Q3 2023 Landstar System Inc Earnings Call
Good morning, and welcome to Landstar system Incorporated's third quarter 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, Jim Todd Vice President and CFO, 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 good morning, and welcome to <unk> 2023 third quarter earnings Conference call before we begin let me read the following statement. The following is a safe Harbor statement under the private Securities Litigation Reform Act of 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 <unk>.
<unk> to <unk> business objectives plans strategies and expectations.
Such information is by nature subject to uncertainties and risks include but are not limited to the operational financial and legal risks detailed in last year's Form 10-K for the 2022 fiscal year described in the section risk factors and other SEC filings from time to time, these risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated investors should.
Not place undue reliance on such forward looking information and last our undertakes no obligation to publicly update or revise any forward looking information.
Throughout my remarks, I will make mention of the concept of normal seasonal patterns or normal trends for purposes of my remarks today normal seasonal patterns and normal trends referred to lift our sequential revenue load count pricing or other trends for monthly or quarterly periods from 2015 to 2019 and <unk>.
<unk> our historical results from 2000, 22021, and 2022 due to the highly unusual dynamics reflected in those metrics during the pandemic driven freight cycles.
Given the current freight environment with soft demand and readily available truck capacity last are performed relatively well into 2023 third quarter actual revenue and earnings per share. Both arrived within the ranges of the guidance we issued in our July 26 second quarter earnings release.
We provided revenue guidance of $1 $275 million to $1.325 billion and earnings per share guidance of $1 65 to $1 75 two.
2020.
2023 third quarter revenue was approximately $1 $290 million and earnings per share was $1 71.
Considering the narrative that the U S has been in a freight recession for several quarters. It is worth noting again that the 2023 performance continues to significantly outpace pre pandemic levels as 2023 third quarter revenue and earnings per share each exceeded the 2019 third quarter by over 25%.
Overall truck revenue was $1.174 billion into 2023 third quarter, 27% below the 2022 third quarter on a 16% decrease in load volume and a 12% decrease in revenue per load.
As we enter into 2023rd quarter, we were facing difficult year over year financial comparisons while truck revenue per load and the number of loads hauled via truck from the end of the 2023 second quarter two early July where both trending below normal seasonal patterns those.
Those trends continued through July with actual physical July truckload volume and revenue per load on loads hauled via truck below what would be expected based on normal seasonal patterns.
The below normal trend in the number of loads hauled via truck from June to July followed the pattern that start at the beginning of 2023 as almost every sequential month to month change in truckload count during 2023 has been below normal seasonal patterns due to the softening consumer demand and a slowing U S manufacturing sector.
In contrast sequential month to month revenue per truckload trends during 2023 had been very inconsistent through.
Through September sequential month to month trends have been below normal seasonal patterns for times equal once and better than normal seasonal patterns for times, including recently in July to August and August to September.
Let's start with normal seasonal patterns for truckload volumes have reflected an average sequential decrease of approximately 1% from the second quarter to the third quarter.
Given the softness in freight demand actual third quarter truckload volume for the 2023 third quarter was almost 6% below the 2023 second quarter in line with our guidance, but well below normal seasonal patterns.
Moreover, the changes in truckload volume from June to July July to August in August or September were each below normal seasonal trends.
Unknown Executive: Good morning and welcome to Landstar System Inc. 3rd quarter earnings release conference call. All lines will be in a listen only mode until the formal question and answer session.
From a longer term historical perspective, how our truckload volume in the 2023rd quarter was still Landstar third best all time third quarter truckload count behind only the consecutive third quarter record set in Independencia impacted years of 2021 and 2022.
Unknown Executive: Today's calls being recorded if you have any objections, you may disconnect at this time. Joining us today from Landstar are Jim Gattoni, President and CEO, Jim Todd, Vice President and CEO, Joe Beacom, Vice President Chief Safety and Operations Officer.
The inconsistency in truckload pricing month to month, there's been very atypical from a seasonal perspective.
James Gattoni: Now, I would like to turn the call over to Mr. Jim Gattoni, sir, you may begin. Thank you. Good morning and welcome to Landstar's 2023 3rd quarter earnings conference call.
<unk> is making it difficult to project spot pricing even in the near term.
As it relates to month to month revenue per truckload trends during the quarter from June to July the change in revenue per truckload was below normal seasonal patterns.
James Gattoni: Before we begin, let me read the following statement. The following is a safe harbor statement under the private security litigation reform act of 1995. Statements made during this conference call, they are not based on historic facts or forward looking statements. During this conference call, we may make statements that contain forward looking information that relates to Landstar's business objectives, plans, strategies and expectations. Such information is by nature subject to uncertainties and risks, including but not limited to the operations.
Yes, as I mentioned earlier the change in revenue per truckload from June from July to August in August or September were both better than normal trends.
James Gattoni: Financial and legal risk detailed in Landstar's form 10k for the 2022 fiscal year described in the section risk factors and other SSC violence from time to time. These risks uncertainties could cause actual results or events that differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward looking information and Landstar undertakes no obligation to publicly update or revise any forward looking information. Throughout my remarks, I will make mention of the concept of normal seasonal patterns or normal trends.
At the breakdown as to the breakdown of truck transportation driven by equipment type outside of the platform equipment held up comparatively better than revenue generally.
Van equipment and other truck transportation services.
Over prior year quarter revenue comparisons for van are much more challenging that for revenue hauled on onsite platform equipment, especially as it pertains to revenue per load the pandemic driven spike in consumer demand drove van revenue per load from its trough in may of 2020 to its peak in February 2022 up 76%, while revenue per load on side of it.
Equipment increased 54% from its low point in May of 2020 to its peak in July 2022.
James Gattoni: For purposes of my remarks today, normal seasonal patterns and normal trends refer to Landstar's sequential revenue, load count pricing or other trends for monthly or quarterly periods from 2015 to 2019. And excludes our historical results from 2020, 2021 and 2022 due to the highly unusual dynamics reflected in those metrics during the pandemic driven trends. Given the current freight environment with soft demand and readily available truck capacity, Landstar performed relatively well in the 2023-3rd quarter.
Based on industry data from <unk>, the cost to operate a truck excluding fuel costs in fiscal year 2022 was approximately 20% greater than in 2019 during which we also experienced a relatively soft freight environment.
<unk> revenue per mile, which excludes fuel surcharges on van equipment on site equipment in September 2023 were 23% and 22% respectively above September 2019.
As I mentioned during our second quarter earnings Conference call held on July 27, looking forward I expect a little room for spot market decreases due to these cost pressures.
James Gattoni: Actual revenue and earnings per share both arrived within the ranges of the guidance we issued in our July 26 second quarter earnings release. We provided revenue guidance of $1,275,000 to $1,325,000 and earnings per share guidance with $1,65 to $1,75. 2020-23-3rd quarter revenue was approximately $1,290 million and earnings per share was $1,71. Considering the narrative that the US has been in a freight recession for several quarters, it is worth noting, again, that 2023 performance continues to significantly outpace pre-pandemic levels.
That expectation has held true as revenue per mile on <unk> and on side of the platform equipment held relatively stable over the summer and through the end of September.
I believe that rates in the spot market will stay relatively higher than the pre pandemic levels given the significant amount of additional cost to operate a truck today.
Our rail air and Ocean services in the 2023 third quarter were 54% or $103 million below the 2022 third quarter. The significant decrease in non truck transportation revenue was in line with our expectations of lower volumes across all non truck modes, and the expectation of a significant decrease in ocean revenue per shipment.
James Gattoni: At 2023-3rd quarter revenue and earnings per share each exceeded the 2019-3rd quarter by over 25%. Overall truck revenue was $1,174 million in the 2023-3rd quarter, 27% below the 2022-3rd quarter, on a 16% decrease in load volume and a 12% decrease in revenue per load. As we entered the 2023-3rd quarter, we were facing difficult year-over-year financial comparisons, while truck revenue per load and a number of loads hauled via truck from the end of the 2023-2nd quarter to early July were both trending below normal seasonal patterns.
Total loadings in the 2023 third quarter was 17% below the 2022 third quarter. The same percentage decrease we experienced when comparing the 2023 second quarter to the 2022 second quarter, although on an easier year over year comparison.
Total loan volume is somewhat influenced by customer mix. For example, last night provides truck capacity to other trucking companies three pls and truck brokers, where volumes tend to vary even more widely period to period with changes in the levels of freight demand.
James Gattoni: Those trends continued through July with actual physical July truck load volume and revenue per load on loads hauled via truck below what would be expected based on normal seasonal patterns. The below normal trend in the number of lows hauled via truck from June to July followed the pattern that started at the beginning of 2023 as almost every sequential month of month change in truck load count during 2023 has been below normal seasonal patterns due to the softening consumer demand and a slowing US manufacturing sector.
Revenue hauled on behalf of other truck transportation companies was 15% and 18% of transportation revenue in the 2023 and 2022 third quarters respectively.
During periods of tight truck capacity other trucking companies three pls on truck brokers reach out the landstar to provide truck capacity more often than during times of more readily available truck capacity.
The freight hauled by last on behalf of other truck transportation companies includes almost all of our commodity groupings overall, the number of loads hauled on behalf of other truck transportation companies in the 2023 third quarter was 28% below the 2022 third quarter contributing significantly to the 17% decrease in quarter over prior year quarter network volume.
James Gattoni: In contrast, sequential month to month revenue per truck load trends during 2023 have been very inconsistent. Through September, sequential month to month trends have been below normal seasonal patterns four times equal once and better than normal seasonal patterns four times, including recently in July to August and August to September. Let us ask normal seasonal patterns for truck load volumes have reflected an average sequential decrease of approximately 1% from the second quarter to the third quarter.
During the quarter Bcf truck count decreased by 295 trucks overall PCL truck count has decreased approximately 12% since the end of the 2022 third quarter.
There's a lot there does not seem to be on the unusual factors driving the recent reduction in diesel truck count 12 month Rolling average turnover at the end of 2023rd quarter was 39%, which is slightly higher than the 36% turnover rate landstar experienced in 2019 during the most recent relatively comparable soft freight environment.
James Gattoni: Given the softening of freight demand, actual third quarter truck load volume for the 2023 third quarter was almost 6% below the 2023 second quarter. Inline with our guidance, but well below normal seasonal patterns. Moreover, the change in truck load volume from June to July July to August and August to September were each below normal seasonal trends. From a longer term historical perspective, however, truck load volume in the 2023 third quarter was still Lancaster's third best all time third quarter truck load count behind only the consecutive third quarter record set in the pandemic impact of the years of 2021 and 2022.
I believe the increase in turnover rate compared to the comparable 2019 period was due to the significance of the decrease in rates and the increased cost to operate a truck today as compared to pre pandemic periods.
I will now pass to Jim Todd to comment on other additional P&L metrics regarding the 2023 third quarter performance.
Jim.
Jim <unk> cover certain information on our 2023 third quarter. So I will cover various other third quarter financial information included in the press release and.
In the 2023 third quarter gross profit was $128 1 million compared to gross profit of $185 7 million to 222 third quarter gross profit was nine 9% of revenue in 2023 third quarter as compared to gross profit margin of 10, 2% in the corresponding period of 2022.
James Gattoni: The inconsistency in truck load pricing month to month has been very atypical from a seasonal perspective perspective, making it difficult to project spot pricing even in the near term. As it relates to month to month revenue per truck load trends during the quarter from June to July to change in revenue per truck load was below normal seasonal patterns. Yet as I mentioned earlier, the change in revenue per truck load from June from July to August and August to September were both better than normal trends.
2023 third quarter variable contribution was $187 4 million compared to 245.
$245 7 million in 2022 third quarter.
Variable contribution margin was 14, 5% of revenue in the 2023 third quarter compared to 13, 5% in the same period last year. The increase in variable contribution margin compared to the 2022 third quarter was primarily attributable to one mix and an increased percentage of revenue was generated by <unk> independent contractors.
James Gattoni: At the breakdown, after the breakdown of truck transportation over by equipment type, unsighted platform equipment held up comparatively better than revenue January via van equipment and other truck transportation services. The quarter over prior year quarter revenue comparisons for Van are much more challenging that for revenue hauled on unsighted platform equipment, especially as it pertains to revenue per load. The pandemic driven spike and consumer demand drove van revenue per load from its trough in May of 2020 to its peak in February 2022 up 76%.
Which typically has a higher variable contribution margin and revenue generated by other modes of transportation and to an increased variable contribution margin on revenue generated by truck brokerage carriers as the rate paid to truck brokerage carriers through 2023 third quarter was 95 basis points lower than the rate paid in the 2022 third quarter.
James Gattoni: While revenue per load on unsighted equipment increased 54% from its low point in May of 2020 to its peak in July 2022. Based on the industry data from Atre, the cost to operate a truck excluding fuel costs in fiscal year 2022 is approximately 20% greater than in 2019, during which we also experience a relatively software environment. BCO revenue per mile, which excludes few surcharges on van equipment and unsighted equipment in September 2023, were 23% and 22% respectively above September 2019.
Other operating costs were $52 million in the 2023 third quarter compared to $13 4 million. In 2022. This increase was primarily due to increased trailing equipment maintenance costs and an increased provision for contractor bad debt, partially offset by increased gains on sale of used trailing equipment.
Insurance and claims costs were $29 $5 million in 2023 third quarter compared to $31 4 million in 2022, the decrease in insurance and claim costs as compared to 2022 was primarily attributed attributable to a decreased severity of accidents. During the 2023 period and a decrease in desio miles traveled.
James Gattoni: As I mentioned during our second quarter earnings conference called held on July 27, looking forward to expect little room for spot market decreases due to these cost pressures. That expectation has held true as revenue per mile on BCO van and unsighted platform equipment held relatively stable over the summer and through the end of September. I believe that rates in the spot market will stay relatively higher than the pre-pandemic levels given the significant amount of additional cost to operate a truck, today.
And the 2023 period, partially offset by increased cargo claim costs. However, total insurance and claims costs were five 8% of <unk> revenue in the 2023 period and 5% of <unk> revenue in the 2022 period. The 80 basis point increase in insurance and claims cost as a percentage of <unk> revenue was almost entirely attributable.
James Gattoni: Our real air and ocean services in the 2023 quarter were 54% or $103 million below the 2022 third quarter. The significant decrease in non-truck translation revenue was in line with our expectations of lower volumes across all non-truck modes, and the expectation of a significant decrease in ocean revenue per shipment. Total loadings in the 2023 third quarter were 17% below the 2022 third quarter. The same percentage decrease we experienced when comparing the 2023 second quarter to the 2022 second quarter, although on an easier year over your comparison.
To the 10% decrease in <unk> revenue per loan.
Selling general and administrative costs were $51 million for the 2023 third quarter compared to $53 5 million in 2022, the decrease in selling general and administrative costs was primarily attributable to a decreased provision for compensation under the company's equity and cash incentive programs, partially offset by increased information technology costs.
And increased employee benefit costs.
223 third quarter, the provision for compensation under variable programs was $1 3 million compared to $8 1 million in 2022 third quarter.
James Gattoni: Total load volume is somewhat influenced by customer mix. For example, Landstar provides truck capacity to other trucking companies, three PLs, and truck brokers, where volumes tend to vary more widely, period to period, which changes in the levels of free demand. Revenue hauled on behalf of other truck translation companies was 15% and 18% of transportation revenue in the 2023 and 2023 third quarters respectively. During periods of tight truck capacity, other trucking companies, three PLs, and truck brokers reach out to Landstar to provide truck capacity more often than during times of more readily available truck capacity.
Depreciation and amortization was $14 $4 million in the 2023 third quarter compared to $14 6 million in 2020 to.
This decrease was due to decreased depreciation on the company's trailer fleet, partially offset by 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 was 24, 3% in both the 2023 and 2022 third quarters.
James Gattoni: The free hauled by Landstar on behalf of other truck translation companies includes almost all of our commodity groups. Overall, the number of loads sold on behalf of other truck translation companies in the 2023 third quarter was 28% below the 2022 third quarter, contributing significantly to the 17% decrease in quarter over prior year quarter network volume. During the quarter, BCO truck down decreased by 295 trucks. Overall, BCO truck count has decreased approximately 12% since the end of the 2022 third quarter.
Our balance sheet, we ended the quarter with cash and short term investments of $497 million.
Cash flow from operations for the first nine months of 2023 was $304 million in cash capital expenditures were $50 million back to you Jim.
Thanks, Jim.
We don't expect much change the overall freight economy in the 2023 fourth quarter compared to what we've experienced thus far throughout 2023, we also anticipate a muted peak season this year.
Overall demand for freight transportation and expect to remain relatively soft for the remainder of 2023, continuing to drive truckload volumes significantly lower compared to 2021 and 2022 direct.
James Gattoni: There's not seen to be unusual factors driving the recent reduction in BCO truck count. 12 month rolling average turnover at the end of the 2023 third quarter was 39%, which is slightly higher than the 36% turnover rate and Landstar experience in 2019 during the most recent relatively comparable soft rate environment. I believe the increase in turnover rate compared to the comparable 2019 period was due to the significance of the decrease in rates and the increased cost to operate a truck today as compared to pre-pandemic periods.
Directionally it is difficult to forecast truckload volume levels beyond the next few months as future economic conditions are very unpredictable.
Yesterday earnings release made note that early October truckload cat was trading below historical sequentially monthly patterns.
Given the lower starting truckload volume, we had experienced at the beginning of the fourth quarter, we expect truckload volume from the 2023 third quarter to the 2023 fourth quarter to trend below normal seasonal patterns.
James Todd: I will now pass the gym time to comment on other additional P&O metrics for running the 2023 third quarter performance. Next, Jim. Jim G has covered certain information on our 2023 third quarter, so I will cover various other third quarter financial information included in the press release. In the 2023 third quarter, gross profit was 128.1 million compared to gross profit of 185.7 million in the 2022 third quarter. Gross profit was 9.9% of revenue in 2023 third quarter as compared to gross profit margin of 10.2% in the corresponding period of 2022.
Additionally, due to how our physical.
Your calendar works for 2023 fourth quarter has one less operating week than the 2020 to fourth quarter.
Given we expect to remain below normal quarter to quarter seasonal trends truckload count at 2023 fourth quarters are forecast to be 20% to 22% below the 2022 fourth quarter.
Excluding the extra week of operations from the 2022 fourth quarter truckload count the decrease in truckload volume in the 2023 fourth quarter compared to the 2022 fourth quarter is expected to be similar to slightly worse than our performance in the 2023 third quarter compared to the 2022 third quarter.
James Todd: In 2023 third quarter, variable contribution was 187.4 million compared to 245.7 million in 2022 third quarter. Variable contribution margin was 14.5% of revenue in 2023 third quarter compared to 13.5% in the same period last year. The increase in variable contribution margin compared to the 2022 third quarter was primarily attributable to one myth as an increased percentage of revenue was generated by BCO independent contractors which typically has a higher variable contribution margin than revenue generated by other modes of transportation and two, an increased variable contribution margin on revenue generated by truck Research Carriers, as of the rate paid to truck brokerage carriers in the 2023-3rd quarter was 95 basis points lower than the rate paid in the 2022-3rd quarter.
We expect 2023 fourth quarter truckload pricing to be 6% to 8% below the 2022 fourth quarter seasonally in line to slightly ahead of normal seasonal patterns. We also expect revenue from our non truck most be similar to that of the 2023 third quarter.
Based on the assumptions mentioned, we expect revenue in 2023 fourth quarter will be in a range of $1 $225 million to $1 billion $275 million and earnings per share to be in a range of $1 60 to $1 70.
Turning to fourth quarter guidance incorporates a variable contribution margin of 14, 5% to 14, 7% and insurance and claim cost of approximately five 5% of <unk> revenue.
And with that we will open up to questions.
James Todd: Other operating costs were $50.2 million in the 2023-3rd quarter compared to $13.4 million in 2022. This increase was primarily due to increased trailing equipment maintenance costs and an increased provision for contractor bad debt, partially offset by increased gains on sale of used trailing equipment. Insurance and claims costs were $29.2 million in the 2023-3rd quarter compared to $31.4 million in 2022. The decrease in insurance and claim costs as compared to 2022 was primarily attributable to a decreased severity of accidents during the 2023 period and a decrease in BCO miles traveled in the 2023 period, partially offset by increased cargo claim costs.
Thank you very much Sir at this time, we will begin the question and answer session I would like to ask a question you May press star on your touched on telecom.
Two accounts here once again that is star one to ask a question to counts her request. Please press star two.
And we have the first question coming from the line of Scott Group Wolfe Research. Your line is now open.
Hey, Thanks, Good morning, So I wanted to try and understand the volume.
Situation, a little bit better if you look at your guidance for Q4 volumes are going to be about 10% lower than they were in Q1, you go back historically, they typically grow I don't know, 5%, 10% or something from the beginning to the end of the year, what it's hard to sort of understand is this just.
James Todd: However, total insurance and claims costs were 5.8% of BCO revenue in the 2023 period, and 5% of BCO revenue in the 2022 period. The 80 basis point increase in insurance and claims costs as a percentage of BCO revenue was almost entirely attributable to the 10% decrease in BCO revenue per loan. Selling general and administrative costs were $51 million in the 2023-3rd quarter compared to $53.5 million in 2022. The decrease in selling general and administrative costs was primarily attributable to a decreased provision for compensation under the company's equity and cash incentive.
The freight environment.
Is there something about your model with the Bcl count that keeps borrowing so sharply is this is it auto strike.
What do you think is really causing such a continued underperformance at seasonality on volume.
The only thing I would touch on as it relates to our model is the variability in the volume we haul for other three pls and trucking companies as I described in my remarks, when capacity is really tight and it's hard to find truck capacity of our agents are very good at putting trucks on loads and so the other three pls and the other.
James Todd: Partially offset by increased information technology costs and increased employee benefit costs. In the 2023-3rd quarter, the provision for compensation under variable programs was $1.3 million compared to $8.1 million in the 2022-3rd quarter. Depreciation and amortization was $14.4 million in the 2023-3rd quarter compared to $14.6 million in 2022. This decrease was due to decreased depreciation on the company's trailer fleet. Partially offset by increased depreciation on software applications resulting from continued investment and new and upgraded tools for used by agents in capacity. The effective income tax rate was 24.3% in both the 2023 and 2022-3rd quarters.
Brokers and trucking companies reach out to us more frequently in a tight environment. They do so that would be a model differentiator other than that it's just the environment I just when you look at what's going on in manufacturing.
In the U S. It's been soft all year since March it's been negative. So I just don't think the demand is there, but I don't think it's anything specific to the model at this point I would also say come into October.
So I had mentioned that <unk> sequential trend from September to October is actually below normal seasonal as it relates to truckload volume part of that clearly is due to some of the automotive plants shutting down but thats not entirely it is contributing to that seasonal.
James Gattoni: Looking at our balance sheet, we ended the quarter with cash and short term investments of $497 million. Cash flow from operations for the first nine months of 2023 was $304 million and cash capital expenditures were $15 million. Back to you Jim. Thanks Jim. We don't expect much to change the overall freight economy in the 2023-4th quarter compared to what we've experienced us for throughout 2023. We also anticipate a muted peak season this year.
Underperformance from September to October, but other than that it's just it's feels pretty much economic on the demand side.
Okay, and then I know, it's probably hard to.
Predict but what do you think you have a shot for.
James Gattoni: Overall, demand for freight transportation to expect to remain relatively soft for the remainder of 2023. Continuing to drive truckload volume significantly lower compared to 2021 and 2022. Directionally, it is difficult to forecast truckload volume levels beyond the next few months as future economic conditions are very unpredictable. Yesterday earnings release made note that early October truckload cap was trending below historical sequentially monthly patterns. Given the lower start in truckload volume, we had experience at the beginning of the fourth quarter.
Revenue per load to start inflicting higher year over year do you think.
Would you expect that rates and earnings could grow in 2024 is that.
Too hard to know.
Are you thinking about that.
But you look at the spread what could drive if demand doesn't pick up the only thing that's going to drive rates as the spread between contract and spot rates right, but right now the gap looks like it's maybe 40.
James Gattoni: We expect truckload volume from the 2023-3rd quarter to the 2023-4th quarter to trend below normal seasonal patterns. Additionally, due to how our physical year calendar works, the 2023-4th quarter has one less operating week than the 2022-4th quarter. Carter. Given we expect to remain below normal quarter, the quarter seasonal trends, truckload count of 2023, fourth quarter is forecast to be 20% to 22% below the 2022, fourth quarter. Excluding the after a week of operations from the 2022, fourth quarter, truckload count, the decrease in truckload volume of the 2023, fourth quarter, compared to the 2022, fourth quarter is expected to be similar to slightly worse than our performance in the 2023, third quarter, compared to the 2020, fourth quarter.
Between contracts being higher than spot so in our world since we're heavy spot eventually that kind of transitions and the shippers start taken advantage of the spot market discount to contract rates haven't really seen much of that happened yet.
And if you look at the year that gap has tightened a little bit but not as I was.
As much as I would expect so.
We've been sitting on this gap for like eight months.
It's kind of hard to predict when that when that will turn assuming demand stays relatively flat, it's going to turn.
Where the shippers start coming back into the spot market to get a little bit of a discount.
I don't see that happen, we haven't seen that happen yet, but the expectation is that as part of the normal cycle. My prediction now sitting here is I think in the second quarter I said we.
James Gattoni: We expect 2023, fourth quarter truckload pricing to be 6% to 8% below the 2022, fourth quarter, seasonally in line to slightly ahead of normal seasonal patterns. We also expect revenue from our non-truck most be similar to that of the 2023, third quarter. Based on the assumptions mentioned, we expect revenue to 2023, fourth quarter to be in a range of $1,225,1,275 million dollars, and it's for sure to be in a range of $1,60 to $1,70. The 2023, fourth quarter guidance incorporates the variable counter-busion margin of 14.5% to 14.7%, and insurance and claim cost to approximate 5.5% of forecast and BCO revenue.
Hoping for.
Fourth quarter early 2024, maybe inflection of that gap.
I am a little more pessimistic today I look at it may be that our cycle might be instead of on the short end of the six quarter cycle more to the to the eight which is puts us in the summer next year.
And just just for just one quick thing to clarify that's 40 gap with contract so above spot what's normal in your mind.
Or you think there is further risk to contract from here.
I think thats, a very large number the $42.
Two dollar revenue per mile. So.
Unknown Executive: And with that, we will open the two questions. Thank you very much.
To be honest with them a little surprised that that gap is holding as large as it is maybe it's because shippers are scared to start playing in the spot market. They like the consistency of the contract rates and the contract rates. The other thing that looks good on a shipper's mine the contract rates have been coming down at the same time, so they're looking at their history thinking hey, I'm getting a better deal today than it was 12 months.
Unknown Executive: Sir, at this time, we will begin the question and answer session. If you would like to ask the question, you may press bar on your touchtone telephone. Once again, that is our one to ask the question. To answer request, please press bar to you.
Unknown Attendee: And we have the first question coming from the line of cut grip of all free search.
So you might be hesitate to take a little longer to make the shift back into contracts, which to me might delay. This is why I think it might be delayed a little longer I'm a true believer in cycles, it's going to cycle back and Scott I, just just on the win.
James Gattoni: Your line is not open. Hey, thanks. Good morning. So I want to try and understand the volume situation a little bit better. If you look, your guidance for Q4 volumes are going to be about 10% lower than they were in Q1. And you go back historically, they typically grow, I don't know if 5%, 10% or something from the beginning to the end of the year. What's, it's hard to sort of understand, is this just the freight environment?
James Gattoni: Is this something about your model with the BCO count that keeps falling so sharply? Is this, is it the auto strike? What do you think is really causing such a continued underperformance of seasonality on volume? The only thing I would touch on as it relates to our model is the variability in the volume we haul for other 3PLs and truck companies. As I described in my remarks, when capacity is really tight and it's hard to find truck capacity, our age is a very good at putting trucks on loads.
Right now I'm going to say, it's going to be more towards the end of the typical.
Peak to trough cycle trough to peak is going to be more of the eight quarters right now as opposed to in the short line we're at six.
Six quarters.
Makes sense. Thank you for the thoughts Jim appreciate it yes.
Thank you we have the next question coming from the line Jason Seidl Cowen. Your line is now open.
Robert Good morning, Jim and team.
Jim going back to that 40% gap between contract and spot.
You said, it's held in there for about eight months.
The last time, you've seen that something called that long on a cycle.
James Gattoni: And so the other 3PLs and the other brokers and truck companies reach out to us more frequently in a tight environment they do. So that would be a model differentiator. Other than that, it's just the environment. I just, when you look at what's going on manufacturing in the US, it's been soft all year since March, it's been negative. So I just don't think the demand is there, but I don't think it's anything specific to the model at this point.
Yeah.
Don't think eight months is that unusual I think the fact that we're not seeing it move directionally much is more of that as more of the indication.
When you think about it if the spot versus contracts tight theres not that far apart and shippers are sitting on a 12 month contracts that could last all 12 months right before they jump on the spot market or even if they do.
So I don't have a good historical perspective, because this is a little.
<unk>.
To me it seems like there is a larger gap than we've had historically.
As I'll say I'm, a little surprised that.
That it hasn't pulled back like clearly 2019, there was a gap.
James Gattoni: I would also say come into October. We have, so I mentioned that our sequential trend from September to October is actually below normal season as it relates to truck load volume. Part of that clearly is due to some of the automotive plants shutting down, but that's not entirely it. It's contributing to that seasonal underperformance from September. But other than that, it's just, it feels pretty much economic on the demand.
But then.
That was disrupted by the pandemic does that cycle was kind of disrupted by the pandemic. So it was a shorter term.
So it's hard to look back and you look back at 2017 right. When we had the massive run up because these were getting implemented at the same time industrial production was cleaning up so that disrupted that cycle. So there's been a lot of disruptions in the cycles that when I look back five or six years.
So it's really hard to look at that as a trend.
James Gattoni: And then I know it's probably hard to predict. But when do you think you have a shot for revenue per load to start inflecting higher year over year? Do you think would you expect that rates and earnings could grow in 2024? Is that too hard to know anything and about that? Well, you look at the spread. You know, we could drive if demand doesn't pick up the only thing that's going to drive rates is the spread between contract and spot rates, right?
Alright that makes sense.
Talked a little bit about.
In terms of pricing in the fourth quarter expectations, a little bit above normal seasonality I think was your was your line.
With a muted peak season and in auto strike. So should we conclude that you're finally, starting to see a little bit of capacity coming out of the marketplace.
It's hard for us to measure the capacity to come out of the marketplace. We read kind of what you read about bankruptcies.
And truck companies shutting down what we arent seeing is.
James Gattoni: But right now the gap looks like it's maybe 40 cents between contracts being hired in spot. So in our world, since we're heavy spot, eventually, that kind of transitions and the shippers start taking advantage of the of the spot market discount to contract rate. Haven't really seen much of that happen yet. And if you look at the year that gap has, it's tight in a little bit, but not as I was as much as I would expect.
<unk>.
Load acceptance rates dropping we're not seeing that some of the stats. We're looking at it doesn't show that a significant amount of capacity is coming out of the market yet.
But we are hearing about the capacity coming out.
Just look at our look at our <unk> count being down 39%.
Because things are more expensive clearly there is capacity coming out right now, but I just don't believe that it has had a significant impact on the supply demand equation to start turning turning the needle on that metric supply and demand now that makes sense and level of them and the level of about available capacity.
James Gattoni: So we've been sitting on this gap for like eight months. It's kind of hard to predict when that when that'll turn assuming demand stays relatively flat. It's going to turn where the shippers start coming back into the spot market to get a little bit of a discount. But, you know, I can't, I don't see that happen. We haven't seen that happen yet. But the expectation is that's part of the normal cycle.
Anil one here as Youre talking about your expectations are now pushed out to the summer of 2024 to see any type of inflection.
So should we assume that the inflection on yearend will come first on the on the dry van side of it. It may be followed by your platform or do you think they are going to sort of roll together.
James Gattoni: My prediction now sitting here is I think in a second quarter, I said, we, you know, hoping for a late fourth quarter early 2024 maybe in flexion of that gap. I'm a little more pessimistic today. I'm looking at maybe the our cycle might be instead of on the short end of the sixth quarter cycle more to the eight, which is puts us in the summer next year.
Two completely different dynamics right. One is gets more consumer driven and one is more.
Manufacturing U S types of machinery and stuff like that.
I would say that my expectation really would be the the consumer side.
James Gattoni: And just just for just one quick thing to clarify, that 40 cent gap with contract still above spot. What what's normal in your mind? And just do you think there's further risk to contract from here? I think that's a very large number, the 40 cents on a $2.00 revenue per mile. So, you know, I have to be honest with you, I'm a little surprised that that gap is holding as large as it is.
Theres more volume there, there's a heck of a lot more volume within the U S. On the van side than consumer can drive that up or down in a lot of the capacity that comes out of the market has been capacity. The flatbed guys kind of chug, along they're used to having ups and downs in spikes in the environment. So I would say that I think I'd be watching it more on the van side. The other thing too is about.
The flatbed side.
Relatively inconsistent whether we're doing heavy haul.
What we're doing regular flatbed the industry has a lot more diverse as it is that lumber is it.
James Gattoni: Maybe it's because shippers are scared to start playing in the spot market. They like the consistency of the contract rates. And the contract rate, the other thing that looks going in a shipper's mind, the contract rates have been coming down at the same time. So they're looking at their history thinking, you know, hey, I'm getting a better deal today. And it was 12 months ago. So you might be hesitant to take a little longer to make the shift back in a contract, which to me might delay this is why I think it might be delayed a little longer.
And what kind of what end markets are you delivering on the flatbed side as opposed to the consumer so that actually travel is a little bit different than van van has got a little more consistency in our cycle.
Jim I appreciate the time as always.
Thank you we have the next question coming from the line of Jack Atkins from Stephens. Your line is now open.
James Gattoni: I'm a true believer in cycles. It's going to cycle back. And Scott, I just I just don't know when. Right now, I'm going to say it's going to be more toward the end of the typical peak to drop cycles, drop the peak is going to be more of the eight quarters right now, as opposed to in the short line where it's six six quarters. Makes sense.
Okay, great. Good morning, guys. Thanks for taking my questions.
So I guess, Jim I wanted to go back to the guidance for a minute just so we've got a clear understanding of it I mean, if I, if I understand what youre, saying correctly. The thought is that we're going to have sub seasonal volume performance.
Unknown Attendee: Thank you for the thoughts, Jim. Appreciate it. Yeah. Thank you.
The fourth quarter, I think you know fairly significantly sub seasonal but the revenue per load trends are kind of more in line with normal seasonality.
Unknown Attendee: We have the next question coming from the end. Jason Sadler, Oktiddy Colin. Your line is not open. Hey, thank you, Robert. Good morning, Jim and team. Jim going back to that 40 cent gap between contract and spot. You said it's held in there for about eight months. One of the last time you've seen that something hold that long on a cycle. I don't think eight months is that unusual. I think the fact that we're not seeing it move directionally much is more of the is more of the indication.
I guess with so much of the fourth quarter typical quote unquote seasonality waited till later in the quarter if volumes for that sub seasonal wouldn't revenue per load to be sub seasonal or is there do you think we're kind of decoupling at this point based on the earlier commentary around contract versus spot.
Unknown Attendee: I mean, when you think about it, if the spot was contracts tight, there's not that far apart and shippers are sitting on 12 months contracts, that could last all 12 months right before they jump in a spot marker or even if they do. So I don't have a good historical perspective because this is it's a little. To me, it seems like there's a larger gap than we've had historically. And again, as I'll say, I'm a little surprised that it hasn't pulled back like clearly 2019, there was a gap.
All based on what's jumping out from third quarter into October we're seeing.
Relatively.
A little more favorable as the first three weeks of October. So we're just carrying that forward and if so if you take that October number where we think October is coming out yet trend it seasonally the quarter will be over will be sequentially better than expected right. So it's really because we're we're starting at a higher jump off point heading into the quarter. Okay.
That's how we got there okay alright.
Got that makes it makes it makes sense.
Maybe just a quick follow up on the guide for a moment, but in terms of like.
Jim Todd maybe this is for you, but can you maybe give us a thought on <unk> G&A and maybe.
Unknown Attendee: But then, you know, that was disrupted by the pandemic. That cycle was kind of disrupted by the pandemic. So it was a shorter term where the, you know, so it's hard to look back to that. And you look back at 2017, right? When we had the mass of ELD, you know, the run up because these were getting implemented at the same time. Industrial production was clean enough. So that disrupted that cycle.
The gross margin or net revenue margin that youre, assuming in the fourth quarter just within the guide.
So given the step down at the midpoint for revenue, we're looking at $45 to $40 seven on VC and the majority of the good Guy there is assumed mix on the G&A side.
Pretty consistent.
Unknown Attendee: So there's been a lot of disruptions in the cycles. When I look back five or six years, you know, and so it's really hard to look at that as a trend. That makes sense. And you talked a little bit about, you know, in terms of pricing in the fourth quarter expectations, a little bit above normal season. I think was your line.
Of course insurance being where.
Utilizing five 5% there for the guide versus a five eight actual in the third quarter, but your other lines are fairly fairly stable sequentially up okay, great and I guess I guess, maybe just my last question here.
On a more bigger picture, but you guys are the first.
James Gattoni: You know, with a muted peak season and an auto strike, so should we conclude that you're finally starting to see a little bit of capacity coming out of the marketplace? You know, it's hard for us to measure the capacity to come out of the marketplace. We read kind of what you read about backup season and truck companies shutting down. What we aren't seeing is. You know, low acceptance rates dropping when I see in that, you know, some of the stats we're looking at it doesn't show that a significant amount of capacity is coming out of the market yet.
What I would call either truck broker or logistics provider to report so far and we've had a lot of news here in the last couple of weeks around some of your.
Hi, firing competitors facing some financial difficulties one of which is closed.
I guess, Jim could Tony I'd Love to get your thoughts on maybe how you're seeing longer term.
Oscar within the brokerage market, maybe evolving gear with higher interest rates and <unk>.
Higher cost of capital how do you think thats going to affect the competitive landscape longer term not shorter term but longer term.
James Gattoni: But we are hearing about the capacity coming out and just and just look at our look at our BCO count right being down 39%. Yeah, because things are more expensive. Clearly there's capacity coming out right now, but I just don't believe that it's had a significant impact on the supply demand equation to start turning turning the needle on that metric supply and demand. Yeah, that makes sense. Yeah, and the level of about the capacity.
As a light asset business model that I believe one on ones you were talking about was a light asset business model at the Charlotte stores or at least temporarily shut its doors.
Yes cost of capital for US is really how it affects the interest rates released has affected demand and the economy more than effects.
US our financial results right. So we look at it more that way and where we think that's going to take the economy and the brokerage model the digital freight matching of the digital freight brokers.
James Gattoni: My final one here is, you know, you're talking about your expectation and now pushed out to the summer of 2024 to see any type of inflection. So should we assume that the inflection on your end will come first on the on the drive inside of them, maybe followed by your platform or you think they're going to sort of roll together. Well, two completely different dynamics, right? One is consumer driven, one is more manufacturing, US types, the machinery stuff like that.
Looked like tools, we're working it's just I don't know what happened to the business model in that one scenario where they closed.
Did see a couple of we got a couple of loads from.
When they shut the doors there were some freight coming over I'm not sure that's going to be long term.
For us we didn't build anything into the fourth quarter, but long term on brokerage.
James Gattoni: So I would say that my expectation really would be the consumer side. There's more volume there. There's there's a heck of a lot more volume within the US on the van side consumer can drive that up or down. And a lot of the capacity comes out of the market is van capacity. The flappy guys kind of travel long. There's used to having up some downs and spikes in the environment. So I would say that.
It's just the service isn't going to change.
The shippers are looking for high quality service on time delivery like we've been preaching for the last five or seven years.
I've always said that anybody can build an app, it's the way you execute with it.
And we've been executing with technology. Since 1999, we were posting boards to some website, where the spouses of the drivers were sitting home and call them up right. So we've been on that I think there's viable businesses out there when it comes to digital but I think you need the human factor behind it. So it's just to us another competitor into the brokerage space that.
James Gattoni: I think I'd be watching it more on the van side. The other thing too is about the flatbed side. It's it's relatively inconsistent, right? Whether we're doing heavy haul or we're doing regular flatbed. The industry is a lot more diverse. Is it lumber? Is it, you know, in what kind of what end mark is you delivering on the flatbed side as opposed to the consumer? So that that actually travels a little bit different than van van got a little more consistency in a cycle. Do my appreciates time as always. Yeah. Thank you.
Unknown Attendee: We have the next question coming from the line of Jack Atkins of students. Your line is not open. Okay, great.
We think we compete better than anybody against those.
Those startups with the with the human factor, we have geographically dispersed throughout the field throughout the U S. Long term I don't see this this industry changing much you talked about AI and stuff like that.
What we do what we get paid to do.
It's moved freight from point, a point B right and.
Unknown Attendee: Good morning, guys. Thanks for taking my question. I guess Jim, I wanted to go back to the guidance for a minute, so we've got a clear understanding of it. I mean, if I understand what you're saying correctly, the thought is that we're going to have sub-seasonal volume performance in the fourth quarter. I think fairly significantly sub-seasonal, but the revenue pro-low trends are kind of more in line with normal seasonality. I guess with so much of the fourth quarter, typical quote unquote seasonality weighted to later in the quarter, if volumes for that sub-seasonal wouldn't revenue pro-low would be sub-seasonal, or do you think we're kind of decoupling at this point based on the earlier commentary around contract versus spot?
You build efficiencies around that by improving your communication flow the accuracy of data to the speed of sharing information and visibility. That's what it is whether it's AI back office systems and stuff like that so I don't see a significant change as it relates to technology going forward on the broker side truck brokers or the cycle the way the cycle works.
I don't see anything disrupting that.
Okay really appreciate the thoughts thanks guys.
Yes.
We have the next question coming from the line Stefan <unk> of Jefferies. Your line is now open.
Hi, Good morning, Thank you for the question.
Yes.
I wanted to touch a little bit again on the maybe the bcl coming down.
Unknown Attendee: It's all based on once jumping out from third quarter into October. We're seeing relatively a little more favorable as the first three weeks of October, so we're just carrying that forward. If you take that October number where we think October's coming out and you trend it seasonally, the quarter will be over, will be sequentially better than expected. It's really because we're starting at a higher jump up point heading into the quarter. That's how we got there. Okay, all right. I got that. It makes sense.
Continuing in the third quarter I think we're kind of at a multiyear low here and would love to I know you provided a little bit of commentary in your prepared remarks, but maybe if you could touch a little bit about do you think that this.
It's kind of signaling we're at the bottom here or do you think it could kind of take a leg a leg down further and then maybe just for context, maybe if you wanted to provide some color on just how bcl utilization has trended and third quarter kind of into October.
Great Yes, thanks Stephanie.
James Todd: Maybe just a quick follow-up on the guide for a moment, but in terms of Jim Todd, maybe this is for you, but can you maybe give us a thought on 4Q, G&A, and maybe the gross margin or net revenue margin that you're assuming in the fourth quarter just within the guide? Yeah, hey Jack, so given the step down at the midpoint for revenue, we're looking at 14, 5, 14, 7 on VC, and the majority of the good guy there is assumed mix. On the G&A side, pretty consistent move, of course, insurance being, we're utilizing 5.5% there for the guide versus a 5.8 actual in the third quarter. But your other lines are fairly straightforward. Okay, great.
So I think Bcl count Youre correct, I mean, we've seen some elevated turnover.
Really the result of the economic backdrop that we've been talking about here for the last few minutes.
I would think that.
As long as that stays the way it is I think the duration of this.
Downturn, where rates are down and volumes are down and demand is there.
Anticipate that we would continue to see some some decline in the fourth quarter.
We're talking about are more likely recovery and the eight quarter range versus a six quarter range. So early into next year, it's kind of hard to say.
Seven of Alaska, 11, first quarters, we've seen a decline that's pretty typical for us so.
James Gattoni: I guess maybe just as my last question here, kind of more bigger picture, but you guys are the first, but I would call either truck broker or logistics provider to report so far. And it was had a lot of news here in the last couple of weeks around some of your, you know, high-firing competitors, you know, facing some financial difficulties, one of which has closed. I guess, you know, Jim Catoni, I'd love to get your thoughts on maybe how you're seeing longer term, the landscape within the brokerage market, maybe evolving here with higher interest rates and higher cost of capital.
So I don't think were I don't think were at the bottom from a bcl count.
Because I think that just the demand is there, but our bcl count if you look back has been pretty.
Volatile and really.
As a result of where the economy is in 17 and 18, we were up about 1200 trucks right and 19, we took a small drop in were declining through the first quarter 'twenty until the pandemic and then over the next couple of years. We went up 600 trucks are more so.
It does move pretty quickly with the economic backdrop, so while I continue to see some declines in the coming months.
James Gattoni: How do you think that's going to affect the competitive landscape longer term, not shorter term and longer term? Well, you know, in the light asset business models that I believe one of the ones you're talking about was a light asset business model that shut its doors or at least temporarily shut its doors. You know, close to capital for us is really how it affects the interest rates, really has a fixed demand in the economy more than the fixed, you know, us or financial results, right?
I do think we will bounce back when the when this thing turns and then from a utilization standpoint.
We were down 5% year over year in the first quarter, we were down 3% in the second quarter, but we were up 2% in the third quarter, so and in the quarter.
We were down 1% and July up three in August and up three in September. So there is some improved utilization I think.
James Gattoni: So we look at it more that way and where we think that's going to take the economy and the brokerage model, the digital freight matching or the digital freight brokers. Look, the tools were working. It's just I don't know what happened to the business model in that one scenario where they closed. We did see a couple of, you know, we got a couple of loads from when they shut the doors. There was some freight coming over.
We do a lot.
Here to make sure we've got analytics tools for the <unk>, so that they can understand kind of their business better.
And ultimately we try to take them.
The surprises out of the equation for them, but the environment has been difficult. They really didnt see this declined comment as rapidly as it came but really I think it's the duration I think most <unk> can withstand a decline that last period of time, but the duration of this one I think that's had some impact on the viability of some of those pcos and I think.
James Gattoni: I'm not sure that's going to be long term for us. We didn't build anything into the fourth quarter, but long term on brokerage, you know, it's just the service isn't going to change. You know, the the shippers are looking for high quality service on time delivery. Like we've been preaching for the last five or seven years, we, you know, we, but we said that anybody can build an app. It's the way you execute with it.
We're taking the opportunity to either do something else and come back later or perhaps in some cases, maybe get out of the business for a time, but.
James Gattoni: And we've been executing with technology since 1999 and we were posting boards to some website where the spouses of the drivers were sitting home and calling up, right? So we've been on that. I think there's there's Bible business out there when it comes to digital, but I think you need the human factor behind it. So it's just to us another competitor into the brokerage base that we think, you know, we compete better than anybody against those startups with the human factor.
That's kind of the ads are not an issue for us our additions coming into the fleet have actually been fairly strong. It's just keeping those that are here and.
And I think a lot of them are making the decision to sit on the sidelines until some of this stuff.
Works itself out.
Got it. Thank you and then just second for me I know your guidance assumes a pretty muted peak season in the fourth quarter can you give maybe an indication.
From your customers around peak season.
James Gattoni: We have geographically dispersed throughout the field throughout the US long term. I don't see this industry changing much. You know, you talk about AI and stuff like that, is what we do, what we get paid to do is move freight from point A to point B, right? And you build efficiencies around that by improving your communication flow, the accuracy of data, the speed of sharing information and visibility. That's what it is, whether it's AI, back office systems, or stuff like that. So I don't see a significant change as it relates to technology going forward on the broker side, when truck brokers or the cycle, the way the cycle works out. I don't see anything disrupting that.
Volumes being down pretty significant coming into the fourth quarter.
Unknown Attendee: Okay, really appreciate the thoughts. Thanks guys.
The expectation is.
Compared to prior year's fourth quarter, they're talking 10 or 20% volumes down.
Talking about the some of the parcel carrier, where we do substitute line haul specifically.
That doesn't necessarily mean, it's not the flatbed side of the van side, but.
Just as we said.
Just on the conversations might feel guys have had with the customers is they're not giving us exact metrics, but saying they expect not a dynamics.
Jayson.
Thank you.
Unknown Attendee: We have the next question coming from the list, if any more of Jeffries your line is not open.
Thank you if you would like to ask a question. Please press star one year Touchtone phone once again that is tier one to ask a question.
Unknown Attendee: Hi, good morning. Thank you for the question. Yeah, I want to touch a little bit again on maybe the BCO coming down, continuing in third quarter. I think we're kind of at a multi year low here. And we'd love to, I know you provided a little bit of commentary in your prepare remarks, but you know, maybe if you could touch a little bit about, you know, do you think that this is kind of signaling?
At this time, we have the next question.
Hi, Shneur from the line of Bruce Chan of Stifel. Your line is now open.
Hey, good morning team this is Andrew.
For Bruce This morning, I just wanted to get your commentary on the J B Hunt acquisition of BNS have logistics wanted to know if they compete with Landstar for agents is there any kind of overlap there a commentary. Thank you.
Unknown Attendee: We're at the bottom here. Do you think it could kind of take a leg, a leg down further? And then, you know, maybe just for context, maybe if you want to provide some color on just how BCO utilization is trended in third quarter and kind of into October. Thanks.
We've seen no when BNS logistics existed prior or any of that stuff, we didn't see any pressure from that when it existed under a different name and don't expect that we would see any kind of pressure as it exists.
James Gattoni: Great. Thanks, Stephanie. Yeah, so I think BCO count, you're correct. I mean, we've seen some elevated turnover. Really, the result of the economic backdrop that we've been talking about here for the last few minutes, I would think that, you know, as long as that stays the way it is, I think the duration of this downturn where rates are down and volumes are down and demand is down. I would anticipate that we would continue to see some decline in the fourth quarter.
Moving on to J B Hunt.
So the answer to that would be at this point, we haven't seen anything either from the existing legacy BNS brokerage to when it's going to transfer or would a J b hunt.
Okay, great and another one I am thinking we haven't heard about the trailer fleet on the call, but I just wanted to get an update on there where you stand in terms of size age and any potential capex requirements headed into next year.
James Gattoni: And we're talking about a more likely recovery in the eighth quarter range versus the sixth quarter range. So early in the next year, it's kind of hard to say. Seven of the last 11 first quarters, we've seen a decline. That's pretty typical for us. So I don't think we're, I don't think we're at the bottom from a BCO count. Because I think that just the demand is there, but our BCO count, if you look back, it's been pretty volatile and really as a result of where the economy is.
Hey, Andrew It's Joe I'll take a shot at that the trailer fleet is just under 15000.
Currently.
As you May know or if you don't know due to the inability to really acquire new trailers for a couple of years there during the pandemic, we held onto some of our older equipment and we're in the process of cycling some of that out some of that is what's attributed to what Jim Todd talked about earlier with the increased maintenance costs.
So we're in the process of trying to right size. The fleet now we typically have to trade to Bam trailers for every bcl, Poland vans in the drop and hook market and we're a little north of that so we're trying to rightsize that through some sales, which you saw in the quarter.
James Gattoni: And in 17 and 18, we were up about 1200 trucks, right. In 19, we took a small drop and we're declining through the first quarter or 20 until the pandemic. And then over the next couple of years, we went up 1600 trucks or more. So, you know, it does move pretty quickly with the economic backdrop. So while I continue to see some declines in the coming months, I do think we will bounce back when the, when this thing turns.
And then looking forward.
The intent is to maybe get into some new equipment in 2024 at some point, but again watching bcl count pretty carefully.
Okay. That's all I got thanks, guys.
James Gattoni: And then from utilization standpoint, you know, we were down 5% year over year in the first quarter, we were down 3% in the second quarter, but we were up 2% in the third quarter. So and in the quarter, we were, we were down 1% in July, up 3 in August and up 3 in September. So there is some improved utilization. I think, you know, we do a lot here to make sure we've got analytics tools for the BCO so that they can understand, you know, kind of their business better.
At this time I know I'm showing no further questions I would like to turn the call over back to you Sir for closing remarks.
Well I would guess it everybody ran to the EPS call.
I'm going to close with a statement regardless.
Before I close I want to briefly discuss freight cycle dynamics to provide additional big picture context to this year's results last year's revenue performance through the freight cycles that occurred over the past three years ultimately set the stage for where we are today generally in the ordinary course of business, we experienced spot market down cycles that drive revenue from peak to trough as well as up cycles.
James Gattoni: And ultimately, you know, we try to take the surprises out of the equation for them, but the environment has been difficult. They really didn't see this decline coming as rapidly as it came, but really I think it's the duration. And I think most BCOs can withstand a decline that lasts a period of time, but just the duration of this one, I think, has had some impact on the viability of some of those BCOs.
Revenue from trough to peak in both cases, the typical spot market freight cycle from peak to trough or trough to peak occurs over a period of six to eight quarters and.
And these cycles are typically driven by three main factors the level of industry demand for freight services the level of available truck capacity industry and the differential between industry wide contract and spot pricing at any given point in time during the cycle looking back over the recent down cycle Lessors peak quarterly revenue occurred five quarters ago in the 2022 second quarter since.
James Gattoni: And I think they're taking the opportunity to either do something else and come back later, or perhaps in some cases maybe get out of the business for a time, but that's kind of, the ads are not an issue for us. Our additions coming into the fleet have actually been fairly strong. It's just keeping those that are here, and I think a lot of them are making the decision to sit on the sidelines until some of this stuff works itself out.
<unk> quarterly revenue and a 2022 second quarter Landstar has experienced a down cycle doing whats quarterly revenue has thus far decreased each quarter over the following five quarters.
Unknown Attendee: Got it. Thank you.
Recent overseas conflicts the impact of student loan repayments on consumer spending labor disruptions in the U S increasing interest rates political uncertainties and many other factors make it difficult to predict exactly when the current down cycle will end and the revenue will begin to cycle upwards due to the overall economic and geopolitical environment I expect.
James Gattoni: And then just second to me, I know your guidance assumes a pretty muted peak season the fourth quarter. Can you give it maybe an indication, you know, what you're hearing from your customer around peak season? Thanks. We're talking about the some of the parcel carrier, where we do stuff to line haul specifically not that doesn't necessarily mean that it's not the flap inside the band side, but the. Just as we said, based on the conversations might feel guys have had with the customers, they're not giving us exact metrics, but saying they expect not a dynamic seat peak season. Thank you.
Starting the up cycle may be delayed towards the latter part of a typical cycle. Nevertheless, even given even with the challenges in the freight environment that we along with many others in our industry have experienced through 2023, let's start right across business model has continued to jade solid generate solid returns.
Our balance sheet has never been stronger.
We remain focused on the elements of our business that we can't control, we continue to invest in digital tools and process improvements and people to empower agents capacity provide us for continued success. Thank you and I look forward to speaking with you again on our two.
<unk> 2023 fourth quarter earnings conference call scheduled for February one enjoy your day.
Unknown Executive: If you would like to ask a question, please press star one year touch tone phone. Once again, that is star one to ask the question.
Thank you for joining the conference call today have a good morning. Please disconnect your lines at this time.
Unknown Attendee: At this time, we have the next question.
Unknown Attendee: Questioner from the line of Bruce Chen of people here line is not open. Thank you.
James Gattoni: Good morning, team. This is Andrew Cox on for Bruce this morning. I just wanted to get your commentary on on the J behind acquisition of BNSF logistics. I wanted to know if they compete with landstar for agents. Is there any kind of overlap there? Any commentary? Thank you. Yeah, we've seen no when BNS logistics existed prior or any of that stuff. We didn't see any pressure from that when it existed under a different name.
James Gattoni: And don't expect that we would see any kind of pressure as it exists in its form moving on to J behind. So the answer to that would be at this point we haven't seen anything either from the existing legacy BNS brokerage to when it's going to transfer with a J behind.
Unknown Attendee: Okay, great.
Joseph Beacom: And another one I'm thinking, you know, we haven't heard about the trailer fleet on the call today. I just wanted to get an update on there where you stand in terms of size, age and any potential capex requirements headed into next year. Yeah, Andrews Joe, I'll take a shot at that. The trailer fleet is just under 15,000 currently. And as you may know, or if you don't know due to the inability to really acquire new trailers for a couple of years there during the pandemic, we held on to some of our older equipment.
Joseph Beacom: And we're in the process of cycling some of that out. Some of that is what's attributed to what Jim Todd talked about earlier with the increased maintenance costs. So we're in the process of trying to right size the fleet now. We typically have two trailers for every BCO pulling vans in the drop in hook market and we're a little north of that. So we're trying to right size that through some sales, which you saw in the quarter. And then looking forward, you know, the intent is to maybe get into some new equipment in 2024 at some point, but again, watching BCO count pretty carefully.
Unknown Executive: Okay, that's all I got. Thanks, guys. At this time, I know I show no further questions.
James Gattoni: I would like to turn the call over back to you, sir, for closing remarks. Well, I would I would get it everybody ran to the EPS call, but I'm going to close with a statement. Before I close, I want to briefly discuss freight cycle dynamics to provide additional big picture context to this year's results. Landstar's revenue performance through the freight cycles that occurred over the past three years ultimately set the stage for where we are today.
James Gattoni: Generally in the ordinary course of business, we experience spot market cycle that drive revenue from peak to trough as well as up cycles that drive revenue from trough to peak. In both cases, the typical spot market freight cycle from peak to trough or trough to peak occurs over a period of six to eight quarters. And these cycles are typically driven by three main factors, the level of industry demand for freight services, the level of available truck capacity industry, and the differential between industry-wide contract and spot pricing at any given point in time during the cycle.
James Gattoni: Looking back over the recent down cycle, Landstar's peak quarterly revenue occurred five quarters ago in the 2022 second quarter. Since hitting peak quarterly revenue in the 2022 second quarter, Landstar has experienced a down cycle during which quarterly revenue as thus far decreased each quarter over the past over the following five quarters. Recent overseas conflicts, the impact of student loan repayments on consumer spending, labor disruptions in the US, increasing interest rates, political uncertainties, and many other factors make it difficult to predict exactly when the current down cycle will end, and the revenue will begin to cycle upwards.
James Gattoni: Due to the overall economic and geopolitical environment, I expect the start of the up cycle may be delayed towards a lot of part of the typical cycle. Nevertheless, even with the challenges in the freight environment that we, along with many others in our industry, have experienced through 2023, Landstar's drive across business model has continued to generate solid, generate solid returns. Our balance sheet has never been stronger. We remain focused on the elements of our business that we can control. We continue to invest in digital tools, process improvements, and people to empower agents' capacity providers for continuous success.
James Gattoni: Thank you, and I would forward to speaking with you again on our 2023 fourth quarter earnings conference call scheduled for February 1st. Enjoy your day. Thank you for joining the conference call today. Have a good morning. Please disconnect your lines at this time. Thanks for joining us. Thank you. . James Gattoni, Brian Ossenbeck, Brian Ossenbeck, Brian Ossenbeck James Gattoni, Brian Ossenbeck, Brian Ossenbeck, Brian Ossenbeck, Brian Ossenbeck, Brian Ossenbeck
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