Q2 2022 Landstar System Inc Earnings Call

Speaker 1: I.

Speaker 2: Good morning and welcome to LANDSTAR System Incorporated Second Quarter Earnings Release Conference call. Our lines will be in a listen only mode until the formal question and answer session. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from LANDSTAR R, Jim Gatoni, President and CEO .

Speaker 2: Jim Todd, Vice President and CFO , Braw Brasher, Vice President and Chief Commercial Officer, Joe Beacon, Vice President and Chief Safety and Operations Officer. Now I would like to turn the call over to Mr. Jim Gatoni. You may begin.

Speaker 3: Thank you, Missy.

Speaker 4: Good morning and welcome to Lassar's 2022 second quarter earnings conference call. Before we begin let me read the following statement.

Speaker 4: The following is a safe harbor statement under the Private Security's litigation reform act of 1995. Statements made during this conference call that are not based on historical facts or forward-looking statements.

Speaker 4: During this conference call, we may make statements that contain forward-looking information that relates to Lancaster'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 and Lancaster's form 10K for the 2021 physical year, described in the section risk factors and other SEC filing from time to time. These risks and uncertainties could cause actual results or events that differ materially from historical results or two antisoperes.

Speaker 4: Investors should not place undue reliance on such forward-looking information and last hour undertakes no obligation to publicly update or revise any forward-looking information.

Speaker 4: Our 2022 second quarter financial performance was the best ever second quarter financial performance we left our history.

Speaker 4: Although revenue and earnings per share came in below our second quarter guidance provided on April 20th, second quarter revenue and earnings per share exceeded the 2021 second quarter by 26% and 27% respectively.

Speaker 4: Truck revenue is 21% over the 2021 second quarter. On 10% increases in both volume and truck revenue for load.

Speaker 4: Revenue, albeit other modes of transportation, increased 93% over the 2021 second quarter, hopefully attributable to higher ocean and air revenue per load.

Speaker 4: Earnings per share fell short of the low end of our April 20th guidance by 17 cents or 5%. Insurance and claims cost exceeded guidance by approximately 10 cents. And variable contribution was below the low end of the variable contribution included in the guidance by approximately 7 cents.

Speaker 4: The shortfall in variable contribution was due to revenue that was slightly below the low end of the guidance.

Speaker 4: and a lower variable contribution margin as compared to guidance mostly due to mix as BCO revenue, which has a higher variable contribution margin than most other forms of last-hour revenue came in lower than expected.

Speaker 4: As it relates to price on low-salt via truck, revenue per load can be influenced by many factors, including length of haul, delivery time, equipment requirements, and fuel costs. Also, last year's revenue per load on low-salt via BCO capacity, excludes fuel surcharges, build the customers, which are past 100% to the BCO hauling the low-salt. The

Speaker 4: During the 2022 second quarter, fuel surcharge is excluded from both revenue and the cost of purchase transportation, more $127 million.

Speaker 4: One of many metrics we follow is revenue per mile on lowest-fall via BCOs.

Speaker 4: Given the recent spike in diesel fuel costs, this metric may provide a better gauge of market conditions as compared to revenue per load, which is influenced by many other factors mentioned previously.

Speaker 4: During the 2022 second quarter, revenue per mile on van equipment hauled by BTO capacity in April of May and June was 23%, 13%, and 7% over April , May and June of 2021, respectively.

Speaker 4: Revenue Promile on Van Equipment, hauled by BCO sequentially, decreased 6% from March to April , and another 6% from Abel to May, yet held steady for May to June .

Speaker 4: By the end of the quarter, revenue per mile on van equipment, hauled by BCOs was 13% below the peak reached in February of 2022. In February of 2022,

Speaker 4: As it relates to revenue per mile on loads tall by BCOs via unsighted equipment, this metric is partly influenced by mix as heavy oversize loads tend to have a higher revenue per mile.

Speaker 4: Heavy haul loads were 13% and 11% of unsighted platform.

Speaker 4: Loadings in the 2021 and 2022 second quarters respectively.

Speaker 4: Overall revenue from myelons hauled by BCOs via unsighted equipment in April , May and June increased 22%, 14%, and 11% over April , May and June 2021 respectively.

Speaker 4: And unlike revenue per mile on van equipment, revenue per mile on on-site equipment called DPO sequentially increased from the end of the first quarter to the end of the second quarter and achieved an all-time LAMF Star High in June of 2022.

Speaker 5: We attribute this

Speaker 4: to steadily increasing demand from a strengthening manufacturer sector. As the sectors recovery from the impact of COVID has significantly led the recovery and expansion of consumer-based demand that has driven strength in the band market since the fall of 2020.

Speaker 4: Total second quarter truck load volume increased what would be considered a strong 10% over the 2021 second quarter had it not been for the growth rates Landstar experienced over the past six quarters.

Speaker 4: The rate of load volume growth slowed in the 2022 second quarter as compared to the last six quarters, mostly due to more difficult year-over-year comparisons along with pockets of slowing demand for our service in certain industries we serve.

Speaker 4: During the 2022 second quarter, the number of blows called the event equipment in April , May and June increased 11%, 12%, and 4% compared to April , May and June 2021.

Speaker 4: Month over prior month growth in the number of low-sold via unsighted platformer Kevin was more consistent in the 2022 second quarter. With April May and June increasing 11%, 9%, and 10% compared to April May and June 2021.

Speaker 4: Consumer doorbells, building products, automotive parts, how does this materials, machinery, metals, and sub-to-windholds generally combine to be over 70% of our loadings.

Speaker 4: As compared to the 2022 first quarter, where load volume grew 20% over the 2021 first quarter, the rate of growth and load count for consumer goods, building products, hazardous materials, machinery and metals were all relatively strong in the second quarter, but below the first quarter growth rates.

Speaker 4: The rate of growth in automotive process about equal to the 2022 first quarter growth rate while substitute line haul, volume decreased 19% converted to 2021 second quarter. The rate of growth in automotive process the rate of growth in automotive process the rate of growth in automotive process

Speaker 4: I attribute the decrease in substance through line hole loadings to solve the consumer demand and the large parcel carriers better optimizing their restabilized networks. within- a

Speaker 4: We continue to track qualified agent candidates to the model. Revenue from new agents was over 22 million in the second quarter.

Speaker 4: Wend at the quarter with 11,887 trucks provided by business capacity owners. 23 trucks above our year end, 2021 count.

Speaker 4: The number of BCO trucks at the end of the 2022 second quarter was 48 trucks below the end of the 2022 first quarter.

Speaker 4: As typical in an environment with increasing fuel costs and a lower revenue per mile month a month, is not unusual to experience an increase in BCO turnover.

Speaker 4: Low fall BCOs in the 2022 second quarter were relatively equal to the 2021 second quarter on higher truck count almost entirely offset by lower utilization.

Speaker 4: BCO utilization defined as loads per BCO per quarter decreased 4% in the 2022 second quarter compared to the 2021 second quarter.

Speaker 4: We ended the second quarter with a record number of approved third party carriers in our network. The number of third party carriers hauling freight into 2022 second quarter increased 31% over the 2021 second quarter.

Speaker 4: Our network is strong and continues to track third-party truck capacity.

Speaker 4: We'll now pass it to Jim for his comments on a few specific line items within the company's second quarter financials.

Speaker 6: Jim? Thanks Jim. Jim G's covered certain information on our 2022 second quarter. So I will cover various other second quarter financial information included in the press Award.

Speaker 6: In the 2022 second quarter, gross profit was $208.1 million, an increase of 19% compared to gross profit of $174.8 million in the 2021 second quarter. Gross profit margin was 10.5% of revenue in the 2022 second quarter, as compared to gross profit margin of 11.1% in the corresponding period of 2021. In the 2022 second quarter, variable contribution increased 21% to $267.5 million, compared to $220.8 million in the 2021 second quarter.

Speaker 6: driven by strong revenue growth. Variable contribution margin was 13.5% of revenue in the 2022 second quarter, compared to 14.1% in the same period last year. The decrease in variable contribution margin compared to the 2021 second quarter was primarily attributable to mix, as an increased percentage of revenue was generated in the 2022 period by, one, truck brokerage carriers, which typically has a higher rate of purchase transportation than revenue generated by BCO independent contractors.

Speaker 6: and two, multi-mode capacity providers, which typically has a higher rate of purchase transportation than revenue generated by third-party truck capacity providers. The unfavorable mixed impact was partially offset by an increased variable contribution margin on revenue generated by truck brokerage carriers, as the rate paid to truck brokerage carriers in the 2022 second quarter was 183 basis points lower than the rate paid in the 2021 second quarter.

Speaker 6: Other operating costs were $10.4 million in the 2022 second quarter compared to $8.9 million in 2021. This increase was primarily due to increased trailing equipment maintenance costs and an increased provision for contractor bad debt partially offset by increased gains on disposal of operating property.

Speaker 6: Insurance and claims costs were $34.1 million in the 2022 second quarter, compared to $24.1 million in 2021.

Speaker 6: Total insurance and claims costs were 4.9% of BCO revenue in the 2022 period, and 3.7% of BCO revenue in the 2021 period. The increase in insurance and claims costs is compared to 2021, which was primarily attributable to increased severity of current year claims during the 2022 period, primarily due to the impact of two tragic, vehicular accidents that occur during the 2022 period. The increase in insurance and claims costs is compared to the impact of two tragic, vehicular accidents that occur during the 2022 period.

Speaker 6: Selling General Administrative Costs were $59 million in the 2022 second quarter, and the company had a $54.1 million in 2021.

Speaker 6: The increase in selling general and administrative costs was primarily attributable to increased wages and benefits, and increased provision for customer bad debt, and approximately $2 million related to the return of the company's annual agent convention held in April of 2022, partially offset by a increased provision for incentive and equity compensation under our variable compensation programs. In the 2022 second quarter, the provision for compensation under variable programs was $8.3 million compared to $15.2 million in the 2021 second quarter.

Speaker 6: Appreciation and honorization was $14.3 million in the 2022 second quarter compared to $12.1 million in 2021.

Speaker 6: This increase was primarily due to increased depreciation on technology tools resulting from continued investment in new and upgraded applications for use by agents in capacity with approximately $400,000 of the increase attributable to increased trailing equipment depreciation.

Speaker 6: The effective income tax rate was 24.6% in the 2022 second quarter compared to 23.9% in 2021.

Speaker 6: The effective income tax rate during the 2021 period was favorably impacted by excess tax benefits resulting from equity compensation arrangements whereas the 2022 period had an insignificant amount of shortfalls from equity compensation arrangements unfavorably impacting the effective income tax rate.

Speaker 6: Looking at our balance sheet, we ended the quarter with cash and short-term investments of $120 million. Cash flow from operations for the first six months of 2022 was $210 million, and cash capital expenditures were $7 million. There are currently 1,603,000 shares available for purchase under the company's stock purchase programs. Back to you, Jim.

Speaker 5: Thanks Jim Teeth.

Speaker 4: As relates to our 2022 third quarter expectations, I have assumed the stable freight environment that we experienced from May to June and into the first several weeks of July to continue through the 2022 third quarter. Given that assumption, I expect year over year growth in revenue to be at a decelerate rate as compared to the previous eight quarters. In June revenue per load for all our truck load revenue was approximately equal to that of May. Through the first several weeks of July , truck revenue per load has remained consistent with June .

Speaker 4: Given that start to July and assuming that truck revenue per load throughout the remainder of the third quarter trends consistent with normal seasonal patterns and fuel costs remain relatively steady throughout the remainder of the quarter, I would anticipate truck revenue per load to be about equal to the 2021 third quarter.

Speaker 4: The second quarter of 2022 was a record second quarter truckload count. Typically, a normal seasonal pattern results in third quarter truckload count to be slightly below the second quarter truckload count. I expect the 2022 third quarter truckload count to experience normal seasonal trends. Given that assumption, I expect truckload count to increase over the 2021 third quarter in a 3 to 5 percentage range.

Speaker 4: Based on these expectations, the truck revenue below in the number of loads called via truck, a currently anticipated $2,022 third-footer revenue, would be in a range of $1,800,800, to $1,850,000,000. The truck's revenue below in the number of loads, the truck's revenue below in the number of loads, the truck's revenue below in the number of loads,

Speaker 4: Based on that range of revenue and assuming insurance and claim costs are approximately 4.2% of BCO revenue, I anticipate 2020-22 third-quarter diluting is per share to be in a range of $2.75 to $2.95.

Speaker 4: Overall, I am pleased with Lancers performance in the first half of 2022. 2022 first half revenue was the highest first half revenue company history and increased profit 38% compared to the 2021 record first half. and increased profit 38% compared to the 2021 record first half.

Speaker 4: Perhaps even more impressive than the top line growth was the fact that 2022 first half gross profit, variable contribution, operating income, net income, and diluting for share was the highest ever achieved by lesser in any first half in the company's history.

Speaker 4: In fact, earnings per share in the first half of 2022 exceeded the first half of 2021 by 45 percent. The earnings per share in the first half of 2021 by 45 percent.

Speaker 4: During the 2022 first F, we also purchased over $212 million of LESDA stock and paid dividends totaling $94 million.

Speaker 4: Since early 2022, industry data regarding spot market pricing has been showing a significant decrease in year-over-year spot market rates when excluding the impact of fuel costs. While we have seen revenue per mile on van equipment hold the ABCOs decreased since it peaked in February 2022, Lassers year-over-year change in rates hasn't been near the magnitude reported in various industry reports.

Speaker 4: In fact, as earlier mentioned, revenue per mile in June continued to be above June 2021 revenue per mile, although the decelerate rate of growth is compared to the past 12 months.

Speaker 4: Levs are spot market pricing trends month over prior month tend to lag and often are below published industry trends both during growth and contraction cycles.

Speaker 4: We believe that has to do with the special non-routine nature of much of the freight we haul, along with our drop and hook business that tends to act somewhat more like contract-rated freight as we commit trailing capacity as part of that service.

Speaker 4: Looking forward the current environment with high inflation and slow and consumer demand, make sure unpredictable freight environment.

Speaker 4: Regardless of the freight environment, Lezdar's highly variable cost business model generates significant pre-cash flow. We intend to continue to return capital to shareholders.

Speaker 4: In our view, the current violent violence or continues to remain strong. We continue to focus on profitable load volume growth and increasing our belt capacity to hold as loads. And increasing our belt capacity to hold as loads.

Speaker 4: I'd like to end my prepare remarks by noting that we were proud to be recently announced as a member of the Fortune 500 for the first time. Although this achievement is based on our 2020 fiscal year revenue.

Speaker 4: It is also a testament to the company's unique entrepreneurial business model that has proven successful for decades. On behalf of Landstar's leadership team, we thank all of our independent agencies, owner operators, approved third party carriers, customers, and employees who helped us to accomplish this milestone in our history.

Speaker 4: With that, Missy, we will open up the questions.

Speaker 2: Certainly. At this time we will begin the question and answer session. If you would like to ask a question, please press star followed by the number 1 on your touch tone phone. Once again, that is star 1 to ask a question. To cancel your request, please press star followed by the number 2. We have several questions on cue and the first one is from John Chappelle of Evercore ISI. Your line is now open.

Speaker 7: Hey, Josh. Thank you, Missy. Good morning, Jim. Hey, Jim. Jim Gattone, first question for you. I was going through my notes from April , and you said you're seeing little signs of softness, seeing recovery in auto on EZ-Com, C-Com response are strong. I mean, clearly this is still a great quarter by any historical context, but you were caught by surprise by a few things in May and June . Can you maybe just explain a little bit of where the surprises came from and where that may recur in the third quarter, maybe in the fourth quarter?

Speaker 4: about when we were looking at our March revenue per load compared to where we were looking and tracking the first couple weeks of April , we came out. It was flat to down like 1%, so we kind of went with a flat. And I think ultimately we closed that April . The revenue per load is about 2% decline sequentially. It was like 1.8%. So it was a little bit hot. That was look a slight bit higher, but then we moved into May and I think we dropped down like three or four percent. And that was where we saw the decline. It was a, you know, it moved into after the April .

Speaker 4: you know, call, we saw the decline. And then things bounced back out coming into June , as I said. May to June was kind of what we anticipated the whole quarter be like. So it kind of happened in May is where most of the drop-off fell off and it was in that revenue, the revenue per load, I'm sorry. When you talk about commodities and things like that, I was about 15 months early on my prediction that substitute line-hole volumes would slow down. You know, I thought they would optimize quicker and that the consumer demand would pull back. I think I recall of April of 2021.

Speaker 4: there. There's little pockets of softness that really weren't anticipated. Nothing big. Other than the substitute lime hull, which was a bigger decline in volume than I thought, I think there wasn't any other category in there that really caught us that much by surprise. I think it was just, as I said, a May hit on rates and then gradually dropping off in sub-lime hull through the quarter and a couple other smaller commodities that we saw.

Speaker 7: Just for a follow-up, I hate to ask a super big picture question, especially one where not many people may know the answer. For Landstar specifically, we're getting a lot of questions about the impact or lack of a little thereof of this AB5 in California. Can you just speak to us a little bit for how you've prepared for that, how you think it may impact your business or not, and how you see the implementation of that? That's a real question. I think that's good for Joe to answer.

Speaker 6: Hey John , Joe Beakham. So yeah, we went through this preparation and a lot of planning around this back in 2019 when this was all being talked about then. And we've really haven't just picked up the same flavor. We've got about 360, 365 BCOs who are potentially affected. And what we're doing is just making them aware of the legislation and the fact that the Supreme Court didn't pick it up and going through the options that they have to continue to either stay with last star.

Speaker 7: Thanks, Jim. Yep.

Speaker 2: Thank you so much. Our next question is from Todd Fowler of KeyBank Capital Markets. Your line is now open.

Speaker 7: Hey, great. Thanks and good morning. So Jim Gatoni, I think you covered some of this at the end of your prepared comments, but I'm curious on your expectations for revenue per load to stabilize into the third quarter. And maybe just some thoughts on why it dropped down in two queue, and then you're seeing the stabilization now is that the kind of the gyrations between the shift from spot to contract and some of that balancing out. And then when I think about your model historically, I think you've talked about a little bit of a lag between the agent.

Speaker 4: I'd say that's maybe a 30, maybe a little bit longer, 30 day, a little bit longer lag. So I would say they're still lag. I think maybe that actually showed up when we went down in May compared to everybody else going down March April , right? So that might be an indication, that is clear indication that we do lag a little bit in the as it relates to our revenue pro load and what will you compare the industry trends. And what will you compare the industry trends.

Speaker 8: I... I...

Speaker 4: We're in a very unpredictable environment right now with what's going on with consumer demand inflation Manufacturing is pretty strong for us on the flatbed side really hard to predict what the next You know six months is gonna look like I think we're comfortable with the next two months We're we're halfway through July , but again if you look back on what happened to me in April we lost 2% or 4% of Revenue for load from April to from I'm sorry from able to may we lost 4% which was unanticipated

Speaker 4: I think a move of, I don't think we're gonna go up 2%, but could I lose 2% where I did stable? Absolutely. But I think we're comfortable with the stability because it's been about six weeks where we've seen these revenue per load numbers kind of hold on. Nothing specific in there. It's not driven by anything like automotive or any kind of special. It's just kind of a general feeling over the rates right now and we're comfortable sitting here today. But again, I think we're in a very unpredictable environment.

Speaker 4: Just hoping to hold the race where they are and I think you talked to some of our field guys you talked to about the rye brash or you know there's a lot of...

Speaker 4: different opinions of what the next six months is gonna look like coming from some of the shippers out there, some are thinking that the peak is gonna be a little softer, some think it's gonna be terrific. So the inconsistencies coming out of the field staff and Rob's team and some of the shipper surveys they've done is indicating that it's unpredictable and that they don't know what direction it's gonna move. But at the same time, they are concerned that if it does get strong, they wanna have capacity locked up. So that's kind of where the conflicting messages get us to a stable environment for the next two months. And we're gonna talk about that.

Speaker 4: And so I guess can you just unpack that a little bit and is there anything to read into, you know, why the mix is shifting more away from BCOs and to third parties right now? Absolutely, absolutely have to do with how many BCOs we have. Right. We're doing a really good job at executing on load volumes and that's kind of the game we pitch here for years. It's been, we don't control price. So let's just, you go after volume, profitable load volume growth as we say.

Speaker 4: So it's really just more the magnitude of the growth and volume than it is, you know, any deliberate move by us. The one thing that we took that I talked about is one of the misses on the variable contribution margin was really cause a BCO utilization was down. You know, in this environment we see the fuel costs. One of the things we have that happens is the fuel surcharge is also lag. So when you have that sudden spike and fuel coming into March, April , it takes us a couple of weeks to catch up and get that fuel surcharge passed to get the BCO.

Speaker 9: the BCL.

Speaker 7: Okay, got it. Thanks for the time in Jim Tide, welcome to the car. Thanks so much.

Speaker 2: Thank you so much. Our next question is from Allison Poliniak of Wells Fargo. Your line is now open.

Speaker 4: Hi, good morning. I'm not sure if I missed this, but other truck revenue sequentially to climbing. Could you give a little color or what's going on there? And there's a couple of pieces in that business as well. Yeah, there's a part of the substitute linehole business there on Power Only, which is probably most of the drop off in there. I mean, that's really, and like I said, I believe that the load volume on that substitute linehole business was sequentially down about 18% or something.

Speaker 10: Okay, so power only though, we're still fairly positive for you on that side.

Speaker 4: Yeah, well, I would say stable. I wouldn't necessarily see, you know, be a higher love.

Speaker 10: Got it. And then on the trends within the truck transportation and van versus the unsighted platform, that revenue per load, do those trends, I know you talked about overall stabilization, but the revenue per load on the unsighted platform, are you still seeing that trend continue on the upward curve or is it buttoning out at this point?

Speaker 4: Hey Allison, this is Rob Brasher. From a revenue per load, we're still seeing a high level. We're above 2021 levels. I don't know where for us to say that rates are getting down to the 2019 levels, but that's not what we're seeing. We're starting to come more in line with the 2021 as we progress further into the year. But again, we're starting to see some improvement in some manufacturing. We're starting to see some improvement in some projects, some building projects that are coming back. We're seeing a lot of steel, a lot of metals that have impacted that.

Speaker 4: We'll call on a stabilization for now, just don't know what the future looks like as far as how these projects and such come back as to how it's going to impact that.

Speaker 10: Great, thanks so much.

Speaker 2: Thank you so much, Allison. Our next question is from Bathcom majors at Susquejana. Your line is about open.

Speaker 6: Thanks for taking my questions.

Speaker 11: with

Speaker 6: You talked a lot about the changes in incentive comp year over year in the quarter. Can you lay out where you're accrued for the full year with the new outlook here of incentive comp and stock compensation for kind of a total variable cost?

Speaker 6: Yeah, so for total variable costs, some of the comp plans, full year, 2021, we have 57 million. In total for 2022, I'm anticipating right now about 32 million on a full year basis. The down about 25 million.

Speaker 12: Okay, and if we roll the 2023 and you had an earnings decline of anywhere close to the 20-ish percent the street is modeling, what would that number look like in 20...

Speaker 12: 2023. Bear case from total variable I would say price somewhere in between 8 to 10 in total.

Speaker 12: Okay, thank you for that. And in last piece, there was a lot of noise in the second quarter in the GNA line with the aging invention coming back. And in the second quarter, there was a lot of noise

Speaker 12: Stock, I'm sorry, the incentive comp pieces and some of the bad debt you talked about, but you have a way, or can you help us with what the underlying inflation right you're seeing? You have a way, or can you help us with what the underlying inflation right you're seeing?

Speaker 12: in that number is rough proxy of it.

Speaker 12: Sure, specific to the GNA line in total or just all the indirects. I mean, yeah, all of the above would be fine, thank you. Yeah, so the way I think about a year ago that the inflationary pressure is really where isolated to the insurance and claim line and the tech line. And if you look at the indirect costs today, I mean, you can trail the equipment cost inflation, trail or maintenance inflation, wage inflation, benefits inflation, we finance all our trailers by capital release, our weighted average borrowing cost is 240 bits, I think at first quarter, that's up 4.4.

Speaker 12: One small bankruptcy was about a penny bad guy and then just the rest was general aging buckets. And then we did see a little PEPM pressure on the benefits line. the

Speaker 12: Here with the fermenting bling.

Speaker 4: That bachelor's from an inflationary standpoint.

Speaker 4: You know, Jim is right on the trailing equipment. You talk about maintenance and labor costs on getting the trailers repaired. Quantifying that might be a little difficult, but it's out there, it's driving our other operating costs higher. And we have 1,300 or 1,400 employees who...

Speaker 4: who support this network. And we clearly have had to increase wages just to keep the salaries in line and the pay in line with what's going on with inflation. So there's inflation there too. Benefits cost is up. So it's hard to quantify exactly how much inflation is within these numbers, but clearly costs are going up due to the current conditions going on in the US economy and the inflationary conditions we're dealing with.

Speaker 11: Thank you for the time.

Speaker 7: Thank you so much. Our next question is from Jack Atkins of Stevens. Your line is now open. Hey, Greg. Good morning, everybody. And Jim Todd, congratulations on your promotion to CFO . Thanks so much, Jack. So I guess maybe if we could just roll down for a moment for my first question into the substitute line haul, can you maybe help us a little bit? Is that largely parcel? Or is there also some like L-T-L carrier capacity in there as well? Just what type of?

Speaker 7: Customers are you kind of servicing with that business line?

Speaker 4: A lot of it is that hauling full truck loads between the DCs of...

Speaker 7: the large parcel carriers. Okay, and there is some little bit of LPL scattered around there, but the bigger pieces are just that. Yeah, there is some line-hawks, and Jack, this is right. There is some line-hawks substitution for LPL carriers, but when Jim talks about the decline and some of that, that's mostly from the, I would say the majority from the parcel carriers. Okay, all right, I just wanted to make sure that was understood. And then I guess maybe kind of going back to the AB5 question for a moment.

Speaker 7: that John asked them if that was a great question and we're beginning questions on that as well. But I guess Joe, as you sort of think about the potential for AB five like legislation to spread to other states.

Speaker 13: with you again on our 2022 third quarter earnings conference call currently scheduled for October 20th. Enjoy the rest of your day. Thank you so much and that concludes today's conference. Thank you for joining the conference call today. Have a good morning. Please disconnect your lines at this time.

Speaker 1: I but.

Speaker 1: I have you.