Q3 2024 Landstar System Inc Earnings Call

October 29, 2024

[inaudible]

Speaker Change: Good afternoon and welcome to Lancers Systems in Carpillitis 3rd Quarter earnings release conference call. All lines will be in a listen only mode until the formal question and answer session.

Speaker Change: today's call being recorded if you have any objections.

Speaker Change: You may disconnect at its time.

Speaker Change: Joining us today from Lancer R, Frank Lonegro, President and CEO, James Todd, Vice President and CEO Joe Become, Vice President, Chief Safety and Operations Officer.

Speaker Change: James Applegate, Vice President and Chief Carpbury Sales, Trudgy and Specialized Fright Officer and Matt Deninger, Vice President and Chief Field Sales Officer. Now I would like to turn the call over to Mr. Franklin Egrot. Sure, you may begin.

Franklin Egrot: Thank you, Bell. Good afternoon and welcome to Land Stars 2024's third quarter earnings conference call. Before we begin, let me read the following statement. The following is the say, Harbor statement on the private securities litigation reform act of 1995. The statements made during this conference call that are not based on historical facts or forward-looking statements.

Franklin Egrot: During this conference call, we may make statements that contain four-looking information that relates to Lance Ars Business Objectives, Plan, Strategy, and Expectations.

Franklin Egrot: Such information is by nature subject to uncertainties and risks including but not limited to the operational financial and legal risk that tailed and last hours form 10K from the 2020-35th fiscal year. Described in the section risk factors and other SEC filings from time to time.

Speaker Change: 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. I'll now pass it to Landstar CEO Franklin Negro for his opening remarks.

Franklin Negro: Thanks JT and good afternoon everyone. First, I want to thank our VCOs and agents and the Landstar employees who support them every day.

Franklin Negro: It is unbelievably energizing to engage with our network of entrepreneurial agents and capacity providers as we work together to align Landstar for future growth and continued success.

Franklin Negro: As I've traveled the country meeting with agents this year, I've been thoroughly impressed with the capability, the uniqueness, and the resiliency of each agency, as well as their collective commitment to Landstar's success.

Franklin Negro: In the third quarter, I also had the opportunity to meet with hundreds of VCOs at our July All-Star event and September Appreciation Days, where we celebrate the accomplishments and professionalism of our VCOs. They are the best in the industry and help drive the success of Landstar's business model.

Franklin Negro: As we move towards the end of the 2024 fiscal year, we continue to be laser-focused on accelerating our business model and executing on our strategic initiatives. We want to be in the best position possible to leverage the freight environment when it turns our way.

Franklin Negro: We are also focused on our commitments to continuous improvement in the level of service and support we provide to our customers, agents, VCOs, and carriers each and every day.

Franklin Negro: Turning to slide five.

Franklin Negro: The freight environment in the 2024 third quarter continued to be characterized by soft demand and readily available truck capacity. Accumulated inflation on goods continued to impact the amount of truckload freight generated in relation to consumer spending.

Franklin Negro: Industrial output was soft throughout the quarter, as evidenced by year-over-year declines in manufacturing, with ISM fluctuating in the mid-40s.

Franklin Negro: Truck capacity continued to be readily available, with only small pockets of supply-demand equilibrium, and market conditions continued to favor the shipper.

Franklin Negro: With that backdrop, Landstar performed admirably in the 2024 third quarter, delivering top-end, bottom-line results within our guidance range.

Franklin Negro: Our third quarter guidance issued in conjunction with our 2024 second quarter earnings release

Franklin Negro: called for the number of loads hauled via truck to be 6% to 10% below.

Franklin Negro: the 2023 third quarter, and overall revenue per truckload to be flat to 4% above.

Franklin Negro: the 2023 third quarter. The actual number of loads hauled via truck in the 2024 third quarter was 7.7% below the 2023 third quarter, slightly above the midpoint of our guidance.

Franklin Negro: Actual revenue per truckload in the 2024 third quarter was 0.7% above the prior year quarter within the lower half of the guidance range. Our balance sheet continues to be very strong and our capital allocation priorities are unchanged.

Franklin Negro: I'm a strong believer in the company's stock buyback program and am committed to patiently and opportunistically Executing on our existing authority to benefit our long-term stockholders

Franklin Negro: As noted in the release, we deployed over $22 million of capital toward buybacks and repurchased approximately 121,000 shares of Comstock during the 2024 third quarter.

Franklin Negro: We continue to invest through the site in leading technology solutions for our network of independent business owners and have allocated a significant amount of capital this year towards refreshing our fleet of trailing equipment.

Franklin Negro: Turning to slide six and looking at our network, the scale, systems, and support inherent in the Landstar model helped to drive the operating results generated during the 2024 third quarter. JT will get into the details on revenue loadings and rate per load in a few minutes.

Franklin Negro: As noted during previous earnings calls, I've been in the transportation sector for most of my career and realized how important Landstar's safety culture is to our continued success.

Franklin Negro: Our safety performance is a direct result of the professionalism of the thousands of Landstar BCOs operating safely every day, and the agents and employees who work to reinforce the critical importance of safety at Landstar.

Franklin Negro: I'm proud to report an accident frequency index.

Franklin Negro: of .56 DOT reportable accidents per million miles during the first nine months of 2024, an improvement of approximately 10 percent as compared to the corresponding period of 2023.

Franklin Negro: This is an impressive operating metric that speaks to the strength, skill, talent, and dedication of our BCOs and provides a point of differentiation our agents are able to highlight in discussions with our freight customers.

Franklin Negro: Turning to slide 7, in the capacity side, VCO truck count decreased sequentially in the third quarter from the second quarter by 153 trucks.

Franklin Negro: consistent with our expectations of BCO declines slowing in Q3 relative to Q2. On a year-over-year basis, BCO truck count has decreased approximately 12% since the end of the 2023 third quarter. It is typical to incur turnover in BCO truck count in a low-rate environment.

Franklin Negro: BCO turnover continues to be influenced by the significant increase in the cost of repairs and the often lengthy period of time trucks are out of service awaiting repairs.

Franklin Negro: We would expect VCO count to continue to decline in the fourth quarter, given the challenging operating environment faced by many owner-operators at a pace somewhat similar to the pace experienced during the third quarter. I will now have to call back to JT to walk through the 2024 third quarter financials in more detail.

Speaker Change: Thanks Frank

JT: Turn to slide 9, as Frank mentioned earlier, overall truck revenue per load increased 0.7% in the 2024 third quarter compared to the 2023 third quarter. In terms of the breakdown between van and unsighted, revenue per load on loads hauled by unsighted platform equipment increased 4% year over year, whereas revenue per load on loads hauled by a van equipment decreased 2% year over year.

JT: In comparison to overall truck revenue per load, we consider revenue per mile on loads hauled by BCO trucks a more pure pricing number, as it excludes fuel surcharges billed to customers that are paid 100% to the BCO.

JT: In the 2024 3rd quarter, revenue per mile on unsighted platform equipment hauled by BCOs was 1% above the 2023 3rd quarter, while revenue per mile on van equipment hauled by BCOs was 3% below the 2023 3rd quarter.

JT: Although revenue per mile on BCO van loads softened a bit from a year ago, Landstar's revenue per mile on this service offering remains well above the pre-pandemic 2019 3rd quarter by approximately 19%.

JT: We believe that revenue per mile on van loads will stay relatively higher than pre-pandemic levels given the significant amount of incremental cost to operate a truck today, including the cost of insurance for both large and small fleets, as compared to five years ago.

JT: On a sequential basis, truck revenue per load increased 3.2 percent in the third quarter versus the second quarter. The sequential improvement was negatively impacted by a 4.3 percent decline in average diesel prices in the third quarter compared to the 2024 second quarter.

JT: We believe the impact of lower diesel prices, particularly with respect to rates paid to truck brokerage carriers, muted some of the seasonal rate strength we experienced in the quarter.

JT: Solely when looking at loads hauled by BCOs, revenue per load improved 5.7% in the 2024 third quarter from the 2024 second quarter on a 4.1% increase in revenue per mile and a 1.5% increase in the average length of haul.

JT: Delving further into these seasonal trends, revenue per mile on van equipment hauled by BCOs increased 1% from June to July, was flat July to August, and remained flat from August to September.

JT: The August to September month-to-month change underperformed pre-pandemic typical seasonal patterns, whereas June to July and July to August outperformed.

JT: As to lows hauled by BCOs on unsighted platform equipment, revenue per mile increased 10 percent from June to July, decreased 3 percent from July to August off a more challenging starting point, and increased 2 percent from August to September.

JT: The month-to-month seasonal trends on unsighted platform equipment are generally less predictable compared to that of van equipment. This relative volatility is often due to the mix between heavy specialized loads and standard flatbed volume.

JT: Heavy haul revenue, one of our areas of increased strategic focus, was down approximately 5% year-over-year in the third quarter, slightly outperforming core truckload revenue.

JT: Heavy haul loadings were essentially flat year over year, while revenue per heavy haul load declined 5% year over year. Non-truck transportation service revenue in the 2024 3rd quarter was 9% or $8 million above the 2023 3rd quarter.

JT: Turning to slide 10, we've provided revenue share by commodity and year-over-year change in revenue by commodity.

JT: Transportation logistics segment revenue was down 6% year-over-year, a 7% decrease in loadings, partially offset by a 2% increase in revenue per load as compared to the 2023 third quarter.

JT: Within our largest commodity category, consumer durables, revenue declined 3% year-over-year on an 8% decline in volumes, partially offset by a 5% increase in revenue per load.

JT: Aggregate revenue across our top five commodity categories, which collectively make up about 69% of our transportation revenue, was down 7% compared to the 2023 third quarter.

JT: While slide 10 displays revenue shared by commodity, we thought it would also be helpful to include some color on volume performance within our top five commodity categories.

JT: From the 2023 third quarter to the 2024 third quarter, total loadings of machinery decreased 9%, automotive equipment and parts decreased 9%, building products increased 3%, and hazardous materials decreased 13%.

JT: Additionally, substitute line haul loadings, one of the strongest performers for us during the pandemic, and one which varies significantly based on consumer demand, decreased 36% from the 2023 third quarter.

JT: Also, Landstar is a truck capacity provider to other trucking companies, 3PLs, and truck brokers. During periods of tight truck capacity, those other freight transportation providers reach out to Landstar to provide truck capacity more often than during times of more readily available truck capacity.

JT: The amount of freight hauled by Landstar on behalf of other truck transportation companies is reflected in almost all of our commodity groupings including our substitute line haul service offering.

JT: Overall revenue hauled on behalf of other truck transportation companies in the 2024 third quarter was 21% below the 2023 third quarter, a clear indicator the capacity is readily accessible in the marketplace.

JT: Revenue hauled on behalf of other truck transportation companies was 12% and 15% of transportation revenue in the 2024 and 2023 third quarters, respectively.

JT: Even with the ups and downs in various customer categories, our business remains highly diversified with over 25,000 customers, none of which contributed over 6% of our revenue in the first 39 weeks of 2024.

JT: Turning to slide 11, in the 2024 third quarter, gross profit was $112.7 million compared to gross profit of $128.1 million in the 2023 third quarter.

JT: Gross profit margin was 9.3% of revenue in the 2024 third quarter as compared to gross profit margin of 9.9% in the corresponding period of 2023.

JT: In the 2024 third quarter, variable contribution was $171.4 million compared to $187.4 million in the 2023 third quarter.

JT: Variable contribution margin was 14.1% of revenue in the 2024 third quarter, compared to 14.5% in the same period last year.

JT: The decrease in variable contribution margin compared to the 2023 third quarter was primarily attributable to a mixed headwind and a decreased variable contribution margin on revenue generated by truck brokerage carriers, as the rate paid to truck brokerage carriers in the 2024 third quarter was 145 basis points higher than the rate paid in the 2023 third quarter.

JT: Turn to slide 12, operating income declined as a percentage of both gross profit and variable contribution primarily due to the impact of the company's fixed cost infrastructure, principally certain components of selling general administrative costs in comparison to smaller gross profit and variable contribution basis.

JT: Other operating costs were $15.1 million in the 2024 third quarter compared to $15.2 million in 2023. This modest decrease was primarily due to decreased trailing equipment maintenance costs almost entirely offset by an increased provision for contractor bad debts.

JT: Insurance and claims costs were $30.4 million in the 2024 third quarter compared to $29.5 million in 2023.

JT: Total insurance and claims costs were 6.7% of BCO revenue in the 2024 3rd quarter as compared to 5.8% in the 2023 3rd quarter.

JT: The increase in insurance and claims costs as compared to 2023 was primarily attributable to increased net unfavorable development of prior year claim estimates partially offset by decreased BCO miles traveled during the 2024 period and decreased accident frequency of current year trucking claims during the 2024 period.

JT: During the 2024 and 2023 third quarters, insurance and claims costs included $4.6 million and $2.3 million of net unfavorable adjustment to prior year claim estimates, respectively.

JT: Selling General Administrative Costs were $51.3 million in the 2024 3rd quarter compared to $51 million in the 2023 3rd quarter.

JT: The slight increase in selling general administrative costs was primarily attributable to increased wages and employee benefit costs, almost entirely offset by decreased provisions for compensation under our variable compensation programs.

JT: The provision for compensation under variable programs, that is, stock-based compensation and incentive compensation, was $700,000 during the 2024 third quarter as compared to $1.3 million during the 2023 period.

JT: Depreciation and amortization was $15.4 million

JT: This increase was primarily due to increased depreciation on software applications resulting from continued investment in new and upgraded tools for use by agents and third-party capacity providers, partially offset by decreased depreciation on the company's trailer fleet.

JT: The effective income tax rate was 22.2% in the 2024 3rd quarter compared to an effective income tax rate of 24.3% in the 2023 3rd quarter. The decrease in the effective income tax rate was due to the impact of federal tax credits resulting in a one-time adjustment to the federal tax provision during the 2024 period.

Speaker Change: Turn to slide 13, and looking at our balance sheet, we ended the quarter with cash and short-term investments of $531 million. Cash flow from operations for the first 39 weeks of 2024 was $225 million, and cash capital expenditures were $24 million.

Speaker Change: The company continues to return significant amounts of capital back to stockholders, with $108 million of dividends paid and $79 million of share repurchases during the first 39 weeks of 2024.

Speaker Change: The strength of our balance sheet is a testament to the cash-generating capabilities of the Landstar model. Back to you, Frank.

Frank Lonegro: As we progress through the fourth quarter, year-over-year comparisons should begin to

Speaker Change: Looking at historical seasonality from Q3 to Q4, pre-pandemic patterns would normally yield a 1% improvement in both truck revenue per load and in the number of loads hauled via truck, yielding a slightly higher top line sequentially.

Speaker Change: In 2024, as we moved from September into the first few weeks of October, our truck volumes trended reasonably in line with normal sequential month-to-month patterns based on pre-pandemic seasonal performance trends.

Speaker Change: However, we do not anticipate our typical seasonal improvement into November and December based on the expectation of a reasonably muted peak season as compared to historical fourth quarters. On the rate side, truck revenue per load has trended slightly below these pre-pandemic patterns.

Speaker Change: Turning to slide 15, our year-over-year expectations for the 2024 fourth quarter are that truck load volumes will be in a range of 4% below to 1% above the 2023 fourth quarter, and truck revenue per load will be in a range of flat 4% below to 1% above the 2023 fourth quarter.

Speaker Change: to 4% above the 2023 fourth quarter. On a sequential basis, our guidance for the fourth quarter implies a 3% decline to a 3% increase in truck load volumes and a truck revenue per load ranging from down 2% to up 1% versus the 2024 third quarter.

Speaker Change: We also expect revenue for our non-truck modes to be somewhat similar to what we experienced in the 2024 third quarter.

Speaker Change: Based on these assumptions, we expect revenue in the 2024 fourth quarter to be in a range of $1.15 billion to $1.25 billion, and earnings to be in the range of $1.25 per share to $1.45 per share.

Speaker Change: Thank you for your time. Thank you.

Speaker Change: The 2024 Fourth Quarter Guidance incorporates a variable contribution margin range of 13.9% to 14.2%, and insurance and claim costs of approximately 6.0% of estimated BCO revenue.

Speaker Change: One last point before we take your questions.

Speaker Change: The 2024 third quarter included a four-penny tax benefit. As a result of the one-time impact of certain federal tax credits on our federal tax provision, we do not expect similar tax benefits to occur in the 2024 fourth quarter.

Speaker Change: The normalized tax rate reflected in our fourth quarter guidance accounts for most of the difference between the $1.35 midpoint of our fourth quarter EPS range and the $1.41 of EPS we achieved in the third quarter. With that, Bill, we'd like to open the line for questions.

Speaker Change: 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.

Speaker Change: Once again, that is star 1 to ask the question. The cancer request, please press star 2. We have the first question coming from the line of Brent Ossenbeck of J.P. Morgan. Her line is now open.

Brent Ossenbeck: Hey guys, good afternoon. Thanks for taking the questions.

Brent Ossenbeck: I wanted to see first if you could just talk a little bit about the BCO count. You say it's

Brent Ossenbeck: trending down, or at least the decrease is decelerating a little bit.

Brent Ossenbeck: Do you have any visibility to, you know, when and where that might bottom out if rates were to pop up, you know, 5% tomorrow, just hypothetically, do you think you get them to come back pretty quickly? Or at this point, do you feel like maybe some of those folks have moved on to other things?

Speaker Change: Hey Brian, good to hear from you. I'll certainly give a start and then turn it over to Joe.

Speaker Change: One of the reasons that Q4 is going to be similar to Q3 is just the time of year when you're coming into the holidays and Q1 is also usually a slow ad period for us.

Speaker Change: So I think the trend we've seen over the last three or four quarters where the declines have begun to moderate I mean that is still the general thematic if we get a five percent bump in rates Are we going to see you know folks come back heck? Yeah, we are you know

Speaker Change: Assuming it's it's stable and sustainable. I mean, that's the one thing that we have seen throughout this year And even in this quarter on a month-to-month basis you get a couple of good weeks and then a couple of tough weeks So sustainability in that rate environment is going to be really important

Speaker Change: And when the Great Recession turns, I mean similar to prior instances where we've had downturns and then upturns, the VCOs come back. We offer a tremendous opportunity for folks

Speaker Change: to leverage the percentage pay that we offer and certainly all the benefits.

Speaker Change: that we provide more broadly, but let me turn it over to Joe and let him...

Joe Become: at some color. Yeah, thanks Frank. I would echo that. I think, you know, the duration of this downturn has really been the unique part of it. I think...

Joe Become: Frank mentioned our appreciation events that we had. We had one in September, and we had hundreds of VCOs there, and they all had great attitudes. They all were appreciative of Landstar, making good money, and yet in the quarter we lose 153 trucks. And I think it's because...

Joe Become: A lot of them were experienced, they have a low cost to operate, and they're doing fine. They can weather the storm, they've seen it before, but that is not everybody. And I think what's happened over time, over these, you know, couple of years, is that we've seen a, you know, kind of an exodus of those that are less tolerant of a little higher cost to operate. So with the rate increase, obviously that benefits them, and I think we would see a pretty decent turnaround.

Joe Become: Much like we did when we added, you know, over 900 trucks in 2018, 750 in 2020. So I think the model proves that we can add capacity at a pretty rapid clip. But I do think something that's sustainable, that really...

Joe Become: What's the appetite to get back in? We've had a couple of false starts, and I think anything that could be sustainable and moving in that direction that would be attractive, I think you'd see people come off the sidelines.

Speaker Change: Okay, thanks for that and just

Speaker Change: follow-up.

Speaker Change: Maybe Frank, you can talk a little bit about the cross-border business. It seemed like it was a little bit soft in your thought.

Speaker Change: in the last quarter, but where does that stand now? Obviously there's a bunch of noise on both sides of the border with elections and tariffs and other things like that. So anything you're seeing here in the near term and how does that business look in terms of the strategic directions once we get past the next month or so here? Thanks. Great, great.

Speaker Change: question, and a lot of the points that you raised are obviously the ones that are the key drivers there. Look, on a long-term basis, we continue to see that nearshoring phenomenon being the right thing for us to invest in and continue to drive growth from. There are a fair amount of uncertainties that exist right there, right now, given

Speaker Change: whether it's U.S. politics or Mexican politics.

Speaker Change: What is trade policy going to be, is certainly an overhang, you know, just earlier today was looking at.

Speaker Change: foreign direct investment by month and when you look at that over the last 12 months it has ticked down meaningfully and I think it is a bit of a wait-and-see approach for many businesses who are thinking about deploying capital on the near shore side.

Speaker Change: so all of that translates into some softer play on a year-over-year basis but the long-term trajectory for that business continues to be very positive and maybe Jim and Joe let you guys chime in a little bit on this one.

Speaker Change: Yeah, I would just say Frank it's you know, we're kind of seeing what we saw in q2. We've got a

Speaker Change: A small handful of large accounts there that do a lot of cross-border for us, mostly in the consumer durables area.

Speaker Change: that are just slow. I mean, we're getting some assurances that we haven't lost the accounts or the business.

Speaker Change: a lot of indecision there. But on the flip side, as we've put salespeople in the interior, we're getting traction on new accounts and new geographies.

Speaker Change: It's just hard to overcome some of the larger declines with those counts that are kind of flat.

Speaker Change: in the quarter. But overall, I think, to Frank's point, our value proposition there and our capabilities there and the, you know, just kind of the, what we've proven to be able to do in the cross-border space will serve us well going forward.

Speaker Change: Yeah, and just to touch on that as well too, from a customer standpoint, the interest is definitely there. The pipeline is very strong. We're recruiting more agents into that market. I think everybody sees the long-term potential, and I think it's going to be something that can be a growth area for Linestar for years to come.

Speaker Change: Thank you for watching!

Speaker Change: Okay, thanks very much for the time.

Speaker Change: Thank you. We will move now to the next question coming from the line at Tom Edwards of UBS. Your line is now open.

Tom Edwards: Yeah, great. Good afternoon. I wanted to see if you could offer thoughts on any changes in the pace of attrition. It seems like, you know, the market's been just trading at a slow pace with, you know, some volatility here and there.

Tom Edwards: you know maybe a bump in rates recently from hurricanes but how do you think about the kind of pace of attrition in the market you're seeing and whether that's enough to be optimistic about some improvement in first half next year in the truckload market or if it's just you know kind of tough to see when that supply-demand balance is more

Speaker Change: Yeah, hey Tom, so I think a couple things are happening. When the hurricanes came through, we did see some regional tightness.

Speaker Change: which tells you that you've got to be getting close in order to generate that level of tightness. That's a little bit of a...

Speaker Change: maybe a green shoot to think through.

Speaker Change: but at the same time, the hurricanes, at least the ones...

Speaker Change: that came through the middle of the country.

Speaker Change: I mean, those are ones where demolition is going to happen before reconstruction, just given the magnitude of the damage there. That's one that I think, you know, ultimately will help us longer term.

Speaker Change: But in terms of the pace of declines, we're continuing to track that on

Speaker Change: a weekly basis, our attrition has slowed. We thought it would slow, it did slow. Now we're in kind of the shorter part of the year.

Speaker Change: I think you're

Speaker Change: You're going to see exits, outpaces, additions just given where we are in the calendar.

Speaker Change: You know one of the things we're really working on is how do we accelerate our recruiting efforts to make sure that we Have the council that we need and have the capability that we need when the when the environment turns But I think it's going to continue to bleed out over the next few quarters before that cross

Speaker Change: that cross-line happens and we end up getting a little bit of a boost in rates.

Speaker Change: Joe, anything you'd add to that one?

Joe Become: No, I agree. I do think there has to be some sort of a catalyst, right? And right now, it's just hard to see exactly what that catalyst is going to be. I think there's a lot of sidelines on this one.

Speaker Change: Tom as I mentioned trade policy a little while ago. I mean tax policies up in the air depending on the election Are we gonna have an orderly transition of power? You know, what's the Fed going to do? Like those are all

Speaker Change: unknowns but likely have near-term visibility if we can all just hang on for the next three or four months I think we're going to have a lot of clarity on what 2025 looks like.

Speaker Change: Right, okay, that makes sense. And then for the follow-up...

Speaker Change: In terms of the earnings guide, is there, you know, it sounds like maybe kind of similar on revenues, 4Q versus 3Q, but the guide is midpoints a little bit below where you reported earnings for 3Q.

Speaker Change: Are there particular items that are, kind of, explain that or, you know, cost headwinds or is it, you know, kind of noise below the line or what drives some of the difference in terms of lower 4Q earnings versus 3Q?

Speaker Change: Hey Tom, the big one is the kind of four penny tax item we called out. So really you're kind of at the midpoint, you're trying to square the circle 135 to 137. It is slightly lower revs than a typical 3Q to 4Q walk.

Speaker Change: But we've got that mitigated a little bit by the fact that we typically compress about 25 basis points on variable contribution margin Based on what what we saw in the third quarter. We don't anticipate That same degree of compression and then the only other item I'd call out Tom that was worth about a penny 3q to 4q is the 50 basis point Federal Reserve cut impact on our excess cash balance walking 3q to 4q. Those are the biggies

Speaker Change: Okay, you think you got some room for rates to move up and benefit you? Is that like you're maybe not assuming improvement in rates?

Speaker Change: It's interesting to watch this on a daily and weekly basis. You know, JT can give you some more color in terms of the...

Speaker Change: October, the first couple of weeks of October, you know, were soft, and it came off of a soft September. I mean, September was...

Speaker Change: Was the counterbalance to July if you think about the third quarter, we had a really good July and a really soft September and then you know October comes in the first part of October was soft and you know last six or eight days I've been pretty good. So it's it's really where do you snap a line from?

Speaker Change: and we're not obviously expecting a strong peak, so if we get some rate and some peak, then we're probably in the upper part of the range.

Speaker Change: Yeah, I would echo that. The rate strength that we saw in the third quarter, Tom, was primarily front-loaded in July. We saw kind of a normal seasonal downtick into August, and then September seasonally underperformed. When we walk September to October, we typically see about a 50 basis point good guy on truck revenue per load. Based on the information we've got today, it's looking like it's going to be flat to just slightly down. So with that set of circumstances, you know, our opening revenue per load for the fourth quarter in October is probably about 40 bucks below, you know, July, which was the opening month for 3Q. So we would need a pretty good rest of the way in.

Speaker Change: Yeah, okay. Thanks for all the perspective. Appreciate it. Sure.

Speaker Change: Thank you.

Speaker Change: Thanks for watching!

Speaker Change: Thank you. We'll move now to the next question coming from the line of Jordan Alligator of Goldman Sachs. Your line is now open.

Jordan Alligator: Hi, yeah, thinking about the businesses, the dry van and then the flatbed or unsighted, can you maybe talk a little bit about the...

Jordan Alligator: You know what you're seeing if the you know the differences between the two I mean, especially given manufacturing has been kind of sluggish So I'm just curious about the flatbed side of the equation specifically I guess

Speaker Change: And let me open it up and then JT can certainly chime in, you know, we continue to be

Speaker Change: you know, bullish on our

Speaker Change: inside a platform business. I mean, I think we have a real competitive advantage in that space, and you're going to continue to see us focus there broadly, and then certainly in the heavy haul part of the equation. What was interesting about the van side, if you go back to one of the slides that JT talked about, the consumer durables business actually performed better than the company average, which, you know, it's been a while since I...

Speaker Change: you know I could say that or any of us here in the room could say that so that's actually

Speaker Change: a bit of a bright spot. Obviously, the rate question immediately comes to mind if it's moving at an appropriate rate, and that's a good sign for the future. But back to the platform piece and the platform business.

Speaker Change: you can perform well relative to Van, but can you give a little color? Yes, certainly on the pricing, right? So if we just walk 2Q to 3Q sequential, we saw 4% good guy and unsighted, which outpaced the 2% on Van. What was interesting, to Frank's comment,

Speaker Change: The van loadings held up better, Jordan walking 2Q to 3Q, only dipping 4%, whereas the platform loadings 2Q to 3Q dipped 7%, and I think that's...

Frank Lonegro: We were pleased with what we were seeing in the second quarter. We saw the kind of manufacturing backdrops started to weaken a little bit in the second quarter and our numbers held up pretty good. We started to see a little bit of weakness machinery. Heavy haul has been a tailwind for us, Jordan, in the unsighted platform category. That strength took a little bit of a step back so it was interesting to see van loadings hold up a little bit better. Good performance and consumer durable as Frank talked about and then building products as well.

Frank Lonegro: The three largest customers for us in building products had triple digit revenue growth and some of that stuff was on van equipment.

Speaker Change: Any sense from your manufacturing-oriented customers about a bottom on that side of the market? What's sort of the hold-up? Is it political uncertainty? If you have any color around that, it would be helpful.

Speaker Change: Uh...

Speaker Change: politics, trade policy, Fed policy, tax policy.

Speaker Change: If you're in the manufacturing business today or anything industrial and you're thinking about deploying capital, you know, either to build inventories or to build a new plant.

Speaker Change: wait three or four months until the dust settles and you have much more clarity around things

Speaker Change: deploying capital more broadly in the industrial space.

Speaker Change: It's so late in the year, you know, the election is a week away, you know, the inauguration is in January. You have so much uncertainty there that's actually going to get cleared up. And, you know, I just don't think folks are leaning into deploying capital right now because of that uncertainty.

Speaker Change: Thank you.

Speaker Change: Thank you. We'll move now to the next question coming from the line of John Chappell of Evercore ISI. Your line is now open.

John Chappell: Thank you. Good evening. Jim, maybe this is for you. We think about the eventual stabilization and inflection. Do you feel the model has the same operating leverage that it will in the next cycle given that some of these line items at the cost side like other and insurance and SG&A etc. as a percentage of revenue are just so much greater than they were you know in 2019 or any kind of prior downturn? John, it's a good question.

John Chappell: Frank and I are still big believers in our ability to push through 70% of the incremental variable contribution down to operating income. Now, I will call out, John, next year, given the incentive comp and stock comp.

John Chappell: of 2024 down 3%.

John Chappell: But we're going to have to get some help on yield, which you know is a lot easier to push down to operating income than on the volume side.

John Chappell: Thank you for watching!

John Chappell: Thank you for tuning in. We'll see you next time.

Speaker Change: Okay, that's helpful. And then just a follow-up, I know we've kind of pulled the string a bit here on the rest of the fourth quarter, but a little bit noticeable that maybe some others had a lot more optimism, and maybe that's just the way that others operate, in the kind of the seasonality in the fourth quarter and the bridge where you guys said you don't anticipate November and December to follow.

Speaker Change: the seasonal trend. Do you think that's just, you know, conservatism around what you've seen in the first few weeks of...

Speaker Change: that you're seeing from the breadth of your customer base that just makes you think that there's a greater pause in the demand side post some of these issues that may provide a little bit more certainty in the next couple weeks.

Speaker Change: Let me give it a start and then Matt maybe have you chime in a little bit on peak. You know, to your point, we have a very diversified revenue portfolio. You know, I think it's going to be dependent on what people do toward the end of the year, either on the industrial side, I mentioned the uncertainties.

Speaker Change: in answer to a prior question, so I think that's going to be muted. And then more on the holiday and the peak and the consumer, you know, we're still seeing...

Speaker Change: you know, goods and services and the split there in the GDP numbers. And, you know, we polled agents and customers, etc. Obviously, you all have listened to the UPS.

Speaker Change: call and have a good view of how they feel about the peak. You know, we feel like we are certainly holding our own in peak in terms of you know, share of volume, but...

Speaker Change: you know nobody's really leaned into from our customer side has leaned into a broad peak it's going to be shorter in terms of duration just given the timing of the holidays but

Speaker Change: you know, nobody's really saying it's going to be a robust peak. If it turns out we get a little bit of lift of rate, we get a little better peak season, then obviously we'll be trending toward the upside of that, the upper half of that guidance. But right now, like, leaning in has not been, you know, a great strategy over the last couple of years.

Speaker Change: Yeah, I'll just, on top of that, you know, at the end of every quarter we sit down and we poll our top 50, 60 agents.

Speaker Change: and they really have a pulse on their customers. They're dealing with their customers on a daily basis.

Speaker Change: trying to see what's in the pipeline, how they can serve them better, if we need to get trailing equipment in, whatever the case may be.

Speaker Change: So really, we're just echoing the agent base in what we hear going through the fourth quarter here.

Speaker Change: On the peak side, as Frank said, we're not expecting a huge peak this year. I think as the year's gone by, with the shortened cycle, and there may be more folks going towards the brick-and-mortar within that shortened cycle,

Speaker Change: It's kind of muted a little bit.

Speaker Change: We talked to our, and it's just a handful of customers really for us on the subline haul side that really drive the peak for us. And about starting June, we start talking to them, you know, monthly almost to make sure that we've got expectations in line on trailing equipment and drivers in place.

Speaker Change: I think we're, based on their projections and what the agents are telling us, that we should be really comparable to what we saw last year in PEACH, which is...

Speaker Change: quite a bit down for all of what we see in those pandemic years 20, 21, 22.

Speaker Change: Thank you.

Speaker Change: and they look super insightful. Thanks to all of you.

Speaker Change: Thank you.

Speaker Change: Thank you. We'll move now to the next question. Coming from the Linus Katz Group of Wolf Research, your line is now open.

Speaker Change: Hey, thanks. Afternoon, guys. So just one more on Q4.

Speaker Change: Frank, you talked about regional tightness, some of the national spot data looks like it's gotten better in October.

Speaker Change: Help us understand the disconnect maybe if there is one of you guys saying the data has gotten a little bit worse and underperformed seasonality in October just

Speaker Change: Gibbon

Speaker Change: Some of the spot data looks like it's gotten better. And then, can you just clarify, do we get a hurricane impact or benefit anymore? I don't think we have the direct FEMA contract, but I still thought there was maybe some hurricane volume opportunity with you guys.

Speaker Change: Yeah, I think on on q4

Speaker Change: I think what we're what we're trying to say is

Speaker Change: bleh

Speaker Change: Q4 relative to Q3 is going to be essentially kind of in line from a revenue perspective. We've got a question mark around peak that you heard Matt talk about. The hurricane piece is

Speaker Change: demolition before reconstruction so I doubt we're going to see anything near term you know Matt you've had some conversations with some agents and some customers you know a little bit of food water coming in a little bit of pre-positioning of building products but nothing that's a needle mover in the in the grand scheme of things. JT?

JT: Yeah, no, nothing to add, Frank.

Speaker Change: I'd like to add on the hurricane and I think a lot of the expectations around the hurricane. The whole process of selecting carriers around the hurricane has changed quite a bit over the last 10 years. There used to be a handful of asset-based carriers that would benefit from these storms.

Speaker Change: Now you have hundreds of carriers along with drovers.

Speaker Change: that are bidding on a lot of the government-type business. So you're going to see that spread out across a broader base of carriers, and you're going to see the rates a little bit more suppressed than what they've had in the past. But to Frank's point, really, the real prize is kind of the rebuilding efforts. And I think you see that later on in the cycle. One thing on the spot rates that I think is worth just clarifying.

Speaker Change: What you're looking at from DAT and truck stop and things like that are posted rates. That doesn't necessarily mean the traffic moved at the posted rate.

Speaker Change: A lot of times there's...

Speaker Change: It's going to get posted and then it's going to get discussed and it's ultimately going to move at a little bit of a different rate.

Speaker Change: Our freight moves at a little different price point. As I think I've mentioned before, we don't necessarily play at the bottom rung of the spot market. You know, what we haul is generally a little higher quality.

Speaker Change: afraid and obviously we've got the platform business as well which transacts at a higher rate there. So we have seen throughout the month you know rates have gone down rates have come back up so there's there's a lot of volatility around around the trend line and that's something that has made it more and more difficult the last couple of quarters.

Speaker Change: to predict what the quarter is going to look like. July, for example, was a really strong July. August was fine, then September was soft. And, you know, first couple of weeks of October, soft. You know, the last eight or ten days have been pretty good. So it's really hard to, again, pick the point on which to snap a line.

Speaker Change: Now I'm just going to say around the FEMA, the old national contract, yeah those days are gone and now it's all kind of run state by state and with the kind of lead time you have on some of these hurricanes, there's a lot of pre-positioning of a lot of things that didn't used to occur so I think the opportunity around some of these storms is not what it used to be in years past as the states get a little bit better in pre-positioning and trying to.

Speaker Change: put themselves in a position to get people back to normal life and with power and so forth a lot quicker than they were in the heydays of the FEMA contract for Landstar.

Speaker Change: Thank you.

Speaker Change: Okay, that's helpful. And then just one more follow-up on the BCO count.

Speaker Change: And I totally understand and see the cyclicality of the BCO count, but it's at a pretty...

Speaker Change: I think we're at like the lowest level in like a decade and so I'm wondering you know I guess how do you think this plays out in the next cycle in terms of like how much of this can you add back and You get it all back in a cycle, or does it take more and is there any thought that maybe you need to like

Speaker Change: change some of the splits to encourage better BCO retention? I don't think so, but I'm just curious if you've contemplated something like that at all.

Speaker Change: I think on the compensation this has worked really really well for us for a long time but obviously academically I see your point the the VCO count remember it's it's a combination of what we've added and what comes out

Speaker Change: You know, we continue to have hundreds, if not thousands, of editions every year.

Speaker Change: The challenge is that we're seeing a significant set of departures for any number of reasons Joe can go into. What will happen when the rate cycle turns is the additions will go up and the departures will decline and therefore you're going to get a net ad.

Speaker Change: bases, which is obviously a good guy for us and certainly something that the model has produced in the past and we would expect it would continue to produce.

Speaker Change: in the future. Joe? Yeah, I would say, you know, as we mentioned earlier, Scott, the number of terminations in those that are leaving has trended downward. I mean, our retention has actually improved a bit. Where I think we're at now is there are

Speaker Change: It's a little bit more difficult to get a truck. You know, the lease purchase owner-operator volume is down. A lot of interest from guys who don't have a truck, but you need a truck. The asset-based carriers don't have the owner-operators in the lease purchase programs at the levels that they have historically had.

Speaker Change: You can access used trucks now, but the costs are a little bit elevated for the environment that we're in.

Speaker Change: So I think just the appeal of the spot market is a little bit hazy, and so you don't see people willing to make the investment. If we get the rate upturn and the demand starts to improve, I think there's a lot of potential BCOs on the sideline. I just think that right now...

Speaker Change: If you don't have that low cost to operate that I was mentioning earlier, and you have to go out and have a truck payment that's, you know, at all elevated, given the rate levels that we have today and the inflation around maintaining a truck, I saw a report just this week in the Commercial Carrier Journal that

Speaker Change: since last September, cost to operator up 4%, rates are up 4%. So, do you really want to make the investment to come in at this time? I think...

Speaker Change: When that door opens and when the opportunity is there, I think we'll appeal and attract owner-operators as we have in the past.

Speaker Change: I think there, to your earlier, we considered, there isn't too many things we haven't considered as to how to do this, but again, I think it's an economic phenomena that we're trying to address from

Speaker Change: They're trying to recruit better, clearly, using some social media differently and working with our agents in different ways to try to promote growth and that kind of thing. The margins, the spreads on brokerage have been pretty elevated.

Speaker Change: And I think some of the volume that may have gone BCOs probably went brokerage for that reason as those spreads tighten, which they have done over time and continue to do. I think the decision maker in our model, which is the agent, has the potential to change and I think that changes the outcome for BCO count.

Speaker Change: Thank you guys, appreciate the time.

Speaker Change: Thank you. We will move now to the next question coming from the line of Daniel Ambrose Stevens. Your line is now open.

Speaker Change: Hey, good evening guys. Thanks for taking our questions.

Speaker Change: I want to start on the demand side, Frank. I want to ask the automotive specifically. That's been a weak category, but it still feels like it's declining. It's about 10% of your revenue now. I guess, how are you viewing that automotive landscape into the fourth quarter given the production reductions that we're hearing about from the large domestic OEMs, and when would you expect that market to begin actually growing again?

Frank Lonegro: Yeah, I think the automotive business, I mean, it's something that we're really good at. It's obviously got an expedited component to it when truck capacity is readily available.

Frank Lonegro: The demand is not as robust on the OEM side, then you don't need as much expedited capacity, so there's that element to it. Back to the uncertainty on rates, if you're in the new car market today as a consumer,

Frank Lonegro: and you could wait four months and get it for 150 basis points lower in terms of your loan, you're probably going to wait.

Speaker Change: you know, I think what we're seeing is that combination of things at the same time. I think we, to your point, we're a little surprised at the auto numbers in the quarter and, you know, some of that revenue softness that you're looking at on a sequential basis from us has got a little bit of that in there. JT?

JT: No, nothing to add Frank.

Speaker Change: Yeah, just as well, too, just over on the expedite side, if you're really looking at what happened in the industry right after COVID.

Speaker Change: and a lot of supply disruption that was going on in that industry.

Speaker Change: If you look back at the fourth quarter last year, there were a lot of accidents going on. A pretty healthy spot market.

Speaker Change: I'll be fast forward to today and to a lot of reasons like Frank.

Speaker Change: Strikes and

Speaker Change: and getting their inventory stabilized. It's just a more stable supply and demand market where a lot of that spot market business.

Speaker Change: isn't there like it was the last time I was here.

Speaker Change: I've talked a lot, sure.

Speaker Change: Understood. And if we could follow up on a previous question on the cost side. I know it's early, but I think you talked about next year, you know, instead of comp, $13 million headwind, insurance probably remains tough.

Speaker Change: I guess, are there levers you can pull to actually offset some of this inflation and would you expect overall costs to begin growing again next year? Just trying to think about what the cost base does if this macro remains challenging, kind of into 25. Thanks.

Frank Lonegro: Daniel, happy to walk the line. So other operating costs, you've heard me talk for a couple of years now with this elongated freight recession. Our contractor bad debt numbers are running at close to two X kind of historical norms. So could you say there's a, you know, if we return to a more balanced market and the truck turnover rate, which to Joe's point has dropped from 41% to 37%, does that mean reverts closer to our 28, 29%? There's a couple million you could probably ring out in other operating costs on contractor bad debt. We have been shrinking the size of the trailer fleet, plus we're bringing in some new trailers. So that should result in reduced maintenance and tires expense that I talked about that we saw in the quarter in the prepared remarks.

Frank Lonegro: insurance, you know, we continue to focus on the quasi-controllables, right? So we've got our mutual understanding of safety together program with customers, Lance, our safety officer, with our agents.

Frank Lonegro: Clearly all the Safety Thursday calls and truck giveaways with the BCOs. We like the trends that we're seeing on the accident frequency side. When you get in an accident in a bad venue, this is not Landstar specific, the numbers get larger. G&A, we've reduced headcount by probably 40 folks or so, Daniel, through attrition. We've got 1,335 folks supporting 1,100 agents.

Frank Lonegro: 9,000 VCOs pushing through 2 million freight bills annually in the network, so we're being real cautious on

Frank Lonegro: on headcount. And then finally, the last one's depreciation. We've got

Frank Lonegro: probably our largest IT project in company history becomes fully depreciated here in the fourth quarter of 24. So some of the pressure on, that's one project, but some of the pressure on the depreciation side from tech will slow. The flip to that is we are taking delivery of a lot of new trailers.

Frank Lonegro: 23 we weren't refreshing a bunch of trailers, 24 we're playing catch-up, so a chunk of that IT depreciation tailwind is going to get eaten up in the form of new trailers. That's kind of high level how I think about the cost structure going into 25, Daniel.

Speaker Change: Understood. Thanks RollerCaller.

Speaker Change: Thank you. We will move now to the next question coming from the line of Iliad Alper, LTD. Your line is now open.

Speaker Change: Great, thank you. Yeah, this is Elliot on for Jason Seidel.

Speaker Change: You guys in the past have had a good view into fleet sizes that are exiting the business. Can you speak to maybe the overall capacity landscape in that sense? Are you still seeing, you know, larger fleets, shed tractors?

Speaker Change: I think we have a view that there is capacity that's parked against the fence, so to speak.

Speaker Change: probably have a better view of the onesie-twosie owner-operators, which is obviously the majority of our BCOs You know have a single truck or say less than five trucks. So we think we are

Speaker Change: certainly in as good a shape, if not a little bit better in terms of those counts. We watch the, you know, the net ads from the FMCSA database, you know, pretty much every week. So we've got a good view of how that is. I think there's capacity out there. I think the...

Speaker Change: a combination of the asset-heavy folks, as well as some of the private fleets. There is likely some capacity out there that's sitting on the sidelines.

Speaker Change: At the same time, I think the value that we provide, like the safety numbers that you heard JT and I speak about, I mean, that's a real differentiator when it comes to doing business with customers who have high-value goods that they want to make sure get to destination safely and securely. Joe?

Joe Become: Yeah, I would echo that and also, you know, if you look at the small carrier participation in our brokerage volumes it was

Joe Become: 58% of our volume moved on carriers with less than 10 trucks in the third quarter of 2023 versus only 53% this year. It tends to be going to carriers with a few more trucks. And there is a little bit of a lack of visibility in some of that because the carriers only are required to update their fleet size every couple of years.

Joe Become: So you've got to believe, there could be carriers out there that you think have, you know, 10 trucks and they actually have 5 or they, you know, they showed to have 50 and they only got 20. So there is some shrinking that's kind of hard to put your hand around, but just by their participation in our mix.

Joe Become: It certainly would support the idea that they're a little bit smaller than maybe they appear to be in the FMCSA database.

Speaker Change: No, that makes sense. Thanks. And then you spoke about the longer-term support as the rebuild begins. I guess what could that look like? Is this something you're starting to plan for now? Will that skew towards some of the platform business? I guess any other color or magnitude of the timeline? Or is it just too soon to tell?

Speaker Change: It's probably too soon to tell in terms of both timing and magnitude.

Speaker Change: I'll let Matt chime in in a second. I mean, we have a hurricane playbook. I mean, this is not the first hurricane that Landstar's, you know, been involved with. So, you know, we have a good playbook in terms of what we do with agents and customers and just making sure people, you know, are...

Speaker Change: are familiar with us and obviously are willing to give us a try if we've not done business with them or some of the customers that we have already, just making sure that they know we're here and ready to help them.

Speaker Change: Yes, that's something we started on early, once everything started roaring through is getting out in front of the customers.

Speaker Change: that we know participate in the rebuild, food, water.

Speaker Change: and getting in front of them. We've had some success with that. We've got a couple dozen customers now that, as Frank alluded to, we're doing the food, the water, placing some equipment, some machinery. But the building products, the folks we're talking to on that, they're not really moving heavy in that sector yet. So the timing on that, I think we're still a little bit.

Speaker Change: Trying to be if they're ready when when they do start rolling those out Yeah, I think in the in the Florida storm you're probably a little sooner on the rebuilding because it's you know roofs and things like that I think in the

Speaker Change: You know, in the path of Helene, I think there's a fair amount of demolition in Holloway that's got to happen before we participate, and as you guys know, we don't do sort of open hopper demolition and Holloway work, but we'll be there and ready when the reconstruction commences.

Speaker Change: Thank you for watching!

Speaker Change: Thank you guys.

Speaker Change: Thank you. We'll move now to the next question coming from the line of Stephanie Moore of Jeffries. Your line is now open.

Speaker Change: Hi, good afternoon, thank you.

Stephanie Moore: I maybe want to touch a little bit on capital allocation, capital priorities here. First, just buyback slowed a little bit in the third quarter, despite what remains a really solid net cash position. But then also, maybe from a more strategic lens,

Stephanie Moore: just would love to gauge maybe any updated thoughts on potential M&A. I think we're all aware there's a lot of kind of PE backs and other assets that might be coming up for market here, looking for an exit, so you know given where we are in the cycle, your positioning and the likes, you know any thoughts on potentially doing any M&A?

Stephanie Moore: as well as your more historical capital allocation priorities. Thanks.

Speaker Change: Good question, Stephanie. Certainly you heard J.T. talk about

Speaker Change: CapEx, and we're going to continue to invest in the core business.

Speaker Change: That's an important thing for us on both the technology as well as the trailing equipment side Obviously the less trailing equipment purchases in 2025 based on what we're currently thinking the environment is going to yield

Speaker Change: You know, buybacks, we restarted the program a quarter ago and obviously continued that this quarter. I'd say the volatility in the stock price this quarter was probably a little less than it was in the prior quarter, as you know, and I'm a strong believer in being both patient and opportunistic.

Speaker Change: on the buyback program. We just didn't have that many opportunities to jump in at what we thought were.

Speaker Change: you know, kind of favorable to market type of opportunities. In terms of M&A, good question. You know, gosh, I've been in the company nine months or so, and it's certainly something that we've talked a little bit about. With the uniqueness of our model,

Speaker Change: The number of companies that are out there that would provide us an opportunity to seamlessly integrate is smaller than your typical transportation and logistics.

Speaker Change: provider but it is something that we've begun to talk about internally and you know more to come but you know there's something that comes along that that fits us really well and again that's a fairly narrow set of targets. We'd certainly be open to that conversation.

Speaker Change: Great, well I will leave it at that. Thank you.

Speaker Change: Thank you. We have the last person to ask a question coming from the line of David Hicks of Raymond James Financial. Your line is now open.

David Hicks: Hi guys, thanks for taking the questions. Can you guys just maybe talk about the recent tech investments that you've been making and the resulting impact to productivity of your workforce, agents and VCOs, and kind of try to offset these costs, inflation headwinds, have been persistent kind of as we look into 2025?

Speaker Change: We're going to continue to invest there, but I'd say a lot of the heavy lifting has been done in those spaces, which allows us then the ability to turn the IT lens inside the building.

Speaker Change: Some pretty neat service center technologies that we're working on here that certainly will give us the ability to...

Speaker Change: provide better service for our agents and our BCOs, and could they unlock them efficiency? Sure.

Speaker Change: But those are things that are really important to us on a going forward basis. And again, if we can do a great job of serving our customers, our agents, and our BCOs well,

Speaker Change: they then have the ability to go out and sell more, they have the ability to handle things.

Speaker Change: you know, on a more productive basis. And so if we're successful at doing that and we're able to hold the line internally, then I think we'll be in really good shape. So Jim Applegate has been maybe the tip of the spear in some respects on the technology side.

Frank Lonegro: the business side of technology for a while, so maybe let me hand it over to you, Jim. Yeah, great. Thanks, Frank. Yeah, from a technology standpoint, our

Jim Applegate: Really, our whole playbook is that around making sure that our agents and our DCOs

Jim Applegate: have better technology so they can be more efficient and it's about giving agents more ability to handle more revenue.

Jim Applegate: And if you see with the tools that we've rolled out, we've actually documented it, we've significantly improved their ability to handle revenue with single employees, single agencies, so they don't have to go out and add new employees to go ahead and be able to take on more business. Flip side over on the BCO side, it keeps them on the road, they're not pulling over, dealing with paperwork, and we're seeing from a BCO standpoint, they're embracing the technology as well too. I look at it as more of a capacity to grow.

Speaker Change: Strategy and the technology has really kind of allowed us to open that up for both agents and VCOs and continue to do that But as Frank had said, we're pretty far along in our tech roadmap. We've got a lot of tools out there in the market

Speaker Change: are our proposals today.

Speaker Change #100: but Joe, if you want to come...

Joe Become: Yeah, I would just add, David, you know, we've had a pretty robust freight matching capability here for a long time between our agents and VCOs, and we're going to be making some tweaks to that. As the profile of freight changes, I think our ability to direct that freight and market that freight between agents and VCOs needs to also change, and so we're kind of excited about some things we're going to be working on to enhance the ability to be a little bit more targeted and to allow people to make decisions more quickly in our model.

Joe Become: Success comes from putting good information in the hands of the decision makers, and that's our agents and BCOs, and kind of let them do what they do. And I think we've got some good stuff on the horizon that should allow us to do that.

David Hicks: Okay, great. And then, just as a follow-up, I just wanted to dig a bit deeper into kind of the current health and VCOs.

Speaker Change #101: particularly if you guys have kind of visibility around their tractor age relative to the rest of the industry, kind of the associated maintenance cost and downtime which you kind of spoke to earlier and any impact that's having on service relative to peers.

Speaker Change #102: Not a lot of impact to service, David. I think the average truck in our fleet is about 10 years old. We've always operated largely in the used truck environment. And one of the reasons for that is because our BCOs tend to be

Speaker Change #103: pretty mechanically inclined, they do a lot of repair work on their own and it provides them a very low cost to operate. And those that are doing that, I think are the ones that are still with us and very active and very profitable.

Speaker Change #104: Not everybody's like that, right?

Speaker Change #105: corporate perspective, you know, you're required to get an inspection annually based on FMCSA. We require it every 120 days, so we don't really allow equipment to get away from us from a maintenance perspective or a safety perspective.

Speaker Change #105: We measure tires and do all that stuff every 120 days, so I don't think it puts them at a disadvantage. I think it actually, from a cost standpoint, in this kind of an environment, may give them an advantage.

Speaker Change #105: And then we've got a pretty good LCAP program where we've gone out and taken the fleet of 9,000 trucks and negotiated

Speaker Change #105: fuel and repairs and inspections and pricing on all those very fundamental services that They need to operate we've negotiated beneficial pricing for them So it's quite a bit better than they might get if they were out as a one or two three truck fleet on their own Authority, so I think those things in tandem

Speaker Change #105: I think we do a pretty nice job out here.

Speaker Change #106: all right great very helpful appreciate the time

Speaker Change #107: Thank you at this time. I show no further questions. I would like to turn back the call over to you, sir, for closing remarks.

Speaker Change #108: Thanks for having me. In closing, while the freight environment remains challenging, we do see some positives in the near term.

Speaker Change #109: We are encouraged by the recent stabilization in freight rates after the elongated downturn experienced.

Speaker Change #110: the 2022 second quarter, and regardless of the economic environment, the resiliency of the Landstar variable cost business model continues to generate significant free cash flow. Landstar has always been a cyclical growth company.

Speaker Change #110: and we are well positioned to navigate these dynamic times and look forward to higher highs when the freight market turns our way. Thank you for joining us this afternoon. We look forward to speaking with you again on our 2024 fourth quarter earnings conference call in late January. Thank you.

Speaker Change #111: Thank you for joining the conference call today. Have a good afternoon. Please disconnect your lines at this time.

Speaker Change #111: Thank you for stopping by, had a great day.

Speaker Change #112: Music Music Music Music Music Music Music Music Music Music

Speaker Change #113: Special thanks for supporting my channel!

Speaker Change #114: Don't forget to Subscribe, Like & Comments

Speaker Change #114: and a a a a a a a a a a a a a a a a a a a a a a

Speaker Change #114: James Gattoni, John

Speaker Change #115: Good afternoon and welcome to Lionstar Systems Incorporated's third quarter earnings release conference call. All lines will be in a listen-only mode until the formal question and answer session.

Speaker Change #115: Today's call is being recorded, if you have any objections.

Speaker Change #115: You may disconnect at this time.

Speaker Change #116: Joining us today from Lansar are Frank Lonegro, President and CEO, Jim Todd, Vice President and CFO, Joe Beacom, Vice President and Chief Safety and Operations Officer.

Speaker Change #117: Jim Applegate, Vice President and Chief Corporate Sales Strategy and Specialized Fright Officer and Matt Daniger, Vice President and Chief Field Sales Officer. Now I would like to turn the call over to Mr. Frank Lonegro. Sir, you may begin.

Frank Lonegro: Thank you, Bill.

Frank Lonegro: Good afternoon and welcome to Landstar's 2024 Third Quarter Earnings Conference Call. Before we begin, let me read the following statement. The following is a Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements.

Frank Lonegro: During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies, and expectations.

Frank Lonegro: 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 from the 2023 fiscal year, described in the section Risk Factors and Other SEC Filings from Time to Time.

Speaker Change #118: 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. I'll now pass it to Landstar CEO, Frank Lonegro, for his opening remarks.

Frank Lonegro: Thanks, J.T., and good afternoon, everyone. First, I want to thank our VCOs and agents and the Landstar employees who support them every day.

Frank Lonegro: It is unbelievably energizing to engage with our network of entrepreneurial agents and capacity providers as we work together to align Landstar for future growth and continued success.

Frank Lonegro: As I've traveled the country meeting with agents this year, I've been thoroughly impressed with the capability, the uniqueness, and the resiliency of each agency, as well as their collective commitment to Landstar's success.

Frank Lonegro: In the third quarter, I also had the opportunity to meet with hundreds of BCOs at our July All-Star event and September Appreciation Days.

Frank Lonegro: where we celebrate the accomplishments and professionalism of our VCOs. They are the best in the industry and help drive the success of Landstar's business model.

Frank Lonegro: As we move towards the end of the 2024 fiscal year, we continue to be laser focused on accelerating our business model and executing on our strategic initiatives. We want to be in the best position possible to leverage the freight environment when it turns our way.

Frank Lonegro: We are also focused on our commitments to continuous improvement in the level of service and support we provide to our customers, agents, BCOs, and carriers each and every day.

Frank Lonegro: Turning to slide 5.

Frank Lonegro: The freight environment in the 2024 third quarter continued to be characterized by soft demand and readily available truck capacity. Accumulated inflation on goods continued to impact the amount of truckload freight generated in relation to consumer spending.

Frank Lonegro: Industrial output was soft throughout the quarter, as evidenced by year-over-year declines in manufacturing, with ISM fluctuating in the mid-40s.

Frank Lonegro: Truck capacity continued to be readily available, with only small pockets of supply-demand equilibrium, and market conditions continued to favor the shipper.

Frank Lonegro: With that backdrop, Landstar performed admirably in the 2024 3rd quarter, delivering top and bottom line results within our guidance range.

Frank Lonegro: Our third quarter guidance issued in conjunction with our 2024 second quarter earnings release

Frank Lonegro: Call for the number of loads hauled via truck to be 6 to 10 percent below.

Frank Lonegro: the 2023 3rd quarter and overall revenue per truckload to be flat to 4% above the 2023 3rd quarter. The actual number of loads hauled via truck in the 2024 3rd quarter was 7.7% below the 2023 3rd quarter, slightly above the midpoint of our guidance.

Frank Lonegro: Actual revenue per truckload in the 2024 third quarter was 0.7% above the prior year quarter within the lower half of the guidance range. Our balance sheet continues to be very strong and our capital allocation priorities are unchanged.

Frank Lonegro: I'm a strong believer in the company's stock buyback program and am committed to patiently and opportunistically Executing on our existing authority to benefit our long-term stockholders

Frank Lonegro: As noted in the release, we deployed over $22 million of capital toward buybacks and repurchased approximately 121,000 shares of Common Stock during the 2024 third quarter.

Frank Lonegro: We continue to invest through the cycle in leading technology solutions for our network of independent business owners and have allocated a Significant amount of capital this year towards refreshing our fleet of trailing equipment

Frank Lonegro: Turning to slide six and looking at our network, the scale, systems, and support inherent in the Landstar model helped to drive the operating results generated during the 2024 third quarter. JT will get into the details on revenue loadings and rate per load in a few minutes.

Speaker Change #119: As noted during previous earnings calls, I've been in the transportation sector for most of my career and realized how important Landstar's safety culture is to our continued success.

Speaker Change #119: Our safety performance is a direct result of the professionalism of the thousands of Landstar BCOs operating safely every day, and the agents and employees who work to reinforce the critical importance of safety at Landstar.

Speaker Change #119: I'm proud to report an Accident Frequency Index.

Speaker Change #119: of .56 DOT reportable accidents per million miles during the first nine months of 2024, an improvement of approximately 10 percent as compared to the corresponding period of 2023.

Speaker Change #119: This is an impressive operating metric that speaks to the strength, skill, talent, and dedication of our BCOs and provides a point of differentiation our agents are able to highlight in discussions with our freight customers.

Speaker Change #119: Turning to slide 7, in the capacity side, VCO truck count decreased sequentially in the third quarter from the second quarter by 153 trucks.

Speaker Change #119: consistent with our expectations of BCO declines slowing in Q3 relative to Q2. On a year-over-year basis, BCO truck count has decreased approximately 12% since the end of the 2023 third quarter. It is typical to incur turnover in BCO truck count in a low-rate environment.

Speaker Change #119: VCO turnover continues to be influenced by the significant increase in the cost of repairs and the often lengthy period of time trucks are out of service awaiting repairs.

Speaker Change #119: We would expect BCO count to continue to decline in the fourth quarter, given the challenging operating environment faced by many owner-operators at a pace somewhat similar to the pace experienced during the third quarter. I will now pass the call back to JT to walk through the 2024 third quarter financials in more detail.

JT: Thanks, Frank.

JT: Turn to slide 9, as Frank mentioned earlier, overall truck revenue per load increased 0.7% in the 2024 third quarter compared to the 2023 third quarter. In terms of the breakdown between VAN and unsighted, revenue per load on loads hauled by unsighted platform equipment increased 4% year over year, whereas revenue per load on loads hauled by a VAN equipment decreased 2% year over year.

JT: In comparison to overall truck revenue per load, we consider revenue per mile on loads hauled by BCO trucks a more pure pricing number as it excludes fuel surcharges billed to customers that are paid 100% to the BCO.

JT: In the 2024 third quarter, revenue per mile on unsighted platform equipment hauled by BCOs was 1% above the 2023 third quarter, while revenue per mile on van equipment hauled by BCOs was 3% below the 2023 third quarter.

JT: We believe the impact of lower diesel prices, particularly with respect to rates paid to truck brokerage carriers, muted some of the seasonal rate strength we experienced in the quarter.

JT: The August to September month-to-month change underperformed pre-pandemic typical seasonal patterns, whereas June to July and July to August outperformed.

JT: As to loads hauled by BCOs on unsighted platform equipment, revenue per mile increased 10 percent from June to July, decreased 3 percent from July to August off a more challenging starting point, and increased 2 percent from August to September.

JT: Heavy haul revenue, one of our areas of increased strategic focus, was down approximately 5% year-over-year in the third quarter, slightly outperforming core truckload revenue.

JT: The increase in non-truck transportation revenue was mostly due to a 28% increase in ocean revenue per shipment.

Speaker Change #120: Turning to slide 10, we've provided revenue share by commodity and year-over-year change in revenue by commodity.

Speaker Change #120: Transportation logistics segment revenue was down 6% year-over-year, a 7% decrease in loadings, partially offset by a 2% increase in revenue per load as compared to the 2023 third quarter.

Speaker Change #120: Within our largest commodity category, consumer durables, revenue declined 3% year over year on an 8% decline in volumes, partially offset by a 5% increase in revenue per load.

Speaker Change #120: Aggregate revenue across our top five commodity categories, which collectively make up about 69% of our transportation revenue, was down 7% compared to the 2023 third quarter.

Speaker Change #120: While slide 10 displays revenue shared by commodity, we thought it would also be helpful to include some color on volume performance within our top five commodity categories.

Speaker Change #120: From the 2023 third quarter to the 2024 third quarter, total loadings of machinery decreased 9%, automotive equipment and parts decreased 9%, building products increased 3%, and hazardous materials decreased 13%.

Speaker Change #120: Additionally, substitute line haul loadings, one of the strongest performers for us during the pandemic, and one which varies significantly based on consumer demand, decreased 36% from the 2023 third quarter.

Speaker Change #120: Also, Landstar is a truck capacity provider to other trucking companies, 3PLs, and truck brokers. During periods of tight truck capacity, those other freight transportation providers reach out to Landstar to provide truck capacity more often than during times of more readily available truck capacity.

Speaker Change #120: The amount of freight hauled by Landstar on behalf of other truck transportation companies is reflected in almost all of our commodity groupings including our substitute line haul service offering.

Speaker Change #120: Overall revenue hauled on behalf of other truck transportation companies in the 2024 third quarter was 21% below the 2023 third quarter, a clear indicator the capacity is readily accessible in the marketplace.

Speaker Change #120: Revenue hauled on behalf of other truck transportation companies was 12% and 15% of transportation revenue in the 2024 and 2023 third quarters, respectively.

Speaker Change #120: Even with the ups and downs in various customer categories, our business remains highly diversified with over 25,000 customers, none of which contributed over 6% of our revenue in the first 39 weeks of 2024.

Speaker Change #120: Turning to slide 11, in the 2024 third quarter, gross profit was $112.7 million compared to gross profit of $128.1 million in the 2023 third quarter.

Speaker Change #120: Gross profit margin was 9.3% of revenue in the 2024 third quarter as compared to gross profit margin of 9.9% in the corresponding period of 2023.

Speaker Change #120: In the 2024 third quarter, variable contribution was $171.4 million compared to $187.4 million in the 2023 third quarter.

Speaker Change #120: Variable contribution margin was 14.1% of revenue in the 2024 third quarter, compared to 14.5% in the same period last year.

Speaker Change #120: The decrease in variable contribution margin compared to the 2023 third quarter was primarily attributable to a mixed headwind and a decreased variable contribution margin on revenue generated by a truck brokerage carriers as the rate paid to truck brokerage carriers in the 2024 third quarter was 145 basis points higher than the rate paid in the 2023 third quarter.

Speaker Change #120: Turn to slide 12. Operating income declined as a percentage of both gross profit and variable contribution primarily due to the impact of the company's fixed cost infrastructure, principally certain components of selling general administrative costs in comparison to smaller gross profit and variable contribution basis.

Q3 2024 Landstar System Inc Earnings Call

Request a DemoDemo

LSTR

Landstar System

Earnings