Q3 2021 Landstar System Inc Earnings Call
[music].
Good morning, and welcome to Landstar system, Incorporated's third 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 good Tony President and CEO, Fred been Saudi Vice President and CFO, Rob Brasher, Vice President and Chief Commercial Officer.
Formal beacom, Vice President and Chief Safety and operations Officer, now I would like to turn the call over to Mr. Jim Good Tony you May now begin.
Thank you Missy.
Good morning, and welcome to <unk> 2021 third quarter earnings Conference call before we begin let me read the following statement.
Alex will follow as I say.
Joe statement under the private Securities Litigation Reform Act of 1095 statements made during this conference call that are not based on historical facts are forward looking statements.
During this conference call. We may make statements that contain forward looking information that relates to <unk> business objectives plans strategies and expectations, such information is by nature subject to uncertainties and risks, including but not.
Safe Harbor to the operational financial and legal risks detailed in last year's Form 10-K for the 2020 fiscal year described in 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.
Limited in Landstar undertakes no obligation to publicly update or revise any forward looking information.
Landstar is 2021 third quarter performance was exceptional extending the record setting pace that began in the mid summer of 2020 with three more months to go in 2021 year to date 2021 revenue is about equal to revenue from all.
All of physical year, 2018, and operating income exceeds the 2018 full physical year amount, which were both record annual financial results I expect the company's strong performance to continue through the remainder of the year with annual revenue exceeding $6 billion and diluted earnings per share in excess of $9 55.
To put the strength of.
'twenty one performance in perspective, assuming we achieve our 2021 fourth quarter guidance full year 2021 revenue and diluted earnings per share would exceed revenue and diluted earnings per share of our existing physically a record set in 2018 by over 35% and 55% respectively.
As it pertains to the 2021.
The 20th revenue gross profit variable contribution operating income and diluted earnings per share were all time quarterly records. Additionally, we ended the third quarter with a record number of trucks provided by <unk> and a record number of active truck brokerage carriers, representing third party carriers, who have hauled the load of freight for Landstar in the past 180 days.
Also new.
<unk> defined as agents, who contracted with Landstar within the last 15 months contributed $36 million of revenue to the third quarter, the highest quarterly new agent revenue in over 10 years.
Landstar is 2021 year to date performance has been historic and when considering our financial results and ability to attract agents and truck capacity providers.
<unk> revenue in the 2021 third quarter increased 60% over the 2023rd quarter, which at the time was the second highest third quarter revenue in Landstar history.
Landstar its record 2021 third quarter revenue was driven by strong demand from for transportation of consumer durables machinery metals hazardous materials building products and automotive parts.
<unk> wise and ecommerce services, where we provide truckload transportation services between hubs of parcel carriers.
Overall revenue hauled via truck in the 2021 third quarter over the 2023rd quarter increased 57%.
Truckload revenue hauled via van and Unimplanted platform increased 54% over the 2023rd quarter.
Revenue per load on truckload services increased 29% and the number of truckloads hauled increased 19% over the 2020 period.
While last years revenue per load is highly influenced by market conditions. The increased truckload volume of 19% against a relatively strong 2023rd quarter speaks to the ability of the network to flex with demand.
And so bikes.
Truckload revenue hauled via van equipment led the increase at 59% over the 2023rd quarter, while revenue hauled via unsighted platform equipment exceeded prior year by 44%.
Other truck transportation River revenue, consisting mostly of revenue generated through power only expedited cargo van straight truck and other.
<unk> almost doubled over the 2023rd quarter.
The primary driver of growth and other transportation services was from power only demand, which contributed 75% of the category in the 2023rd quarter and 63% in the 2023rd quarter.
And finally less than truckload revenue in the 2021 third quarter, which was 2%.
Other surface transportation revenue increased 23% over the 2023rd quarter.
The number of loads hauled via truck in the 2021 third quarter increased three 5% compared to the 2021 second quarter, while revenue per load on loads hauled via truck increased five 8% over the 2021 second quarter, both gross both gross growth rates.
I've tried harder than normal seasonal trends when comparing the recent second quarter to third quarter results.
From an end market standpoint, consumer demand for building products consumer durables and small package B E. Commerce continue to drive record bad volume in the 2021 2021 third quarter.
The number of loads hauled via onsite platform equipment also exhibited strong growth.
Our strip 21 third quarter over the 2023rd quarter, mostly due to continuing improvement in the U S manufacturing sector that began in March.
Revenue per load on trucks, all of you abandon and outside of the platform equipment increased 29% over 2023rd quarter and 7% over the 2021 second quarter above normal seasonal trends as capacity continues to be constrained across.
On the 20, <unk> and equipment types.
As it relates to the new agent pipeline, we continue to attract qualified agent candidates to the model as mentioned earlier revenue from new agents in the 2021 third quarter was the highest quarterly revenue from new agents in over 10 years.
As the truck capacity, we ended the quarter with 11746 trucks provided by business capacity owners seven.
All my 55 more trucks compared to our year end 2020 count.
The increase in Archrock out thus far in 2021 is being driven by improved retention as a number of bcl cancellations through the first three quarters of 2021 was 19% below the number we experienced through the first 33 quarters of 2020.
Year to date.
Late September we have recruited almost the same number of BCS as during the 2000 22000 2039 week period.
Lowest hauled via <unk> increased approximately 5% in the 2021 third quarter over the 2023rd quarter on a 12% increase in average truck count partially offset by a 6% decrease in Bcl truck utilization.
<unk> defined as loads hauled per bcf truck per quarter.
We ended the third quarter with a record number of approved third party carriers in our network, while the number of active third party carriers, which we define as carriers, who have hauled the load and proceeding 100 days 180 has increased 42% in the 2021 third 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 and a few other third quarter financial statement items.
Thanks, Jim Good morning, everyone and thanks again for joining us.
Jim covered our revenue performance in detail and alluded to our gross profit and variable contribution.
Ill make some additional comments about these metrics as.
Well as other profitability metrics and expenses and discuss briefly our balance sheet and cash flow performance.
I'll start with gross profit as.
As we disclosed in our earnings release yesterday effective in the 2021 third quarter, we revised our definition of the term gross profit.
Which we're now defining as revenue less cost of revenue.
Cost of revenue was two categories variable cost of revenue and other cost of revenue.
Variable cost of revenue includes purchase transportation and agent commissions and other cost of revenue includes numerous cost that vary in different degrees with revenue <unk>.
Including trailer depreciation and maintenance expenses Bcl recruiter.
<unk> training and qualification costs.
Insurance related expenses, such as premiums paid and the cost of claims for various freight transportation related insurance policies and other costs included in selling general and administrative and the Companys consolidated statements of income.
Such as brokerage commissions and other fees incurred to administer.
The insurance programs available to <unk> independent contractors that are reinsured by the company.
As well as costs related to our internally developed technology that directly support our revenue as detailed in our reconciliation of gross profit to variable contribution table included in our earnings release.
In addition, with net we now define gross profit margin.
As gross profit divided by revenue.
And the 2021 third quarter gross profit was $189 2 million, an increase of roughly 58% compared to $119 $8 million in the 2023rd quarter.
Gross profit margin was 10, 9% of revenue in the 2021 third quarter only slightly.
7% gross profit margin in the same period of 2020.
In conjunction with the new definition of gross profit we have initiated the use of the term variable contribution of non-GAAP financial measure to refer to the amount represented by revenue less our variable cost of revenue, which again includes cost of purchase transportation.
<unk> and commissions patient agents as detailed in our reconciliation of gross profit to variable contribution table included in our earnings release.
In addition, we now define variable contribution margin also a non-GAAP financial measure is.
As variable contribution divided by revenue.
This measure has always been and.
Below it used to be an important one for us.
Purchased transportation in agent commissions are the primary expenses that are 100% variable with revenue and give us a view into spot market trends and the freight transportation industry on a shipment by shipment basis.
And the 2021 third quarter variable contribution increase roughly <unk> 51.
1% to $242 $3 million compared to $160 9 million in the 2023rd quarter driven by strong revenue growth.
Our variable contribution margin was 14% of revenue this year compared to 14, 8% in the same period last year.
The decrease in variable contribution margin compared.
<unk> continually 'twenty third quarter, mostly attributable to the mix between our Bcl independent contractor capacity majority of which is fixed margin in our brokerage capacity. The majority of which has a variable margin as our brokerage business increased from 44% of total revenue in the 2023rd quarter to 51%.
To the to revenue into 2021 third quarter.
The year over year growth rate and margin performance of gross profit exceeded that of variable contribution due to the ability of the landstar model to leverage the mostly semi variable costs. I described earlier that are included in gross profit.
Other excuse me operating income into 2021 third quarter.
A total was $131 4 million.
Or 69, 4% of gross profit compared to $82 4 million or 68, 7% of gross profit in the same period last year.
Operating income represented 54, 2% of variable contribution in the 2021 third quarter.
Quarter was 51, 2% in the same period last year.
300 basis point improvement in operating income as a percent of variable contribution compare to prior year is primarily attributable to the significant growth in variable contribution that drove down insurance and claims expense and depreciation and amortization expense as a percent of variable contribution compare.
Compare.
Getting to a bit more detail on the expenses noted in our consolidated statements of income.
Purchase transportation grew at a faster pace than our overall revenue growth, which I mentioned earlier was driven by the change in mix of revenue generated by our <unk> and brokerage capacity.
Other operating costs were 10.
Prior to $6 million in the third quarter.
This year compared to $7 4 million in the same period last year. This.
This increase came from higher trailing equipment maintenance and tire costs due to higher trailer count contractor bad debt and increase recruiting qualification and training costs related to our <unk> compared to last.
Year insurance claims costs were $29 6 million in the third quarter this year compared to $21 9 million in the same period last year.
Total insurance and claims costs represented four 3% of <unk> revenue in the third quarter roughly in line with four 4% of <unk> revenue in the 2023rd quarter.
As the impact of higher <unk> revenue per load in the 2021 third quarter was roughly offset by higher severity or cost per claim and increase in prior year claims development and higher insurance premiums compared to the same period last year.
Selling general and administrative expense was $59 $2 million.
Per quarter, this year compared to $38 9 million in the same period last year as.
As we discussed last quarter. The majority of the increase roughly $13 million is related to a variable cost cash incentive compensation plan and stock based incentive plan driven by our record setting financial performance this year.
Wage and benefits.
And the <unk> also contributed to the increase this is probably not too surprising given the current environment that many companies are experiencing across the U S economy.
And lastly, depreciation and amortization was $12 3 million in the 2021 third quarter compared to $11 2 million in the same period last year, primarily due to technology investments and enhancements put into service since last.
Last year effective income tax rate was 24, 4% in the 2021 third quarter compared to 23, 9% in the same period last year.
Increase in the effective income tax rate was primarily attributable to a higher provision for nondeductible executive compensation during the 2021 period and the impact of excess tax benefits on stock compensation.
For the 2020 period.
Net income for the 2021 third quarter was $98 $7 million up 59%.
$1 9 million in the same period last year.
Our diluted earnings per share in the 2021 third quarter was $2 58 up 60% from $1 60.
<unk> in the same period last year.
Moving to our balance sheet, we ended the quarter with cash and short term investments of $267 million in cash flow from operations in the 2021 year to date period was $217 million compared to roughly $186 million during the same period last year.
Before.
<unk> silver back to Jim.
Like to say that after my first quarter at Landstar I'm, even more excited about this company than I was when I started.
Business performance has significantly exceeded the expectations I had when I started towards the end of the second quarter.
Now we recognize we're riding an industry wave, but we're also very pleased with how landstar is performing within the industry.
Three continuing to be a leader with a unique business model with scale and technology that enables entrepreneurial success and in turn the company's success.
I had the opportunity to meet some of these entrepreneurs, namely our agents and our Bcl independent capacity providers.
The enthusiasm for working with the Landstar network is very evident.
As is.
The passion of our employees put into continuing to make the Landstar network stronger everyday.
I've also had the opportunity to meet some of you were probably on this call today and look forward to getting to know more of you in the future.
Look forward to keeping you updated on the business as we make our way through the home stretch of 2021 and start looking ahead to 2022.
And now I'll turn.
Jim to discuss our outlook for the fourth quarter and wrap up our prepared remarks.
Thanks, Brad that was excellent for job security, but.
[laughter] afraid demand began to significantly improve in August 2020 from increased consumer spending as the U S economy credit from the initial impact of the pandemic the strengthen the freight.
That began in August continued through the end of 2020 as such year over year financial comparisons normalize as we move through the 2021 third quarter.
My expectations are that the strong freight environment Landstar as experienced in 2021 will continue through the fourth quarter I expect quarter over prior quarter revenue growth to decelerate from the quarter over prior year quarter.
It back the rate experienced in the 2021 third quarter given that the 2021 fourth quarter compares to a record fourth quarter revenue reported in the 2024th quarter. However that the accelerated growth rates should in no way be viewed as a signal of a change in the very strong freight environment on.
On a year over year basis, I expect 2021 fourth quarter load volume.
Growth on loads hauled via truck to increase in the 13% to 16% range over the 2024th quarter. This is particularly.
<unk> impressive given the strength in business, we experienced in the 2024th quarter when the number of loads hauled via truck exceeded the 2019 fourth quarter that is before the impact of the COVID-19 pandemic by 13% this estimate.
Truck volume for the 2021 fourth quarter would also be in line with what we would consider normal historical volume trends from the third quarter to the fourth quarter of a given year.
I expect revenue per load on loads hauled via truck in the 2021 fourth quarter to also move in line with what would be what we would consider normal seasonal rate trends based on historical experience.
As such I expect revenue per load on loads hauled via truck to increase a healthy 15% to 18% over the 2024th quarter.
Given those assumptions I expect total revenue in the 2021 fourth quarter to be within a range of $1 7 billion to $1 75 billion.
Assuming insurance and claims costs are four 3% of estimated <unk> revenue in the 2021 fourth quarter.
Diluted earnings per share to be in the range of $2 55 to $2 65 overall I am extremely pleased with last year's 21 performance Red.
Revenue 39 week period ended September was by far the highest ever revenue in the company's history over the period, an increase of approximately $1 2 billion or 34% compared to the previous record set in the 2018.
It's been weak period.
2021, 39 week period variable contribution gross profit operating income net income and diluted per share with by far the highest ever achieved in any 39 week period in the Companys history, and we expect each of these metrics to significantly exceed the amounts lesser achieved during his previously record setting 2018 fiscal year and.
In our view.
<unk> volume for lesser continues to be a strong as it has been at any point over the last two decades and Landstar is positioned to complete the year with tremendous success. We continue to increase our available capacity and rain folk remained focused on providing and enhancing technology based tools for the thousands of small business owners and both the agent and capacity size of our network and I expect 2021 to continue.
Overall at its record setting pace as Victor easily surpassed $6 billion in annual revenue for the first time in our history.
And with that Michelle we will open for questions.
Certainly Sir we will now begin the question and answer session. If you would like to ask a question. Please press star followed by the number one on your Touchtone phone.
Continue once again that is star one to ask a question to cancel your request. Please press star two.
Multiple questions on Q in the first one is from Bascom majors of Susquehanna. Your line is now open.
Yeah. Thanks for taking my question and congratulations on another excellent quarter.
Order and an outlook for the for Q, Jim as we look into next year I mean, clearly things are going exceptionally well this year.
Could you help us think about what a more normalized base after the incentive comp and stock comp would be on the G&A number as we think about how the model and your margin.
<unk> flex into whatever happens in the trucking market next year I don't know if.
If that's talking about you know what this year would look like without the excess.
Comp from that or or just calling out that comp, but anything to help us bridge kind of where we stack on a reset G&A for next year would be really helpful. Thank you.
I would say if you take the 39 week period this year in SG&A.
In AD, we believe we're probably going to be slightly lower than the third quarter I think the third quarters about $59 million I think it will have a couple of million dollars lower than that in the fourth quarter. So if you. If you add that in Youll have the full year gas of what our SG&A is for the for the full year of 2020.
One and right now theres, probably 30% to $35 million of variable comp that would not be in next year, unless we blow it out again.
We have a normal you know if we go back to a normalcy where were not grown revenue 60%.
You have a 30% to $35 million tailwind in SG&A related to our variable comp programs.
And Jim does that include both the stock comp and the cash yes, Bob.
They kind of kind of move in tandem with the difference between the two is the cash comp is kind of a short term thing, it's an annual target and the stock comp varies based on like divest over a five year period based on growth over that period. So it's just.
A longer tail on the stock comp than it is the the cash comp, but they kind of tend to move in similar directions, and a great year that kind of elevated and when things slow down they pulled back so in a normal year.
We're going to probably have a 30 to 35 million tailwind going into next year in SG&A.
And do you not to put too fine a point to it.
It's just a pretty big variance, but do you have a sense of you know from hiring in just general wage inflation, what we should think about that base rising.
Yes, I would tell you that we have about an $80 million to $90 million salary.
Component here, maybe it maybe actually a little bit higher than that and Fred had mentioned that in.
The quarter was impacted by some of that wage inflation. We have made a decision early to actually do 5% or increases or July one.
Annually for the entire were pretty much the entire organization and we had made a decision based on what we're seeing in the environment as it relates to.
Retaining or recruiting employees that you know.
The things, we're increasing 5%. We also took a look at the inflation rate and what was going on in the economy, and we try and keep up with cost of living so we did pop a 5% raise across the board.
We put a pool together of 5% for the employee base and which is a little higher than we typically do and if you're thinking about a say a 90 million salary base that is about $4 five.
$5 million next year to SG&A.
Thanks for that and tying it all together I mean.
Even if next year is a normal year end and revenues are flat or even down a bit do you have a pretty big cushion here I mean, do you think that earnings could be flat to up if the market isn't.
Just really challenging on the truck pricing just any preliminary thoughts on how you guys feel heading into next year feeling.
Feeling pretty good for the first half like when we were talking at the end of June It was hard to predict when this thing turns but with the strength we're seeing.
We were saying that sometime first half we might see it start to cycle back now we're thinking maybe it's more towards the end of the.
The first half because of things still remain very strong coming into the fourth quarter. We don't see anything pulling back we see no metrics of trucks coming into the system or demand slowing down.
So I think.
Look do I expect this market to continue no do I expect pricing to stay elevated higher than historical yeah, because I think the cost.
Costs that are now into the.
In the industry, whether it's driver wages or insurance or things like that the costs are elevated so I don't think I ever going to pull back to where we were back in 16 and 17, but.
Cyclical business, we do expect a pullback if we get that pullback I still think we'll perform well.
Can we cover so I'm talking about.
$35 million of variable comp offset by $5 million. So we have that $30 million cushion.
I think we can grow earnings, but I want to put a commitment to that I think there's it's very unpredictable right now sitting here and trying to look into the next 12 to 18 months of what the market is going to look like.
In an environment, where if we see it clearly.
If we see a 20 or 30% pullback, which I don't expect you wouldn't see earnings growth on a 10% pullback I think you'd still see earnings growth.
Well thanks for all that we really appreciate the color.
Hi, Thanks.
Thank you so much. Our next question is from Charles <unk> of Evercore ISI. Your line is now open.
Good morning, Thank you for taking my call I Wonder if you could talk about freight mix across industries and your views on trends that are here to stay versus shifts that may be more temporary in the long term clearly the pandemic continues to result in outside of consumer retail on the chip shortage has really weighed on autos, but when you think about the current mix versus pre pandemic levels, what sector shifts do you see as permanent and.
And which ones do you think will eventually reverse.
Well I don't think we'll just talk about the consumer side look we're highly affected by the manufacturing sector in the U S or at least we used to be if you go back 567 years, we used to tie our load volumes to the changes in industrial production here in the U S right and when you when you think about that if industrial production.
One is growing 3%, we feel we could have grown volume six or 7% of it was down 2% with the volumes go down right and we tied pretty tightly to that the.
The strong demand, we're seeing now and we've seen for the last two years is really a lot of consumer driven based whether it's consumer durables building products stuff like that for home improvement you know that's a lot of what's driving us today.
Like I said, we go back six seven years, we've been we've been kind of penetrating a little bit more into the consumer before the pandemic hit with some of the some.
Some building product stuff and appliance type stuff. So we are slowly getting into that but it's just really ramped up.
It's a difficult question to answer based on what we're sitting in an environment.
<unk> that really Hasnt happened in my lifetime, driven by high consumer demand the government printing money and and supply chain bottlenecks and you take all that stuff and then you got to think about.
When the supply chain bottlenecks start to clear out and that disruption goes away clearly you will have an impact.
On pricing right pricing will come down trucks will.
A little more readily available regardless of whether there is trucks and the more trucks coming into the marketplace.
So whether it's and then you've got the U S domestic manufacturing sector on the flatbed side, which we feel still hasnt jumped off.
It's still relatively I don't want to say, it's soft, but it's not where we think it should be.
So you might see in.
In my World I would say youre definitely sooner or later going to see the consumer market pull back you can only buy so many drivers and washing machines or repair your house, so that will slow down.
Consumer will start burning up some of the cashes are sitting on my balance out with some of the U S production coming back and flatbed market coming back you got this.
Infrastructure Bill it's hung up.
Up in the U S. We've been talking about infrastructure builds for 20 plus years, they've never been able to pull it off but anything there that would help on the flatbed market on the equipment side, if the infrastructure Bill got signed and they're talking about heavy equipment and building, our roads and bridges and stuff like that that's very favorable to the market. So in summary, ex sooner or later, the consumer's going to pull back.
And if you get an infrastructure bill that will help the flatbed market or in a manufacturing starts to improve better than where it is today.
I think eventually we'll see the flip where the van starts to then rates start to pull back a little bit, but the flatbed kind of stay strong into the maybe next 12 to 18 months would be.
And my thoughts.
Okay, Great. That's really helpful would you say that the current environment impacts the way you think about the current trailer fleet at all.
Oh Wow.
Our fleet is really driven by how many <unk>. We have so it's really more tied to our bcl counting the number of <unk>, we have using trailers, we keep a ratio of two to one for every bcl who's using our van trailers.
It's a two to one so if we have say 6000 or 7000, guys using our trailers in the drop and hook operations. We have 14000 trailers. So it's really demand driven if we get demand and bcl count if we get a lot more consumer demand and drop and hook will have more opportunity. It draws more <unk> into the network and we buy more trailers, that's kind of the trial I think we generally.
We don't just buy 1000 trailers and try and put them into the market and get used by third party capacity that really hasnt been a niche for us kind of hard to control the <unk>.
The use of the trailer by a third party capacity that isn't committed to maintain I don't say maintaining it but.
Pick it up from our standpoint, as I tried to point B and they disappear.
It hasn't really worked on our network. So it is really tied to our bcl count more than it is anything else.
Okay, Great. That's very helpful. Thanks, a lot.
Thank you so much. Our next question is from Jack Atkins of Stephens. Your line is now open okay, great. Good morning.
Hey, Jack.
Jackie there.
No I think I think we lost Shockley now have Scott Schneeberger of Oppenheimer. Your line is now open.
Thanks, Good morning, everyone.
I guess I'm curious, Jim obviously, very robust demand environment could you speak to existing accounts.
And then growth in new accounts, where are you seeing new business is it predominantly in and in the and the consumables or consumer durables or and is it just kind of curious where do you see that popping up thanks.
Yes.
From an account standpoint, it's kind of difficult for us to talk we have over 25000 accounts.
And even the top 25, only make up about 30 or 40% of our business.
So we kind of nickel and dime. It theres a lot of new accounts in our system that are doing $501 million and when you do a $1 7 billion, it's really hard to talk about where it is I think Scott it's really across the board it's anybody.
The truck market right now is so tight that.
That anybody is looking for capacity and when you have 1200 agents all around the country.
Locally in market I think that just gives us an advantage our guys are hungry to go satisfy customer demand right now and customer demand is pretty hot regardless of what kind of commodity you're talking is it softer than other areas. Then some absolutely consumer durables is hot right building products is hot there are things that are hot.
And things that aren't so hot foodstuffs for us it's never been a great category very big we have a couple agents specializes so thats. The refrigerated market is not really something we play in but it's kind of across the board and it comes from a lot of it is coming from the small shippers, who we may not have ever dealt with before but they see us as a capacity resource.
Kind of what we see happening there is no did we did we add any large customer in the quarter now over prior year.
More nickel and dime and it's just all these small customers when we pull in some customers clearly have grown.
We've talked about the substitute line haul guys clearly a lot of growth there from the e-commerce.
That's driving driving that growth on the sub line haul, which is primarily just a couple a handful of accounts that we do but I would say, it's just coming from all different directions.
Great. Thanks appreciate that and then.
Kind of.
Delving into the other truck transportation services.
That new.
Market out for your reporting.
Of the sub components power only expedited straight truck cargo van how would you just.
What might not give it by percentage but.
That's the order of magnitude what are the can.
Can you kind of rank order those as as.
And in that bucket and then just expectations going forward for what you see from that category. Thanks.
Rod will probably talk about what he sees in that category, but I'll give you the.
I said power only was 75% and this is a year to date. So the number I think in the revenue per year to date was $518 million.
So youre talking about.
Break.
So if I break it down I would 70% to 75% of that is power only where we provide a tractor and theres a loaded trailer somewhere it's somebody else, Australia, we haul it away.
The ground expedite is probably about $70 million to $80 million of that and then theres container thats in there maybe $30 million to $40 million and then there's a bunch of other small.
And then of course within there that.
Almost add to nothing but really if you break it down I'd say power only then expedite on ground and then some container moves in that order from large.
Biggest to smallest and then a bunch of other small stuff that our agents get involved in.
And then Rob can speak to what he is thinking about the power.
Our only future in expedite.
Yes, Scott this is Rob.
Power only basically just kind of put it it's really kind of broke it out.
We see the consumer spending and e-commerce going to continue to grow and we decided it really needed its own category.
We do a great deal of wholesale Brexit we do.
A lot of port work, especially now flooded driver. If you will a lot of chatter about containers and things like that not compared to ecommerce.
As.
The international backlog continue to have and will continue to get involved a little bit more than that but it's mainly driven by the e-commerce and consumer spending.
Great. Thanks, Rob Thanks, Jim I'll turn it over.
I think one thing about the power only too is if you think about the trailer market right now carriers don't know how many trailers available. So I think that shippers are doing a lot to put stuff in the trailers and just waiting for like if they can access a traveler going to load it and they're going to try and get a truck to move it.
That makes sense.
Thank you so much we now have Jack Atkins back of Stephens. Your line is now open okay. Great guys. Good morning can you hear me now we can hear you now okay. Great. Thanks. Thanks for taking my question sorry about that earlier I guess, just kind of kind of going back to the trailer question a moment ago.
You know as you guys think sort of longer term.
About the business you know I know, it's sort of two trailers to one bcf.
Or are you maybe is it may be worth considering extending out your trailer program too.
The third party broker carriers, you know other other folks in the industry I've sort of had success with that I'm. Just curious if you guys are looking for ways to maybe.
Expand that because it's been so successful with with your B C. I was just curious if you can maybe talk about that and if that's a consideration I know trailers are hard to come by right now, but as you look out over the next several years.
Sure. Jack This is Joe we have conceptually talked about that some.
Jim alluded to some of the utilization and repositioning.
<unk> some of those things that would be challenges for us. We currently do it on a kind of a case by case basis in those situations, where we can make sure that we capture the trailers and get the right kind of utilization, it's not like we don't ever do it its just that were pretty selective in how we do it in order to do it on a larger scale there.
Some things that we would need to do I think internally from a systems perspective that would allow us to make sure that we're tracking and utilizing.
Trailers that are essentially then going to be on third party capacity and kind of out of our out of our <unk>, but again, it's something that we revisit we talk about we do it on a case by case basis.
But nothing nothing large, but certainly it's something that is a topic of conversation from time to time, especially when you find yourself in a.
Somewhat of a drop in a capacity constrained environment.
It tends to come up so, but it's on the radar from a tech perspective, I think Jack one of the things Thats become that's.
Actually I was talking about it more now.
But the fact over the last three to five years as trailer tracking has been a lot more efficient right now as opposed to like when we used to hook trailer, we didn't really need that much trailer tracking because we had bcl and agents managing them and watching them right. So you always knew you could call. It a bcl and ask them what trailers and stuff like that is the easiest to track that's hard to do with third party capacity, but now with all our trailers.
How is that having reliable trailer tracking devices, it's easy to monitor and it's easier to manage usual utilization and tracking. So there is clearly more discussion about that third party capacity usage up trailers today than we would've had five or six years ago here at Landstar.
Okay that makes sense and then I guess for my follow up question.
Jim you touched on it in your.
<unk> comments, but you guys are just experiencing extremely rapid growth year.
Yeah.
Cycle to cycle and I'm, just kind of curious as you sort of think about the resources that maybe you need at headquarters to support your agents in your carriers over the next several years to the degree that growth continues.
How are you thinking about the need to maybe.
Invest in additional head count.
Do you feel like you've got any any areas, where you may need to sort of.
Add folks.
Just as you think about kind of keeping those those sort of big growth engine going I guess I'm just sort of.
Curious if you have it.
If there are some areas of additional investment that may be needed or if you feel like you're in a good spot.
Yeah, absolutely I think theres going to be additional investment I'll tell you the scenario thats going on this year as we came into this year, we had our target for the year coming out at the end of 2020.
We.
Kind of internally here, we have internal budgets targets for volume truck volumes and rates and all that kind of stuff and we kind of base our head count on what we think that's going to be because we do we handle all the payables and receivables and all the transaction processing here on behalf of the agents. So we do have a decent sized group of people who had transaction processing, they're all working at home today.
And it seems what's working fantastic actually I think they like it.
It Hasnt productivity has been fine, but with the volume exceeding what we anticipated there's clearly been some headcount adds I mean early summer this year.
Sitting down with the administrative group going through the throughput of number of.
Calls revenue of the receivables.
Most people maker and there is a backlog so we have jumped on it we had.
We quickly approved about 30 people to handle payables and receivables. So yes, youre going to see some head count additions that will drive so when I talk about that for a 5 million just from a year just from salary increases youre going to see another.
A couple of million dollars or more as we.
We had head count too as the volume increases throughput, but it's not clearly the revenue is going to offset any anything we put in the system. Because we do have efficiencies. So it's not it's not anything where you are like for everyone or every hundred loads are going to add ahead, that's not the kind of the way. It works here with the new systems, we're putting anything like that no new workflows, we put in.
We're starting to put in we'll be able to get more throughput.
Head, but we're still not going to overburden, our people and we got to keep an eye on how hard they are working and if they're doing any overtime or stuff like that so.
It is there will be more head count coming in from that standpoint.
And we have also enhanced our it department.
I think back to about four or five years ago, we were pretty much a mainframe company an RPG coding stuff like that we didn't have a lot of app developers or website type people. So we have made as transformation Rick coral came on in 2017, and he's kind of transform the organization.
<unk> to move to cloud based.
No close to just the old mainframe stuff. So we have mainframe people and we've converted now into we also have groups of people who go into the new world and the new technology handling, whether it's a cloud based applications or <unk>.
Operational data stores and the information highway right. So there's that stuff, but that's kind of already baked in.
Those people are baked in and there might be.
A few more of those people coming in but it's more of the transaction processing people.
Youll see coming in and some head count growth.
That's really helpful. Thanks for all the color I appreciate it.
Thank you so much. Our next question is from Stephanie more of true with your line is now open.
Hi, good morning.
Good morning.
Hi, I wanted to touch a little bit on the commentary in the release just about that for what Youre seeing thus far into October October you're you're seeing both revenue per load and load.
I am really following normal consistent sequential pattern. So I'm just curious I think that's kind of an add.
Paul.
Abnormal trends that we've just seen throughout 2021 and given all that we're seeing with supply chain disruptions and record low inventory levels just curious on what you.
What you think is driving that return to more sequential trends into the fourth quarter and at the same time what are your thoughts.
Before going into the first quarter I think last year, we thought extension of the.
A lot of the seasonal trends just given the delays in the inventory and restocking So I'd love to hear your thoughts.
Obviously, what you saw so far going into the fourth quarter and then expectations for the first.
Yeah, I think when you look at where we were in September we were.
Our RPC or revenue per mile on van and flatbed were both at all time records right and so it's you're not going to.
The the supply.
<unk> disruption in the demand dynamic has been around now for quite a while six or seven months and sooner or later, it's going to stabilize and I think what we're saying is we're kind.
Saying that we're seeing some.
Come in October that were or for the fourth quarter, we're actually anticipating some stable to stable seasonal trends not necessary to continue to grow because you just feel that supply chain disruption.
[laughter].
Lack of capacity has leveled off but it's it's look it's a very strong freight environment, it's going to stay very strong.
But that doesn't mean, it's going to drive another step up in seasonal you know.
Above seasonal norm.
The other thing that you're thinking so were seeing a doctor or the other thing that theres a lot of talk about whats going to happen in December I think December is a little unpredictable right now I know theres a lot of ships off the west coast, and that's probably going to carry into December and all that freight.
<unk> market, but there was talk early on about how everybody pulling all of their freight earlier. So December is not that backlog then they're trying to get people to order their Christmas gifts. Early so does December start to pull back a little bit no I don't think thats going to happen, but there is a little bit of talk around here about maybe you know maybe we're going to see this heavy demand and pricing come through December that maybe.
I was pulling back I don't think that's what happens, but after the current trends I think it's it's really just to do with where where it peaks right now and then and I'm not sure that we're going to see any change in the capacity tightness or the or the you know that.
The environment, so so stable seasonal as it is.
So we're seeing coming into October and that sort of after the first quarter look like I said, it's hard to sit here and talk about what's going to happen to December and then transition into seasonally softer first quarter. If I go back to last year I would have thought you know I'm a pessimist itself I would've thought the first quarter was going to slow down because it was the fourth quarter last year.
And beginning in August it was really driven by consumers and I really thought that was more of the holiday rush and all this other stuff and I know people weren't traveling and they had a lot of money, but it turned into a full you know another nine months of strong consumer demand on building products and appliances and all the other stuff theyre buying.
Well, we see is look.
Lastly, the first quarter of this year was a very good quarter comps year over year going to be tough in the first quarter, even if it's a strong first quarter. That's about all I got on the first quarter I think it's just right now a little little hard to predict what's going to happen.
Since the environment. We're in is in environment like I honestly havent.
Been in since our since my time here at 25 years.
No that's really helpful. Thank you so much.
Yeah.
Thank you so much we have two more questions on queue and the next one is from Bruce Chan of Stifel. Your line is now open.
Hey, good morning, gentlemen, thanks for taking the question Jim.
Jim I just wanted to go back real quick to your comment on P. C. O utilization I think you mentioned the 6%.
It.
Is that just you know vacation and time off like you talked about back in 2017 and 18 when rates really good or is there something else going on there.
Yes, Bruce this is Joe I think it is.
A few different things that play into that I think one is.
They're making a decent amount of money and I think some some percentage of <unk> they've got.
Got a target of earnings they want to make any given year and once they surpassed that target. They they tend to slow down a little bit I think that's part of it I think theres still a COVID-19 risk element to some of the utilization.
And we're starting to hear more recently that.
As trucks need repairs some of the parts for those trucks.
Do you know what used to be something you could take care of over the weekend now it takes a week and a half to get the parts and get the truck back on the road.
I think it's a mulch.
Multiple factors that lead to that.
And I don't you know I.
I don't have specific percentages by but I mean, those are the kinds of things that we're seeing and we're hearing as we talk to our guys that are sitting for.
For any length of time, and it's usually one of those kind of reasons.
They come up with.
Okay, that's helpful and.
You know I know everyone's sick of talking about Covid right now, but you mentioned that retention rates for <unk> with good right now.
Joe maybe just a follow up question on the ETS vaccine mandate or potential.
So just mandate for drivers as Youre looking at that proposal is that a concern for you or is it may be a benefit given your IC composition.
Do you think vaccine related attrition, that's going to be something that shippers should be or need to be worried about.
Well I think it's from a federal standpoint the.
The mandate Frito federal.
Drill contractors of which we are one I think it's really too early to tell how the impact is going to play out there because the specifics really haven't been determined or released clearly.
We have more than 100 employees. So people in the office are here maybe have a different.
Impact to what then would be others, who service government installation.
Installations of <unk> does that apply to them or not.
I think that customers as they go about trying to figure out what the mandate means.
I think they're right now from what we've heard from a handful of customers very exploratory as to if this happens what happens and we don't have a sense right now as to what number or what.
Our bcl as are our carrier drivers are vaccinated or not but clearly if you think back to the beginning of the pandemic when we were.
We're kind of working our way through.
Different temperature checks and mask wearing it all of the shipper locations and art agents were doing there they are best to accommodate.
Dominate all of those different requirements I kind of look at the vaccination mandate, if that were to come out and be more broad.
Our agents would have some work to do to figure out what each customer's requirements are and then up to us to help them source capacity to make sure that they're getting the right kind of capacity to meet the customer's expectations. So I.
I think it's a little early because they don't have a lot of specifics out emotion on the one hand.
And then.
Again, a customer by customer depending upon how they feel they need to implement on the other side.
Okay, great. Thanks for that and then just a real quick point of clarification. You mentioned that you can still grow earnings in a 10% pullback type scenario.
Was that specifically demand pullback or was that 10% on total revenue.
I think I didn't say that we can grow.
I don't think I said that could grow earnings I think I could.
In a 10% pullback scenario I think we could not grow 10% and a 10% pullback in the market I think is what I meant.
To say I think we could still either hit or grow earnings a little bit.
Okay Super Thanks, a lot just based on the tailwind of the expenses.
Got it thank you.
Thank you so much our last question on queue is from Todd Fowler of Keybanc capital markets. Your line is now open.
Great Thanks and good.
Good morning, Jim.
Jim listening in the call you are almost starting to sound like a little bit more of an optimist, but I'll I'll, let that be determined that got pretty difficult not to be happy today.
I tried look what it takes.
I thought that I mean.
If you are pessimistic with these results it's difficult.
So no congratulations so I guess, what I wanted to ask about the strong volume growth. You know you guys are going to end this year, if the fourth quarter comes together over 20%.
How do you help us think about can you help us think about.
How much of how sticky some of that volume growth is I mean, I think that theres a perception that you're much.
Transactional, but I know this is one of your underlying business has some stickiness to it. So is there a way to think about you know how much of that volume is really considered overflow and transactional would go away in a more balanced market or how much of that you really keep us on a recurring basis as we move into next year I would think the sticky stock clearly the drop.
More tricky is 30% of our business about so I mean, that's clearly sticky business government I mean, we're kind of playing that that's where we're kind of at their committed to us we're committed to them on the government side.
Automotive is a little more you know that less sticky and when demand is high we do better when demand is low in automotive news, but supply chain disruption is good for US which is what you talk about.
They're hazardous if you'll look at hazmat.
That has matched up every one of our <unk> is hazmat certified so that is true for a lot of the carriers out there, but so we have 11000, guys, who can haul hazardous materials. So everybody come to us for that so if that market is hot it's sticky I think our cross border.
Wrapping her Mexico was probably four or $500 million.
Annually.
Maybe not that high but that's about $400 million is about right and so that's a little thing because it's hard to disrupt that that's a very coordinated effort to move third party use Mexican carrier stuff like that.
That's a little more sticky so when you add it up you know you've got 30%.
<unk>.
On the drop and hook operations, it's a decent sticky I do I know the exact number but you know.
It's clearly more than half is sticky.
If I don't really think about the true spot world, where people are just call us we're moving one load forgotten and they're leaving US that's not a big piece of the business when we talk about being in the spot world It's real.
Sent on.
From a customer standpoint, not necessarily spot the rates move up and down right for these customers, we're really buying capacity in the spot market is.
We look at it two different ways, we live in the spot world as it relates to capacity, but a lot of the relationships we have of our customers. Their goodwill is it sticky is it.
A guarantee that we're going to move People's freight absolutely not but I think there are a little bit sticky as it relates to agent relationships and being able to provide capacity in tough times and they kind of stick with you, especially if were thrown trailers, Adam or moving their hazmat or helping them with the situation.
Putting a percent out it'll be difficult.
Yes, no I understand it's a tough question, but that's the.
Really Texas helpful. In what it sounds like is it just the overall base of the business has moved up pretty substantially.
Now going forward there'll be some some cyclicality and some seasonality, but it's off of a <unk>.
Higher base and it's not that we're going to revert back to 2019 levels as soon as things normalize I wouldn't expect that.
The great thing about the agent model as.
They build the relationships.
When people need capacity like this and it just it elevates us youre going to see a cycle back I don't think there's any question, but then we launched higher and you've seen it since our inception.
I can give you a chance to be a pessimist and you didn't take the bait on that one so.
Just my last one maybe Fred.
In the past.
I think that theres been some metrics around how much cash you wanted to keep on hand, maybe as a percent of revenue or total assets as you think about the business and kind of the cash that you're generating at this point have the metrics change as far as how you feel kind of the Cushing level that you want from cash.
On the balance sheet at this point and then you know kind of any differences.
I think it's been talked about a little bit on the call, but investments and opportunities to kind of where you deploy capital going forward. Thanks.
So as far as the cash we obviously have way more cash than we need to run the business.
We've deployed it successfully historically with divvy.
Dividends share buybacks special.
Dividends and I think that makes sense going forward.
Personally prefer share buybacks to any kind of special dividends, but that's just kind of how I think about it and so I think we'll continue to do that and as far as deploying it through other opportunities, we'll keep our eyes open to see if theres any potential M&A kind of opportunities, but we haven't.
You've done a lot of that.
Because of potential conflict with the business model. So I think the historical ways. We've returned capital to shareholders will continue perhaps.
Perhaps with maybe a little bit more focus on share buybacks, yeah, Todd as you know to the cyclicality of our business is actually the business model is just fabulous at rates of cat related to cash and a growth in <unk> like we collect.
History tells us we pay our carriers in about 20. So we are financing the capacity right. It's kind of the way this works.
And in an environment, where in you can see our receivables just grow to over $1 billion for that I think the first time in our history and it's a little bit.
We are definitely cash flow positive, but when things start to soften up we'd become bigger.
And fifth were apart.
We're collecting more paying less so cyclicality, you know as things and if things do pull back we ended up actually bringing more net cash during that period and have more opportunity. So it's the model kind of protect yourself in any environment and like <unk>. If you go back we havent borrowed in a long time against our revolver to buy stock.
Okay.
Two times, we borrowed on the revolver once is where I think we are buying stock pre 2010 and the other one was because we had that.
We had that contract with the FAA, where we actually had about $275 million due from the government. They didn't pay until the tasks were done. It was all that's how the contract was written so we needed to borrow then but.
Do we need to keep cash on the balance sheet to run the business. We don't really have a set in mind I don't see us borrowing to do a buyback program.
Some of that cash as collateral for our insurance claims. So what you see on the balance sheet is there some of it is locked up but yes.
It kind of more looking at how much cash do we have.
But how do we deploy to shareholders and that's.
Kind of what we've done historically in.
No.
Yes, yes, no that helps them make sense. So alright. Thanks, a lot for the time. This morning, guys. Congratulations again sure. Thanks.
Speakers at this point, we do not have any more questions on queue you may continue.
Well, thank you and I look forward to speaking with you again on our 2021 fourth quarter earnings Conference call. Currently scheduled for January 27 have a good day.
Thank you so much everyone and that concludes today's conference. Thank you all for participating you may disconnect. Your lines at this time.