John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division

And you've been sort of moving in that direction, and then maybe take a step or 2 back, and then move back in that direction. Is that still a reasonable target and over what time frame might we expect you to accomplish that?

Henry H. Gerkens

No. My target is 50%. And we hit that 45%, but you're right, Joe, we took a step backward last year, and then -- but our target, our new target over 5 years, which we said, I believe, at the beginning of last year, is 50%.

John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division

And that would be by 2018, right?

Henry H. Gerkens

Yes.

John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay, very good. And then on the LTL side, it sounded like LTL, either volume or revenue, I can't remember which, there were so many data points thrown out there early on in the call.

Henry H. Gerkens

We give a lot of information, John. We're pretty transparent.

John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division

Pretty darn close to being flat, even though you haven't lapped the loss of the 20% customer. Did I hear that correctly? And it sounds like the LTL is really coming on strong. What percentage of total trucking activity does LTL represent? And where might you see that growing over the next couple of years? The reason I ask that is you cited LTL as one of your big growth drives, I don't know maybe 2 or 3 quarters ago.

Henry H. Gerkens

Yes. It's about 3% right now. Yes, I mean, think about that, John. I mean, we tried a lot of different things over the years. But the one thing that seems to be well understood by our constituency is anything related to truck. And LTL is truck. Our own employees understand that better, our agents understand that, all of our customers clearly have some sort of LTL. So we've staffed up in that department. We've got a real good guy heading that department. In fact, a good team, in total, in that area. We just had our agent convention. We basically had our agents run through an LTL session, similar to what we did way back when, when we introduced brokerage and ran them through boot camps. So we see that as a very high potential for Landstar.

Operator

Our next question comes from Matt Brooklier with Longbow Research.

Matthew S. Brooklier - Longbow Research LLC

So wanted to get back to wind energy, one more question. If you have the visibility, do you have a sense for, I guess, when the majority of that activity could take place? Is that something you think that is going to happen in the near term or is that more of second half of '14 event?

Patrick J. O'Malley

Matt, this is Pat. The builds are a bit unpredictable, but if they hold true to their build schedule, it's back-end loaded.

Matthew S. Brooklier - Longbow Research LLC

Okay. And with the pickup in growth, and it's great to see, curious if there's a need for incremental investment, if potentially you have to go out and buy more trailers, or if there's anywhere else where you need to support this growth? And if so, do you have an update in terms of your CapEx spend for '14?

James B. Gattoni

We don't anticipate needing to invest any money to be able to manage the business that we believe will be offered to Landstar.

Operator

Our next question comes from Kelly Dougherty with Macquarie.

Kelly A. Dougherty - Macquarie Research

Just a -- with so much of your business in the spot market, can you help us think about what kind of visibility you have at this point? And with the noticeably tighter truck market, do you have any customers trying to change how they do business, maybe not as spot oriented? Just so they assure they have access to capacity. Or they're -- just the nature of what they do doesn't really lend itself to that?

Henry H. Gerkens

Pat?

Patrick J. O'Malley

Kelly, we do have some more customers coming to us that we have traditionally serviced in the spot environment. And they've came to us and said, "Listen, how can we work together collaboratively to come up with a way that we can secure more capacity with Landstar?" So we do have some of that. Our visibility in the spot market is really driven by our salespeople and our agents. If you think about it, we have 1,500 points of contact out in the marketplace today. That's our agent group -- or approximately 1,400 points of contact out there today in the marketplace. And so we can see things moving and shifting a little quicker, I think, than most companies. In addition, we're servicing all industries and verticals. We don't have a concentration in one account or another. So I think that gives us greater visibility across the spot market and pricing within that spot market.

Kelly A. Dougherty - Macquarie Research

So if you actually move to more contract or less spot kind of relationships with customers, how -- would that impact profitability at all? I mean, do you kind of give up anything in order to get more certainty on volume? Or how can we think about that or is it not really in -- it's all in the fringe, doesn't really move the needle?

Patrick J. O'Malley

I think whenever we engage in those kinds of discussions with the customer, if we're going to discuss something about a fixed-tier pricing, we're going to give ourselves opportunities to make sure that we protect the customer on the way down and on the way up. And so, there's ways that we've been able to structure our tiers to do that very thing, and that's that collaborative method of selling, if you will. Listen, when things are moving up, we're going to work with you on that, and when things are moving down, we're going to work with you on that. Static pricing isn't fair to either party.

Henry H. Gerkens

And we're not going to -- Kelly, this is Henry, we're not going to lock ourselves in to just lock in one side of the equation.

Kelly A. Dougherty - Macquarie Research

Okay. So, I guess, that kind of blends nicely into my next question, which I was hoping maybe you can kind of compare and contrast for us the 2 different sides of your business, and how they're going to differ from the traditional brokerage model? Because in a higher truck pricing environment, it should impact those 2 businesses differently, and maybe you can kind of just touch on, you talked earlier about how you're not a traditional broker. So maybe just touch on a few of those points?

Henry H. Gerkens

All right. In general, again, I think I actually explained it. I mean, look, when you separate our -- and it's really one overall business and it's -- from a customer standpoint and from it's first truck -- first come, first serve as far as whoever grabs that load, all right? Now in theory, the BCO has the advantage, because the pricing is available to the BCO, and he makes a selection, all right? But when you think about an environment where you've got a very tight pricing environment, which is what we have now, and I'm not sure that changes, at least in the near term, people are going to go after price increases. So when people go after price increases, 60% of our business, because I've got a fixed margin, I'm going to in grow my gross profit dollars, okay. And therefore, that's what I leverage down below the line as far as after that gross profit dollar. Now we're going to be squeezed on the gross profit on the brokerage side of it -- the pure brokerage side, although we do share a part of that squeeze with our agent family, because we share in a 60-40, where other pure brokers are going to take a whole bite of that margin. So in this environment, that's why I said, it really -- that itself favors Landstar. I just think there's other things going on as far as I think a rebound in industrial based stuff and other things that we're doing that I think greatly favors Landstar, too. But a model that really makes the difference when you've got a high pricing environment and it always has, because a large part of our business, over 50% of it is on this fixed gross profit margin.

Operator

Our next question comes from Ben Hartford with Baird.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Henry, on that point, it sounds like the environment is almost perfect for your model. It's ripe. You guys can attract agents. The only countercurrent would be this trend that seems to be more predominant on the retail side in terms of single-sourced providers and TMS -- using TMS, and sort of -- having where it sounds as though having control over the network is a little bit more advantageous. So I'm interested in your perspective. If the market's so big, and you guys are the home for potential agents, that trend of single sourcing and having control over the capacity base might be mitigated, because you have growth opportunity with this agent base or is it more of a retail type phenomenon, where on the industrial side that trend is not as pronounced? I'm just -- I'm interested in how you would respond to that dynamic and how your model fits into that from a growth perspective.

Henry H. Gerkens

I'm going to make one comment and then I'm going to turn it over to Pat, because we -- look, we had our supply chain company, if you will, that was very difficult for us to integrate within the type of business we do. Then we've turned to more of what I'm going to call, and what Pat will refer to as a transportation solutions approach as far as what does the customer really want. And Pat, with that, I'll let you -- that's my set up for you, Pat.

Patrick J. O'Malley

If you think about it, Ben, those people that go in and are going to be single sourced, they're typically going to do that on some kind of either cost-plus or fixed-margin basis. What we found dangerous is a cost-plus basis, where we're getting margin on all the transportation we're providing. Why would go in there and do a cost plus where we kind of fix our margins. So we're going to provide capacity to that individual that's managing that business -- that retail business. their relationship with the shipper, notwithstanding, they're going to have to provide the right capacity solution to be able to transport that cargo. We like that spot. We like being in that spot. And I think that's where our agent group and our networking and our ability to source capacity comes into play. I don't think we'll lose anything by not being the single-sourced provider. I think we gain by being the provider of the capacity for that single-sourced provider.

Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division

Do you get the sense, Pat, that, that type of approach is more prevalent on -- among retail customers as opposed to industrial customers? Or does that vertical break down that matter?

Patrick J. O'Malley

I think that a lot of those people sort of climbed into that retail environment, and so the retail world's a little more accepting to that. If you think about the sophistication that's needed to get into the industrial side, you're not just moving cargo, it's cargo that is oddly -- odd dimensions. There's different requirements from the states to move it. That requires a level of sophistication that they don't really have and that they don't really want to have. And it doesn't lend itself to sort of a TMS solution that says we're just going to kick these loads up and offer them here and there. I think that's what speaks to the strength of Landstar. When you think about that expertise, it's resonant at that agent location. He becomes a solutions provider for the customer. And we think that, that's a real added benefit to Landstar.

Operator

Our next question comes from Matt Young with Morningstar.

Matthew Young - Morningstar Inc., Research Division

On the brokerage business, just to clarify then, is it then fair to assume that just the overall -- your overall improving pricing power, or the better pricing environment begins to offset the rising broker carrier rates where the compression -- the gross margin compression eases in the quarters ahead? I know you've got fixed -- you're largely on a fixed gross margin, but if you just look at the brokerage business, is that -- do you think that gets better, given the pricing power?

Henry H. Gerkens

Depends how things pan out. I mean, you're usually always behind trying to -- I mean, if it costs you $0.02 more a mile today, and you get that price increase on the next load the next time, it depends on what that next load's going to be. I mean, and so there's a point in time where you catch up. And when that catch up occurs, who knows, it depends on if things start to change in that dynamic. I'm not so sure -- and maybe you guys disagree with me here. I'm not so sure you really ever get to that -- if things continually get tight, demand continually increases, I think you've always got that catch-up game until things slow a little bit, until -- when you've got that bounce. I don't think -- I don't see that happening right now. I mean, as I said, it's a great pricing environment right now, because capacity is very tight. And I can't pinpoint how much is due to the productivity that's been lost whenever -- all the company -- our guys have basically talked about lost productivity and things like that due to their hours of service. That adds to our mix, I'm sure, but I think there's a lot of things that have been adding to what we've got going.

Matthew Young - Morningstar Inc., Research Division

Now that's fair, that makes sense. And then I just had a quick follow-up on the CapEx. I think last year, you spent $50 million on trailering equipment refresh on cap leases. Would you expect that to trail off this year into next? I think in the last few years, it's been on the elevated side?

James B. Gattoni

We're still in the process of swapping about 1,300 van trailers each year, so you'd see some a little consistent, maybe slightly less but a little consistent with where we were in the prior. So we're still working on swapping out our older 2005, 2006 trailers with some newer equipment. There's about 1,300 of them in the -- currently, in the plan to get swapped out for the year.

Operator

Our next question comes from Thomas Kim with Goldman Sachs.

Thomas Kim - Goldman Sachs Group Inc., Research Division

Just given the strength of your balance sheet and free cash flows and, obviously, a lot of positive commentary about the outlook here, what are your latest thoughts on the capital allocation with regard to dividends and buybacks? Is this an opportunity to be doing a bit more?

Henry H. Gerkens

Well, we have a lot of cash, and we bought back rather -- I think it was 450,000 shares?

James B. Gattoni

637,000.

Henry H. Gerkens

In the quarter, but 430,000 in the -- whatever. Over 600,000 shares in the quarter. I think a lot of it was in -- beginning of March, I think, but I don't recall that exactly. So yes, I mean, we've historically acted on our program. As far as dividends, we always talk to the board about that, and we'll see where we go from that. But we've got in excess of, I think, 2 million shares left to repurchase -- or to purchase. I never like that word, repurchase. Purchase. So yes, we will be continuing with that program.

Thomas Kim - Goldman Sachs Group Inc., Research Division

Okay. Are you prepared, at some point, to maybe provide a little bit more sort of guidance with the criteria, like a dividend? I forget if you have a payout ratio specifically, but is that something that you might endeavor towards sort of having?

Henry H. Gerkens

We always look at that. We declare the -- our $0.06 dividend. We have special dividend that we issued in -- or declared, I guess, in the fourth quarter of last year, paid in the first quarter, in conjunction also with the $0.06 dividend. Look, we're always looking at that. And again, that's up to the board when we bring it up for discussion.

Operator

Our next question comes from Bill Greene with Morgan Stanley.

William J. Greene - Morgan Stanley, Research Division

Henry, what I wanted to ask you was just about drivers. And now I know you have BCOs, you don't have company drivers, we all know about the driver shortage issue. Why won't a driver shortage issue, and what that means therefore for owner operators, why wouldn't that have an impact on Landstar?

Henry H. Gerkens

Well, look, I think, Joe, longer term, actually laid out the positive impact, because I think with the driver shortage, people -- company hiring guys you see more talk about reinstituting these driver training schools and whatnot. And longer term, I mean, that's fertile ground for Landstar potential drivers. Bill, you've been around -- as I have, I mean whenever demand gets tight or demand starts to pick up and capacity [ph] gets tight, you hear about the driver shortage. And that's an ongoing industry issue that we've had for years and years and years and years. And we don't have the specific driver shortage issue, all right. Now we actually had a much better year recruiting -- or first quarter, if you will, our BCOs. When you think about the first quarter being historically the worst quarter in -- for Landstar in BCO recruiting and retention, and where we lose the most, we had a pretty good first quarter. And again, my philosophy has always been that you put more freight in the system and people get to understand that, that will attract capacity. And that has been our #1 driver is that we have good paying freight, it's the freedom to drive wherever you want to drive, the freedom to work when you want to work. The programs we have in conjunction with that, the LCAPP program, things that we haven't talked about maybe in a long time that have been around a while, but those are the things that I think make people want to come here and are -- as I've said before, there's no reason why any owner operator shouldn't want to be part of the Landstar System, because we provide, in my opinion, the best loading opportunities and best revenue opportunities for that individual, if he wants to make his own business decisions and not be told what to do and where to go.

William J. Greene - Morgan Stanley, Research Division

So it's not about the rate per mile, for them, it's about a lot more?

Henry H. Gerkens

I think it's about a lot more, a lot more.

Operator

Our next question comes from John Larkin with Stifel.

John G. Larkin - Stifel, Nicolaus & Company, Incorporated, Research Division

New York State has passed this legislation that impacts the structure of owner operator contracts. I guess they're looking to collect the revenue associated with reclassifying those folks as employees. I know it was originally voted down in New Jersey, but I read that, that may be coming back up for vote in the legislature there. Is this a trend? And does this worry you at all? And does it affect the way that you recruit or domicile your BCOs?

Henry H. Gerkens

The -- my GQC is not here, and I think from my personal -- we always worry about anything that comes up as far as classification of independent contractors. We think we, from how we run our independent contractors, we are way below the line. That's not to say that for any particular purpose, any state, any government -- might change how they want to look at independent contractors. We, clearly, in my opinion, are, as I said, way below the line as far as that classification and had no problems. We've had suits in various states, and I think we've done pretty well with those. So if you're asking am I worried? No. Do I think about it? Yes. Jim, you got any...

James B. Gattoni

Like Henry said, we get challenged in states all the time, with them setting in whether these guys are work comp qualified or not. And we're aware of the New York situation. And historically, we've been challenged by New York or New Jersey or other states. And like Henry said, we kind of stay pretty far away from that employee versus contractor relationship. And we've been successful in every state that's challenged it. And like Henry said, our general counsel and our attorneys look at it all the time. And we're still comfortable that even if you're domiciled in New York, you will still qualify as independent contractors. Again, it's a small portion of our independent contractors are there, but we do keep an eye on it. At this point, no one's brought up a level of concern that would trouble us about New York at this point.

Henry H. Gerkens

All right. I think that's it. We've gone a little bit over time. Any closing comments, Joe?

Joseph J. Beacom

No.

Henry H. Gerkens

Pat?

Patrick J. O'Malley

No.

Henry H. Gerkens

Okay. All right, well, thanks for tuning in. And I'm looking forward to a strong second quarter and 2014. And with that, we'll talk to you next time. Thanks, bye.

Operator

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

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Source: Landstar System Management Discusses Q1 2014 Results - Earnings Call Transcript
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