Q2 2021 Landstar System Inc Earnings Call

July 22, 2021

[music].

Good morning, and welcome to the answers system incorporated second 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 are Jim gets Oni, President and CEO, Fred been Saudi Vice President and CFO, Rob Brasher, Vice President and Chief Commercial Officer.

<unk>, Vice President Chief sales and operations Officer, I would like to turn the call over to Mr. Jim get Tony Sir you may begin.

Alright, Thank you Kirby.

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

The following 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.

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. Its form 10-K for the 2021.2020 fiscal year described in the section risk factors and other SEC.

Filings from time to time.

These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated investors should not place undue reliance on such forward looking information and Landstar undertakes no obligation to publicly update or revise any forward looking information.

Our 2021 second quarter financial performance was by far the best quarterly performance in Landstar history second quarter revenue gross profit operating income operating margin and earnings per share were all each day.

All time quarterly records.

To put this performance in perspective.

2021 second quarter Landstar achieved its all time quarterly record for revenue in the 2024th quarter and its all time quarterly records for gross profit operating income and earnings per share in the 2021 first quarter.

Landstar is financial performance and its 2021 second quarter exceeded the company's existing all time quarterly records for revenue gross profit operating income and earnings per share by 21%.

17%, 18% and 19% respectively.

In reviewing the Companys 2021 second quarter performance.

Over prior year quarter financial comparisons to the 2022nd quarter are not meaningful.

This is due to the significant downturn in the 2022nd quarter and demand for freight services in the U S economy in general relating to the COVID-19 pandemic and various initiatives taken by Landstar in response to the pandemic to support its network of agents and <unk>.

During our first quarter 2021 earnings conference call. We provided 2021 second quarter revenue guidance to be in a range of $1.400 million to $1.450 billion and diluted earnings per share to be in a range of $2.20 to $2.30.

Revenue to 2021 second quarter was $1.571 million and diluted earnings per share was $2.40.

Our guidance for the 2021 second quarter was at that time entirely based on the most recent sequential month to month trends and short term expectations relating to those trends.

Our initial guidance assumed truckload count would increase in a mid single digit percentage range over the 2021 first quarter.

Is it related to truck revenue per load per.

First quarter truck revenue per load typically is lower than that of the second third and fourth quarters. However revenue per load on loads hauled via truck in March 2021 was an all time monthly record.

Our initial guidance for the 2021 second quarter anticipated that truck revenue per load would continue at the record March 2021 level throughout the second quarter, implying a softer month to month seasonal trend.

In an overall increase in the 2021 second quarter above the 2021 first quarter in a mid single digit percentage range.

Our expectation is that revenue per truckload would stabilize at march's record level held true in April as April revenue per truckload was about the same as in March.

However truck revenue per load further increased in may from April at a higher rate than we anticipated based on historical seasonal trends while June truck revenue per load compared to may was slightly below typical seasonal trends. However June truck revenue per load was at an all time record level for any month.

In anticipation of an upcoming Investor Conference call. We updated our initial 2021 second quarter guidance on May 28 via a form 8-K filed with the SEC. The updated guidance reflected truckload volume at that time trending above the 2021 first quarter and a low double digit percentage range and revenue per load on loads hauled via truck trading above the 2021 first quarter and a high single.

<unk> per.

Percentage range.

Based on those trends the updated guidance called for 2021 second quarter revenue and diluted earnings per share to both slightly exceed the high end of the initial guidance.

Actual second quarter truckload revenue was generally in line with our May 20th guidance. While total revenue came in at a little better than we expected compared to the updated guidance, mostly due to strong performance in our non truckload transportation services.

To help give a sense of actual 2021.

1 month to month trends compared to recent seasonal trends experienced at landstar covering the same time periods.

We compare the 2021 trends with our performance from 2016 through 2019, we're not including results from the fiscal year 2020, given the significant adverse impact of the COVID-19 pandemic had on the freight industry.

On average from 2016 to 2019, the number of loads and revenue per load on loads hauled via truck increased from the first to second quarters by an average of 6.8% and 2% respectively.

The number of loads hauled via truck in the 2021 second quarter increased 12% compared to the 2021 per quarter, while revenue per load on loads hauled via truck increased 7.5% over the 2021 first quarter clearly both growth rates growth rates are much stronger than recent first or second quarter trends.

As it relates to the number of loads hauled via truck the change from March to April 2021, trended consistently with the seasonal trends based on our 2016 and 2019 history.

Although the sequential performance in April 2021 was most likely better than the historical trend as we believe March 2021 load volume was elevated due to freight moving from physical February to physical March due to the storms that hit the U S. In late February.

The growth in the number of loads hauled via truck from April to May was 140 basis points better than the average increase from 2016 to 2019, while growth were made of June was in line with historical trends.

As it relates to revenue per load.

March through April 2021 was 140 basis points below the 2016 to 2019 average but growth from April to May with 200 basis points above the 2016 to 2019 average.

Growth remain a June was slightly below the seasonal trend reflected in the average change we experienced in 2016 to 2019 from an end market standpoint consumer demand for building products consumer durables and small package B E. Commerce continues to drive record van volume in the 2021 second quarter. The number of loads hauled via unsighted platform equipment grew 35.

Sent over the 2022nd quarter, mostly due to improvements in U S manufacturing sector beginning in March.

As it relates to the new agent pipeline, we continue to attract qualified agent candidates to the model.

Revenue from new agents was $24.3 million into 2021 second quarter, the highest revenue from new agents and over 12 quarters.

As the truck capacity, we ended the quarter with a record 11557 trucks provided by business capacity owners over 560 more trucks compared to our year end 2020 count during.

During the 2021 second quarter, we recruited 10% more <unk> than during the 2022nd quarter.

<unk> retention rate also improved as compared to the 2022nd quarter as the number of Bcl cancellations in the 2021 second quarters, 3% below the 2020 quarter.

Overall, the net increase in number of Bcl 2 bcl truck for the 2022nd quarter speak so as our ability to attract qualified capacity in a tight truck capacity market.

Low <unk> increased approximately 26% in the 2021 second quarter over the 2022nd quarter on a 12% increase in average truck cap plus a 12% increase in PCL truck utilization defined as low as per bcf per truck per quarter.

It is worth noting that both bcl trucked out and utilization in 2022nd quarter were adversely impacted by the pandemic.

We ended the second quarter with a record number of true third approved third party carriers our network, while the number of active third party carriers, which we define as carriers, who have hauled the load in the preceding 180 days increased 43% in the 2021 second quarter over the 2022nd quarter. Our network is strong and continues to attract third party truck capacity.

I will now pass it to Fred to comment on additional P&L metrics in a few other second quarter financial statement items Brad.

Thanks, Jim Good morning, everyone and thanks again for joining us Jim covered our revenue performance. So I'll make some additional comments about our P&L specifically, our gross profit operating costs operating income and taxes as well as the balance sheet and cash flow.

Gross profit in the second quarter increased 95% to $228 million.

Compared to $113.1 million in 2020.

Gross profit margin was 14, 1% of revenue in the second quarter of this year compared to 13, 7% in the same period last year.

The increase in gross profit margin was mostly attributable to the impact of $12.6 million of pandemic relief incentive payments made to the company's <unk> and agents in April and May of 2020, partially offset by mix as.

As a percent of revenue contributed from our fixed margin business, which has higher gross profit margin.

Decreased from 51% of total revenue last year to 46% this year.

Due to the impact of the Covid pandemic.

On our 2022nd quarter, a more relevant comparison is to look at our sequential growth in the 2021 second quarter compared to the.

First quarter of this year.

Even by this measure we performed extremely well with gross profit, increasing $31.5 million or 17% to the highest gross profit in the company's history.

The sequential decrease in gross profit margin from 4.7% in the 2021 first quarter to 14, 1% in the second quarter was mostly due to mix as truck brokerage revenue became a larger share of our revenue into 2021 second quarter in agent Commission incentives tied to achievement of specific revenue thresholds on loads hauled by <unk>.

<unk> also grew as a percentage of revenue compared to the first quarter.

Moving on to our indirect costs and expenses or other operating costs were $8.9 million in the second quarter of this year compared to $7.4 million in 2020.

This increase was primarily the result of higher trailing equipment maintenance and tire costs due to a higher trailer count and improved utilization.

More recruiting and qualification costs related to our BCS and fewer gains on trailer disposal during the 2021 period compared to last year.

Insurance and claim costs were $24.1 million in the second quarter this year compared to $19.8 million in 2020.

Total insurance and claim costs represented 3.7% of <unk> revenue this year compared to 5.2% of <unk> revenue last year.

The decrease as a percentage of Bcl revenue was mostly the effect of a 37% increase in <unk> revenue per load and.

In absolute dollar terms the increase in insurance and claims expense was primarily due to the increased severity of current year claims during the 2021 period additional miles driven by our <unk> and a $1.8 million increase in insurance premiums.

Partially offsetting these increases was a $1.5 million benefit from the decrease in net unfavorable development of prior year claims in the 2021 second quarter compared to 2022nd quarter.

Selling general and administrative costs were $54.1 million in the 2021 second quarter compared to $40.6 million.

In 2020.

The increase in SG&A cost was almost entirely driven by the estimated cost of the company's variable cash incentive compensation plan and equity incentive plan, increasing by $12.6 million over the 2022nd quarter due to the expectations of a record setting financial forecast for fiscal year 2021.

Partially offsetting those cost increases with a lower provision for customer bad debt.

In addition, depreciation and amortization expense was $12.1 million in the 2021 second quarter compared to $11.5 million in 2020.

Operating income was $122.2 million or <unk> 55, 4% of gross profit in the 2021 quarter versus $32.2 million or 28, 4% of gross profit in 2020.

Operating income represented a new all time quarterly record for Landstar.

Our effective income tax rate was 23, 9% in the 2021 second quarter compared to 22, 3% in 2020 the.

The increase in the effective income tax rate was primarily attributable to a higher than anticipated state tax refund last year that reduced the 2022nd quarter effective tax rate.

As well as a higher provision for nondeductible executive compensation during the 2021 period, partially offset by the recognition of increased excess tax benefits. During the 2021 second quarter compared to the same period last year related to the vesting of share based compensation.

Our net income for the 2021 second quarter was $92.3 million, which was up from $31.2 million in the same period last year.

And up from $77.2 million or 19, 5% compared to the 2021 first quarter.

Our diluted EPS in the 2021 second quarter was $2.40.

Up from $2 <unk> in 2021 first quarter.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $239 million.

Cash flow from operations year to date in 2021 was $137 million compared to $198 million. During the 2020 period. The decrease in cash flow from operations was mostly due to changes in working capital with a 63% increase in revenue year over year driving up net receivables defined as accounts receivable.

Less accounts payable.

Compared to a decline in working capital in the same period last year, which generated cash from working capital in the year to date 2020 period.

Before I wrap up I'd like to just say that I'm very pleased to be at Landstar and look forward to talking with and meeting many of you hopefully even in person as scheduled <unk> events permit Jimmy.

Jim and I and the rest of the Landstar team are really pleased by the company's performance. This past quarter and we look forward to keeping you updated on the business as we make our way throughout the remainder of 2021.

And now I'll turn it back to Jim to discuss our outlook for the third quarter.

Thanks, Bret and welcome to this superior management team.

Okay.

Freight demand began to significantly improve in August 2020, as the US economy began to improve from increased consumer spending.

Strength in the freight environment, but the began in August continued through the end of 2020 as such year over year financial comparisons should begin to normalize as we move through the 2021 third quarter.

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

In a normal freight environment with a supply of trucks in freight demand remains stable. The companys third quarter truck revenue per load typically slightly exceeds the second quarter, while the number of loads hauled via truck typically track slightly below the second quarter when.

When we experienced those trends third quarter revenue.

Often approximates revenue of the second quarter.

While gross profit tends to decrease slightly from the second quarter due to a lower gross profit margin.

Currently revenue per load and a number of loads hauled via truck are at historical high levels.

And then the first few weeks of July truck revenue per load and the number of loads hauled via truck are tracking in line with typical June to July trends.

Based on this performance. We believe there is a season there is seasonal stability at these elevated price and volume levels.

On the current environment I expect 2021 third quarter truck revenue per load to exceed the 2021 third quarter in the low twenties percentage range and the number of loads hauled via truck to exceed the prior year third quarter in a mid teen percentage range.

As such I expect third quarter revenue to be similar to the 'twenty, 1.2021 second quarter revenue in the range of $1.550 billion to $1.600 billion.

I also anticipate insurance and claim costs.

In the 2021 third quarter to be approximately 4.6% of BCE revenue.

The 3.8% of <unk> revenue experienced in the 2021 first half.

This increase estimate of insurance and claims cost is based on increased premiums relating to auto liability coverage that we are paying a third party insurance companies increased severity. We have already experienced during the first several weeks of July as compared to the 2021 first half mostly due to a small number of specific incidence.

And our experience that over longer periods of time claim cost tend to track more in line with historical trends that we have experienced thus far in 2021.

Based on that range of revenue and assuming insurance and claim cost at approximately $4.6 per hundred PCR revenue anticipate 2021 third quarter diluted earnings per share to be in a range of $2.20 to $2.30.

The projected increase in insurance and claims costs reflected in our third quarter earnings per share guidance as Karen compared to actual insurance and claim costs in the 2021 second quarter would adversely impact 2021 third quarter earnings per share price of approximately 12.

Overall I'm extremely pleased with Landstar as first half 2021 performance 2021 first half revenues by far the highest first half revenue in the Companys history, and increased approximately $628 million or 28% compared to the previous record set in the 2018 first half while gross profit increased approximately 83 million.

Our 25% compared to the 2018 period.

2021 first half gross profit operating income net income and diluted earnings per share were by far the highest ever achieved in any first half in the company's history.

And our view of the overall in volume from Lessor continues to be Australia has been at any point over the last 2 decades and Landstar is positioned for a year of tremendous success. We continue to increase our bell capacity and remain focused on providing an enhanced technology based tools for the thousands of small business owners in both the agent capacity sides of our network I expect 2021 to continue at its record.

Setting pace as we look to easily surpassed 5 billion in annual revenue for the first time in our history.

And with that Kirby, we will open to questions.

Thank you very much Sir at this time, we will begin the question and answer session. If you would like to ask a question. Please press star 1 on your Touchtone phone. Once again that is star 1 to ask a question to cancel your request. Please press star 2.

Our first question would come from the line of Jack Atkins of Stephens. Your line is open. Please go ahead.

How are you hey, great Jim Good morning, Good morning, Rob and Joe and Brad Congratulations on your role with the company.

Thank you and good morning, and thanks good morning.

So I guess, maybe to start Jim kind of going back and picking up off of off from our comments you made on the on the last conference call.

You were talking about.

Net operating margins to answer that.

They could trend once we begin to see.

The cycle.

Maybe begin to normalize into into 2022, and I know that it's very very difficult to anticipate and predict sort of how things are going to trend from here no 1 would've anticipated we'd be where we are today, but.

But.

That there are a lot of.

Cost.

Costs that sort of flex up and flex down in your business, depending on sort of what's happening with the top line and what's happening with gross profit and I was just curious if you had a chance to maybe think about.

Net operating margins being above 50% next year, even if we were to see a slower.

Bob market from a freight perspective do you think that's.

Do you think that's realistic.

I get a lot of questions just around the sustainability of trends.

And then folks can grow earnings in 2022, and I would just be curious to get your thoughts on that subject.

Yes, Jack 1 of the things have taken a consideration as you know our.

The low.

The management team and employees here.

Incentive compensation plan is highly valuable to our results.

When you look back at 2019 second best year ever and we didn't necessarily hit our bonus targets and therefore, there wasn't 1 so but then on the flip side on a great year like we're having that that variable comp plans going to be elevated and I'll tell you right now that our projection for this year is probably in the $20 to $25 million range for that and typically it's $8 million.

And then the equity comp actually works in a similar fashion because it's tied to.

Our equity awards SaaS based on growth in earnings and therefore, we have a similar variability there and you're probably looking at about an equity comp probably another $25 million. This year for that so you're looking about a combined $45 million to $50 million in comp thats in this year.

And in a normal year it would be about 20 combined.

So you've got that supporting that 50% operating margin like Theres a lot of pressure on the margin this year and we're putting 55% up right. So you can we can have a decent decrease in gross profit and still support a 50% margin just because of the tailwind of the <unk> the way our variable comp programs, which benefits everybody.

The theory here is that if the <unk> and the agents aren't doing that well in the market is kind of soft that the executive team Shouldnt get awarded and if we're having a great year. It's the same thing agents will be sales are doing great and then we do great.

So the model kind of protects itself when it comes from that kind of margin perspective, when you have a little softening into the into into a year and I would think and I haven't run numbers, but we could probably have a decent sized pullback in gross profit and still stay above 50% around 50% because of that tailwind on the on the SG&A line, Okay that makes it.

That makes a lot of sense and I appreciate that additional color on that Jim and I guess from a follow up question.

You guys have been.

Accelerating your investments in technology over the last several years.

People under underappreciated.

Just how much technology, you guys have and have pushed forward to the agents and to your answer your <unk> over the past few years, but.

Given how strong this year.

Is from a topline and gross profit perspective are there any thoughts to maybe accelerating some of those technology investments.

Just because you have this sort of windfall from a from a profit perspective.

No Joe.

I would say Jack.

In 2015, when I stepped in the role I told everybody. It was an open checkbook to make our tools better.

And we are spending what we can to get it done we have so many projects in the air right. Now there are there is nothing that stands.

There's nothing that stands out right now that we would add or to the project list. What we're focused on on the front end of this as user experience right agents in trucks.

Making them more efficient, making things more effective on the tools that already existed, but making them more effective and we have a lot of stuff in the pipeline. There on the back end that we don't have to rush into us in ERP and billing system, because our stuff is pretty much from the eighties and it works today, administratively, but sooner or later will jump on that but theres no reason to jam that and it'll help.

It will help build efficiencies within the building but.

We're really focused on user experience. So I don't I don't think Theres anything that I would say hey, we should we should spend another $50 million on tech today might trickle in other projects that will be maybe move forward, a little bit, but I wouldn't say, there's anything wrong with <unk>.

Telling the world that all of a sudden we got we're going to accelerate this project into a year and it's going to cost $50 million I think we're still going to do what we do and spend an extra 20 or $30 million incrementally.

And actually that Incrementals, no longer incremental because thats, probably the spend rate, where we are right now where we used to be you are probably $20 million to $30 million over where we were 4 years ago that that level of spending is probably going to stay where it is.

Unless like you say, we are not aware of anything we're going to pull forward.

But if there was something I wouldn't say, it's going to jump from 25, 30% to $50 to 60.

Okay that makes total sense. Thanks again for the time guys Inc.

Sure.

Thank you. Our next question would come from the line of Todd Fowler of Keybanc capital markets. Your line is open Sir. Please go ahead, hey, good morning, Jim Fred welcome to the self proclaimed superior management team.

Thank you good to be here.

Jim So on the guidance and I understand it makes sense to set up the guidance based on what you've seen from historical seasonal seasonal patterns I note that the year over year comps are starting to normalize.

The last couple of quarters, you've run ahead of seasonal patterns are there things that youre seeing right now either in underlying demand or things on the supply side.

Just that we're going to ship to more in line with seasonal trends or is there anything that youre seeing that would bias 1 way or another versus seasonality as we move through the back half of the year.

Todd you know in the first quarter I got a little skeptical and flattened.

Flattened out the second quarter because of March was so great.

Yeah.

But this time I think it's a little bit different June June was good we're sitting at all time high revenue per load.

But what we've seen through June if you if you when I went through my comments you heard that made a June was more seasonally in line. When it comes to loadings, and then May and June revenue per load was slightly below the seasonal trend again talking to 16 to $18.19 trends I think I think on the right. It's really because of May spike right. So the book.

Softer June may to June was probably because may spike.

And in the first couple of weeks here, we are sitting in July the first 3 weeks of July and I'm seeing the normal June to July trend. So I'm basing this on about a 6 or 7 week stability right. I think we're seeing I've got 6 weeks of stability right now of seeing things that are tracking normal as we would have seen in those 3 years of 16, 3 or 4 years from 16 to 19.

There is nothing pushing us either higher or lower than that at this point. So that's how we get to the trend and we think it's going to continue and you know we always clearly we're meeting with Rob meets with his team and Joe talks to his team about what theyre seeing in the market and it's supported by the commentary coming out of the field and talking to the agents from our customers is how we come up with that.

We're looking at a more normal second or third quarter trend.

Okay, Yes that makes sense and that's helpful. So it sounds like more rooted in what we've seen in the last 6 weeks or so kind of more consistency in more stability and so maybe just along those lines can you speak to anything specific or different between what youre seeing on the bond side and what you're seeing on the onside on a platform side from a seasonal standpoint, and what your expectations would be for.

Both of those for the rest of the year I'll turn it over after that.

The strength really is still on the van side, it's whether it's building products consumer durables or substitute line haul is really.

It's really.

Where the market stands where flatbed has gotten a little bit better it's not gangbusters, but most of the performance is still coming out of band with flatbed being better.

And it's still most of those customers and shippers that we're hearing from that are there.

They are still concerned about the back quarter right in the peak and stuff like that so.

It just feels like a normal seasonal trend on the van side than on the flatbed side, maybe a little improvement as we go through the quarter.

But yes, there's nothing specific that changed in either of those dynamics that I'm aware of the 1 thing we talk about sectors and everybody is talking about the automotive sector and the lack of chips 1 of the we've only had we only had 2.

Commodity in commodities that or sectors that dropped in load volume from the first quarter. The second quarter and 1 was automotive right and I think we expected that coming into the quarter and I expect that 1 is going to continue.

But other net there's nothing really unusual in the trend that we're looking at trends for the rest of the year.

Okay, Yes, all of that makes sense. Okay. Thanks, so much for the time this morning.

Thank you. Our next question would come from the line of basketball majors Susquehanna. Your line is open. Please go ahead.

Yes, thanks for taking my questions here.

Jim You're your stock is certainly a lot higher in absolute terms than.

And when it was when you were buying more aggressively in past years, but the multiple has come down as your earnings have come up.

Do you feel that we're approaching the point, where we're that normal return on capital could be more attractive or do you think we're still in the special dividend when that time comes.

As you noticed we bought about 150000 shares back in the quarter, that's kind of a light quarter for us.

We had seen a pullback in the stock about 10% and we didn't really see anything in the change in the business dynamics.

Also.

Clearly when you look at what the Street's at 885 for the year or 80.83 for the year, Yes, RP is now a lot more reasonable than it was 667 months ago.

I think we're in a buying opportunity situation now and I would expect that.

We're going to be opportunistic.

Stabilizes, where it is.

It's.

I think it's opportunistic we're in an opportunity to mystic position right now it doesn't.

Count out a special at the end of the year and we will still always discussed that in December by looking at cash on the balance sheet and any opportunities we have in the market but.

Right now, yes, I would expect something similar to what we did in the second quarter.

As long as the price stabilizes within.

Certain range.

And again, if it starts we don't we don't compete against investors. If we start seeing a climb up but we like the stability of where it was and we didn't see any change in the business dynamics.

Yeah. Thanks for thanks for sharing that 1 housekeeping question I don't know if I heard.

Where the gross margin should trend can you give us an update on that and I apologize if I missed it.

We didn't say it because we're keeping it a secret.

No actually actually it's similar but maybe a little less than the second quarter, you typically see a little bit of a downturn and I think the first quarter was 14, 1 I think we're using like maybe 39 to 2014 at this point.

And it really is Mary I mean, we just end up being a little more broker to come across I mean, it has nothing to do with any pressure from the tightness of capacity. It's really just the way we typically trend.

And you know what.

I could get 1 more in there I mean, you did make some comments to an earlier question about.

<unk> been able to maintain a pretty good operating margin even if.

Net revenue dollars turn against you next year when it looks like at least the sales side is settling out at somewhere with a mid to high single digit EPS decline next year I mean does that feel reasonable based on your July 2021, Crystal ball just any thoughts on how we bridge from this year to next.

I think it's very difficult in this environment to project 12 months out because of the unpredictability of the pandemic stimulus stops people coming back to work people, maybe traveling I think it's difficult to answer.

Of where that EPS now I know what the street has is that reasonable.

It's a better question toward the end of this year than it is right now, but I think as a management team here. We do think we're going to see some softness sometime in the first half.

And I still think that softness is not going to I don't think it is get to the point, where it's going to.

Get us below that 50% margin, especially when we have.

Bob that tailwind of about $30 million worth of.

Variable comp sitting in SG&A this year that.

If we hit targets next year, you would have that.

That tailwind so.

Sitting here I'm comfortable that we'll maintain a 50% margin next year with a little softness in gross profit.

I hope I answered that question.

Thank you. Our next question would come from the line of Scott Group with Wolfe Research. Your line is open. Please go ahead.

Hey, Thanks, good morning, guys.

Jim.

The uptick in insurance costs should we should we think about this as a 1 quarter event or is this in your mind sort of new normal range from insurance costs are part of it.

Part of it is probably just special to the quarter, because we are aware of a little bit of increase severity covenant through the first 3 weeks of July and when you have an incident you hear about it.

Getting the facts takes a lot longer than it used to and sometimes back change. So we don't know exactly.

The outcome of a couple of these things that happened in the first quarter. So there is a little bit of excess in there.

I would if I would have guessed now without those I know you probably a 4 to 4.3% in that 4.6%, but we're hoping that we were very conservative on that number.

And things on the incidents we know about.

<unk>.

The.

Back pattern and stop support.

Be a lesser severity than what we think they are.

That they sounded like so I.

I think it's a little hefty the 4 sales to be honest with you I think it's conservative, but it's so hard to predict what's going to happen in insurance and claims.

Based on history, it's probably a little heavy.

Right right right. Okay. Your point about the last 6 or so weeks have been seasonally normal after such a long period of outperforming seasonality. What's your history do we typically.

After we have this period of in line with normal do we do we have a shot to get back to better than normal or is this typically or historically the beginning of the transition to underperforming normal what's your crystal ball here, but my Crystal ball is very.

Hard to decipher what we think is going to happen at peak right October November December.

Capacity is still tight there is no question, there and if demand creeps up I think youre going to be seasonal or better than seasonal.

Demand for trailing equipment is still very strong im not sure theres going to be enough trail trailing equipment in the market to satisfy all the demand coming across and we're still anticipating a pretty strong.

Fourth quarter, so we might see a stability coming in here through August September, but if we get peak as strong as it was last year you might be seeing acceleration.

Above seasonal now I'm a pessimist, then do I believe that no but that is a scenario that could play out.

We are right now as I sit here.

I would tell you that I think our fourth quarter is going to look like the third quarter, which looked like the second quarter and we'll just finish out the year. It is more seasonal trend.

Okay, and then if I can just ask spread 1.

The model generates such tremendous cash flow and I don't know that there are amazing acquisition opportunities in your model.

Is there an argument that you guys can just run with some more debt on the balance sheet and sort of dramatically increase the the.

Pace of shareholder returns.

That's a tough 1 I mean the compass.

Company can support more debt there's no doubt. The question is what you can do right. If you raise debt with that cash.

Something we will consider over time, but right now no plans to change the capital structure.

Look look landstar has pretty much been debt averse, our whole lives and then unless we see an opportunity to throw debt on the balance sheet, we kind of like the way. The model is we have flexibility in when we buy and when we pay dividends and loading up the balance sheet with a lot of debt to me feels like just a 1 time hit what's your next move we're not.

Totally adverse to putting debt on the books, but there's got to be an opportunity and a reason to do it.

Okay, Alright, thank you for the time guys.

Thank you.

Question would come from the line of Bruce Chan of Stifel. Your line is open. Please go ahead.

Yes. Thank you operator, and good morning team, Jim you talked about some of the shipper concerns about peak in the end of the year.

And I know you don't have tons of visibility here, but just based on some of the conversations that you've been having.

What do you make of where their inventory levels are right now and how long it will take for them to normalize.

Hey, Bruce this is Rob good question inventory levels.

I think again, especially when you look at e-commerce and consumer spending as it is inventory levels everything is disrupted I mean, you take into consideration things that are going on in the real things that are going on.

At the ports from overseas.

We haven't seen a whole lot of stabilization yet so so the conversation that we're having with our customers that operate in a true peak is.

They don't know.

We've been having these conversations with life first quarter as to.

Aligning with them, making sure that they've got capacity, making sure that they're taking care of them. So I think it's a big unknown.

All indications that we have right now.

Again, there's all kinds of variables that could happen based on.

New uptick of the pandemic, but consumer spending still seems to be high home sales seem to be high remodels things of that sort so theyre looking for.

They're concerned about how strong peak is going to be moving into we'll call. It now late third early and through the fourth quarter.

No that's great color and maybe just 1 more follow up if I could we've been sort of chipping around the edges of the question.

Jim I know you said that you were expecting maybe some potential softness in the <unk>.

Part of next year, but as you think about.

Your comments around peak as you think about where inventory levels are right. Now earlier. This year. You said that you were expecting a kind of normal 12 to 18 month cycle.

Those comments still hold true.

No look I was I was.

The pessimist right back.

Back in January at our year end release, I was talking about the back half of this year, because we're heading into that 12 to 16 months cycle, where the contract rates are climbing in spot rates come through.

Put it in perspective.

Significant majority of stuff as spot rates in the normal cycle is 12 to 18 months now I think we're going to see a cycle I think it's just extended and that's where we're kind of look at it next year things sooner or later going to stabilize we're in a cyclical business.

The if.

There is that the theory of people starting to traveling entertainment not buy goods and stuff anymore, maybe that's been pushed out a little bit, especially with the new variant coming in and maybe people are going to be home again, or we're not traveling as much youre going to hesitate a little bit the travel and maybe more maybe that buying of goods will continue throughout the rest of the year, but sooner or later, we do still and.

<unk>.

Slowdown in demand and contract rates coming up and some of the freight that we haul moving over to contract now we'll keep some of that but some of it runs from the spot rate into the contract market and that and I don't think that cycle changes I think it's just extended.

Perfect. Thank you.

Thank you next question will come from Jason Seidl of Cowen. Your line is open. Please go ahead. Thank you operator, hey, good morning, gentlemen.

And Fred welcome to the team here wanted to touch on the <unk> and <unk>.

How difficult it has been if at all to keep attracting them and if you've seen any difference in some of the states that may be removed from the stimulus payments and then maybe some thoughts next year, if we ever get Washington to agree on an infrastructure Bill how we should think of that hits that impacting landstar.

Yes, Jason This is Joe I would tell you that our as Jim made some comments on his in his remarks recruiting volume is up.

<unk>.

I would be remiss to say, we don't have to work pretty hard to get the <unk> in the door, but I think the environment and where things are and the network effect that we provide them.

Makes it.

We're a pretty attractive location for them. So that's why you see are in the door numbers up and as long as the environment stays the way. It is I think we provide a lot of transparency into the opportunity at Landstar and I think we get increasingly good at that over time. So we're if youre out on your own authority or if youre in another system.

We show you what you can do at Landstar and I think it helps people make the decision to come our way and I think we continue to be good at that.

Can't give you any.

Detail as to what states theyre coming from or are those kind of things I don't know that we've seen anything that steps out to say theyre coming from states that are with or without the enhanced unemployment benefits but.

I just think the overall environment for somebody who owns a truck and wants to get paid on percentage and who wants to really chart their own financial future.

That's what we provide and I think thats, an incredibly attractive picture and we're trying to capitalize on that and it for the last several quarters, we've been able to do so.

Okay and in regards to a potential infrastructure bill and so the impact.

I think if that happens and you see a lot of.

Industrial activity going on I don't think it directly impacts landstar, we might have a little bit of it but I think what it does is it further tightens the flatbed market.

The market in general for those that may participate in that which helps rates climb and of course, when when rates are high that opportunity Atlanta.

Atlanta maintains very.

Very rosy and I think we continue to add equipment, but directly I don't I don't see any really direct effect from the infrastructure Bill Jason. Okay. Appreciate the time as always gentlemen, congrats on the quarter. Thanks take care.

Thank you at this time, we have 2 more questions on queue. The next question would come from Scott Schneeberger from Oppenheimer. Please go ahead.

Thanks, very much good morning welcome Fred.

Jim I guess.

Few questions on it really end markets I'm curious with regard to the substitute line haul business, that's really been growing.

Yeah.

What do you see with <unk>.

Capacity for parcel carriers going forward not just the back half of this year, but looking out a few years what happens for your business there and how you view the capacity in the industry playing out in the bigger picture. Thanks.

On the substitute line haul I think we've talked about it before us.

I anticipated it.

2 or 3 large customers shippers for us not even shippers parcel carriers right.

We anticipate that day, they kind of realign they decided to either put assets in there.

Yes.

<unk>.

They improve there.

Networks, and they're in their carrier base and stuff like that but.

While we are hearing right now is that and I anticipated that happening after the first quarter, where they would bring more of that in house, but right. Now. We are hearing is just that's not the plan right I think that on a substitute line haul business I think we stay elevated throughout the rest of the year and even into next year. It would stay as elevated as high as it is but I think we'll always be participating.

<unk> added a little bit elevated level compared to where we have historically because the inconsistency in the freight flow patterns and not wanting to put assets into the system or at least a significant number of assets. So I think that holds true for this condition I think will hold true for a while.

I think that was your question on that e-commerce side of the business and what are trends because right now I can tell you in the from the first to second quarter I mean, the low volume and that increased 25% and also continues to.

Outperform what a normal seasonal trend would be and especially for the substitute line haul it's pretty elevated right now.

Thanks appreciate that and then I.

I think I heard and I think it was in Todd's question you were talking about the the chip dynamic in automotive and you said that.

And please correct me if I'm wrong.

There were there were 2 sectors that were down first quarter to second quarter automotive being 1.

Curious about the other please correct.

If I heard that right overall and then Jay.

Just curious you guys have done a lot of auto auto parts movement, I'm curious about that dynamic versus new car and how youre handling handling that going forward. Thanks.

So, yes, youre right I mean, you got at automotive and this is a volume so quite a sequential volume comment on what it was from Q1 to Q2, we thought we saw 2 sectors that I've actually had negative volume growth and 1 was automotive which as you know.

7.8% of.

Of our revenue volume.

Of our volume and the other 1 was electrical was which is less than 3%. It was down 2%. So nothing it wasn't 1 of our major categories, but every other sector that we had was positive volume growth Q1 to Q2 as it relates to new cars, we still aren't playing in that area of the business. We may move a little bit of that book.

The significant.

Peace over by 97% of its parts going in and out of plants, we're not doing.

New car moves.

Great. Thanks, and just a follow on there and thanks for that thanks for the detail.

Yes.

Your other categories.

Quarter of overall I know its a catch all but.

1 of the 1 of the lesser growing year over year, just curious anything you'd call out in that category.

Since it's so broad just anything.

Make sure that that's worth noting.

Part of the broadest called freight all kinds and it's like.

Only 10% of that of our total low things for the quarter or so.

And so when the agent puts it on there just puts fak. So some of it we know who the customers don't necessarily know what the commodity is.

Generally just typical.

Non toxic not hazmat type type commodity, but theres nothing within there thats of any signal that's the biggest category within that other yes. There is some other stuff in their governments relatively small foodstuffs and small but nothing that move dramatically within there. Some are up 7% some are up 23% volume, but nothing really move the needle as much.

As you consumer durables building products or your <unk>.

Subsequent line haul.

Got it thanks for that.

Thank you if you would like to ask a question. Please press star 1 on your Touchtone phone. Once again that is star 1 to ask a question next <unk> would come from the line of Stephanie more a true with your line is open. Please go ahead.

Hi, good morning, good morning.

I wanted to touch on.

Topic of Landstar Blue and just any update there in terms of how some of the tech initiatives that you've been rolling out with I know, it's a small portion of your business, but it is a little bit of a shift towards actually kind of.

Exposure to contractual freight so I'd love to get any kind of update there.

Landstar Blue, but also maybe an update on just from the technology initiatives I know, it's been a multiyear rollout across the organization as well as with Landstar blip. So any color there would be helpful.

Our blue on the technology side is kind of twofold 1 is.

Our system here.

Are the core systems here are really designed for the spot world than they have been built out over 20 or 30 years and they're very good they're very good for what we do in that arena and as you mentioned, we're getting into that maybe dedicated more contractual business, which needs a kind of a different tms.

So there is that component of blue that theres, a little bit different than our core business from a Tms standpoint to run dedicated business assigned capacity dedicated capacity with contract rates right. So that's a little bit different.

The stuff that we're using over there that's similar as like Landstar clarity, which is our visibility tool right.

Our Blue also has access to our pricing tool.

And at all the API connectivity and stuff like that so there are similarities clarity is 1 of the best examples is to give the ability for us to use that to see how it how effective it is with third party trucks as you know getting data.

From the third party trucks as kind of an industry.

Challenge you off the trucks don't want to share their information with you or they don't want to load. Your App you got to figure out ways to do it. So you go through Aggregators and it gives us the opportunity there to actually get dedicated capacity to work directly with us.

On specific lanes and work through that communication piece on the clarity side.

On the on the visibility to the freight.

The other thing too as you know we per 8 agents through there too to show them, what we're doing.

They help us we help them kind of on how to run that kind of dedicated business day ever want to get into it.

Rather than probably $20 million to $30 million of freight right now and it will continue to grow out the technology there as we.

Progress down the road with Yeah, we're not in that dedicated capacity world. So that tool is going to be able to handle pushing freight or.

The day dedicated capacity just picking the freight write off where we're pushing the freight to them and its automat automated the 1 thing. It does that we don't have a lot of traction here as we call. It the book It now product that we have right, where the cut where the where the carrier just can push a button and accept the low.

Our world a lot of our agents want to take a phone call and a lot of trucks I want to talk to the agents right.

Landstar Blue yellow is where we'll get traction on the book It now concept right because when the.

When the freight zone and the capacity knows that their free at all I got to do is push a button and let us know that they tuck ins. So there is those are the variations between blue in the core and we are.

We're in the early stages of getting the getting that technology up and running I was told the other day that a few weeks, we will have the Tms running will start running loads through it so it's probably.

<unk> and its a good way to test some of the existing tools at the agencies.

Okay.

Great well. Thank you so much from the color.

Thank you at this time I see no further questions I would like to turn the call back over to you Sir for closing remarks, yes. Thank you Kirby and thank you and I look forward to speaking with you again on our 2021 third quarter earnings Conference call currently scheduled for October 21.

Have a good rest of your week Goodbye.

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

Yeah.

[music].

Good morning, and welcome to Landstar system incorporated second 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 the answer or Jim get Tony President and CEO, Fred been Saudi Vice President and CFO.

Rob Brasher, Vice President and Chief Commercial Officer, Joe Beacom, Vice President Chief sales and operations Officer, I would like to turn the call over to Mr. Jim get Sony Sir you may begin.

Thank you Kirby.

Good morning, and welcome to <unk> 2021 second 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 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 Landstar is form 10-K for the 2021.2020 fiscal year described in the section risk factors and other SEC.

Filings from time to time.

All time quarterly records.

To put this performance in perspective.

Now to 2021 second quarter Landstar achieved its all time quarterly record for revenue in the 2024th quarter and its all time quarterly records for gross profit operating income and earnings per share in the 2021 first quarter.

Landstar financial performance in 2021 second quarter exceeded the company's existing all time quarterly records for revenue gross profit operating income and earnings per share by 21%.

17%, 18% and 19% respectively.

In reviewing the company's 20th 21 second quarter performance.

Over prior year quarter financial comparisons to the 2022nd quarter are not meaningful.

This was due to the significant downturn in the 2022nd quarter and demand for freight services in the U S economy in general relating to the COVID-19 pandemic and various initiatives taken by Landstar in response to the pandemic to support its network of agents and BCS.

Revenue in 2021 second quarter was $1.571 million and diluted earnings per share was $2.40.

Our guidance for the 2021 second quarter was at that time entirely based on the most recent sequential month to month trends and short term expectations, we'll let it relating to those trends.

Our initial guidance assumed truckload count would increase in a mid single digit percentage range over the 2021 first quarter.

Is it related to truck revenue per load first quarter truck revenue per load typically is lower than that of the second third and fourth quarters. However revenue per load on loads hauled via truck in March 2021 was an all time monthly record.

Our initial guidance for the 2021 second quarter anticipated the truck revenue per load would continue at a record March 2021 level throughout the second quarter, implying a softer month to month seasonal trend.

In an overall increase in the 2021 second quarter above the 2021 first quarter in a mid single digit percentage range.

Our expectation is that revenue per truckload with stabilized at march's record level held true in April as April revenue per truckload was about the same as in March.

In anticipation of an upcoming Investor Conference call. We updated our initial 2021 second quarter guidance on May 28 via a form 8-K filed with the SEC. The updated guidance reflected truckload volume at the time trending above the 2021 first quarter and a low double digit percentage range and revenue per load on loads hauled via truck trading above the 2021 first quarter and a high single.

Digits percentage range.

Based on those trends the updated guidance called for 2021 second quarter revenue and diluted earnings per share to both slightly exceed the high end of the initial guidance.

Actual second quarter truckload revenue was generally in line with our May 20th guidance. While total revenue came in a little better than we expected compared to the updated guidance, mostly due to strong performance in our non truckload transportation services.

To help give a sense of actual 2020.

1 month to month trends compared to recent seasonal trends experienced at landstar covering the same time periods.

We compare the 2021 trends with our performance from 2016 through 2019, we're not including results from the fiscal year 2020, given the significant adverse impact of COVID-19 pandemic had on the freight industry.

On average from 2016 and 2019, the number of loads and revenue per load on loads hauled via truck increased from the first to second quarters by an average of 6.8% and 2% respectively.

The number of loads hauled via truck in the 2021 second quarter increased 12% compared to the 2021 first quarter, while revenue per load on loads hauled via truck increased 7.5% over the 2021 first quarter clearly both growth rates growth rates are much stronger than recent first to second quarter trends.

As it relates to the number of loads hauled via truck the changed from March to April 2021, trended consistently with the seasonal trends based on our 2016 to 2019 history. Although the sequential performance in April 2021 was most likely better than the historical trend as we believe March 2021 load volume was elevated due to great moving from fiscal <unk>.

During the fiscal March due to the storms that hit the U S. In late February.

The growth in the number of loads hauled via truck from April to May was 140 basis points better than the average increase from 2016 and 2019, while growth from May to June was in line with historical trends.

As it relates to revenue per load.

March through April 2021 was 140 basis points below the 2016 to 2019 average but growth from April to May was 200 basis points above the 2016 to 2019 average.

Over the 2022nd quarter, mostly due to improvements in U S manufacturing sector beginning in March.

As it relates to the new agent pipeline, we continue to attract qualified agent candidates to the model.

Revenue from new agents was $24.3 million in 2021 second quarter, the highest revenue from new agents and over 12 quarters.

The truck capacity, we ended the quarter with a record of 11557 trucks provided by business capacity owners over 560 more trucks compared to our year end 2020 count.

During the 2021 second quarter, we recruited 10% more <unk> than during the 2022nd quarter.

<unk> retention rate also improved as compared to the 2022nd quarter as the number of Bcl cancellations in the 2021 second quarters, 3% below the 2022nd quarter.

Overall, the net increase in number of Bcl 2 bcl truck in the 2022nd quarter speaks aligns our ability to attract qualified capacity in a tight truck capacity market.

Low <unk> increased approximately 26% in the 2021 second quarter over the 2022nd quarter on a 12% increase in average struck up plus a 12% increase in bcl truck utilization defined as low as per bcf per truck per quarter.

It is worth noting that both bcl truck count and utilization in the 2022nd quarter were adversely impacted by the pandemic.

I will now pass it to Fred to comment on additional P&L metrics in a few other second quarter financial statement items Brett.

Gross profit in the second quarter increased 95% to $228 million.

Compared to $113.1 million in 2020.

Gross profit margin was 14, 1% of revenue in the second quarter. This year compared to 13, 7% in the same period last year.

As a percent of revenue contributed from our fixed margin business, which has higher gross profit margin.

Decreased from 51% of total revenue last year to 46% this year.

Due to the impact of the Covid pandemic.

On our 2022nd quarter, a more relevant comparison is to look at our sequential growth into 2021 second quarter compared to the.

First quarter of this year.

Even by this measure we performed extremely well with gross profit, increasing $31.5 million or 17% to the highest gross profit in the company's history.

<unk> also grew as a percentage of revenue compared to the first quarter.

Moving on to our indirect costs and expenses or other operating costs were $8.9 million in the second quarter of this year compared to $7.4 million in 2020.

This increase was primarily the result of higher trailing equipment maintenance and tire costs due to a higher trailer count and improved utilization.

More recruiting and qualification costs related to our BCS and fewer gains on trailer disposal during the 2021 period compared to last year.

Insurance and claims costs were $24.1 million in the second quarter this year compared to $19.8 million in 2020.

Total insurance and claim costs represented 3.7% of Bcl revenue this year compared to 5.2% of Bcl revenue last year.

The decrease as a percentage of <unk> revenue was mostly the effect of a 37% increase in <unk> revenue per load and.

Partially offsetting these increases was a $1.5 million benefit from the decrease in net unfavorable development of prior year claims in the 2021 second quarter compared to 2022nd quarter.

Selling general and administrative costs were $54.1 million in the 2021 second quarter compared to $40.6 million.

In 2020.

The increase in SG&A cost was almost entirely driven by the estimated costs of the companys variable cash incentive compensation plan and equity incentive plan, increasing by $12.6 million over the 2022nd quarter due to the expectations of a record setting financial forecast for fiscal year 2021.

Partially offsetting those cost increases with a lower provision for customer bad debt bad debt.

In addition, depreciation and amortization expense was $12.1 million in the 2021 second quarter compared to $11.5 million in 2020.

Operating income was $122.2 million or <unk> 55, 4% of gross profit in the 2021 quarter versus $32.2 million or 28, 4% of gross profit in 2020.

Operating income represented a new all time quarterly record for Landstar.

Our effective income tax rate was 23, 9% in the 2021 second quarter compared to 22, 3% in 2020.

The increase in the effective income tax rate was primarily attributable to a higher than anticipated state tax refund last year that reduced the 2022nd quarter effective tax rate.

Yeah.

Our net income for the 2021 second quarter was $92.3 million, which was up from $31.2 million in the same period last year and.

And up from $77.2 million or 19, 5% compared to the 2021 first quarter.

Our diluted EPS in the 2021 second quarter was $2.40 up from $2 <unk> in 2021 first quarter.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $239 million.

With a 63% increase in revenue year over year, driving up net receivables defined as accounts receivable less accounts payable.

Compared to a decline in working capital in the same period last year, which generated cash from working capital in the year to date 2020 period.

Before I wrap up I'd like to just say that I'm very pleased to be at Landstar and look forward to talking with and meeting many of you hopefully even in person as scheduled <unk> events permit.

And now I'll turn it back to Jim to discuss our outlook for the third quarter.

Thanks, Bret and welcome to this superior management team.

Freight demand began to significantly improve in August 2020, as the US economy began to improve from increased consumer spending.

Frank on the freight environment, but to began in August continued through the end of 2020 as such year over year financial comparisons should begin to normalize as we move through the 2021 third quarter.

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

In a normal freight environment with a supply of trucks on freight demand remained stable the companys third quarter truck revenue per load typically slightly exceeds the second quarter, while the number of loads hauled via truck typically track slightly below the second quarter.

When we experienced those trends third quarter revenue often approximates revenue over the second quarter, while gross profit tends to decrease slightly from the second quarter due to a lower gross profit margin.

Currently revenue per load and a number of loads hauled via truck are at historical high levels.

And then the first few weeks of July truck revenue per load and the number of loads hauled via truck are tracking in line with typical June to July trends.

Based on this performance. We believe there is a season there is seasonal stability at these elevated price and volume levels.

Based on the current environment I expect 2021 third quarter truck revenue per load to exceed the 2021 third quarter in the low 20 percentage range and the number of loads hauled via truck to exceed the prior year third quarter in a mid teen percentage range as such I expect third quarter revenue to be similar to the 'twenty 1.2021 second quarter revenue in a range of $1.500.

$50 million to $1.600 billion.

I also anticipate insurance and claim costs.

In the 2021 third quarter to be approximately 4.6% of <unk> revenue above the 3.8% of Bcl revenue experienced a net 2021 first half. This increase estimate of insurance and claims cost is based on increased premiums relating to auto liability coverage that we are paying a third party insurance companies increased severity.

We have already experienced during the first several weeks of July as compared to the 2021 first half mostly due to a small number of specific incidents.

And our experienced that over longer periods of time claim cost tend to track more in line with historical trends that we have experienced thus far in 2021.

Based on that range of revenue and assuming insurance and claim costs at approximately $4.3 dependent or bto revenue anticipate 2021 third quarter diluted earnings per share to be in a range of $2.20 to $2.30.

Overall I'm extremely pleased with Landstar is first half of 2021 performance.

2021, first half revenues by far the highest first half revenue in the company's history and increased approximately $628 million or 28% compared to the previous record set in the 2018 first half.

Gross profit increased approximately $83 million or 25% compared to the 2018 period.

2021 first half gross profit operating income net income and diluted earnings per share were by far the highest ever achieved in any first half in the company's history and.

And our view of the overall volume for lesser continues to be Australia has been at any point over the last 2 decades and Landstar is positioned for a year of tremendous success. We continue to increase our bell capacity and remain focused on providing an enhanced technology based tools for the thousands of small business owners in both the agent capacity sides of our network.

I expect 2021 to continue at its record setting pace as we look to easily surpassed $5 billion of annual revenue per this first time in our history.

And with that Kirby, we will open to questions.

Very much Sir at this time, we will begin the question and answer session. If you would like to ask a question. Please press star 1 on your Touchtone phone. Once again that is star 1 to ask a question to cancel your request. Please press star 2.

Our first question would come from the line of Jack Atkins of Stephens. Your line is open. Please go ahead.

How are you hey, great Jim Good morning, Good morning, Rob and Joe and Brad Congratulations on your role with the company.

Thank you and good morning, and thanks. Good morning, So I guess, maybe to start Jim you know kind of going back and picking up off of off from our comments you made on the on the last conference call.

You were talking about net operating margins and sort of how they could trend once we begin to see.

The cycle.

We began to normalize into into 2022, and I know that you know right. It is.

Very very difficult to anticipate and predict sort of how things are going to trend from here no 1 would've anticipated we'd be where we are today, but.

But you know I know that there are a lot of.

So that's sort of flex up and flex down in your business, depending on sort of what's happening with the top line and what's happening with gross profit and I was just curious if you had a chance to maybe think about.

Net operating margins being above 50% next year, even if we were to see a slower spot market from a freight perspective do you think thats.

Do you think that's realistic.

I get a lot of questions just around the sustainability of trends and if and if folks can grow earnings in 2022, and I would just be curious to get your thoughts on that subject.

Jack 1 of the things that take into consideration as you know our.

The management.

The management team and employees here.

Incentive compensation plan is highly valuable to our results.

When you look back at 2019 second best year ever and we didn't necessarily hit our bonus targets and therefore, there wasn't 1 so rather than put debt on the flip side on a great year like we're having that that variable comp plans from the elevated and I'll tell you right now that our projection for this year is probably in the $20 million to $25 million range for that and typically it's $8 million.

And then the equity comp actually works in a similar fashion because it's tied to.

And in a normal year would be about 20 combined so.

So <unk> got that supporting that 50% operating margins like Theres a lot of pressure on the margin this year and we're putting 55% up right. So you can we can have a decent decrease in gross profit and still support a 50% margin just because of the tailwind of the our the way our variable comp programs, which benefits everybody.

So the model kind of protects itself when it come from that kind of margin perspective, when you have a little softening into the into a into a year and I would think and I haven't run numbers, but we could probably have a decent sized pullback in gross profit and still stay above 50% around 50% because of that tailwind on the on the SG&A line, Okay that makes it.

That makes a lot of sense and I appreciate that additional color on that Jim and I guess from a follow up question.

You guys have been.

Accelerating your investments in technology over the last several years.

People under underappreciated.

Just how much technology, you guys have and have pushed forward to the agents and into your into your <unk> over the past few years, but you know.

Given how strong this year.

Is from a topline and a gross profit perspective are there any thoughts to maybe accelerating some of those technology investments.

Just because you have this sort of windfall from a from a profit perspective.

No Joe.

I would say Jack that back.

In 2015, when I stepped in the role I told everybody as an open checkbook to make our tools better.

We are spending what we can to get it done we have so many projects in the air right. Now there are there is nothing that stands.

There's nothing that stands out right now that we would add or to the project list. What we're focused on on the front end of this as user experience right agents in trucks.

Making them more efficient, making things more effective on the tools that already existed, but making them more effective and we have a lot of stuff in the pipeline. There on the back end debt, we don't have to rush into us in ERP and billing system, because our stuff is pretty much from the eighties and it works today, administratively, but sooner or later will jump on that but theres no reason to jam that and it'll help.

It will help build efficiencies within the building, but we're really focused on user experience. So I don't I don't think theres anything that I would say hey, we should we should spend another $50 million on tech today might trickle in other projects that will be maybe move forward, a little bit, but I wouldnt say theres anything wrong would be tell them tell.

And actually that incremental no longer incremental because thats, probably the spend rate, where we are right now where we used to be you were probably $20 million to $30 million over where we were 4 years ago that that level of spending is probably going to stay where it is unless like you say, we're not aware of anything we're going to pull forward.

But if there was something I wouldn't say, it's going to jump from 25, 30% to 50 to 60 day okay.

Okay that makes total sense. Thanks again for the time guys Inc.

Water.

Thank you. Our next question would come from the line Todd Fowler of Keybanc capital markets. Your line is open Sir. Please go ahead, Hey, Todd.

Hey, good morning, Jim Fred welcome to the self proclaimed superior management team. Thanks, everybody.

Thank you <unk>.

Jim So on the guidance, you know and I understand it makes sense to set up the guidance based on what you've seen from historical seasonal seasonal patterns I know that the year over year comps are starting to normalize in the last couple of quarters. You've run ahead of seasonal patterns are there things that youre seeing right now either in underlying demand or things on the supply side.

That suggests that we're going to ship to more in line with seasonal trends that youre seeing that would bias 1 way or another versus seasonality as we move through the back half of the year.

All right.

Todd you know in the first quarter I got a little skeptical and flattened out the second quarter because of March was so great.

But at this time I think it's a little bit different June June was good we're sitting at all time high revenue per load.

But what we've seen through June.

When I went through my comments you heard that made a June was more seasonally in line. When it comes to loadings, and then May and June revenue per load was slightly below the seasonal trend again talking to 16 to $18.19 trends I think I think on the right. It's really because it may spiked right. So that the softer June may to June was price because may.

Spike.

And in the first couple of weeks here, we're sitting in July the first 3 weeks of July and I'm seeing the normal June to July trend. So I'm basing this on about a 6 or 7 week stability right. I think we're seeing I've got 6 weeks of stability right now of seeing things that are tracking normal as we would have seen in those 3 years of 16, 3 or 4 years from 16 to 19, so theres nothing <unk>.

<unk> us either higher or lower than that at this point. So that's how we get to the trend and we think it's going to continue and you know we always clearly we're meeting with Rob meets with his team and Joe talks to his team about what theyre seeing in the market and it's supported by the commentary coming out of the field and talking to the agents from our customers is how we come up with that we look we're looking.

At a more normal second or third quarter trend.

Yes, no that makes sense and that's helpful. So it sounds like more rooted in what we've seen in the last 6 weeks or so kind of more consistency in more stability and so maybe just along those lines can you speak to anything specific or different between what youre seeing on the van side and what you're seeing on the onside on a platform side from a seasonal standpoint, and what your expectations would be for both.

Are those for the rest of the year I will turn it over after that.

The strength really is still on the van side, it's whether it's building products consumer durables or substitute line haul is really I mean, it's really where the market stands where flatbed has gotten a little bit better it's not gangbusters, but most of the performance is still coming out of band with flatbed being better.

<unk>.

And it's still most of those customers and shippers that we're hearing from them.

They are they are still concerned about the back quarter right in the peak and stuff like that so.

It just feels like a normal seasonal trend on the van side and then the flatbed side, maybe a little improvement as we go through the quarter.

But yes, there is nothing specific that changed in either of those dynamics that I'm aware of the 1 thing we've talked about sectors and everybody is talking about the automotive sector and the lack of chips.

1 of the we've only had we only had 2.

Commodity in commodities that or sectors that dropped in load volume from the first quarter to second quarter, and 1 was automotive right and I think we expected that coming into the quarter and I expect that 1 is going to continue.

But other net there's nothing really unusual in the trend that we're looking at trends for the rest of the year.

Okay, Yeah, all of that makes sense. Okay. Thanks, so much for the time this morning.

Yeah.

Thank you. Our next question would come from the line of basketball majors Susquehanna. Your line is open. Please go ahead.

Yes, thanks for taking my questions here.

Jim You're your stock is certainly a lot higher in absolute terms then.

It was when you were buying more aggressively in past years, but the multiple has come down as your earnings have come up.

Do you feel that we're approaching the point, where we're that normal return of capital could be more attractive or do you think we're still in the special dividend mode. If when that time comes.

As you noticed we bought about 150000 shares back in the quarter, that's kind of a light quarter for us.

We have seen a pullback in the stock about 10% and we didn't really see anything in the change in the business dynamics. We also.

Clearly when you look at what the Street's at 885 for the year or <unk> 83 per the year, Yes, RP is now a lot more reasonable than it was 667 months ago. So I think I think we're in a buying opportunity situation now and I would expect debt.

We're going to be opportunistic and if.

If it stabilizes where it is.

It's.

I think it's opportunistic we're in an opportunity to mystic position right now it doesn't.

Count out a special at the end of the year and we will still always discussed that in December by looking at cash on the balance sheet and any opportunities we have in the market, but right.

Right now yes.

I'd expect something similar to what we did in the second quarter.

As long as the price stabilizes within a certain range.

And again, if it starts we don't we don't compete against investors. If we start seeing a climb up but we like the stability.

And we didn't see any change in the business dynamics.

Thanks for thanks for sharing that 1 housekeeping question I don't know if I heard.

<unk>.

Where the gross margin should trend can you give us an update on that and I apologize if I missed it.

We didn't say it because we're keeping it a secret.

No actually actually it's similar but maybe a little less than the second quarter, you typically see a little bit of a downturn and I think the first quarter of 2014, 1 I think we're using like maybe 39 to 2014 at this point.

And if I could get 1 more in there I mean, you did make some comments to an earlier question about.

<unk> been able to maintain a pretty good operating margin even if.

I think it is very difficult in this environment to project 12 months out because of the unpredictability of the pandemic stimulus stops people coming back to work people, maybe traveling I think it's difficult to answer.

Of where that EPS now I know what the street has is that reasonable.

It's a better question toward the end of this year than it is right now, but I think as a management team here. We do think we're going to see some softness sometime in the first half.

And I still think that softness is not going to I don't think its got to the point, where it's going to.

Get us below that 50% margin, especially when we have.

That tailwind of about $30 million, where the.

Variable comp sitting in SG&A this year that.

If we hit targets next year you'd have that debt.

Tailwind so.

Sitting here I am comfortable that we will maintain a 50% margin next year with a little softness in gross profit.

I hope I answered that question.

Yeah.

Thank you. Our next question would come from the line of Scott Group of Wolfe Research. Your line is open. Please go ahead.

Hey, Thanks, good morning, guys.

Jim.

Uptick in insurance costs should we should we think about this as a 1 quarter event or is this in your mind sort of new normal range on from insurance cost part of it.

Part of it is probably just special to the quarter, because we are aware of a little bit of increased severity coming into the first 3 weeks of July and when you have an incident you hear about it.

Getting the facts takes a lot longer than it used to and sometimes back change. So we don't know exactly.

The outcome of a couple of these things that happened in the first quarter, so theres a little bit of excess in there.

I would if I would have guessed now without those I know you probably a 4 to 4.3% not 4.6%, but we're hoping that we were very conservative on that number and.

And things on the incidents we know about.

<unk>.

Back pattern and stopped support maybe a lesser severity than what we think they are.

They sound like so.

I think it's a little hefty the $4.6 to be honest with you I think it is conservative, but it's so hard to predict what's going to happen in insurance and claims.

Based on history, it's probably a little heavy.

Right right right. Okay. Your point about the last 6 or so weeks have been seasonally normal after such a long period of outperforming seasonality. What's your history do we typically.

After we have this period of inline with normal do we do we have a shot to get back to better than normal or is this typically or historically the beginning of the transition to underperforming normal what's your crystal ball here, but my Crystal ball is very.

Hard to decipher what we think is going to happen at peak right October November December.

Capacity is still tight there is no question, there and if demand creeps up I think you can a seasonal or better than seasonal.

Demand for trailing equipment is still very strong I'm not sure there's going to be enough trail trailing equipment in the market to satisfy all the demand coming across.

And we're still anticipating a pretty strong.

Fourth quarter, so we might see a stability coming in here through August September, but if we get peak as strong as it was last year you might be seeing acceleration above seasonal now I'm. A pessimist then do I believe that no but that is a scenario that could play out.

Right now as I sit here.

I would tell you that I think our fourth quarter is going to look like the third quarter, which looked like the second quarter and we will just finish out the year. It is more seasonal trend.

Okay, and then if I can just ask Fred 1.

The model generates such tremendous cash flow and I don't know that there are amazing acquisition opportunities in your model.

Is there an argument that you guys can just run with some more debt on the balance sheet and sort of dramatically increased.

The pace of shareholder returns.

That's a tough 1 I mean, the company can support more debt. There is no doubt question is what do you do right. If you raise debt with that cash.

It's something we will consider over time, but right now no plans to change the capital structure.

Look landstar has pretty much been debt averse, our whole lives and unless we see an opportunity to throw debt on the balance sheet, we kind of like the way. The model is we have flexibility in when we buy and we paid dividends low.

Adding up the balance sheet with a lot of debt to me it feels like just a onetime hit what's your next move.

Our totally adverse to putting debt on the books, but there's got to be an opportunity and a reason to do it.

Okay, Alright, thank you for the time guys.

Thank you. Our next question would come from the line of Bruce Chan of Stifel. Your line is open. Please go ahead.

Yes, Thank you operator, and good morning team.

Jim you talked about some of the shipper concerns about peak in the end of the year.

And I know you don't have tons of visibility here, but just based on some of the conversations that you've been having.

What do you make of where their inventory levels are right now and how long it will take for them to normalize.

Hey, Bruce this is Rob good question inventory levels.

I think again, especially when you look at e-commerce.

<unk> spending is it as inventory levels everything is disrupted I mean, you've taken into consideration.

That are going on in the real things that are going on.

At the ports from overseas.

We haven't seen a whole lot of stabilization yet so the conversation that we're having with our customers that operate in a true peak is.

They don't know.

Been having these conversations with late first quarter as to <unk>.

Lining with them, making sure that they've got capacity, making sure that they are taking care of them. So I think it's a big unknown.

All indications that we have right now.

Again, there's all kinds of variables that could happen based on.

A new uptick of the pandemic, but consumer spending still seems to be high home sales seem to be high remodels things that so so theyre looking Greg.

They're concerned about how strong peak is going to be moving into we'll call. It late third early through the fourth quarter.

No that's great color and maybe just 1 more follow up if I could we've been sort of chipping around the edges of the question.

Jim I know you said that you were expecting maybe some potential softness.

And the early part of next year, but.

You think about.

Your comments around peak as you think about where inventory levels are right. Now you know earlier. This year. You said that you were expecting a kind of normal 12 to 18 months rate cycle.

Do those comments still hold true.

No look I was I was on.

On the pessimist right.

Put it in perspective.

Significant majority of stuff as spot rates in the normal cycle is 12 to 18 months now I think we're going to see a cycle I think it's just extended and that's where we kind of look at it next year things sooner or later going to stabilize and we're in a cyclical business.

The.

<unk>.

The theory of people starting to traveling get entertainment not buy goods and stuff anymore, maybe that's been pushed out a little bit, especially with the new variant coming in and maybe people are going to be home again, or we're not traveling as much youre going to hesitate a little bit the travel and maybe more maybe that buying of goods will continue throughout the rest of the year, but sooner or later, we do still.

<unk> have.

A slowdown in demand and contract rates coming up and some of the freight that we haul moving over to contract now we'll keep some of that but some of it runs from the spot rate into the contract market and that and I don't think that cycle changes I think it's just extended.

Perfect. Thank you.

Thank you next question will come from Jason Seidl of Cowen. Your line is open. Please go ahead. Thank.

Thank you operator, hey, good morning, gentlemen.

And welcome to the team here wanted to touch on the <unk> and <unk>.

How difficult it has been if at all to keep attracting them and if you've seen any difference in some of the states that may be removed some of the stimulus payments and then maybe some thoughts next year, if we ever get Washington to agree on an infrastructure Bill how we should think of that hits that impacting landstar.

Yes, Jason This is Joe I would tell you that our as Jim made some comments on his in his remarks recruiting volume is up.

<unk>.

I would be remiss to say, we don't have to work pretty hard to get the <unk> in the door, but I think the environment and where things are.

And the network effect that we provide them.

<unk> makes it.

We show you what you can do at Landstar and I think it helps people make the decision to come our way and I think we continue to be good at that.

I don't cant give you any day.

Details as to what states theyre coming from or are those kind of things I don't know that we've seen anything that steps out to say theyre coming from states that are with or without the enhanced unemployment benefits but.

I just think the overall environment for somebody who owns a truck and wants to get paid on percentage and who wants to really chart their own financial future.

That's what we provide and I think thats, an incredibly attractive picture and we're trying to capitalize on that and then for the last several quarters, we've been able to do so.

Okay and in regards to a potential infrastructure bill and so the impact.

I think if that happens and you see a lot of.

Industrial activity going on I don't think it directly impacts landstar, we might have a little bit of it but I think what it does is it further tightens the flatbed market.

The market in general for those that may participate in that which helps rates climb and of course, when when rates are high that opportunity Atlanta.

Atlanta maintains very.

Very rosy and I think we continue to add equipment, but directly I don't I don't see any really direct effect from the infrastructure Bill Jason Okay. I appreciate the time as always gentlemen, congrats on the quarter. Thanks take care.

Thank you at this time, we have 2 more questions on queue. The next question would come from Scott Schneeberger from Oppenheimer. Please go ahead.

Thanks, very much good morning welcome Fred.

Jim I guess.

Few questions on it really end markets I'm curious with regard to the substitute line haul business, that's really been growing.

What do you see with <unk>.

Capacity for parcel carriers going forward.

Is the back half of this year, but looking out a few years what happens for your business there and how you view of capacity in the industry playing out in the bigger picture. Thanks, Yes on the substitute line haul I think we talked about it before us.

I anticipated it.

2 or 3 large customers right shippers for us not even shippers parcel carriers right.

We anticipate that day, they kind of realign they decided to either put assets in there.

Yes.

<unk>.

They improve there.

Networks, and they're in their carrier base and stuff like that but.

What we are hearing right now is that and I anticipated that happening after the first quarter, where they would bring more of that in house, but right. Now. We are hearing is just that's not the plan right I think that on a substitute line haul business I think we stay elevated throughout the rest of the year and even into next year. It would stay as elevated as high as it is but I think we'll always be participating.

<unk>.

Little bit elevated level compared to where we have historically because the inconsistency in the freight flow patterns and not wanting to put assets into the system or at least a significant number of assets. So I think that holds true for this condition I think will hold true for a while.

I think that was your question on the e-commerce side of the business and what are trends because right now I can tell you in the from the first to second quarter I mean, the low volume and that increased 25% and also continues to.

Outperform what a normal seasonal trend would be and especially for the substitute line haul is pretty elevated right now.

Thanks, I appreciate that and then I.

I think I heard and I think it was in Todd's question Youre talking about the chip dynamic in automotive and you said that.

And please correct me if I'm wrong there.

There were 2 sectors that were down first quarter to second quarter automotive being 1.

Curious about the other please correct.

If I heard that right overall and then James.

Just curious you guys have done a lot of auto auto parts movement, I'm curious about that dynamic versus new car and how youre handling handling that going forward. Thanks.

So, yes, youre right on I mean, you've got automotive and this is a volume so quite a sequential volume comment on what it was from Q1 to Q2, we thought we saw 2 sectors that I've actually had negative volume growth and 1 was automotive which is.

7.8% of.

Of our revenue volume.

Of our volume and the other 1 was electrical was which is less than 3%. It was it was down 2%. So nothing it wasn't 1 of our major categories, but every other sector.

We had was positive volume growth Q1 to Q2 as it relates to new cars, we still aren't playing in that area of the business. We may move a little bit of that book.

The significant.

Peace over by 97% of its parts going in and out of plants, we're not doing.

New car moves.

Great. Thanks, and just a follow on there and thanks for that and thanks for the detail.

Yes.

Your other categories.

Quarter of overall I know its a catch all.

1 of the 1 of the lesser growing year over year, just curious anything you'd call out in that category.

Since it's so broad just anything up in the minutia.

Note effects part of the broadest called freight all kinds and it's like.

Only 10% of that of our total low things for the quarter or so.

And so when those when the agent puts it on there it just puts fak. So some of it we know the customers don't necessarily know what the commodity is.

Generally just the typical.

Non toxic not hazmat type type commodity, but there is nothing within there thats any signal that's the biggest category within that other yes. There is some other stuff in their governments relatively small foodstuffs and small.

But nothing that move dramatically within there some are up 7% some are up 23% volume, but nothing really move the needle as much as you consumer durables building products.

Subsequent line haul.

Got it thanks for that.

Thank you if you would like to ask a question. Please press star 1 on your Touchtone phone. Once again that is star 1 to ask a question next 1 <unk> would come from the line of Stefan anymore of Truest. Your line is open. Please go ahead.

Hi, good morning, good morning.

I wanted to touch on net.

Topic of Landstar Blue and just any update there in terms of how some of the tech initiatives that you've been rolling out with them I know, it's a small portion of your business, but it is a little bit of a shift towards actually kind of.

Exposure to contractual freight so I'd love to get any kind of update there.

Our blue on the technology side is kind of twofold 1 is.

Our system here are the core systems here are really designed for the spot world and they've been built out over 20 or 30 years and they're very good they're very good from what we do in that arena and as you mentioned, we're getting into that maybe dedicated more contractual business, which needs a kind of a different tms.

So there is that component of blue that is a little bit different than our core business from a Tms standpoint to run dedicated business assigned capacity dedicated capacity with contract rates right. So that's a little bit different.

The stuff that we're using over there that's similar as like Landstar clarity, which is our visibility tool right.

Our Blue also has access to our pricing tool.

And all of the evi connectivity and stuff like that so there are similarities clarity is 1 of the best examples is to give the ability for us to use that to see how it how effective it is with third party trucks as you know getting data.

From the third party trucks as kind of an industry.

Non specific lanes and work through that communication piece on the clarity side.

The visibility to the frame.

The other thing too as you know we per 8 agents through there too to show them, what we're doing.

They help us we help them kind of on how to run that kind of dedicated business day ever want to get into it.

And probably 20% to $30 million of freight right now and it will continue to grow out the technology there as we.

Progress down the road.

With yeah, we're not in that dedicated capacity world. So that tool is going to be able to handle pushing freight or.

The day dedicated capacity just picking the freight write off where we're pushing the freight to them and it's all automated the 1 thing. It does that we don't have a lot of traction here as we call. It the book It now product that we have right, where the cut where the where the carrier just can push a button and accept the low.

The our world a lot of our I just want to take a phone call and a lot of trucks want to talk to the agents right.

Last our Blue is where we will get traction on the book It now concept right because when the.

When the freight zone and the capacity knows that they're afraid only going to do is push a button and let us know that they tuck ins. So there is those are the variations between blue in the core and you know we're.

We're in the early stages of getting the getting that technology up and running I was told the other day that a few weeks, we will have the Tms running all to start running loads through it so its progress and its a good way to test some of the existing tools at the agencies.

Okay.

Great well. Thank you so much from the color.

Have a good rest of your week Goodbye.

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

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