Q4 2022 Landstar System Inc Earnings Call

February 2, 2023

Good morning, and welcome to Landstar system incorporated year end 2022 earnings release conference call all lines will be in a listen only mode until the formal question and answer session. Today's call is being recorded if you have any objections you may disconnect at this time joining us today from Landstar are.

Jim got Sony precedent, and CEO , James Todd Vice President and CEO .

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

Thank you Bill good morning, and welcome to last year's 2022 fourth quarter earnings Conference call before we begin let me read the following statement.

Following the Safe Harbor statement under the private Securities Litigation Reform Act of 1095 statements made during this conference call that are not based on historical facts are forward looking statements. During this conference call. We may make statements that contain forward looking information that relates to Landstar has been subjective 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 2021 fiscal year described in the section risk factors and other SEC filings from time to time.

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

No throughout these remarks that the 2022 fourth quarter included 14 weeks of operations in the 2021 fourth quarter included 13 weeks of operations.

Once again last are delivered record financial results in fiscal year 2022, a record performance in 2022, followed another record year for Landstar in 2021 among.

Among many new annual financial leverage we established in 2022, lesser achieved record annual revenue of $7 4 billion.

<unk> $900 million higher than the previous annual record set in 2021 diluted earnings per share in fiscal year 2022 was an annual record of $11 76, an increase of $1 78, or 18% above our prior fiscal year record of $9 $9 98 in 2021 during.

During fiscal 2022, lesser generated a record free cash flow of $597 million.

Additionally, during fiscal year 2022, lesser paid dividends of $160 million and purchased $286 million worth of company stock in December the board declared an additional dividend totaling $72 million to be paid in January 2023.

Yes.

Within our record financial performance in 2022.

The 2022 first quarter proved to be a peak following six consecutive quarters of strengthening in the macroeconomic freight environment as.

As we move further into the year supply chain congestion began to ease in the macro economic freight environment, Although it's still relatively strong by historical standards began to weaken not unlike typical cyclical pattern historically experienced and that the best domestic freight environment.

In the 2022 second quarter Landstar experienced a deceleration in quarter over prior year quarter growth rates for both truck revenue per load and the number of truckloads that ultimately led to truck revenue per load and the number of loads hauled via truck in the 2022 fourth quarter due both be below the 2021 fourth quarter.

Heading into the 2022 fourth quarter. It was clearly cyclical conditions were continuing as such during our October 22nd.

2022 third quarter earnings Conference call, we provided 2022 fourth quarter revenue guidance of $1 $775 million to 1 billion 825 billion.

Below the 2021 fourth quarter revenue by 6% to 9%.

The guidance anticipated a truck volume to decrease from 20 from the 2021 and fourth quarter in a range of 2% to 4% even given the extra week in the 2022 fourth quarter and revenue per truckload to be 5% to 7% below the 2021 fourth quarter.

2022 fourth quarter loads hauled by truck were 6% below the 2021 fourth quarter and revenue per truckload was 7% below the 2021 fourth quarter note that the number of truckloads Hall by lesser reached an all time record level in the 2021 fourth quarter and remained relatively strong by historical standards throughout 2022.

Although revenue came in below the low end of the earnings guidance earnings per share came in at the low end of the guidance. This can be attributed to a higher variable contribution margin than projected along with lower SG&A and other operating costs in the 2022 fourth quarter as compared to the estimated amount reflected in the guidance.

As compared to the 2021 fourth quarter revenue hauled via truck was 211 million or 12% below the 2024th quarter approximately 16% when excluding the estimated truck revenue of $60 million contributed by the extra week in 2020 to fourth quarter.

And revenue hauled via other modes was almost $60 million below the 2021 and fourth quarter.

While we experienced a 12% decrease in truck revenue from the 2020 in fourth quarter to be fair. One is to put the impact of the pandemic driven demand and supply chain congestion in perspective.

Since the end of the summer of 2020 strong consumer demand along with supply chain congestion drove truck rates and volume to historic highs.

<unk> to your growth.

Last our two year growth in truck volume from the pre pandemic fourth quarter of 2019 to the record 2021 fourth quarter was 37%.

Truck revenue per load grew 39% during that same time period.

We expect that that growth was going to subside or supply chain disruptions eased in economic cyclicality returned to the freight industry and when that happened year over year comparisons will become very challenging leave.

Leaving aside the tough quarter over prior year quarter comparisons we experienced in the 2022 fourth quarter truck revenue in the 2022 fourth quarter was still 68% higher than that of the pre pandemic 2019 fourth quarter.

Revenue hauled via van equipment, 2022, fourth quarter was $154 million lower than the 2021 and fourth quarter, but $373 million above the 2019 fourth quarter.

Revenue hauled via onsite and flatbed equipment, and a 22% fourth quarter was only $13 million below the 2021 fourth quarter about $121 million over the 2019 fourth quarter and revenue generated via other truck transportation services, mostly power only services was $48 million lower than the 2021 fourth quarter, you get a $160 million above the 2019 fourth quarter.

Clearly the van market was more favorably impacted by the pandemic driven consumer demand than the onsite and flatbed market through the throughout the past two years bed loadings in the 2022 fourth quarter were 5% lower than the 2021 fourth quarter onsite and flatbed loadings were 2% below the 2020 on fourth quarter and other truck transportation loadings were 16%.

Below the 2021 fourth quarter.

After the decrease in band and other truck transportation loadings, the number of loads hauled via our substitute line haul service offerings, primarily on van equipment and Sunpower only moves was 35% below the 2021 fourth quarter, even with the extra week in 2022. Additionally, load count from consumer Durables building products and foodstuffs were down 8%.

6% and 31% respectively from the 2021 fourth quarter.

One of the few volume growth areas was an automotive parts and materials, which grew 13% over the 2021 and fourth quarter.

New agents as of the end of 2022, which which we define as agents who contracted with the company on or after the beginning of 2021 contributed $144 million of revenue in the fiscal in fiscal 2022.

This followed new agent revenue of $181 million in 2021 hour.

Our agent base is strong and these new agent additions will continue to drive new customers and truck volume into the network.

During 2022, there were 625 agents, who generated over $1 billion of Landstar revenue. This is the highest annual number of million agents and left our history.

Turn it over $1 billion agents is typically very low during 2000 $22 million agent turnover was only 2% in line with historical million dollars agent turnover rates.

We ended 2022 of 11281 trucks provided by <unk>. The number of trucks provided by <unk> sales decreased 583 trucks or 5% from the beginning of 2022 overall Bcl truck turnover was 29% in 2022 compared to 21% in fiscal year 2021.

A decrease in the number of trucks provided by <unk> is typical during a cycle of decreasing revenue per mile.

In December 2022, compared to December 2021 revenue per mile on van equipment hauled by <unk> decreased 16% in.

In December 2022, compared to December 2021 revenue per myeloma side of equipment, all by Dsos decreased only 2%.

In each case revenue excludes the impact of fuel surcharges billed to shippers as 100% of fuel surcharges billed to customers are excluded from last year's revenue and paid 100% of the hauling bcl.

In fiscal year, 2022, total fuel surcharges billed to customers pay 100% of <unk> were $445 million compared to $260 million in physical 2021.

I'll now pass it to Jim Todd to comment on additional P&L metrics on a few other fourth quarter financial statement items Jim.

Thanks, Jim.

Jim has covered certain information on our 2022 fourth quarter. So I will cover various other fourth quarter financial information included in the press release.

2020 to 14 week fourth quarter gross profit was $180 million compared to gross profit of $209 8 million in the 2021 13 week fourth quarter.

Gross profit margin was 10, 7% of revenue in 2022 fourth quarter as compared to gross profit margin of 10, 8% in the corresponding period of 2021.

In the 2022 fourth quarter variable contribution was $234 million compared to $263 3 million in the 2021 and fourth quarter.

Variable contribution margin was 14% of revenue in 2022 fourth quarter compared to 13, 5% in the same period last year. The increase in variable contribution margin compared to the 2021 fourth quarter is primarily attributable to an increased variable contribution margin on revenue generated by truck brokerage carriers as the rate paid to truck brokerage carriers.

2022 fourth quarter was 294 basis points lower than the rate paid in the 2021 fourth quarter.

Other operating costs were $10 3 million in the 2022 fourth quarter compared to $9 4 million in 2021 <unk>.

This increase was primarily due to increased trailing equipment maintenance costs, partially offset by increased gains on sale of operating property.

Insurance and claims costs were $29 6 million in the 2022 fourth quarter compared to $30 3 million in 2021.

Total insurance and claims costs were 5% of <unk> revenue in the 2022 period and four 2% of <unk> revenue in 2021 period the.

The decrease in insurance and claims cost as compared to 2021 was primarily attributable to decreased net unfavorable development of prior year claim estimates, partially offset by an increased severity of accidents during the 2022 period.

During the 2022 and 2021 fourth quarters insurance and claim costs included a $3 8 million and $5 $2 million, respectively of net unfavorable adjustments to prior year claim estimates.

Selling general and administrative costs were $56 1 million into 2022 fourth quarter compared to $62 6 million in 2021.

The decrease in selling general administrative costs was primarily attributable to a decreased provision for incentive and equity compensation under our variable compensation programs and decreased employee benefit costs, partially offset by increased wages and an increased provision for customer bad debt.

And the 2022 fourth quarter the provision for compensation under variable programs was $5 3 million compared to $68 million in the 2021 fourth quarter dip.

Depreciation and amortization was $14 8 million in the 2022 fourth quarter compared to $13 1 million. In 2021. This increase was almost entirely due to increased depreciation on software applications, resulting from continued investment in new and upgraded tools for use by agents and capacity.

The effective income tax rate of 24, 7% in 2022 fourth quarter was 140 basis points higher than the effective income tax rate of 23, 3% due 2021 fourth quarter and the effective income tax rate into 2021 fourth quarter was favorably impacted by the resolution of certain state tax matters. In addition, the effective income tax rates in the 2000 <unk>.

Two and 2021 fourth quarter, where each unfavorably impacted by the impairment of deferred tax assets related to employee equity compensation arrangements as a result of.

The performance conditions being attained as of year end.

The increase in the effective income tax rate in the 2022 fourth quarter as compared to the 2021 fourth quarter drove approximately <unk> of the 30 <unk>.

Quarter over prior year quarter earnings decline.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $394 million.

Cash flow from operations for 2022 $623 million in cash capital expenditures were $26 million, the operating cash flow generation $623 million during fiscal year 2022 was more than double the previous annual record operating cash flow of $308 million in fiscal year 2019.

Jim.

Thanks, Jeff as it relates to our 2023 first quarter guidance recent trends in truck revenue per load and load volume indicate the continuation of a softer freight environment consistent with cyclical trends. We believe we have seen returned to the marketplace over the last three quarters.

As the truckload cap, we generally experienced a 2% to 3% sequential decrease in volume from the fourth quarter to the first quarter, excluding the extra week from the 2022 fourth quarter truckload volume assumption as volume decreasing at a slightly more rapid rate than the historical typical range as demand softening has continued into the beginning of the 2023 first.

<unk>.

Revenue per truckload trends from the fourth quarter for the first quarter have been inconsistent over the past several years over the past several weeks revenue per truckload has drifted down which is often the case in January we finished 2022 with revenue per load approximately 10% below where we were as of the beginning of 2022.

And our expectation is we could experience an additional 5% to 7% decrease in revenue per load during the 2023 first quarter.

That revenue per truckload reached its all time high at Landstar in February 2022, and experience levels without historical precedent throughout much of the 2022 first quarter.

As a result, the revenue per truckload comparisons for the 2023 first quarter compared to the record revenue per truckload established in the 2022 first quarter makes for an extremely difficult year over year comparison overall, we expect revenue in the 2023 first quarter mean orange.

$1.400 billion to $1.445 billion and diluted earnings per share to be in a range of $2.05 to 2015.

This earnings estimate anticipate that variable contribution margin range of 14, 2% to 14, 5%.

Although we do not plan on providing full year earnings guidance due to the unpredictable nature of the spot market, Jim will cover our estimates of costs and expenses for fiscal year 'twenty two as they are more predictable and fixed in nature, Jim. Thanks Jude.

With respect to my expectations for <unk> full year other operating costs, assuming a normalized provision for contractor bad debt I estimate 2023, other operating costs would increase by $1 million to $3 million as increased trailing equipment maintenance costs and increased transaction costs associated with the software rollout are partially offset by increased gains on sales of used trailing equipment.

With respect to anticipated insurance and claims cost I continue to believe four 5% of <unk> revenue is the appropriate measure to utilize but we will continue to reevaluate each quarter.

My base case assumption on selling general and administrative costs as a $3 million to $6 million increase year over year, assuming a normalized provision for customer bad debt.

Included in that base case assumption is approximately $12 million of tailwind from potential decreases in the companys variable compensation programs.

In a hypothetical 20% revenue decline scenario those tailwind could grow closer to 18% to $20 million, which result in a slight decrease in selling general and administrative costs year over year.

I expect depreciation and amortization cost increased $46 million year over year, depending on the timing and ultimate acquisition cost of new trailing equipment.

I also expect that the information technology headwinds we've experienced on this line in recent periods will begin to recede in 2023 as a greater portion of our it spend is expected to shift from initial development work to maintenance and enhancements of existing in service digital tools and products. Thank you Jim.

In closing and as previously mentioned the macro freight environment gathered strength from late summer 2020 through 2021 and drove <unk> revenue to a historic highest 2021 fourth quarter truck revenue was $90, 91% above the pre pandemic 2019 fourth quarter. The prior upmarket cycle reaches peak in the 2021 fourth quarter in <unk>.

22, first quarter and was followed by decelerating year over year growth rates in truck revenue per load in volume beginning in the 2022 second quarter.

Regardless of the challenging year over year comparisons a less robust freight environment and the inflationary pressures of labor equipment and insurance costs. The resiliency of <unk> business model continues to generate significant free cash flow and financial returns. For example, if we experience a 20% revenue decrease from the $7 4 billion of revenue reported in fiscal year 2020.

We believe lessor could still generate an operating margin representing operating income over Barbara contribution of 50% or more we also expect free cash flow will exceed $350 million under that scenario.

<unk> 2021 of 2022, where historically is that last year during which the company achieve new levels of record financial performance resulted in last year's historically strong business and balance sheet, becoming even stronger than before.

2023 has its work cut out for it due to the tough comps to prior year and a less robust freight environment to start the year.

Nonetheless, we have been through many business cycles before and we still expect nothing less than 2023 being a terrific year by historical standards.

Annual revenue well above pre pandemic levels.

And with that we will open to questions.

Thank you very much Sir at this time, we will begin the question and answer session.

To ask a question. Please press star one on your thoughts.

Jon Cohen once again that is tier one to ask a question that Catherine ROE request. Please press star two.

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

Hey, great good morning, everybody.

Jim I guess to start.

The revenue per load on our commentary for the first quarter. It sounds like the down 5% to seven in line with what you see from a typical seasonal standpoint, but you've got a little bit of easier comparisons coming off of the fourth quarter.

And I think on a year over year basis. It kind of implies a mid teen decrease can you just comment on do you feel that that's reflecting where the market is a little bit of a lag and kind of how youre pricing flows through on a revenue per load side.

And then just some expectations may be as we move through 'twenty three.

Revenue per load during the year.

Yes, I would say that generally we do lag a little bit in the market.

Three four weeks or so based on the reaction time of these shippers and agents kind of coordinating pricing, but I wouldn't say it's substantial.

I would say that the market trends that we're seeing today are probably a little more true to market than we typically see.

As.

In our business.

We did trend down into December , but I'm not sure what the dynamics, we're seeing in the marketplace right now that we wouldn't continue to trend down the way we have in January we did go through the fact that December was a little lower than we anticipated and would that drive a less drop into January but we're not experiencing that so I think we're still pretty comfortable we're going to see is that normal.

Drop from being 10% in the fourth quarter below the first quarter with plus another 5% to 7% drop will be that mid teen drop off in the first quarter. We're not seeing I would say, we're seeing a little bit I don't want to call. It stable, but it's a little more stable I guess than it has been over the last three or four weeks, but again still pretty unpredictable.

The bulk of things I've been flipping back and forth pretty quick over the last several months as it relates to the year.

Good.

If you go back to the last two years I would always say that I believe in cycles, regardless of the pandemic I still think we're going to the spot versus contract cycle is going to happen and.

Capacity tightens and unique business in spot markets climb and then it loosens and people go to contract in the spot market drops.

I will say that for the last two years that we're going to cycle down and if you believe in cycles. Our peak was in February .

We went from August of 'twenty into February of 'twenty, two it's about 18 months from what I would say it was like trough to peak.

I think another 18 months of peak peak to trough will not push it back somewhere in the summer and being a believer in cycles I would project that things will start to improve and we will get a little bit more rate seasonality of declines into the third and fourth quarter. So that that would be my guess is where we're headed.

It's kind of what we've talked about here and what we expect to happen in the back half actually is that we see the spot market.

To drive rates up a little bit again, I'm not talking like tremendous upside on seasonally normal increases in rates from Q1, maybe not Q2, but into Q3 and Q4.

Yeah, no all of that makes sense and I would say that it's been surprising that it does turn out that it feels like a cycle, even sometimes when it does and so just a quick follow up.

I know you went through the detail on the end markets, but.

Are you seeing any difference now it feels like going through a lot of last year was more on kind of the consumer durable side slowing it.

It looks like some of your industrial end markets are still holding in relatively well, but just kind of any general comments between between end markets, where youre seeing some strength and softness thanks.

Hey, Todd this is Rob specifically on the open equipment, we're seeing a lot of.

On a positive trending on heavy haul projects, we're seeing a lot of heavy equipment.

Really pick up for us.

The manufacturers direct now that could be the fact that again due to supply chain constraints that they are now filling orders that they couldnt over the past year and a half.

But to that point exactly to the cycling and cycling down more so in the metals and some of that more specialized open equipment freight we're seeing that come.

Come down which is a typical cycle, because it's wintertime right, but theres not a lot on the ground freezes up north there's not a lot of those projects that are going on but we do anticipate us.

The season warms up and the year moves on that will continue on an upward basis automotive continues to be.

It's been book drove AD and a flatbed perspective for us.

When you look at the automotive suppliers can you talk about the business that we're doing I don't know if theyre going to be caught up anytime. This year, that's really hard to predict but it doesn't look like they are so that will continue in that trend.

Got it.

Thanks for your time this morning I'll pass it along.

Right.

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

Hey, Thanks, good morning, guys.

Just wanted to get more of your perspective, Jim on the cycle.

It sounds like Youre hopeful that.

Rates bottoming Q1, Q2, so if you look we have that.

From trough to peak, 60% plus increase in rates and we're getting close to the trough.

20% or so drop from peak to trough does that sort of you got a long history here does that sort of drive with what.

<unk> seen in prior cycles that we that we can hold on to.

Most of these.

These pricing increases.

I would say the timeline of the peak this cycle kind of 18 to 24 months kind of make sense, but we've never had a trough to peak of 60% growth. So I think I think lot of the discussion as well then what's your peak to trough and.

Seeing a little bit of where the right fit and today is the trough down 20, or 25% I don't youre not youre not going to go down 60% clearly I don't believe we're going to go back to 2019 levels you just can't because the so.

So much more cost in the system with inflation in insurance costs I don't see how the industry can bring rates back to that level.

And are comfortable with what we're seeing in the first three or four weeks of January has got us head and slowly data not driving down into a 60% drop off so I'm pretty comfortable that with kind of the commentary is I'm not sure. We continue to drop into the second quarter I would say that maybe we got a little improvement in the second quarter and then from there we get better improvement spot market is more seasonal.

Okay.

The higher the lows over the last two years have been crazy right before that it moved 10% or 15% from peak to trough and that's just youll a pandemic drove up the new highs and like I said I, just don't think it pulls back that far.

As far as it grew because of the cost structures.

Alright.

Do you have a view on where we are contract versus spot and then maybe just to your point about how much cost or operate we saw some big drop in the <unk>.

Broker carriers.

What youre seeing in terms of capacity and any update on how thats trending in Q1.

Yes. This is Ralph.

From a pricing perspective, there are still real pressures on rates right now.

And those pressures are because of the huge drop in spot spot market rates I don't know, where we are up to to just wanted to think they are starting to stabilize a bit.

<unk> been pushing back for a long time because of their increased operating costs.

The increases they put into their system, we are starting to see those carriers and those contract rates, a little bit relaxed and start to to succumb to some of the pricing pressures I don't know.

So I think its weakening I don't know.

We're at the bottom.

From our perspective I do think there is some stabilization.

From a rate standpoint spot to.

Contract.

Yes, Scott this is Joe I'll take the <unk> and the capacity question. So.

We've seen.

We're going to we're predicting that the first quarter will look a little bit a lot like the fourth quarter as far as a net decline and really what's driving that really doesn't change. It. If you think about our model on the AD side, we're really.

If guys can't get used trucks, then it kind of makes it hard for them to come out of other systems and come here. The interest in Landstar is still strong.

A lot of that interest is predicated on identifying and finding a truck. So as you see more broadly as newer trucks get put into different.

The systems and frankly those come into the market then that feeds the used truck market is that a.

Availability in that price begins to be rational I think youll see the AD thing.

Kind of fix itself and on the retention side, it's really about the parts and labor to keep the existing equipment running as you probably know on the BCS side, they're running use equipment and.

And you've seen the inability where we've seen the inability to get trucks repaired and repaired timely really affect our utilization throughout all of 2022 and that continues into 'twenty three so as that used truck market improves as the ability to get parts and get tax.

Into shops and get equipment back on the road, we think that helps a great deal because it's really been pretty disruptive for the last few quarters.

And then stabilization in demand I think also is a big factor on the on the <unk> side once that price levels off as we've just discussed I think youll see a greater interest in coming back into the fleet, which I think a lot of these guys are currently sidelined and you really don't see a dramatic difference in my view from where the <unk> are challenged.

With carriers about over 60% of our brokerage business is on carriers with less than 10 trucks and they're seeing a lot of those same.

Supply related cross related inflation and access to equipment related challenge that everybody else's.

And so I think there are a lot of them are just trying to fight through it and so it really I think a very tough condition for a lot of truckers in the marketplace today and as some of these things that are out of their control come back in their control I think we will I think will bounce back, but I think thats going to be a couple of quarters.

Okay. Thank you for the time guys I appreciate it.

We have the next question coming from the line of Jack Atkins with Stephens. Your line is now open okay. Great. Thank you for the time really appreciate it guys and good morning.

So I guess, maybe kind of a macro question divided into two parts I guess, one for one for Joe one for Rob, but I guess as you sort of think about.

On the industrial side, I think theres a lot of concern about the potential for destocking of industrial inventories.

Similar to what we've been seeing over the last nine months or so on the on the retail consumer side I'd just be curious if your customers are telling you anything about the potential need to do that and then I guess just following up on Scott's question about capacity.

The pressure on small fleets are you seeing any signs that capacity is exiting the market or maybe that capacity exit is accelerating in any way, but I know that's a long question, but it would just be curious about both those things.

Yes, I'll start Jack.

I think just based on the FMC data and some of the stuff we're reading the net revocations of carrier authorities.

Has really it's been like six to 8000, a week for the last several weeks of 2022, and we've seen our approved carrier count.

The decline is well into the first quarter. So I think youre going to continue to see that I think until some of the conditions I was just referring to here with Scott kind of find a floor.

Start to see some level of consistency or predictability, whether it's predominantly getting trucks fixed.

Getting drivers the labor side of things.

Keeping their trucks healthy and again, just feeling comfortable with where the where the environment is I think youre going to continue to see the larger market contract a little bit from a capacity standpoint, and particularly in the small carrier.

Around which is a lot of that one to 10 truck fleets.

And Jack this is Rob to address the Destocking comment that is not something that we're experiencing we're having those conversations again due to a lot of the constraints that have taken place over the last two years, we're really starting to see a lot of the projects come back in the aerospace and energy automotive government things of that nature, So where they couldnt get supplies before.

They couldnt actually fulfill their projects were orders were starting to see those now come to fruition and continue going forward. Okay. No. That's really helpful and I guess.

Rob another question for you and.

Jim Good Tony Jim Todd Sorry, no questions for you for me on the call today, but I guess, Rob I'd love to get your thoughts on Lance.

Landstar Blue in 2023 sort of what's the what's the plan for that part of the business. This year and sort of I guess as you think about that.

As a springboard into 2024, what do you hope to accomplish to prepare that I think we're looking at that as a potential growth engine, but it would just be curious if you could maybe talk about what the plan is for Landstar Blue in 2023, yes, absolutely makes our blue is the volume growth mechanism Thats, what we are therefore, and we see this as a time of opportunity because.

As I'm sure you're hearing from others companies are putting their freight out for bid companies are looking for partnerships. They are looking for solutions now a lot of the reasons why they are doing it is in their mind to drive rates down or get the rates back to where they work, but it gives us an opportunity.

Into.

Ladies into into places that we haven't been into different sections of their business to continue to grow that so we look at it as an opportunity.

The more customers that were in front of talking about their supply chain needs.

Trying to provide solutions I look at that as a benefit to that company.

And organizational standpoint, I know, where Jack I had to jump in because I know youre working to ask me a question.

Gentlemen, it anyway, we are working like crazy trying to get Rob all the automation into his systems for two.

To automate this past the past stuff like that so there is I don't want to say we are pulling I don't say, we're holding back on growth there, but we're what we're doing it properly and we don't want to we don't want to disturb anybody supply chains.

We are until we get automated.

Alright that makes sense. Thanks again for the time and thoughts guys I appreciate it.

We have the next question coming from the lab Bruce Chan of Stifel. Your line is now open.

Hey, good morning, everyone I appreciate the time here Jim.

Jim can Tony I guess, maybe just to follow up on that automation comment you all talked about a lot of the new technology investments that you're making and how thats going to start to ramp down. This year can you maybe just give us an update on what those are and as far as the automation how far you are along in that process and what the rollout looks like.

We are.

We're dealing in two different worlds once we started off blue blue.

Is right more contract dedicated lane type business and it requires a little bit automated dispatch and while it's not that the agents can't use that and we're kind of experimenting I blew to build out tools for the agents on the core side versus the agent is it took a good six or seven years to build out a tms and the Tms is really the order to delivery system that the agents.

Use to put the orders in the dispatch a truck to monitor the motto monitor but did you provide the transaction to a certain workflow.

On top of that so thats, one thats our biggest spend is building out that new Tms. So.

So thats the biggest part of the spend we've had over the last five or six years, but we have attached a pricing tool tool types of credit tool to it.

Trailer, we're rolling out a new trailer maintenance app to help drivers identify.

More easy to get trailers maintained more easily get Charles maintain trailer request tools.

Clarity, which is our visibility tool, which is where you can.

We track freight those are all connected in right. So theyre always separate components of technology that lead into the successful move freight.

Freight from point a to point of view, what the proper communications all of those are actually up and running over the last year or two and they are starting out they've moved off of the sitting in our balance sheet as an asset and they are starting to rollout now with since they rolled out we depreciate them. So all of that stuff is very far along in the Tms.

Is it starting to rollout the rollout has got a lot quicker I would say, it's probably 15% of our truckloads earn it but we're shooting for getting that.

<unk> up this year. So most of the agency on it and when you speak to some of our agents in the first 90 days change is hard so I'll talk to a guy that's been it for 90 days talking to guys. We've been at for 120, and Youll get very favorable feedback on the efficiencies that are built into the the way they do their business.

Okay. That's great really appreciate all that color and then maybe Rob just one follow up you mentioned some of the glimmers of positivity on the flatbed side. We've heard some discussion on a few of the Industrials conference calls about Mega projects this year weather.

That's related to chips or inflation reduction Act just wanted to know if you are.

To attribute any of that positivity on the <unk> side to that project business there.

Two the project business.

Again, a lot of what I've seen is heavy equipment aerospace government so while.

Anytime that we want to talk about infrastructure anytime we want help us I can't directly say that we have an impact and that directly but I can say that the people will exceed those projects. We have an impact with them I don't know if I answered your question exactly the way you want it but.

But I see it more from the manufacturing side I do it from the actual project itself right Youre, saying that from the supply chain lower down the supply chain the raw materials.

Going into those projects as opposed to.

We're not getting hired by the person running the projects, we're getting hired by the supplier supply and stuff in.

Got it fair enough I appreciate it.

We have the next question comes from the line of basketball majors from Susquehanna. Your line is now open.

Okay, Jim thinking about your hypothetical 20% revenue decline downside scenario, one thing you've really been good at over the years.

Growing the market and a volume perspective, and protecting not all of that but but a lot of that in downturns can you talk a little bit about.

If a scenario were to present itself.

Where revenues were 420% or close to that.

Or would you have to really break the model is it volumes would have to do something that they really haven't done or is it just a rate reversion that's more commensurate with the rate of inflation can you just walk us through where you would be most surprised if we did print out 20% revenue decline for 2023.

Surprised if we had a 20% revenue decline while our revenue decline in the first quarter is above that so I mean, what we build into the year first off let me say that we look at what the street has us at for revenue and if you look at what the Street has no what we're putting out as the first quarter clearly we have to.

Approval for the first quarter, and we have to see that seasonal norm and when I think about what that means is we're going to see pricing strength coming into the back half and then our volumes trending off the first quarter pretty normal seasonally.

Hi.

The unpredictable piece of our model typically as you know is a spot pricing and how that moves month to month and quarter to quarter never really surprising maybe sometimes to the degree I see it move, but we do expect and kind of project that out a little bit.

In the short term and the long term I wouldnt be surprised if it moves up or down 10% from now until the end of the year. It's just very difficult. The volume size is one of the surprises us more than anything because we do see consistency as you said year over year and month to month, there's a lot of consistency. So if we were more than the 20% down and it was a volume.

Driven thing I think we'd be looking at ourselves trying to figure out what happened.

What do a deeper dive typically when we see that drop though you look at industry rates.

We're not dropping more than the industry is so.

If we saw volumes down more than what the industry was down I would be surprised and concerned.

Yeah.

Thanks for walking through that and just one more clarification.

<unk> talked a lot about rates earlier, if I look at peak to peak for revenue per truck. It looks like it's up 25% from 2018 on a full year basis.

Your net revenue per load is up exactly the same.

Should we just look at thinking about conceptually about the model is there anything that.

Would force the net revenue per load tranches, obviously pretty important indicator for the bottom line of your business is there anything unique that would drive that to really diverge from rate or is that really going to be a function of the rate on the way down as well. Thank you.

There's mix in there at its bcl our broker one of the things we've been one of the reasons. If you are looking at it that if youre looking at a combined on a truckload and youre not looking separate bcl versus broker. The one thing we've been struggling with over the last probably three quarters is bcl utilization theyre not driving as much and that would actually drive that mix would actually drive that variable.

<unk> per load down because thats, a higher higher variable contribution per load because clearly we have.

As it relates to the <unk>.

They are under Orange that we cover their losses on insurance. So there's other costs below the line. So theres mix there based on who's hauling load and the percent of bcl versus broker as it relates to revenue. The other thing clearly is.

The the spread the typical market spread between them.

Tight market and a soft market as it relates to third party trucks haul our freight right now where we're clearly in the expansion mode as it relates to the variable contribution per load and we expect that probably continues at least in the first half as capacity stays loose.

Those are the things that drive it.

But the thing about our model it doesn't necessarily move as much as you'd see in a pure broker play because as you know like 40% of our business is on a fixed margin. So if revenue per load goes down.

On the Bcl RBC per load goes down by the same amount right. So that also would drive that margin down our expectation for 2023 is that we're going to be sitting on a.

VC margin its probably 60 bps 60 to 70 bps above where we were in 2022, just based on the market dynamics right now of having a more available capacity.

Thank you for the time.

Thank you we have the next question coming from the line of Stephanie more of Jefferies. Your line is now open.

Hi, good morning, Thank you.

Jim I really appreciate the additional color on just kind of your thoughts on the cycle and I think very clarity and you can see.

And the trends peak activity in February of 2022 and to your point that based on normal cycle timing that puts us in a bit of work.

<unk>, our normal period in the second half of this year.

Curious if you just look at what has transpired with the kind of deceleration in February how much of that do you think is just.

Kind of.

Unwind normal cycle from what was a very abnormal two years with Covid and how you think about what happened.

The U S macro economic environment deteriorate at some point here Mark, but then we're at right now and how that kind of fits into that.

It's somewhat of an improvement here in the back half just would love to get your general thoughts of how.

<unk> cycle, and economic cycles and kind of.

Intersect together thank you.

But I've been reading a lot about the economics.

I'm, not an economist and Thats, a hardware to say by the way.

When you read about the economy, if you got some.

<unk> got some the dire theres going to be a huge recession and others are talking about no soft landing so I'm not going to go with what anything the economists say because theyre all over the map right now, but look clearly if the economy was going to soften from this point forward more than we anticipated we're going to struggle with hitting even what the street has out there today as a rep.

Any number because if you if you take our first quarter $1 4 billion to 145 billion that generally in a normal year is about 22% of annual revenue.

If you believe that in the back half contributes the next 78%, which would get us to that six to $6 $4 billion in than.

And then revenue now that's in a normal environment, where youre seasonality continued where the economy kind of grows a little bit out of the first quarter, but if it doesn't do that I think there's more pressure on us to hit those numbers I don't think its any questions.

Trying to predict what's going to happen is hard, but if that did happen I would say that that those numbers would be a little tougher on the on the top line I don't think there's any question.

Right No. That's really helpful. And then as you kind of go back and I know thinking over what has happened the last really since call. It.

February do you feel like the commentary that you were that you were carrying from your end markets or customers, particularly on the consumer side will make it seem like it was a bit more of an economic slowdown in there and they were already in a recession or was this just again.

Kind of come down from a weird COVID-19 environment I'd, just love to hear what your customers are saying and how they were feeling about the environment well I think a lot of customers got it wrong and overstocked right I think they didn't anticipate the fact that.

That was going to eventually slow down and we're going to see normal business cycles.

I think a bunch of our customers got got stuck.

With inventory and then they see that coming out of the end of 'twenty, one right and theres still dealing with inventory issues moving stuff around and I think thats when things started to drop off they started pulling back on spending trying to worried about inventory levels and that's kind of what brought us down I would say that.

The customers might've been not all of them, but some of the customers about a little late to the game on slowing down our inventory production and.

Once that happens I think we've been reading about inventories since early summer, but I think it might've been a little sooner than that that they were having problems and they just started to admit it.

Yeah.

Great absolutely well I'll leave it at that thank you so much.

We have the next question coming from the line of Scott Schneeberger of Oppenheimer. Your line is now open.

Good morning, it's Daniel on for Scott, Thanks for taking our questions here.

Curious on the other truck transportation line item, what you've been seeing recently across those categories and how we should think about that.

In the first quarter and maybe beyond please thank you and that other truck transportation power only and a lot of that was that substitute line haul business.

Drop in trucks, and they're pulling some of those other trial someone else's trailer that started softening up halfway through last year, and I would anticipate thats going to.

The drop off there was because it was so high before you know it really took off it was one of the fastest growers coming through the pandemic and I expect that actually the slowdown is might be the one that slows down more than van or flatbed.

Just based on the business that we're doing within that category being the subsidy line haul, which really was consumer driven.

Thank you.

SG&A helpful color earlier, but how should we think about the cadence this year anything unusual.

Anything unusual in SG&A in 'twenty three.

As far as the cadence goes.

Yes.

The unusual would be kind of the mean reversion on the compensation on the variable programs.

To Jim's point earlier, there is still a little bit of a sticky wage inflation benefits inflation and.

Softness in the general.

Economy that could pressure the customer bad debt line, a little bit but that was all that was all scrubbed.

Part of the part of the guide earlier I think one of the areas too.

You Didnt mentioned other operating costs, which is really a smaller piece, but we're experiencing like 20% to 25% inflation on the trailer maintenance per trailer.

So there is some inflationary not just in the SG&A line. Some of the biggest inflationary factors, we have going on right now is trying to maintain our trailing equipment between the labor on availability of parts.

Yes.

Got it. Thank you thanks, so much.

We have the next question coming from the line of Jason Seidl of Cowen. Your line is now open.

Thank you operator, Hey, good morning, guys I wanted to circle back a little bit to Jack's question, but come at it a little bit different way.

If we just assume normal seasonality from here in <unk> and into <unk>.

How oversupplied the market right now are we 2% 3%.

Is it more than that so in other words, how much capacity do you think needs to continue to come out of the marketplace from here to get us back to sort of equilibrium.

Well, that's a very hard question to answer.

I would say it's like for you guys you guys are experts.

I was going to say, it's oversupplied by $2 $2, 774%.

That's what I thought I was probably two points at 777.

And I'll, obviously, clearly it's oversupplied because when you look at the PT rates, we are paying the trucks in the fourth quarter. It was probably the lowest it's been and I think we look back 10 years. So theres clearly putting a percentage on that is hard to say how over how much more capacity I'm also a believer and a little bit of momentum too because people start getting scared when everybody starts putting up.

That rates are falling through the floor and the trucks get little scared. So they start cutting rates on their own just so they can get freight. So there is some momentum there too so I think theres, a little bit too much capacity.

Not enough demand and then the hey, I need to get a load because I'm scared rates are going to keep drop in mentality.

As to how many trucks that is so that's such a hard and measurement for us to figure out are almost anybody.

Around we're still seeing the trucks charging us.

We're still getting pretty good rates off of the trucks right now and typically it takes three to six months for that to tighten up so I would say that that's all I can give you is.

A period of time, where I think it tightens up as opposed to how many trucks are in the market how many excess trucks.

I'm not a big believer that if you add 50000 trucks into the market that it is going to move the needle that much I think it's more of a demand driven environment than a truck driven environment, you've seen sales climb right, but I think thats like sales I thought I saw sales being at a record level in December were pretty high compared to where it's been over the last three or four years, but remember people are sitting on older.

Trucks are just starting to swap them out I mean, I don't even know if we know how many of those how many of the sales are being replacements versus additions and then theres. All the access to drivers is always talking about not getting not getting drivers into the system. So it all plays into this how many more trucks are on the road and how many we need to come out.

And it's kind of more of a feeling trends and trying to identify what's going on I mean, you can look into that.

The truck counts that are coming out of the government and stuff like that and how many CDL licenses are out there but are they all driving.

Just a very difficult question, but I would say that it was very loose in the fourth quarter looser than it has been in such a long time based on the rates, we're paying another trucks and I would anticipate that is going to continue for a little while through the first quarter and then maybe swing up tighten up a little bit in the once we get through the second quarter.

That sounds good or are we seeing any impact from weather because you know we've been hearing stories about truckers getting stranded down south of all these big storms come through yes.

What happens is we will see a day like now that's going on in Texas like our dispatch loadings, probably were pretty low yesterday, because we went through with trucks on the relative it's like that but then the loans get the same load that they were waiting on they just pick them up today. So you'll see it's very short term for us it doesn't affect the quarter so much.

What does affect the quarter, if youre running contract business with someone shut the plant and all of a sudden those 15 load that day. They didn't get produced so theres no.

You did lose freight but in our world, we don't actually lose the frame, it's really just moves to a different day.

Sounds fair gentlemen, I appreciate the time as always and if that's not true maybe I'll have.

If I'm wrong, there I'll use some weather excuses.

At the end of the first quarter.

Yeah.

Ill look forward to.

Yes.

We have the next question coming from the line Scott Group of Wolfe Research. Your line is now open.

Hey, guys. Thanks for the follow up so.

I would go back and look at 19, where revenue was down 10, and SG&A was down.

15 explain to me again, just why do you think revenue could be down 20%, but SG&A up I'm just not following.

Why would SG&A be up.

Yes, I think well maybe I'll just look like the last time, we had a we had a big drop in revenue SG&A was down a lot. So.

Why would this year be so different yes, Scott So Scott I would tell you that the pre.

Pre pandemic the inflationary pressures, we are really isolated on the insurance line in the Tech line, whereas post pandemic.

We've got wage two years in a row of PAH.

<unk> your wage inflation the benefits inflation on that line is a little heavier and then I think 2019, the compound variable program snap two 4 million.

Sorry, It was very low and we've got some recent equity tranches that are based on lower base years like 2020 for example.

<unk> not going to get as much of a shot we will get softening, but we won't get as much of a softening on those lines <unk> 18 versus <unk> 19 in 'twenty two into 'twenty three.

The other piece, it's not just SG&A.

I believe that the insurance line was $77 million and we're running 125 right now so there's $50 million of pressure right. There from 2019 into 2023.

Big that's a big piece.

Jim I know you guys did the dividends I didn't see any buybacks, what's the thought on buyback this year.

Hi.

This year, we're going to continue to buy back it's our favorite thing to do here other than work.

But.

Our thing is we didn't buy back in the fourth quarter, because we watch the stock run up we I think we ended the third quarter I think the stock is trading like $1 45.

And we don't compete with buyers by the time, we by the time the window opened by the time, we got to the end Dakota ran up to 160 170. So that's really why we didnt get in.

We're just waiting for it to settle.

If it stays in the range that it's at today.

And we see some stability in pricing and volumes over the next couple of months would be in.

Same thing, we'd be opportunistic stabilized see the stabilized price and see the market stabilized a little bit I think we're a little too early into the first quarter to determine whether we're going to see the stabilization in rates that we see currently and whether we're that confident in the volume trends, we got to get through February February is such a tough comp.

It was our best month last year, and so we're watching all of the size, but we haven't changed our thought process on buybacks, we favor them.

Okay, and then just last thing I may have missed some sort of comments you made about.

Profitability on contractual over spot right now I haven't heard you talk about that way.

If you could just expand on that because I think I missed it.

Why do we do.

Like most about the Blue is so small blue is doing most of the contract work, but it's pretty small so we don't really have much data on the comparisons there but with.

With us it's the profitability.

We don't really we don't really have a lot of contract dedicated freight out of the agent base at the core I mean, they run they run some of it but it's still even in our world contract rates are almost like spot rates right. If the shipper as if we're running something that looks like a contract run like lanes and rates start dropping the shipper comes back there was some drops are right. So we have contracts.

They just don't hold so our whole world almost works on the spot world other than the little piece over at Blue.

I think the question was we're trying to figure out where our spot rates today as compared to contract rates.

And I don't think we had a very good answer because I don't think we know where they stand today, we get the data just like you get from people who publish it.

Okay. Thank you guys appreciate it.

At this time I am showing no further questions I would like to turn the call back over to you Sir for closing remarks.

Thank you before I sign off on 2022, I want to thank all of <unk> agents <unk> and employees were putting up another record year, but people in Landstar has unique network of agents capacity. It provides employers or what truly sets <unk> apart in our industry and enables the success. We all achieved together. Thank you and I look forward to speaking with you again on our 2023 first quarter earnings cover.

Call currently scheduled for April 27.

Good day.

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

[music].

Good morning, and welcome to Landstar system incorporated year end 2020 earnings release conference call all lines will be in a listen only mode until the formal question and answer session.

This call is being recorded if you have any objections you may disconnect at this time joining us today from Landstar are Jim got Sony precedent N C E L. James Hart, Vice President and CFO , Rob Brasher, Vice President and Chief Commercial Officer, and Joe Beacom, Vice President and Chief Safety and operations Officer.

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

Thank you Bill good morning, and welcome to last year's 2022 fourth quarter earnings Conference call before we begin let me read the following statement.

Following the 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 <unk> business objectives plans strategies and expectations such information is by nature subject to uncertainties and risks.

<unk>, but not limited to the operational financial and legal risks detailed in <unk> Form 10-K for the 2021 fiscal year described in the section risk factors and other SEC filings from time to time.

No throughout these remarks that the 2022 fourth quarter included 14 weeks of operations in the 2021 fourth quarter included 13 weeks of operations.

Once again last are delivered record financial results in fiscal year 2022, a record performance in 2022, followed another record year for Landstar in 2021 among.

Among many new annual financial records, we established in 2022, lesser achieved record annual revenue of $7 4 billion.

<unk> $900 million higher than the previous record set in 2021 diluted earnings per share in fiscal year 2022 was an annual record of $11 76, an increase of $1 78, or 18% above our prior fiscal year record of $9 $9 98 set in 2021 during.

During fiscal 2022, lesser generated a record free cash flow of $597 million. Additionally.

Additionally, during fiscal year 2022, lesser paid dividends of $116 million and purchased $286 million worth of company stock in December the board declared an additional dividend totaling $72 million to be paid in January 2023.

Within our record financial performance in 2022.

The 2022 first quarter proved to be a peak following six consecutive quarters of strengthening in the macroeconomic freight environment as we move further into the year supply chain congestion began to ease in the macro economic freight environment, Although it's still relatively strong by historical standards began to weaken not unlike typical cyclical pattern.

<unk> historically experienced and that the best domestic freight environment.

Beginning in the 2022 second quarter Landstar experienced a deceleration in quarter over prior year quarter growth rates for both truck revenue per load and the number of truckloads that ultimately led to truck revenue per load and the number of loads hauled via truck in the 2022 fourth quarter due both be below the 2021 fourth quarter heading.

Heading into the 2022 fourth quarter. It was clearly cyclical conditions, we're continuing assets during our October 22nd.

2022 third quarter earnings Conference call, we provided 2022 fourth quarter revenue guidance of $1 $775 million to 1 billion $825 billion.

Below the 2021 fourth quarter revenue by 6% to 9% the guidance anticipated a truck volume to decrease from <unk> from the 2021 fourth project in a range of 2% to 4% even given the extra week in the 2022 fourth quarter and revenue per truckload to be 5% to 7% below the 2021 and fourth quarter.

2022 fourth quarter loads hauled by truck were 6% below the 2021 fourth quarter and revenue per truckload was 7% below the 2021 fourth quarter note that the number of truckloads Hall by last are reached an all time record level in the 2021 fourth quarter and remained relatively strong by historical standards throughout 2022.

As compared to the 2021 fourth quarter revenue hauled via truck was $211 million or 12% below the 2024th quarter approximately 16% when excluding the estimated truck revenue of $60 million contributed by the extra week in 2020 to fourth quarter.

Revenue hauled via other modes was almost $60 million below the 2021 fourth quarter.

While we experienced a 12% decrease in truck revenue from the 2020 in fourth quarter to be fair. One is to put the impact of the pandemic driven demand and supply chain congestion in perspective.

Since the end of the summer of 2020 strong consumer demand along with supply chain congestion drove truck rates and volume to historic highs.

<unk> two year growth.

Lenders two year growth in truck volume from the pre pandemic fourth quarter of 2019 to the record 2021 fourth quarter was 37%.

Truck revenue per load grew 39% during that same time period.

Revenue hauled via van equipment at 2022 fourth quarter was $154 million lower than the 2021 and fourth quarter, but $373 million above the 2019 fourth quarter.

Revenue hauled via onsite and flatbed equipment in 2000, <unk> fourth quarter was only $13 million below the 2021 fourth quarter by $121 million over the 2019 fourth quarter and revenue generated via other truck transportation services, mostly power only services was $48 million lower than the 2021 fourth quarter, you had $160 million above the 2019 fourth quarter.

Clearly the van market was more favorably impacted by the pandemic driven consumer demand than the onsite and flatbed market through the throughout the past two years, then loadings in the 2022 fourth quarter were 5% lower than the 2021 fourth quarter onsite and flatbed loadings were 2% below the 2020 on fourth quarter. Another truck transportation loadings were 16%.

Below the 2021 fourth quarter.

After the decrease in band and other truck transportation loadings, the number of loads hauled via our substitute line haul service offering primarily on van equipment and Sunpower only moves was 35% below the 2021 fourth quarter, even with the extra week in 2022. Additionally, load count from consumer Durables building products and foodstuffs were down 8%.

6% and 31% respectively from the 2021 fourth quarter.

One of the few volume growth areas was an automotive parts of materials, which grew 13% over the 2021 and fourth quarter.

New agents as of the end of 2022, which which we define as agents who contracted with the company on or after the beginning of 2021 contributed $144 million of revenue in the fiscal in fiscal 2022.

This followed new agent revenue of $181 million in 2021 or.

Our agent base is strong and these new agent additions will continue to drive new customers and truck volume into the network.

During 2022, there were 625 agents, who generated over $1 billion of Landstar revenue. This is our highest annual number of million agents and left our history.

Turnover $1 million agents is typically very low during 2000 $22 million agent turnover was only 2% in line with historical million agent turnover rates.

We ended 2022 with 11281 trucks provided by <unk>. The number of trucks provided by <unk> sales decreased 583 trucks or 5% from the beginning of 2020 Q overall Bcl truck turnover was 29% in 2022 compared to 21% in fiscal year 2021.

A decrease in the number of trucks provided by <unk> is typical during a cycle of decreasing revenue per mile.

In December 2022, compared to December 2021 revenue per mile on van equipment hauled by <unk> decreased 16%.

In December 2022, compared to December 2021 revenue per myeloma side of equipment hauled by <unk> decreased only 2%.

In each case revenue excludes the impact of fuel surcharges billed to shippers as 100% of few surplus build the customers are excluded from last year's revenue and paid 100% for the hauling bcl.

In fiscal year, 2022, total fuel surcharges billed to customers pay 100% of <unk> were $445 million compared to $260 million in physical 2021.

I'll now pass to Jim Todd to comment on additional P&L metrics in a few other fourth quarter financial statement items Jim.

Thanks, Jim Jim has covered certain information on our 2022 fourth quarter. So I will cover various other fourth quarter financial information included in the press release.

2020 to 14 week fourth quarter gross profit was $180 million compared to gross profit of $209 8 million into 2021, 13 week fourth quarter.

Gross profit margin was 10, 7% of revenue in 2022 fourth quarter as compared to gross profit margin of 10, 8% in the corresponding period of 2021.

In the 2022 fourth quarter contribution was $234 million compared to $263 3 million in the 221 fourth quarter.

222 fourth quarter was 294 basis points lower than the rate paid in the 2021 fourth quarter.

Other operating costs were $10 3 million in the 2022 fourth quarter compared to $9 4 million in 2021 this increase.

It was primarily due to increased trailing equipment maintenance costs, partially offset by increased gains on sale of operating property.

Insurance and claims costs were $29 6 million in the 2022 fourth quarter compared to $33 million in 2021.

Total insurance and claims costs were 5% of <unk> revenue in the 2022 period and four 2% of <unk> revenue in 2021 period the.

During the 2022, and 2021 fourth quarters insurance and claim costs included $3 $8 million and $5 $2 million, respectively of net unfavorable adjustments to prior year claim estimates.

Selling general and administrative costs were $56 $1 million into 2022 fourth quarter compared to $62 6 million in 2021.

And the 2022 fourth quarter the provision for compensation under variable programs was $5 3 million compared to $16 8 million in the 2021 fourth quarter dip.

Depreciation and amortization was $14 $8 million in 2022 fourth quarter compared to $13 1 million. In 2021. This increase was almost entirely due to increased depreciation on software applications, resulting from continued investment in new and upgraded tools for use by agents and capacity.

Two and 2021 fourth quarter, where each unfavorably impacted by the impairment of deferred tax assets related to employee equity compensation arrangements as a result of.

The performance conditions being attained as of year end.

The increase in the effective income tax rate in the 2022 fourth quarter as compared to the 2021 fourth quarter drove approximately <unk> of the 30 <unk>.

Quarter over prior year quarter earnings decline.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $394 million.

Jim.

Thanks, Jeff.

As it relates to our 2023 first quarter guidance recent trends in truck revenue per load and load volume indicate the continuation of a softer freight environment consistent with cyclical trends. We believe we have seen returned to the marketplace over the last three quarters.

As the truckload cap, we generally experience a 2% to 3% sequential decrease in volume from the fourth quarter to the first quarter, excluding the extra week from the 2022 fourth quarter truckload volume assumption as volume decreasing at a slightly more rapid rate than the historical typical range as demand softening has continued into the beginning of the 2023.

Quarter.

And our expectation is we could experience an additional 5% to 7% decrease in revenue per load during the 2023 first quarter note.

Note that revenue per truckload reached its all time high at Landstar in February 2022, and experience levels without historical precedent throughout much of the 2020 to first quarter.

$1 $400 million to $1.445 billion and diluted earnings per share to be in a range of $2.05 to 2015.

This earnings estimate anticipates variable contribution margin ranging 42% to 14, 5%, although we do not plan on providing full year earnings guidance due to the unpredictable nature of the spot market, Jim will cover our estimates of costs and expenses for fiscal year 'twenty two as they are more predictable and fixed in nature, Jim Thanks, Jude with re.

Expecting my expectations for Landstar is full year other operating costs, assuming a normalized provision for contractor bad debt I estimate 2023, other operating costs would increase by $1 million to $3 million as increased trailing equipment maintenance costs and increased transaction costs associated with software rollout are partially offset by increased gains on sales of used trailing equipment.

With respect to anticipated insurance and claims cost I continue to believe four 5% of <unk> revenue is the appropriate measure to utilize but we will continue to reevaluate each quarter.

My base case assumption on selling general and administrative costs as a $3 million to $6 million increase year over year, assuming a normalized provision for customer bad debt.

Included in that base case assumption is approximately $12 million of tailwind from potential decreases in the companys variable compensation programs.

In a hypothetical 20% revenue decline scenario dose tailwind could grow closer to 18% to $20 million, which result in a slight decrease in selling general and administrative costs year over year.

I expect depreciation and amortization cost increased $46 million year over year, depending on the timing and ultimate acquisition cost of new trailing equipment.

In closing and as previously mentioned the macro freight environment gathered strength from late summer 2020 through 2021 and drove Landstar strike revenue to a historic highest 2021 fourth quarter truck revenue was $90, 91% above the pre pandemic in 2019 fourth quarter. The prior upmarket cycle reaches peak in the 2021 fourth quarter in <unk>.

22, first quarter and was followed by decelerating year over year growth rates and truck revenue per load in volume beginning in the 2022 second quarter.

We believe lessor could still generate an operating margin representing operating income over variable contribution of 50% or more we also expect free cash flow will exceed $350 million under that scenario.

<unk> 2021, and 2022, where historically is that last year during which the company achieve new levels of record financial performance resulted in last year's historically strong business and balance sheet, becoming even stronger than before.

2023 has its work cut out for it due to the tough comps to prior year and a less robust freight environment to start the year.

Nonetheless, we have been through many business cycles before and we still expect nothing less than 2023 being a terrific year by historical standards.

Annual revenue well above pre pandemic levels.

And with that we will open to questions.

Thank you very much Sir at this time, we will begin the question and answer session.

To ask a question. Please press star one on your thoughts.

Jon Cohen once again that is star one to ask the question. So Catherine ROE request. Please press star two and.

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

Hey, great good morning, everybody.

Jim I guess to start.

The revenue per load commentary for the first quarter it sounds like that the down 5% to seven in line with what you see from a typical seasonal standpoint, but you've got a little bit of easier comparisons coming off of the fourth quarter.

And I think on a year over year basis. It kind of implies a mid teen decrease can you just comment on do you feel that that's reflecting where the market is a little bit of a lag and kind of how you're pricing flows through on the revenue per load side.

And then just some expectations may be as we move through 'twenty three.

Revenue per load during the year.

Yes, I would say that generally we do lag a little bit in the market.

By three or four weeks or so based on the reaction time of these shippers and agents kind of coordinating pricing, but I wouldn't say it's substantial.

I would say that the market trends that we're seeing today are probably a little more true to market than we typically see.

As.

In our business.

We did trend down in the December but I'm not sure what the dynamics, we're seeing in the marketplace right now that we wouldn't continue to trend down the way we have in January we did go through the fact that December was a little lower than we anticipated and would that drive a less drop in January but we're not experiencing that so I think we're still pretty comfortable we're going to see is that normal.

Rob from being 10% in the fourth quarter below the first quarter with plus another 5% to 7% drop will be that mid teen drop off in the first quarter. We're not seeing I would say, we're seeing a little bit I don't want to call. It stable, but it's a little more stable I guess than it has been over the last three or four weeks, but again still pretty unpredictable.

Both because things have been flipping back and forth pretty quick over the last several months as it relates to the year.

Good.

If you go back to the last two years I would always say that I believe in cycles, regardless of the pandemic I still think we're going to the spot versus contract cycle is going to happen and.

Capacity tightens and unique business and spot market climate, and then it loosens and people go to contract in the spot market drops.

I will say that for the last two years and we're going to cycle down.

If you believe in cycles, our peak was in February .

We went from August of 'twenty to February of 2002. It was about 18 months from what I would say it was like trough to peak.

I think another 18 months of peak peak to trough puts it back somewhere in the summer and being a believer in cycles I would project that things will start to improve and we will get a little bit more rate seasonality of declines into the third and fourth quarter. So that that would be my guess is where we're headed.

Kind of what we've talked about here and what we expect to happen in the back half actually is that we see the spot market.

To drive rates up a little bit again, I'm not talking like tremendous upside than seasonally normal increases in rates from Q1, maybe not the Q2, but into Q3 and Q4.

Yeah, no all of that makes sense and I would say that it's been surprising that it does turn out that it feels like a cycle, even sometimes when it does and so just a quick follow up.

And I know you went through the detail on the end markets.

Are you seeing any difference now it feels like going through a lot of last year was more on kind of the consumer durable side slowing it.

Hey, Todd this is Rob specifically on the equipment, we're seeing a lot of.

On a positive trending on heavy haul projects, we're seeing a lot of heavy equipment.

Really pickup for us through the from the manufacturers right now that could be the fact that again due to supply chain constraints that they are now filling orders that they couldnt over the past year and a half.

But to that point exactly to the cycling and cycling down more so in the metals and some of that more specialized open equipment freight we're seeing that come.

Come down which is a typical cycle, because it's wintertime right, but theres not a lot when the ground freezes up north there's not a lot of those projects that are going on but we do anticipate us.

The season warms up and the year moves on that will continue on an upward basis automotive continues to be.

It's been both from a van and flatbed perspective for us.

Got it.

For the time this morning I'll pass it along.

<unk>.

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

Hey, Thanks, good morning, guys.

Just wanted to get more of your perspective, Jim on the cycle.

It sounds like Youre hopeful that rates bottoming in Q1 Q2, So if you look.

From.

Trough to peak, 60% plus increase in rates.

We're getting close to the trough.

20% or so drop from peak to trough does that sort of you got a long history here does that sort of drive with.

What you've seen in prior cycles that we that we can hold onto.

Most of.

These pricing increases.

I would say that the timeline of the peak this cycle kind of 18 to 24 months kind of make sense, but we've never had a trough to peak of 60% growth. So I think I think one of the discussion as well then what's your peak to trough and.

Seeing a little bit of where the right fit and today is a trough down 20, or 25% I don't youre not youre not going to go down 60% clearly I don't believe we're going to go back to 2019 levels you just can't because the so.

So much more cost in the system with inflation in insurance costs I don't see how the industry can bring rates back to that level.

And are comfortable with what we're seeing in the first three or four weeks of January has got us head and slowly data not driving down into a 60% drop off so I'm pretty comfortable that with kind of the commentary is im not sure. We continue to drop into the second quarter I would say that maybe we got a little improvement in the second quarter and then from there we get better improvement foot spot markets more seasonal.

Okay.

The higher the lows over the last few years have been crazy right before that that it moved 10% or 15% from peak to trough and that's just.

Yes, the pandemic drove up the new highs and like I said I, just don't think it pulls back that far.

As far as it grew because of the cost structures.

Right.

Do you have a view on where we are contract versus spot and then maybe just to your point about how much costs are operate we saw some big drop in the Bcl Cowen and approved broker carriers.

What youre seeing in terms of capacity and any update on how thats trending in Q1.

Yes. This is rob from.

From a pricing perspective, there are still real pressures on rates right now.

And those pressures are because of the huge drop in spot spot market rates I don't know, where we are up to Joe's point I think they are starting to stabilize a bit assets have been pushing back for a long time because of the increased operating costs.

And the increases they put into their system, we are starting to see those carriers and those contract rates, a little bit relaxed and start to to succumb to some of the pricing pressures I don't know.

So I think its weakening I don't know.

We're at the bottom.

From our perspective I do think there is some stabilization.

From a rate standpoint spot to contract.

Contract.

Yes, Scott this is Joe I'll take the bto capacity question. So.

We've seen.

We're going to we're predicting that the first quarter look a little bit a lot like the fourth quarter as far as a net decline and really what's driving that really doesn't change. It's if you think about our model on the AD side, we're really.

If guys can't get used trucks, then it kind of makes it hard for them to come out of other systems and come here to the interest in Landstar is still strong.

Lot of that interest is predicated on identifying and finding a truck. So as you see more broadly as newer trucks get put into different.

The systems and frankly those come into the market then that feeds the used truck market is that a.

Taylor ability in that price begins to be rational I think youll see the AD thing.

Kind of fix itself and on the retention side.

Really about the parts and labor to keep the existing equipment running as you probably know on the <unk> side, they're running use equipment and.

In the shops and get equipment back on the road, we think that helps a great deal because it's really been pretty disruptive for the last few quarters.

And then you get a stabilization of demand I think also is a big factor on the BCS side once that price levels off.

As discussed I think youll see a greater interest in coming back into the fleet, which I think a lot of these guys are currently sidelined and you really don't see a dramatic difference in my view from where the <unk> are challenged with carriers about over 60% of our brokerage business is on carriers with less than 10 trucks and they're seeing a lot of those same.

Supply related cross related inflation and access to equipment related challenge that everybody else's.

And so I think there are a lot of them are just trying to fight through it. It's it really I think a very tough condition for a lot of truckers in the marketplace today and as some of these things that are out of their control come back in their control I think we will I think will bounce back, but I think thats going to be a couple of quarters.

Okay. Thank you for the time guys I appreciate it.

We have the next question coming from the line of Jack Atkins from Stephens. Your line is now open okay. Great. Thank you for the time really appreciate it guys and good morning.

So I guess, maybe kind of a macro question divided into two parts I guess, one for one for Joe one for Rob, but I guess as you sort of think about.

On the industrial side, I think theres a lot of concern about the potential for destocking of industrial inventories.

Similar to what we've been seeing over the last nine months or so on the on the.

Retail consumer side I'd just be curious if your customers are telling you.

How about the potential need to do that and then I guess just following up on Scott's question about capacity given.

Given the pressure on small fleets are you seeing any signs that capacity is exiting the market or maybe that capacity exit is accelerating in any way, but I know that's a long question, but would just be curious about both of those things.

Yes, I'll start Jack.

Yes, just based on the <unk> data and some of the stuff we're reading the net revocations of carrier authorities.

Has really it's been like six to 8000, a week for the last several weeks of 2022, and we've seen our approved carrier count decline.

A decline as well into the first quarter. So I think youre going to continue to see that I think until some of the conditions I was just referring to with Scott kind of find a floor.

To see some level of consistency or predictability, whether it's predominantly getting trucks fixed.

Getting drivers the labor side of things.

Round, which is a lot of that 1% to 10 truck fleets.

They couldnt actually fulfill their projects were orders were starting to see those now come to fruition and continue going forward. Okay. No. That's really helpful and I guess.

Rob Another question for you and Jim Good Tony Jim Todd Sorry, no questions for you for me on the call today, but I guess, Rob I'd love to get your thoughts on Landstar.

Landstar Blue in 2023 sort of what's the what's the plan for that part of the business. This year and sort of I guess as you think about that.

As a springboard into 2024, what do you hope to accomplish to prepare that I think we're looking at that as a potential growth engine, but it would just be curious if you could maybe talk about what the plan is for Landstar Blue in 2023, yes, absolutely lexmark lose the volume growth mechanism Thats, what we are therefore, and we see this as a time of opportunity because.

As I'm sure you're hearing from others companies are putting their freight out for bid companies are looking for partnerships. They are looking for solutions not a lot of the reasons why they are doing it is in their mind as to drive rates down or get the rates back to where they work, but it gives us an opportunity.

Into.

Ladies into into places that we haven't been into different sections of their business to continue to grow that so we look at it as an opportunity.

The more customers that were in front of talking about their supply chain their needs and trying to provide solutions I look at that as a benefit to that company.

And organizational standpoint, I know, where Jack I had to jump in because I know youre working to ask that question.

Gentlemen, it anyway, we are working like crazy trying to get Rob all the automation into his systems for two.

To automate despite the bad stuff like that so there is I don't want to say we are pulling I don't say were holding back on growth there, but we're what we're doing it properly and we don't want we don't wanted to start by anybody supply chains.

We are until we get automated.

Alright that makes sense. Thanks again for the time and thoughts guys I appreciate it.

We have the next question coming from the lab Bruce Chan of Stifel. Your line is now open.

Hey, good morning, everyone I appreciate the time here.

Jim.

Jim can Tony I guess, maybe just a follow up on that automation comment you all talked about a lot of the new technology investments that you're making and how thats going to start to ramp down. This year can you maybe just give us an update on what those are and as far as the automation how far you are along in that process and what the rollout looks like.

We're dealing in two different worlds once we started off blue Blue is.

Right more contract dedicated lane type business and it requires a little bit automated dispatch and while it's not that the agents can't use that and we're kind of experimenting I blew to build out tools for the agents on the core side versus the agent is it took a good six to seven years to build out a Tms and the Tms is really the order to delivery system at the agency.

To put the orders in the dispatch a truck to monitor the not the modeler, but.

Provide the transaction to a certain workflow on top of that so thats one thats our biggest spend is building out that new Tms.

So thats the biggest part of the spend we've had over the last five or six years, but we have attached a pricing tool to it we've a patch of credit tool to it.

Trailer, we're rolling out a new trailer maintenance app to help the drivers identify.

More easy to get trailers maintain more easily get trials maintain trailer request tools.

Clarity, which is our visibility tool, which is where you can how we track freight those are all connected in right. So theyre always separate components of technology that lead into the successful move.

Freight from point, a to point there with the proper communications.

All of those are actually up and running over the last year or two and they are starting out they've moved off of the sitting in our balance sheet as an asset and they are starting to rollout now since they rolled out we depreciate them. So all of that stuff is very far along in the Tms.

It's starting to rollout the rollout has got a lot quicker I would say, it's probably maybe 15% of our truckloads earn it but we're shooting for getting that ramped up this year. So most of the agency on it and when you speak to some of our agents in the first 90 days change is hard so I'll talk to a guy that's been it for 90 days talking to guys. We've been at for 120, and Youll get very favorable feedback.

On the efficiencies that are built into the the way they do their business.

Okay. That's great really appreciate all that color and then.

Maybe Rob just one follow up you mentioned some of the glimmers of positivity on the flatbed side.

Heard some discussion on a few of the Industrials conference calls about Mega projects this year weather.

That's related to chips or inflation reduction Act just wanted to know if your <unk>.

<unk> to attribute any of that positivity on the <unk> side to that project business there.

To the project business.

Again, a lot of what I've seen is heavy equipment aerospace government so while.

Anytime that we want to talk about infrastructure anytime we want to talk about that I can't directly say that we have an impact and that directly but I can say that the people will exceed those projects. We have an impact with them I don't know if I answered your question exactly the way you want it but.

But I see it more from the manufacturing side I do it from the actual project itself right Youre, saying that from the supply chain lower down the supply chain the raw materials.

Going into those projects as opposed to we're not getting hired by the person running the project growth, we're getting hired by the supplier supply and stuff in.

Got it fair enough I appreciate it.

We have the next question comes from the line of basketball Hi, Gerry from Susquehanna. Your line is now open.

Okay, Jim thinking about your hypothetical 20% revenue decline downside scenario, one thing you've really been good at over the years as.

Outgrowing the market and a volume perspective, protecting not all of that but a lot of that in downturns can you talk a little bit about.

If a scenario were to present itself.

Where revenues were 420% or close to that.

Approval for the first quarter, and we have to see that seasonal norm and when I think about what that means is we're going to see pricing strength coming into the back half and then a volumes trending up the first quarter pretty normal seasonally.

Hi.

In the short term and the long term I wouldnt be surprised if it moves up or down 10% from now until the end of the year. It is very difficult. The volume size is one of the surprises us more than anything because we do see consistency as you said year over year and month to month, there's a lot of consistency. So if we were more than the 20% down and it was a volume.

Driven thing I think we'd be looking at ourselves trying to figure out what happened.

What do a deeper dive typically when we see that drop though you look at industry rates.

We're not dropping more than the industry is so.

If we saw volumes down more than what the industry was down I would be surprised and concern.

Yeah.

Thanks for walking through that and just one more clarification.

<unk> talked a lot about rates earlier, if I look at peak to peak for revenue per truck and it looks like it's up 25% from 2018 on a full year basis.

Your net revenue per load is up exactly the same.

Should we just look at thinking about conceptually about the model is there anything that.

Would force the net revenue per load trends. There is obviously a pretty important indicator for the bottom line of your business is there anything unique that would drive that to really diverge from rate or is that really going to be a function of the rate on the way down as well. Thank you.

There's mix in there edits bcl or broker one of the things we've been one of the reasons if youre looking at it that if youre looking at a combined on a truckload and youre not looking separate bcl versus broker. The one thing we've been struggling with over the last probably three quarters is bcl utilization theyre not driving as much and that would actually drive that mix would actually drive that variable <unk>.

<unk> per load down because thats, a higher higher variable contribution per load because clearly we have.

As it relates to the <unk> where they.

They are under Orange.

Cover their losses on insurance so there's other costs below the line. So theres mix there based on who's hauling load and the percent of bcl versus broker as it relates to revenue. The other thing clearly is.

The spread the typical market spread between.

A tight market and a soft market as it relates to third party trucks on our freight right now where we're clearly in the expansion mode as it relates to the variable contribution per load and we expect that probably continues at least in the first half as capacity stays loose. So those are the things that drive it.

But the thing about our model it doesn't necessarily move as much as you can see in our peer broker play because as you know like 40% of our business is on a fixed margin. So if revenue per load goes down on.

The Bcl RBC per load goes down by the same amount right. So that also would drive that margin down our expectation for 2023 is that we're going to be sitting on a.

VC margin, its probably 60 bps $60 to 70 bps above where we were in 2022, just based on the market dynamics right now of having a more available capacity.

Thank you for the time.

Thank you we have the next question coming from the line of Stephanie <unk> of Jefferies. Your line is now open.

Hi, good morning, Thank you Yep.

Jim I really appreciate the additional color on just kind of your thoughts on the cycle and I think very clarity.

And you can see it in the trends peak activity in February of 2022 and to your point that based on normal cycle timing that puts us in a.

A bit of a recovery or a normal period than that.

Second half of this year I was curious if you just look at what has transpired with the kind of deceleration at February how much of that do you think is just kind of unwind normal cycle from what was a very abnormal two years with Covid and how you think about what happened.

Macro economic environment deteriorate.

Quite hear Martin then we're at right now and how that kind of system.

It's somewhat of an improvement here in the back half just would love to get your general thoughts of how the freight cycle and economic cycles and kind of.

Intersect together thank you.

But I've been reading a lot about the economics.

I'm, not an economist and Thats, a hardware to say by the way.

When you read about the economy. So you've got some you've got some the dire theres going to be a huge recession that others are talking about no soft landing so I'm not going to go with what anything the economists say because theyre all over the map right now, but look clearly if the economy was going to soften from this point forward more than we anticipated we're going to struggle.

Hitting even what the street has out there today as a revenue number but because if you. If you take our first quarter $1 4 billion to 145 billion that generally in a normal year is about 22% of annual revenue.

If you believe that in the back half contributes the next 78%, which would get us to that six to $6 $4 billion.

And then revenue now that's in a normal environment, where your seasonality continued where the economy kind of grows a little bit out of the first quarter, but if it doesn't do that I think there's more pressure on us to hit those numbers I don't think has any questions.

Trying to predict what's going to happen is hard, but if that did happen I would say that that those numbers would be a little tougher on the on the top line I don't think there's any question.

Right No Thats really helpful. And then as you kind of go back and I know thinking over what has happened the last really since call. It.

February do you feel like the commentary that you were that you were carrying from your end markets or customers that the consumer side will make it seem like it was a bit more of an economic slowdown in there and let's say we're already in a recession or was this just again.

That was going to eventually slow down and we're going to see normal business cycles.

I think a bunch of our customers got got stuck.

The customers might've been not all of them, but some of the customers about a little late to the game on slowing down our inventory production and once that happens I think we've been reading about inventories since early summer, but I think it might've been a little sooner than that that they were having problems and they just started to admit it.

Great absolutely well I'll leave it at that thank you so much.

We have the next question coming from the line of Scott Schneeberger of Oppenheimer. Your line is now open.

Good morning, it's Daniel on for Scott, Thanks for taking our questions here.

Curious on the other truck transportation line item, what have you been seeing recently across those categories and how we should think about that in the first quarter and maybe beyond. Please. Thank you and that other truck transportation power only and a lot of that was at substitute line haul business.

Drop in trucks, and they're pulling some of those other trail someone else's trailer that started softening up halfway through last year, and I would anticipate thats going to.

Like the drop off there was because it was so high before it really took off it was one of the fastest growers coming through the pandemic and I expect that actually the slowdown might be the one that slows down more than van or flatbed.

Just based on the business that we're doing within that category being the subsidy line haul, which really was consumer driven.

Thank you.

SG&A helpful color earlier, but how should we think about the cadence this year anything unusual.

Anything unusual in SG&A in 'twenty three.

Yes, as far as the cadence goes.

Yes.

The unusual would be kind of the mean reversion on the compensation on the variable programs.

To Jim's point earlier, there is still a little bit of sticky wage inflation benefits inflation.

<unk>.

Softness in the general.

Economy that could pressure the customer bad debt line, a little bit but that was all that was all scrubbed and part of the part of the guide earlier I think one of the areas too.

You Didnt mentioned other operating costs, which is really a smaller piece, but we're experiencing like 20%, 25% inflation on the trailer maintenance per trailer.

Yes.

Got it. Thank you thanks, so much.

We have the next question comes from the line of Jason Seidl of Cowen. Your line is now open hey.

Thank you operator, Hey, good morning, guys I wanted to circle back a little bit to Jack's question, but come at it a little bit different way.

If we just assume normal seasonality from here in <unk> and into <unk>.

How oversupplied the market right now are we 2% 3% is it more than that so in other words, how much capacity do you think needs to continue to come out of the marketplace from here to get us back to sort of equilibrium.

Well, that's a very hard question to answer.

I would say it's like <unk>.

You guys you guys are the experts.

I was going to say, it's oversupplied by $2 $2, 774%.

That's what I thought I was probably two points at 777, but you're now at.

And I'll, obviously, clearly it's oversupplied because when you look at the PT rates, we are paying the trucks in the fourth quarter was probably the lowest it's been and I think we look back 10 years. So there is clearly putting a percentage on that is hard to say how over how much more capacity I'm also a believer and a little bit of momentum too because people start getting scared when everybody starts putting up.

Rates are falling through the floor and the trucks get little scared. So they start cutting rates on their own just so they can get freight. So there is some momentum there too so I think theres, a little bit too much capacity.

Not enough demand and then the hey, I need to get a load because I'm scared right youre going to keep drop in mentality.

As to how many trucks that is so that's such a hard measurement for us to figure out are almost anybody.

We're still seeing the trucks charging us.

We're still getting pretty good rates of the trucks right now and typically it takes three to six months for that to tighten up so I would say that that's all I can give you is.

A period of time, where I think it tightens up as opposed to how many trucks are in the market how many excess trucks.

And it's kind of more of a feeling trends and trying to identify what's going on I mean, you can look into that.

The truck counts that are coming out of the governments and stuff like that and how many CDL licenses are out there but are they all driving.

It's just a very difficult question, but I would say that it was very loose in the fourth quarter looser than it has been in such a long time based on the rates, we're paying to the trucks and I would anticipate thats going to continue for a little while through the first quarter and then maybe swing up tighten up a little bit in the once we get through the second quarter.

That sounds good or are we seeing any impact from weather because you know we've been hearing stories about truckers getting stranded down south of all these big storms come through yes.

What happens is we will see a day like now that's going on in Texas like our dispatch loadings, probably were pretty low yesterday, because we went through our trucks on the relative it's like that but then the loans get the same load that they were waiting on they just pick them up today. So when you see youll see as very short term for us it doesn't affect the quarter so much.

What does affect the quarter, if youre running contract business and someone shut the plant and all of a sudden those 15 load that day. They didn't get produced so there is no.

You did lose freight but in our world, we don't actually lose the frame, it's really just moves to a different day.

Sounds fair gentlemen, I appreciate the time as always and if that's not true maybe I'll have.

If I'm wrong, there I'll use some weather excuses.

We ended the first quarter.

Yeah.

Ill look forward to.

Yes.

We have the next question coming from the line of Scott Group with Wolfe Research. Your line is now open.

Hey, guys. Thanks for the follow up so.

I'd go back and look at 19, where revenue was down 10, and SG&A was down.

<unk> explained to me again, just why do you think revenue could be down 20%, but SG&A up I'm just not following.

Why would SG&A be up.

I think well maybe I'll just look like the last time, we had a we had a big drop in revenue SG&A was down a lot. So.

Why would this year be so different yes, Scott So Scott I would tell you that the pre.

Pre pandemic the inflationary pressures, we are really isolated on the insurance line in the Tech line, whereas post pandemic.

We've got wage two years in a row of.

Pud your wage inflation the benefits inflation on that line is a little heavier and then I think 2019, the compound variable program snap to $4 million.

I'm sorry, it was very low and we've got some recent equity tranches that are based on lower base years.

'twenty for example, so we're not going to get as much of a shock will get softening, but we won't get as much of a softening on those lines 18 versus 19 in 'twenty two 'twenty three.

The other piece is not just SG&A.

I believe that the insurance line was $77 million and we're running 125 right now so there's $50 million of pressure right. There from 2019 into 2023.

As a big that's a big piece.

Jim I know you guys did the dividend I didn't see any buybacks, what's the thought on buyback this year.

Hi.

This year, we're going to continue to buy back it's our favorite thing to do here other than work.

But.

Our thing is we didn't buy back in the fourth quarter, because we watch the stock run up I think we ended the third quarter I think the stock is trading like $1 45, and we don't compete with buyers by the time, we by the time the window opened by the time, we got there and Dakota ran up to 160 170. So that's really why we didnt get in we're just waiting for it to settle.

If it stays in the range that it's at today.

And we see some stability in pricing and volumes over the next couple of months would be in.

Same thing, we'd be opportunistic stabilized see the stabilized price and see the market stabilize a little bit I think we're a little too early into the first quarter to determine whether we're going to see the stabilization in rates that we see currently.

Whether we're not confident in the volume trends, we got to get through February February is such a tough comp.

It was our best month last year, and so we're watching all those sites, but we haven't changed our thought process on buybacks, we favor them.

Okay, and then just last thing I may have missed some sort of comments you made about.

Profit profitability on contractual versus spot right now I haven't heard you talk about that way.

Expand on that because I think I missed it.

While we don't like most of the Blue is so small blue is doing most of the contract work, but it's pretty small so we don't really have much data on the comparisons there but with.

With us it's the profitability.

We don't really we don't really have a lot of contract dedicated freight out of the agent base at the core I mean, they run they run some of it but it's still even in our world. The contract rates are almost like spot rates right. If the shipper as if we're running something that looks like a contract run like lanes and rates start dropping the shipper comes back and dropped our rates. So we have contract.

Rates I, just don't hold so our whole world almost works on the spot world other than the little piece over at Blue.

I think the question was we're trying to figure out where our spot rates today as compared to contract rates.

And I don't think we had a very good answer because I don't think we know where they stand today, we get the data just like you get from people who publish it.

Okay. Thank you guys appreciate it.

At this time I am showing no further questions I would like to turn the call back over to you Sir for closing remarks. Thank.

Thank you before I sign off on 2022, I want to thank all of <unk> agents <unk> and employees for putting up another record year, but people in Landstar has unique network of agents capacity enterprise employees or what truly sets <unk> apart in our industry and enables the success. We all achieved together. Thank you and I look forward to speaking with you again on our 2023 first quarter earnings conference.

Call currently scheduled for April 27.

Have a good day.

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

Q4 2022 Landstar System Inc Earnings Call

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