Jul 22, 2009
Executives
Angie Freeman - Vice President of Investor Relations & Public Affairs John Wiehoff - Chairman, President and Chief Executive Officer Chad Lindbloom - Senior Vice President and Chief Financial Officer
Analysts
William Greene - Morgan Stanley Chris Ceraso - Credit Suisse Edward Wolfe - Wolfe Research Matt Troy - Citigroup Tom Wadewitz - JPMorgan Jon Langenfeld - Robert W. Baird Alex Brand - Stephens Inc.
Ken Hoexter - Merrill Lynch John Barnes - RBC Capital Markets John Larkin - Stifel Nicolaus David Campbell - Thompson, Davis & Company Nate Brochmann - William Blair & Company
Operator
Welcome to the C. H.
Robinson second quarter 2009 conference call. At this time all participants are in a listen only mode.
Following today’s presentation instructions will be given for the question and answer session. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, July 21, 2009.
I would now like to turn the conference over to Angie Freeman, C. H.
Robinson Vice President of Investor Relations.
Angie Freeman
On our call today will be John Wiehoff, CEO and Chad Lindbloom, Senior Vice President and CFO. John and Chad will provide some prepared comments on the highlights of our second quarter performance and we will follow that with a question and answer session.
I would 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 risk 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.
John Wiehoff
Thanks to everyone for taking the time to listen to our second quarter conference call. About an hour ago we issued our press release showing the second quarter results for 2009.
I am going to start by highlighting just a few of the key financial results that we focused on in that release. For the second quarter ended June 3o, 2009 our total revenues declined to 17% to $1.9 billion.
Net revenues increased 3.1% to $351 million. Income from operations increased to 3.7% to $149 million.
Net income increased 2% to $92.3 million. Our fully diluted EPS was up 3.8% to $0.54 a share.
Year-to-date numbers; for the second quarter ended June 30, were fairly similar. Our total revenues declined 16.1% to $3.6 billion.
Net revenues increased 1.6% to $690 million. Income from operations up 2.4% to $287 million.
Net income, up one half of the 1% to $177 million and fully diluted EPS increased 2% to $1.04 per share. In addition to the overall results, our press release gives more detailed growth percentages by our various service offerings that we report on.
Consistent with the past calls, I’m going to share a few prepared comments and then we will open it up for questions. I would acknowledge upfront that many of the second quarter prepared comments and messages are fairly similarly to the first quarter of this year.
Our transportation total revenue declines were driven by declines in both volume and price in most modes of transportation. Majority of the price decline was driven by the decrease in the price of fuel.
The volume decreases were pretty much across most of our customers driven by the recession. As we said last quarter, our approach to the current market conditions is to sell aggressively and to try to gain new business to help offset declines and freights from current customers.
Our sourcing division results for the second quarter were again a positive highlight. Our sourcing business was able to grow revenues 12% in the second quarter.
The revenue growth was driven by volume primarily with current customers. The relative stability of produce activity compared to other commodities along with good execution from our sourcing division resulted in solid growth.
Information services revenue from T-Chek decreased 15% driven by the declines in transactions processed and lower fuel prices resulting in lower fees. From a net revenue standpoint, we were up 3% for the quarter.
The primary variance between total revenues and net revenues is in transportation, the explanation is consistent with the first quarter, but it's worth talking through again. Most of the variance in growth rates from total revenues to net revenues is driven by price changes related to the price of fuel.
While there are many variations of surcharges and methods to contract for changes in the price of fuel, we believe most changes in fuel for truckload shipments function similar to our pass-through cost in our total revenues. Net revenue growth in our truckload services was driven by margin increases.
When freight demand is weak, volume growth slows or declines as it did again this quarter. When carriers make decisions to reduce prices, we'll generally adjust to that pricing quickly as most of our carrier pricing is spot market or negotiated daily.
Customer rates generally move a little slower which generate some short-term margin expansion. That timing difference and rate adjustments generally works against our net revenue margins when prices begin to rise and carriers adjust their prices up faster than most shippers.
Net revenue growth was most challenged in our intermodal and international modes of transportation. Our intermodal volumes were only down slightly from a year ago; however, market conditions were very different this year with regards to fuel prices, competitive bidding, carrier realignments and truck competitiveness.
Volumes with current customers declined and growth largely came from new customers and lower prices. Global forwarding net revenue and volume growth were challenged by very difficult market conditions.
We had volume declines in most current customers and significant price pressures across the industry from overall volume drops. Our operating expenses for the second quarter of 2009 were up 2.6%; personnel was up 3.6% and SG&A was flat.
As most of you know, we have a lot of different variable compensation plans that drive our personnel expense. While there were some variances to prior years in each of the plans, one of our primary objectives is to keep personnel as a percent of net revenue as variable as possible.
Total personnel as a percent of net revenue, was 43.1% in the second quarter of this year and 42.9% for the second quarter of last year. A flat SG&A is largely due to managing our discretionary spending down this year, offset by having do absorb some higher bad debt expense from customers, who have not been able to survive the recession.
On our last call, we discussed that during the first quarter of this year, we had made some staffing adjustments in many of our branch locations, where the sudden decline in freight volumes had been the most severe. While each of our 230 locations is a little bit unique, the general theme around hiring and staffing during the second quarter of this year was very limited hiring, combined with some level of normal employee turnover, resulting in a modest decline in total employees during the second quarter.
We saw good improvements during the second quarter with regards to many of our key metrics around productivity and staffing. Like most companies, it's been a challenge for us to balance all the obligations and goals for productivity and profitability, whilst staying focused on long-term success, protecting our culture, being fair to our employees, and making certain that we have adequate resources to serve our customers and respond to whatever opportunities exist.
Our leadership team feels pretty good about that balance today. We continue to be cautious about hiring, but we believe we can ramp up as necessary and we have a strong team in place today that’s capable of handling our customers' needs and driving any growth opportunities.
Considering the drastic changes in overall market demand during the past six to eight months, we were relatively happy with our results. Like most companies, the employees of Robinson have had to make some significant adjustments this year to respond to what's happening in the marketplace.
We think our employees have done a great job of adjusting to the current realities and opportunities in the marketplace. So, while we didn't achieve our long-term growth target of 15%, we do believe our results speak well for our business model, culture and employee attitude.
With that I'll turn it over to Chad for some more prepared comments.
Chad Lindbloom
Thanks, John. I am going to give some comments on our cash flow and balance sheet for the quarter.
Our net cash provided by our operating activities was $27.8 million for the quarter. Our investment in working capital increased during the quarter due to the increased revenues compared to the first quarter.
Our net cash use for investing activities was $19.5 million for the quarter. Our net CapEx was $8.6 million for the quarter, which included $3.6 million related to the new data center.
We expect to have future expenditures related to the data center of between $2 million and $2.5 million during the remainder of 2009. Our current plan is to transition to that data center in August and September of this year.
We expect annualized expenses related to the data center of $2.4 million of which $2 million is depreciation and amortization. Also included in our cash flow from investing activities were $12.4 million paid for the acquisition of Walker, the UK-based international forwarder that we previously announced.
Our cash use for financing activities was $103.6 million for the quarter, resulting primarily from share repurchases and dividends. We repurchased 1,380,000 shares at an average price of $51.79.
Our balance sheet remains strong with cash and investments of $357 million. We continue to invest our cash with the focus on principal preservation rather than maximizing yields.
Our current interest-bearing cash and investments are split primarily between municipal money markets and treasury money markets. Our investment income is down significantly compared to last year primarily due to changes in the overall market yields on high quality short-term investments.
Our largest asset continues to be our accounts receivable, which ended the quarter at $921 million. We are continuing to closely monitor and manage our receivable portfolio and will continue to make adjustments to customer terms and limits if wanted.
Most of our receivables have 30 days terms and turn quickly, because of this we tend to find out about problems relatively early. Our total provision for doubtful accounts was $6.1 million for the quarter, compared to $4.3 million for the second quarter of last year.
This increase was driven primarily by specific customer issues. It’s very difficult for us to predict what accounts will have issues in the future, but we do feel comfortable with our current level of reserves.
That concludes our prepared remarks. We will now open it up for questions and answers.
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session.
(Operator Instructions). Our first question comes from the line of William Greene with Morgan Stanley.
Please go ahead.
William Greene - Morgan Stanley
Yes, good afternoon. I’m just wondering if you can talk a little bit about some of your views on acquisitions.
You’ve done a number of tuck-ins, but I’m curious if you can offer any color on how big an acquisition you could do. Is there sort of a size limit you think about or what are the attributes that you’d think about that would limit your ability to make an acquisition?
John Wiehoff
A lot of our acquisition focused in the last couple of years has been building our global forwarding network. And in this particular case the Walker business is in the UK where while we had one office, we really didn’t have a very strong presence from a forwarding standpoint.
So, it was a nice fit to our network. There really is no theoretical limits to the size of deal that we’ve explored in that past or that we’d be open to in the future, however as we build out our network and gain what we believe is a better presence in different parts of the world, the likelihood that we would want to acquire more in those regions goes down, because our plan would be to integrate and to kind of operate and grow organically from there.
So as we said many times in the past, there are many parts of the world in Asia and Eastern Europe and other places where we don’t have a presence where we plan to continue to invest and we certainly would be open to deals larger than these and building out the network. But the likelihood of buying an existing global network with a lot of overlap becomes less likely, as we get further into our build.
William Greene - Morgan Stanley
Okay, thanks. Just one follow-up, if there are any dislocations in the LTL market, how do you think that will affect Robinson?
John Wiehoff
It would depend, the size of the dislocation and kind of how much capacity leaves. But there certainly are pretty wide variances and service capabilities and pricing.
So, depending upon who left the market and what service areas were impacted, what pricing was impacted, there could be pretty significant impacts. We pride ourselves in flexibility and automation and kind of existing relationships where we could kind of put together new solutions.
So, we don’t necessarily hope for or plan specifically for any of those failures, but we would be ready to react and try to help our customers get through whatever it happens.
William Greene - Morgan Stanley
But I think it’s safe to say that in the past periods of distress in the market or dislocations, you’ve typically profited in that, is that fair?
John Wiehoff
Sometimes we don't, I don't like the word profit because oftentimes when we get involved in a new relationship, we do so in an investment part of it and try to build the relationship over the longer time. I think, I agree with what you said, but I would rephrase it to say that, based upon what we are and how our network functions when there is dislocation or stress in the marketplace, we think we can take advantage of those opportunities to expand our relationships and get some new ones.
Operator
Our next question comes from the line of Chris Ceraso with Credit Suisse.
Chris Ceraso - Credit Suisse
I think you've mentioned a couple of times in the past and you kind of hinted at it in your prepared remarks today of how, when volumes are declining, you have this benefit between new purchase cost and what you sell to customers. But you've said that, a prolonged downturn, is a difficult environment for you, we're getting pretty long and the truth here in the downturn and you still seem to be delivering better results and margin expansion.
What should we look forward and when do you start to loose the ability to continue to exploit dislocations in pricing?
John Wiehoff
It's a good question and each, while in general, the market cycles and our results, kind of, have behaved similarly in the past, each -- the depth and slope of each cycle and each recovery is a little bit unique. We do know that in the fourth quarter of last year is when volumes began to decline rather meaningfully and margins began to expand.
So, as we said, as the year wears on, margin comparisons will be tougher and tougher. Then the other variable that factors into that is how is overall supply and demand and how tight is the truck market.
If we continue to see, continued softness and continued weakening in demand, it may still be weaker than a year ago and provide the ability for continued margin expansion as it continues to soften or go down. If in the second half of this year freight demand increases and the market begins to tighten, than the demand relative to the amount of capacity out there, I think by the fourth quarter, we'll all start to see more difficult comparisons for us from a margin standpoint and we'll have to make it up in volume.
Chris Ceraso - Credit Suisse
Its like you said, when things start to turn, the shippers will adjust more quickly, or your carriers are going to raise prices more quickly?
John Wiehoff
That’s correct. And just like it takes awhile for shippers to do bids and realign route guides, it takes a while for us to readdress prices on the shipper side and adjust to the market when it starts to move up.
Chad Lindbloom
And when you look at our performance, although it is pretty good compared to the market, when you talk about our 15% long-term growth rates, we are in a prolonged downturn, but we are also significantly below our long-term expected growth rate.
Chris Ceraso - Credit Suisse
Right. Have you noticed any changes in the competitive landscape lately?
For example, have any of the asset-based carriers that have brokerage divisions, have they gotten more aggressive in their brokerage operations to try to make up for troubles in the asset side of the business?
John Wiehoff
The market as a whole is extremely competitive, but it's really to decipher that sort of split when kind of looking at it. So we won't really be able to tell that.
It would be logical that that might be the case that asset utilization is so important to the asset-based truckers that when freight demand softens like it has, I think there is a tremendous amount of pressure to take all available freight and use it to improve your asset utilization. We've owned truck lines twice in our history and we've had that same experience.
So it's a very rational economic response. So I can't tell you based on competitive pressures that that is happening, but it would be logical.
Chris Ceraso - Credit Suisse
Okay. Just one last quick one.
The sourcing business was particularly strong. Have you noticed in past cycles that tends to be a signal that things are getting better or no?
John Wiehoff
No, I think that's really more kind of an independent thing, where our food volumes have just stayed a little bit more consistent, and we are constantly working for different commodities and different categories with different retailers and food service organization. So, if we win a few new assignments and there happen to be good crops it actually as a significant variable in there.
We'll tend to see more stable growth or activity. So, I think that kind of on its own progression of cycles.
Chris Ceraso - Credit Suisse
Okay. Thanks for your help.
Operator
Thank you. Our next question comes from the line of Edward Wolfe with Wolfe Research.
Please go ahead.
Edward Wolfe - Wolfe Research
Thanks. Good afternoon, guys.
Can you talk to the 3% net revenue growth? If you look at that how it progressed throughout the quarter between April, May and June, and into July?
Chad Lindbloom
During the quarter, it progressed to get slightly better on our per business day basis. It started lower than the overall finished better than the overall.
And when you look at it in the July, that trend has continued. But again that's through yesterday, that's a pretty small part of the total quarter.
Edward Wolfe - Wolfe Research
Sure. When I look at the gross yield expansion in truck of over 500 basis points, it's greater than the total transportation.
I think in words you said something that in fact the intermodal gross yields was flat year-over-year. What's the difference there, is it just simply rail rates are holding up firmer than truckload rates?
Chad Lindbloom
Yes. We had reductions in our prices to our customers to be able to continue to expand our intermodal volumes.
Edward Wolfe - Wolfe Research
So, your intermodal pricing to your customer is weaker than your truckload pricing of your customer?
Chad Lindbloom
There was a bigger change in it.
John Wiehoff
Year-over-year?
Chad Lindbloom
Year-over-year.
Edward Wolfe - Wolfe Research
But you’re saying, just to understand is that the supply side of it is less the issue than the demand side of it. In other words, it’s not your cost for railroad was firming up on you versus your truck cost weakening it’s what you’re being able to get from your customer or is it the spread?
John Wiehoff
I think Ed; you’re driving more at the kind of the relative competitiveness that, a year ago with higher fuel prices, and fuel being a smaller component of the rail cost structure, a lot of the opportunities that we pursue were comparing the relative truck and rail pricing. So, rail was at a stronger advantage a year ago.
This year, with the fuel comparisons and the carrier realignments and the market changing through a lot of the bids, there were just many fewer opportunities, where on a transactional basis, where rail was as competitive. So, we were able to replace a lot of that volume with different, more dedicated lower priced freight; but there’s a lot of moving parts in there that factored into the variances between truck and rail year-over-year.
Edward Wolfe - Wolfe Research
Okay, one last one. You spent $65 million in repurchasing stock, which I think is a record for you guys in a quarter.
How should we think about that going forward? Was it related to valuation or was it, how do we think about it and going forward?
Chad Lindbloom
It was not related to valuation. During the quarter, we monitor our cash balance and try to hold it between $300 million and $400 million.
So, we redeployed cash through share repurchases pretty equally throughout the quarter to accomplish that goal.
Edward Wolfe - Wolfe Research
Okay. Thanks for the time guys.
Operator
Thank you. Our next question comes from the line of Matt Troy with Citigroup.
Please go ahead.
Matt Troy - Citigroup
Yes, thanks. Question on the data center; I just want to confirm, that there is minimal or low switching risks with that new system.
When you light that up, that’s not a customer facing application it is just a pure back office data center?
John Wiehoff
It is.
Matt Troy - Citigroup
Okay. And if I think about it, what kind of capacity does that give you going forward?
If it’s investment, what kind of timeframe does that buy or how do you measure that investment in terms of what it’s provided in terms of future capacity?
John Wiehoff
Okay. As far as transition risk, it is moving all of our applications, which include completely internally focused systems as well as externally.
And it’s the risk, that’s why it’s going to be done over two month period. So, we bring a piece of application live over the weekends, pretty much.
We’re going to transition not try to shut the whole old center down and the new one up. So, we can always rollback if something doesn’t work, portion of it.
So, we feel pretty good about the risk of transition. As far as future capacities, the data center is going to be running at maybe a third of capacities, pretty difficult to predict.
How long that will last us because machines keep getting smaller and smaller and more efficient, we for the foreseeable future. Our last data center that we’re moving out of, we put in place in 1990.
Matt Troy - Citigroup
Right, again and then going forward as we think about your capital investment, are there any foreseeable projects or requirements over the next two to four years that would drive an uptick like we saw with data center?
John Wiehoff
We do own some more land here at our corporate headquarters campus, and we may in the next two to four years probably more (Inaudible) start construction of another office building. Other than that it should be consistent with current levels excluding the data center.
Matt Troy - Citigroup
Thank you. And last question from me is that with folks hopeful that we will see some improvement in the broader volume environment the back half and our expectations are just from pure seasonality back to school and holiday, peak that there should be some improvement.
Are you seeing anything in the market? Are you hearing hard commentary from your customers that people are starting to look for capacity or having attention to ship more as we head into the third quarter and fourth quarter?
Are we still talking more conceptual here in terms of hope for a volume width? Thanks guys.
John Wiehoff
We don't get great visibility to that. So we can't hangout anything specific that would make it feel better.
Though, I think, probably the most optimistic statement is, if you look at the last several years of activity as I mentioned earlier in the fourth quarter of last year, things dropped out pretty hard. So as long as we can sort of stay at the current seasonal run levels, I think, year-over-year at least you'll see some relative strengthening when you get into the second half of the year.
But that's obviously very tough to predict and we get in some cases annual bids, but there really are no volume guarantees and they are all subject to fluctuations on business activity. And in terms of firm orders, probably a week or so is the mostly lead time we get visibility of hard shipments.
So it's just really hard for us to predict what the future is going to be like.
Operator
And your next question comes from the line of Tom Wadewitz with JPMorgan. Please go ahead.
Tom Wadewitz - JPMorgan
Good afternoon. I wanted to ask you first on, view on gross margin you had -- I think, you naturally tend to see a little lower gross margin in second quarter typically versus first.
And you had some of that. Do you think, given that there is a still probably lot of excess capacity in the market that you can sustain the type of gross margin you had in second quarter for a couple of more quarters.
I mean 20.6% transportation gross margin is still a pretty high number. But given that there is a lot of capacity, you think that can last for a few more quarters?
Chad Lindbloom
I guess it is possible, yes, but it is also possible it could go down. It really depends on supply and demand mix.
And even though the demand is still relatively weak, there's still, there's also plenty of supply still available at source. It is a fall peak which there hasn’t been in a few years.
It could tighten up and reduce margins.
Tom Wadewitz - JPMorgan
Okay. Then do you have any sense of capacity leaving the market in a meaningful fashion that would give you potential tightening, or is it just really tough to get visibility, and what the truckload market might look like over the next few quarters?
John Wiehoff
It's hard to be precise about that, but we do know, each month we're signing up new carriers and looking for new capacity and we do know that in the second quarter, while we signed up more than a 1000 carriers, again the total number was a little bit less than the last four or five quarters. So it does feel maybe that there is a slight reflection of capacity leaving the marketplace.
Tom Wadewitz - JPMorgan
Right. Okay.
And then, guess a last question on the headcount. It looks like your headcount was down about 2% sequentially and you said that’s kind of less hiring plus attrition, is that an approach that you would expect to continue so that sequentially you would see some further reduction in headcount in third quarter and maybe fourth, or was that a one-time type of thing and then you get back to holding headcount flat or increasing it a little bit?
John Wiehoff
It will largely depend upon what happens with volume across the network, because the network will react pretty quickly to other and as they need the additional staff to do it. However, from a year-over-year comparison standpoint, last year we were hiring pretty much throughout the entire year.
So even if we hire the full level of replacement turnover in the third and fourth quarter, our year-over-year staffing would probably continue to decline a little bit.
Tom Wadewitz - JPMorgan
So you think right now given that you are in third quarter that you'll be down a little bit further third versus backend?
John Wiehoff
I was talking compared to previous years. Third versus second, it's difficult to predict.
Tom Wadewitz - JPMorgan
You don't know yet? Okay, all right.
Thank you for the time.
Operator
Thank you. Our next question comes from the line of Jon Langenfeld with Robert W.
Baird. Please go ahead.
Jon Langenfeld - Robert W. Baird
Is there something about the high bidding season, the high volume of bids out there that allowed your trends to diverge again from the general market trends, when I look back at the fourth quarter volumes down 4%, down 10% in the first. And now they've kind of regained their footing down only 5% while the market is as bad or in some cases worst than the first quarter.
So, there's something about that bid process where you guys did better than you might traditionally do or is it just simply the market share gain?
John Wiehoff
There is a lot of different factor. Certainly, there was.
We talked about in the first quarter that there was an unprecedented level of bid activity. And given the kind of sudden freefall in the market, I know anecdotally that there were a lot of customers who were sort of playing in the market; more so than ever to take advantage of the January, February softness.
So it clearly had a unique environment in the first quarter that could have had some impact on our share and volume activity. We like everybody else for a re-pricing, a lot of business during the first quarter, we also pride ourselves in kind of freeing up our people to get out and sell and go work on those relationships.
So some combination of pricing and realignment and unique circumstances and hopefully a big part of us just staying active in the marketplace and winning back freight volumes and freight relationships through long-term relationships, hopefully that all is part of it.
Jon Langenfeld - Robert W. Baird
Okay, good. And then on the acquisition.
Can you give us an idea for how much revenue either growth and/or net that they would bring to the business.
Chad Lindbloom
We don’t disclose it, but they’re both less than 1% each.
Jon Langenfeld - Robert W. Baird
And is the headcount, the headcount from the first one that is in the numbers, the employee numbers?
John Wiehoff
Yes.
Jon Langenfeld - Robert W. Baird
But the second one would be next quarter.
John Wiehoff
Correct.
Jon Langenfeld - Robert W. Baird
Got it, okay. Thanks a lot.
Operator
Thank you. Next question comes from the line of Alex Brand with Stephens Inc.
Please go ahead.
Alex Brand - Stephens Inc.
Hey, good afternoon guys. Chad, on the balance sheet, I think your DSOs look like they maybe higher than I could see in my model going back.
Is there a timing element there or just you haven’t get paid a little slower?
Chad Lindbloom
The way I calculated it, which is based on the quarter’s gross revenues, compared to the outstandings, it was above 43.5 days. That’s last year’s June was 45 days.
Alex Brand - Stephens Inc.
All right, so the sequential change, that there’s nothing to read into that.
Chad Lindbloom
Sequentially, I have 42.6 to 43.5.
Alex Brand - Stephens Inc.
Okay.
Chad Lindbloom
There’s nothing to read into that in my opinion.
Alex Brand - Stephens Inc.
All right, what about the trend in volumes? John was just asking you about that sequentially it was less bad down 5%.
What did it look like by month? Was it less bad by the time you got to June?
Chad Lindbloom
Yes, April was the worst and it got less bad. The plan were July, truckload volumes are above flat.
Alex Brand - Stephens Inc.
All right, do you here to be specific by month?
Chad Lindbloom
I don’t have the precise numbers here.
Alex Brand - Stephens Inc.
Okay, fair enough. And just on the LTO side, I don’t think you were specific in the press release on that.
Is there a specific growth number for that volume?
Chad Lindbloom
Transactions were up little bit more than 20%, but tonnage per transaction was down something like 12 or 13%.
John Wiehoff
We are not sure shipment count is as good of reflection of volume gains as it is in the truckload side, because of the variances and shipment size and how LTL is handled, but the volume growth was pretty meaningful.
Alex Brand - Stephens Inc.
Okay.
Chad Lindbloom
Transaction count.
Alex Brand - Stephens Inc.
All right, guys. Thanks for the time.
Operator
Thank you. Your next question comes from the line of Ken Hoexter with Merrill Lynch.
Please go ahead.
Ken Hoexter - Merrill Lynch
Great. Chad, you just talked about the volume trends through the quarter.
What about pricing, do that accelerate as your volumes started to improve? On the downside, you said it was down 5% I think for the quarter.
Chad Lindbloom
The pricing for truckload excluding fuel surcharges, our estimate was it was flat April, May and June, same rate all quarter approximately.
Ken Hoexter - Merrill Lynch
Same rate being the down 5%.
Chad Lindbloom
Yes, except the rate was increasing during last year’s second quarter. So, each month was different growth rates, but the rates this year’s second quarter, which is probably most applicable thing were roughly flat throughout the quarter.
Ken Hoexter - Merrill Lynch
Okay. So, just to understand that clearly, it’s not a case of using same price decline to get more of the volumes, your actual dollar for load was relatively flat through the quarter?
Chad Lindbloom
Our rate per mile excluding fuel throughout this quarter was consistent during this year’s second quarter.
Ken Hoexter - Merrill Lynch
Okay. I guess if your volumes were down 5% for the quarter, the market, I don’t know somewhere down in the upper teens, low 20s.
Do you feel like you accelerated on a market share gain through the quarter?
John Wiehoff
It's hard to get a feel for that. When the year is done, you can look back and there is kind of more firm industry data and stuff.
It's hard to get a sense for that in the short-term and we really didn't do anything different. Throughout the quarter, we have just stuck to the plan of selling and building relationships and as far as how, how much share we are taking or how the whole industry is doing.
We believe we are out selling and taking market share, but it's kind of hard to know exactly what the industry did in the second quarter or why we may have done better than we did in the first quarter.
Ken Hoexter - Merrill Lynch
Okay. Thanks John.
And on the acquisitions you made, the number you have threw out before the 1%, was that on revenues you were saying that they were less than 1%?
John Wiehoff
Yes. It’s a both less than 1%.
Ken Hoexter - Merrill Lynch
Okay, great. Thanks for the time.
Operator
And your next question comes from the line of [John Barnes] with RBC Capital Markets. Please go ahead.
John Barnes - RBC Capital Markets
Hi, good afternoon, guys. Real quick just on the data center again, just want to make sure, is there any change in depreciation as that data center comes online or we're going to see any kind of acceleration in that?
Chad Lindbloom
Yes. I mentioned that in my prepared remarks.
It's about $2 million per year once it's online or $2.1 million.
John Barnes - RBC Capital Markets
Okay. Thank you.
Sorry about that.
Chad Lindbloom
Okay.
John Barnes - RBC Capital Markets
Again I’m sorry if I missed this, any material cost associated with the transition, as you move everything over, you know hit the SG&A line?
John Wiehoff
Just buying the capital equipment is by far the biggest cost.
John Barnes - RBC Capital Markets
Nice. Some more on the CapEx line, not so much one like SG&A in terms of just the total cost of moving?
John Wiehoff
No.
Chad Lindbloom
No. The outfitting and the move is also capitalized as part of a project getting it online.
John Barnes - RBC Capital Markets
And then, one last question on capacity with lender leniency. There's been some comments about the lenders are keeping some of the carriers in business a little bit longer.
Have you seen anything in terms of the quality of the carriers you're signing up? Has it gotten any worse?
Are you having to stretch a little bit or do you feel like the quality is still there and you really don’t have any concerns about the quarter of your carrier base at this point?
John Wiehoff
I think we feel very good about that. We have pretty consistent quality standards that would ensure that the right caliber or capacity gets put on the freight.
So we really don’t see any issues with that. I think one comment relevant to what you’ve mentioned there though, that I think we've said over the last couple of quarters, when you look back at the magnitude of the industry volume declines and the softness in the freight demand, while pricing has declined in all, say, 5%, I don’t know how far this is indicative of everybody else's, but in the first quarter it was low single-digit percentages and from what we've seen from others, I guess it's our opinion that that’s a fairly modest decline in pricing relative to 15 plus percent of the freight disappearing.
So that would seem to suggest that capacity is hanging around and that maybe what you suggested is that there's been a lot more inertia to the capacity than the lender patience than you might otherwise think.
John Barnes - RBC Capital Markets
Yes. Or do you think if we're in for a longer, slower recovery?
Do you think the price that you'll pay for capacity will run like it has historically in a recovery, or do you think it will track along with a slower recovery? That pricing will recover slower because you haven’t seen this mass exodus of capacity from the marketplace?
John Wiehoff
It really depends up on their tightness, the supply demand relationship. So, if demand stays soft and continues to trickle down, but capacity sort of gradually leaves the marketplace, I think you'll continue to see more gradual price movements.
Again, all exclusive of fuel like has it been for the last couple of quarters. If there is a period of time where the capacity starts to correct more aggressively or freight demand kind of returns in any sort of accelerated way, I think you'll see some volatility come back real quick.
So there's simple supply demand relationship with two moving parts, and depending up on how each side plays itself out, the market actually responds pretty predictably.
John Barnes - RBC Capital Markets
Yeah, what do you think has accelerated, if volumes were to [correct] say, be up 2%, 2.5% kind of a low single-digit kind of volume recovery; is that a better environment for you, does it allow you to adjust your pricing inline with those volumes or is that even that modest level of growth going to cause some dislocation for you in terms of pricing?
Chad Lindbloom
I think in that type of range, it would end up being very lane-specific. When industry data is a couple of percent here or there, what you will typically see is a wide variance in pricing and behavior lane-by-lane, region-by-region.
Operator
Our next question comes from the line of John Larkin with Stifel Nicolaus.
John Larkin - Stifel Nicolaus
Yes. Thank you John and Chad for taking my questions this afternoon.
Just thought we'd come at the health of the capacity question maybe a different way? I know that one of the attractions for carriers to use C.H.
Robinson in defined loads is your Quick Pay program. You would expect if they were under more financial distress than they have been then perhaps you would see the percentage of your capacity using that increase.
Have you seen any changes in that percentage?
Chad Lindbloom
Not a significant growth in it, but a slight growth, yes.
John Larkin - Stifel Nicolaus
Just a slight growth. You talked about the criteria that you apply to new carriers that you sign up.
Is there a financial component to that criteria?
Chad Lindbloom
Just that they have operating authority, good safety star ratings, and insurance.
John Larkin - Stifel Nicolaus
There’s no -- in the margin, they don’t have to be profitable or anything of that sort in order to be signed up?
Chad Lindbloom
The way it would work is, you know, to begin a relationship you need those required elements, but then every single carrier sort of works their way into a proof of operating history as well too, or we would track any sort of operating metrics, performance, claims. We have a scoring system that we would track them on.
As a carrier grows in our relationship, or grows in their size, we would have a wide variety of different types of business reviews where we would ultimately look at profitability. And there are longer-term strategic desires of whether the freight matches or not.
So, a carrier would have to get a little bit larger and a little bit more integrated with us before we’d start looking at their profitability and sustainability.
John Larkin - Stifel Nicolaus
Is the average size of the carrier still rather small? Have you seen an increase in the size of the carriers that are being recruited into your system?
John Wiehoff
So the way it breaks down is that, you know, the larger carriers, the 400, 500 plus trucks have stayed around 10 to 12 percent of our freight activity. The core of our activity, the vast majority of our freight moves on those carriers with lets say, 50 trucks to 500 trucks.
A lot of the ones that we sign up are 50 trucks or less, and then we try to grow with them. So the change in kind of the dynamics or the size of the carrier and the carrier qualification - if somebody’s got several hundred trucks, we probably already know of them and have them in the network, but it’s the continual working and finding of the new smaller ones and then the success of moving them into a kind of a medium size carrier where we would have a longer term relationship with them.
John Larkin - Stifel Nicolaus
And maybe just one follow-up question on the bidding activity. It sounds like there was a tremendous amount of bidding activity in the first quarter that may have tailed off a bit in the second.
Do you feel as though just about the entire account base has been through that process or is there a potential for another wave of that in the second half of the year?
John Wiehoff
A lot of it has been through. I think your assessment was correct, that there was probably unprecedented levels in the first quarter of everybody rushing to the market and then leveling off a little bit in the second quarter.
Most shippers preserve the privilege of rebidding when they deem it to be appropriate rather than on a preset schedule. So, if the market changed a lot, when they soften a lot, you might see more of them coming back to kind of take another at it.
If that market starts to firm up a little bit, you probably would see a lot less.
Operator
Your next question comes from the line of David Campbell with Thompson, Davis & Company.
David Campbell - Thompson, Davis & Company
[Certainly] most of my answers, but this one left and that is, the ITC acquisition in July, I assume it has one branch and that’s Laredo and where will the revenues be on the profit and loss statement in the third quarter?
Chad Lindbloom
The bulk of their revenues are customs brokerage, which we report under miscellaneous line within transportation. They also do a limited amount of transportation as well, which would show up in the modes of transportation.
David Campbell - Thompson, Davis & Company
Okay. And is it just one branch in Laredo?
Chad Lindbloom
One physical location, yes. They clear things through many different border crossing, so remotely.
John Wiehoff
And it’s a good example how our business is evolving because while, while the revenues from this acquisition which show up in the customs brokerage area, a big driving influence and the acquisition was to facilitate truckload transportation across the border and on a very smooth way, so that we can offer integrated door-to-door services even more efficiently from Mexico to the US or vice-versa. So, while the revenues will show up in customs brokerage its an example of how our services are integrating and that we think one of the primary benefits, maybe the primary benefit from owing that business will be the support of the North American truck services.
David Campbell - Thompson, Davis & Company
And its 1% or less of your revenues, both gross in that?
Chad Lindbloom
Yes.
Operator
And your next question comes from the line of Nate Brochmann with William Blair & Company. Please go ahead.
Nate Brochmann - William Blair & Company
Hey, Chad, John and Angie. Just wanted to talk a little bit, I think there has been a lot of concern in terms of whether you can hold margin and how long you can hold it and I know a lot of it depends on dynamics.
Just another one thing to consider is, I know you don't disclose this exactly, but if we were to assume that maybe roughly you are at 50% contract and 50% spot right now, that maybe if pricing increased a little bit that it might be a little bit tough to go back and get that price immediately on the contract business. But if the market were to move that that you might go and take advantage of the higher margin spot activity to help offset that a little bit.
Just wondering how we should maybe think about that dynamic?
John Wiehoff
I think what you just described is an accurate reflection of how our model works. So, if there is committed pricing and a lot of our margin and expansion and contraction follows exactly what you said that, the customer side would move slower and that would have an impact on our margins.
If whenever there has been any period of time when freight demand starts to spike up and there is a shortage of capacity that through the last minute expedited spot market type freight can be at very good margins, even when our overall portfolio might be contracting a little bit, so it's a mitigating factor, the volumes and the margins kind of work inversely, and then you have some spot market activity that again helps to kind of mitigate the fluctuations or the volatility in the net revenue growth.
Nate Brochmann - William Blair & Company
Great. Thanks.
And then just my second question is, I know that you are starting to make a little bit of inroads with the European truck network a little bit, just wondering what's going on in the economy over there, kind of where that progress is to date in the second quarter?
John Wiehoff
So the European truck results from a volume and growth standpoint the industry and our results are all sort of generally similar. There we are suffering some volume declines in some areas, but benefiting from some margin expansion and we believe we're taking share similarly to how we would be doing here.
Again, we're much smaller. It's about 3% to 4% of our net revenue.
We also have some unfavorable Euro conversions, so that when you report it in US dollars, the European piece is having a harder time growing its net revenue right now because of the currency piece. But our experience over the last six to nine months is that our strategy and our approach in our building out of our network on the European truck side, we feel pretty good about it.
Operator
Thank you. (Operator Instructions).
It looks like there are no further questions. Ms.
Freeman, I'll turn it back over to you.
Angie Freeman
Okay, thank you to everybody for participating in our second quarter 2009 conference call. I’d like to remind you that this call will be available for replay in the Investor Relations section of the C.H.
Robinson website at www.chrobinson.com. It will also be available by dialing 800-406-7325 and entering the passcode 4099798 pound.
Replay will be available at approximately 7 PM Eastern Time today. If you have any additional questions, please feel free to call me, Angie Freeman at 952-937-7847.
Thank you.
Operator
Thank you, ladies and gentlemen. You may now disconnect.