Good morning, ladies and gentlemen, and welcome to the C.H. Robinson first quarter 2015 conference call. At this time, all participants are in a listen-only mode. Following today's presentation, Tim Gagnon will facilitate a review of previously submitted questions. If anyone needs assistance at any time during the conference, please press the star key followed by the digit zero. As a reminder, this conference is being recorded today, Tuesday, April 28, 2015. I would now like to turn the conference over to Tim Gagnon, the Director of Investor Relations.
Thank you, Lisa. Good morning, everybody. On our call today will be John Wiehoff, Chief Executive Officer, and Chad Lindblom, Chief Financial and Chief Information Officer. John and Chad will provide some prepared comments on the highlights of our first quarter. We'll follow that with a response to pre-submitted questions we received after our earnings release yesterday. Please note that there are presentation slides that accompany our call to facilitate the discussion. The slides can be accessed in the investor relations section of our website, which is located at chrobinson.com. John and Chad will be referring to these slides in their prepared comments this morning. I'd like to remind you that comments made by John, Chad, or others representing C.H. Robinson may contain forward-looking statements which are subject to risks and uncertainties.
Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. With that, I'll turn it over to John to begin his prepared comments on slide three with a review of our first quarter 2015 results.
Thank you, Tim. Good morning, everyone. Looking at that slide three, our results for the first quarter of 2015, our total revenues for the quarter were $3.3 billion or a 5% increase over 2014. Net revenues increased 14.8% to $525 million. Income from operations, $181.9 million or a 15.9% increase. Our earnings per share were up 16% at $0.73 per share for the quarter compared to $0.63 per year ago. Those are our key financial metrics and our overall results for the quarter that we were happy with. If you look at sort of the trends and themes that you will hear as we add our commentaries to the quarter, I think sort of one of the highlights is the impact of fuel during the quarter.
If you look at the difference between the growth rate and our total revenues and our net revenues, the change in decline in fuel price is the primary driver of that gap. We've talked in the past about how we believe that fuel is a pass-through in our business over time. When fuel is changing rapidly like it was during the first quarter, there can be timing differences in when surcharges adjust, or it can impact people's decisions on other pricing decisions. We don't know that it's a perfect pass-through for every month or every quarter, but over time, we're confident that it is. You will hear comments about fuel when we go through each of the service lines. Similarly, you will hear about Freightquote.
As a reminder, on the first of the year, we closed the acquisition of Freightquote, it's a clean comparison and that the business began to cycle in on the first business day of 2015. We've tried to do the best we could to highlight the impact by service area of the impact of Freightquote during the quarter. Lastly, I think it's important to understand the trends throughout the quarter as well too. If you remember a year ago, there was significant change going on in the industry and in our business, and things changed fairly aggressively throughout the first quarter a year ago. We talked last year about aggressive price changes and a very robust spot market in the March and April timeframe versus a year ago.
You will hear several comments by me and Chad around how our business is trending and how it was changing throughout the quarter. Our business this year is actually fairly stable sequentially from month to month as we grow, but our comparisons have changed quite a bit versus a year ago, particularly around the net revenue per shipment and truckload and some of the pricing metrics that I'll be sharing with you. Overall, a good quarter, and those are the themes that you'll hear more of as we progress through the comments. Moving to page four, talking about our total transportation results for the first quarter of 2015. Similar to the enterprise, total revenues were up 5%. Total net revenues were up 15% for the quarter.
We always like to highlight in the table below that there are a lot of factors that impact that transportation net revenue margin percentage. There are both cyclical and secular impacts that will impact these margins over time. As I mentioned earlier, the fuel impact in the first quarter of 2015 was pretty significant. As that fuel price reduces and changes in the pass-through of our customer and carrier impacts, it does have the impact of improving our net revenue margin percentage. There are also mix issues with some additional LTL freight through the Freightquote acquisition coming in that can have a positive impact. There are the supply and demand cycles of truckload that will fluctuate our margins as well. You can see 16.8% net revenue margins for the first quarter of 2015 in our overall transportation results.
Moving on to slide five in truckload, which is the largest portion of our transportation services. As you can see, the net revenues for the quarter increased 9.6%. Freightquote acquisition added approximately three percentage points to our truckload net revenue growth. As you see in the upper right-hand corner, our North American truckload volume grew 6% in the first quarter, and Freightquote added about half of that volume growth. The approximate 3% volume growth without Freightquote is consistent with our growth pace from the past several quarters, and appears that the overall growth was slowing a bit at the end of the quarter, but that our volume growth was relatively consistent. I'll comment more on this later, but we have seen some acceleration in our volume growth in April. Again, as I talked in my opening comments, a year ago, there was a lot of transition in the marketplace.
We talked about making the price adjustments that we needed to adapt to those market conditions, the significance of increase in the amount of transactions that we were losing money on, and how we were adjusting to the market conditions a year ago. We expected at the beginning of this year that we would be running into more difficult comparisons from a profit per shipment and a net revenue margin standpoint as we got into the March and April timeframe. We also expected that we would be continuing to add to our team and be more aggressively going after market share during this period, which is exactly what we're doing.
If you look at the upper right-hand corner of Slide five again, around the North American truckload activity, the metrics that we share to try to help you understand the margin activity is our customer and cost pricing, which for the quarter was both approximately 6%. If you look at the trends throughout the first quarter, they were quite a bit different than that 6% average. In January, our average customer price increase was double-digit increase over the previous year, and by the end of the quarter in March, it was low single-digit increases in average prices to our customers. What that reflects is, a year ago, those price increases were being implemented throughout the quarter, and this year, as more stable pricing compared to it, the year-over-year increase flattened as the quarter progressed.
We also talked a year ago about the very robust spot market that was accompanying the tension in the marketplace in March and April of a year ago. We believe this year that the spot market and demand activity has been much less versus a year ago. There have been some capacity additions, and all in all, we believe the spot market has presented fewer opportunities to us this March and April that have had an impact on our comparisons as well. Moving on then to Slide six and our LTL results for the first quarter. Net revenues increased 42% in the first quarter, and that includes our Freightquote net revenues. Freightquote was about two-thirds of its net revenue was derived from LTL, so that added approximately 34 percentage points to our net revenue growth.
From a volume standpoint, LTL volumes grew 28% in the quarter, 19 percentage points of growth came as a result of the acquisition of Freightquote. From an integration standpoint, I think we shared when we announced the deal that we do plan to integrate Freightquote. It is our expectation that through the majority of 2015, we will have reasonably meaningful quantified results of Freightquote to help you understand the impact as the year progresses. We are already deep into integration activities that have us sharing leads and sharing freight opportunities to cover truckload freight. Those numbers will get a little less meaningful as the year wears on, but it is our intent to integrate the businesses and share the freight around the appropriate segments with the North America surface transportation network.
I think the overall message that we want to convey with Freightquote is that several months into it, we feel very good about our integration plans. We're on track. We're excited about our LTL position in the marketplace. We've had meetings with virtually all of our carrier partners in the marketplace, that one of our acquisition goals with Freightquote was to leverage our existing account management infrastructure that's in place with both our shippers and carriers, and make sure that we can be a cost-efficient go-to-market strategy for our partners and to handle our customer activity more effectively in the marketplace. We also believe that we can help by making sure that the right freight is routed and tendered to the appropriate carrier based on what they want and how their network is situated. With the combined volume of C.H.
Robinson and Freightquote, we're feeling very good about our position in the marketplace with regards to LTL services. Moving on to Slide 7 and our intermodal results for the quarter. Net revenue increased 17.6% in the first quarter, volume was up 14% for the quarter. Once again, Freightquote added approximately 10 percentage points to intermodal net revenue growth and approximately 10 percentage points to volume growth. While Freightquote added to our growth in intermodal for the quarter, we do believe that the West Coast port delays negatively impacted our intermodal volumes, given some of the congestion and the inability of us to meet some of the service requirements with our rail activity. A decent intermodal growth quarter helped by Freightquote and hampered a little bit by West Coast port delays.
Moving on to our Global Forwarding, Ocean, Air and Customs results for the first quarter of 2015. Freightquote does not have any international activities. That is a growth opportunity and something that we do intend to pursue in the future. In terms of the results for the first quarter of 2015, these represent all organic activities and no impact from Freightquote. It was another strong quarter for our global forwarding team. Net revenue for the global forwarding services increased overall 15.2%, with ocean increasing 15.1%, air increased 18.2%, and customs brokerage services were up 10% in net revenues for the quarter. As we've talked over the past couple of quarters, we continue to feel very confident about our integration activities from the Phoenix acquisition more than two years ago. We have good momentum and continue to make operational improvements.
We're focused on cross-selling the legacy Robinson and Phoenix customers together to make sure that we're penetrating our customer base most effectively. We continue to invest in our technology platform to improve our service offerings, our consolidation capabilities, and our customer experience. Virtually all of the integration activity with the Phoenix acquisition is complete, other than some ongoing technology investments that we will be making this year to continue to integrate the last parts of the global forwarding network. We continue to feel very good about our service capability and our market position in global forwarding. Unlike intermodal, we do believe that the port delays on the West Coast probably helped our global forwarding business a little bit. We do know that several of our customers had difficult opportunities that we were able to help them with.
In some cases where customers were unable to get direct access to ocean capacity, we were able to help them with our capacity. We do know of examples and believe that our global forwarding results probably were helped somewhat by the West Coast port delays. It's difficult to quantify exactly what that would have done to our business, because we would like to believe that we would've been able to help them in other ways, if not for the delays. We do believe that while it negatively impacted our intermodal business, there probably was a positive impact on our global forwarding business for the first quarter of 2015. Moving on to Slide 9 and our other logistics services. Net revenues for the first quarter increased 6.6% compared to the first quarter of 2014.
Freightquote did add approximately two percentage points to our other logistics services in the first quarter. As a reminder, again, these other logistics services include transportation management services, warehousing, and small parcel. As we said in the previous couple of quarters, that we have had a slower growth of net revenue in other logistics services, primarily due to some project revenue in the miscellaneous categories that has gone away and is not in the current periods. Our primary source of revenue in this category of managed services and transportation managed services continues to grow at a double-digit rate and continues to have a strong pipeline of new customers that we feel very confident about.
This is a core growth initiative for us, we do expect the net revenue growth to remain at double digits in the future as we transition through some of the project comparisons in our other logistics services. Moving on to Slide 10 and our sourcing net revenues for the quarter. Net revenues were up 11.6% in the first quarter of 2015. We talked last year about some of the customer transitions and difficulties that we had in the sourcing business in 2014. In the first quarter of 2015, that 8.5% net revenue margin represents a return to a more normalized margin in terms of what we expect going forward. We also had 9% case volume during the first quarter of 2015, which we were happy with and represents some growth in some of the key commodities that we've been emphasizing in our area.
overall, it was more normalized activity in our sourcing business compared to weaker comparisons of a year ago, and back to activity that we would expect more normalized growth in the future. Those conclude my comments on our growth by service line. At this point, I'll turn it over to Chad to make some comments on our income statement on page 11.
Thanks, John. John has already talked a lot about our net revenues and what drove the increase in total net revenues of 14.8%. I will focus on the variances in personnel expense and other SG&A expenses. Our personnel expenses as a percentage of net revenue increased slightly compared to last year's first quarter. This increase was caused primarily by increased incentive compensation and by the acquisition of Freightquote. Our incentive compensation philosophy and plans have stayed relatively consistent with previous years. The increase is based on the growth in net revenues and earnings we experienced during the first quarter. Last year's first quarter had low incentive compensation due to our lack of earnings growth. This comparison issue is primarily for the first quarter. During the second through fourth quarters of 2014, our earnings growth accelerated, and we had greater incentive compensation.
The impact from the Freightquote acquisition will continue for the rest of the year. They do have a higher personnel to net revenue compared to the core C.H. Robinson business. Our SG&A expenses increased 10.1% in the first quarter, driven primarily by the Freightquote expenses, including the amortization expense of approximately $1.9 million for the quarter. We also had an increase in claims expense, partially offset by a reduction in our provision for doubtful accounts. I'm going on to move on to slide 12. We had a strong free cash flow quarter with cash flow from operations of approximately $100 million. In most first quarters, we have seasonally weaker cash flows compared to quarter two through quarter four, as working capital tends to grow sequentially from increasing receivables and the bonus payments made in January.
However, with the decrease in the price of fuel, our working capital did not grow as much as it usually does in the first quarter. Moving on to CapEx. We had CapEx of $6.7 million for the quarter, including our investments in software. We still expect total CapEx, including software, to be about $40 million-$50 million for 2015. Included in this estimate is building a second data center for disaster recovery. Construction of that data center has not yet begun. We expect to spend $15 million-$20 million on the data center in 2015, and we expect to put the data center in service sometime during 2016. Our total debt balance remained relatively consistent with the end of the year at $1.1 billion. Moving on to slide 13. You can see that we have a long track record of significant cash distributions to our shareholders.
We talked for the last year or so about our goal of distributing 90% of our net income to shareholders in most environments. We think we can do this while maintaining our debt-to-EBITDA ratio in the one to one and a half times range. The amount of share repurchase activity will vary based on our cash flow generation, needs for working capital, and other capital needs. We would be comfortable going to as high as three times debt to EBITDA for the right investment opportunity. For the quarter, we distributed approximately 98% of our net income to shareholders. We paid $57.3 million in cash dividends and spent $47.3 million repurchasing shares. With that, I will turn it back to John for our closing prepared comments.
Sharing our thoughts on Slide 14 regarding a look ahead. I know maybe the most impactful statement that probably everybody has focused on is in our 2015 outlook that our April-to-date total company net revenue has increased approximately 6% per business day when compared to April of last year. I made a few comments relative to this earlier around our margin comparisons and how they are changing. The most impactful change when we look at our slowing net revenue growth in April compared to the overall growth rate for the first quarter, as I mentioned earlier, we have a decline in our net revenue per shipment of North American truckload, given the change in margin comparison that I referenced earlier. I also commented that we are seeing some acceleration in our volume growth during the month of April. Again, it's very early.
It's very difficult to forecast and predict what the market will be like. To a large degree, we see 2015 playing out much as we had anticipated, that as we got into the March and April timeframe, that our comparisons would get more difficult. We did not necessarily anticipate a decline in our net revenue per shipment, but the fact that the margins were fairly healthy a year ago, it's not surprising to us that we would be where we're at from a pricing standpoint today with a much more modest increase year-over-year in April on contracted or committed business. I also commented that we have seen a fairly soft spot market for the last couple of weeks.
That can change quickly at any point in time, based upon what we have seen thus far in April, we have gotten off to a soft start for the first part of April. Beyond sharing that data point with you, I guess the other thing that we would like to emphasize is some of the areas of focus for us in 2015. I already commented and want to reiterate that Freightquote performance did achieve our objectives in the first quarter, and we feel very good about the cultural fit and the integration initiatives that we have going on throughout 2015.
We talked a lot over the last couple of years about our integration of Phoenix International and the significant effort that was involved with merging more than 25 offices, the systems conversion work around the world, and a lot of personnel decisions that needed to be made around blending teams of 3,500 people across the world. The Freightquote acquisition does have some meaningful integration projects around segmentation and sharing leads and making sure that we capitalize on the efficiency of small customer activity that Freightquote brings to us, as well as leveraging some of the really good technology that the Freightquote business has. With all of that business being located in primarily one location in Kansas City, there is not the same SG&A impact or risk or complexity around merging things that will take several years for us to do.
While we'll be working on the technology plan and some of the account management strategies over the next several years, the integration effort is quite a bit different than what we discussed in our global forwarding business. In terms of sales and account management initiatives, this is something that we believe is a competitive strength for Robinson. I already mentioned our go-to-market initiatives. As we've grown and diversified our business, it's important that we segment our offerings and are as efficient as we can be in how we approach our large and complex customers, as well as our smaller and transactional customers. We have a lot of initiatives underway that intertwine with the Freightquote acquisition around our go-to-market activities and focused on how we believe that we can better penetrate our customers across each segment.
Cross-selling initiatives like the example of global forwarding and domestic freight, cross-selling initiatives with our managed services, and evolving a lot of our transportation relationships into more integrated supply chain solution type relationships are at a core part of that account management and sales initiatives that we're working on. We do feel good about our investment in those initiatives. We talk about people, process, and technology being the core investments. The process part of account management and how we go to market, it is a very important part of what we think will help us maintain our competitive advantage and our market leadership position. Technology development, process efficiency, and network optimization.
Touched on this in a few different ways before, we have a meaningful increase to our investment this year in our technology platform, the Navisphere platform that encompasses all of our services and allows us to share information and share freight across our network, as well as integrating activities with our more complex customers to work on supply chain solutions. All of our different service areas have a number of efficiency goals. In our industry, there's a challenge that you need to add talent and you need to add people in order to grow and service your customers. At the same time, there's a balance of efficiency and leveraging productivity across your systems and across your teams that we're very committed to as well, too.
We have a theme of balanced growth internally in our people, process, and technology, where we're very focused on trying to balance the talent commitments and the hiring with leveraging the technology and the efficiency investments that we're making. Lastly, I talked about people already, but acquiring and developing the best industry talent that we can find. We believe that has been and remains a competitive advantage for us. We are growing our workforce. If you look sequentially, we have added people above and beyond the Freightquote team, and we do expect to continue that throughout the remainder of 2015. Chad Lindblom talked about our variable personnel expenses driven by the growth of our business.
We do feel that despite being able to add to our team throughout the remainder of 2015, that our operating expense comparisons will actually be more favorable as the year wears on, given the changes in variable expenses. It's important that we're investing in acquiring top talent. We're spending more on training than ever and making sure that we maintain the best team in the industry. That's the end of our prepared comments, I will stop there and turn it over to Tim to facilitate our Q&A session.
Thanks, John. Before I begin with the questions to John and Chad, I just want to thank everybody for submitting some great questions. We've made every effort to capture the key themes and get as many in as we can here. If we do not have time to cover all of the questions that you've asked, please feel free to give me a call, and we can review those in a phone call to follow up. I'll get right into this here, and the first question is to John around truckload volume and Freightquote.com. The question reads, with truckload volume without Freightquote.com up 3% year-over-year, will acquisitions always be required to boost volume growth sufficiently to support the 7%-12% long-term EPS growth target over the course of the freight cycle?
Can organic growth ramp up through additional hiring, training, systems efforts, et cetera?
Our long-term EPS growth target of 7%-12% that we outlined in our investor day deck a couple of years ago contemplated organic growth for us to achieve that. I mentioned earlier that we have seen some acceleration in April of our North American truckload volume. We do have confidence that we can achieve those longer-term targets primarily through organic growth. Freightquote.com is a good example of where we did find an opportunity to acquire and create a lot more volume in our system. We try to be very fair about highlighting that activity as separate and above and beyond what our organic growth targets are. We will continue to look for acquisitions, but our core 7%-12% EPS growth, we believe, will be primarily driven by organic growth.
Okay. Thanks, John. A follow-up for you. Can you elaborate on the revenue and cost synergies via the Freightquote.com acquisition as they've begun to develop?
From a revenue standpoint, our primary synergies are around the segmentation strategies. We talked about Freightquote having systems and processes that were geared to be very efficient with small customers. Everything from the data entry and the pricing and quoting techniques so that a customer can get information very quickly and in a very automated way through their e-commerce solutions. Our primary revenue synergy is about segmentation and making sure that we're using the right account management practices to most effectively approach the market. If you look at it from a net revenue margin standpoint, we think the primary synergy opportunity is in the truckload sector around utilizing the C.H. Robinson network to more effectively and efficiently provide truckload services to those small customers that Freightquote has, as well as additional small customers and penetrating that segment in the marketplace.
From an operating expense standpoint, there are some opportunities to leverage a broader infrastructure and some of the costs, but the principal investment around people and operating expenses has limited synergy opportunities. The real upside for us is to penetrate the market more effectively and improve our margins over time by being more effective in our account management practices.
Thanks, John. Next question's for Chad. Was the Freightquote.com acquisition dilutive or accretive in the first quarter? How should we think about the accretion progression going forward?
Freightquote.com was slightly accretive for the first quarter, just over $0.01. That includes the operations of the business, less the $1.9 million of amortization expense we mentioned, as well as the incremental financing cost to pay for the purchase price. Similar to Robinson, quarters two through four are stronger in net revenues and earnings historically for Freightquote.com.
Thanks, Chad. Next question for John. Per your first quarter presentation, April truckload net revenues are up 6% year-over-year. The question reads truckload, just for clarification, it was total company net revenues up 6.6%. That's my added commentary, not in the question. If Freightquote.com added seven points to total net revenue growth in first quarter, and we assume the contribution was fairly steady in April, this would imply that you've seen a slight decline in organic net revenue growth so far in the second quarter. Is this the case? If so, what are the main drivers of the deceleration from the first quarter into early 2Q? How do your year-over-year net revenue comparisons trend through the second quarter?
With the correction that Tim made, that is an accurate statement. It is total company net revenues that are up approximately 6%, and that does include Freightquote.com, which means that the balance of the legacy activity is approximately flat. As I stated earlier, the primary reason for that decline in net revenue growth is a reduction in our net revenue per shipment in our North American truckload results. Offsetting that, we have actually had some increase in our truckload volume activity, and we have had growth in our other services of net revenue, but for the first several weeks of April, not to the extent that we had in our first quarter. From a comparison standpoint, the net revenue per shipment in truckload a year ago remained fairly consistent through the second quarter, taper off a little bit at the end.
From a comparison standpoint, in that core net revenue category, the comparisons or the prior year activity will remain fairly constant and then taper down a little bit in June. I mentioned earlier that while we did anticipate it would be more difficult to grow our net revenue as the year progressed throughout 2015, we also believe that our comparisons from an operating expense standpoint, largely due to the increases in the previous year around variable compensation, will make those comparisons slightly more favorable as we go forward. We have not given up on our goal this year of double-digit earnings per share growth. We know that we have to continue to invest in that volume and grow our business aggressively throughout the remainder of the year. I also touched earlier on the spot market activity.
The part that's most difficult to predict is just what short-term demand and spot market activity will be like, really for all of our services. Again, North America truckload is the largest. We don't know where that will go, but we are hopeful that we will see some strengthening in those opportunities as the year progresses as well.
Thanks, John. Next question again for you. Over the last several years, you've made a very large freight forwarding acquisition and purchased a sizable LTL-focused truck broker, improving your scale considerably in both verticals. Yet you remain far smaller in both intermodal and contract logistics. Are these segment areas where you'd be willing to grow your platform via acquisition?
The answer is yes. I believe we've been clear all along that while we want to be primarily focused on organic growth in our business, that we are receptive to acquisitions in any of our service offering areas. We have been in the intermodal business for several decades and remain committed to growing that organically or through acquisition, depending upon what we see as the best path forward from the standpoint of growing our business and servicing our customers. With all of the services that we offer, our belief is that our long-term competitive advantage is in the quality of our service and the quality of our people.
When we look at the acquisition opportunities, we want to make certain that we're not disrupting any of that service capability or continuity, and that we have the time and focus to make sure that we improve our competitive position in the marketplace while doing it. While we've been looking at opportunities in both intermodal and contract logistics, we haven't found what we thought was the right blend of value and integration capabilities to really improve our competitive positioning in the marketplace.
Thanks, John. Next question for Chad. Transportation net revenue margin expanded sequentially. How much of this was attributed to fuel versus positive pricing and/or CHRW's ability to widen the spread between the buy and the sell rates?
Excuse me. Transportation net revenue expanded approximately 100 basis points sequentially. Fuel drove a big part of that expansion as the decrease in the price of fuel accelerated in the fourth quarter and into the first quarter. However, we also talked about earlier that our net revenue margins or our profit per load increased as last year's quarter went on. It is difficult, really, to measure the impact of the two separately. Quarter one is typically a stronger net revenue margin quarter than quarter four, as capacity is typically more available and demand is not as strong. It's hard to really be specific with what the balance was of fuel versus market sequentially. The addition of the Freightquote.com business also increased our net revenue margin as their business has a higher net revenue margin since it has a stronger focus on LTL net revenues.
Thanks, Chad. Next question for John. Can you discuss the trends in prices CHRW was able to obtain, and how they differ between committed contracts and the spot market?
I'll repeat some of the metrics I shared earlier from a customer pricing standpoint, that throughout Q1 2015, in January, prices were increased on average double digits. By February, it was mid-single digits. By March and April, it's low digits in terms of average price comparisons versus a year ago. That breaks down, again, the lines between committed or contractual and spot can be a little bit blurred, but what we're seeing from a committed pricing or contractual pricing standpoint this year would represent low single-digit increases over the previous year. Some of our margin comparison or net revenue per shipment comparison challenges in the current period are also due to the changes in the spot market, where there is much less opportunity for expedited or significant price increases in the current year compared to the previous year.
Thanks, John. Next question for Chad. With respect to headcount, can you provide an organic number? I believe Freightquote.com had approximately 1,000 employees, which implies sequential growth of less than 1%, or was there some attrition at Freightquote.com offset by higher organic growth? How should we think about headcount additions, either sequentially or year-over-year going forward?
You're right that Freightquote.com did add approximately 1,000 people, and that was accounted for sequentially compared to the fourth quarter, which you are also correct that leaves about 100 employees or 1% growth in organic headcount. Going forward, we will be adding headcount as the business requires. The pace of growth is hard to quantify, but as we've talked about many times in the past, we expect headcount to grow approximately the same amount as volume growth going forward. It will really depend on how much business activity we have to what the headcount will grow.
Thanks, Chad. Next question for John. Are you concerned about the amount of regulation either in the works or proposed, and how it's likely to have an outsized impact on the small and medium carriers, which are so integral to your capacity network? On the flip side, you've got the asset-based companies aggressively growing their own logistics arms. How do you think about the changing mix of your capacity over the next few years with that as a backdrop?
From a regulatory standpoint, over the past four or five years, there has been a significant amount of change that have impacted the cost of capacity. Everything from the Hours of Service to the safety regulations, and there is more regulation pending around onboard computers and other things that have continued to increase the cost of capacity as a trade-off for some of the safety features or initiatives and regulation that will hopefully make the roads safer. That has been a challenge for our entire industry and for us to understand and pass through those costs and help our customers understand why those cost increases may be disproportionate to average prices in the marketplace. There has been discussion about whether or not those costs will disproportionately impact the medium and small carriers.
It is possible that there is some incremental impact to those smaller carriers who, or maybe the larger carriers have voluntarily made some of those investments in the past. We do believe that the regulations are being somewhat sympathetic to the cost part of it, and the capital requirements of those capabilities will continue to get invested in and become more efficient in the marketplace. While we see it as an overall challenge for us in our industry, we're not overly concerned about a disproportionate impact on medium and small carriers. With regards to the competitive landscape and people investing in their own logistics division, that is part of the secular changes that we've talked about for the last four or five years or more. The competitive landscape is changing with a number of carriers investing in brokerage or logistics divisions.
We don't necessarily view that as a significant negative. In the longer run, we have believed that our third-party model of separating the capacity ownership and the capital investment from the customer service and go-to-market strategies can be a very effective way and the most effective way to serve a large part of the marketplace. As others continue to invest in that business model and more of the marketplace gets served by a third party or logistics-type business model, we think that just reflects some of the secular changes in how we're all competing. The market is more competitive. We're adapting to how things are changing and with regards to the business model that each of our
competitors pursues around a blend of capital and logistics type stuff, we'll just have to factor that into how we sell and how we grow in the marketplace.
Thanks, John. The next question, again, for you on the topic of intermodal. You mentioned recently and in the past that this is a difficult business to scale given its attractive growth profile as modal conversion is driving market growth faster than GDP. Why isn't CHRW doing more to penetrate this business more aggressively? Would this be an area where more aggressive M&A makes sense?
This is a question that we get often. We are open to M&A investments in the intermodal space. As people know, and we've talked in the past, the business model and a lot of the intermodal activity is a more capital-intensive business model with container equipments as well as drayage investments. We have made some of those container investments ourselves. We are committed to organic growth of our customer relationships. We have to do that in conjunction with the rail partners and make sure that our growth aspirations and investments align with their strategies around pricing and market share gains. It's a complicated landscape from the standpoint that it involves more complexity of capital investments and fewer carrier partners that you have to align with in terms of their strategy.
It is an area that we're committed to, it's an area that we're investing our own capital in, and it's an area that we are receptive to opportunities around acquisition if we can find the right blend of all that.
Thanks, John. Next question for Chad. Please identify the aggregate amount of any one-time deal related cost, if material, for Freightquote.com.
Sure. Most acquisition-related costs were in the fourth quarter, in total, the deal-related expenses were relatively modest. We did not use an investment bank to help us with this transaction, which tends to be the most expensive part of one-time deal expenses. First quarter deal-related costs were insignificant, and there have been no significant severance costs to date.
Thanks, Chad. The next question is for John. How did your net revenue growth trend month-to-month through the first quarter?
In the first quarter of 2015, both January and February, net revenue growth was significant double-digit growth. In the month of March, that net revenue growth tapered off to low single-digits, in the month of April, it's fairly consistent with the month of March, with some little bit more deceleration in the net revenue per shipment for truckload. As I commented earlier, sequentially, our business activity and pricing activity is more stable than it may appear. The net revenue decline is primarily due to truckload net revenue per shipment comparisons.
Thanks, John. Next question again for you. What percentage of Freightquote.com's LTL customer base is using CHRW's truck brokerage services? Where do you see this number going forward?
Because Freightquote.com has a very broad customer base of small transactional customers with tens of thousands of them, it's difficult to be very precise, but we're relatively convinced that there are very few customer overlaps in our customer base. There are several hundred that we're aware of that we've had to do some account management coordination, but a very small percentage of the total customer base. We believed at the time of the deal, and believe even stronger today, that one of the primary growth opportunities is to increase the truck service exposure and activity to that small customer base at Freightquote.com, and to do a better job of penetrating the small business and small customer opportunities out there with both LTL and truckload opportunities. Very little overlap today and a growth opportunity that we expect to be focused on and investing in over the years to come.
Thanks, John. Next question again for you. Could you give us a sense of how concentrated your customer exposure is in the intermodal business and then also the ocean business?
If you look at C.H. Robinson as a whole or within any of our individual service offerings, we think one of the strengths is that we have a very diversified customer base. From an enterprise standpoint, we have a lot of customers that are around the 1% net revenue, and we've shared before from an enterprise standpoint that our top 100 customers are around a third of the business, and that our top 300 or 400 customers make up around half of the business. If you look at the individual modes, our intermodal business, the top five or 10 customers, the top 10 customers are around 13% of our net revenue for intermodal. Very similarly, we have a lot of customers in that 1% of net revenue, even within the separate intermodal service line.
The concentration in ocean as well.
Similar question around customer concentration in ocean. Same type of answer that if you look at our top 10 or 20 customers in our ocean business, the top 10 would represent somewhere less than 10% of our net revenue, and the top 20 would represent somewhere in the teens as a percentage of our net revenue, again, with many of the customers sort of rounding up or down to around 1%. No individually significant customers for the enterprise or within our modes, and it's part of that customer diversification that we feel is a strength of our business model.
Okay, next question is for Chad, and it's a modeling question here. What is the expected CapEx and tax rate for the first quarter and the remainder of the year?
For the first quarter, we gave the number for CapEx in the prepared comments, and the tax rate was 38.2. As far as our expectations for the year on CapEx, we still believe we'll be in about the $40 million-$50 million range for the year. With part of that being the data center that we talked about earlier. The tax rate on an ongoing basis, we expect to be between about 38.25 and 38.75.
Thanks, Chad. Next question for John. Why the big improvement in sourcing revenues and margins, and how sustainable is that?
The big improvement is primarily related to difficult conditions from a year ago, both with weather and margin volatility, and some lost customer business that we referenced a year ago. We do believe that we can continue to grow our sourcing net revenues during the year, as we've always shared, that business tends to be more volatile depending upon the cycles of crops and the availability of volumes for us to distribute and sell to our customers. Our growth this year is what we believe is the return to more normalized margins and activity in our sourcing activity.
Thanks, John. Next question for you. Could you please address end market dynamics and your confidence in continued business momentum in the second quarter of 2015?
I've commented a couple of times that the primary issue we feel today is a much different comparison to our 2014 results from a sequential standpoint. While the spot market activity is not nearly as robust as we've seen a year ago, our committed volumes are consistent and growing, and we do feel like there is continued growth activity for us. Our growth plan is to add people and to continue to go after share. We have success in integrating our acquisitions that we've talked about and do feel like we can continue to take share for the remainder of the year and grow our business. Who knows where the spot market will go, and as we've shared often, it's very difficult to forecast or model our business, so we never know with certainty.
We do feel that we can continue to grow our business throughout the remainder of 2015.
Thanks, John. Next question again for you. Customers seem more interested in securing capacity and minimizing their spot exposure. Can you talk about your spot versus contractual mix during the first quarter? How do you think that will trend going forward, and what impact that likely will have on your margins? Are you still looking to keep a 50/50 balance between spot and contracted business? Can you also break down how contractual versus spot trended during the quarter, and what you expect the second quarter and second half to be?
A lot of questions in there. I don't know that I can answer them all specifically. If you look at the overall trend over a longer period of time, several decades ago, we were almost 100% transactional with just all of our business being very spot market and real time in the marketplace. The longer-term trend is that we've become more engaged with committed or contracted customers, and a greater and greater percentage of our volume is pre-priced or pre-committed as we've become not only a transactional broker, but also a 3PL core carrier that is dealing with dedicated capacity and committed shippers in a more committed and pre-priced way.
If you look at the volatility in the truckload market over the last several years, it is true that many of those large shippers are as desirous as ever to pre-pricing or committing as much of their freight as possible from a pricing standpoint because of situations like a year ago, where the market volatility demanded a significant premium to get access to that spot market capacity, and shippers rightly don't want to have exposure to those types of cost variances or cost increases.
While we have this period of sustained shortage and market tightness on the truckload side, it probably is the case that most shippers will continue to want to contract for more and more of their capacity, and we are working hard to provide those solutions in the marketplace by working on those committed bids, and our business will probably continue to increase as a percentage of that activity. The spot market business comes and goes depending upon how the market behaves. When the market has a lot of demand and a lot of route guide failure like it did a year ago, you'll see significant increases in that spot market activity. When it calms down and stabilizes more like it is now, we'll see a meaningful decline in that spot market.
Our business mix and portfolio mix changes as a result of the market activity, more so than anything specifically that we're targeting.
Okay. Thanks, John. Again for you, next question. Can you comment on the competitive environment in truck brokerage? The spot market still looks relatively healthy compared to history, but less robust than a year ago. How has that impacted the rationality of your peers in using more aggressive price to go after market share? How has continued consolidation in the space impacted the business, and how do you think it'll impact the pricing environment and margin outlook going forward?
When we look at the various impacts on our business of competition and longer-term secular changes versus the short-term cycles, the industry consolidation and the activity that's happening is very relevant, but it's probably more in terms of its longer-term impact. I think in the acquisitions we've made and when we look at our competitors, it takes a period of years to really get traction around
Cross-selling initiatives and more effectively going to market together and sharing capacity. From the standpoint of how is the competitive landscape today versus a year ago, our principal data points around that are the overall demand of freight and the overall change in the supply and demand and route guide compliance that we're adjusting to. There have been a lot of people aggressively investing in market share, and there has been an increase in acquisitions, which certainly over time will change how competitors are leveraging scale and how people are going to market with different pricing strategies. Nothing that we can really observe in the short-term around this year versus last year, or today versus a couple of months ago.
Okay. Thanks, John. Next question is for Chad. Depreciation and amortization is now on a $65 million annual run rate. Please discuss your expectations for 2015 D&A. How much is amortization related to Phoenix and Freightquote, and how much is depreciation?
The Freightquote amortization added approximately $1.9 million, and that's what we expect it to be per quarter. Phoenix acquisition purchase price-related amortization is about $4.1 million per quarter. In addition to that, there's about $100,000 from other miscellaneous acquisitions that happened previous to Phoenix. For depreciation, Freightquote added approximately $1 million per quarter to our depreciation expense. As we talked about in the Freightquote acquisition conference call, we now own a building down there, which makes up a large part of that depreciation for you.
Thanks, Chad. Next question for John. Has your length of haul continued to decrease? Is this a conscious effort on the part of CHRW or something more customer driven? Is it similar to trends you're seeing in the market or company specific?
We do believe that the marketplace as a whole has seen some shortening in the average length of haul in the truckload sector due to more local growing and local sourcing activities and just the shrinking of the supply chain over the last couple of years. We believe our business is reflective of the marketplace in that as we've pursued more outsourced relationships and more integrated activities where we manage all of the freight, we believe that we've been more aggressively going after components of freight that would include short-haul activity. It's a combination of a broader trend in the marketplace, as well as our go-to-market and sales strategies that has us penetrating the shorter length of haul component of the market more aggressively in the last several years.
Okay. Thank you, John. Unfortunately, we're out of time, and we couldn't get to all the questions today. We apologize for that. We appreciate your participation in our first quarter 2015 conference call. The call will be available for replay in the investor relations section of our website at www.chrobinson.com. You can get access to that replay by dialing 888-203-1112 and entering the passcode 1733625#. The replay should be available about 11:30 A.M. this morning. If you have any additional questions, please feel free to contact me, Tim Gagnon, at 952-683-5007 or by email at tim.gagnon@chrobinson.com. Thank you, everybody, and have a good morning.