Q1 2021 Landstar System Inc Earnings Call

April 22, 2021

[music].

Good morning, and welcome to Landstar system, Incorporated's first quarter 2021 earnings release conference call all lines will be in a listen only mode until the formal question and answer session. Today's call is being recorded if you have any objections you may disconnect at this time, joining us today from Lance.

<unk> or Jim could Tony President and CEO, Rob Brasher, Vice President and Chief Commercial Officer, Joe Beacom, Vice President and Chief Safety and operations Officer, now I would like to turn the call over to Mr. Jim got Tony Sir you may begin.

Thank you Betsy.

Good morning, and welcome to <unk> 2021 first quarter earnings Conference call before we begin let me read the following statement.

The volume of the Safe Harbor statement under the private Securities Litigation Reform Act of 1995 statements made during this conference call that are not based on historical facts are forward looking statements.

During this conference call. We may make statements that contain forward looking information that relates to Landstar <unk> business objectives plans strategies and expectations.

Such information is by nature subject to uncertainties and risks, including but not limited to the operational financial and legal risks detailed in last night's form 10-K.

For the 2020 fiscal year described in section in the section risk factors and other SEC filings from time to time, these risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated investors should not place undue reliance on such forward looking information and Landstar undertakes no obligation to publicly update or revise any forward looking information.

Our 2021 first quarter financial performance was by far the best first quarter performance in Landstar history.

First quarter revenue was a first quarter record while gross profit operating income and earnings per share were all time quarterly records.

During our year end 2020 earnings conference call. We provided 2021 first quarter revenue guidance to be in a range of $1 billion $100 million.

The $1 billion $150 million and diluted earnings per share to be in the range of $1 55 to $1 65.

Our initial guidance anticipated the number of loads hauled via truck in the 2021st quarter to exceed the 2021st quarter and upper single digit percentage range and revenue per load on loads hauled via truck to exceed prior year in a mid teen percentage range actual first quarter results were significantly higher than anticipated as both the number of loads hauled and revenue per load on loads hauled via.

Truck exceeded the high end of our guidance.

Revenue in the 2021 first quarter was $1 billion and $288 million and diluted earnings per share was $2 <unk>.

Both significantly above the high end of the range of our earlier guidance.

Loads hauled via truck in the 2021st quarter increased 13% over the 2021st quarter, while revenue per load on loads hauled via truck increased 24% over the 2021st quarter.

Truckload volume by month in the quarter increased over the prior year month by 12%, 8% and 17% in January February and March respectively.

February and March truck load volume were impacted by the severe storms that hit the central U S and Landstar is last week of fiscal February.

We estimate the storms decreased truckload volume by approximately seven to 8000 loads in February.

We also believe though that landstar haul most of those loans and physical March.

Under that assumption.

The percentage growth in load volume each month in the quarter compared to the prior year month was rather consistent and within a range of 12% to 14%.

Consumer demand for building products consumer durables and small package via E. Commerce continued to drive 2021 first quarter record van volume, which grew 17% over the 2021st quarter.

The number of loads hauled via onsite platform equipment grew 5% over the 2021st quarter, mostly due to improvements in the U S manufacturing sector in March.

Typically truck revenue per load in the first quarter is seasonally lower than the second quarter third quarter and fourth quarter revenue per load on loads hauled via truck or a 2021st quarter was an all time quarterly record.

Revenue per load on loads hauled via truck increased over the prior year month by 18%, 19% and 31% in January February and March respectively.

Although we believe part of the significant increase in truck revenue per load in March was a result of the disruption caused by the late February storms strong demand and tight truck capacity continued into late March and early April with revenue per load continuing at elevated levels.

Overall truck revenue per load on loads hauled via van and onsite platform equipment in the 2021 first quarter increased 30% and 14% respectively over the 2021st quarter.

We continue to attract qualified agent candidates to the model revenue from new agents was $20 $3 million into 2021 first quarter. The best New agent quarterly revenue in eight quarters. The agent pipeline remains full.

We typically experience a net decrease in the number of trucks provided by <unk>. During the first quarter of any year. We ended the quarter with a record 11268 trucks provided by business capacity owners 277 trucks above our year end 2020 count.

During the 2021 first quarter, we recruited a slightly higher number of <unk> compared to the 2021st quarter, while PCL retention was significantly better than during the 2021st quarter.

The number of Bcl cancellations in the 2021 first quarter was 38% below the 2021st quarter overall.

Overall, the net increase in the number of Bcl trucks in the 2021 first quarter speaks to Landstar <unk> ability to attract quality capacity in a tight truck capacity market.

Lowest hauled via <unk> increased 5% in the 2021 first quarter over the 2021st quarter on higher truck count, partly offset by a 4% decrease in Bcl truck utilization defined as loans per bcl truck per quarter I believe the decrease in Bcl utilization was mostly due to the storms that disrupted freight transportation in late February.

Laurie.

We ended the quarter with a record number of approved third party carriers in our network, while the number of third party carriers hauling freight in the 2021 first quarter increased 23% over the 2021st quarter.

I will now comment on a few specific line items with the company's first quarter financial statements.

Profit increased 32% to $189 2 million.

Compared to $142 $9 million in 2020.

Gross profit margin was 14, 7% of revenue in the 2021 first quarter and 15, 4% in the 2021st quarter.

The 70 basis point decrease in gross profit margin was attributable to mix.

Mostly attributed to mix as a percentage of revenue contributed from the higher margin fixed margin business decreased and the cost of purchased transportation paid to third party carriers under variable cost arrangements as a percentage of revenue increased 89 basis points.

The decreased gross profit margin from those items was partly offset by a 36 basis point decrease in the rate of commissions paid to agents on total revenue, which was partly attributable to a reduction in agent commissions in the 2021 period, resulting from the termination of certain Bcl Domicile Commission arrangements at year end 2020.

Other operating costs were $7 6 million in the 2021 first quarter compared to $8 3 million in 2020.

This decrease was primarily due to decreased provision for contractor bad debt and decreased trailing equipment maintenance costs, partly offset by decreased gains on sale of used trailing equipment during the first quarter of 2021.

Insurance and claims costs were $21 $5 million into 2021st quarter compared to $25 million in 2020 total insurance and claim costs were three 8% of <unk> revenue in 2021 period, and five 8% of Bcl revenue in the 2020 period.

The decrease in total insurance and claim cost compared to 2020 was primarily due to a provision for severe accident that took place in the 2020 period.

As well as the impact of a $2 2 million of net unfavorable development of prior year claims impacting the 2020 period.

Totally offset by a $3 $3 million increase in insurance premiums primarily for commercial trucking liability coverage renewed in May 2020 at a significantly increased cost.

Selling general and administrative costs were $45 4 million in the 2021 first quarter compared to $45 3 million in 2020.

The slight increase in SG&A costs was attributed to a few items of significant increase and a few items of significant decrease year over year.

For one the estimated cost of the company's variable cost cash incentive compensation plan and equity incentive plan increased $5 $7 million over the 2021 quarter due to the expectations of a record setting financial forecast in 2021. Additionally.

Additionally, technology costs, including maintenance contracts professional fees and software license costs exceeded prior year by $800000 offsetting those cost increases were decreases in employee medical benefits customer bad debt and travel entertainment costs dip.

Depreciation and amortization was $12 1 million in 2021 first quarter compared to $11 5 million in 2020.

Operating income was $103 3 million or 54, 6% of gross profit in the 2021 quarter versus $54 million or <unk> 37, 8% of gross profit in 2020.

Operating income increased 91% year over year, and along with operating margin represent new all time quarterly records for Landstar.

The effective income tax rate was 24, 4% in the 2021 first quarter compared to 22, 9% in 2020.

The increase in the effective income tax rate was primarily due to lower excess tax benefits on share based compensation arrangements in the 2021 period.

And an increased provision for estimated nondeductible executive compensation during the 2021 period.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $261 million.

Net cash flow from operations in the 2000, 22021 first quarter was $70 million compared to $99 million during the 2020 period.

The decrease in cash flow from operations was mostly due to the significant increase in <unk> revenue.

Which drove up net receivables defined as accounts receivable less accounts payable.

As it relates to the company's second quarter projection quarter over prior year quarter financial comparisons are not meaningful.

Due to the significant downturn in the U S economy and demand for freight services due to the COVID-19 pandemic along with the cost of various initiatives Landstar took in 2022nd quarter to support its network of agents Pcos and response to the pandemic.

As it relates to our 2021 second quarter expectations I anticipate the strong freight environment to continue from the 2021 first quarter.

Through the first several weeks of April truck revenue per load remains consistent with the truck revenue per load generated in March.

Given that March recorded the highest monthly truck revenue per load in the history of the company and assuming we maintain the March and early April level of truck revenue per load through the entire second quarter truck revenue per load would be above the 2021 first quarter in a mid single digit percentage range or 34% to 37% above the 2022nd quarter.

The first quarter of 2021 was a record truckload count.

Lastly, our second <unk>, our second highest first quarter truckload count was in 2019 and at a time and at the time was a first quarter record.

The record 2019 first quarter truckload count the 2019 second quarter truckload count increased three 5%.

Considering the record number of truck loadings in the 2021 first quarter I expect that 'twenty, one 2021 second quarter truckload to trend similarly to the two slightly ahead of the 2019 first to second quarter percentages.

And therefore expect truck load count to increase over the 2021 first quarter in a mid single digit percentage range as.

As such I expect the number of loads hauled via truck in the 2021 sector to increased 28% to 31% over the 2022nd quarter.

Based on the expectations of truck revenue per load and the number of loads hauled via truck previously mentioned I. Currently anticipate 2021 second quarter revenue to be in the range of $1 $400 million to $1.450 billion.

Based on that range of revenue, assuming insurance and claim costs are approximately four 3% of <unk> revenue I anticipate 2021 second quarter diluted earnings per share to be in a range of $2 20 to $2 30.

Overall I am extremely pleased with the start to 2021 2021 first quarter revenue was the highest first quarter revenue the companys history and increased approximately 39% compared to the 2021st quarter.

More impressive was the fact that the 2021 first quarter gross profit operating income net income and diluted per share were the highest ever achieved by last or in any quarter in the company's history.

In our view the overall environment for Landstar has a strongest it's ever been at any point over the last two decades and Landstar is well positioned for tremendous Europe's success, we continue to focus on profitable low volume growth and increase our available capacity to haul those loads. We also remain focused on our strategic priority to continue.

<unk> enhanced technology based tools for the thousands of small business owners in our network.

2020, setting up 2021 is setting up to be a record setting year for landstar as we look to surpassed $5 billion in annual revenue for the first time in our history.

And with that Missy, we will open to questions.

Thank you so much we will now begin our question and answer session.

To ask a question. Please press star followed by the number one on your Touchtone phone. Please record your name once from debt. Once again that is star one to ask a question in to cancel your request. Please press star two.

Speakers, we have multiple questions on queue at the first one is from Bascom majors with Susquehanna. Your line is now open.

Yes, good morning, and congratulation on the results. Thanks for taking my question sure.

Maybe on the cost side just from a modeling perspective can you give us a little more fidelity on where you are accrued for the cash incentive comp and the stock comp.

Given the start to the year.

On an annualized basis.

Just how that might trend quarterly just just for our cost projections.

We put it in perspective of the first quarter, Okay. We.

Typically our first quarter EPS is the lightest EPS of the year right for the other quarters and simply put it in perspective to kind of.

If you just take the $2 that we arent and multiply it by four you're looking at maybe an $8 EPS that would drive about 20, 25% to $26 million additional cost into the P&L.

For the variable comp programs, both both the incentive comp and the equity comp. So I would look at it this way.

If you believe that this was our either this quarter EPS was equal to the next three or maybe a little higher you'd see at $26 million $25 million to $26 million increase in SG&A over 2020.

And on a normalized basis with 2020 be something that we could think about being normalized now I think from actually from an incentive comp standpoint, yes that was about $8 million, which is typically what we have in a year, that's kind of the target, but incentive the equity comp was rather low because our expectations of performance.

We weren't hitting targets on the equity comp, but we're.

We're looking at the equity for 2021 and now those Theres. Some performance units now that are actually going to look like theyre going to vast.

They werent.

We're a low I think I think all last year I want to say that we were at $4 $5 million you would see that climbing.

Up to $16 million to $17 million. So the combination of those two is gets you to the 26.

The growth will drive a little more volatility in that equity comp because we switched the variable comp equity programs.

2012, 2013, and they kind of ride with our projections over the next four to five years.

So it's not just a one year event or our performance units actually vest over five years. So we do five year projections out and as those of change we changed the estimation of what's going to best and clearly.

Coming into the end of 2020, we did not anticipate.

Looking at something could be upwards of $8 in EPS in 2021 and that caused the revision of the upward equity comp.

And maybe I'll ask one more from a high level.

Okay.

To script, an environment that would be better for your business model and the way that this year is starting to play out can you give us some perspective as you have in recent quarters about how unusual this is an and as things start to mean revert whenever they do in however, they do.

How the financial aspects of the model need to kind of go back to baseline. Thank you.

Yes, we would talk about some of the unusual things when youre talking about first the first quarter records that is very unusual because typically our first quarter is seasonally softer than the other three quarters in and to come out with gross profit and operating income EPS all like all time quarterly records that's unusual.

From an operations metric the other thing Thats unusual the trailer demand that we have coming through the first quarter, it's usually our lighter quarter for demand, we're kind of setting up for the rest of the year and our trailer guidance here on the fourth floor or just trying to get trailers from almost anywhere.

So that's pretty unusual right now so there's high demand for equipment in the marketplace. In some cases, we're having difficulty satisfying some trailer demand that typically is a fourth quarter phenomenon not a first quarter phenomenon.

The high rates climbing into the coming into March there is a lot of things unusual right now.

But I'm not I don't know if it's not going to continue at least for a while now my pessimism would typically say and as I said in January that I would expect we are in a typical cycle and that cycle gross 12 to 18 months and we'd see softness coming into the back half of the year based on the dynamics. We're looking at right now Mike My pessimism I'll still say, it's going to slow.

On back half, but not back half I think maybe after the third quarter, but I am feeling a little bit more like this is an 18% to 19 transition where 18 was relatively good throughout the year and then 19 really saw the softness after the first quarter.

Some other things I think there will carriers too.

Things are getting more expensive to insurance costs today are up 200 per cent compared to where they were they all claims costs, whether its claim costs of premiums cost and you can read a lot about what's going on with driver wages in the asset based guys are trying to do anything that kind of get drivers in seats. So theyre driving wages up so I think we will probably.

A normal cycle, whether it starts in the fourth quarter or sometime next year I, just don't see the spot market pulling back as far as the 2016 15 numbers or 17 numbers due to the costs that have come into the system.

So I think.

<unk> thing I'd say, we're going to see some kind of normal cycle, but not to the extent, it's going to get rid of all the benefits we're getting today.

And in this environment, we made we build relationships with new customers customers, who can't find trucks come to us and I think all of that benefits, our future into Poland not having a.

We're not looking at OE dollars non crash right. We're looking at just a normal cycle, where spot rates pull back a little bit so that would be my take on where we are and what I see going out.

I appreciate the candid response, there Jim I'll pass on to the next day.

Thank you so much. Our next question is from Jack Atkins of Stephens. Your line is now open yes, good morning, and congrats again on a great quarter here.

So I guess, Jim if I could maybe start.

And maybe think about cross border activity.

Which is really kind of coming into focus here more and more especially given the activity. We're seeing with rail M&A proposed rail M&A, but you guys really have.

Have a unique asset.

Down in Laredo with your cross border facility there.

Could you just talk about.

Your long term vision for cross border activity and sort of how that plays into the.

The investment process over the next several years because it really seems like you guys are in advantage position there to take it to really benefit from what we're seeing with regard to near shoring and things like that.

Yes, Jack this is Joe I'll take a crack at that so I would agree with you when we built our facility in Laredo in 2017 and previous to that we really didn't have a well established.

Cross docking capability, we didn't have a customs brokerage capability, we had fewer trailers in markets.

While a good service offering we saw the opportunity that it could be better and we've seen that in the quarter volume across the border for us was up about 18%.

And we're not.

We're nowhere clear what we could do we've still got capacity there if we add people add shifts.

And I think we.

Continuing to invest and trailing equipment in the market.

As we see the opportunities and the revenue growth so and again there is room to move there and I'd also say that while we don't have company facilities and other points across the border. We do have similar capabilities in third party.

Party locations. So we're not just stuck with Laredo as the only gateway we're doing similar things.

In California, Arizona and across the border in Texas. So.

Like what were doing their dedicated sales force to support that effort now.

Only gotten stronger and I think youll see other people trying to do what we're doing.

And.

But I think we've got a lot of carrier relationships south of the border that are very strong that we work with those carriers provide visibility.

And I think.

Things are going couldn't be going better down there Jack.

Absolutely.

And then I guess, maybe one other and this is just another high level question and I'll leave the cyclical questions for others, but.

I think recently you guys had an opportunity to purchase.

And agency sort of bring that agency in house.

I think maybe the idea is to use that as a platform for.

Bidding on larger freight packages could you maybe talk about that.

That opportunity set over the over the next several years as you sort of.

But I think people traditionally think about landstar as being more of a spot market focused player, but do you see some opportunity to take market share with larger contractual.

Related customers.

Over the next few years. If you can just talk about that for a moment that would be great. Thank you sure. Jack This is Rob yes. So we purchased the AUC. We started a company called Landstar Blue. The initial reasoning for doing so was simply to test and develop new technologies and also go out to committed contractual freight opportunities.

We absolutely believe.

It's well within our model because.

You and everyone else points out we play heavily in the spot market, but as we go out and develop these relationships with customers on a contractual committed capacity standpoint. It also brings other opportunities. It brings other opportunities in the spot market for those customers. It brings other opportunities in other modes of so we absolutely look to continue to grow that.

Get deep relationships with our customers a better understanding of what their needs and quite frankly, we're embedded more deeply with them and work to help them grow with everything that we have to offer as a company.

Okay that makes sense. Thanks again for the time.

Alright, thank you so much.

Our next question is from Todd Fowler of Keybanc capital markets. Your line is now open.

Okay, great Thanks, and good morning.

Jim just wanted to follow up on your guidance commentary it sounds like per second quarter. The revenue per load expectations is that it's going to be flat with March I understand that March was elevated typically I think we think about some seasonal build throughout <unk>. So can you kind of square a little bit how you're thinking about the seasonality into the second quarter.

When you do what tracking Q1 to Q2, Youre really seeing maybe historically, a 1% bump not taken out 2020, obviously, but I look back $6 72019 to see in that 1% bump.

We're basically saying is we're going to see.

We're going to see a mid single digit increase over the first quarter because of.

We're going to run we think that we're going to stay elevated at the March rate.

Which would put us in that mid single digit growth over the first quarter. So it's actually the seasonally better but it's really just because we had that jump up in March right. So.

Just a repeat in summary, as historical last four years, excluding last five years, excluding 2020, we would see about a 1% bump in rate.

But we're looking at mid single mid single digits because of the way March Act and how March spiked up and we don't see that pulling back at least.

And the things that drove it.

We believe part of that was from disruption early in the month. It's just continued through April so we're anticipating a good strong number throughout the rest of the April may and June periods.

Okay that makes sense and thats consistent with the numbers that we see but it sounds like if we do see some seasonal strengthening in may and June debt that would be.

Your guidance could be conservative if we see upside from where we're at right now that would be a true statement.

Okay.

I just wanted to follow up.

Thinking about the mix of your business in the first quarter <unk> revenue was over 70%, obviously youre seeing a lot of strength in the substitute line haul offerings.

Can you talk a little bit about how much of that is by design I know you've been investing in the trailer pool, you've got some initiatives obviously to kind of grow there is that something that you expect that mix of business to remain at that level going forward or as the industrial markets come back do you think that youll see on sited in platform kind of get back to that normal 35.

5% or so of revenue I think that would be helpful. Thanks, Yeah, I think it's more of the environment, that's driving us like the one thing good about us we live in a spot market. We go to the demand right and if the demand is in E. Commerce, we end up there if the demands on flatbed. We ended up there and we're very reactive and we're very good at tack in the markets that are hot so it's not a deliberate.

Move to drive more band business into the system.

It's just a very attractive market right now so when you look at the ecommerce stuff, what we call the substitute line haul business or the the consumer durables and stuff and van that's really where that's really where the shift and youre seeing that a little bit of growth on the van percentage as opposed as compared to where the flat beds are I wouldn't say that we are deliberately doing that.

It's just the way it's the way the model works, we have clearly we have more.

We have more agents moving van freight so when the van freight gets hot they penetrate that really good on non flatbed side those guys. Our guys running flat beds on the agent side when it starts to heat up they'll get in there, but right now it's not it's just not as good as where the van the van players.

Yes, Okay that makes sense that's helpful. Thanks for the time this morning.

Yes.

Thank you so much. Our next question is from Stephanie Benjamin of Truest. Your line is now open.

Hi, good morning, good morning.

So I was hoping you could just touch on the onsite business unsighted side of your business on the <unk> side nice acceleration from the fourth quarter, maybe just what youre seeing from the overall industrial economy standpoint, and really your view on that side of the market as we move through 2021.

Yes. It is.

It's more general demand than it is.

Like specific sectors or anything like that that's why.

On the read through we kind of talk about metals machinery, he got a little bit better, but not to the point that it's great right now, but if you were to look at our customer list of what's driving the improvement on flatbed. It's just there is five.

500 customers that are contributing to that growth. So it's more of a pretty diversified group of customers that are that are helping improve that machinery business compared to where it was six or eight months ago, but it's really hard to talk to specifics of whether it was specific to metals machinery, because it's kind of it's kind of it came equally across.

From.

Various customers in <unk>.

Industry sectors that drove that little improvement of flat that we saw as compared to last year.

Okay.

Absolutely. Thank you and then go ahead.

I think he also asked questions on LDL.

Hey debt.

<unk> as substitute line haul or <unk> as true LTM.

Okay.

We both share.

You've got kind of in the <unk> market growth.

We are a reseller of that you've got other disruption.

It kind of follows the same thing with consumer spending is high the LPL.

They are they are stressed.

Now.

Debt market that we deal with.

So we're seeing a lot of that overflow into other areas because they are stressed with their capacity, they're not taking on any new customers new opportunities. The rates were going sky high theyre kind of limiting their services in areas and increasing and others, where they can maximize so we've been able to we've got great partnerships with our <unk> companies and we've been able to leverage our relationships to get.

Actually what we're doing in the spot market onto their size and help increase their profitability. So.

And on the substitute line haul and that's where I was coming out of that ended the year into January I was a little more pessimistic on that one it's why.

Maybe part of the reason why we significantly and seeded not the entire reason I just think we had a great quarter, but.

If anybody recalls the conversations from the end of January I would've expected to substitute line haul to slow as ecommerce demand coming through the system. So I was expecting that to slow down a little bit and it didnt. So I got that one a little bit it wasn't actually correct on my assumptions, there, but the anticipation now and what we're hearing from the from the capacity or the.

Companies, who provide that break to us is that day, they expect that to continue further along the year.

End of the year. So that's another reason why I'm, taking my cycle thing and saying maybe it's late this year and next year because it does feel like that ecommerce business will continue and compared to my prior comments back in January I thought it would pull back a little bit as they optimize their systems and get them.

And get it more routine.

Now there is still more freight come through the system. So I think it's going to stay elevated for longer than I thought.

Great No. That's really helpful. And then just a housekeeping question can you remind us what the normal seasonal pattern for gross margin is from <unk> to <unk> and to the best that you can kind of talk to that now what are you kind of looking at for this.

This year just given the.

The dynamics are shaking out well.

While seasonally typically you feel a little bit it depends on who is calling the freight right.

In the first quarter, you tend to see a little bit improve.

Gross margin if the freight more freights being hauled by the Bcl as opposed to the brokers, but the back three quarters or kind of.

Not a lot of consistency there and come up other gross margin trend or anything like that because sometimes you have in a tight market.

We get more broker freight, but the margins get squeezed and then theres less.

Fixed business. So your margins get squeezed a little bit more so it's really hard to speak about those trends I will say through the set our second quarter estimate I'm using a $14 seven in 2014 nine gross margin, which is slightly ahead of the first quarter and the reason I believe it is going to be a little ahead is because if you recall I made a comment about bcl utilization being <unk>.

In the first quarter, because we had that one one or one five weeks of storms, where the PCL is kind of idled themselves and but so I don't expect to have that impact so I could see <unk> utilization climbing into the second quarter.

With a bottom and a 14, 7%, which is what we did in the first quarter and an upper and a 49, the PTO utilization stays higher in the second quarter. So that's the second quarter beyond that I would expect that.

If the conditions that stay like they are I would expect that 14 five to 15 throughout the rest of the year.

Great really appreciate it thank you guys.

Thank you so much.

You have two more questions on queue and for those who would like to ask a question again, you May press star one and record your name once prompted our next person on cue with Scott Group from Wolfe Research. Your line is now open.

Hey, Thanks, Good morning, guys alright.

You had a comment earlier about you weren't you didn't go into the year thinking you do over $8 of earnings.

If we just assume that the back half of the year is similar with the second quarter.

Closer to $9 of earnings.

Something wrong with that assumption.

Back half should be similar with wood.

With now and given everything that you are saying there.

There is nothing wrong with your math I'm, just conservative and pessimistic I mean look if you look at our trends over the last 10 years and other first quarters, usually softer and if you just assume that Q3, four and $5 220 to $2 30.

It is a valid comment.

You are talking to a guy who is who.

<unk> not to get ahead of everything that would be yes, it would be somewhere in the mid to high rates as opposed to just $8.

Right and so.

One other things that stands out here is the net operating margins well above 50%.

I guess I wanted to thank to sort of the other side here is if and when rates start to normalize can you stay above 50%.

Net operating margin or do you think we normalize back below that 50% is because we think about.

What could happen to earnings when rates start to fall if that happens I would again remember who I am and I always take the pessimistic view, absolutely I think we will.

Not that we will but yes. There is there is there is there is a good chance that we would pull back under 50 I mean, we just if you look at if we continue to push out the other $180 million of gross profit a quarter, we're going to be over 50% right. So that's really how you got to look at because we don't have to grow the infrastructure. Other operating costs SG&A insurances are volatile right that one can drive.

It up or down so that one could cause a miss to the 50% net depreciation yes, we do have continuing investments coming across.

In technology, but.

Our goal was to get the 50% was to do a mid single digit gross profit growth and we just blew it out gross profit stays elevated.

Yes, we can stay at 50%.

If we cycle like 18, if we cycled back away. If you believe that we're in this year. It looks like 18, and we're going to follow that path of 19, we'll pull back below 50% sometime in 19 2022 I'm sorry.

Okay and then just last question everyone is talking about drivers and it's I mean, it's everywhere beyond just the trucking world.

Why is so much success on <unk> right now.

S. GAAP this Joe I think Jim hit on it in his comments, we've done a little bit.

Better job, bringing trucks in the door, but we've done a really nice job of keeping those that are here and I think a lot of that is.

I think we've done some things internally with how we've structured our retention efforts we've done some things on how we've deployed <unk> to help them be more productive and to and to run their businesses better.

We've created field operation centers that are not yet fully deployed but.

Aimed to make Landstar, which is a larger organization feel small when you're when you're an owner operator right. So just to provide services differently.

So it's really it's largely around the environment and the retention effort this year and just having a pretty good.

Network of support both from employees and our agent family.

The van business strength in the drop and hook clearly helps.

All of those things are really coming together.

On the <unk> side, and then on the carrier side again I think.

There are the environment helps bring carriers small carriers in particular, who maybe were on the sidelines off the sidelines based on the strong rate per <unk>.

Rate per load.

And.

That's I think going to continue to be seen as we move through 2021.

I'd like to way our capacity offering has grown and I think I don't see any reason that it wouldn't continue to grow as we move through the year.

Okay.

Okay. Thank you guys.

Take care.

Thank you so much our last question on keyless from Scott Schneeberger of Oppenheimer. Your line is now open.

Thanks, very much good morning congratulations.

Just curious it looks like it's going to be very robust cash flow year free cash flow I'm curious what your thoughts are with regard to <unk>.

Capex and use of cash and debt.

Anything on the other technology initiatives.

<unk> trailers that youre going to be doing differently, given the strong start to the year.

Now we are we are definitely going to be adding some more trailing equipment over the next couple of months into the system to try and satisfy the current demand and be ready for peak season, but those youll see that we.

We borrowed will get those so it doesn't really impact the cash.

When we're when we're buying those so it's really tech spend and its not going to be.

Different than last year, so there's nothing unusual in our cash.

Capital allocation as compared to last year.

So its really youre looking at this run rate would probably be about $300 million of cash flow or a little bit more.

Now, we look at share buybacks versus dividends.

And as you non we've talked about it all the time is as the stocks Robyn running up we.

We don't chase the runup, we let the investors get in when they want to get in and then when it settles we will get in.

So again management really likes the buyback programs.

At the end of the year.

Sitting on we're looking at our cash balance and look at our projections, what's going to happen into the future. We could end up doing a dividend.

Our philosophies haven't really changed but theres nothing unusual in the year that we're going to start.

No big Capex that would be abnormal in the situation. We're in like I said, we will be adding some trailers, but thats through capital leases.

Thanks.

And then.

I guess kind of have to ask it seems the demand is strong right now but.

But the infrastructure Bill.

He is going to be off in the distance weighted applied but any positioning youre doing now or getting set up for that with regard to.

And particularly the upside of business. Thanks.

No typically anything like that where its road construction of bridges or stuff like that doesn't directly impact us, but it absorbs the flatbed market.

<unk> gets tighter so indirectly it helps us a lot right because we have we're doing $1 billion worth of flatbed every year and one of the biggest provider. So anything that tightens that flatbed market. It's more of an indirect impact to us on a direct were not staging or setting up or having significant conversations with the entities that may.

B, taking advantage of the infrastructure Bill So I would say that it's just it's good for everybody saw in the flatbed if they start doing if they pass on an infrastructure bill and eat up that flatbed capacity.

Understood. Thanks.

Yes.

Thank you so much at this time, we don't have any more questions on queue. You may continue Mr. Bottone, alright. Thank you Missy and thank you and I look forward to speaking with you again on our 2021 second quarter earnings Conference call.

Currently scheduled for July 20 <unk>.

Have a good day.

Thank you so much for joining the conference call today have a good morning. Please disconnect your lines at this time.

Okay.

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Good morning, and welcome to Landstar system Incorporated's first quarter 2021 earnings release conference call all lines will be in a listen only mode until the formal question and answer session. Today's call is being recorded if you have any objections you may disconnect at this time, joining us today from Landstar Arts.

Jim Good Tony President and CEO, Rob Brasher, Vice President and Chief Commercial Officer, Joe Beacom, Vice President and Chief Safety and operations Officer, now I would like to turn the call over to Mr. Jim Good Tony Sir you may begin.

Thank you Missy.

Good morning, and welcome to <unk> 2021 first quarter earnings Conference call before we begin let me read the following statement.

The following is a safe harbor statement under the private Securities Litigation Reform Act of 1095 statements made during this conference call that are not based on historical facts are forward looking statements.

During this conference call. We may make statements that contain forward looking information that relates to Landstar <unk> business objectives plans strategies and expectations.

Such information is by nature subject to uncertainties and risks, including but not limited to the operational financial and legal risks detailed in Landstar form 10-K.

Our 2021 first quarter financial performance was by far the best first quarter performance in Landstar history.

First quarter revenue was a first quarter record while gross profit operating income and earnings per share were all time quarterly records.

During our year end 2020 earnings conference call. We provided 2021 first quarter revenue guidance to be in a range of $1 billion $100 million.

The $1 billion $150 million and diluted earnings per share to be in the range of $1 55 to $1 65.

Our initial guidance anticipated the number of loads hauled via truck in the 2021st quarter to exceed the 2021st quarter and upper single digit percentage range and revenue per load on loads hauled via truck to exceed prior year at a mid teen percentage range actual first quarter results were significantly higher than anticipated as both the number of loads hauled and revenue per load on loads hauled via.

Truck exceeded the high end of our guidance.

Revenue in the 2021 first quarter was $1 billion and $288 million and diluted earnings per share was $2 <unk>.

Both significantly above the high end of the range of our earlier guidance.

Loads hauled via truck in the 2021st quarter increased 13% over the 2021st quarter, while revenue per load on loads hauled via truck increased 24% over the 2021st quarter.

Truckload volume by month in the quarter increased over the prior year month by 12%, 8% and 17% in January February and March respectively.

February and March truckload volume were impacted by the severe storms that hit the central U S and Landstar is last week of fiscal February.

We estimate the storms decreased truckload volume by approximately seven to 8000 loads in February.

We also believe though that landstar haul most of those loans in fiscal March.

Under that assumption.

The percentage growth in load volume each month in the quarter compared to the prior year month was rather consistent and within a range of 12% to 14%.

Consumer demand for building products consumer durables and small package via E. Commerce continued to drive 2021 first quarter record van volume, which grew 17% over the 2021st quarter.

The number of loads hauled via onsite platform equipment grew 5% over the 2021st quarter, mostly due to improvements in the U S manufacturing sector in March.

Revenue per load on loads hauled via truck increased over the prior year month by 18%, 19% and 31% in January February and March respectively.

Overall truck revenue per load on loads hauled via van and onsite platform equipment in the 2021 first quarter increased 30% and 14% respectively over the 2021st quarter.

We continue to attract qualified agent candidates to the model revenue from new agents was $23 million in the 2021 first quarter the best New agent quarterly revenue in eight quarters. The agent pipeline remains full.

During the 2021 first quarter, we recruited a slightly higher number of <unk> compared to the 2021st quarter, while PCL retention was significantly better than during the 2021st quarter.

The number of Bcl cancellations in the 2021 first quarter was 38% below the 2021st quarter overall.

Overall, the net increase in the number of Bcl trucks in the 2021 first quarter speaks to Landstar is ability to attract quality capacity in a tight truck capacity market.

Low as tall via <unk> increased 5% in 2021 first quarter over the 2021st quarter on higher truck count, partly offset by a 4% decrease in Bcl truck utilization defined as loans per bcl truck per quarter I believe the decrease in Bcl utilization was mostly due to the storms that disrupted freight transportation in late February.

Laurie.

I will now comment on a few specific line items with the company's first quarter financial statements.

<unk> profit increased 32% to $189 2 million.

Compared to $142 $9 million in 2020.

Gross profit margin was 14 seven.

7% of revenue in the 2021 first quarter and 15, 4% in the 2021st quarter.

The 70 basis point decrease in gross profit margin was attributable to mix.

At mostly attributed to mix as a percentage of revenue contributed from the higher margin fixed margin business decreased and the cost of purchased transportation paid to third party carriers under variable cost arrangements as a percentage of revenue increased 89 basis points.

The decreased gross profit margin from those items was partly offset by a 36 basis point decrease in the rate of commissions paid to agents on total revenue.

Which was partly attributable to a reduction in agent commissions in the 2021 period, resulting from the termination of certain Bcl Domicile Commission arrangements at year end 2020.

Other operating costs were $7 6 million in the 2021 first quarter compared to $8 3 million. In 2020. This decrease was primarily due to decreased provision for contractor bad debt and decreased trailing equipment maintenance costs, partly offset by decreased gains on sales of used trailing equipment. During the first quarter of 2021.

Insurance and claims costs were $21 5 million in the 2021st quarter compared to $25 million in 2020 total insurance and claim costs were three 8% of <unk> revenue in 2021 period, and five 8% of Bcl revenue in the 2020 period.

The decrease in total insurance and claims cost compared to 2020 was primary due to a provision for severe accident that took place in 2020 period as.

As well as the impact of a $2 2 million of net unfavorable development of prior year claims impacting the 2020 period.

Totally offset by a $3 $3 million increase in insurance premiums primarily for commercial trucking liability coverage renewed in May 2020 at a significantly increased cost.

Selling general and administrative costs were $45 4 million in the 2020 on the first quarter compared to $45 3 million in 2020.

The slight increase in SG&A costs was attributed to a few items of significant increase and a few items of significant decrease year over year.

Depreciation and amortization was $12 $1 million in 2021 first quarter compared to $11 5 million in 2020.

Operating income was $103 3 million or 54, 6% of gross profit in the 2021 quarter versus $54 million or <unk> 37, 8% of gross profit in 2020.

Operating income increased 91% year over year, and along with operating margin represent new all time quarterly records for Landstar.

The effect.

Effective income tax rate was 24, 4% in the 2021 first quarter compared to 22, 9% in 2020.

The increase in the effective income tax rate was primarily due to lower excess tax benefits on share based compensation arrangements in the 2021 period.

And an increased provision for estimated nondeductible executive compensation during the 2021 period.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $261 million.

Cash flow from operations in the 2000, 22021 first quarter was $70 million compared to $99 million during the 2020 period.

The decrease in cash flow from operations was mostly due to the significant increase in March revenue.

Which drove up net receivables defined as accounts receivable less accounts payable.

As it relates to the company's second quarter projection quarter over prior year quarter financial comparisons are not meaningful.

Due to the significant downturn in the U S economy and demand for freight services due to the COVID-19 pandemic along with the cost of various initiatives last or took in 2022nd quarter to support its network of agent Pcos and response to the pandemic.

As it relates to our 2021 second quarter expectations I anticipate the strong freight environment to continue from the 2021 first quarter.

Through the first several weeks of April truck revenue per load remains consistent with the truck revenue per load generated in March.

The first quarter of 2021 was a record truckload count.

Let's our second less our second highest first quarter truckload count was in 2019 and at the time and at the time was a first quarter record.

Following a record 2019 first quarter truckload count the 2019 second quarter truckload count increased three 5%.

Considering the record number of truck loadings in the 2021 first quarter I expect that 'twenty, one 2021 second quarter truckload count to the trends Similarly to the two slightly ahead of the 2019 first to second quarter percentages.

And therefore expect truckload count to increase over the 2021 first quarter in a mid single digit percentage range as.

As such I expect a number of loads hauled via truck in the 2021 site count increased 28% to 31% over the 2022nd quarter.

Based on the expectations per truck revenue per load and the number of loads hauled via truck previously mentioned I. Currently anticipate 2021 second quarter revenue to be in the range of $1 $400 million to $1.450 billion.

Based on that range of revenue, assuming insurance and claim costs are approximately four 3% of Bcl revenue I anticipate 2021 second quarter diluted earnings per share to be in a range of $2 20 to $2 30.

Overall im extremely pleased with the start to 2021 2021 first quarter revenue was the highest first quarter ever in the company's history and increased approximately 39% compared to the 2021st quarter.

More impressive was the fact that the 2021 first quarter gross profit operating income net income and diluted per share with the highest ever achieved by landstar in any quarter in the company's history.

And our view of the overall environment for Landstar is a strong as it ever been an 80 point over the last two decades and Landstar is well positioned for tremendous Europe's success, we continue to focus on profitable low volume growth and increase our available capacity to haul those loans. We also remain focused on our strategic priority to continue.

<unk> enhanced technology based tools for the thousands of small business owners in our network.

2020, setting up 2021 is setting up to be a record setting year for landstar as we look to surpassed $5 billion in annual revenue per this first time in our history.

And with that Missy, we will open to questions.

Thank you so much we will now begin our question and answer session.

Speakers, we have multiple questions on queue at the first one is from Bascom majors with Susquehanna. Your line is now open.

Yes, good morning, Congratulations the results and thanks for taking my question sure.

Maybe on the cost side just from a modeling perspective can you give us a little more fidelity on where you are accrued for the cash incentive comp and the stock comp.

Given the start to the year.

On an annualized basis.

Just how that might trend quarterly just just for our cost projections.

We put it in perspective of the first quarter, Okay. We.

Typically our first quarter EPS is the lightest EPS of the year right to the other quarters and simply put it in perspective to kind of.

If you just take the $2 that we earned and multiply it by four you look at maybe an $8 EPS that would drive about 20 $25 million to $26 million additional cost into the P&L.

For the variable comp programs, both both the incentive comp and the equity comp. So I would look at it this way if.

If you believe that this was our either this quarter EPS was equal to the next three or maybe a little higher you did see a $26 million $25 million to $26 million increase in SG&A over 2020.

And on a normalized basis with 2020 be something that we could think about being normalized now I think from it from actually from an incentive comp standpoint, yes that was about $8 million, which is typically what we have in a year, that's kind of the target, but instead the equity comp was rather low because our expectations of performance.

We weren't hitting targets on the equity comp, but we're looking at the equity for 2021 and now those theres. Some performance units now that are actually going to look like theyre going to vast prior they werent.

We're a low I think I think all last year I want to say that we were at $4 $5 million you would see that climbing.

Up to $16 million to $17 million. So the combination of those two is gets you to the 26 that the growth will drive a little more volatility in that equity comp because we switched our variable comp equity program is about to 2012, 2013 and kind of ride with our projections over the next four to five years.

Coming into the end of 2020, we did not anticipate.

Looking at something that would be upwards of $8 in EPS in 2021 and that caused the revision of the upward equity comp.

Yes, and maybe I'll ask one more from a high level.

Pete.

To script, an environment that would be better for your business model and the way that you are starting to play out can you give us some perspective as you have in recent quarters about how unusual this is an and as things start to mean revert whenever they do in however, they do.

How the financial aspects of the model need to kind of go back to the baseline. Thank you. Yes, we are talking about some of the unusual things I mean, when youre talking about first the first quarter records that is very unusual because typically our first quarter is seasonally softer than the other three quarters in and to come out with gross profit and operating income EPS, all like all time quarter.

The records that's unusual.

From an operations metric the other thing Thats unusual the trailer demand that we have coming through the first quarter. It's usually a lighter quarter for demand were kind of setting up for the rest of the year and our trailer guys. You know here on the fourth floor or just trying to get trailers from almost anywhere.

So that's pretty unusual right now so there's high demand for equipment in the marketplace. In some cases, we're having difficulty satisfying some trailer demand that that typically is a fourth quarter phenomenon not a first quarter phenomenon.

The high rates climbing into the coming into March there is a lot of things unusual right now.

But im not I don't know if its not going to continue at least for a while now my pessimism would typically say and as I said in January that I would expect we are in a typical cycle and that cycle goes 12 to 18 months and we'd see softness coming into the back half of the year based on the dynamics. We're looking at right now Mike My pessimism I will still say, it's going to slow.

On back half, but not back half I think maybe after the third quarter, but I'm feeling a little bit more like this is an 18% to 19 transition where 18 was relatively good throughout the year. The 19 really saw the softness after the first quarter.

Some of the things I think that will carriers too.

Things are getting more expensive to insurance costs today are up 200% compared to where they were they all claims costs, whether its claim costs are premiums costs and you can read a lot about what's going on with driver wages in the asset based guys are trying to do anything that kind of get drivers in seats. So theyre driving wages up so I think we will probably.

A normal cycle, whether it starts in the fourth quarter or sometime next year I, just don't see the spot market pulling back as far as you know the 2016 15 numbers or 17 numbers due to the costs that have come into the system.

So I think in <unk>.

<unk> thing I'd say, we're going to see some kind of normal cycle, but not to the extent, it's going to get rid of all the benefits we're getting today.

And in this environment, we have made we build relationships with new customers customers, who can't find trucks come to us and I think all of that benefits, our future into Poland not having a.

We're not looking at the OE dollars non crash right. We're looking at just a normal cycle, where spot rates pull back a little bit so that would be my take on where we are and what I see going out.

I appreciate the candid response, there Jim I'll pass over the next Guy.

Thank you so much. Our next question is from Jack Atkins of Stephens. Your line is now open.

Good morning, and congrats again on a great quarter here.

So I guess, Jim if I could maybe start.

And maybe think about cross border activity.

Which is really kind of coming into focus here more and more especially given the activity, we're seeing with rail M&A or proposed rail M&A, but you guys really have a have a unique asset.

Down in Laredo with your cross border facility there.

Could you just talk about.

Your long term vision for cross border activity and sort of how that plays into the.

Yes, Jack this is Joe I'll take a crack at that so I would agree with you when we built our facility in Laredo in 2017 and previous to that we really didn't have a well established.

Cross docking capability, we didn't have a customs brokerage capability, we had fewer trailers in markets.

While a good service offering we saw the opportunity that it could be better and we've seen that.

In the quarter volume across the border for us was up about 18%.

And we're not.

We're nowhere clear what we could do we've still got capacity there if we add people add shifts.

And I think.

We are continuing to invest and trailing equipment in the market as.

<unk> abilities in third party third party locations. So we're not just stuck with Laredo as the only gateway we're doing similar things.

In California, Arizona and across the border in Texas. So.

Like what were doing there dedicated sales force to support that effort now.

Only gotten stronger.

I think youll see other people trying to do what we're doing.

And.

But I think we've got a lot of carrier relationships south of the border that are very strong that we work with those carriers provide visibility.

And I think.

Things are going couldn't be going better down there yes.

Absolutely.

And then I guess, maybe one other and this is just another high level question and I'll leave the cyclical questions for others, but yes.

I think recently you guys had an opportunity to purchase.

In agency sort of bring that agency in house.

I think maybe the idea is to use that as a platform for bid.

Bidding on larger freight packages could you maybe talk about that.

That opportunity set over the over the next several years as you sort of.

But I think people traditionally think about landstar as being more of a spot market focus player, but do you see some opportunity to take market share with larger contractual.

Related customers.

Over the next few years. If you can just talk about that for me that'd be great. Thank you sure. Jack This is Rob yes. So we purchased the AUC. We started a company called Landstar Blue. The initial reasoning for doing so was simply to test and develop new technologies and also go out to committed contractual freight opportunities.

We absolutely believe.

It's well within our model because.

You and everyone else points out we play heavily in the spot market, but as we go out and develop these relationships with customers on a contractual committed capacity standpoint. It also brings other opportunities. It brings other opportunities in the spot market for those customers that brings other opportunities in other modes of so we absolutely look to continue to grow that.

Deep relationships with our customers a better understanding of what their needs and quite frankly, we're embedded more deeply with them and work to help them grow with everything that we have to offer as a company.

Okay that makes sense. Thanks again for the time.

Alright, thank you so much.

Our next question is from Todd Fowler of Keybanc capital markets. Your line is now open.

Okay, great Thanks, and good morning.

When you do what tracking Q1 to Q2, Youre really seeing maybe historically, a 1% bump not taken out 2020, obviously, but I look back $6 700019th to see in that 1% bump.

What we're basically saying is we're going to see.

We're going to see a mid single digit increase over the first quarter because of.

We're going to run we think that we're going to stay elevated at the March rate.

Which would put us in that mid single digit growth over the first quarter. So it's actually the seasonally better but it's really just because we had that jump up in March right. So.

Just a repeat in summary, as historical last four years, excluding last five years, excluding 2020, we would see about a 1% bump in rate.

But we're looking at mid single mid single digits because of the way March acted in how March spiked up and we don't see that pulling back at least.

And the things that drove it.

We believe part of that was from disruption early in the month. It's just continued through April so we're anticipating a good strong number throughout the rest of the April may and June periods.

Okay that makes sense and thats consistent with the numbers that we see but it sounds like if we do see some seasonal strengthening in may and June debt that would be.

Your guidance could be conservative if we see upside from where we're at right now that would be a true statement.

Okay.

I just wanted to follow up you know thinking about the mix of your business in the first quarter <unk> revenue was over 70%, obviously youre seeing a lot of strength in the substitute line haul offerings.

Can you talk a little bit about how much of that is by design I know you've been investing in the trailer pool, you've got some initiatives obviously to kind of grow there is that something that you expect that mix of business to remain at that level going forward or as the industrial markets come back do you think that youll see onsite it in platform kind of get back to that normal 35.

5% or so of revenue I think that would be helpful. Thanks, Yeah, I think it's more of the environment, that's driving us like the one thing good about us we live in the spot market. We go to the demand right up the demands in the ecommerce we ended up there if the demands on flatbed. We ended up there and we're very reactive and we're very good at tack in the markets that are hot so it's not a deliberate.

Move to drive more band business into the system.

It's just a very attractive market right now so when you look at the e-commerce stuff or what we call the substitute line haul business or the the consumer durables and stuff and then that's really where that's really where the shift in you are seeing that a little bit of growth on the van percentages as opposed as compared to where the flat beds are I wouldn't say that we are deliberately doing that.

It's just the way it's the way the model works, we have clearly we have more we.

We have more agents moving van freight so when the van freight gets hot they penetrate that really good and non flatbed side those guys. Our guys running flat beds on the agent side when it starts to heat up they'll get in there, but right now it's not it's just not as good as where the then the van players.

Yes, Okay that makes sense that's helpful. Thanks for the time this morning.

Yes.

Thank you so much. Our next question is from Stephanie Benjamin of Truest. Your line is now open.

Hi, good morning, good morning.

I was hoping you could touch on the embedded business unsighted side of your business on the <unk> side nice acceleration from the fourth quarter, maybe just what youre seeing from the overall industrial economy standpoint, and really your view on that side of the market as soon as Q2 2021.

Yes. It is.

It's more general demand than it is.

Like specific sectors or anything like that that's why.

On the read through we kind of talk about metals machinery, you got a little bit better, but not to the point that it's great right now, but if you were to look at our customer list of what's driving the improvement on flatbed. It's just there is five.

From.

Various customers and industry sectors that drove that little improvement of flatbed, we saw as compared to last year.

Okay.

Absolutely. Thank you and then go ahead.

So I'll ask questions on LDL.

Net.

<unk> as substitute line haul or <unk> as true LTM.

Honestly both share.

<unk> got kind of in the NPL market growth.

We're reseller that you've got other disruption. So it kind of follows the same thing with consumer spending is high the LPL.

Are they are stressed right.

Right now debt.

That we deal with.

Exactly what we're doing in the spot market onto their size and help increase their profitability. So.

And on the substitute line haul and that's where I was coming out of that ended the year into January I was a little more pessimistic on that one it's why.

Maybe part of the reason why we significantly and seeded not the entire reason I just think we had a great quarter, but if anybody recalls the conversations remain in January I would've expected the substitute line haul to slow as e-commerce demand coming through the system. So I was expecting that to slow down a little bit and it didnt. So I got that little bit I wasn't actually.

Correct on my assumptions, there, but the anticipation now and what we're hearing from the capacity or the companies who provide that to US is that day. They expect that to continue further along the year into.

Into the year. So that's another reason why I'm, taking my cycle thing and saying maybe it's late this year and next year because it does feel like that E. Commerce business will continue and as compared to my prior comments back in January I thought it would pull back a little bit as they optimize their systems and get them.

And get it more routine right now there is still more freight come through the system. So I think it is going to stay elevated for longer than I thought.

Great. That's really helpful. And then just a housekeeping question can you remind us what the normal seasonal pattern for gross margin is from <unk> and to the best that you can kind of talk to that now what are you kind of looking at for.

This year just given the.

The dynamics are shaking out well.

While seasonally typically you feel a little bit it depends on who is calling the freight right.

In the first quarter, you tend to see a little bit improve.

Gross margin if the freight more freights being hauled by the Bcl as opposed to the brokers, so but the back three quarters or kind of.

Not a lot of consistency there and come up other gross margin trend or anything like that because sometimes you have in a tight market.

We get more broker freight, but the margins get squeezed and then theres less.

Fixed business or your markets gets squeezed a little bit more so it's really hard to speak about those trends I will say through the second quarter estimate I'm using a 14 seven to $14 nine gross margin, which is slightly ahead of the first quarter and the reason I believe it's going to be a little ahead of it because if you recall I made a comment about bcl utilization being <unk>.

With the bottom end of 14, 7%, which is what we did in the first quarter and an upper and a 49% <unk> utilization stays higher in the second quarter. So that's the second quarter beyond that I would expect that.

If the conditions that stay like they are I would expect that 14 five to 15 throughout the rest of the year.

Great really appreciate it thank you guys.

Thank you so much.

We have two more questions on queue and for those who would like to ask a question again, you May press star one and record your name once prompted our next person on cue with Scott Group from Wolfe Research. Your line is now open.

Hey, Thanks, Good morning, guys alright.

Jim.

Comment earlier about.

You didn't go into the year thinking you do over $8 of earnings.

If we just assume that the back half of the year is similar with the second quarter it'd be closer to $9 of earnings is there something wrong with that assumption that the back half should be similar with.

I would now and given everything that you are saying there is nothing wrong with your math I'm, just conservative and pessimistic.

If you look at our trends over the last 10 years and other first quarter is usually softer and if you just assume that Q3, four and five to $2 20 to $2 30.

It is a valid comment.

You are talking to a guy who is.

<unk> not to get ahead of everything that would be yes, it would be somewhere in the mid to higher <unk> as opposed to just $8.

Right and so.

One of the things that stands out here is the net operating margins well above 50% now.

I guess I wanted to thank to sort of the other side here is if and when rates start to normalize can you stay above 50%.

Net operating margin, where do you think we normalize back below that 50% is because we think about.

What could happen in earnings when rates start to fall if that happens I would again remember who I am and I always take the pessimistic view, absolutely I think we will.

Not that we will but yes. There is there is there is there is a good chance that we would pull back under 50 I mean, we just if you look it's easy if we continue to push out the $180 million of gross profit a quarter, we're going to be over 50% right. So that's really how you got to look at because we don't have to grow the infrastructure. Other operating costs SG&A insurances are volatile right that one can draw.

Give it up or down so that one could cause a miss to the 50% and depreciation yes, we do have continuing investments coming across.

In technology, but our goal was to get the 50% was to do a mid single digit gross profit growth and we just blew it out its gross profit stays elevated.

Yes, we can stay at 50%.

And if we cycle like 18, if we cycled back away. If you believe that we're in this year. It looks like 18, and we're going to follow that path of 19, we'll pull back below 50% sometime in 19 2022 I'm sorry.

Okay and then just last question everyone is talking about drivers and it's I mean, it's everywhere beyond just the trucking world.

Why so much success on <unk> right now.

Yes, Scott This is Joe I think Jim hit on it in his comments, we've done a little bit.

Better job, bringing trucks in the door, but we've done a really nice job of keeping those that are here and I think a lot of that is.

I think we've done some things internally with how we've structured our retention efforts we've done some things on how we've deployed <unk> to help them be more productive right and to and to run their businesses better.

We've created and field operation centers that are not yet fully deployed.

Aimed to make Landstar, which is a larger organization feel small when you're when you're an owner operator, so just to provide services differently.

So it's really it's largely around the environment and the retention effort, Vince here and just having a pretty good.

Network of support both from employees and our agent family.

The van business strength in the drop and hook clearly helps.

All of those things are really coming together to help on the BCS side and then on the carrier side again I think.

There are the environment helps bring carriers small carriers in particular, who maybe were on the sidelines off the sidelines based on the strong rate per <unk>.

Rate per load.

And.

That's I think going to continue to be seen as we move through 2021.

I like the way our capacity offering has grown and I think I don't see any reason that it wouldn't continue to grow as we move through the year.

Okay.

Okay. Thank you guys.

Take care.

Thank you so much our last question on queue is from Scott Schneeberger of Oppenheimer. Your line is now open.

Thanks, very much good morning congratulations.

Just curious it looks like it's going to be very robust cash flow year free cash flow I'm curious what your thoughts are with regard to <unk>.

Capex and use of cash and debt.

Anything on the other technology initiatives.

<unk> trailers that youre going to be doing differently, given the strong start to the year.

We borrowed will get those so it doesn't really impact the cash.

When we're when we're buying those so it's really tech spend and its not going to be anything different than last year. So there is not unusual in our.

Capital allocation.

Compared to last year.

So its really youre looking at this run rate would probably be about $300 million of cash flow or a little bit more.

Now, we look at share buybacks versus dividends.

And as you non we've talked about it all the time is as the stocks Rodman running up we.

We don't chase the runup, we let investors get in when they want to get in and then when it settles we'll get in so.

So again management really likes the buyback programs.

At the end of the year.

Yes, <unk>, we're looking at our cash balance and look at our projections, what's going to happen into the future. We could end up doing a dividend.

So our philosophies haven't really changed but theres nothing unusual in the year that we're going to start.

No big Capex that would be abnormal in the situation. We're in like I said, we will be adding some trailers, but thats through capital leases.

Thanks, and then.

Just kind of have to ask it seems the demand is strong right now.

But the infrastructure bill is going to be off in the distance when it applies but any positioning youre doing now or getting set up for that with regard to <unk>.

And particularly that side of the business. Thanks.

No typically anything like that where its road construction of bridges or stuff like that doesn't directly impact us, but it absorbs the flatbed market the capacity gets tighter so indirectly it helps us a lot right because we have we're doing $1 billion worth of flatbed every year and one of the biggest provider so anything that tightens that flatbed market.

It's more of an indirect impact to us on a direct were not staging or setting up or having significant conversations with the entities that might be taking advantage of the infrastructure Bill. So I would say that it's just it's good for everybody saw in the flatbed if they start doing.

Pass on an infrastructure bill and eat up that flatbed capacity.

Understood. Thanks.

Yes.

Thank you so much at this time, we don't have any more questions on queue. You may continue Mr. Qahtani alright. Thank you Missy and thank you and I look forward to speaking with you again on our 2021 second quarter earnings Conference call.

Currently scheduled for July 20.

Have a good day.

Thank you so much for joining the conference call today have a good morning. Please disconnect your lines at this time.

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