Q4 2021 Landstar System Inc Earnings Call

January 27, 2022

Good morning, and welcome to Landstar system, Inc. Year end 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.

This time joining us today from Landstar are Jim got Tony President and CEO .

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

Thank you and before we begin let me read the following statement.

Following is a safe harbor statement under the private Securities Litigation Reform Act of 1095 statements made during this conference call that are not based on historical facts are forward looking statements. During this conference call. We may make statements that contain forward looking information that relates to last year's 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 <unk> 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 for those anticipated investors should not place.

Undue reliance on forward looking information and Landstar undertakes no obligation to publicly update or revise any forward looking information.

Let's start with fiscal year 2021 performance exceeded even our highest expectations 2021 revenue was $6 5 billion to $4 billion or 58% above the 2020 fiscal year.

Rob the contribution exceeded prior year by 53% and operating income was double that of 2020.

During the year, 80% of the growth in variable contribution was passed to operating income, resulting in earnings per share more than doubling from 498 in fiscal 2020 to $9 98 in fiscal 2021.

It would be an understatement to say 2021 was an outstanding year for last or the year started with record first quarter financial results in each quarter grew from there in fact, each quarter of 2021 set a new all time left our record for revenue and earnings per share for that quarterly period.

Second and third quarter revenue and earnings per share exceeded both our initial and updated revenue and EPS guidance provided during those quarters. The 2021 fourth quarter was more of the same initial guidance updated mid quarter to increase revenue and earnings estimates for the quarter, followed by actual fourth quarter results exceeding the updated guidance.

The 2021 fourth quarter earnings per share beat up <unk> to our updated guidance was largely due to a favorable tax rate that added <unk> to our results.

Early in 2021, there was a lot of speculation by many in the industry trying to predict a peak to truck pricing at some point during 2021.

However that peak never materialized during the year and in fact decembers revenue per load hauled via truck was the highest monthly revenue per load in the Companys history.

Overall, the company set many financial records in the 2021 fourth quarter ended the year with a record 11864 trucks provided by <unk> and had a record 90000, plus third party carriers approved to haul last our frame of which over 64000 at hold the landstar load in the 180 days preceding year end.

<unk> generating at least $1 million of Landstar revenue during the fiscal year climbed to 593, a 17% increase over the number of million agents in 2020, new.

New agent revenue in fiscal 2021 was an annual record $181 million.

As it pertains to the 2021 fourth quarter revenue for all the contribution operating income and earnings per share were all time quarterly record revenue.

Revenue in the 2021 fourth quarter was a record $1 billion $945 million, 50% above the previous fourth quarter record set last year.

For 2021 increase in revenue over the 2024th quarter was driven by an increase in revenue hauled via van and onsite platform equipment of 45% and 40%, respectively, which combined made up 75% of revenue in the 2021 fourth quarter. Other trends truck transportation that includes primarily power only expedited cargo van and.

Straight truck increased $95 million or 61% over the 2024th quarter.

Additionally, ocean cargo, although a small percent of our revenue increased over the 2024th quarter by $88 million on a 61% increase in loadings at an average rate increase of 127%.

Landstar operates primarily in the spot market in the U S truck transportation, where truck rates are generally condition of the balanced and market demand and available truck capacity.

Revenue per load hauled via van and onsite platform equate into 2024th quarter, each exceeded the 2024th quarter by 20% as market dynamics strongly favored the truck provider.

As it relates to the number of loads hauled via truck diverse the diversity and depth and expertise among members of the company's agent family and last our employees enabled network to handle the needs of most shippers, whether it be drop and hook onside platform heavy haul expedited hazmat power only cargo van services are straight trucks through.

Through the efforts of our unique capacity network. The total number of loads hauled via truck exceeded the record 2024th quarter by 22%.

That increase in the 2021 fourth quarter over the 2024th quarter was driven by impressive increase of number of loads hauled via van onsite platform equipment less than truckload and other truck transportation services by 21%, 17%, 13% and 43% respectively.

And the 2021 fourth quarter each of these lines of business within our truck service offerings set a new all time quarterly record for the number of loads hauled.

The number of loads hauled via truck increased 7% over the 2021 third quarter one of the highest 13 week period increases from Q3 to Q4 and last our history.

The increase in loadings was mostly due to consumer durables automotive and substitute line haul loads, while metals and machinery loadings were approximately flat to the 21 third quarter. However, the number of loads hauled via truck in the machinery and metals commodities in the 2021 fourth quarter compared to the 2024th quarter increased 14% and 25% respectively.

<unk> to the 70% increase in loads hauled via onside platform equipment.

That growth is a positive sign for flatbed business heading into 2022.

Most albeit PCL capacity increased 6% over the 2024th quarter on a 10% increase in the average number of Bcl trucks during the 2024th quarter.

Led by lower truck Bcl utilization of 3%.

During the 2021 fourth quarter, approximately 78% of loads hauled via <unk>.

Via the Bcl truck utilize a landstar trailer, primarily in drop and hook operations.

Truckloads Hall by third party truck broker carriers increased 36% over the 2024th quarter to a new quarterly record of over 400000 loads.

Ocean revenue increased 266% above the 2024th quarter rates.

Rates, which are somewhat influenced by mix increased 127% over the 2024th quarter, while ocean bottom increased 61%.

The growth in loadings was attributed to a few new agents in 2021 plus growth within the existing agent network.

Landstar is customer base continues to be highly diversified during the 2021 fourth quarter revenue contribute by Landstar as top 100 customers by 2024th quarter revenue contributed 44% of the 2024th quarter revenue.

Revenue from those top 100 accounts in the 2020, our fourth quarter increased 33% over the 2024th quarter.

Revenue customers beyond those top 100 accounts increased 66% over the 2024th quarter. Two boat last years lack of customer concentration in perspective revenue from the 100 customer by revenue was only $2 $8 million in the 2024th quarter I will now pass it to Fred to comment on additional P&L metrics and a few other fourth quarter financial statement items.

Alright, Thanks, Jim and good morning, everybody.

Jim covered certain information on our 2021 fourth quarter and full year performance I'll cover some of the other key fourth quarter financial information included in the press release.

Starting with the gross profit and variable contribution.

As a reminder of what we discussed last quarter cost of revenue has two categories variable cost of revenue and other cost of revenue.

Verbal cost of revenue includes purchase transportation and agent commissions, while other cost of revenue includes numerous costs fluctuate to differing degrees with revenue.

Including trailer depreciation and maintenance costs.

<unk> recruiting training and qualification costs insurance related expenses, such as premiums paid and cost of claims for various freight transportation related insurance policies and other costs included in.

In SG&A in the company's consolidated statements of income.

For example, insurance brokerage commission and other fees incurred to administer the insurance programs available to Bcl independent contractors that are reissued by the company to reinsurance excuse me by the company as well as costs related to our internally developed technology that directly support our revenue as detailed in the table in our earnings release.

Reconciling gross profit to variable contribution.

In the 2021 fourth quarter gross profit was $209 8 million, an increase of roughly 48% compared to $141 $7 million in the 2024th quarter.

Gross profit margin was 10, 8% of revenue in the 2021 fourth quarter only slightly below 10, 9% gross profit margin in the same period of 2020.

Also as a reminder, in conjunction with the definition of gross profit we initiated the use of the term variable contribution last quarter.

This is a non-GAAP financial measure.

To refer to the amount represented by revenue lesser variable cost of revenue, which again includes purchase transportation and agent commissions.

As detailed in the table I just alluded to in our earnings release.

In addition, we defined variable contribution margin also a non-GAAP financial measure.

As variable contribution divided by revenue. This measure has always been and continues to be an important one for us.

Purchase transportation in agent commissions are the primary expenses that are 100% variable with revenue and.

And give us a view into spot market trends in the freight transportation industry on a shipment by shipment basis.

And the 2021 fourth quarter variable contribution increased roughly 44% to $263 3 million.

Compared to $182 4 million.

In the 2024th quarter driven by strong revenue.

Our variable contribution margin was 13, 5%.

Of revenue in the 2021 fourth quarter.

Compared to 14, 1% in the same period last year.

The decrease in variable contribution margin compared to the 2024th quarter was entirely attributable to the mix between our <unk> independent contractor capacity.

As our brokerage business increased from 53% of total revenue in 2020, and 2024th quarter to 59% of total revenue in the 2021 fourth quarter.

It's important to note that while our gross profit and variable contribution margin might feel some compression in times of significant growth.

Our excess volumes are handled disproportionately by brokerage capacity, we still benefit significantly in terms of additional accretive earnings growth and cash flow. So in my view, that's a good trade off.

The last point I'll make on these margins is that 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 most of these semi variable costs. I described earlier that are included in gross profit.

Moving onto our costs.

Other operating costs were $9 4 million in the 2021 fourth quarter compared to $7 $4 million in 2020.

This increase was primarily due to increased trailing equipment costs increased <unk> recruiting and qualification costs and an increased provision for contractor bad debts.

Insurance and claims costs were $33 million in the 2021 fourth quarter compared to $21 $2 million in 2020.

Total insurance and claims costs was four 2% of <unk> revenue in the 2021 period and three 8% of <unk> revenue in the 2020 period.

The increase in insurance and claims as compared to 2020 was primarily due to increased severity of current year claims during the 2021 period and increased unfavorable development of prior year claims.

Selling general and administrative costs were $62 $6 million in the 2021 fourth quarter compared to $42 $9 million in 2020.

As we discussed last quarter. The majority of the increase is related to a variable cost cash incentive compensation plan and stock based compensation arrangements driven by our record setting financial performance this year.

Wage and benefit pressure also contributed to the increase.

Partially offset by decreased provision for customer bad debt.

In the 2020 on fourth quarter stock compensation expense was $8 $8 million and the provision for incentive compensation was $8 million.

And the 2024th quarter stock compensation expense was $1 9 million in the provision for incentive compensation was $1 7 million.

Depreciation and amortization was $13 1 million in the 2021 fourth quarter compared to $11 6 million in 2020.

This increase was primarily due to increased depreciation on technology tools, resulting from the recent deployment of new and upgraded applications for use by agents and capacity.

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

The effective income tax rate was favorably impacted in both periods by resolution of certain tax items and tax benefits, resulting from equity compensation arrangements.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $251 million cash flow from operations for 2021 was $277 million in cash capital expenditures were $23 million.

In 2021, we returned $235 million to shareholders through a combination of regular dividends of $35 million share repurchases of $123 million and a special dividend of <unk> $77 million paid in January of 2021.

After an increase in our authorization by our board of directors in December of 2021, we now have 3 million shares available for purchase under the company's stock purchase programs.

And since we're on the topic of returning capital to shareholders I want to be clear that returning capital is important but investing in our business is just as if not more important for the long term health of our company.

These investments relate to our people our agents and our capacity, which we refer to collectively as our network is.

As well as our technology ecosystem and they will continue to grow as we support a business that is much larger today than it has ever been and.

And that is operating in an increasingly competitive environment, requiring continuous improvements to our systems and processes with that I'd like to thank you all for joining us today, and we'll now turn it back over to Jim.

Thanks, Brad.

Environment continues to be strong as ever typically the first quarter of any year is seasonally softer than the preceding fourth quarter I expect that to be no different in 2022, although at these levels. We expect a record first quarter performance as such I expect revenue per load on loads hauled via truck to be flat to down 3% compared to the recently completed 2021 and fourth quarter.

I expect the number of loads hauled via truck to be 8% to 10% below our record setting truckload count of 2021 and fourth quarter.

Just on those expectations revenue guidance for the 2022 first quarter is estimated in a range of one seven to $1 $75 billion.

And based on that level of revenue expect earnings per share to be in a range of $2 70 to $2 80 per share assuming we achieve revenue guidance revenue easily be a record for any first quarter, 32% to 36% higher than our record 2021 first quarter revenue also assuming we achieve our earnings per share guidance in the 2022 first quarter earnings per share to <unk>.

See the record 2021 first quarter earnings per share by 30% to 39%.

Although it is way too early to predict operating conditions for fiscal 2022 operating conditions that led to a record breaking year have so far carried through the first few weeks of January as demand prevent capacity as well as other truck services remain remained robust throughout the 2021 and fourth quarter, we experienced our strongest quarter of the year with respect to the demand for flatbed.

Services. We also continue to see very broad based demand for our services across industry sectors. We begin the year with a record number of trucks provided by <unk> a record number of approved carriers and an unparalleled network of independent agents ready to meet and exceed the needs of our customers lessor is very well positioned heading into 2022.

<unk> network of small and large business owners provide the expert expertise to satisfy shipper demand on almost every sector. In every geography region in North America sourcing capacity of Varian equipment types, while Landstar provides a tool financial support and capacity network to empower their success the strength and resiliency of the model proves itself over and over again 2021.

Was no exception as a final note before we turn to questions I want to thank take this opportunity to recognize and thank all of our last our employees agents pcos and other capacity bias for an incredible performance in 2021 as we now look forward to all we can accomplish together in 2022.

And with that we will open to questions.

Sure.

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 one on your Touchtone phone. Once again that is star one to ask a question to cancel your request. Please press star two.

Our first question is coming from the line of Todd Fowler of Keybanc capital markets. Your line is now open.

Hey, great. Good morning, Thanks for taking the question, yes, so Jim to follow up on your comments there about looking out into 'twenty, two and certainly understand that there's a lot of moving parts at this point, but you know you've shared in the past kind of your thoughts and kind of how the year's can progress.

It sounds like you are comfortable starting off pretty strong here in the first quarter.

Would your expectations be I mean would you expect to follow normal seasonal trends off of <unk> or do you expect things to kind of tail off as we get into the back half of the year.

You know my my position optimism or pessimism right. So I'm always look.

We all thought after coming out of March were at peak, we thought coming out of June we're upbeat coming out of September we thought were at peak and we're going to slow down in the fourth quarter here I am sitting theyre going to tell you. The same story, because that's who I am Ryan I think eventually we're going to see that.

Whether the whether the shippers start to lock up long term contracts right, we shipped a little bit from spot to contract pulling rates down a little bit or we see softness in demand I don't think the capacity is coming back in as much as we look at maybe the demand side, a little bit more coming into the maybe the end of the second quarter back half, but I still anticipate we're going to see some kind of track.

<unk>.

We're spots pull back a little bit in the contract market kind of accelerates what these longer term deals as opposed to.

Where we look for four quarters in a row, we've been saying, we're going to see some kind of peak and we're going to see a conversion, but my pessimism will say I do I. Just think we're an extended cycle I think we're going to cycle back on a question everybody is asking is when does it happen in may.

I would say that we are.

I don't think it can be dramatic, but I think youre going to see a leveling off our cycling down a little bit maybe early summer.

Just based on the way through cycle over time, and some of the things we're seeing.

<unk>.

You are getting a little more inquiries on 12 month contracts as opposed to the many many bids.

It's not a big deal that would be a sign that maybe maybe shippers are starting to understand that these these prices may be here to stay.

And if they do lock up 12 months, clearly would be a little bit lower than spot.

Thats, what youre seeing in some of the indications with <unk>.

Driving that summertime thing the other thing we got.

We don't give full year guidance really because the unpredictability of the spot market and you see how it turns.

But the one thing we do we would you talk about there's a little more predictability in our cost below the line you'll below below variable contribution and share some of that Fred probably can give some input on what we think like below the below the variable contribution line.

Yes, sure. So just to give you some context.

You'll recall that in the FERC to our cost structure, you would call in the third quarter.

We talked about having some tailwind going into 2022.

From our variable compensation and stock based comp plans I think we said specifically $35 million of tailwind.

So that's obviously part of the cost structure picture and as you might expect there is also some headwinds.

Going into this year. So let me just put those into maybe three broad categories first.

Think of a category being it's kind of a normalization.

All of our costs.

As we hopefully are able to do things. This year that we were not able to do in 2021 for that matter even in 2020 due to COVID-19 . So I'll elaborate little bit on that in a moment the other two kind of buckets.

Think of us.

Costs related to supporting what is now a much larger business than it was even a year ago, and then investments that are going to enable our growth going forward. So let me just go through those in a bit more detail and give you. Some some of the rough ranges for the expense lines as we report them on our P&L. So first as I.

And we expect to spend more on travel this is related to COVID-19 as we have more events.

To support and recognize our agents capacity compared to what we did in 2021.

We're of course, our spend was was quite suppressed due to COVID-19 .

So we're planning for a more normal year.

On both the travel and events front.

We're continuing to make investments in people and external.

Services to support the growth that we've experienced over the last year.

And support our strategic long term investments in technology, so that means more people to keep up with higher truck volumes more load volumes and.

And more external spend including software and services to accelerate our it investments and you won't be surprised to hear that.

Experience a fair amount of inflation.

Last year on wages and benefits.

Which we haven't fully lapped as we enter 2022 and frankly I think most people I think would agree that that is not going away anytime soon in 2022.

So everything I just mentioned, we will have an impact on our SG&A costs, which are expected to run roughly $50 million to $55 million per quarter.

Lower in the first quarter, and then increasing in the second quarter due to our big agent Convention in the second quarter that I think you all are probably familiar with as.

As well as some of the items some of the other items that I just mentioned.

And then just as a reminder, our SG&A costs are comprised of 65% to 70% of that is related to compensation and benefits and then lastly, but very important on the investment front, we did make investments in trailers last year to keep up with a growing number of bcl trucks.

That investment was a bit more skewed to the second half of the year. So we have yet to lap the full.

Depreciation impact of those acquisitions and then in addition, we also plan to take additional trailer deliveries this year to replace some older trailers, so a little bit of growth, but a lot of that being replacement in 2022, and unfortunately, and probably also not too surprising we're seeing inflation on trailer price.

<unk> that are in some cases in excess of 30%.

In 2022 above what we were paying in say early 2021, so that obviously will come into play as well on our depreciation expense line. This year. So.

Between the trailer investments in the launch of some of the new and enhanced software tools that I was alluding to both what we deployed last year and what we expect to deploy this year is going to have an impact on depreciation.

Our expected total depreciation expense will be in the range of $14 million to $16 million per quarter.

Again, similar to SG&A, a little bit lower in the first quarter and then increasing in the following quarters as we take more trailer deliveries and also put into service.

The various tools that I was just alluding to.

And then on our other operating cost.

It does should range from between $9 million to $11 million per quarter subject to gains on the older trailer dispositions that I was just referring to.

We do expect trailer maintenance, which makes up about 75% of our other operating costs to go higher as cost of labor have gone up as well as we've got more expensive tires and parts largely related to parts shortages that we've been seeing for some time.

And then our largest or second largest expense line rather.

Insurance and claims second largest after SG&A and we do expect it to trend higher this year compared to last year.

Just as a reminder, about 25% of that insurance and claims expense line is made up of fixed insurance premiums.

And the remainder relates to insurance claims which are highly.

Highly unpredictable.

Just on the nature of our business, we typically measure.

Europe's in claims cost as a percentage of <unk> revenue since a significant majority of the cost relate to revenue hauled by our <unk> network and then just for purposes of forecasting.

We're using for 2% of.

Forecasted <unk> revenue for the full year estimate.

Obviously, the ultimate outcome as you can imagine will vary will depend.

By the severity and frequency of accidents, we will have this year, along with any changes to the <unk> rates or revenue per load, which can impact the insurance and claims as a percentage of <unk> revenue.

Paired to the four 2% forecast that I just mentioned.

That's not so short rundown of how we're thinking about our cost.

For 2022, but I thought it might be helpful to just take you through that so Todd with that question, we probably only have time for one.

I'll turn it over at this side.

Really one.

We always like to start the year like I said those costs are a little more predictable just like the share that so you guys have a feel for what we're thinking about below the line again unpredictability of the spot market, but we are.

Kind of comfortable with the below the line cost a little bit as you know insurance is a little bit more unpredictable, yes, no I appreciate the line of sight into what you guys know Jim I will ask one follow up and I'll turn it over but can you speak to the shift to the percent of revenue that's coming from brokerage revenue versus <unk>.

No you are not having a problem finding capacity utilizations coming down a little bit, but do you expect that to be kind of.

A shift here that we're going to see for the next couple of quarters and then it normalized or is that more of a permanent shift in the business.

I think if you look over time, it's been a permanent shift in our business.

Like if we win.

I would love to add another couple of thousand BCS and just hold that 50 50 split but in reality, that's just not the way. It works. So all the excess freight it's not even excess some of the some of the broker trade is truly brokerage freight. It goes on third party trucks, but I would expect that as a continuing part of the business model, where the brokerage continues to grow and that's fine with us.

Because theres not a lot of infrastructure costs.

On that third party truck business.

When a third party truck haul the world like insurance is a lot lower risk for us on a third party truck didn't as a bcl as you know.

We are subject to the liability and <unk>, whereas we're not necessarily subject on a broker. So I would expect that brokerage truck brokerage to continue to grow as a percent of our revenue over time, yes, okay. It makes sense hey, thanks, so much for the time and congratulations on a really strong year.

Yes, Thanks Scott.

Thank you. Our next question is coming from the line of Scott Group from Wolfe Research. Your line is open.

Hey, Thanks, Good morning, guys, Florida.

Jim when I look at the first quarter guidance.

Sequentially, it looks like maybe pricing a little bit better than historical in volume sequentially, maybe a little bit worse can you just talk about the pricing and volume environment Youre seeing so far in January if youre seeing any impact from <unk>.

No.

On the pricing side, probably a little bit better because January doesn't seem to be pulling back.

Four weeks into January and that the revenue per load is still pretty elevated compared to what you would see a drop from December to January so, it's seasonally a little bit better than what we what we're seeing so it's really that pricing is just based on what we've been seeing and we don't expect a significant turn in the next what is it what we got left eight weeks so.

That's on the pricing side on the volume side I'll, just tell you that we.

We have a little weather disruption in January so it was a little hard to predict I can't tell you that the four weeks of January represented the entire quarter. So I would say that we might've been a little conservative on the volume side to be honest with you that eight to 10 might be conservative. So I think that's what's your kind of implied and I would agree that we probably maybe built in maybe a little more storms and a little more disruption.

Because it was based on a January run rate, but nothing unusual really its just we might like I said it's.

It is a gas for the next eight weeks of where we think we're going to come out based on what we're seeing in the market.

Okay.

The net operating margins.

Margins were I think 55% last year.

The expense guidance last question was helpful. But when you add it all up do you think you can improve on that this year.

There's a whole bunch of factors in there if we're safer in 2022 that we were there's more chance that we can do it.

But you need safety, you need to be safe and do we need a little bit of goes in the variable contribution to offset some of that inflation, we're seeing in the costs.

Okay and then just last thing just big picture, we've never seen this magnitude of brokerage volume growth for you guys and it seems like it's happening when asset based guys are struggling with or at least from a volume standpoint. So I guess, how are you thinking about the sustainability of this brokerage volume growth.

Well I think it is.

We're highly diversified so it's really market demand driven and the one thing good when the demand is like this and shippers can't find capacity.

It helps our agents build relationships, where they haven't had relationships before so I think it's sustainable but it really has to do with demand side.

If demand side drops the brokerage will come down as a percent of total it's just the way the cycle works, but I think the higher highs with us if you follow over time things dip down, but then we come out of these higher highs in brokerage as always the driver of the bottom not always but typically the driver of the volume and I expect that to continue.

So I think its sustainable just like every other cycle and continues to elevate higher you may get a little pullback based on what we're seeing or what we expect from a cycle side, but then it elevates again.

But it is highly diversified its across so many customer it's really hard to speak to specific.

No.

Our specific customers specific industry, where it's driven from it's really demand driven cycle.

Okay. Thank you guys appreciate it.

Thank you. Our next question is coming from the line of Allison <unk> of Wells Fargo. Your line is open hi, good morning, good morning.

When I talk to obviously the cycle still strong in that softening expectation continues to get pushed to the right.

Assuming it.

It will happen inevitably can you talk to what your team is doing to better prepare your agents and carriers.

Our manage that infection versus prior cycles any color there.

Yes, I think they limit right.

<unk> been on for a long time and we.

Clearly, we add new agents every year, you can see by our $181 million new agent revenue for 2022, 2021, I'm sorry, but they live the cycle just like we do we push out information as much as we can if we start seeing the pricing and demand start to slide a little bit we try and push it out some of these guys. We got a lot of agents between $1 1 million in two and a half and they don't.

They're not up the amount of information last are here has a corporate.

Is a lot better in the information that a guy like maybe in Arkansas somewhere is running 1 million $2 million of business. So we try and push out as much information as possible, whether it's pricing capacity availability or stuff like that to the agent family. So they can react properly in the event, we see pricing starting to pull back.

Historically, what you would see is our guys don't get the agents don't necessarily react fast enough when pricing starts to pull back and then shippers.

They do as they pull the business and they go to the lowest price.

So the things we try and avoid I think we're doing a better job at that today than we were five years ago, because we have a pricing tool that didn't exist before and we have a lot of we automated a lot of things over the last three years to help them and making quicker quicker decisions on some of that.

And of course, it's showing up in our depreciation as we've rolled these tools out, but it's a benefit to the efficiencies of the agent family trying to react to shifts in the market dynamic.

Great. That's helpful. And then I just want to go back to the comments on capital deployment is share authorization. I think you said $3 million, but just my I guess my expectation as I told him that I came away with was.

That's going to be less important versus the capital investments as we enter 'twenty two just any color there in terms of how to think of that balance as we move through 'twenty two.

It's a cash spend thing more than it is depreciation is going to climb based on investments. We've made in the past, but I wouldn't say that our investments that we discussed.

That Fred discussed are much higher than they were in 2021 it.

It's really what's happening is on the expense side is starting to rollover. So now we invest where it's important but I don't think its going to impact our ability to give back to shareholders.

Any material degree.

We're really just trying to point out the investments, we've made and we will be making and the impact more on the from the deal.

Depreciating, our software costs over the next five years right is really where we are but the spending this year on those investments if it's five or $10 million more than it was in 2021.

That's all we're talking about it we're not talking about like a $50 million spend in excess of what we've done historically, it's pretty pretty similar year over year.

Great. Thanks for the color I'll pass it along.

Thank you. Our next question is coming from the line of <unk> majors from Susquehanna. Your line is open.

Yeah, Thanks for taking my questions.

Bringing it back to the SG&A comments within that $50 million to $55 million a quarter that you outlined earlier can you talk about.

Number one what the embedded a reduction in incentive comp, including the stock comp is for the full year and Jim does the board outlook to get to a target.

Target incentive comp level does that assume the kind of 10% to 15% long term growth rate of the company or is there something different than that.

Because of that unique cyclical environment were in thank you.

The targets.

First of all I'll, just say, we're still sticking with that 35 million tailwind.

Thats right.

Our targets vary each so the bonus card the cash compensation is based on a target that is established actually in early January as our budget for 2022 and that does vary based on market conditions like we have.

If we for example, if we have a really bad safety year in 2021, we might see improvement in that line growing our target, but if we have a really safe year end 2021, we may have more insurance embedded in 2022 than we normally would have so there is no. We don't tie the 10% to 15% goal the 10% to 15% is more of a long term, it's not year over year.

Year.

Typically if you look at the way we cycle I mean, you kind of have to build that out over three years to five years is what we're looking for as opposed to year over year with cash bonus target as of one year and we really look at what we think is going to happen in a year to establish that which is like a one time bonus is about $9 million compared to I believe we had $30 million. This year. So it's really.

Our target built on our expectations for 2022, which were kind of outlined from the expense side Fred gave you those.

Don't really speak to the target we've established on the topline.

Thanks for clarifying that.

And from a high level over the last five years, a couple of lines of really outgrowing others. Like this other truck revenue, 8% to 12% of your revenue I mean ocean and air 2% to 5% of your revenue.

I think people understand a lot of what's driving the ocean and air piece, but can you talk to.

The rate impact there versus share gain and how durable you think some of that could be and maybe a little more information on what's happening in this other truck and the kind of business and how sticky versus cyclical that is thank you.

You bet.

This is rob on the Ocean side I think it's no surprise.

Changes to see disruption, we continue to see shifts.

Especially if you're early rewards that they can't get in.

In the supply chain is disrupted.

Several issues.

Coming on especially in China with the Olympics, you've got Chinese new year. So I think that continues I think the rates.

Obviously, they're elevated I think has stabilized to a point.

To where they are we saw a bit of a dip in rig just a little bit in December it's kind of come back up.

Through the first four weeks of this year, so I'd say.

Yeah.

Just Russian for what is just going to hang it kind of goes back to Jim's opening comments as to win.

Things start to tail off.

Really kind of depends on when we shift from consumer spending.

<unk>.

More of our products and services spending we believe at this point in time, that's mid year.

As far as the other truck transportation, we're talking to substitute line haul because a lot of thats built around consumer spending.

Lot of Thats built.

What we do from a substitute line haul from a package piece from from different retail big box retail or things of that nature. So again, we're looking at it from a consumer spending side and as long as we have people at home as long as were disrupted COVID-19 , we kind of see that trend continuing in the matter.

Which is Trinity also to that point.

From a spot side of things.

Traditionally you are looking at a 80 20.

90, 10 kind of a.

Actual versus spot market, that's flipped on its head right now.

As Jim mentioned in his opening comments, we're kind of seeing the many business still there but.

I think on the contractual side of things the customers are while I don't see those rates decreasing a whole lot theyre looking for stability, especially on the low <unk>.

Price commodities theyre looking for stability and what their supply chain is going to cost and they are looking for the tinder rejections to go down. They just have no clue right now so they are looking to gain some control I guess over the supply chain.

After product, which we're looking forward, yes, I mean on the <unk>.

<unk> line haul and the other truck.

Just to clarify so that business is more heavily retail and parcel that most of the rest of your business.

The point about spot rate were you, suggesting that there is more contractual sticky relationships there or is it still fairly transactional.

It's more mostly transactional right.

I think tinder Ejections continue at an all time high.

And yes, I think from what you were speaking.

It is absolutely the majority of its consumer driven.

Thank you.

Thank you. Our next question is coming from the line of Jack Atkins from Stephens. Your line is open Hey, guys. Good morning, Thanks for taking my questions sure Jack Jack.

I guess first question.

Jim last week, there was a lot of press around vaccine.

Vaccine mandates at the U S. Mexico border just sort of curious if you guys have seen any disruption from that in terms of freight flows and as you kind of think about.

Looking forward there.

Perhaps an opportunity for some share gains.

Given your scale and presence.

Within Laredo specifically.

Hey, Jack this is Joe.

I would have told you I thought there would be some disruption but.

I talk to my guys yesterday, and we really have not seen any significant disruption with the.

With the.

Operators that are moving that freight across the border. They have done a pretty nice job at the crossing points I think of communicating the need or the vaccination and they've actually set up a lot of mobile.

Locations for those shovel drivers to get the vaccine. So I think it's kind of a non issue on the southern border at least to this point and again, it's more of what about a week or so.

On the northern border I think there were some communication issues with Canadian agencies kind of contradicting each other a little bit at least that's what I've heard so I think it's a little bit different on the Canadian border.

And I think it's catching some people a little bit more by surprise and so while we have not seen a big drop off in volume is there does seem to be.

Some challenges with getting capacity on the northern border.

You would think that will probably impact rates, if it doesn't get resolved okay.

Just to put it in perspective, so you guys have.

Essentially what we did our cross border Mexico business was about $550 million of revenue in 2021, and cross border, Canada was about 160.

Okay. That's that's helpful. Thanks, Thanks, so much for that gentlemen.

Joe and I guess, Rob maybe follow up questions for you.

Could you maybe give us an update on Landstar blue and maybe what are your expectations for that business.

In 2022.

Landstar Blue continues to grow and the contractual brokerage market.

We continue to add customers, we'll continue to put all awards again I think the time is right as I spoke to the last question is to tender rejects are at all time low we continue to reach out and work with our customers.

We continue to bring on that business and then match that with the capacity that we have available to us.

We continue to grow our capacity models.

Okay. So you would expect just given what you were saying earlier about.

Shifting from the spot market in the contract market could we see some pretty meaningful growth.

And good Landstar Blue B, a pretty a much more significant contributor to the top line in 2022 do you think.

We want I think we put up 40, roughly $42 million in revenues for the first year and we absolutely look for that to continue to grow.

Again capacity continues to come to US we continue to work strategically.

I'm, a contractual standpoint, with our customers and I absolutely believe.

As we look at this business year over year moving forward it will be a greater contributor the objectives, we still have a little build out to do there with on the tech side, we're not fully automated.

We've built out.

A separate Tms really over a blue to handle dedicated more contract type business.

But there's still a little work to do to get it to accelerate growth there right now, it's a little bit more manual and over the next year or two we should be able to automate more of that functionality. When you automate automate the capacity side and the customer side. So it's.

It's kind of a standalone really to head more contract business as opposed to that spot business. So we need a little of that technology in place to really accelerate some growth there I'm not trying to discount Rob.

The ability to grow but he is a little hampered until we get them the tools they need to.

Positive guy in the company.

Rob the optimist.

Well that sounds great. Thanks, so much all the time guys really appreciate it thank.

Thank you.

Thank you. Our next question is coming from the line of Charlie <unk> from Evercore. Your line is open.

Good morning, Thank you for taking my call and congrats on the quarter I was wondering if you could give us some more color on the individual truck segments for the first quarter guidance with regards to volume and pricing and then how those segments have been performing in January so far.

Well I think what Youre seeing is more of the same from the fourth quarter. It's all carrying over flatbed flatbed was.

A record volume in the fourth quarter and there is still strength there on the van side. It's more of the same we're still seeing strong consumer durables coming across and then on the.

The what we call the other truck transportation, which is 70% to 80% power only it's kind of where we bring an attractor and theres a loaded trailer for us not one of our trailers as a third party trailer.

We're seeing consistency coming out of the fourth quarter. So I don't think very special thing to say, we're seeing flatbed booming. Although flatbed is doing really good I think we're seeing consistent as we travel out of December into the first quarter.

Typically you'll see a little bit of drop off in the flatbed side due to freeze and stuff like that and I'm not sure. We're seeing that this year on the flat side I think it's flat still holding up pretty well.

Okay, Great and then as a follow up when you talk about the cycle leveling off and cycling down or at least some or do you see that more as a product of additional capacity coming online the demand.

Sure.

I think it's more of a shift from spot to contract and more of a maybe a softening in demand, but my crystal Ball's bus because anybody else's, we've been guessing peak for the last four quarters, but to me. It's to me, it's a demand thing.

Don't think there's issues with even though youll see some of the truck manufacturers starting to push up our trucks I still think <unk> got a little couple of issues. There yet you still have the there's no resolution to the drug and alcohol mandate, which has got I don't know 80000, guys on the sideline.

They're talking about putting these younger drivers do an interstate but they are required to have a driver with them. So I don't see the capacity side really turned on that quickly.

I think what would turn Quaker is based on inflation consumer confidence being diagnosed with demand a more of a demand guy here on <unk>.

Hum.

Okay, great. Thanks, a lot.

Thank you. Our next question is coming from the line of Jordan Alegar of Goldman Sachs. Your line is open.

Yes, hi.

Obviously seeing big surges for everyone in Ocean and air holding previously segments that perhaps weren't such a major focus more major growth area. Just curious was this.

Bigger chunk of growth in terms of revenue is an area that.

They need to scale into more or is it something you feel has a permanent stewart once all the supply chain stuff goes away in terms of emphasis.

Well part of the growth is actually a few new agents, we put on board. So thats clearly market share gain with guys, who have real expertise in that area, but in all honesty, we probably have 10 agents that are experts on the ocean side, maybe not we have 12. So it's really driven by those guys. It used to be more project driven but I think we are doing a better job of getting more routine ocean lines.

So if we're going to grow it out of there that's where the expertise is but I don't I think we did a pretty good job recruiting agents into that this year with some guys are expertise and we have a good support function of employees here and good connections.

But from a long term perspective.

I think truck is still going to dominate and we're trying to break more on the ocean Theres no question, but I wouldn't expect to see accelerated growth coming out of there like I just did I remember a lot of it was rate, although we did good on volume rate and new agents.

Yes, Jordan.

We released.

In our earnings release, we do break out volume and rates on Ocean and air cargo carriers.

And as Jim said rate was up 100, almost 150% right compared to volume, which was also good up closer to.

29% excuse me 20.

Currently we have 29% so clearly a rate a rate driven revenue increase in question is how sustainable is that longer term right. When you have rates going from 4700 to almost $12000 per load.

Makes sense and then you alluded to it.

Some things may do for a particular area.

Just curious.

Broadly speaking as you think about your technology and you also mentioned there could be some investment there versus competition overall, how do you feel your benchmark or stack up is there is there.

Things that you need to catch up on or is it really just more on the margin in certain products.

I don't think we need to catch up on everything anything I think we've got everything everybody else has we just don't talk about it as much we're not like I say I'm not pitching by technology investments to the investment community I'm doing it for the people who drive the business right and you look at what we've done over the last three years.

<unk>.

We probably I would admit that maybe five years ago, we were a little concerned that we weren't keeping up with the app based and cloud based world, but in the last three years, we've gone to the cloud we've developed the information highway we have we're using <unk>.

Middle Ware to share like I said like I tell everybody for simple minds like mine that we've gone from a concrete block to Mr. Potato head. So we can plug and play we've rolled out pricing tools visibility tool.

<unk> the credit process, we are trailer pool, so as I said at the opening I think about 87% to 80% of the Bcl freight is actually on one of our trailers and there was a lot of manual process behind that.

We're a little unique in the way, we do our trailers, but now it's all monitored via <unk>.

Electronically they can see where travelers are and stuff. So that's what we're doing there is no way I think we're behind.

I would say that we're probably ahead, our mobile app, we call at Landstar, one has all the capability or anything else Youll see out there I mean it. It provides all of the available loads advised fuel stops and stuff like that so.

What it is is that what youre seeing is the things we've invested over the last three years, we continue to enhance them, we're adding new tools and it's just adding a little bit to our depreciation line, but I think we're I'm not going to have to refer to this as cutting edge because thats not really our job, but we are right in line with or above anybody else. It's got the technology out there.

Great. Thanks, so much.

Thank you. Our next question is coming from the line of Bruce Chan from Stifel. Your line is now open.

Hey, guys. This is Casey deak, Stephanie Bruce today sure how are you.

Alright.

So first I wanted to ask a little bit about the end markets.

It looks like we saw some good growth auto and industrial growth.

If you look at Bard or those end market.

We look at that as an indication that there is some fluidity back in the supply chain symptoms things worked together a little better.

Well when you look at automotive I think we're just doing a good job of penetrating into an account that isn't necessarily the one that is driven by the big three right. So there's a within that grouping, it's a little more concentrated than most of our other groups. There as it relates to customer base and I think thats more of a customer driven.

Phenomenon than.

Then on an industry phenomenon I think theres still disruption in the auto side.

I think we're just doing a pretty good job.

With satisfying the request from certain certain customers we have out there.

But we can kind of speak to most of the sectors and what we think is going on at the level. That's in our earnings release consumer Durables, you talk to that one.

Highly diversified it's hard to it's such a big part of our business. It really flows with what's going on in the consumer market right. There's not a single customer that makes up more than three or 4% of that business.

So it's really that's a market driven where automotive really is more of a line on about four or five specific shippers and as I said, we're doing a pretty good job penetrating into one shipper as opposed to an overall industry machinery stop by up 43% again, another dynamic thats just.

As part of I think if you go back to last year, we were talking about.

If consumer flatbed was kind of soft right because the manufacturing sector heavy manufacturing was kind of soft in the first half of 2021 and consumer demand was through the roof.

We're growing revenue and it was all coming from then we started talking about wealth consumer draw.

Drops off we'll probably see flatbed start to pick up the sooner or later manufacturer has got to come back and its actually thats whats going on right. So we're seeing on the machinery side and even the metal side, we're seeing some pretty growth there, but just because that environment is coming back.

So thats kind of what we see substitute line haul we see it only grew 11%, but the thing there is the volumes actually grew as just we saw a.

To specific business, we were counting on.

Yes that was multi drops was going to be one loan it was driving the rate up higher but we saw the rate drop, but it's really a condition of mix not necessarily the rates going down there. So we only grew 11%, but it was it was actually on a volume growth with decrease in.

And revenue per mile just because of the we went from.

Having multi drops in a long route and then we're now doing shorter routes, but that's kind of what goes out of any other sector style foodstuffs is pretty small, but it's mostly highly diversified customer base within here other than the automotive which is a little more concentrated.

Yes, I'd say the only other sector stuff that I wanted to add.

Ask about was kind of a building products it looks like it grew pretty well.

We heard one of the rail speak about their expectations for soft housing starts in 2022 do you guys.

What are your expectations. There is there is there an agreement with that assessment.

And what's the impact that you would expect for flat.

The events that we had those soft housing starts this year.

Well if you asked me on the passengers, it's all going to go to zero.

In all honestly look I don't know I would say that that building products thing has been relatively strong and I would expect the housing starts or stuff like that to kind of pull it back I think everybody has got a new roof on their house.

Or siding and stuff like that so my expectation would be that you do see that's part of the slowdown in the summer.

But again my Crystal ball as good as anybody's.

Okay, Hey, guys, Hey, guys and then just one more for you and I'll turn it back.

We know that M&A has been lower on the kind of the capital stack for you guys now that not a huge.

Huge lever that you pull but we do see some of your peers. Some of your competitors, making some investments in logistics technology and of the sort of heard about you're talking about the needs and lance or blue.

Is that something that you consider that you looked at that you might need for use of cash going forward here.

Yes, absolutely if we saw an opportunity on the tech side are the capacity side, we would look at it we just nothing's popped right now we do use some third party services that actually provides some of the tools that we use over a blue.

If there was an opportunity our eyes are open.

Saying, we see one out there right now because our technology actually is all we like the homegrown stuff that we have and we haven't found anything that would actually be additive, but if there was something we clearly would look at it there is nothing on the horizon.

Okay, no that sounds great I'll turn it back thanks, guys.

Thank you. Our next question is coming from the line of Stephanie more of <unk>. Your line is open.

Hi, good morning.

Hi, most of my questions have already been answered, but I did want you to kind of a continuation of the last question, maybe you could speak a little bit about what youre seeing with existing accounts as well as growth in new account.

With new business are you seeing more of that.

Consumer durables side or industrial any kind of color there, what's driving that demand and incremental growth would be helpful. Thanks.

I think it's just across all.

All sectors.

As we walked through automotive is primarily it's a handful of customers subsequent <unk> a handful of customers, but the other categories. We got a very diversified so you've got small customers coming in like I said.

I spoke to the diversity of our model.

Our 100th customer was only $2 $8 million in the quarter. So it is really hard to speak to any specific customer driving the growth.

So.

Amongst the sectors that we deal with.

Customers come in and out of all time and it the thing about the thing about the model. If you think about our model, we're a little bit different we have we had six about 600 independent agents and they are in market and theyre, making relationships with shippers, who only moved one load a week.

And then we also have national accounts. It moved 1000 loads a week. So it's highly diversified and we've seen no shift in that it's not like we see new customers coming in that are significant but we also don't see new customers going out that were significant in the past. It's a lot of we play a lot of small ball here and it's it's a lot of.

Going out finding those small customers and making them bigger, but theres nothing specific about any additional customers that are larger or lost over the last 12 months or even going forward.

That's helpful. Thank you and then.

One of the bigger picture question about the growth of Evs, EV trucks, and even before that some of the increased regulation around ambitions are evs, particularly in California, maybe if you could just talk about the strategy behind the evolution of Evs in the truck market.

Yes.

Don't own any trucks, so it's a little bit different for us as opposed to an asset based carrier or <unk>. They are typically going out and buying used trucks are a little bit older. What you see out there in the industry and EV start become popular there'll be they'll be buying those in 10 years. Its just right now.

Do long haul freight 700 to 750 miles of it.

The electric vehicles really aren't conducive to that yet or that even on the heavy haul loads. You got 80000 pounds. So I think that market dynamic shifts for us later than it would for most I think the regional carriers. The short haul line stuff like that will move into those Evs quicker then youll see the long haul transport heavy haul guys move it.

Great well. Thank you so much we have trailers and one thing we do with our trials, we do put the wind resistant.

Low resistant tires on them just for environmental purposes. So we kind of called comply with any regulation and try and do our best as it relates to things we can control.

Great well it really appreciate the time.

Any more questions or closeout.

We have two more questions on queue Sir.

I will take those two.

Shut it down.

Thank you. Our next question is from the line of Scott Schneeberger of Oppenheimer. Your line is now open.

Thanks, Keith we're here at the end so I'll be I'll be brief.

I guess I'll put it out.

On the $50 million to $55 million a quarter on SG&A. Thanks for spending so much time on that is the second quarter going to be the high watermark because of the convention I wasn't sure from our comments should we expect it higher in the third and the fourth quarter than the second and then a quick follow up thanks.

It will step up in the second quarter and then I.

Wouldn't expect that kind of trend to continue because it will be pretty close to that $55 million mark by the second quarter because.

That's when we have our big event and then you'll have.

The absence of the event in the third quarter, but then some of the other things that I talked about will kind of take its place so to speak so.

Think of it more of a step up and then a little bit more consistently Scott.

We were on a July one res cycle here for almost everybody in the organization. So what happens is the $2 million on the convention gets absorbed so you expect you expect that to come down in the third quarter, but it doesn't because then we elevate the wages climb up in the third quarter, so that kind of counterbalance each other so your first quarter is probably a low watermark and then you kind of even in the back three considering.

Depending on what happens with our variable comp.

Okay.

I appreciate it I'll turn it over to someone else in queue. Thanks, guys. Appreciate it.

Okay.

Thank you. Our last question is coming from the line of Elliot Alper from Cowen Your line is open.

Great. Thank you and just one for me could you discuss any impact if at all Covid had on the driver pool in the fourth quarter and then looking into 'twenty two.

How is your new agent network trending and kind of what are your expectations about agent growth this year.

Elliot This is Joe we really we really havent seen any impact in the sense of count.

I think that all year long, we may have and it's hard to really pinpoint you may have seen a little bit of utilization impact.

Impact if we had <unk> that were out with COVID-19 or who are maybe being a little more cautious as to how much they were out but no significant impacts of account, we're pretty happy with the growth in 'twenty one.

Now I'll turn it over to Rob to your second question on.

The agent side, we continue to have a robust pipeline I think thats.

Because.

Again, the capabilities of Landstar the ability to.

A lot of people come to us as they have customers they have relationships and they can't supply the capacity.

Supply the service.

They come to us because we tend to be able to deliver that.

That service and that capacity for them. So so looking forward I expect our E&S to continue much like it did last year in our Asia revenue to continue in the same fashion.

Thanks, guys.

Thank you.

Thank you at this time I show no further questions I would like to turn the call back over to you Sir for closing remarks, yes. Thank you and I look forward to speaking with you again on our 2022 first quarter earnings Conference call currently scheduled for April 21.

Have a good day.

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

Yes.

[music].

Tony precedent and C E O.

Redfin, Saudi Vice President and CFO , Rob Brasher, Vice President and Chief Commercial Officer, Joe Beacom, Vice President and Chief Safety and operations Officer.

Now I would like to turn the call over to Mr. Jim got Tony Sir you may begin thank.

Thank you and before we begin let me read the following statement.

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 last <unk> business objectives plans strategies and expectations.

Undue reliance on forward looking information and Landstar undertakes no obligation to publicly update or revise any forward looking information.

Last hartsville fiscal year 2021 performance exceeded even our highest expectations 2021 revenue was $6 5 billion $2 4 billion or 58% above the 2020 fiscal year.

Drive the contribution exceeded prior year by 53% and operating income was double that of 2020.

During the year, 80% of the growth environment contribution was passed to operating income, resulting in earnings per share more than doubling from 498 in fiscal 2020 to $9 98 in fiscal 2021.

It would be an understatement to say 2021 was an outstanding year for last or the year started with record first quarter financial results in each quarter grew from there in fact, each quarter of 2021 set a new all time left a record for revenue and earnings per share for that quarterly period Acura.

Actual second and third quarter revenue and earnings per share exceeded both our initial and updated revenue and EPS guidance provided during those quarters. The 2021 fourth quarter was more of the same initial guidance updated mid quarter to increase revenue and earnings estimates for the quarter, followed by actual fourth quarter results exceeding the updated guidance the 2000 <unk>.

<unk> fourth quarter earnings per share beat of <unk> <unk> to our updated guidance was largely due to a favorable tax rate that added <unk> to our results.

Early in 2021, there was a lot of speculation by many in the industry trying to predict a peak to truck pricing at some point during 2021.

However that peak never materialized during the year and in fact decembers revenue per load hauled via truck was the highest monthly revenue per load in the Companys history.

Overall, the company set many financial records in the 2021 fourth quarter ended the year with a record 11864 trucks provided by <unk> and had a record 90000, plus third party carriers approved to haul last our frame of which over 64000 that hold the last our load in the 180 days preceding year end.

Agents generating at least $1 million of Landstar revenue during the fiscal year climbed to 593.

17% increase over the number of million agents in 2020, new agent revenue in fiscal 2021 was an annual record $181 million.

As it pertains to the 2021 fourth quarter revenue and profit contribution operating income and earnings per share were all time quarterly records.

Revenue in the 2021 fourth quarter was a record $1.945 billion, 50% above the previous fourth quarter record set last year.

The 2021 increase in revenue over the 2024th quarter was driven by an increase in revenue hauled via van and onsite platform equipment of 45% and 40%, respectively, which combined made up 75% of revenue in the 2021 fourth quarter other trends truck transportation that includes primarily power only expedited cargo van.

And straight truck increased $95 million or 61% over the 2024th quarter.

Additionally, ocean cargo, although a small percent of our revenue increased over the 2024th quarter by $88 million on a 61% increase in loadings in an average rate increase of 127%.

Last our operates primarily in the spot market. The U S truck transportation, where truck rates are generally condition of the balanced and market demand and available truck capacity.

Revenue per load hauled via van and onsite platform equipped in the 2024th quarter each exceeded the 2024th quarter by 20% as market dynamics strongly favored the truck provider.

As it relates to the number of loads hauled via truck diverse the diversity and depth and expertise among members of the Companys agent family unless our employees enabled network to handle the needs of most shippers, whether it be drop and hook onside platform heavy haul expedited hazmat power only cargo van services are straight truck through.

Through the efforts of our unique capacity network. The total number of loads hauled via truck exceeded the record 2024th quarter by 22%.

That increase in the 2021 fourth quarter over the 2024th quarter was driven by impressive increase the number of loads hauled via van onside platform equipment less than truckload and other truck transportation services by 21%, 17%, 13% and 43% respectively.

In the 2021 and fourth quarter each of these lines of business within our truck service offering set a new all time quarterly record for the number of loads hauled.

The number of loads hauled via truck increased 7% over the 2021 third quarter one of the highest 13 week period increases from Q3 to Q4 in Landstar history.

<unk> to the 70% increase in loads hauled via onside platform equipment.

That growth is a positive sign for flatbed business heading into 2022.

Most albeit bcl capacity increased 6% over the 2024th quarter on a 10% increase in the average number of Bcl trucks during the 2024th quarter.

Led by lower truck Bcl utilization of 3%.

During the 2021 fourth quarter, approximately 78% of loads hauled via Bcl.

Bcl truck utilized landstar trailer, primarily in drop and hook operations.

Truckload saw by third party truck broker carriers increased 36% over the 2024th quarter to a new quarterly record of over 400000 loads.

Ocean revenue increased 266% above the 2024th quarter.

Rates, which are somewhat influenced by mix increased 127% over the 2024th quarter, while ocean bottom increased 61% the.

The growth in loadings was attributed to a few new agents in 2021 plus growth within the existing agent network.

<unk> customer base continues to be highly diversified during the 2021 fourth quarter revenue contribute by last year's top 100 customers by 2024th quarter revenue contributed 44% of the 2024th quarter revenue.

Revenue from those top 100 accounts into 2020, our fourth quarter increased 33% over the 2024th quarter.

Brad.

Alright, Thanks, Jim and good morning, everybody.

Jim covered certain information on our 2021 fourth quarter and full year performance I'll cover some of the other key fourth quarter financial information included in the press release.

Turning with the gross profit and variable contribution.

As a reminder of what we discussed last quarter cost of revenue has two categories variable cost of revenue and other cost of revenue.

<unk> revenue includes purchase transportation and agent commissions, while other cost of revenue includes numerous costs that fluctuate to differing degrees with revenue.

Including trailer depreciation and maintenance costs.

In SG&A in the company's consolidated statements of income.

Reconciling gross profit to variable contribution.

In the 2021 fourth quarter gross profit was $209 8 million, an increase of roughly 48% compared to $141 7 million in the 2024th quarter.

Gross profit margin was 10, 8% of revenue in the 2021 fourth quarter only slightly below 10, 9% gross profit margin in the same period of 2020.

Also as a reminder, in conjunction with the definition of gross profit we initiated the use of the term variable contribution last quarter.

This is a non-GAAP financial measure.

To refer to the amount represented by revenue less our variable cost of revenue, which again includes purchase transportation and agent commissions.

As detailed in the table I just alluded to in our earnings release.

In addition, we defined variable contribution margin also a non-GAAP financial measure.

As variable contribution divided by revenue. This measure has always been and continues to be an important one for us.

Purchased transportation in agent commissions are the primary expenses that are 100% variable with revenue and.

And give us a view into spot market trends in the freight transportation industry on a shipment by shipment basis.

And the 2021 fourth quarter variable contribution increased roughly 44% to $263 3 million compared to $182 4 million.

In the 2024th quarter driven by strong revenue.

Our variable contribution margin was 13, 5%.

Revenue in the 2021 fourth quarter.

Compared to 14, 1% in the same period last year.

The decrease in variable contribution margin compared to the 2024th quarter was entirely attributable to the mix between our <unk> independent contractor capacity.

As our brokerage business increased from 53% of total revenue in 2020 in 2024th quarter to 59% of total revenue in the 2021 fourth quarter.

It's important to note that while our gross profit and variable contribution margin might feel some compression in times of significant growth.

Excess volumes are handled disproportionately by brokerage capacity, we still benefit significantly in terms of additional accretive earnings growth and cash flow. So in my view, that's a good trade off.

Moving onto our costs.

Other operating costs were $9 $4 million in the 2021 fourth quarter compared to $7 $4 million in 2020.

This increase was primarily due to increased trailing equipment costs increased <unk> recruiting and qualification costs and an increased provision for contractor bad debts.

Insurance and claims costs were $33 million in the 2021 fourth quarter compared to $21 $2 million in 2020.

Total insurance and claims costs was four 2% of <unk> revenue in the 2021 period and three 8% of <unk> revenue in the 2020 period.

Selling general and administrative costs were $62 $6 million in the 2021 fourth quarter compared to $42 $9 million in 2020.

As we discussed last quarter. The majority of the increase is related to a variable cost cash incentive compensation plan and stock based compensation arrangement driven by our record setting financial performance this year.

Wage and benefit pressure also contributed to the increase.

Partially offset by decreased provision for customer bad debt.

In 2020 on fourth quarter stock compensation expense was $8 $8 million and the provision for incentive compensation was $8 million.

And the 2024th quarter stock compensation expense was $1 9 million in the provision for incentive compensation was $1 7 million.

Depreciation and amortization was $13 $1 million in 2021 fourth quarter compared to $11 6 million in 2020.

This increase was primarily due to increased depreciation on technology tools, resulting from the recent deployment of new and upgraded applications for used by agents and capacity.

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

The effective income tax rate was favorably impacted in both periods by resolution of certain tax items and tax benefits, resulting from equity compensation arrangements.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $251 million.

<unk> from operations for 2021 was $277 million in cash capital expenditures were $23 million.

In 2021, we returned $235 million to shareholders through a combination of regular dividends of $35 million share repurchases of $123 million.

And a special dividend of <unk> $77 million paid in January of 2021.

After an increase in our authorization by our board of directors in December of 2021, we now have 3 million shares available for purchase under the company's stock purchase programs.

And since we're on the topic of returning capital shareholders I want to be clear that returning capital is important but investing in our business is just as if not more important for the long term health of our company.

These investments relate to our people our agents and our capacity, which we referred to collectively as our network.

As well as our technology ecosystem and they will continue to grow as we support a business that is much larger today than it has ever been and.

Thanks, Brad.

I expect the number of loads hauled via truck to be 8% to 10% below our record setting truckload count of the 2021 fourth quarter <unk>.

Based on those expectations revenue guidance for the 2022 first quarter is estimated in a range of $1 seven $1 $75 billion.

And based on that level of revenue, we expect earnings per share to be in a range of $2 70 to $2 80 per share assuming we achieve revenue guidance revenue easily be a record for any first quarter, 32% to 36% higher than our record 2021 first quarter revenue.

So assuming we achieve our earnings per share guidance into 2022 first quarter earnings per share to exceed our record 2021 first quarter earnings per share by 30% to 39%.

Landstar is network of small and large business owners provide the expert expertise to satisfy shipper demand in almost every sector and every geography region in North America sourcing capacity of Varian equipment types, while Landstar provides a tool financial support and capacity network to empower their success the strength and resiliency of the model proves itself over and over again 2020.

One was no exception as a final note before we turn to questions I want to thank to take this opportunity to recognize and thank all of our last our employees agents BCS and other capacity bias for an incredible performance in 2021 as we now look forward to all we can accomplish together in 2022.

And with that we will open to questions.

Our first question is coming from the line of Todd Fowler of Keybanc capital markets. Your line is now open.

Hey, great. Good morning, Thanks for taking the question.

So Jim to follow up on your comments there about looking out into 'twenty, two and certainly understand that there's a lot of moving parts at this point, but you know you've shared in the past kind of your thoughts and kind of how the year's can progress it sounds like what youre comfortable starting off pretty strong here in the first quarter.

Would your expectations be I mean would you expect to follow normal seasonal trends off of <unk> or do you expect things to kind of tail off as we get into the back half of the year.

You know my my.

Optimism or pessimism right. So I'm always look we all we all thought after coming out of March were at peak, we thought coming out of June we're upbeat coming out of September we thought were at peak and we're going to slow down in the fourth quarter here I am sitting theyre going to tell you. The same story, because that's who I am Brian I think eventually we're going to see that.

Whether the whether the shippers start to lock up long term contracts right, we shipped a little bit from spot to contract pulling rates down a little bit are we see as a softness in demand I don't think the capacity is coming back in as much as we look at maybe the demand side, a little bit more coming into the maybe the end of the second quarter back half, but I still anticipate we're going to see some kind of trans.

<unk>.

We're spots pull back a little bit in the contract market kind of accelerates with these longer term deals as opposed to.

Where we look for four quarters in a row, we've been saying, we're going to see some kind of peak and we're going to see a conversion, but by pessimism multi I do I. Just think we're an extended cycle I think we're going to cycle back on a question everybody is asking is when does it happen if or me I would say that we are I.

I don't think it can be dramatic, but I think youre going to see leveling off our cycling down a little bit maybe early summer.

It just based on the way things cycle over time and some of the things we're seeing.

<unk>.

You are getting a little more inquiries on 12 month contracts as opposed to the many many bids.

It's not a big deal that would be a sign that maybe maybe shippers are starting to understand that these these prices may be here to stay.

And if they do lock up 12 months, clearly would be a little bit lower than spot.

I think thats, what youre seeing in some of the indications with <unk>.

Driving that summertime thing the other thing we got.

We don't give full year guidance really because the unpredictability of the spot market and you see how it turns.

But the one thing we do we would you talk about there's a little more predictability in our cost below the line below below variable contribution and share some of that Fred probably can give some input on what we think like below the below the variable contribution line.

Yes, sure. So just to give you some context.

You'll recall that in the FERC to our cost structure, you will call in the third quarter.

We talked about having some tailwind going into 2022.

From our variable compensation and stock based comp plans I think we said specifically $35 million of tailwind.

That's obviously part of the cost structure picture and as you might expect there is also some headwinds.

Going into this year. So let me just put those into maybe three broad categories first.

Think of a category being as kind of a normalization.

All of our costs.

Think of us.

And we expect to spend more on travel this is related to COVID-19 as we have more events.

To support and recognize our agents capacity compared to what we did in 2021.

We're of course, our spend was was quite suppressed due to COVID-19 . So we're planning for a more normal year.

On both the travel and events front.

We're continuing to make investments in people and external.

Services to support the growth that we've experienced over the last year.

And support our strategic long term investments in technology, so that means more people to keep up with higher truck volumes more load volumes and.

And more external spend including software and services to accelerate our it investments and you won't be surprised to hear that.

We experienced a fair amount of inflation last year on wages and benefits.

Which we haven't fully lapped as we enter 2022 and frankly I think most people I think would agree that that's not going away anytime soon in 2022.

So everything I just mentioned, we will have an impact on our SG&A costs, which are expected to run roughly $50 million to $55 million per quarter.

Lower in the first quarter, and then increasing in the second quarter due to our big agent Convention in the second quarter that I think you all are probably familiar with.

As well as some of the items some of the other items that I just mentioned.

And then just as a reminder, our SG&A costs are comprised of probably 65% to 70% of that is related to compensation and benefits and then lastly, but very important on the investment front, we did make investments in trailers last year to keep up with a growing number of bcl trucks.

That investment was a bit more skewed to the second half of the year. So we have yet to lap the full.

<unk> that are in some cases in excess of 30%.

In 2022 above what we were paying in say early 2021, so that obviously will come into play as well on our depreciation expense line. This year. So.

Between the trailer investments in and the launch of some of the new and enhanced software tools that I was alluding to both what we deployed last year and what we expect to deploy this year is going to have an impact on depreciation.

Our expected total depreciation expense will be in the range of $14 million to $16 million per quarter.

Again, similar to SG&A, a little bit lower in the first quarter and then increasing in the following quarters as we take more trailer deliveries and also put into service.

The various tools that I was just alluding to.

And then on our other operating cost.

Or does should range from between $9 million to $11 million per quarter subject to gains on the older trailer dispositions that I was just referring to.

And then our largest or second largest expense line rather.

Insurance and claims second largest after SG&A and we do expect it to trend higher this year compared to last year.

Just as a reminder, about 25% of that insurance and claims expense line is made up of fixed insurance premiums.

And the remainder relates to insurance claims, which are highly highly unpredictable just based on the nature of our business. We typically measure insurance and claims cost as a percentage of <unk> revenue since a significant majority of the costs relates to revenue hauled via <unk> network and then just for purposes of.

Forecasting.

We're using for 2% of.

<unk> forecasted <unk> revenue for the full year estimate.

But obviously the ultimate outcome as you can imagine will vary will depend.

By the severity and frequency of accidents, we'll have this year, along with any changes to the <unk> rates or revenue per load, which can impact the insurance and claims as a percentage of <unk> revenue compared to the four 2% forecast that I just mentioned.

That's a not so short rundown of how we're thinking about our cost structure for 2022, but I thought it might be helpful to just take you through that so Tom with that question, we probably only have time for one.

Got it I'll turn it over at this side.

Just really one we always like to start the year.

Those costs are a little more predictable just like the share that so you guys have a feel for what we're thinking about below the line again unpredictability of the spot market, but we're kind of comfortable with the below the line costs a little bit as you know insurance is a little bit more unpredictable.

I appreciate the line of sight into what you guys know Jim I will ask one follow up and I'll turn it over but can you speak to the shift to the percent of revenue that's coming from brokerage revenue versus <unk>. I know you are not having a problem finding capacity utilizations coming down a little bit, but do you expect that to be kind of a.

A shift here that we're going to see for the next couple of quarters and then it normalized or is that more of a permanent shift in the business.

I think if you look over time, it's been a permanent shift in our business.

If we win.

I would love to add another couple of thousand BCS and just hold that 50 50 split but in reality, that's just not the way. It works. So all the excess freight it's not even excess some of the some of the broker trade is truly brokerage freight because on third party trucks, but I would expect that as a continuing part of the business model, where the brokerage continues to grow and that's fine with us.

Because theres not a lot of infrastructure costs.

On that third party truck business.

When a third party truck haul the world like insurance is a lot lower risk for us on a third party truck than it is a bcl as you know.

We are subject to the liability and <unk> and exit, whereas we're not necessarily subject on a broker. So I would expect that brokerage truck brokerage to continue to grow as a percent of our revenue over time, yes, okay. It makes sense hey, thanks, so much for the time and congratulations on a really strong year.

Yes. Thanks.

Thank you. Our next question is coming from the line of Scott Group from Wolfe Research. Your line is open.

Hey, Thanks, Good morning, guys good morning.

Jim when I look at the first quarter guidance on the sequential it looks like maybe pricing a little bit better than historical in volume sequentially, maybe a little bit worse can you just talk about the pricing and volume environment, you're seeing so far in January if youre seeing any impact from <unk>.

No.

On the pricing side, probably a little bit better because January doesn't seem to be pulling back we're four weeks into January .

The revenue per load is still pretty elevated compared to what you would see a drop from December to January so, it's seasonally a little bit better than what we what we're seeing so it's really that pricing is just based on what we've been seeing and we don't expect a significant turn in the next what is it what do we got left eight weeks. So that's on the pricing side on the volume side I'll just tell you that we have.

A little weather disruption in January so, it's a little hard to predict I can't tell you that the four weeks of January represented the entire quarter. So I would say that we might have been a little conservative on the volume side to be honest with you that eight to 10 might be conservative. So I think thats whats your kind of implied and I would agree that we probably maybe built in maybe a little more storms and little more disruption than because.

It was based on a January run rate, but nothing unusual really assist we might like I said it's.

It is a gas for the next eight weeks away, we think we're going to come out based on what we're seeing in the market.

Okay.

The net operating margins.

Margins were I think 55% last year.

The expense guidance last question was helpful. But when you add it all up do you think you can improve on that this year.

I think it can be very difficult to improve on that but it really all has to do with yes. We can if we can get the variable contribution to grow but I think it would be a little bit difficult to grow off of that 55% that we've put up this year now again theres a whole bunch of factors in there. If we're safer in 2022 that we were there's more chance that we can do it.

But you need safety, you need to be safe and do we need a little bit of goes in the variable contribution to offset some of that inflation, we're seeing in the costs.

Okay and then just last thing just big picture, we've never seen this magnitude of brokerage volume growth for you guys and it seems like it's happening with asset based guys are struggling with for at least from a volume standpoint. So I guess, how are you thinking about the sustainability of this brokerage volume growth.

Well I think it is.

We're highly diversified so it's really market demand driven and the one thing good when the demand is like this and shippers can't find capacity.

It helps our agents build relationships, where they haven't had relationships before so I think it is sustainable but it really has to do with demand side.

If demand side drops the brokerage will come down as a percent of total it's just the way the cycle works, but I think the higher highs with us if you follow over time things dip down, but then we come out of these higher highs and brokerage is always the driver of the bottom not always but typically the driver of the volume and I expect that to continue.

But it's highly diversified its across so many customer it's really hard to speak to specific.

No.

Our specific customers specific industry, where it's driven from it's really demand driven cycle.

Okay. Thank you guys appreciate it.

Thank you. Our next question is coming from the line of Allison <unk> of Wells Fargo. Your line is open hi, good morning, good morning.

Wanted to talk to you obviously.

Chang and softening expectation continues to get pushed to the right.

Assuming that it.

It will happen inevitably can you talk to what your team is doing to better prepare your agents and carriers.

Better manage that infection versus prior cycles any color there.

I think they live it right our agents have been on for a long time and we clearly we add new agents every year you can see by our $181 million New agent revenue for 2022, 2021, I'm sorry, but they live the cycle just like we do we push out information as much as we can if we start seeing the pricing and demand start to slide a little bit we try and push it out some of these guys.

We've got a lot of agents between $1 1 million in two and a half and they don't necessarily they're not up.

The amount of information Landstar has a corporate.

Is a lot better than the information that a guy like maybe in Arkansas somewhere is running 1 million $2 million of business. So we try and push out as much information as possible, whether it's pricing capacity availability or stuff like that to the agent family. So they can react properly in the event, we see pricing starting to pull back.

Historically, what you would see is our guys don't rip the agents don't necessarily react fast enough when pricing starts to pull back and then shippers what they do is they pull the business and they go to the lowest price and those are the things we try and avoid.

We're doing a better job at that today than we were five years ago, because we have a pricing tool. It didn't exist before and we have a lot of we automated a lot of things over the last three years to help them and making quicker quicker decisions on some of that.

Of course, it's showing up in our depreciation as we've rolled these tools out, but it's a benefit to the efficiencies of the agent family to try and react to shifts in the market dynamic.

Great. That's helpful. And then I just wanted to go back to the comments on capital deployment is share authorization. I think you said $3 million, but just my I guess my expectation as I told him that I came away with was that.

And that's going to be less important versus the capital investments as we enter 'twenty two just any color there in terms of how to think of that balance as we move through 'twenty two.

It's a cash spend thing more than it is depreciation is going to climb based on investments we made in the past, but I wouldn't say that our investments that we discussed.

That Fred discussed are much higher than they were in 2021 it.

It's really what's happening is on the expense side is starting to rollover. So now we invest where it's important but I don't think its going to impact our ability to give back to shareholders.

Any material degree.

We're really just trying to point out the investments, we made and we will be making and the impact more on the from the deal.

Depreciating, our software costs over the next five years right is really where we are but the spending this year on those investments if it's five or $10 million more than it was in 2021.

That's all we're talking about it we're not talking about like a $50 million spend in excess of what we've done historically, it's pretty pretty similar year over year.

Great. Thanks for the color I'll pass it along.

Thank you. Our next question is coming from the line of <unk> majors from Susquehanna. Your line is open.

Yes, thanks for taking my questions.

Bringing it back to the SG&A comments within that $50 million to $55 million a quarter that you outlined earlier can you talk about.

Number one what the embedded a reduction in incentive comp, including the stock comp is for the full year and Jim does the board outlook to get to a target incentive comp level does that assume the kind of 10% to 15% long term growth rate of the company or is there something different than that.

Because of that unique cyclical environment were in thank you.

The targets.

First of all I'll, just say, we're still sticking with that 35 million tailwind heading.

Heading into.

Our targets vary each so the bonus card the cash compensation is based on a target that was established actually in early January as our budget for 2022 and that does vary based on market conditions like we have.

If we for example, if we have a really bad safety year in 2021, we might see improvement in that line growing our target, but if we have a really safety year. In 2021, we may have more insurance embedded in 2022 than we normally would have so there's no. We don't tie the 10% to 15% goal the 10% to 15% is more of a long term, it's not year over year.

Here.

Target built on our expectations for 2022, which were kind of outlined from the expense side Fred gave you those.

Don't really speak to the target we've established on the topline.

Thanks for clarifying that.

And from a high level over the last five years, a couple of lines have really outgrowing others. Like this other truck revenue, 8% to 12% of your revenue I mean ocean and air 2% to 5% of your revenue.

I think people understand a lot of what's driving the ocean and air piece, but can you talk to.

Beth.

This is rob on the Ocean side I think it's no surprise that we continue to see disruption we continue to see shifts.

Especially if you're early awards that.

The supply chain is disrupted you've got <unk>.

Several issues.

Coming on especially in China with the Olympics, you've got Chinese new year's.

That continues I think the rates obviously are.

Elevated whom youre stabilized to a point.

To where they are we saw a bit of a dip in rate just a little bit in December it's kind of come back up.

Through the first four weeks of this year, so I'd say.

Disruption for what is just going to hang it kind of goes back to Jim's opening comments as to win.

Same start to tail off.

It kind of depends on when we shift from consumer spending.

Two more.

More of our products and services spending and we believe at this point in time, that's mid year.

As far as the other truck transportation, we're talking to substitute line haul things that a lot of thats built around consumer spending.

Thats built.

What we do from a substitute line haul from a package piece from from different retail big box retail or things of that nature. So again, we're looking at what the consumer spending side and as long as we have people at home as long as were disrupted COVID-19 , we kind of see that trend continuing in the matter.

Which is Trinity also to that point.

From a spot side of things.

Traditionally you are looking at a 80 20.

90, 10 kind of contractual versus spot market, that's flipped on its head right now.

As Jim mentioned in his opening comments, we're kind of seeing the many business still there but.

I think on the contractual side of things the customers are while I don't see those rates decreasing a whole lot theyre looking for stability, especially on the low <unk>.

Commodities theyre looking for stability and what their supply chain is going to cost.

And they are looking for the Tinder rejections to go down they just have no clue right now so they are looking to gain some control I guess over the supply chain does that answer product, which we're looking forward, yes, I mean.

On the substitute line haul and the other truck.

Just to clarify so that business is more heavily retail and parcel that most of the rest of your business and the <unk>.

Pointed out spot rates were you, suggesting that there is more contractual sticky relationships there or is it still fairly transactional. So I think it's more mostly transactional right now again.

Again, I think tinder injections continue at an all time high.

And yes, I think from what you were speaking to the other it is absolutely the majority of its consumer driven.

Thank you.

Thank you. Our next question is coming from the line of Jack Atkins from Stephens. Your line is open hey.

Guys. Good morning, Thanks for taking my questions sure Jack.

I guess first question.

Jim last week, there was a lot of press around.

Vaccine mandates at at the U S. Mexico border just sort of curious if you guys have seen any disruption from that in terms of freight flows and as you kind of think about la.

Looking forward there.

Perhaps an opportunity for some share gains.

Given your scale and presence.

Within Laredo specifically.

Hey, Jack this is Joe.

I would have told you I thought there would be some disruption, but I <unk>.

Talk to my guys yesterday, and we really have not seen any significant disruption with the.

With the.

Locations for those shovel drivers to get the vaccine. So I think it's kind of a non issue on the southern border at least to this point and again, it's more of what about a week or so.

And I think it's catching some people a little bit more by surprise and so while we have not seen a big drop off in volume is there does seem to be.

Some challenges with getting capacity on the northern border.

You would think that will probably impact rates, if it doesn't get resolved okay.

Just to put it in perspective, so you guys have.

So what we did our cross border Mexico business was about $550 million of revenue in 2021, and cross border, Canada was about 160.

Okay.

Helpful. Thanks, Thanks, so much for that gentlemen, and Joe and I guess, Rob maybe follow up questions for you.

Could you maybe give us an update on Landstar blue and maybe what are your expectations for that business in.

In 2022.

Landstar Blue continues to grow and the contractual brokerage market.

We continue to bring on that business and then match that with the capacity that we have available to us.

We continue to grow our capacity models.

Okay. So you would expect just given what you were saying earlier about.

Shifting from the spot market in the contract market could we see some pretty meaningful growth.

And good Landstar Bluebird pretty much more significant contributor to the top line in 2022 do you think it's likely want I think we put up 40, roughly $42 million in revenues for the first year and we absolutely look for that to continue to grow.

Again capacity continues to come to US we continue to work strategically from.

From a contractual standpoint, with our customers and I absolutely believe.

A separate Tms really over a blue to handle dedicated more contract type business.

But there's still a little work to do to get them to accelerate growth there right now, it's a little bit more manual and over the next year or two we should be able to automate more of that functionality. When you automate automate the capacity side and the customer side. So it's a.

The ability to grow but he is a little hampered until we get them the tools they need.

Positive guy in the company.

Rob the optimist.

Well that sounds great. Thanks, so much of a time guys really appreciate it.

Thank you.

Thank you. Our next question is coming from the line of Charlie <unk> from Evercore. Your line is open.

Well I think what Youre seeing is more of the same from the fourth quarter. It's all carrying over flatbed flatbed was.

A record volume in the fourth quarter and there is still strength there on the van side. It's more of the same we're still seeing strong consumer durables coming across and then on the.

We're seeing consistency coming out of the fourth quarter. So I don't think very special thing to say, we're seeing flatbed booming. Although blackbird is doing really good I think we're seeing consistent as we travel out of December into the first quarter and typically.

Okay, Great and then as a follow up when you talk about the cycle leveling off and cycling down early summer do you see that more as a product of additional capacity coming online the demand.

I think it's more of a shift from spot to contract and more of a maybe a softening in demand, but my crystal ball is bus because anybody else's, we've been guessing peak for the last four quarters, but to me. It's to me. It's a demand thing I still think there's issues with even though you see some of the truck manufacturers starting to push out more trucks I still think <unk> got a little couple of issues there yet.

They'll have the there's no resolution to the drug and alcohol mandate, which is got a low 80000 guys on the sideline.

They're talking about putting these younger drivers do an interstate but they're required to have a driver with them. So I don't see the capacity side really turned on that quickly.

I think what would turn Quaker is based on inflation consumer confidence being done is the demand more of a demand guy here on my slide pessimism.

Okay, great. Thanks, a lot.

Thank you. Our next question is coming from the line of Jordan Alegar of Goldman Sachs. Your line is open.

Yes, hi.

We've obviously seen big surges for everyone in Ocean and air.

<unk> previously segments that perhaps weren't such a major focus more major growth area just curious with this.

Bigger chunk of growth in terms of revenue is an area that.

They need to scale into more is it something you feel has a permanent Stewart once all of the supply chain stuff goes away in terms of emphasis.

Well part of the growth is actually a few new agents, we put on board. So that's clearly a market share gain with guys who have real expertise in that area, but in all honesty, we probably have 10 agents that are experts on the ocean side, maybe now we have 12. So it's really driven by those guys. It used to be more project driven but I think we are doing a better job of getting more routine ocean lines.

But from a long term perspective.

I think truck is still going to dominate and we're trying to break more into ocean Theres no question, but I wouldn't expect to see accelerated growth coming out of there like it just did I'll remember a lot of it was rate, although we did good on volume rate and new agents.

Yes, Jordan.

We released.

In our earnings release, we do break out volume and rates on Ocean and air cargo carriers.

And as Jim said rate was up 100, almost 150% right compared to volume, which was also good up closer to.

29% excuse me 20.

Generic 29%, so clearly a rate a rate driven revenue increase in question is how sustainable is that longer term right. When you have rates going from 4700 to almost $12000 per load.

Makes sense and then you alluded to it.

Some things may do for a particular area.

Just curious.

Broadly speaking as you think about your technology and you also mentioned that would be some investment there versus competition overall, how do you feel your benchmark or stack up is there is there.

Things that you need to catch up on or is it really just more on the margin in certain products.

I don't think we need to catch up on everything.

I think we've got everything everybody else has we just don't talk about it as much we're not like I say I'm not pitching by technology investments too.

<unk> community I'm doing it for the people who drive the business right and you look at what we've done over the last three years.

<unk>.

<unk> middleware to share like I said like I tell everybody for simple minds like minded we've gone from a concrete block to Mr. Potato head. So we can plug and play we've rolled out pricing tools visibility tool.

Automated the credit process, we are trailer pool, so as I said at the opening I think about 87% to 80% of the Bcl freight is actually on one of our trailers and there was a lot of manual process behind that.

We're a little unique in the way, we do our trailers, but now it's all monitored via <unk>.

Electronically they can see where travelers are and stuff. So that's what we're doing there is no way I think we're behind.

I would say that we're probably ahead.

Our mobile App, we call at Landstar, one has all the capability of anything else Youll see out there I mean it. It provides all of the available loads advised fuel stops and stuff like that so.

Great. Thanks, so much.

Thank you. Our next question is coming from the line of Bruce Chan from Stifel. Your line is open.

Hey, guys. This is Ken.

So do you expect them to Bruce today sure how are you good alright.

So first I wanted to ask a little bit about the end markets.

It looks like we saw some good growth auto and industrial growth you.

Do you look at Bard or those end market.

Look at that as an indication that there is some fluidity back in the supply chain things worked together a little better.

Well when you look at automotive I think we're just doing a good job of penetrating into.

That isn't necessarily the one that is driven by the big three Reits others within that grouping, it's a little more concentrated than most of our other groups there as it relates to customer base and I think thats more of a customer driven.

Phenomenon.

Then on an industry phenomenon I think theres still disruption in the auto side.

I think we're just doing a pretty good job with.

Satisfying the request from certain certain customers we have out there.

But we can kind of speak to most of the sectors and what we think is going on at the level. It is in our earnings release consumer Durables you talk to that one that's so highly diversified it's hard to it's such a big part of our business. It really flows with what's going on in the consumer market right. There's not a single customer in there that makes up more than three years to 4% of that business.

Part of it I think if you go back to last year, we were talking about.

If consumer that flatbed was kind of soft right because the manufacturing sector heavy manufacturing was kind of soft in the first half of 2021 and consumer demand was through the roof.

Growing revenue and it was all coming from then we started talking about wells consumer.

Drops off we'll price it flatbed start to pick up the sooner or later manufacturer is going to come back and it's actually that's what's going on right. So we're seeing on the machinery side and even the metals side, we're seeing some pretty good out there, but just because that environment is coming back.

So thats kind of what we see substitute line haul we see it only grew 11%, but the thing there is the volumes actually grew as just we saw a.

To specific business, we were counting on.

We went from.

Yes, I'd say the only other sector stuff that I wanted to ask about was kind of building products looks like it grew pretty well.

We heard one of the rail speak about their expectations for soft housing starts in 2022 do you guys. What are your expectations. There is there is there an agreement with that assessment.

And what's the impact that you would expect for flat bed.

In the event that we had those soft housing starts this year.

Yes, ma'am our passengers, it's all going to go to zero.

In all honestly look I don't know I would say that that building products thing has been relatively strong and I would expect the housing starts and stuff like that to kind of pull it back I think everybody has got a new roof on their house.

Or citing and stuff like that so my expectation would be that you do see that's part of the slowdown in the summer.

But again my Crystal ball as good as anybody's.

Okay, Hi, guys can you guys and then just one more for you and I'll turn it back.

We know that M&A has been lower on the kind of the capital stack for you guys not a not a huge.

<unk>.

Is that something that you consider that you look at that you might need for use of cash going forward here.

If there was an opportunity our eyes are open.

We see one out there right now because our technology actually is all we like the homegrown stuff that we have and we haven't found anything that would actually be additive, but if there was something we clearly would look at it there is nothing on the horizon.

Okay that sounds great I'll turn it back thanks, guys.

Thank you. Our next question is coming from the line of Stephanie more of <unk>. Your line is open.

Hi, good morning.

Yes.

With new business are you seeing this and more.

Consumer durables side or industrial or any kind of color there, what's driving that demand and incremental growth would be helpful. Thanks.

I think it's just across all.

All sectors.

I spoke to the diversity of our model.

100 customer was only $2 $8 million in the quarter. So it's really hard to speak to any specific customer driving the growth.

So.

Amongst the sectors that we deal with them.

Customers come in at that all the time and at the thing about the thing about the model. If you think about our model, we're a little bit different we have we had six about 600 independent agents and they are in market and theyre, making relationships with shippers, who only moved one load a week.

And then we also have national accounts it moved a thousand loads a week. So it's highly diversified and we've seen no shift in that it's not like we see new customers coming in that are significant but we also don't see new customers going out that were significant in the past. It's a lot of we play a lot of small ball here and it's it's a lot of.

Going out finding those small customers and making them bigger, but there is nothing specific about any additional customers that are larger or lost over the last 12 months or even going forward.

That's helpful. Thank you and then.

One of the bigger picture question about the growth of Evs, EV trucks, and even before that some of the increased regulation around ambitions are evs, particularly in California, I wondered if you could just talk about the strategy behind the evolution of Evs in the truck market.

Yes, we do.

Don't own any trucks, so it's a little bit different for us as opposed to an asset based carrier or <unk>. They are typically going out and buying used trucks are a little bit older. What you see out there in the industry and <unk> start become popular there'll be there'll be buying those in 10 years. Its just right now.

Long haul freight 700 to 750 miles of it.

The electric vehicles really aren't conducive to that yet or that even on the heavy haul loads. You got 80000 pounds. So I think that market dynamic shifts for us later than it would for most I think the regional carriers. The short haul line stuff like that will move into those Evs. Quaker then youll see the long haul transport heavy haul guys move it.

Great well. Thank you so much yeah, we have trailers and one thing we do with our trials, we do put the wind resistant.

Low resistant tires on them just for environmental purposes. So we kind of called comply with any regulation and try and do our best as it relates to things we can control.

Great well it really appreciate the time.

Any more questions or closeout.

We have two more questions on queue Sir.

I will take those two.

Shut it down.

Thank you. Our next question is from the line of Scott Schneeberger of Oppenheimer. Your line is open.

Thanks, Keith we're here at the end so I'll be I'll be brief.

I guess, it's played out.

On the $50 million to $55 million a quarter on SG&A. Thanks for spending so much time on that is the second quarter going to be the high watermark because of the convention I wasn't sure from the comments should we expect it higher in the third and the fourth quarter than the second and then a quick follow up. Thanks, Yes. It will step up in the second quarter and then I will.

Don't expect that kind of trend to continue because it will be pretty close to that $55 million mark by the second quarter.

That's when we have our big event and then you'll have the.

The absence of the event in the third quarter, but then some of the other things that I talked about will kind of take its place so to speak so.

Think of it more of a step up and then a little bit more consistently Scott.

We were on a July one ray cycle here for almost everybody in the organization. So what happens is the $2 million on the convention gets absorbed.

Do you expect that to come down in the third quarter, but it doesn't because then we elevate the wages climb up in the third quarter, so that kind of counterbalance each other so your first quarter is probably a low watermark and then you kind of even in the back three considering depending on what happens with our valuable counsel.

Okay.

I appreciate it I'll turn it over to someone else in queue. Thanks, guys. Appreciate it.

Okay.

Thank you. Our last question is coming from the line of Elliot Alper from Cowen Your line is open.

Great. Thank you and just one for me could you discuss any impact if at all Covid had on the driver pool in the fourth quarter and then looking into 'twenty two.

As your new agent network trending and kind of what are your expectations about Asia growth this year.

Yes Elliot this is Joe we really we really havent seen any impact in the sense of count.

I think that all year long, we may have and it's hard to really pinpoint you may have seen a little bit of utilization.

Impact.

<unk> that we're out with Covid or who were maybe being a little more cautious as to how much they were out but no significant impacts of account, we're pretty happy with the growth in 'twenty one.

Now I'll turn it over to Rob for your second question on the <unk>.

<unk> side, we continue to have a robust pipeline I think thats.

Because.

Again, the capabilities of Landstar is the ability to.

A lot of people come to us as they have customers they have relationships and they can't supply the capacity that can't supply the service that they have it.

Come to us because we tend to be able to deliver that.

That service and that capacity for them. So so looking forward I expect or even edge to continue much like it did last year in our Asia revenue to continue in the same fashion.

Thanks, guys.

Thank you.

Thank you at this time I show no further questions I would like to turn the call back over to you Sir for closing remarks, yes. Thank.

Thank you and I look forward to speaking with you again on our 2022 first quarter earnings Conference call currently scheduled for April 21.

Have a good day.

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

Q4 2021 Landstar System Inc Earnings Call

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