Q4 2023 Landstar System Inc Earnings Call

Operator: Good morning, and welcome to Landstar Systems Incorporated's Year-End 2023 Earnings Release Conference Call. All lines will be in a listen-only mode until the formal question-and-answer session begins.

Operator: Today's call is 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 CFO; and Joe Beacom, Vice President and Chief Safety and Operations Officer. Now, I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin.

James B. Gattoni: Thank you, Bill. Good morning, and welcome to Lancers' 2023 4th Quarter Earnings Commerce Call. Before we begin, let me read the following statement. This is a Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.

James B. Gattoni: 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's business objectives, plans, strategies, and expectations. Such information is by nature subject to uncertainties and risks, including but not limited to the operational, financial, and legal risks detailed in Landstar's Form 10-K for the 2022 fiscal year, described in the section Risk Factors and Other SEC Filings. These risks and 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 Lancer undertakes no obligation to publicly update or revise any such forward-looking information.

James B. Gattoni: The freight environment throughout the 2023 fourth quarter reflected soft demand and readily available truck capacity. These freight market conditions were consistent with what Landstar experienced during the first three quarters of 2023. The 2023 fourth quarter also included an abnormally soft peak season by historical standards. Nevertheless, even with a weak peak season, Lancer performed mostly in line with the 2023 fourth quarter guidance we issued in our third quarter earnings release on October 25th. We provided revenue guidance of $1,225,000,000 to $1,275,000,000. However, actual revenue came in at $1,204,000,000, about 2% below the low end of our guidance. We also issued earnings per share guidance of $1.60 to $1.70.

James B. Gattoni: It is worth noting again that the 2023 performance continues to significantly outpace pre-pandemic levels. 2023 fourth-quarter revenue was 21% over the 2019 fourth-quarter revenue, and earnings per share exceeded the 2019 fourth-quarter by approximately 28%. Before diving into further detail on Landstar's performance in the 2023 fourth quarter, please note I will make mention of normal seasonal patterns or normal trends. For the purpose of today's conference call, normal seasonal patterns and normal trends refer to Lamstar'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 freight cycle. Overall truck revenue was $1,085,000,000 in the 2023 fourth quarter, 29% below the 2022 It should be noted that the 2022 fourth quarter included 14 weeks, whereas the 2023 fourth quarter included 13 weeks.

James B. Gattoni: Excluding the estimated truckload volume from the extra week in the 2022 fourth quarter, truckload volume decreased an estimated 19% in the 2023 fourth quarter compared to the 2022 fourth quarter. As we entered the 2023 fourth quarter, the number of loads hauled via truck in early October was trending below normal seasonal patterns. The below-normal trend in the number of loads hauled via truck started in the 2022 second quarter as each sequential quarter-to-quarter change in truck load count from the 2022 second quarter through the 2022 fourth quarter was below normal seasonal patterns due to soft consumer demand for the types of freight we haul and a slow U.S. manufacturing cycle. Based on normal seasonal patterns, truckload volume typically increases slightly from the third quarter to the fourth quarter in a given year

James B. Gattoni: From the 2022 third quarter to the 2023 fourth quarter, truckload volume decreased 6%, a significant underperformance compared to the normal seasonal pattern. As to pricing, truck revenue per load was trending reasonably in line with normal seasonal patterns through mid-October. However, revenue per load on loads hauled via truck softened after the first few weeks of October and trended seasonally below normal patterns from September to October, October to November, and November to December. We attribute that negative pattern primarily to the abnormally soft peaks.

James B. Gattoni: We look at BCO revenue per mile as a barometer of the rate environment, as this metric mostly excludes the impact of rising and falling fuel costs. During the 2023 fourth quarter, revenue per mile on BCO van equipment remained fairly stable from October to December, whereas revenue per mile on BCO on-site and platform equipment softened through the quarter. DCO Revenue Per Mile on Van Equipment and On-Site Equipment, which in both cases excludes fuel store charges, were 17% and 14% higher in December 2023 compared to December 2019, respectively. However, based on industry data from Attri, the cost to operate a truck excluding fuel costs was approximately 20% greater in 2022 than in 2019.

James B. Gattoni: In other words, the increase in rates since December 2019 likely has not kept up over that period with the increase in the cost to operate a truck. We continue to believe that rates in the spot market will stay relatively higher than 2019 levels, given the significant amount of additional cost to operate a truck. In terms of revenue by equipment type in the 2023 fourth quarter, revenue hauled via van equipment, unsighted platform equipment, power only, and less in truckload revenue all experienced revenue declines from the 2022 fourth quarter. Revenue hauled via van equipment was 29% below the 2022 fourth quarter, mostly due to soft demand for the consumer freight we hauled. Revenue hauled via unsighted platform acquittal was 20% below the 2022 fourth quarter, mostly due to slow U.S. manufacturing.

James B. Gattoni: Other truck transstation revenue, which is primarily comprised of power-only revenue, was significantly favorably impacted by increased demand for substitute line haul services during the pandemic and was now 51% compared to the 2022 fourth quarter. However, unsurprisingly, demand for substitute line haul services was significantly softer throughout 2023 compared to 2022. Less than truckload revenue decreased 26% compared to the 2022 fourth quarter on a 15% decrease in load volume and a 13% decrease in price. Our rail, air, and ocean services revenue in the 2023 fourth quarter was 23%, or $26 million below the 2022 fourth quarter. Non-truck transition revenue generated in the 2023 fourth quarter was, however, consistent with the revenue these services generated in the 2023 third quarter. However, total network loadings in the 2023 fourth quarter were 21% below the 2022 fourth quarter.

James B. Gattoni: Total low volume is somewhat influenced by customer mix. For example, Landstar provides truck capacity to other trucking companies, 3PLs, and truck brokers, where volumes tend to vary more widely from period to period with changes in the levels of freight demand. Revenue hauled on behalf of other truck transstation companies was 15% and 19% of transstation revenue in the 2023 and 2022 fourth quarters, respectively. During periods of tight truck capacity, other trucking companies, 3PLs, and truck brokers reach out to Landstark to provide truck capacity more often than during times of readily available truck capacity. The freight hauled by Lancer on behalf of other truck transportation companies includes almost all of our commodity groups.

James B. Gattoni: Overall, the revenue hauled on behalf of other truck transportation companies in the 2023 fourth quarter was 42% below the 2022 fourth quarter, contributing 28% of the overall $470 million decrease in quarter-over-prior-year quarter revenue. The year-end 2023 BCO truck count was approximately 13% below the 2022 year-end truck count. Physical 2023 BCO truck turnover was 41%, which is higher than the 36% turnover rate Landstar experienced in 2019 during the most recent relatively comparable soft freight environment. We believe the increase in the turnover rate compared to the comparable 2019 period was due to the significance of the decrease in rates, the duration of the negative trend in month-to-month revenue per load, and the increased cost to operate a truck today compared to pre-pandemic periods. I will now pass to Jim Todd to comment on other additional P&L metrics regarding the 2023 fourth quarter performance. Jimbo?

Jim Todd: Thanks, Jim. Jim G. has covered certain information on our 2023 fourth quarter, so I will cover various other fourth quarter financial information included in the press release. In the 2023, 13-week fourth quarter, gross profit was $124.6 million compared to gross profit of $180 million in the 2022, 14-week fourth quarter. Gross profit margin was 10.3% of revenue in the 2023 fourth quarter as compared to 10.7% in the corresponding period of 2022.

Jim Todd: In the 2023 fourth quarter, variable contribution was $178.1 million compared to $234 million in the 2022 fourth quarter. Variable contribution margin was 14.8% of revenue in the 2023 fourth quarter compared to 14% in the same period last year. The increase in variable contribution margin compared to the 2022 fourth quarter was primarily attributable to mix, 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 an increased variable contribution margin on revenue generated by BCO independent contractors. Other operating costs were $13.2 million in the 2023 fourth quarter compared to $10.3 million in 2022. This increase was primarily due to increased trailing equipment maintenance costs and decreased gains on sale of used trailing equipment. Insurance and claims costs were $27.3 million in the 2023 fourth quarter compared to $29.6 million in 2022.

Jim Todd: Total insurance and claims costs were 6% of BCO revenue in the 2023 period and 5% of BCO revenue in the 2022 period. The decrease in insurance and claims costs as compared to 2022 is primarily attributable to decreased net unfavorable development of prior year claim estimates, partially offset by increased premium expense, primarily for commercial auto and excess liability coverage. During the 2023 and 2022 fourth quarters, insurance and claims costs included $900,000 and $3.8 million, respectively, of net unfavorable adjustments to prior year claim estimates. Selling General and Administrative costs were $52.7 million in the 2023 fourth quarter compared to $56.1 million in 2022. The decrease in selling general and administrative costs was primarily attributable to a decreased provision for incentive and equity compensation under our variable compensation programs, partially offset by increased employee benefits.

Jim Todd: In the 2023 fourth quarter, the provision for compensation under variable programs was $100,000, compared to $5.3 million in the 2022 fourth quarter. Appreciation and amortization was $13.7 million in the 2023 fourth quarter compared to $14.8 million in 2022. The decrease was primarily 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 third-party capacity. The Effective Income Tax Rate of 24%, as the effective income tax rate in the 2023 fourth quarter was favorably impacted by certain positive state tax developments.

Jim Todd: In addition, the effective tax rate in the 2022 fourth quarter was unfavorably impacted by the impairment in deferred tax assets related to employee equity compensation arrangements as a result of performance conditions being attained as of year end. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $541 million. Cash flow from operations for 2023 was $394 million, and cash capital expenditures were $26 million. Thank you.

James B. Gattoni: We enter 2023 with a challenging freight environment and very difficult year-over-year compressions coming off a record 2022. Lansar's revenue performance through the freight cycles that occurred over the past four years ultimately set the stage for where we are today, from the 2022 second quarter at the start of the pandemic to the record revenue last year achieved in the 2022 second quarter. Sequential quarter-to-quarter revenue trends were above the seasonal Norm.

James B. Gattoni: That revenue upcycle lasted seven quarters. However, through the 2023 fourth quarter, quarterly-to-quarter revenue has now decreased below historical seasonal trends for six consecutive quarters from the record revenue set in the 2022 second quarter. Generally, in the ordinary course of our business, we experience down cycles that drive revenue from peak to trough, as well as up cycles that drive revenue from trough to peak, with each peak and trough being higher than the last. In the case of either down cycles or up cycles, freight cycles tend to move from peak to trough or trough to peak over six to eight quarters. These cycles are typically driven by three main factors, the level of industry demand for freight services, the level of available truck capacity, and the differential between industry-wide contract and spot prices at any given point in time.

James B. Gattoni: Given we've been in a down cycle for six consecutive quarters, we expect to begin to see above-normal seasonal revenue growth around mid-year 2024. Currently, we expect first quarter 2024 revenue per truckload and the number of loads hauled via truck to track in line with seasonal norms following the 2023 fourth quarter. This expectation is driven by the trends in revenue per truckload and truckload volume in the first several weeks of January and the weaker than normal peak season in the 2023 fourth quarter. Given those expectations, we anticipate revenue in the 2024 first quarter to be in a range of $1.1 billion to $1.15 billion, and diluted earnings per share to be in a range of $1.25 to $1.35. This earnings estimate anticipates a browser contribution margin ranging from 14.5% to 14.7%.

James B. Gattoni: Please note that the variable contribution margin in the first quarter is most often the highest variable contribution margin of any quarter during a given year. This is typically attributable in large part to mix, as BCO revenue, which is a higher variable contribution margin than other MUDs, often contributes a higher percentage of revenue in the first quarter. Higher variable contribution margin on third-party drug brokerage revenue in the first quarter compared to the following three quarters also may contribute to this historical seasonal trend as the first quarter is typically seasonally softer than the following three quarters. The expectation of a cycle upturn mid-year suggests Lancelot could experience increasing demand, a shift in mix towards truck brokerage, and somewhat of a tighter truck capacity market as we move through 2024. Access to the valuable contribution margin included in the first quarter guidance is not representative of what we expect for the full year.

James B. Gattoni: Based on current assumptions for 2024, we expect the variable contribution margin for the full year 2024 fiscal year to be below the first quarter by 50 to 100 basis points. As previously mentioned, the macro freight environment softened significantly throughout 2023 as compared to the pandemic-driven demand that continued to drive freight markets in the early part of FYSB year 2022. Regardless of a less robust freight environment and the inflationary pressure of labor, equipment, and insurance costs, the resiliency of Lansdaar's value-at-the-cost business model continues to generate significant free cash flow and financial return. Les Archie generated free cash flow of $368 million in fiscal year 2023 and ended the year with a stronger balance sheet than ever before.

James B. Gattoni: 2024 has its work cut out for it due to continuing soft conditions in the freight environment. Nevertheless, we have been through many business cycles before, and we still expect nothing less than 2024 to be a terrific year by pre-pandemic standards. Before I open to questions, I want to... give a little more color around the first quarter guidance. We often refer to seasonal patterns as it relates to short-term trends, quarter to quarter. And the seasonal patterns, when you look at them, the more inputs to a financial metric, the more volatile that seasonal pattern would be. For example, when we look at truck revenue, we relate to seasonal patterns; there are only two inputs to truck revenue. It's revenue per load, and it's the number of loads hauled.

James B. Gattoni: So it tends to be less volatile in things like EPS. When we look at EPS, there are more inputs for EPS, whether it's the change in variable contribution margin from one quarter to the next, or our changes in what tend to be the most volatile numbers in our P&L below the variable contribution line, which is insurance and our variable compensation programs. So when we look at our trends and we look at the first quarter guidance and compared to the fourth quarter, you know, we're kind of in line with the revenue trend seasonally and again seasonally from 2015 to 2019, but off the trend somewhat when you look at EPS. And that's generally a trivial one: we're looking at a variable contribution margin in the first quarter that's slightly below the fourth quarter, and that's really driven by the fact that we are looking at the BCO revenue in the first quarter to be the same as the fourth quarter, where typically it's higher in the first quarter than the fourth quarter, and that's due to a drop off in the fourth quarter BCO.

James B. Gattoni: So we're anticipating a slightly lower variable contribution margin in the first quarter compared to the fourth quarter, which is not a norm. And then you're also dealing with some, in line with 2015, 2016, 2017, because the seasonal pattern in 2018, if you recall, it was really driven by the ELD mandate when the fourth quarter of 2017 compared to 2018 was abnormal, and the performance in 2018 was above expected performance.

Operator: And in 2019, we just had, we were coming off a very high level of compensation in 2018, and it was making the comp there, the 2019 comp to the fourth quarter much easier. So that's when we're looking at DPS, we're looking at about a 20% decline from the fourth quarter to the first quarter to the midpoint, which is really more representative of what we're anticipating and things other than the top line. And with that, I will open up to questions. Thank you very much, sir. At this time, we will begin the question-and-answer session. If you would like to ask a question, please press star 1 on your touchtone phone. Once again, that is star 1 to ask a question. To cancel your request, please press star 2.

Operator: We have questions in queue, and the first question is coming from the line of Brian Asenbeck of J.P. Morgan. Your line is now open. Hey, good morning.

James B. Gattoni: Thanks for taking the question. Jim, maybe you can just give us some color on the trends in VCO. You mentioned turnover and a couple of reasons behind that and why it was up.

Joseph J. Beacom: Where do you see that sort of bottoming out? Is there a risk that the longer this lasts, maybe into that eight-quarter plus range, that... Don't seem to come back as quickly or maybe come back with a lag, really trying to understand that, to leverage and the ability to grow in the model. That'd be helpful. Here's Joe.

Joseph J. Beacom: I'll answer that question later. So, yeah, we've seen the BCO count decline at a pretty good clip, and I think, as Jim mentioned in his prepared comments, a lot of that is just the duration of the downtrend, and also the fact that, you know, costs are up perhaps more than the rates are able to support, and that's kind of what we've seen over the course of the last four quarters, and it continues into the first quarter. If we go back, you know, we've seen some quarters where it's gone up pretty substantially as well, so I think that the count can be reactive, but the fundamentals have to be there. If I take you back to 2017, we were up 250; up over 900 in 2018. I think it speaks to the fact that VCO capacity will come back into the model, but the fundamentals have to be there. And right now, I just don't think the fundamentals are all that compelling.

Joseph J. Beacom: And if you look at some of the reasons for the departures, I think that helps us kind of put some color around that. The single biggest reason for departure in full year 2023 was maintenance costs and the inability to make repairs. So if your financial viability is questionable, or you're marginally profitable as a VCO, and you have a significant maintenance expense, you just can't cover it, so you go to the sidelines. And that's a full 20% of our terminations in 2020. So I think that speaks to two things.

Joseph J. Beacom: One, I think the difficulty in the environment for VCOs, but also the fact that when some of those things improve, I think the model can be resilient and grow as we have in the past. So I don't think it's anything that's systemic going forward. The interest to come on Landstar is still there. I just think it's really a reaction to capacity leaving the market overall, as it is. Small carriers across the landscape are leaving the market in rapid fashion.

Joseph J. Beacom: We're not immune to that, and so that's happening. I just think they'll continue to look for opportunities to come back in when the freight market improves and we kind of move our way out of this freight relationship. Great. Thanks for that. Maybe, Jim Gattoni, congrats on the retirement.

Jim Todd: Best of luck in the next phase. Maybe you could just give us a sense of the transition costs you mentioned there. It seemed like it was an issue worth calling out in the first place. This is Jim Todd.

Jim Todd: So from a sequential standpoint, just related to SG&A, when you look at the reset of the variable compensation programs that Jim spoke about, coupled with the CEO transition costs, it's about a $5.9 million sequential headwind, or about 12 pennies. Okay, thanks a lot for your time. I appreciate it. We have the next question coming from the line of Bruce Chan of Stiefel. Your line is now open.

James B. Gattoni: Hey, good morning, everyone, and thanks for the question. Jim, you know, congrats on the retirement there. I just want to ask a question on substitute line haul. You know, Jim, you talked about the weak peak this year and the impact on, you know, this end market relative to some of the others, but I just wanted to get your sense of whether this is a temporary thing related to this particular down cycle or whether this might be more of a structural issue since we've heard of some big line haul consolidation initiatives by some of the big traditional customers during this period. So any commentary there on the cyclicality versus, you know, structural weakness of substitute line haul? You know, if you look pre-pandemic, I don't, I wouldn't call it structurally weaker. It is weaker, but not to the degree it sounds because we're coming off a tremendous two years of substantial line-off where those parcel carriers really needed us to jump in. There was so much stuff coming through the network.

James B. Gattoni: So, for us, I don't necessarily think it's structural. I think it's just a downturn in peak season, and I think I would anticipate that you're going to see a little improvement going into the fourth quarter next year because, I've been here for quite a long time. It is about the most abnormal peak season I've ever seen with the softness. So I don't believe it's structural.

James B. Gattoni: Okay, great. I appreciate that. Just a quick follow-up here on your comments on unsighted rates. I don't know what your sense is of what's going on there. Is that just industrial lagging behind the recovery in some of the other segments of the market? And then, is there anything you're seeing with regard to the big consolidation in the space that was recently announced? I think it's more demand than anything changing in the marketplace right now. We see, one of the things I talked about is the revenue per mile on the flatbed dropping as we move through the quarter. And it was just, for us, it was softness in some of our customers, but I think it's just an industry-wide thing. I think if you look at what happened in industrial production and manufacturing production in December, it was actually positive for the first time in about 12 months. And I just think that hasn't transpired into the freight dynamic yet. We do expect that to continue to be relatively soft, at least through the first quarter.

James B. Gattoni: But again, it has nothing to do with competition or changes in the industry dynamic. It's all just a little bit of softness coming through the flatbed market with 12, you know, yet 12 months of consecutive decreases in manufacturing. All right, thanks for your time. Thank you. We will now move to the next question coming from the line of Scott Group of Walsh Research. Your line is now open. Hey, thanks. Good morning.

James B. Gattoni: And best of luck to you, Jim. So you made a comment that 2024 will be a really good year relative to, you know, pre-pandemic standards. You know, when I look at the guidance for Q1, you've got revenue still above 2019 levels, but now the earnings are below, and the margins are at the lowest in like over a decade. So is Q1 a unique quarter in that the earnings and the margins are so far below? Or I just want to understand, you know, what you said in the prepared comments relative to the guidance.

James B. Gattoni: Yeah, I think if you look at 2019 pre-inflation, you know, if we didn't have inflation, we'd be sitting on those same margins. Especially when you look at insurance, if you remember what happened to us in insurance, we renew on May 1 of every year our basically auto trucking liability policy, which gives us coverage on trucking accidents. You know, if you go pre-May 1 of 19, our premiums on that were about $8 million to cover us up to, you know, pretty significant, very, very good coverage.

James B. Gattoni: And as you know, the nuclear verdict has blown up that market. We are now probably above $30 million for that coverage. So you're looking at significant inflation on the insurance line compared to pre-pandemic levels. There's also inflationary stuff in almost every line item.

James B. Gattoni: I don't want to sit here and talk about inflation too much, but, you know, cost of trailers, maintenance, stuff like that at 15% to 20%. You've got wages up more than historically over the last two or three years. So I think there's inflation in there, and this organization is going to try and battle back to get back to that, to get back to that 50% margin. I mean, I think that's clearly going to be, I would guess it's going to be a goal of the organization to get back there.

James B. Gattoni: The other thing we have to is, you know, we went through this tech modernization and upgrades to everything we possibly could do here to provide value to the agents in the capacity out there. So there's been some tech spending over the last five years has been a little higher than normal. So there's also that.

Joseph J. Beacom: So there's, if you look at those costs, there's a little bit more cost in the organization to offset this year as compared to 2019. Okay, and then... It strikes me, you know, that everyone's been saying, you know, we're in this really, really bad market. But, you know, capacity is taking longer to come out than we would have thought, and maybe that's why the market hasn't tightened up at all yet. But your specific model is seeing something different in that your BCO count is now, you know, below where it was before the cycle started. And I don't know that we've seen a cycle where that happened, where your trough on BCO is below the prior trough. So why do you think your specific model is seeing something more extreme in terms of capacity reductions relative to the overall market? Yeah, Scott. This is Joe.

Joseph J. Beacom: That's a great question. I think one of the things, and it kind of is embedded in that 20% of our turnover as it relates to major repairs. You know, we tend to run older equipment here, and I think that the fact that repairs have been very, very challenging and very, very expensive has made that number pretty significant. And perhaps we're a little bit different in that regard, so I think when those things happen, it hits us a little bit harder. You know, that is probably the single biggest explanation for that, just based on why people are leaving, and I just... the age of the fleet as far as BTOs is about the same. It's really... Maybe they're on the leading edge. Maybe they're on the leading edge of coming back too.

Joseph J. Beacom: We hope so. It's the relationships that we have when they depart that are not bad. We don't believe, as I mentioned in the prior question, I don't think they're leaving maybe for the long term. There's only a small, I think it was around...

James B. Gattoni: I think there are about 14% of those that left actually were getting out of trucking, so I think they're there to come back. I just think they're taking the opportunity. If they can't make a reasonable living and they've got other options, which perhaps they do, they're sitting on the sidelines waiting for a more compelling case to come back. Yeah, I mean, I'm just thinking about this way, like your BCO count is, You know, again, now, well below where it was in 19, but your approved and active brokerage carriers are still well above, right? So it just feels like you're seeing the brunt of it more than the overall market. I think one of the things you have to look at, too, is the type of freight we haul.

James B. Gattoni: We are a heavy spot business, and if you heard, I talked about that 3PL non-truck stuff being up 42%. So, you got to look at kind of what they're hauling in our network, too, and some of that when you look at that overflow-type business, that irregular route, non-routine, non-repetitive type freight, that market clearly is a little bit softer than you do in the contract world. So, the contract trucks stay around a little bit longer than these guys because we're dealing with a drop-off in that type of freight. I think that has a little bit to do with it. And if I could just ask one last thing, like this recent, you know, improvement in the spot just to start the year, what's your view? Is this just weather? Is it sustainable in any way?

James B. Gattoni: How are you thinking about that? I'd like to believe it's the beginning of that six to eight cycle turn, right? One thing I would point out is... And this isn't quite a green shoot, but we'll give you a little bit of a, you know, we had record truck brokerage spreads at the beginning of last year. Right. So that meant that the capacity environment was very, very loose.

James B. Gattoni: Starting after the second quarter, coming in the third and fourth quarters, we saw that compress a little bit, and we're still seeing it, you know. So I think that would tell you that there's a little bit of pressure coming from the trucks on us to pay them a little bit more. So in that environment, You know, that kind of holds to say, if they're pushing us more on rate from the truck side, those spot rates, that's not, it's not a weather thing. It's the beginning of maybe flattening or maybe, you know, what we're saying is normal seasonal upticks coming up, you know, at the end of the second, mid, mid 2024. So I look at that and the spread on third-party trust. Thank you, guys. Best of luck, Jim. Thank you. Thank you. We will move to the next question coming from the line of Jack Atkins of Stevens. Your line is now open.

Operator: Okay, great. Thanks for the time, guys. And, Jim, I'll echo everyone's sentiment. Hopefully, now you'll have time to focus on your golf game.

Operator: But I guess, you know, kind of... Shifting gears here, I would maybe just like to kind of think about... Some of the inflationary pressures in the business this year. You know, and so maybe this is a question for Jim Todd, but, you know, I guess as you sort of think about incentive compensation accruals, can you maybe help quantify that for us a bit? And then, you know, elsewhere, could you maybe talk about the cost inflation that you may be seeing at 24 versus 23, just so we can kind of have the full year calibrated correctly from an expense perspective? Thanks, Jack. I'd be happy to.

Jim Todd: With respect to full-year expectations of stock, of commentary under variable programs, you guys have heard me talk about a hypothetical $12 million reset, 24 versus bear case 23, based on where we closed out the fourth quarter of 23, and adding on the impact of some CEO transition. My current base case for G&A is there is a $17 million headwind year over year. That $17 million is before any other what I would call normal wage or benefit inflation. If we look at other operating costs in 2023, we had a tough year there, a very challenging year. Our contractor bad debt provision, which is one of the lumpiest line items in there, was a record, and it was about $4.3 million over trailing 70-year trends.

Jim Todd: So with a cycle inflection mid-year and hopefully that truck turnover rate mean reverting, you could have a $3 to $4 million tailwind there, and we should ring the register on hopefully $2 million more of gains. So that's $5 million of tailwinds on that line. Plus, we should have a smaller average size of the trailer fleet and a lower average age. So that could be a little bit of M&T good guys, partially offset by some software development rollout. So there could be some tailwinds there.

Jim Todd: And then finally, on depreciation, we were very disciplined in 2023 on the CapEx side, but we're starting to take deliveries again of new van trailers, and the cost per trailer headwind there is probably about 20 to 22 percent as compared to pre-pandemic. So you'll start to see that ramp up sequentially, probably second to third. Okay, no, that's helpful, Jim. Thank you for that.

Operator: And I guess maybe kind of taking a step back, you know, when... You know, if you guys think about it, there's been a lot of inflation in the business, Jim, to your point. And then, you know, as we kind of think about whether it's insurance, just structurally higher costs there, the technology investments that you've made, cargo theft is becoming a much bigger issue, to your point, Jim, Todd. So I guess, you know, do you feel like that the sort of the traditional revenue splits and sort of, you know, that it's been sort of embedded in Landstar's business for years, you know, are still kind of the right way to kind of split the revenue moving forward? Or do you think there needs to be some changes there? Just just given you're bearing a lot more costs today, in terms of overhead to support your agents and your BCOs than you've had to do in the past. Now, you. I wouldn't imagine we're going to change splits, you know, our role here is to support and add value to the

If you have any objections you may disconnect at this time joining us today from Landstar are Jim got Sony President 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 Sony Sir you may begin.

Thank you Paul Good morning, and welcome to Landstar is 2023 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 1995 statements made during this conference call that are not based on historical facts are forward looking statements. During this conference call. We may make statements that contain forward looking information that relates to last year's business objectives plans strategies and expectations such information is by nature subject to uncertainties and risks.

Included but not limited to the operational financial and legal risks detailed in <unk> Form 10-K for the 2022 fiscal year described in the section risk factors and other SEC filings from time to time.

Okay.

Good morning, and welcome to Landstar system incorporated year end 2023 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 see.

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 Landstar undertakes no obligation to publicly update or revise any forward looking information.

The freight environment throughout the 2023 fourth quarter reflected soft demand and readily available truck capacity.

Oh, 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.

These freight market conditions were consistent with what Landstar experienced during the first three quarters of 2023. The 2023 fourth quarter also included an abnormally soft peak season by historical standards.

Speaker Change: Thank you Bob Good morning, and welcome to Landstar is 2023 fourth quarter earnings Conference call before we begin let me read the following statement if all of the Safe Harbor statement under the private Securities Litigation Reform Act of 1095 statements made during this conference call it or not based on historical facts are forward looking statements. During this conference call. We may make statements that contain <unk>.

Nevertheless, even with a weak peak season, lesser performed mostly in line with the 2023 fourth quarter guidance, we issued in our third quarter earnings release on October 25th.

We provided revenue guidance of $1 $225 million to $1.275 billion.

Speaker Change: Looking information that relates to last year's business objectives plans strategies and expectations such information is by nature subject to uncertainties and risks, including but not limited to the operational financial and legal risks detailed in <unk> Form 10-K for the 2022 fiscal year described in the section risk factors and other SEC filings from time to time these risks.

Actual revenue came in at $1.204 billion about 2% below the low end of our guidance. We also issued earnings earnings per share guidance of $1 60 to $1 70 actual earnings per share in the 2023 fourth quarter was $1 62 slightly above the low end of the guidance.

It is worth noting again led to 2023 performance continues to significantly outpace pre pandemic levels 2023 fourth quarter revenue was 21% over the 2019 fourth quarter revenue and earnings per share exceeded the 2019 fourth quarter by approximately 28%.

Speaker Change: 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 Landstar undertakes no obligation to publicly update or revise any forward looking information.

Before diving into further detail on <unk> performance in the 2023 fourth quarter. Please note I will make mention of normal seasonal patterns are normal trends.

Speaker Change: The freight environment throughout the 2023 fourth quarter reflected soft demand and readily available truck capacity.

Speaker Change: Freight market conditions were consistent with what Landstar experienced during the first three quarters of 2023.

The purpose of today's conference call normal seasonal patterns and normal trends refer to lift our sequential revenue load count pricing or other trends for monthly or quarterly periods from 2015 to 2019 and excludes our historical results from 2000, 22021, and 2022 due to the highly unusual dynamics reflected in those metrics during the pandemic driven freight.

Speaker Change: 2023 fourth quarter also included an abnormally soft peak season by historical standards.

Speaker Change: Nevertheless, even with a weak peak season last year performed mostly in line with the 2023 fourth quarter guidance, we issued in our third quarter earnings release on October 25th.

Cycle.

Overall truck revenue was $1 $85 million in the 2023 fourth quarter, 29% below the 2022 fourth quarter on a 22% decrease in load volume and a 10% decrease in revenue per load.

Speaker Change: We provided revenue guidance of $1 $225 million to $1.275 billion.

Speaker Change: Actual revenue came in at $1.204 billion about 2% below the low end of our guidance. We also issued earnings earnings per share guidance of $1 60 to $1 70 actual earnings per share in the 2023 fourth quarter was $1 62 slightly above the low end of the guidance.

It should be noted that the 2022 fourth quarter included 14 weeks, whereas the 2023 fourth quarter included 13 weeks, excluding the estimated truckload volume from the extra week in the 2022 fourth quarter truckload volume decreased an estimated 19% in 2023 fourth quarter compared to the 2020 to fourth quarter.

Speaker Change: It is worth noting again led to 2023 performance continues to significantly outpace pre pandemic levels 2023 fourth quarter revenue was 21% over the 2019 fourth quarter revenue and earnings per share exceeded the 2019 fourth quarter by approximately 28%.

As we entered the 2023 fourth quarter the number of loads hauled via truck in early October was trending below normal seasonal patterns.

The below normal trend in the number of loads hauled via truck started in the 2022 second quarter as each sequential quarter to quarter change in truckload count from the 2022 second quarter through the 2022 fourth quarter was below normal seasonal patterns due to the soft consumer demand for the types of freight we haul and a slow U S manufacturing sector.

Speaker Change: Before diving into further detail on last year's performance into 2023 fourth quarter. Please note I will make mention of normal seasonal patterns are normal trends.

For purposes of today's conference call normal seasonal patterns and normal trends refer to last our sequential revenue load count pricing or other trends for monthly or quarterly periods from 2015 to 2019 and excludes our historical results from 2000, 22021, and 2022 due to the highly unusual dynamics reflected in those metrics during the pandemic driven free.

Based on normal seasonal patterns truckload volume typically increased slightly from the third quarter to the fourth quarter in a given year from.

From the 2022 third quarter to the 2023 fourth quarter truckload volume decreased 6%, a significant underperformance compared to normal seasonal patterns.

Speaker Change: <unk> cycled.

Speaker Change: Overall truck revenue was $1 $85 million in 2023 fourth quarter, 29% below the 2022 fourth quarter on a 22% decrease in load volume and a 10% decrease in revenue per load.

As to pricing truck revenue per load was trending reasonably in line with normal seasonal patterns through mid October however, revenue per load on loads hauled via truck softened. After the first few weeks of October and traded seasonally below normal patterns from September to October October and November and November to December we attribute that negative pattern primarily to the.

Speaker Change: It should be noted that the 2022 fourth quarter included 14 weeks, whereas the 2023 fourth quarter included 13 weeks, excluding the estimated truckload volume from the extra week in the 2022 fourth quarter truckload volume decreased an estimated 19% in 2024th quarter compared to the 2020 to fourth quarter.

<unk> peak season.

We look at Bcl revenue per mile as a barometer of the rate environment. As this metric, mostly excludes the impact of rising and falling fuel costs. During the 2023 fourth quarter revenue per mile on Bcl van equipment remained fairly stable from October to December whereas revenue per mile on PCL on sided platform equipment soften through the quarter.

Speaker Change: As we entered the 2023 fourth quarter the number of loads hauled via truck in early October was trending below normal seasonal patterns. The below normal trend in the number of loads hauled via truck started in the 2022 second quarter as each sequential quarter to quarter change in truckload count from the 2022 second quarter through the 2022 fourth quarter was below <unk>.

<unk> revenue per mile on van equivalent an onside equipment, which in both cases, excluding fuel surcharges were 17% and 14% higher than December 2023, compared to the December 2019, respectively.

Speaker Change: Normal seasonal patterns due to the soft consumer demand for the types of freight we haul and a slow U S manufacturing sector.

Speaker Change: Based on normal seasonal patterns truckload volume typically increased slightly from the third quarter to the fourth quarter in a given year from the 2022 third quarter to the 2023 fourth quarter truckload volume decreased 6%, a significant underperformance compared to normal seasonal patterns.

However, based on ACH based on industry data from <unk> the cost to operate a truck excluding fuel cost was approximately 20% greater in 2022, then of 2019 in other words the increase in rates. Since December 2019, likely has not kept up over that period with the increase in cost to operate a truck. We continue to believe that rates in the spot market will stay relatively.

Speaker Change: As to pricing truck revenue per load was training reasonably in line with normal seasonal patterns through mid October however, revenue per load on loads hauled via truck softened. After the first few weeks of October and trended seasonally below normal patterns from September to October October and November in November to December we attribute that negative pattern primarily.

Higher than 2019 levels, given the significant amount of additional cost to operate a truck today.

In terms of revenue by equipment type in the 2023 fourth quarter revenue hauled via van equipment onsite platform equipment power only and less than truckload revenue all experienced revenue declines from the 2022 fourth quarter revenue hauled via van equipment was 29% below the 2022 fourth quarter, mostly on soft demand on the consumer frankly hall.

Speaker Change: Normally soft peak season.

Speaker Change: We look at PCL revenue per mile as a barometer of the rate environment as this metric, mostly excludes the impact of rising and falling fuel costs.

Speaker Change: The 2024th quarter revenue per mile on Bcl van equipment remained fairly stable from October to December whereas revenue per mile on PCL on sided platform equipment soften through the quarter.

Revenue hauled via onsite at platform equipped with 20% below the 2022 fourth quarter, mostly due to a slow U S manufacturing sector.

Other truck transportation revenue, which is primarily comprised of power only revenue with significantly favorably impacted by increased demand for substitute line haul services during the pandemic and without 51% compared to the 2022 fourth quarter Unsurprisingly demand for substitute line haul services was significantly softer throughout 2023 compared to 2020.

<unk> revenue per mile on van equivalent an onside equipment, which in both cases, excluding fuel surcharges were 17% and 14% higher than December 2023, compared to the December 2019, respectively.

Speaker Change: However, based on ACH based on industry data from <unk> the cost to operate a truck excluding fuel cost was approximately 20% greater in 2020 to that of 2019.

Two.

Less than truckload revenue decreased 26% compared to the 2022 fourth quarter on a 15% decrease in load volume and a 13% decrease in pricing.

Speaker Change: Other words the increase in rates since December 2019, likely has not kept up over that period with the increase in cost to operate a truck. We continue to believe that rates in the spot market will stay relatively higher than 2019 levels given the significant amount of additional cost to operate a truck today.

Our rail air and Ocean services revenue in the 2023 fourth quarter was 23% or $26 million below the 2022 fourth quarter non truck transportation revenue generated in the 2023 fourth quarter was however, consistent with the revenue. These services generated in the 2023 third quarter.

Speaker Change: In terms of revenue by equipment type in the 2023 fourth quarter revenue hauled via van equipment onsite platform equipment power only and less than truckload revenue all experienced revenue declines from the 2022 fourth quarter revenue hauled via van equipment was 28, 9% below the 2022 fourth quarter, mostly on soft demand on the consumer frankly hall.

Total network loadings in the 2023 fourth quarter were 21% below the 2022 fourth quarter.

Total low volume is somewhat influenced by customer mix. For example, lessor provides truck capacity to other trucking companies three pls and truck brokers, where volumes tend to vary more widely period to period with changes in the levels of freight demand.

Speaker Change: Revenue hauled via onsite platform equipped with 20% below the 2022 fourth quarter, mostly due to a slow U S manufacturing sector.

Revenue hauled on behalf of other truck transportation companies was 15% and 8% and 19% of transportation revenue revenue in the 2023 and 2022 fourth quarters respectively.

Speaker Change: Truck transportation revenue, which is primarily comprised of power only revenue with significantly favorably impacted by increased demand for substitute line haul services during the pandemic and without 51% compared to the 2022 fourth quarter Unsurprisingly demand for substitute line haul services was significantly softer throughout 2023 compared to 2022.

During periods of tight truck capacity other trucking companies three pls and truck brokers reach out the landstar to provide truck capacity more often than during times of readily available truck capacity.

The freight hauled by Landstar on behalf of other truck transportation companies includes almost all of our commodity groupings overall the revenue hauled on behalf of other truck transportation companies in the 2023 quarter fourth quarter was 42% below the 2022 fourth quarter contributing 20, 28% of the overall $470 million decrease in quarter over.

Speaker Change: Lessened truckload revenue decreased 26% compared to the 2022 fourth quarter and a 15% decrease in load volume a 13% decrease in pricing.

Speaker Change: Our rail air and Ocean services revenue in the 2023 fourth quarter was 23% or $26 million below the 2022 fourth quarter non truck transportation revenue generated in 2023 fourth quarter was however, consistent with the revenue. These services generated in the 2023 third quarter.

The prior year quarter revenue.

Year end 2023 Bcf truck count was approximately 13% below the 2022 year end trucked out physical 2023 Bcf truck turnover was 41%, which is higher than the 36% turnover rate landstar experienced in 2019 during the most recent relatively comparable soft freight environment.

Speaker Change: Total network loadings in the 2023 fourth quarter were 21% below the 2020 to fourth quarter.

Speaker Change: Total low volume is somewhat influenced by customer mix. For example, lessor provides truck capacity to other trucking companies three pls and truck brokers, where volumes tend to vary more widely period to period with changes in the levels of freight demand.

We believe the increase in the turnover rate compared to the comparable 2019 period was due to the significance of the decrease in rates the duration of the negative trend in month to month revenue per load and the increased cost to operate a truck today compared to pre pandemic periods I will now pass to Jim Todd to comment on other additional P&L metrics or out into 2023 fourth quarter performance.

Speaker Change: Revenue hauled on behalf of other truck transportation companies was 15% and 8% and 19% of transportation revenue revenue in the 2023 and 2022 fourth quarters respectively.

Speaker Change: 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 readily available truck capacity.

Thanks, Jim Jim has covered certain information on our 2023 fourth quarter. So I will cover various other fourth quarter financial information included in the press release.

Speaker Change: The freight hauled by Landstar on behalf of other truck transportation companies includes almost all of our commodity groupings overall the revenue hauled on behalf of other truck transportation companies in the 2023 quarter fourth quarter was 42% below the 2022 fourth quarter contributing 20, 28% of the overall $470 million decrease in quarter over.

And the 2023 13 week fourth quarter gross profit was $124 6 million compared to gross profit of $180 million in the 2020 to 14 week fourth quarter gross profit margin was 10, 3% of revenue in the 2023 fourth quarter as compared to gross profit margin of 10, 7% and a corresponding period of 2022.

Speaker Change: The prior year quarter revenue.

And in the 2023 fourth quarter variable contribution was $178 1 million compared to $234 million in the 2022 fourth quarter.

Speaker Change: Year end 2023 Bcf truck count was approximately 13% below the 2022 year end trucked out physical 2023 Bcf truck turnover was 41%, which is higher than the 36% turnover rate landstar experienced in 2019 during the most recent relatively comparable soft freight environment. We believe the increase in the turnover rate compared to the.

Variable contribution margin was 14, 8% of revenue in 2023 fourth quarter compared to 14% in the same period last year. The increase in variable contribution margin compared to the 2022 fourth quarter was primarily attributable to mix as an increased percentage of revenue was generated by bto independent contractors, which typically has a higher barrier to contribution margin.

Speaker Change: <unk> 2019 period was due to the significance of the decrease in rates the duration of the negative trend in month to month revenue per load and the increased cost to operate a truck today compared to pre pandemic periods I will now pass to Jim Todd to comment on other additional P&L metrics regarding the 2023 fourth quarter performance gimbal. Thanks, Jim Jim has covered certain.

And revenue generated by other modes of transportation.

And an increased variable contribution margin on revenue generated by <unk> independent contractors other operating costs were $13 $2 million in the 2023 fourth quarter compared to $10 3 million. In 2022. This increase was primarily due to increased trailing equipment maintenance costs and decreased gains on sale of used trailing equipment.

Jim Todd: Information on our 2023 fourth quarter, So I will cover various other fourth quarter financial information included in the press release.

Jim Todd: In the 2023 13 week fourth quarter gross profit was $124 6 million compared to gross profit of $180 million in the 2020 to 14 week fourth quarter gross profit margin was 10, 3% of revenue in the 2023 fourth quarter as compared to gross profit margin of 10, 7% and a corresponding period of 2022.

Insurance and claims costs were $27 $3 million in 2023 fourth quarter compared to $29 6 million in 2022.

Total insurance and claims costs were 6% of <unk> revenue in 2023 period, and 5% of <unk> revenue in 2022 period. The decrease in insurance and claims costs as compared to 2022 was primarily attributable to decreased net unfavorable development of prior year claim estimates, partially offset by increased premium expense, primarily for commercial auto and excess liability.

Jim Todd: And in the 2023 fourth quarter variable contribution was $178 1 million compared to $234 million in the 2020 to fourth quarter.

Jim Todd: Contribution margin was 14, 8% of revenue in 2023 fourth quarter compared to 14% in the same period last year. The increase in variable contribution margin compared to the 2022 fourth quarter was primarily attributable to mix as an increased percentage of revenue was generated by <unk> independent contractors, which typically has a higher barrier to contribution margin.

Coverage during the 2023 and 2022 fourth quarters insurance and claims costs included $900000 and $3 $8 million, respectively of net unfavorable adjustments to prior year claim estimates.

Selling general and administrative costs were $52 $7 million in the 2023 fourth quarter compared to $56 1 million in 2022.

And revenue generated by other modes of transportation and an increased variable contribution margin on revenue generated by <unk> independent contractors. Other operating costs were $13 $2 million in the 2023 fourth quarter compared to $10 3 million. In 2022. This increase was primarily due to increased trailing equipment maintenance costs and decreased gains on sale of used trailing equipment.

The decrease in selling general and administrative costs was primarily attributable to a decreased provision for incentive and equity compensation under our variable compensation programs, partially offset by increased employee benefit cost and a 2023 fourth quarter. The provision for compensation under variable programs is $100000 compared to $5 $3 million in the 2022 fourth quarter.

Jim Todd:

Jim Todd: Insurance and claims costs were $27 $3 million in 2023 fourth quarter compared to $29 6 million in 2022 total.

Depreciation and amortization was $13 $7 million in the 2023 fourth quarter compared to $14 8 million. In 2022. This decrease was primarily 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 third party capacity.

Jim Todd: Total insurance and claims costs were 6% of <unk> revenue in 2023 period, and 5% of <unk> revenue in 2022 period. The decrease in insurance and claims costs as compared to 2022 was primarily attributable to decreased net unfavorable development of prior year claim estimates, partially offset by increased premium expense, primarily for commercial auto and excess liability.

He providers.

Effective income tax rate of 24%.

One 1% in the 2023 fourth quarter was 60 basis points lower than the effective income tax rate of 24, 7% in the 2022 fourth quarter as the effective income tax rate in the 223 fourth quarter was favorably impacted by certain positive state tax developments. In addition, the effective tax rate in the 2022 fourth quarter was unfavorably impacted.

Jim Todd: Coverage during the 2023 and 2022 fourth quarters insurance and claims costs included $900000 and $3 $8 million, respectively of net unfavorable adjustments to prior year claim estimates.

Jim Todd: Selling general and administrative costs were $52 7 million in the 2023 fourth quarter compared to $56 1 million in 2022, the decrease in selling general and administrative costs was primarily attributable to a decreased provision for incentive and equity compensation under our variable compensation programs, partially offset by increased employee benefit costs.

<unk> by the impairment and deferred tax assets assets related to employee equity compensation arrangements as a result of performance conditions being attained as of year end.

Looking at our balance sheet, we ended the quarter with cash and short term investments of $541 million cash flow from operations for 2023 was $394 million in cash capital expenditures were $26 million back to you Jim.

Jim Todd: The 2023 fourth quarter the provision for compensation under variable programs is $101000 compared to $5 3 million in the 2022 fourth quarter.

Thanks, Joe.

Depreciation and amortization was $13 $7 million in the 2023 fourth quarter compared to $14 8 million. In 2022. This decrease was primarily 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 third party capacity providers.

We entered 2023 with a challenging freight environment and very difficult year over year comparisons coming off a record 2022.

<unk> revenue performance through the freight cycles that occurred over the past four years ultimately set the stage for where we are today.

From the 2022 second quarter at the start of the pandemic to the record revenue last are achieved in the 2022 second quarter sequential quarter to quarter revenue trends were above <unk>.

Jim Todd: The effective income tax rate of 21.

1% in the 2023 fourth quarter was 60 basis points lower than the effective income tax rate of 24, 7% in the 2022 fourth quarter as the effective income tax rate in the 223 fourth quarter was favorably impacted by certain positive state tax developments. In addition, the effective tax rate in the 2022 fourth quarter was unfavorably impacted.

Seasonal norms.

That revenue up cycle lasted seven quarters.

Through the 2023 fourth quarter quarter to quarter revenue decrease below historical seasonal trends for six consecutive quarters from the record revenue set in the 2022 second quarter <unk>.

Generally in the ordinary course of our business, we experienced down cycles that drive revenue from peak to trough as well as up cycles that drive revenue from trough to peak with each peak and trough being higher than the last.

<unk> by the impairment and deferred tax assets assets related to employee equity compensation arrangements as a result of performance conditions being attained as of year end.

In the case of either down cycles up cycles freight cycles tend to move from peak to trough of trough to peak over six to eight quarters.

Jim Todd: Looking at our balance sheet, we ended the quarter with cash and short term investments of $541 million cash flow from operations for 2023 was $394 million in cash capital expenditures were $26 million.

These cycles are typically driven by three main factors the level of industry demand for freight services the level of available truck capacity and the differential between industry wide contract and spot pricing at any given point in time.

Thank you Jim.

Jim Todd: Thanks, Joe.

Jim Todd: Yes.

Jim Todd: We entered 2023 with a challenging freight environment and very difficult year over year comparisons coming off a record 2022.

Given we have been in a down cycle for six consecutive quarters, we expect to be to begin to see above normal seasonal revenue growth around mid year 2024.

Jim Todd: Landstar is revenue performance through the freight cycles that occurred over the past four years ultimately set the stage for where we are today from the 2022 second quarter at the start of the pandemic to the record revenue last are achieved in the 2022 second quarter sequential quarter to quarter revenue trends were above <unk>.

Currently we expect first quarter 2020 for revenue per truckload of number of loads hauled via truck to track in line with seasonal norms. Following the 2023 fourth quarter. This expectation is driven by the trends in revenue per truckload truckload volume in the first several weeks of January.

Jim Todd: Seasonal norms.

And the wafer the normal peak season in the 2023 fourth quarter.

Jim Todd: That revenue up cycle lasted seven quarters.

Jim Todd: Through the 2023 fourth quarter quarter to quarter revenue decrease below historical seasonal trends for six consecutive quarters from the record revenue set in the 2022 second quarter <unk>.

Given those expectations, we anticipate revenue in 2020 for fourth first quarter to be in a range of $1 1 billion to $1, one 5 billion.

And diluted earnings per share to be in a range of $1 25 to $1 35. This earnings estimate anticipates vials of contribution margin ranging from 14, 5% to 14, 7%.

Jim Todd: Generally in the ordinary course of our business, we experienced down cycles that drive revenue from peak to trough as well as up cycles that drive revenue from trough to peak with each peak and trough being higher than the last.

Please note that the variable contribution margin in the first quarter is most often the highest valuable contribution margin of any quarter. During a given year. This is typically attributable attributable in large part to mix as bcl revenue, which has a higher have a higher variable contribution margin and other modes often.

Jim Todd: In the case of either down cycles up cycles freight cycles tend to move from peak to trough of trough to peak over six to eight quarters. These cycles are typically driven by three main factors the level of industry demand for freight services the level of available truck capacity and the differential between industry wide contract and spot pricing at any given point in time.

That's a higher percentage of revenue in the first quarter.

Higher variable contribution margin on third party truck brokerage revenue in the first quarter compared to the following three quarters also may contribute to the historical seasonal trend as the first quarter is typically seasonally softer than the following three quarters.

Jim Todd: Given we've been in a down cycle for six consecutive quarters, we expect to be to begin to see above normal seasonal revenue growth around mid year 2024.

Jim Todd: Currently we expect first quarter 2020 for revenue per truckload of number of loads hauled via truck to track in line with seasonal norms. Following the 2023 fourth quarter. This expectation is driven by the trends in revenue per truckload truckload volume in the first several weeks of January.

The expectation of a cycle upturn mid year suggest less or could experienced increasing demand a shift in mix towards truck brokerage and somewhat of a tighter truck capacity market as we move through 2024 assets in the first quarter Viola contribution margin included in the first quarter guidance is not representative of what we expect for the full year based on current <unk>.

Jim Todd: On the wafer the normal peak season in the 2023 fourth quarter.

Jim Todd: Given those expectations, we anticipate revenue in the 2020 for fourth first quarter to be in a range of $1 1 billion to $1, one 5 billion.

<unk> for 2024, we expect variable contribution margin for the full year 'twenty for fiscal year to be below the first quarter by 50 to 100 basis points.

Jim Todd: And diluted earnings per share to be in a range of $1 25 to $1 35. This earnings estimate anticipates filed the contribution margin ranging from 14, 5% to 14, 7%.

As previously mentioned the macro freight environment softened significantly throughout 2023 as compared to the pandemic driven demand that continue to drive freight markets in early part of fiscal year 2022 regards to a less robust freight environment inflationary pressure of Landstar of labor equipment and insurance costs. The resiliency of <unk> business model continues to generate.

Jim Todd: Please note that the variable contribution margin in the first quarter is most often the highest variable contribution margin of any quarter. During a given year. This is typically attributable attributable in large part to mix as bcl revenue, which has a higher <unk>.

<unk> free cash flow and financial returns lesser achieve free cash flow of 368 $68 million in fiscal year 2023, and ended the year with a stronger balance sheet than ever before two.

Jim Todd: Higher variable contribution margin in other months, often contribute to a higher percentage of revenue in the first quarter.

Jim Todd: Higher variable contribution margin on third party truck brokerage revenue in the first quarter compared to the following three quarters also may contribute to the historical seasonal trend as the first quarter is typically seasonally softer than the following three quarters.

2024 has its worked out as its work cut out for it due to continuing soft conditions in the freight environment. Nevertheless, we have been through many business cycles before and we still expect nothing less.

Jim Todd: The expectation of a cycle upturn mid year suggest less or could experienced increasing demand a shift in mix towards truck brokerage and somewhat of a tighter truck capacity market as we move through 2024 assets for the first quarter Viola contribution margin included in the first quarter guidance is not representative of what we expect for the full year based on current <unk>.

Then 2020 for being a terrific year by pre pandemic standards.

Before I open to questions I want to.

Put a little more color around the first quarter guidance, we often refer to seasonal patterns as it relates to short term trends quarter to quarter and the seasonal patterns. When you look at it the more inputs to a financial metric.

<unk> for 2024, we expect variable contribution margin for the full year 'twenty for fiscal year to be below the first quarter by 50 to 100 basis points.

The more volatile that seasonal pattern would be for example, when we look at truck revenue, we relate to seasonal patterns theres only two inputs to truck revenue, it's well it's revenue per load.

Jim Todd: As previously mentioned the macro freight environment softened significantly throughout 2023 as compared to the pandemic driven demand that continue to drive freight markets in early part of fiscal year 2022 regards to a less robust freight environment inflationary pressure of Landstar of labor equipment and insurance costs. The resiliency of <unk> business model continues to generate <unk>.

And it's the number of loads hauled so it tends to in the short term be less volatile and things like EPS. When we look at EPS. There are more inputs for EPS, whether it's the change in variable contribution.

Contribution margin from one quarter or our changes and what tend to be the most volatile numbers in our P&L below the variable contribution line, which is insurance.

Jim Todd: <unk> free cash flow and financial returns lesser achieve free cash flow of 368 $68 million in fiscal year 2023, and ended the year with a stronger balance sheet than ever before two.

And our valuable compensation programs. So when we looked at our trends and we look at the first quarter guidance and compared to the fourth quarter, we're kind of in line with the revenue trend seasonally and again seasonally from 2000 to 2015 to 2019, but off some off the trend somewhat when you look at EPS and that's generally attribute.

Jim Todd: 2024 has its worked out as its work cut out for a due to continuing soft conditions in the freight environment. Nevertheless, we have been through many business cycles before and we still expect nothing less.

Jim Todd: Then 2020 for being a terrific year by pre pandemic standards.

Speaker Change: Before I open to questions I want to.

One is we're looking at a variable contribution margin in the first quarter, that's slightly below the fourth quarter and it's really driven by the fact that we are looking at.

Speaker Change: Put a little more color around the first quarter guidance, we often refer to seasonal patterns as it relates to short term trends quarter to quarter and the seasonal patterns. When you look at it the more inputs to a financial metric.

The Bcl revenue in the first quarter to be the same as the fourth quarter, where typically is higher in the first quarter and the fourth quarter and that's due to a drop off in the fourth quarter Bcf. So were anticipating a slightly lower xyrem contribution margin in the first quarter compared to fourth quarter, which is not our norm and then you're also dealing with some.

Speaker Change: The more volatile that seasonal pattern would be for example, when we look at truck revenue, we relate to seasonal patterns theres only two inputs to truck revenue, it's well it's revenue per load.

Speaker Change: And it's the number of loads hauled so it tends to in the short term be less volatile and things like EPS. When we look at EPS. There are more inputs for EPS, whether it's the change in variable contribution.

The variable compensation programs in the first quarter, along with a little bit of CEO transition cost that wasn't necessarily in the fourth quarter and then when I look at it and then look at EPS falling off from the fourth quarter for the first quarter. It's more in line with 2015 2016 2017.

Speaker Change: Contribution margin from one quarter or our changes and what tend to be the most volatile numbers in our P&L below the Diavik contribution line, which is insurance.

Speaker Change: And our variable compensation programs. So when we looked at our trends and we look at the first quarter guidance and compared to the fourth quarter, we're kind of in line with the revenue trend seasonally and again seasonally from 2000 to 2015 to 2019, but off some off the trend somewhat when you look at EPS and that's generally attribute.

Because of the seasonal pattern in 2018, if you recall it was really driven by the <unk> mandate when actually the <unk>.

Fourth quarter of.

2017, compared to 2018 was abnormal the 2018 was above expected performance and a night in 2019, we just had that we're coming off a very high incentive compensation in 2018.

Speaker Change: One is we're looking at a variable contribution margin in the first quarter, that's slightly below the fourth quarter and it's really driven by the fact that we are looking at.

There was.

Making the comp there, but 2019 comp for the fourth quarter much easier. So that's what we're looking at the EPS. We're looking at about a 20% decline from the fourth quarter to the first part to the midpoint, which is really more representative of what we're anticipating in things other than the top line.

Speaker Change: The Bcl revenue in the first quarter to be the same as the fourth quarter, where it typically is higher in the first quarter to the fourth quarter and that's due to a drop off in the fourth quarter Bcf. So were anticipating a slightly lower Saar low contribution margin in the first quarter compared to fourth quarter, which is not a norm and then you're also dealing with some.

And with that I will open to questions.

Thank you very much sir.

We will begin the question and answer session I would like to ask a question. Please press star one on your Touchtone phone. Once again that is star one to ask a question quick answer request. Please press star tail, we have questions on queue and our first question is coming from the line of Brian Olsen Buckles Jpmorgan. Your line is now open.

Speaker Change: The variable compensation programs in the first quarter, along with a little bit of CEO transition cost that wasn't necessarily in the fourth quarter and then when I look at it and I look at EPS falling off from the fourth quarter for the first quarter. It's more in line with 2015 2016 2017.

Hey, good morning, Thanks for taking the.

Speaker Change: Because of the seasonal pattern in 2018, if you recall it was really driven by the <unk> mandate when actually the <unk>.

Question.

Jim maybe you can just give us some color on the trends.

ECR you mentioned that turnover in a couple of reasons behind that and why it was up.

Speaker Change: Fourth quarter of.

Speaker Change: 2017, compared to 2018 was abnormal the 2018 was above expected performance and a night in 2019, we just had that we're coming off a very high incentive compensation in 2018.

Do you see that sort of bottoming out is there a risk that the longer this lasts maybe into that quarter plus range that they just don't seem to come back as quickly or maybe come back come back with a lag really trying to understand that as it relates to.

Speaker Change: There was.

Speaker Change: Making the comp there, but 2019 comp for the fourth quarter much easier. So that's what we're looking at EPS. We're looking at about a 20% decline from the fourth quarter to the first part to the midpoint, which is really more representative of what we're anticipating in things other than the top line.

The leverage and the ability to grow.

And the model that would be helpful. Thanks.

Hey, Brian.

Answer that question. So yes, so we've seen the bto count decline at a pretty good clip and I think as Jim mentioned in his prepared comments a lot of that is just the duration of the down trending down and also the fact that your costs are up perhaps more than the rates are now able to support and that kind of what we've seen.

Speaker Change: And with that I will open to questions.

Speaker Change: Thank you very much sir.

Speaker Change: We will begin the question and answer session I would like to ask a question. Please press star one on your touch upon foreign once again that is star wants to ask a question for cancer request. Please press star tail, we have questions on queue and our first question is coming from the line of Brian Olsen back of Jpmorgan. Your line is now open.

Over the course of the last four quarters and it continues into the first quarter.

If we go back.

We've seen some quarters, whereby it's gone up.

Pretty substantially as well so I think the comp can be reactive fundamentals have to be there. If I take you back to 17, we were up 250.

Brian Olsen: Hey, good morning, Thanks for taking.

Brian Olsen: The question.

Brian Olsen: Jim maybe you can just give us some color on the trends in ECR, you mentioned that turnover in a couple of reasons behind that and why it was up where do you see that sort of bottoming out as there are risks that the longer this lasts maybe into that eight quarter plus range that they just don't seem to come back as quickly or maybe come back come back with a lag.

Nine over 902018.

750 in 2028 73 in 2021, so I think it speaks to the fact that the.

Bto capacity will come back into the model.

The fundamentals have to be there and right now I just don't think the fundamentals are all that compelling.

Brian Olsen: Trying to understand that as it relates to.

And if you look at.

Brian Olsen: The leverage and the ability to grow.

Some of the reasons for the departures and I think that helps us kind of put some color around that the single biggest reason for departure and full year 2023.

Brian Olsen: And the model that'd be helpful. Thanks.

Brian Olsen: Hey, Brian This is Joe.

Joseph J. Beacom: Answer that question. So yes, so we've seen the bto count decline at a pretty good clip and I think as Jim mentioned in his prepared comments a lot of that is just the duration of the down.

Was.

Maintenance costs inability to make repairs. So if your financial viability is questionable or youre marginally profitable.

Joseph J. Beacom: Trending down and also the fact that your costs are up perhaps more than the rates are now able to support and that's kind of what we've seen over the course of the last four quarters and it continues into the first quarter.

As a <unk> and you have a significant maintenance expense you just can't cover it. So you go to the sidelines and Thats, what Thats, a full 20% of our terminations in 2020. So I think that speaks to two things one I think the difficulty in the environment for <unk>, but also the fact that.

If we go back.

Joseph J. Beacom: We've seen some quarters, whereby it's gone up.

When some of those things improve I think the model can be resilient and grow as we have in the past. So I don't I don't think its anything thats systemic going forward the interest to come on and let Landstar is still there I just think it's really a reaction to a capacity, leaving the market overall as it is.

Joseph J. Beacom: Pretty substantially as well so I think that the cost can be reactive fundamentals has to be there. If I take you back to 17, we were up 250.

Joseph J. Beacom: Nine over 902018.

Joseph J. Beacom: $750 and 2020 up 873 in 2021, so I think it speaks to the fact that there.

Small carriers across the landscape are leaving the market in rapid fashion.

Joseph J. Beacom: Bto capacity will come back into the model.

Joseph J. Beacom: The fundamentals have to be there and right now I just don't think the fundamentals are all that compelling.

Not immune to that and so that's happening.

Thanks Al.

To look for opportunities to come back and when the when the freight market improves and we kind of move our way out of this freight recession.

Joseph J. Beacom: And if you look at.

Joseph J. Beacom: Some of the reasons for the departures I think that helps us kind of put some color around that the single biggest reason for departure and full year 2023.

Great. Thanks for that maybe Tim could Tony Congrats on your comment that's good luck in the next phase maybe you can just give us a sense of the transition costs. You mentioned there it seemed like it wasn't impact worth calling out because the first quarter.

Joseph J. Beacom: Was.

Joseph J. Beacom: Maintenance costs inability to make repairs. So if your financial viability is questionable or youre marginally profitable.

Thanks, Brian.

Joseph J. Beacom: As a <unk> and you have a significant maintenance expense you just can't cover it. So you go to the sidelines and Thats, what Thats, a full 20% of our terminations in 2020. So I think that speaks to two things one I think the difficulty in the environment for <unk>, but also the fact that.

So from a sequential standpoint.

Related to SG&A when you when you look at the reset of the variable compensation programs that Jim spoke to.

With the CEO transition costs, its about a $5 $9 million sequential headwind or about 12% 12 pennies.

Joseph J. Beacom: When some of those things improve I think the model can be resilient and grow as we have in the past. So I don't I don't think its anything thats systemic going forward the interest to come on and let Landstar is still there I just think it's really a reaction to.

Okay. Thanks, a lot for your time I appreciate it.

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

Good morning, everyone and thanks for the question Jim Congrats on the retirement there.

Joseph J. Beacom: Capacity, leaving the market overall as it is small carriers across the landscape or leaving the market in rapid fashion.

Just wanted to ask a question on the substitute line haul you talked about the week peak this year and the impact.

Joseph J. Beacom: Not immune to that and so that's happening I just thanks al.

On this end market relative to some of the others, but I just wanted to get your sense of whether this is a temporary thing related to this particular down cycle.

Joseph J. Beacom: To look for opportunities to come back and when the when the freight market improves and we kind of move our way out of this freight recession.

Speaker Change: Great. Thanks for that maybe Jim good Tony Congrats on your comment that's luck in the next phase maybe you can just give us a sense of that.

Whether this might be more of a structural issue since we've heard of some big Whitehall consolidation initiatives that.

Some of the big traditional customers. During this period, so any commentary there on the cyclicality versus structural weakness.

Speaker Change: Transition costs, you mentioned there it seemed like it was an impact.

Speaker Change: Calling out because the first quarter. Thanks.

Speaker Change: Thanks, Brian.

The White Hall.

Tony: So from a sequential standpoint, just just related to SG&A. When you. When you look at the reset of variable compensation programs that Jim spoke to.

Yeah.

If you look pre pandemic I don't I wouldn't call. It structurally weaker it is weaker but not to the degree it sounds because we're coming off a tremendous two years subsequent line, all where those those parcel carriers really needed us to jump in there was so much stuff coming through the network.

Tony: Coupled with the CEO transition cost, it's about a $5 $9 million sequential headwind or about 12% 12 <unk>.

For us I don't necessarily think it's structural I think it's just a downturn at peak season, and I think I would anticipate that youre going to see a little bit of improvement going into the fourth quarter next year.

Tony: Okay.

Tony: So over time I appreciate it.

Tony: We have the next question comes from the line of Bruce Chan of Stifel. Your line is now open.

Because.

I've been here for quite a long time. It is about the most abnormal peak season I've ever seen with the softness.

Bruce Chan: Hey, good morning, everyone and thanks for the question Jim Congrats on the retirement there.

I don't believe it's structural structural.

Bruce Chan: Just wanted to ask a question on the substitute line haul you talked about the week peak this year and the impact.

Okay, Great appreciate that and just a quick follow up here around your comments on sided rates.

Bruce Chan: On this end market relative to some of the others, but I just wanted to get your sense of whether this is a temporary thing related to this particular down cycle or.

I don't know what your sense is of.

And what's going on there or is that just industrial lagging recovery in some of the other segments of the market and then is there anything you're seeing with regard to a big consolidation of the space that was recently announced.

Bruce Chan: Whether this might be more of a structural issue since we've heard of some big Whitehall consolidation initiatives that some of the big traditional customers. During this period. So any commentary there on the cyclicality versus structural weakness of subsequent Whitehall.

It is more demand than it is a consolidation of anything changing in the marketplace right now we see one of the things I talked to one of the things I've talked about is the revenue per mile on the flatbed dropping as we moved through the quarter and it was just for US it was softness.

Bruce Chan: Yeah.

Bruce Chan: If you look pre pandemic I don't I wouldnt call. It structurally weaker it is weaker but not to the degree it sounds because we're coming off a tremendous two years of sub subsidy line, all where those those parcel carriers really needed us to jump in there was so much stuff coming through the network.

And some of our customers, but I think it is an industry wide thing I think if you look at what happened in industrial production or manufacturing production in December it was actually a positive for the first time in about 12 12 months.

I, just think that hasnt transpired into the Fray dynamic yet we do expect that to continue to be relatively soft at least through the first quarter, but again it has nothing to do with.

Bruce Chan: For us I don't necessarily think it's structural I think it's just a downturn at peak season, and I think I would anticipate that youre going to see it a little bit of improvement going into the fourth quarter next year.

Competition or changes in the industry dynamic, it's all just a little bit of softness coming through the flatbed market with 12 12 months.

Bruce Chan: Because.

Bruce Chan: I've been here for quite a long time. It is about the most abnormal peak season I've ever seen with the softness.

<unk> decreases in manufacturing.

Bruce Chan: I don't believe it's structural structural.

Alright, thanks for the time.

Speaker Change: Okay. Great appreciate that just a quick follow up here around your comments on the onsite at rates.

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

Speaker Change: I don't know what your sense is of.

Speaker Change: What's going on there or is that just industrial lagging recovery in some of the other segments of the market and then is there anything you are seeing with regard to a big consolidation of the space that was recently announced.

Hey, Thanks, Good morning, and best of luck to Jim. So you made a comment that you think that 2024 will be.

Sounds like a really good year relative to pre pandemic standards when I look at the guidance for Q1, you've got revenue still above 2019 levels, but now the earnings.

Speaker Change: I think it's more demand than it is a consolidation of anything changing in the marketplace right now we see.

Speaker Change: One thing as I talked to one of the things I've talked about is the revenue per mile on the flatbed dropping as we moved through the quarter and it was just for US it was softness.

Below the margins like the lowest in over a decade.

Speaker Change: And some of our customers, but I think it is an industry wide thing I think if you look at what happened in industrial production or manufacturing production in December it was actually a positive for the first time in about 12 12 months.

<unk>.

Is Q1, a unique quarter in that the earnings and the margins are so far below or.

Speaker Change: I, just think that hasnt transpired into the freight dynamic yet.

I just want to understand what you said on the prepared comments relative to the guidance. Yes, I think if you look at 2019 pre inflation. If we didn't have inflation would be sitting on those same margins, but especially when you look at insurance. If you remember what happened to us in insurance, we really knew may one of every year are.

Speaker Change: We do expect that to continue to be relatively soft at least through the first quarter, but again it has nothing to do with.

Speaker Change: Competition or changes in the industry dynamic, it's all just a little bit of softness coming through the flatbed market with 12.

Speaker Change: 12 months consecutive decreases in manufacturing.

Basically Otto trucking liability policy, which gives us the coverage on trucking accidents. If you go pre may one of 19, our premiums on that were about $8 million to cover us up to pretty significant very very good coverages and as you know the nuclear verdict has blown up that market. We are now.

Speaker Change: Alright, thanks for the time.

Speaker Change: Thank you we will now move to the next question coming from the line of Scott Group of Wolfe Research. Your line is now open.

Scott H. Group: Hey, Thanks, Good morning, and best of luck to Jim. So you made a comment that you think that 2024 will be.

Probably above $30 million for that coverage, so youre looking at and significant inflation on the insurance line compared to pre pandemic levels. Theres also inflationary stuff in almost every line item I don't want to sit here and talk about inflation too much but cost of trailers maintenance stuff like that of 15% to 20% <unk> got wage is up more than historically over.

Scott H. Group: Like a really good year relative to pre pandemic standards when I look at the guidance for Q1, you've got revenue still above <unk>.

Scott H. Group: 2019 levels, but now the earnings.

Scott H. Group: Low and the margins like the lowest in over a decade. So.

The last two or three years. So I think there is inflation in there and this organization is going to try and battle back to get to that to get back to that 50% margin I mean, I think thats clearly going to be I would guess, it's going to be a goal of the organization to get back there. The other thing we got to as we went through this tech modernization and upgrades to everything we possibly could do here.

Scott H. Group: Is Q1, a unique quarter in that the earnings and the margins are so far below or.

Speaker Change: I just want to understand.

Speaker Change: What you said on the prepared comments relative to the guidance, Yes, I think if you look at 2019 pre inflation.

Speaker Change: If we didn't have inflation would be sitting on those same margins, but especially when you look at insurance. If you remember what happened to us in insurance. We were new may one of every year are basically Otto trucking liability policy, which gives us the coverage on trucking accidents.

To provide value to the agents and the capacity out there. So theres been some tech tech spending over the last five years, it's been a little higher normal. So there's also that so if you look at those costs.

A little bit more cost cost in the organization to offset this year as compared to 2019.

Speaker Change: Pre may one of 19, our premiums on that were about $8 million to cover us up to pretty significant very very good coverages and as you know the nuclear verdict has blown up that market. We are now probably above $30 million for that coverage. So youre looking at and significant inflation on the insurance line compared to.

Okay and then.

It strikes me that everyone's been saying we're in is really really bad market.

The capacity is taking longer to come out than we would've thought and maybe that's why the market hasn't.

Tightened up at all yet.

Speaker Change: Pre pandemic levels Theres also inflationary stuff in almost every line item I don't want to sit here and talk about inflation too much but cost of trailers maintenance stuff like that a 15% to 20% you've got wages up more than historically over the last two or three years. So I think there is inflation in there and this organization is going to try and battle back to get to that.

But your your specific model is seeing something different than that your <unk> count is now.

Below where it was.

Before the cycle started and I don't know that we have seen a cycle, where that's happened where your trough is.

<unk> was below the prior trough so.

Speaker Change: To get back to that 50% margin I mean, I think thats clearly going to be I would guess, it's going to be a goal of the organization to get back there. The other thing we got to as we went through this tech modernization and upgrades to everything we possibly can do here to provide value to the agents and the capacity out there. So theres been some tech tech spending over the last five years.

Why do you think your specific model is seeing something more extreme in terms of capacity reductions relative to the overall market.

Yes, Scott this is Joe.

Great question I think one of the things is.

Embedded in that 20% of our turnover as it relates to major repairs to our equipment.

A little higher normal. So there's also that so there is if you look at those costs theres, a little bit more cost cost in the organization to offset this year as compared to 2019.

Ron we tend to run older equipment here.

And I think that the fact that repairs have been very very challenging and very very expensive.

Speaker Change: Okay and then.

Maybe that number pretty significantly and perhaps we're a little bit different in that regard. So I think I think when those things happen to hit us a little bit harder.

Speaker Change: It strikes me that everyone's been saying we're in is really really bad market right.

Speaker Change: Alright.

Speaker Change: <unk> is taking longer to come out than we would've thought and maybe that's why the market hasn't.

That is that is probably the single biggest.

Speaker Change: Tightened up at all yet.

The explanation for that just based on why people are leaving.

But your your specific model is seeing something different in that you're.

And I just.

The broader market I find it hard to read the broader market.

Speaker Change: <unk> is now.

Speaker Change: Below where it was.

And accurate assessment to know whether were down more I think we're down below where we were in 2019 I completely agree with that.

Before the cycle started and I don't know that we've seen a cycle, where that's happened where your trough is.

Speaker Change: <unk> was below the prior.

Yes.

It's a little bit puzzled because the age of the fleet as far as BCS It's about the same.

Speaker Change: Trump So why do you think your specific model is seeing something more extreme in terms of capacity reductions relative to the.

It's really.

Maybe they are on the leading edge, maybe they are on the leading edge of coming back to we hope so.

Speaker Change: The overall market.

Speaker Change: Yes, Scott this is Joe.

The relationships that we have when they depart or not bad.

Joseph J. Beacom: Great question, I think one of the things.

Don't believe as I mentioned on the prior question I don't think they are leaving.

Joseph J. Beacom: What is embedded in that 20%.

Joseph J. Beacom: Our turnover as it relates to major repairs to equipment, we run we tend to run older equipment here.

Maybe for long term there is only a small I think it was around.

I think it's like 14% of those that left actually we're getting out of trucking. So I think they are there to come back I. Just think they are taking the opportunity if they can't make a reasonable living and mechanics, and they've got other options, which perhaps they do they're sitting on the sidelines waiting for a more compelling case to come back.

Joseph J. Beacom: And I think that the fact that repairs have been very very challenging and very very expensive.

Joseph J. Beacom: That number pretty significantly and perhaps we're a little bit different in that regard. So I think I think when those things happen to hit us a little bit harder.

Joseph J. Beacom: That is that is probably the single biggest.

Yes.

The explanation for that just based on why people are leaving.

I'm just thinking about this way like your <unk> count as well.

Again now.

Joseph J. Beacom: And I guess.

So where it was in 19, you're approved and active brokerage carriers is still well above right. So it just feels like you are seeing the brunt of it more than the overall market.

Joseph J. Beacom: The broader market I find it hard to read the broader market.

Joseph J. Beacom: And accurate assessment to know whether were down more I think we're down below where we were in 2019 I completely agree with that.

I think one of the things you got to look at too is the type of freight we haul we are heavy spot business and.

Joseph J. Beacom: Yes.

Joseph J. Beacom: It's a little bit puzzled because the age of the fleet as far as <unk> is about the same.

If you heard I talked about that that three PL non trucks up being up 42%.

Joseph J. Beacom: It's really.

Joseph J. Beacom: Maybe they are on the leading edge, maybe they are on the leading edge of coming back to we hope so.

So you got to look at kind of what they're hauling in our network to and some of that when you look at that overflow type business.

Joseph J. Beacom: The relationships that we have when they depart are not bad.

Irregular irregular route non routine repetitive type freight that market clearly is a little bit softer than you do on the contract world. So the contract trucks stay around a little bit longer than these guys. Because we're dealing with a drop off in that type of freight I think that has a little bit to do with it.

Joseph J. Beacom: Don't believe as I mentioned on the prior question I don't think they are leaving.

Joseph J. Beacom: Maybe for long term there is only a small I think it was around.

Joseph J. Beacom:

Joseph J. Beacom: I think it's like 14% of those that left actually we're getting out of trucking.

Joseph J. Beacom: So I think they are there to come back I, just think they're taking the opportunity if they can't make a reasonable living and mechanics, and they've got other options, which perhaps they do they are sitting on the sidelines waiting for a more compelling case to come back.

Okay, and then I could just ask one last one.

This recent <unk>.

Movement in spot to start the year. What's your view is this just weather or is it sustainable in any way, how you're thinking about that I would like to believe at the beginning of that six to eight cycles turn right.

Joseph J. Beacom: Yes, I was just I'm just thinking about it this way like your <unk> count is.

One thing I would point out is.

Joseph J. Beacom: Again now.

And this isn't quite a green shoot, but we'll give you a little bit of a.

Joseph J. Beacom: Below where it was in 19, you're approved and active brokerage carriers is still well above right. So it just feels like you are seeing the brunt of it more than the overall market I think one of the things you've got to look at too is the type of freight we haul we are heavy spot business and.

We had record truck brokerage spreads at the beginning of last year right. So that means that meant that the capacity was very very loose.

Starting after the second quarter coming in the third and fourth quarter, we saw that compress a little bit and we're still seeing.

Joseph J. Beacom: If you heard when I talked about that that three PL non trucks up in that 42%. So you got to look at kind of what they're hauling in our network to and some of that when you look at that overflow type business.

So I think that would tell you that theres, a little bit of pressure coming from the trucks to us to pay them a little bit more so in that environment.

That's the.

It kind of holds to say if they are pushing us more on rate from the truck side that spot rates. That's not it's not a weather thing at the beginning of may be flattening or maybe what we're saying is normal seasonal upticks coming up.

Joseph J. Beacom: Irregular irregular route non routine repetitive type freight that market clearly is a little bit softer than you do on the contract world. So the contract trucks stay around a little bit longer than these guys. Because we're dealing with a drop off in that type of freight I think that has a little bit to do with it.

And the second mid mid 2024.

So I look at that the spreads on the third party truck.

Speaker Change: Okay, and if I could just ask one last one.

Sure.

Thank you guys best of luck to them.

Speaker Change: This recent improvement in spot to start the year. What's your view is this just weather or is it sustainable in any way, how you're thinking about that I would like to believe at the beginning of that six to eight cycles turn right.

Thank you we will move to the next question coming from the line of Jack Atkins of Stephens. Your line is now open okay.

Okay, great. Thanks for the time, guys and Jim I'll I'll Echo everyone's sentiment hopefully now you'll have time to focus on your on your golf game, but.

Speaker Change: One thing I would point out is.

Speaker Change: <unk>.

Speaker Change: And this isn't quite a green shoot, but we'll give you a little bit of a week.

I guess.

Shifting gears here.

Speaker Change: We had record truck brokerage spreads at the beginning of last year right. So that means that meant that the capacity was very very loose.

Maybe just like to kind of think about.

Some of the inflationary pressures in the business this year.

And so maybe this is a question for Jim Todd, but I guess I'm just trying to think about incentive compensation accruals can you maybe help quantify that for us a bit and then.

Speaker Change: Starting after the second quarter coming in the third and fourth quarter, we saw that compress a little bit we're still seeing.

Elsewhere could you maybe talk about.

Speaker Change: I think that would tell you that theres, a little bit of pressure coming in from the trucks to us to pay them a little bit more so in that environment.

The cost inflation that you may be seeing a 24 versus 23, just so we can kind of have the full year calibrated correctly on an expense perspective.

Speaker Change: That's that.

Speaker Change: Kind of holds to say, if they're pushing us more on rate from the truck side that spot rates. That's not it's not a weather thing at the beginning of may be flattening or maybe what we're saying is normal seasonal upticks coming to.

Jack I'd be happy to with.

With respect to full year expectations of stock.

Compensation on a variable programs you guys have heard me talk about hypothetical $12 million reset 24 versus <unk> 23, based on where we closed out fourth quarter of 'twenty three.

Speaker Change: And the second mid mid 2024.

Speaker Change: I look at that the spreads on the third party truck.

Adding on the impact of some CEO transition my current base case for G&A, there's a $17 million headwind year over year.

Speaker Change: Thank you guys best of luck, Jim Thank you.

Speaker Change: Thank you we will move to the next question coming from the line of Jack Atkins of Stephens. Your line is now open.

And that $70 million is pre any other what I would call normal wage or benefit inflation.

Jack Atkins: Okay, great. Thanks for the time, guys and Jim I'll I'll Echo everyone's sentiment hopefully now you'll have time to focus on your on your golf game, but.

If we look at other operating costs in 2023.

We had a tough year theyre very challenging year, our contractor bad debt provision, which is one of the Lumpiness Lumpier line items in there, which was a record and it was about $4 $3 million over trailing seven year trend, so with a cycle inflection mid year and hopefully that truck turnover rate mean, reverting you could have a $3 million to $4 million tailwind.

Jack Atkins: I guess.

Jack Atkins: Shifting gears here.

Maybe just like to kind of think about.

Jack Atkins: Some of the inflationary pressures in the business this year.

Jack Atkins: And so maybe this is a question for Jim Todd, but I guess I'm, just sort of thinking about incentive compensation accruals can you maybe help quantify that for us a bit and then.

There and we should we should bring the register on hopefully a $2 million more engaged so that's $5 million of tailwind on that wine plus we should have a smaller average our average size of the trailer fleet and a lower average age so that could be a little bit of MMP. Good guys, partially offset by some software development rollout so that could.

Elsewhere could you maybe talk about.

Jim Todd: The cost inflation that you may be seeing a 24 versus 23, just so we can kind of have the full year calibrated correctly on an expense perspective.

Jim Todd: Jack I'd be happy to with.

Speaker Change: With respect to full year expectations of stock.

Jack Atkins: Compensation on a variable programs you guys have heard me talk about hypothetical $12 million reset 24 versus bare case 23 based on where we closed out fourth quarter of 'twenty three.

Some tailwind there and then finally on depreciation we.

We're very disciplined in 2023 on the Capex side, but we're starting to take deliveries again of new van trailers and the cost per cost per trailer headwind. There is probably about 20% to 22% as compared to pre pandemic. So youll start to see that ramp up sequentially second.

Jack Atkins: Adding on the impact of some CEO transition my current base case for G&A, there's a $17 million headwind year over year.

Jack Atkins: And that $70 million is pre any other what I would call normal wage or benefit inflation.

Second quarter.

Okay.

That's helpful. Jim. Thank you for that and I guess, maybe kind of taking a step back when.

Jack Atkins: We look at other operating costs in 2023.

If you guys think about it there's been a lot of inflation in the business Jim to your point and then as we kind of think about whether it's insurance just structurally higher cost there how the technology investments that you've made cargo theft is becoming a much bigger issue to.

Jack Atkins: We had a tough year theyre very challenging year, our contractor bad debt provision, which is one of the lumpiness lumpy. Its line items in there, which was a record and it was about $4 $3 million over trailing seven year trend, so with a cycle inflection mid year and hopefully that truck turnover rate mean, reverting you could have a $3 million to $4 million tailwind.

To your point, Jim Todd So I guess do you feel like that sort of the traditional revenue splits.

Jack Atkins: There and we should we should ring the register on hopefully a $2 million more in gains. So that's $5 million of tailwind on that wine plus we should have a smaller average our average size of the trailer fleet and a lower average age so that could be a little bit of MMP. Good guys, partially offset by some software development rollout so that could.

It's been sort of embedded in the landstar business for years.

Still kind of the right way to kind of split the revenue moving forward or do you think there needs to be some changes there just just given you're bearing a lot more cost today.

Or overhead to support your agents in <unk> than <unk> had to do in the past.

Jack Atkins: Some tailwind there and then finally on depreciation.

No.

I wouldn't imagine we're going to change splits.

Jack Atkins: We're very disciplined in 2023 on the Capex side, but we're starting to take deliveries again of new van trailers and the cost per cost per trailer headwind. There is probably about 20% to 22% as compared to pre pandemic. So youll start to see that ramp up sequentially price.

Our role here is to support and add value to the agent community on the <unk> that are out there and we always rely on the truck the price to rise with cost rising and we still anticipate that is going to happen now those costs clearly are squeezing us today, but over time every trucking company out there is dealing with the same stuff we're dealing with eventually it is going to drive.

Jack Atkins: Second quarter.

Jack Atkins: Okay.

Speaker Change: That's helpful. Jim. Thank you for that and I guess, maybe kind of taking a step back when.

Rates up to cover those costs I just we're in a we're in this I don't want to call. It a trough because who knows where the future brings over the next six or eight months, but we've.

Speaker Change: If you guys think about it there's been a lot of inflation in the business Jim to your point and then as we kind of think about whether it's insurance just structurally higher costs. There the technology investments that you've made cargo theft is becoming a much bigger issue to.

We've always seen it we've seen the turns right. We've I've been here for 27 years and the pricing on truck generally catches up to the cost inflation over a year or two so we expect that to happen and there is no thought from this guy sitting here on his last call that we would adjust any of the spa.

Speaker Change: To your point, Jim Todd So I guess do you feel like that sort of the traditional revenue splits.

Speaker Change: It's been sort of embedded in the landstar business for years.

Splits to either the trucks or to the agents, it's our business model, that's what we do.

Speaker Change: Still kind of the right way to kind of split the revenue moving forward or do you think there needs to be some changes there just just given you're bearing a lot more cost today.

Those costs are what we do to support the network. Okay. Maybe just following up on that really briefly though I mean would you think about historically I thought about the incremental margins in terms of incremental gross profit dollar falling to the operating income line as being about 70% seven zero.

Speaker Change: Or overhead to support your agents in <unk> than <unk> had to do in the past.

Speaker Change: No.

Speaker Change: I wouldn't imagine we're going to change splits.

Speaker Change: Our role here is to support and add value to the.

Would there be any reason why that would be.

Different.

Next up cycle Jim.

I don't believe so because unless you have inflationary pressures are to do with what they did over the last two years that put a lot of pressure on that 70%, but if we get back to a normalized 2% inflation and all that type of stuff I would think that 70% would still be a valid goal in the organization. This infrastructure is built look clearly over the last five or six years.

Our goal was to modernize the technology and give them better tools and they are pretty far down the path. There. So I would think that that 70% goal would be a nice go over 2025, given more reasonable inflationary pressures in the organization.

Okay. Thanks, again for the time gentlemen, congratulations.

Jack.

Thank you we will move to the next question coming from the line of Ravi Shanker of Morgan Stanley. Your line is now open.

Good morning, gentlemen.

There's been a lot of questions on the BCA with so maybe just to shift gears, a little bit let's talk about insurance.

I think <unk> seen a number of companies across the industry.

Two huge inflation that area for next year. It seems like an ongoing structural issue you guys mentioned that in your remarks wed love to get a little more detail here I think you are exposed to that kind of more than a few others. It has gone up to 5% what is the long term future of that business is there anything that you guys can do or the industry needs to do to get that under control.

Get it under control, we still have to stop plaintiffs' lawyers from coming up with reasons to take money from us I mean, clearly we look at that.

We accept liability in the event, it's our accident and sometimes you end up tangled up in something that's not your fault, but we feel we're very fair and settling our accident claims, but we've been dealing with the 2019 may one as I said may one 2019, and those premiums actually after that 2019 renewal I think the premiums went up almost 200% we still see.

You're a little bit of creep in it but I don't I'm not sure I don't I am not sure I understand why there is various carriers out there that are just talking about it today and why they are getting hit with these big claims.

Landstar has been dealing with this nuclear verdicts for five or seven years, we dealt with the premium increase in 2019, so it's kind of built into the model now.

Clearly, we could have a nuclear verdict hit us that would create a more volatility in the line.

But the instability of that line that we've experienced over the last five years as you know.

I don't want to say, it's going to stabilize its still difficult getting insurance companies or carrier trucking companies start we got a renewal coming up may one.

But from an I think we dealt with the majority of inflationary pressure on the insurance line or are we going to still have some but I think most of it's behind us, but it's still be 5% to 10% a year, yes, it could be.

But the big hit was 19 2021 is really where we sought.

What we do here is if we have an accident in a quarter, we put that accident up and we try and get it from an accounting standpoint, we try and get the quarters to the number that we think it should be and clearly we have unfavorable development in some cases and that carries over and you can see that in our financials.

I would say that we still struggle with getting renewals, but the pricing seems okay and there is still some participating carriers out there and we're also a very safe organization, we probably lead the industry.

Accidents per million miles, we didn't like to one where the average is like four.

So we do get some favorable treatment.

When it relates to that but I would say based on the long answer was.

I think we'll see more stability in that going forward and looking backwards.

Okay got it that's super helpful. Maybe as a follow up Jim Congratulations on an amazing career I'd love to get maybe just broad reflections from you on how the industry's changed.

<unk> seen over the years surprises advice of the future et cetera.

While the industry change significantly when I step away I'm, just I'm, just saying the whole industry. The entire industry is going to change when I say no.

I think insurance was one that was a big change we saw coming along.

One of the most interesting things was the digital the digital players who are bragging about Uber the Uber.

Over the I'm going to.

<unk>.

The agent base away I'm going to get rid of all the broker carriers.

We were prepared if that actually happened we never said it wasn't it was not a viable business I still believe that there is some kind of play for technology only in the industry, if you're hauling marbles, but when youre, putting expensive freight on a truck you want someone watching it right. So we've said that all along the other thing we always talked about too is we have the technology everybody was cell.

We have an app on the phones, where the trucks can access so that's the one thing that it came and went in during my career here back in the early 2010 2011, we're going to be authorized in and now you've seen what's happened in that industry. So insurance was a big one as I mentioned, but other than that it's been a it's been a very consistent.

Business, but 28 years.

And we've always focused on the core and we watched the disruptors and we react appropriately to protect our agent based on our network, but others.

It's been a great ride.

Going forward.

I see this model is just continue to thrive I mean, because I think they've got a great management team here a lot of experience the depth years everybody's got a 25 year plaque on the wall.

So my my departing this organization doesn't change a thing.

But.

Thanks, Jim.

Thank you we will move now to the next question comes from the line of Bascom majors Susquehanna. Your line is now open.

Thanks for taking my questions I wanted to go back to Jack's question on the splits but from another angle I think in 2020.

You actually increase the incentives that you pay to the BC goes to really kind of keep them.

<unk> in a very difficult period for the transactional nature of their business.

Is there some incentive or talk or thought about maybe doing that to stem the decline for a temporary period and keeping the network more intact than it has been.

<unk>.

As we see the decline in Bcl count accelerate.

As we get deeper into the cycle I think people would love to hear more about kind of some of the creative things you are putting together their maybe Stan. Thank you, yes. Unfortunately I can't speak to the next for the next CEO about that.

We haven't changed our split in since I've been here pretty much.

Tweak them, maybe a little bit so I would probably defer that conversation for at least tomorrow.

You can call Frank when he's here in the office and ask his opinion.

That one's a tough going back to the.

2020 move that we made it was the suddenness of the drop in freight demand that actually had us react. It wasn't this gradual slowdown in the environment. It wasn't normal economics. So that's why we and what we did back then what I believe is we added $50 per load to the bcl plus $50 per load to the agent to compensate.

And in an environment that is that basically the door closed on the freight environment suddenly so we did that for.

Three or four maybe six months I don't really remember, but that was a reaction to a very.

Abnormal environment. This is kind of a trending downwards and I think it's a great discussion that the management team is going to have with the new CEO coming in I don't want to say he won't do it and I'm not saying he will do it but I think thats a conversation to be had later.

And thoughts on the stock and your investment in that this year, just kind of where you are in the matrix and what we can expect from a buyback versus special dividend balance from where we sit today.

Okay.

You know our preference I think Tony put it best several years back when he said our two favorite things to do here.

Work hard and buy back stock and based on the conversations I've had with Frank So far and what I read about him I think he is going to fit in just fine.

Thank you for the time.

One thing to touch on too is if you looked at the fourth quarter buybacks we bought.

239000 shares back, we probably would've been in more except for the confidential the insider information about me departing got.

It was it was coming almost finalized so we have that we had to kind of get out of the market.

Thank you we will move now to the next question coming from the line of Amit Mehrotra of Deutsche Bank. Your line is now open.

Hi, Thanks, this is been more calling in for Matt.

I wanted to ask how do you expect your cost structure to trend in 2024, including incentive costs. It looks like if you apply normal seasonality on loads and revenue per load for the balance of the year, we're getting into 2024 EPS at below $6 is that the right way to think about it and can you provide any other color on cost.

It's hard enough for us to go 90 days out and then a full year out so the big one.

That I'd call out is that $17 million discrete headwind on the G&A line in a couple of tailwind as I mentioned on the other operating cost line.

Insurance five five is the number we're using that's our best guess will continue to revisit that each quarter.

Okay I appreciate that and maybe just as a follow up we're seeing we're still seeing truck capacity.

Based on DLT registrations, very high with only very minimal exits with the past couple of months and some economists are projecting stimulus cash to less possibly through this year, maybe even into next year. So we could be in for a green loose capacity for longer where do you guys agree what are you seeing or.

Hearing on this.

Yes, Ben.

I've watched the same net replication data that you do and I do think that.

The decline in the market for our capacity as it seems slow.

But one of the things I don't think it accounts for us I don't think it necessarily.

Tracks carriers that have gone from 10 trucks to three drugs two drugs. So I think maybe theres, a little bit more exited and we can count and just the dot data.

But I also agree that it's hanging around longer than I think many myself included thought it would just based on what we said earlier the duration of the decline in the severity of the decline.

So.

I don't I have no crystal ball to know how long it's going to last.

People will stick around.

Doesn't seem like with the cost pressures that exist that it could last.

Another year it doesn't seem to make.

Doesn't seem to ring true with me.

But I guess, we'll see.

Ben I would just add to Jim's comments earlier with respect to those net revenue spreads on brokerage that we watch first quarter 2023 was the widest quarter I have on record going back 52 quarters, we compressed gradually <unk> into <unk> into <unk>, but ended up compressing 55 basis points third quarter to fourth quarter, So again that could that could.

Be an early read that maybe things are starting to firm up a little bit.

Great. Thank you very much I appreciate the insights.

Thank you we will now move to the next question coming from the line of Elliot Alper with Cowen. Your line is now open.

Great. Thank you that's it.

Jason Seidl.

Revenue per load maybe on the ocean side stepped up 13% sequentially.

This was just some seasonality or if you're seeing some capacity tightness due to the situations in the red sea or Suez.

So would appreciate it and maybe your thoughts on how this could affect the business going forward or maybe what you're seeing.

Through January.

For us, it's a little bit of a tough read there because our ocean revenue per load, it's not just container cost.

Furloughed also includes things like inland transportation to and from the ports custom fees and duties, so and its niche you with respect.

The agents to participate in that kind of project stuff that we're working on so I wouldn't I wouldn't use that as a read through.

Got it understood. Thanks, maybe to follow up on the <unk> side.

Ludwig down 15% in the quarter can you maybe talk about the current health care environment, maybe what your production expectations. Our first quarter first half of the year, what you've seen through January.

Maybe you have some of these new <unk>.

Terminal currently yellow come.

Come on line.

Yes, as you know we do.

Don't really own any assets that we don't have any terminals. So we're kind of more of a niche play in there where we take our truck customers and we do some LPL forum so in a market.

The market for us is really tied to some specific customers. So yes.

We had a little bit of customer softness in our top 10 customers and we anticipate that's going to continue on being 3% of our business and really specific to maybe 20 of our agents are 30 of our agents doing a bulk of it tends to just move more in line with our customer base, then with kind of industry dynamics, it's almost a little like the ocean pricing.

Pricing isn't indicated is not an indicator of what's going on in the industry. It's more special project type stuff <unk>, a little bit similar to that as we provide a little bit more special hands on service on the <unk> side for certain of our customers.

Yeah.

Got it thank you.

Okay.

Thank you we will now move to the last caller to ask a question coming from the line of Stephanie <unk> of Jefferies. Your line is now open.

Great. Good morning. Thank you for squeezing me in you will happen on for Stephanie I'll Echo everyone's comments congrats to you Jim I guess I, just kind of maybe one or two circled back lastly on the Bcl count we've talked previously about broadly higher highs and higher lows.

Do you see that dynamic in the context of the bto cow.

Under pressure now and we've talked a lot about what's causing that pressure, but I was curious if there was anything.

You could add as it relates to.

Regulatory definition wound.

Pendant contractors or anything like that that might be causing maybe a longer term structural pressure on on the bto count. Thanks.

Yeah, Thanks, Joe so.

Back to the higher highs comment.

We're a great place to be for owner operators, who want a lot of freedom and independence.

The freedom to be successful and it's a freedom to stay in as the freedom to leave and I think we've seen a little bit of that just with the volatility in the market.

I said earlier I don't think Theres anything systemic there theres interest I think bto count will rally.

As the opportunities are here I think we're the best model for that now there is pressure.

California with AB five and it's kind of sitting with the judge after the trial to try to make some decisions there.

As you know with the current administration continues to question, what's an independent contractor and what's not.

And we keep an eye on all of that stuff. We think we're very well prepared in the case of AB five in California. We were very proactive we don't think thats going to be any sort of a negative for us if that were to spread across the country for some in the other states where do we have some work to do yes, sure, but we really lost very few.

As it relates to 85, and we would hope that we would come out. Similarly, if it were to move into some other states that are kind of on that list, where it might expand.

We're operators, who want a lot of freedom and independence.

Thanks, so much for the color.

It's a freedom to be successful and it's a freedom to stay in this the freedom to leave and I think we've seen a little bit of that just with the volatility in the market as I said earlier I don't think there's anything systemic there theres interest I think bcl count will rally.

Yes.

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

Well first off I'd like to thank everybody for having this be my longest call in 10 years on my last day in.

If the opportunities are here I think we're the best model for that now there is there is pressure.

As the CEO of President and CEO of Landstar. So that's special.

You know out in California, with AB five and Thats kind of sitting with the judge after the trial to try to make some decisions there.

But before I sign off on my final last earnings conference call I want to thank all of <unk> agents <unk> and employees for your contributions to Landstar is 2023 performance in a very challenging freight environment, but people in Landstar has unique network of agents capacity providers employees or what truly sets <unk> apart in our industry and enables access we achieve together it's been my privilege.

With the current administration continues to question whats, an independent contractor and what's not.

And we keep an eye on all of that stuff. We think we're very well prepared in the case of AB five in California. We were very proactive we don't think thats going to be any sort of a negative for us if that were to spread across the country for some in the other states where do we have some work to do yes, sure, but we really lost very few.

To have worked at last year for the past 28, plus years and the professional honor of a lifetime to serve as the Chief Executive officer of Landstar over the past decade.

I'm truly grateful for the opportunity I've been a part of this network of agents capacity providers employees customers and shareholders as well as the left our board of directors, who I have had the pleasure of working with over the years I'm highly confident and left our business model and its superior management team and I know I leave a leadership in good hands as Franklin <expletive> assumes the role of President and CEO.

As it relates to 85, and we would hope that we would come out a similarly, if it were to move into some other states that are kind of on that list of where it might expand.

Thanks, so much for the color.

Yes.

I'll now pass it to Frank for some closing comments Frank.

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

Thanks, very much Jim on behalf of all of the agents <unk> carriers customers employees and shareholders, but you've so positively impacted during your career are heartfelt. Congratulations on your retirement wish you and I have nothing but the best as you embark on this next chapter of life.

Well first off I'd like to thank everybody for having this be my longest call in 10 years on my last day in.

As the CEO of President and CEO of Landstar. So that's special.

But before I sign off on my final last earnings conference call I want to thank all of <unk> agents <unk> and employees for your contributions to Landstar is 2020 performance in a very challenging freight environment, but people in Landstar has unique network of agents capacity providers employees or what truly sets <unk> apart in our industry and enables access we achieve together it's been my privilege.

Both excited and humbled to joined Landstar as its next CEO and I appreciate the Landstar Board, giving me the opportunity to lead this great company Landstar.

Landstar is unique tech enabled asset light agent based model will continue to be the key to our success and I look forward to working with the Landstar team to support our independent business owners and drive profitable growth and value for our shareholders with that we will bring this call to a close and look forward to speaking with you on our first quarter call.

I have worked at last one for the past 28, plus years and the professional honor of a lifetime to serve as the Chief Executive officer of Landstar over the past decade.

I'm truly grateful for the opportunity to have been a part of this network of agents capacity providers employees customers and shareholders as well as the left our board of directors, who I have had the pleasure of working with over the years I'm highly confident and left our business model and its superior management team and I know I leave a leadership in good hands as Franklin <expletive> assumes the role of President and CEO.

<unk> currently scheduled for April 25.

Thank you very much.

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

I'll now pass it to Frank for some closing comments Frank.

Thanks, very much Jim on behalf of all of the agents <unk> carriers customers employees and shareholders, but <unk>. So positively impacted during your career are heartfelt congratulations on your retirement wish you and add nothing but the best as you embark on this next chapter of life.

I'm, both excited and humbled to joined Landstar as its next CEO and I appreciate the Landstar Board, giving me the opportunity to lead this great company Landstar is unique tech enabled asset light agent based model will continue to be the key to our success.

Look forward to working with the Landstar team to support our independent business owners and drive profitable growth and value for our shareholders with that we will bring this call to a close and look forward to speaking with you on our first quarter call. Currently scheduled for April 25. Thank.

Thank you very much.

Yeah.

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

[music].

James B. Gattoni: [music].