Landstar System Q1 2025 Earnings Report

Landstar System EPS Results

• Actual EPS: $0.85
• Consensus EPS: $0.92
• Beat/Miss: Missed by -$0.07
• One Year Ago EPS: $1.32

Landstar System Revenue Results

• Actual Revenue: $1.15 billion
• Expected Revenue: $1.13 billion
• Beat/Miss: Beat by +$23.11 million
• YoY Revenue Growth: -1.60%

Landstar System Announcement Details

• Quarter: Q1 2025
• Date: 5/13/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 13, 2025
• Conference Call Time: 8:30AM ET

Landstar System (NASDAQ:LSTR) provides integrated transportation management solutions in the United States, Canada, Mexico, and internationally. It operates through two segments: Transportation Logistics and Insurance. The Transportation Logistics segment offers a range of transportation services, including truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo, and customs brokerage, as well as offers transportation services to other transportation companies, such as third party logistics and less-than-truckload services. It provides truck services through dry and specialty vans of various sizes, unsided/platform trailers, temperature-controlled vans, and containers; rail intermodal services through contracts with domestic and Canadian railroads, certain short-line railroads, and asset-based intermodal equipment; and domestic and international air and ocean services. This segment serves the automotive parts and assemblies, consumer durables, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics, and military equipment industries. The Insurance segment provides risk and claims management services; and reinsures risks of the company's independent contractors. It markets its services through independent commission sales agents and third party capacity providers. Landstar System, Inc. was incorporated in 1991 and is headquartered in Jacksonville, Florida.

Landstar System Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong Q1 core truckload volumes: loads hauled were only 1.2% below Q1 ’24—slightly above the high end of guidance—and, for the first time in 15 years, Q1 loads surpassed Q4 shipments, with revenue per load down just 0.6% Y-Y.
• Bright spot in heavy haul: generated 6% year-over-year revenue growth (3% volume, 3% rate) in Q1 ’25, significantly outperforming core truckload.
• Isolated supply chain fraud in international forwarding led to a $4.8 million pretax charge (≈$0.10/sh), netting outage from a $20 million worst-case to ~$5 million after expected recoveries; no internal involvement identified.
• Insurance and claims costs rose to 9.3% of BCO revenue (vs 4.9% historical average) due to cargo theft, truck accident severity and $11.4 million of prior-year claim development.
• Robust cash generation and capital returns: Q1 operating cash flow of $56 million, $61 million in share repurchases (≈386 K shares), and an 11% increase to the quarterly dividend.

Presentation

[Operator]

Good morning, and welcome to Lonestar Systems Incorporated First Quarter Earnings Release Conference Call. All lines will be on 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 Lone Star are Frank Lonegro, president and CEO Jim Applegate, vice president and chief scope corporate sales strategy and specialized freight officer Jim Tad, Vice President and CFO Matt Daniger, Vice President and Chief Field Sales Officer Matt Miller, Vice President and Chief Safety and Officer's Safety Officer.

[Operator]

Now I'd like to turn the call over to Mr. Jim Todd. Thank you, sir, and you may begin.

[Jim Todd, VP & CFO at Landstar System]

Thank you, Elle. Good morning, and welcome to Landstar's twenty twenty five first 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.

[Jim Todd, VP & CFO at Landstar System]

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 ks for the 2024 fiscal year described in the section Risk Factors and other SEC filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward looking information and Landstar undertakes no obligation to publicly update or revise any forward looking information. I'll now pass it to Landstar's CEO, Frank Lanagro, for his opening remarks.

[Frank Lonegro, President & CEO at Landstar System]

Thanks, JT, and good morning, everyone. We'd like

[Frank Lonegro, President & CEO at Landstar System]

to thank our investors and analysts for their patience with us as we work through the previously disclosed supply chain fraud matter, resulting in the postponement of first quarter earnings. We will be sharing the details at a high level with you shortly. I'd also like to thank our BCOs and agents and all of the Landstar employees who support them every day. It was great to spend time with our BCO team in Louisville at the Mid America Truck Show recently and to celebrate the success of our agent network in Hollywood, Florida at our annual agent convention. The capability, resiliency and level of commitment exhibited day in and day out by our network of independent business owners is unique in the freight transportation industry.

[Frank Lonegro, President & CEO at Landstar System]

Their adaptability and dedication to service for our customers in this highly fluid freight transportation backdrop is truly impressive. They are exceptional business leaders and key to driving the continued success of Landstar's business model. The twenty twenty five first quarter presented a unique set of macroeconomic challenges with the inauguration of a new President and the uncertainties associated with aggressive U. S. Trade and tariff policies.

[Frank Lonegro, President & CEO at Landstar System]

We continue to monitor the impact of tariffs and other federal trade policies on international trade relationships between The United States and many countries throughout the world, most notably China, Mexico and Canada very closely. As a reminder, U. S.-Mexico cross border revenue was approximately 11% of consolidated revenue during the 2024 fiscal year, while U. S./Canada cross border revenue was approximately 4% of consolidated revenue during the same period. Our direct exposure to freight to and from China is de minimis.

[Frank Lonegro, President & CEO at Landstar System]

Amidst ongoing challenges in the freight environment compounded by a highly volatile federal trade policy, the twenty twenty five first quarter included several important positive developments for Landstar. As noted in our earnings release, the number of loads hauled via truck exceeded the high end of our guidance issued in connection with our fourth quarter twenty twenty four earnings release on 01/29/2025. This was the first time in at least fifteen years where the number of loads hauled via truck in the first quarter exceeded the immediately preceding fourth quarter. Although it is hard to determine how much of our first quarter load count was related to efforts by shippers to get ahead of tariffs, we certainly saw this as a positive sign to start 2025. Notwithstanding the political and macro uncertainty thus far in 2025, our focus continues to be on accelerating our business model and executing on our strategic growth initiatives.

[Frank Lonegro, President & CEO at Landstar System]

In one continued major bright spot, I'm extremely pleased with the performance of Landstar's heavy haul service offering. We generated approximately $113,000,000 of heavy haul revenue during the twenty twenty five first quarter or a 6% increase over the twenty twenty four first quarter. This achievement was driven by a 3% increase in heavy haul revenue per load and a 3% increase in heavy haul volume. Turning more broadly to our core truckload service offering, the foundational work we invested in during 2024 puts us in a great position to leverage the freight environment when it eventually turns our way. We are also focused on our commitment to continuous improvement in the level of safety, service and support we provide to our customers, agents, BCOs and carriers each and every day.

[Frank Lonegro, President & CEO at Landstar System]

Turning to Slide five, the freight environment in the twenty twenty five first quarter was characterized by relatively soft demand, weather impacts and readily available truck capacity. The impact of accumulated inflation remains a drag on the amount of truckload freight generated in relation to consumer spending. Truck capacity continued to be readily available with small pockets of supply demand equilibrium and market conditions continued to favor the shipper amidst choppy conditions in the industrial economy. Considering that backdrop, Amstar's revenue performance was admirable in the twenty twenty five first quarter, delivering top line results within the top half of our first quarter guidance range issued on January 29. Our first quarter guidance call for the number of loads hauled via truck to be 7% below to 2% below the twenty twenty four first quarter and overall revenue per truckload to be 2% below to 3% above the twenty twenty four first quarter.

[Frank Lonegro, President & CEO at Landstar System]

The actual number of loads hauled via truck in the twenty twenty five first quarter was 1.2% below the twenty twenty four first quarter, slightly above the high end of our guidance range. Actual revenue per truckload in the twenty twenty five first quarter was 0.6% below the prior year quarter, comfortably within the lower half of the guidance range. As we previously indicated in our recent eight Ks, earnings per share came in below the low end of the guidance we provided in conjunction with our twenty twenty four fourth quarter earnings release, primarily for two reasons. First, as discussed in our earnings release issued earlier today and as previously disclosed in Form eight Ks filed with the SEC on April 2 and April twenty five of this year, during the last week of Landstar's twenty twenty five first quarter, we identified a supply chain fraud relating to the company's international freight forwarding operations. This fraud matter does not involve our core North American truckload services.

[Frank Lonegro, President & CEO at Landstar System]

While investigation, remediation and collection efforts continue, the twenty twenty five first quarter results included a $4,800,000 pretax charge or $0.10 per share relating to this matter. This charge reflects the total currently anticipated adverse financial impact to Landstar relating to this fraud, net of certain actual and anticipated recoveries and before taking into account the cost of legal and other professional fees as well as additional potential recoveries. This charge is reflected in selling, general and administrative costs as bad debt expense. It is important to note, we believe the inception of the fraud dates back to at least 2019. We have no evidence currently of any internal employee involvement.

[Frank Lonegro, President & CEO at Landstar System]

We have our arms all the way around the matter and the fraud was isolated to a single satellite agent office created through a unique arrangement dating back over ten years. While this situation is very disappointing, Landstar leaders across accounting, finance, international sales and operations and legal worked tirelessly over the past six weeks since we discovered the fraud to investigate this matter and secure both actual and probable future recoveries that reduce the impact from the approximately $20,000,000 worst case scenario we reported in the eight Ks to the roughly $5,000,000 we reported in the first quarter. Second, as previewed by the eight ks we filed on 04/02/2025, first quarter EPS also reflect highly elevated insurance and claims costs of 9.3% of BCO revenue. This amount of insurance and claims as a percentage of BCO revenue is well above the company's average historical experience of 4.9% from the 2019 fiscal year through the 2024 fiscal year and as will be discussed further by JT is primarily due to cargo theft and truck accident adverse claim development. Absent the supply chain item and the elevated insurance and claims costs, our EPS would have finished comfortably within the twenty twenty five first quarter prior guidance even with the corresponding incentive compensation adjustments.

[Frank Lonegro, President & CEO at Landstar System]

Our balance sheet continues to be very

[Frank Lonegro, President & CEO at Landstar System]

strong and our capital allocation priorities are unchanged. We will continue

[Frank Lonegro, President & CEO at Landstar System]

to patiently and opportunistically execute on our existing buyback authority to benefit our long term stockholders. As noted in the release, we deployed approximately $61,000,000 of capital toward buybacks and repurchased approximately 386,000 shares of common stock during the twenty twenty five first quarter. In addition, we were excited to announce this morning the acceleration of the increase to our regularly scheduled quarterly dividend resulting in the 11% increase over the amount of the company's regular quarterly dividend declared following each of prior three quarters. We continue to invest through the cycle in leading technology solutions for the benefit of our network of independent business owners and have allocated a significant amount of capital this year towards refreshing our fleet of trailing equipment, specifically focusing on unsided platform equipment. 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 generating during the twenty twenty five first quarter.

[Frank Lonegro, President & CEO at Landstar System]

JT will get into the details on revenue, loadings and rate per load shortly. 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. 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. I'm proud to report an accident frequency rate of 0.69 DOT reportable accidents per million miles during the twenty twenty five first quarter, well below the last available national average DOT reportable frequency released from the FMCSA for 2021. We continue to be committed to driving down that number closer to the company's trailing five year average of 0.61 or lower.

[Frank Lonegro, President & CEO at Landstar System]

This long run average 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. I'd also like to take a moment to recognize Landstar's nearly $500,000,000 agents based on the 2024 fiscal year results. As mentioned earlier in the prepared remarks, it was our pleasure to celebrate their success in April at our Annual Agent Convention. Importantly, retention within the million dollar agent network continues to be extremely high. Turning to Slide seven, in the capacity side, on a year over year basis, BCO truck count decreased approximately 8% compared to the end of the twenty twenty four first quarter.

[Frank Lonegro, President & CEO at Landstar System]

On a sequential basis, BCO truck count decreased in the first quarter from the twenty twenty four fourth quarter by approximately two twenty three trucks consistent with our expectations of BCO truck declines continuing into the first quarter. I would remind folks however that the first quarter is historically the most challenging quarter from a net truck count standpoint. Going back in history, in the aggregate, during the first quarter of every year over the last fifteen years, we have added a total of 10,445 BCO trucks and had a total of 11,412 BCO trucks to Parklandstar. It is typical to incur turnover in BCO truck count in a low rate per load environment. BCO turnover continues to be influenced by the significant increase in the cost to maintain and operate a truck today compared to before the pandemic.

[Frank Lonegro, President & CEO at Landstar System]

Directionally, we are pleased to see our trailing twelve month truck turnover rate drop from 34.5% as of fiscal year end to 33% at the end of the twenty twenty five first quarter. Through the first six weeks of the twenty twenty five second fiscal quarter, the number of trucks provided by BCO independent contractors has declined by less than 20 trucks. If that trend continues through the final seven weeks of the quarter, it will be the best quarter over quarter net truck performance in twelve quarters. I will now pass the call back to JT to walk you through the twenty twenty five first quarter financials in more detail.

[Jim Todd, VP & CFO at Landstar System]

Thanks, Frank. Turning to Slide nine. As Frank mentioned earlier, overall truck revenue per load decreased 0.6% in the twenty twenty five first quarter compared to the twenty twenty four first quarter, primarily attributable to a 2.1% decrease in revenue per load on loads hauled by truck brokerage carriers, partially offset by a 1.5% increase in revenue per load on loads hauled by PCO independent contractors. Revenue per load on loads hauled by truck brokerage carriers was negatively impacted by a year over year decline in diesel prices. Overall truck revenue per load in the twenty twenty five first quarter was negatively impacted by a 1% decline in average length of haul as compared to the twenty twenty four first quarter.

[Jim Todd, VP & CFO at Landstar System]

On a sequential basis, truck revenue per load decreased 4.6% in the twenty twenty five first quarter versus the twenty twenty four fourth quarter, slightly softer than the typical pre pandemic normal seasonality decline of 3%. In comparison to overall truck revenue per load, we consider revenue per mile on VCO loads hauled by VCO trucks a pure reflection of market pricing as it excludes fuel surcharges billed to customers that are paid 100% of VCO. In the twenty twenty five first quarter, revenue per mile on unsided platform equipment hauled by VCOs was 14% above the twenty twenty four first quarter, and revenue per mile on van equipment hauled by VCOs was 2% above the twenty twenty four quarter. Delving deeper into seasonal trends, revenue per mile on loads hauled by BCOs on unsided platform equipment declined 9% from December to January, was approximately flat January to February and increased 1% from February to March. The December to January decline underperformed pre pandemic seasonal trends, while the February and March trend was generally in line with pre pandemic historical trends.

[Jim Todd, VP & CFO at Landstar System]

With respect to loads hauled by BCOs on van equipment, performance versus pre pandemic typical seasonal patterns was choppier. Ribbon per mile on van equipment hauled by BCOs increased 1% from December to January, outperforming these trends, decreased 3% from January to February, underperforming these trends, and decreased 1% from February to March, again underperforming. It should be noted that month to month seasonal trends on unsided platform equipment are generally more volatile compared to that of van equipment. This relative volatility is often due to the mix between heavy specialized loads and standard flatbed volume. As Frank alluded to, we've experienced strong recent performance in our heavy haul service offering.

[Jim Todd, VP & CFO at Landstar System]

Heavy haul revenue was up an impressive 6% year over year in the first quarter, significantly outperforming core truckload revenue. Heavy haul loadings were up approximately 3% year over year and revenue per heavy haul load increased 3% year over year. This represented a mixed tailwind to our unsided platform revenue per load as heavy haul revenue as a percentage of the category increased from approximately 31% during the twenty twenty four first quarter to approximately 33% in the twenty twenty five first quarter. Nontruck transportation service revenue in the twenty twenty five first quarter was 8% or $6,000,000 above the twenty twenty four first quarter. The increase in nontruck transportation revenue was mostly due to a 14% increase in ocean revenue per shipment percent increase in air revenue per shipment, partially offset by a 23% decrease in intermodal revenue, primarily driven by a 10% decline in revenue per load and a 14% decline in loadings.

[Jim Todd, VP & CFO at Landstar System]

Turning to Slide 10, we provided revenue share by commodity and year over year change in revenue by commodity. Transportation Logistics segment revenue was down 1% year over year on a 1% decrease in loadings, while revenue per load was approximately flat compared to the twenty twenty four first quarter. Within our largest commodity category, consumer durables, revenue increased 2% year over year on a 5% increase in revenue per load, partially offset by a 3% decrease in volume. Aggregate revenue across our top five commodity categories, which collectively make up about 69% of our transportation revenue, was approximately equal to the twenty twenty four first quarter. While slide 10 displays revenue share by commodity, we thought it would also be helpful to include some color on volume performance within our top five commodity categories.

[Jim Todd, VP & CFO at Landstar System]

From the twenty twenty four first quarter to the twenty twenty five first quarter, total loadings of machinery increased 6%. Automotive equipment and parts decreased 15%, building products increased 1% and electrical increased 36%. Additionally, substitute line haul loadings, one of the strongest performers for us during the pandemic and one which varies significantly based on consumer demand, increased 24% from the twenty twenty four first quarter. As we've mentioned many times before, Landstar is a truck

[Jim Todd, VP & CFO at Landstar System]

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. 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. Overall, revenue hauled on behalf of other truck transportation companies in the twenty twenty five first quarter was 13% below the twenty twenty four first quarter, a clear indicator that capacity is readily accessible in the marketplace. Revenue hauled on behalf of other truck transportation companies was 1214% of transportation revenue in the 2025 and twenty twenty four first quarters, respectively. Even with the ups and downs in various customer categories, our business remains highly diversified with over 23,000 customers, none of which contributed over 7% of our revenue in twenty twenty five first quarter.

[Jim Todd, VP & CFO at Landstar System]

Turning to Slide 11. In the twenty twenty five first quarter, gross profit was $98,300,000 compared to gross profit of $113,900,000 in the twenty twenty four first quarter. Gross profit margin was 8.5% of revenue in the twenty twenty five first quarter as compared to gross profit margin of 9.7% in the corresponding period of 2024. In the twenty twenty five first quarter, variable contribution was $161,300,000 compared to $168,200,000 in the twenty twenty four first quarter. Variable contribution margin was 14% of revenue in the twenty twenty five first quarter compared to 14.4% in the same period last year.

[Jim Todd, VP & CFO at Landstar System]

The decrease in variable contribution margin compared to the twenty twenty four first quarter was primarily attributable to a mix headwind as the number of loads hauled by BCOs decreased quarter over prior year quarter by approximately 7%, slightly better than the quarter over prior year quarter decline in the average number of trucks provided by BCO independent contractors of percent, given the 2% improvement in BCO utilization over the same time period, whereas the number of loads hauled by truck brokerage carriers increased approximately 3% compared to the prior year quarter. Turning to Slide Operating income declined as a percentage of both gross profit and variable contribution, primarily due to: one, highly elevated insurance and claim costs of 9.3% of BCO revenue two, the $4,800,000 charge related to the previously disclosed freight forwarding supply chain fraud matter and three, the impact of the company's fixed cost infrastructure, principally certain components of selling, general and administrative costs in comparison to smaller gross profit and variable contribution basis. The highly elevated insurance and claims costs drove an approximately zero three one dollars unfavorable variance as compared to the estimated amount included in the twenty twenty five first quarter prior guidance, while the freight forwarding supply chain matter reduced first quarter EPS by approximately $0.10 Other operating costs were $11,800,000 in the twenty twenty five first quarter compared to $14,900,000 in 2024.

[Jim Todd, VP & CFO at Landstar System]

This decrease was primarily due to a decreased provision for contractor bad debt and increased gains on sale of used trailing equipment. Insurance and claims costs were $39,900,000 in the twenty twenty five first quarter compared to $26,300,000 in 2024. Total insurance and claims costs were 9.3% of BCO revenue in the twenty twenty five first quarter compared to 5.8% in the twenty twenty four first quarter. The increase in insurance and claims costs as compared to 2024 was primarily attributable to increased net unfavorable development of prior year claim estimates, increased severity on cargo claims, primarily due to cargo theft and carrier impostor scams and increased severity of trucking accidents during the 2025 period, partially offset by decreased VCO miles traveled during the 2025 period and a decreased frequency in cargo claims as compared to the 2024 period. During the 2025 and twenty twenty four first quarters, insurance and claims costs included $11,400,000 and $1,100,000 of net unfavorable adjustments to prior year claim estimates, respectively.

[Jim Todd, VP & CFO at Landstar System]

Selling,

[Jim Todd, VP & CFO at Landstar System]

general

[Jim Todd, VP & CFO at Landstar System]

and administrative costs were $61,600,000 in the twenty twenty five first quarter compared to $56,400,000 in the twenty twenty four first quarter. The increase in selling, general and administrative costs were primarily attributable to the $4,800,000 charge related to the supply chain fraud discussed earlier in the call by Frank. Excluding the impact of the charge for the supply chain fraud, selling, general and administrative costs were essentially flat as compared to the 2024 period. Depreciation and amortization was $12,200,000 in the twenty twenty five first quarter compared to $14,100,000 in 2024. This decrease was primarily due to decreased depreciation on software applications.

[Jim Todd, VP & CFO at Landstar System]

The effective income tax rate was 24.7% in the twenty twenty five first quarter compared to an effective income tax rate of 23.5% in the twenty twenty four first quarter. The increase in the effective income tax rate was due to the favorable impact of net excess tax benefits from stock based compensation arrangements during the 2024 period. Turning to Slide 13 and looking at our balance sheet. We ended the quarter with cash and short term investments of $473,000,000 Cash flow from operations for the twenty twenty five first quarter was $56,000,000 and cash capital expenditures were $2,000,000 The company continues to return significant amounts of capital back to stockholders with $83,000,000 of dividends paid and approximately $61,000,000 of share repurchases during the twenty twenty five first quarter. The strength of our balance sheet is a testament to

[Jim Todd, VP & CFO at Landstar System]

the cash generating capabilities of the Landstar model. Back to you, Frank.

[Frank Lonegro, President & CEO at Landstar System]

Thanks, JT. Given the highly fluid freight transportation backdrop amid the uncertain political and macro environment, together with the recent industry trends in insurance and claims costs, the company will be providing second quarter revenue commentary rather than formal guidance. As we are already a couple of weeks into fiscal May, we thought it would be helpful to provide some insight into April business activity.

[Frank Lonegro, President & CEO at Landstar System]

The number of loads hauled via truck in April was approximately 2% below April 2024, while revenue per load in April was approximately 1% above April 2024. As a result, we view April's truck volumes as slightly below normal seasonality, where April truck revenue per load was slightly ahead of normal seasonality. It should be noted that the launch point of the first quarter from a sequential volume was relatively high given the anomaly of twenty twenty five first quarter truck loadings exceeding twenty twenty four fourth quarter truck loadings. Looking at historical seasonality from Q1 to Q2, pre pandemic patterns would normally yield an 8% increase in the number of loads hauled via truck and a 2% increase in truck revenue per load, yielding a higher top line sequentially. As noted above, fiscal April truck volumes trended slightly below normal seasonality When combined with the potential negative impact of truck transportation activity resulting from tariff and trade uncertainty, we believe it is unlikely that we would achieve normal seasonality with respect to the number of loads hauled via truck in the twenty twenty five second quarter With respect to variable contribution margin, the company typically experiences a 30 to 40 basis point sequential compression in variable contribution margin from the first quarter to the second quarter.

[Frank Lonegro, President & CEO at Landstar System]

Turning to slide 15, although we are not providing guidance, there are a few points regarding the twenty twenty five second quarter we want to bring to everyone's attention. As discussed earlier in the call, while investigation, remediation and collection efforts continue with respect to the supply chain fraud matter, the $4,800,000 pre tax charge we incurred in the twenty twenty five first quarter reflects the total currently anticipated adverse financial impact to Landstar, net of certain actual and anticipated recoveries. Other than additional costs for legal and other professional fees relating to this matter, we do not expect significant additional charges during the twenty twenty five second quarter or thereafter relating to this matter. Twenty twenty five second quarter SG and A will include our typical 2,000,000 to $3,000,000 charge relating to our annual agent convention. And finally, in connection with a multi year excess liability reinsurance program maintained by Landstar, a no claims bonus of $12,000,000 became payable to Landstar in April 2025.

[Frank Lonegro, President & CEO at Landstar System]

As certain claims relevant to this excess liability program remain pending, it is anticipated that the receipt of this no claims bonus payment will be recorded on our balance sheet in the second quarter as a deferred gain until such time as all underlying claims with exposure under the applicable excess layer insurance arrangement are resolved. With that operator, we'd like to open the line for questions.

[Operator]

Thank you very much, sir. Our first question comes from Jordan Alliger from Goldman Sachs. Your line is now open.

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

Yeah, hi. Morning. Just wondering if you could talk a little bit more about the insurance and the insurance developments. And I don't know if you could pinpoint, like I know you gave sort of the unfavorable variance, but how much of these prior period claims, the actual dollar amount, sort of like maybe one time in nature? And then how do you think about sort of what's normal for insurance going forward just because it seems like these types of things recur frequently?

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

Thanks.

[Frank Lonegro, President & CEO at Landstar System]

Yes. Hey, Jordan, thanks. And obviously it's an industry phenomenon, not just a Landstar phenomenon. I say and you'll see it in the 10 Q a little bit later today, but the year over year difference in prior year development was significant, like 10,000,000 or $11,000,000 JT will get into the details. So I do think it was a unique quarter.

[Frank Lonegro, President & CEO at Landstar System]

I mean our normal run rate is just below 5% of BCO revenue on that insurance and claims line. There's always some prior year development in that line, but this was a pretty unique quarter for us. JT?

[Jim Todd, VP & CFO at Landstar System]

Yes. Good morning, Jordan. To Frank's point, of the $11,000,000 unfavorable development in the twenty twenty five first quarter, about $7,000,000 came from our cargo programs. We had two incidents in the twenty twenty four fourth quarter that weren't reported until the twenty twenty five first quarter. Very timely, I think Courtney Reagan did a nice job on Friday on CNBC, a special on freight fraud and the supply chain, and it's impacting Landstar, it's impacting the entire industry.

[Jim Todd, VP & CFO at Landstar System]

I'll let Matt Miller talk about some of the things we're doing from a technology and a people standpoint. 2023 full year insurance as a percent of BCO revenue was five seventy basis points, Jordan. It stepped up to six thirty in the twenty twenty four fourth quarter. We're working on a lot of things as evidenced by the decrease in cargo claims frequency. It's just when these folks are hitting, they're hitting on high value loads as evidenced by I think our severity on cargo claims was up something like 155% year over year in the twenty twenty five first quarter.

[Jim Todd, VP & CFO at Landstar System]

Matt?

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

Yes. Thanks, Jim. Thanks, Frank. So we are seeing a decrease in the frequency, but as Jim alluded to, an increase in severity and that really speaks to the sophistication of the network and the bad actors out there. We've seen that happen from 2023 to 2024.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

And Courtney Reagan, I agree with Jim, did a really nice job going into detail about what's really going on in the space. That said, we're investing significantly. We stood up a fraud department and continuing to add people to that subject matter expertise to that. We're educating our constituents out there, whether it's the agents or the capacity. And then we're investing in technology.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

So we've stood up various vendors that are helping us attack on really all fronts, whether it's people, education or technology. But this is an area where you got to remain vigilant and you're really always playing defense here.

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

Just as a quick follow-up then, I'm realizing that these things pop up and I get the severity. Is there a way to think about the baseline percent of BCO revenue going forward? Just what like if it was a normalized number? Thanks.

[Frank Lonegro, President & CEO at Landstar System]

Yes, that was a bit difficult just given the environment that we're in. I think that the historical run rate that we mentioned in the prepared remarks of 4.9%, given the current environment is probably low. But then again, I look at the first quarter result in the 9%, nine point five % range and to me that's high. And one of the things that happened in the twenty twenty five first quarter as JT mentioned, usually these short cycle events where you find out pretty quickly that there's something that's happening in the couple of incidents that JT mentioned. We didn't find out for thirty, sixty, ninety days in some cases.

[Frank Lonegro, President & CEO at Landstar System]

So it was a little surprising. There have been arrests in one of these particular incidents that we're alluding to. And so I see that as a good thing. It is going to take not just the industry and the people in the process and the technology that Matt mentioned, but also a fair amount of government help. So, do think the fact that CNBC came out with their piece on fraud, I do think that's going to help elevate the concerns of the industry and not just in trucking.

[Frank Lonegro, President & CEO at Landstar System]

I mean, good lord, it's happening in rail and in intermodal and in shipping and in truck transportation as well. So this is something that we collectively need to get our arms around and we are going to need government help to get there.

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

Thank you.

[Frank Lonegro, President & CEO at Landstar System]

Thanks, Jordan.

[Operator]

Thank you. Our next question will be from Jason Seidl of D. C. Cohen. Your line is now open.

[Jason Seidl, Managing Director at TD Cowen]

Thank you, operator. Hey, Frank, hey, team. Good morning. Wanted to dive in a little more on the heavy haul. Obviously, loads, volumes up 3%, seems like a pretty decent result for the quarter.

[Jason Seidl, Managing Director at TD Cowen]

I wonder if you could break out sort of the end markets within heavy haul that are doing better for you guys? And then I have a follow-up.

[Frank Lonegro, President & CEO at Landstar System]

Yes, sure. Thanks, Jason. Heavy haul has been a bright spot for us pretty much since we designated it as a strategic area of focus. It's nice to see an area where we have I think a competitive advantage. We have a lot of legacy.

[Frank Lonegro, President & CEO at Landstar System]

We've got some great agents and some internal folks, we hired somebody from the outside who is an industry expert in heavy haul, Rob Simon is his name, you'll hear his name from time to time on these calls as we continue to improve the service offering there and the BCOs who are capable of doing this and approaching customers who have that as maybe not the mainstay of their business, but certainly a piece that we can participate in. You know, Jim Applegate has got this heavy haul area, so let me let him provide some commentary on the end market question you had, Jason.

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

Yes. Mike, how are you doing, Jason? From a heavy haul standpoint, to Frank's point, we've really leaned into this whole area and we're engaging our agents. We've got additional resources over within our corporate office to kind of help them work through the opportunities. We've got a dedicated sales focus.

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

So our growth in that area has actually been pretty broad based. We've got machinery, electrical, building products, the energy industry. We're kind of seeing multiple areas with multiple customers. So, we view this as a bright spot here not only from 2024, I think it's carried over here into 2025 and our pipeline is very strong. So, to Frank's point, we're a very strong player in this market And it seems like the end markets are really kind of turning in our favor and we've got the right support system to make sure that we grow.

[Jason Seidl, Managing Director at TD Cowen]

I appreciate that color, guys. I wanted to switch over to sort of the new requirements or I guess the requirements that were brought back for English proficiency for CDL operators. I wanted to get sort of your thoughts on how that would impact the overall driver supply market, not only in sort of enforcement, but also in maybe new CDL applicants going forward?

[Frank Lonegro, President & CEO at Landstar System]

Yes, Jason, great question. I'll let Matt chime in here in a second. The good thing is that we don't expect any impact on our BCO fleet. Our standards here are extremely high as you might imagine. Our qualification process, our orientation process certainly ferrets out folks who are unable to comply with that federal requirement.

[Frank Lonegro, President & CEO at Landstar System]

I don't think that every company is as stringent as we are and so I think it is going to impact capacity in what I'll say is a favorable way for the industry and certainly for Landstar and I think we're gonna see that in a couple of different ways through standard road checks but also in the use of what we call B1 Visa, folks who were previously anyway involved in a lot of cross border business. So I do think it's gonna be an overall positive for us. But Matt can fill in the gaps here.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

Sure. And I appreciate the question. This relates to the executive order on English language proficiency that Trump's put out April 28 and that was followed May 1 by CVSA indicating that English language proficiency was going to be considered an out of service criteria. That's really the big change here. English language has been required.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

It's the out of service element here that can impact shippers as well as the drivers when they're out there on the road. And really the big question that we have is the enforcement guidance. So we're waiting on FMCSA. FMCSA, they have about sixty days to put out guidance in terms of enforcement for law enforcement. But we've heard upwards of 100,000 drivers could be impacted.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

Industry number. That's not my number that we've heard. And I just recently got back from Laredo and there's a lot of chatter down there about those B1 Visa drivers and a large preponderance of them using the various apps, right? Apps to translate. And so how does that enforcement translate the use of those apps?

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

Are those folks out of service good having a meaningful impact to overall capacity?

[Jason Seidl, Managing Director at TD Cowen]

I appreciate that color guys. Appreciate the time as always.

[Frank Lonegro, President & CEO at Landstar System]

Thanks Jason.

[Operator]

Thank you. Next is John Chappell of Evercore ISI. Your line is now open.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Thank you. Good morning. I'm going to stick with the capacity theme. Frank, start with you. Obviously, the VCO count has been kind of in the crosshairs, it sounds like this quarter trends remain the best quarter over quarter in twelve months sorry, twelve quarters.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Looking at Slide seven, the total truck brokerage carriers lapped up about 15% quarter over quarter, over 10% year over year. Can you maybe explain what's going on there and what that may be indicative of in the broader industry capacity landscape?

[Frank Lonegro, President & CEO at Landstar System]

Yes, good question, John. And on the BCO count, yes, we are actually pretty excited about the trends that we've seen in April and even more so in the first couple of weeks of May. And so I'll let Matt cover that one. You are right, there has been an uptick on the capacity side, the third party capacity side. There are reasons behind that.

[Frank Lonegro, President & CEO at Landstar System]

Also given the question that Jason just asked and Matt's excellent answer. I mean, I do think that capacity number is probably going to come down, but let Matt fill in the gaps.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

Sure, sure. And that's a great point. It did jump about 10,000 carriers and that really relates to our partnership with an industry leading vendor on the carrier vetting and oversight. They're partnered with many other carriers or brokers, I should say, in our space. Therefore, we got access to more approved carriers that qualify for our criteria as a result of that implementation, which took place in the first quarter.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

That said, this is going to give us the ability to become more and more selective with those that we do business with, as it relates to fraud, as it relates to really choosing those high quality carriers to partner with. And so I would expect those numbers to come in, in the second and third quarter as we look ahead and we become more selective going forward. On the BCO side, I would really echo what Frank said on his remarks. We went from on the retention side, we went from a high watermark fourth quarter of twenty twenty three at forty one percent. And we've seen this is our fifth quarter of improvement there where we're sitting at 33% now at the end of the first quarter.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

Long term average is 29%. So we're much closer to that long term average than we are to that high watermark. And as Frank alluded to, fewer than 20 net truck losses in the first six weeks of the second quarter is a trend that we like. And should that move forward, we would have as Frank said, the trend could be the best in the most recent twelve quarters. On the ad side, love to see a little bit more help on rate.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

We're focusing on what we control, what we can control, improvements to recruiting, improvements to qualifications, improvements to orientation, all of those things without sacrificing safety. Safety is one of those things that we view as a big diversifier for us, a big differentiator, I should say, not a different diversifier, a big differentiator. We're not going to sacrifice safety. And the model has proven in a good environment, we're able to add trucks in a meaningful way. We added net trucks in 2021, roughly eight seventy net truck adds in 2021, roughly seven fifty net truck adds in 2020, roughly 900 net truck adds in 2018 and five hundred net truck adds in 2015.

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

So the model has the ability to lend itself to us adding net trucks in a meaningful way given a favorable environment.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Great. That's really helpful, Matt. My follow-up is going to be to Jim Applegate, but maybe stick with you, Matt, or either one. Just overall capacity, you it was noticeable to me, both Frank and Jim Todd in the prepared remarks used the phrase readily available. I know there's a lot of hope that English proficiency is gonna, you know, call a lot.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

I was I was thinking before this weekend, there was probably some hope that recession would help call a lot of this excess capacity. But do you have any estimate on what the overcapacity is in the market? And when do we go? And what does it take to get from readily available to balance?

[Frank Lonegro, President & CEO at Landstar System]

Yeah, hey John, good follow-up. You can look at the FMCSA databases and it's going to give you a view but not a perfect view of what's happening and part of the reason is you don't actually know how many trucks are associated with those authorities. We are continuing to see capacity come out. I think the fact that we are I'm going say bottoming, but it's obviously there's lot of uncertainty still out there, but the fact that our trends have improved meaningfully from Q1 to Q2 and even from April to May. Now some of that is the good work that Matt and his team are doing to improve all of the qualifications and the recruiting and then a little bit of hope of better rate obviously keeps people in the game, which we saw when we entered into the year.

[Frank Lonegro, President & CEO at Landstar System]

I mean we had a good feeling about the year and then obviously a fair amount of uncertainty got injected through the tariff and trade policy. So look, I think we are getting there. I don't think we're all the way there. The first thing we're going to see are pockets. My guess is if there is real enforcement on English proficiency, you're probably going to see that equilibrium achieved in Texas and places like that, perhaps Florida, perhaps Southern California, places that are border ish related, you're gonna see impacts there probably first and that'll give you an indication that we're nearing that.

[Jonathan Chappell, Senior Managing Director at Evercore ISI]

Great. Thanks, Frank. Thanks, Matt.

[Operator]

Thank you. Our next question will be from Daniel Imbro of Stephens Inc. Your line is now open.

[Daniel Imbro, Managing Director at Stephens Inc]

Yes. Hey, good morning, guys. Thanks for taking our questions.

[Frank Lonegro, President & CEO at Landstar System]

Good morning, Daniel.

[Daniel Imbro, Managing Director at Stephens Inc]

Frank, I wanted to start maybe a little bit more near term focus. I think in the slide that you offered a little bit on April and then what normal seasonality looks like. But in your prepared script, I think you said you expect maybe below normal sequential movements and loads from April to May. I guess, can you just walk through a little more detail kind of where you're seeing any relative strength or weakness? I think automotive was a big weak category in 1Q.

[Daniel Imbro, Managing Director at Stephens Inc]

And just what can you lean into to outgrow the market during this continued malaise on the demand side as you look across the portfolio?

[Frank Lonegro, President & CEO at Landstar System]

Yes. Hey, Daniel. Good set of questions. I'll let JT get into the specifics on a kind of line by line basis. We went through a fair amount of it on the prepared remarks.

[Frank Lonegro, President & CEO at Landstar System]

But to your point, I mean, automotive, given the tariff overtones and the fact that rates spiked up a little bit, meaning interest rates spiked up a little bit during the quarter, that was not our friend. The impact of tariffs in Mexico or Mexico products coming across, that obviously didn't help us either. So I would say the automotive piece was a bit of a drag and U. S.-Mexico cross border more broadly was a bit of a drag as was U. S.-Canada.

[Frank Lonegro, President & CEO at Landstar System]

So the things that were tariff impacted clearly impacted us as well. The fact that we saw some better numbers in April, I mean that felt pretty good, but it also had a fair amount of nuance in there as well. We did see The U. S.-Mexico business do a little bit better in April, but we saw The U. S.-Canada business do a little worse.

[Frank Lonegro, President & CEO at Landstar System]

So I think the thing that we need to focus on are the areas that we have the most control over, and clearly that's getting the BCO count where it needs to be, doubling down on the strategic areas of focus. The investments that we've made in Laredo and other places along the border for U. S.-Mexico trade, they are the absolute right investments for the long term. The short term, obviously, that's going to get impacted by tariffs as well as where the automotive business is. When that comes back, we're very well situated to do a good job there.

[Frank Lonegro, President & CEO at Landstar System]

But I think what seeing is the heavy haul business doing well, the overall platform business doing pretty well. You're seeing all the data center and the power and things like that doing well for us. So there's a lot of bright spots in there, but you've got to put it in the context of all the rest of the business, and there are some areas that are doing well and some areas

[Frank Lonegro, President & CEO at Landstar System]

that aren't. JT?

[Jim Todd, VP & CFO at Landstar System]

No, think that's fair, Frank. Daniel, to your question on seasonality, so April typically drops off about two sixty basis points on a loads per workday, and we finished April at down five forty. So that's what's driving April volumes 2% below prior year April when we were down 1.2% year over year in the first quarter.

[Jim Todd, VP & CFO at Landstar System]

To Frank's point, our U. S.-Mexico business was down 9% year over year in the first quarter. Through the first six weeks of the second quarter, it's basically been cut in half to where U. S.-Mexico revenue was only down 5% year over year.

[Daniel Imbro, Managing Director at Stephens Inc]

Great. And then if I

[Daniel Imbro, Managing Director at Stephens Inc]

could just maybe for my follow-up, sticking on the 2Q kind of outlook. I know, JT, you're not going to give a 2Q both the EPS guide. But I guess, what are the puts and takes, maybe if you walk through the expenses? Incentive

[Daniel Imbro, Managing Director at Stephens Inc]

costs,

[Daniel Imbro, Managing Director at Stephens Inc]

I think you talked about how those should trend. Frank mentioned 2,000,000 to $3,000,000 from the agent convention. Maybe insurance steps down given these, but not sure what the claims. Just anything to help us bridge kind of operating expenses from 1Q to 2Q would be helpful.

[Frank Lonegro, President & CEO at Landstar System]

Why don't we walk you down just a little bit more than what's in the slides, because it's important for us to give you as much commentary as we We're not trying to set guidance. We're not trying to give you a set of boundaries that you're going to take the midpoint of. As we entered the year, we did see some early signs of a recovery and that was a pretty good environment. We're excited about the year. And looking at Q1, absent insurance and claims, we would have hit our guidance and so we felt really good about the core operating performance of the business.

[Frank Lonegro, President & CEO at Landstar System]

Mid quarter, post inauguration, we encountered the unprecedented tariff and trade environment that you all are very familiar and very well briefed on because we saw that in the impacts on Mexico and Canada as we mentioned. And even though the direct U. S.-China exposure is limited, we probably did benefit somewhat in the first quarter from pull forward. We don't know how much of that. So I think the concern we have is will there be an air pocket in the blank ships and things like that, the impact of that on demand for trucking, but also on supply.

[Frank Lonegro, President & CEO at Landstar System]

If there's more supply because there are fewer loads coming off of importexport, then that obviously is impactful to us, counterbalanced by the English proficiency that we talked about earlier. I think all that aside and I'll put a huge caveat that we are not giving Q2 guidance, I think at our current course and speed and sub seasonal volumes, I'd expect us to finish above Q1 revs, but below Q2 'twenty four revs. So that gives you a fairly wide range, but I think that's where we're trying to guide you toward. Contribution margin, we finished 14% in Q1. We would generally see a 30 to 40 basis point decline in that from a sequential perspective.

[Frank Lonegro, President & CEO at Landstar System]

But then again, if we're going to be sub seasonal on volumes, we might end up a little bit better than that down 30, down 40. And JT's got a bunch on the expenses, so let me let you hit that.

[Jim Todd, VP & CFO at Landstar System]

All fair. So another operating cost, Daniel, Matt and the team did a really nice job in the first quarter, '8 hundred thousand gains on disposal. If that pace is not achieved in the second quarter, you could have some modest uptick in other operating costs sequentially. Insurance, you know the deal there. The trend has not been the industry's friend.

[Jim Todd, VP & CFO at Landstar System]

9.3% is a high watermark in first quarter of twenty five hope to beat that in the second quarter. On G and A, really the big one, Daniel, is the 4,800,000 falling off and then potentially $2.5.3000000 dollars coming on board. I know you were with us first week in April at convention. Depreciation, I don't anticipate anything significant sequentially 1Q to 2Q. On the question around incentive compensation and stock compensation, we had about $3,000,000 included in the first quarter of '20 '5 million dollars on those lines.

[Jim Todd, VP & CFO at Landstar System]

I would expect if our overall expectations play out in the second quarter, I would expect a similar charge reflected in the second quarter SG and A.

[Daniel Imbro, Managing Director at Stephens Inc]

Great. Really appreciate all the color. Thanks, guys.

[Frank Lonegro, President & CEO at Landstar System]

Thanks, Daniel.

[Operator]

Thank you. Our next question will be from Brian Ossenbeck of JPMorgan. Sir, your line is now open.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Hey, good morning guys. Thanks for taking questions. Maybe it's a very near term one. We have road check going on this week, right? So maybe Matt you can talk about expectations for that.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Will we see any sort of, and it doesn't sound like FMCSA has their guidance out there, but could we actually see some sort of out of service impact from all this language proficiency focus?

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

Yeah, appreciate the question, Brian. I don't think just yet we're going to see anything too meaningful until we get that guidance, that enforcement guidance. I have not heard or seen from anybody that's indicating we'll see any elevated enforcement just yet.

[Frank Lonegro, President & CEO at Landstar System]

Yes. Brian, these are going to

[Frank Lonegro, President & CEO at Landstar System]

be judgmental until we get the guidance. So my guess is, it's going to have to be blatant non English proficiency in order for somebody to be taken out of service. So I think this is a good barometer of whether there are truly folks out there who are very sub proficient in English, but remains to be seen, we'll certainly keep an eye on that.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

All right, makes sense. And then just more broadly, I know you talked about all the puts and takes and pull forward which is quite difficult to pull apart and to figure out what's actually going on. But maybe Frank is there a possibility that we could see maybe an acceleration here in the short term as we have another ninety day window with a lot more clarity maybe if you didn't pull forward, you will. If you already did, you do some more. Are you hearing or seeing anything along those lines across the different verticals and maybe even across the geographies as you look at the cross border?

[Frank Lonegro, President & CEO at Landstar System]

Yeah, with thirty six hours post the ninety day pause, nothing yet, but look academically in the first quarter, it's hard to believe that we didn't see something associated with pull forwards and my guess is if the ninety days continues to progress and people become more and more worried that maybe there won't be a deal, my guess is there'll be some people who try to get things across the finish line before the ninety days expires. Academically, see your point and can certainly support it. It's just hard on this early going to actually put some numbers behind that.

[Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan]

Right, understood. Thanks for the time.

[Frank Lonegro, President & CEO at Landstar System]

Thank you, Brian.

[Operator]

Thank you. Our next would be Scott Group of Wolfe Research. Your line is now open.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Hey, thanks. I know Frank you were talking about just like the uncertainty with these blank sailings and weaker imports. I'm wondering, are we see are you seeing that in your volume yet? Meaning if April was down 2% on volume, is May meaningfully different than that?

[Frank Lonegro, President & CEO at Landstar System]

Yes, let me hit the high level and then I'll let JT talk the specifics on May. When you look at the sail time and you know this probably better than anybody, Scott, so I think the sail time measured depending on your port could be four, five, six, seven weeks depending on where you're sailing from and where you're sailing to. So I don't think we have seen the blank ships coming in so to speak, but that obviously is going to hit us at some point in time. The nice thing is we don't have a ton of direct exposure to China importexport. We have a little bit in the international business and then it's hard to figure out whether or not we participate in any meaningful consolidation in the 53 footers after they get to inland ports.

[Frank Lonegro, President & CEO at Landstar System]

My guess is it's some but it's probably quite small, But there's going to be some pocket and the question to Brian's point of question ago is are we going to see that counterbalanced by any pull forward associated with the expiration of the ninety days? Let let you hit AprilMay.

[Jim Todd, VP & CFO at Landstar System]

Yes.

[Jim Todd, VP & CFO at Landstar System]

So through the first two weeks of fiscal May, truckloads per workday, Scott, are running almost right on top of fiscal April such that we're clipping about 20 basis points ahead of prior year May. And I would just remind folks, last year, May 2024 dipped truck loadings versus April, which is unusual. That's why the slight improvement versus the down 2% year over year in April.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Okay. That's helpful. And I know it's a small part of your business, but just curious, ocean and air the ocean and air segment like had a lot of growth in Q4 and Q1. And has that what you're seeing more in real time there would I'm just curious.

[Frank Lonegro, President & CEO at Landstar System]

You're talking about in terms of Q1, Q2 trends, Scott?

[Scott Group, MD & Senior Analyst at Wolfe Research]

Yes.

[Frank Lonegro, President & CEO at Landstar System]

Obviously, rate was a huge positive for everybody in that space in the preceding handful of quarters as that ticked up. And J. T. Is just pulling up a couple of numbers here that hopefully will be able to help you out as we think about last year and this year.

[Jim Todd, VP & CFO at Landstar System]

Yes. So we've definitely seen our ocean revenue per shipment slide on a sequential basis, Scott, from running a little bit over $11,000 in the fourth quarter of twenty twenty four down to if I was good with numbers, about $7,500 an ocean load in first quarter twenty twenty five. So while it was still positive year over year in the first quarter, we are seeing that sequential slide.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Okay. And then if I

[Scott Group, MD & Senior Analyst at Wolfe Research]

could just ask one just bigger picture question. It sounds like hopefully the BCO declines are starting to moderate. Is there anything about this that in any way feels structural to you where when we get an upcycle at some point, we're not going to see a big uptick in BCOs or is this purely a cyclical dynamic and when the cycle turns, we'll get all the BCOs coming back and we'll get all the volume growth back?

[Frank Lonegro, President & CEO at Landstar System]

Yes, Scott, I see anything structural. Mean, obviously we've been looking at BCO count extremely heavily here in the last certainly since I've been here and I'm sure the team before as things started to roll over in the early part of twenty twenty two. I think, and we've mentioned this before, just the sheer length of time associated with this freight recession, it really is unprecedented. So we always go back and look at history and say, well, if this recession had only been eighteen to twenty months like prior ones? And I think we would have snapped a line in like 10,000 trucks.

[Frank Lonegro, President & CEO at Landstar System]

So that would feel pretty good. We should expect capacity not just at Landstar but more broadly to continue to bleed out as the rate environment bounces along the bottom. So that doesn't really surprise us. The fact that we are continuing to see a significant number of adds on a quarter over quarter basis, and Matt, you may have the numbers for Q1, I just happen to remember the numbers from Q4. In Q4, we added 500 trucks, but we lost 700 trucks.

[Frank Lonegro, President & CEO at Landstar System]

So the fact that 500 new folks are coming to us tells us that the model is quite sound and quite resilient. And when things go the other way for us, the positive way, then you're going to see more adds than cancels because in a rising rate environment with a percentage pay model, more people are going to want to stay in a rising rate environment than they do in a declining environment. So Matt, quarter one?

[Matt Miller, VP, Chief Safety & Operations Officer at Landstar System]

Yes. Quarter one was $5.68, so up 12% sequentially Q4 to Q1.

[Frank Lonegro, President & CEO at Landstar System]

Yes. So we're continuing to add significant trucks, which tells me it's as much about continuing to see that number increase in a positive rate environment as well as more people wanting to stay. So it's both sides of the equation. Again, Matt's doing a really good job of digging into all of this and looking not just at how we add more fully qualified folks but also how we improve retention through all the work that we're doing on safety, security, service, what we call the CADS class, securement training, all of the things that are really good and ultimately the agents getting the best loads that are out there. As you all know, we generally don't play the bottom of the freight pie so it's important for us to continue to get the right business for the BCOs to haul.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Thank you, guys. Super helpful.

[Operator]

Thank you. Next question will be from Ravi Shanker of Morgan Stanley. Sir, your line is now open.

[Ravi Shanker, Managing Director at Morgan Stanley]

Great. Thanks. Good morning, everyone. Just to follow-up on the the cargo set topic. I was struck by your card.

[Ravi Shanker, Managing Director at Morgan Stanley]

I think Matt said that this is a topic where we probably pay play more defense than offense at this point. How many quarters do you think will it take to get in front of it? What are some of the tech tools are you using? And are there any kind of AI type applications you can use to maybe predict some of this? And also in the meanwhile, like what recourse do you have?

[Ravi Shanker, Managing Director at Morgan Stanley]

Can you work with some of your customers, maybe share some of these losses? Is this something that insurance will even consider? Because in our conversation with insurance analysts, it doesn't feel like cargo theft and claims is a huge topic for them relative to maybe some of the accident claims here?

[Frank Lonegro, President & CEO at Landstar System]

Yeah, hey Robbie. So a couple of good thoughts inside of that. I think that the theft environment similar to cyber security, like you're always going to be on some level of defense given the fact that the attack vector so to speak always is changing as you put up better defenses people try to find a way around those. Matt mentioned and I'll reinforce the technologies that we are investing in both as an industry through some of the vendors that we all do business with as well as some of the things we're working on internally do in fact utilize AI and they certainly do a nice job when they're fully deployed, which they're not quite yet, but as they're fully deployed, they're going to be able to either catch things in advance, I mean, we literally just talked yesterday about a load that was in the process of being diverted and we caught it. So, we are seeing successes in those tools playing good defense and preventing things, but at the end of the day, we're going to continue to have to watch what the bad actors are doing and do everything we can to catch them really, really quickly.

[Frank Lonegro, President & CEO at Landstar System]

In terms of recourse, it depends. Obviously, depends on whether it's a BCO load or a brokered load. And on the insurance side, yes, we do have insurance that plays here. It's got a fairly healthy deductible, so a lot of it's going to depend on exactly what the circumstances were as well as what the value of that load was.

[Jim Todd, VP & CFO at Landstar System]

Yes, would just add, Robbie, just we got just got past our May 1 insurance renewal. The insurers are absolutely taking it on the chin, and they're getting more creative in the policies they're willing to write, some of which you've got to sign your right over and the insurer will fight your customer to look for ways on a legal basis to not pay the claim. Clearly, a service perspective, we would not want to do that from a service provider perspective.

[Ravi Shanker, Managing Director at Morgan Stanley]

Understood. Maybe a really quick follow-up here. If we dream the dream, how what's the scope of upside potential in these next ninety days if shippers decide that they want to build inventory through holiday season and through the end of the year and the next ninety days, do you think the market could get tight enough that we could maybe see some flashbacks to the pandemic and maybe some supply chain chaos and like really high truck rates here?

[Frank Lonegro, President & CEO at Landstar System]

Yes, good question. Obviously multifaceted. We, Landstar, generally do well in more volatile times and obviously if you look at our core results relative to others who have reported, think you would reach the conclusion that we did pretty well. So I think in a volatile next ninety days, I'm also coupling that with English proficiency enforcement and things like that that might tighten up capacity, that's gonna help Landstar. We have business predominantly in the spot market, so when folks can't cover loads, they generally look for bigger players in the spot market, I.

[Frank Lonegro, President & CEO at Landstar System]

E. Us, And so I look forward to that volatility. The question is whether or not there's going to be more certainty in trade policy here and not just vis a vis U. S.-China but also U. S.-Mexico, U.

[Frank Lonegro, President & CEO at Landstar System]

S.-Canada because as I mentioned in the prepared remarks, you're talking about 15 plus percent of our business that right now in some respects people are sitting on their hands waiting to see exactly what's going to happen. So, I'm trying not to gauge the business on the next ninety days. I do think the strategies that we are focused on are absolutely the right ones and that universe is continuing to expand. Maybe Jim Applegate, can talk a little bit about what's coming up that we covered with some of the analysts at our meeting at convention, but we're going to continue to look for things that are arguably hard to do and that there are fewer competitors out there which obviously gives us a competitive advantage if we're good at and certainly helped us on the rate and

[Frank Lonegro, President & CEO at Landstar System]

the VC side.

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

Yes. So Robbie, from a strategic initiative standpoint, you guys have heard a

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

lot about heavy haul, you've heard

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

a lot about cross border. We put those in flight last year and we've had great results. I mean, we've really gotten our agents engaged. We've gotten a lot more strength around those different services that we provide. And as that's really kind of played itself out to Frank's point, there's a lot of other things that our agents are really well suited for in this market where we do the really hard stuff well.

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

We pulled in Cold Chain Expedite. We pulled in Hazmat. We're executing a very similar way. We're getting the right leaders around strategies in place to go ahead and engage the agents to recruit the capacity and sales and marketing from a direct customer approach. And we're starting to really kind of get some good momentum around from a corporate standpoint, put our arms around our agents and directing them into the right areas where they can be successful.

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

One

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

of

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

the things that didn't come out in our call today is the performance that we're starting to get around our top 100 customers. We actually grew 5% within our top 100 customers in this first quarter. And I do attribute that to not only the strategic initiatives, but a lot of the other efforts that we're doing, Matt Daniger, Matt Miller and myself, as far as trying to get our arms around agents, pushing them to grow within their existing customers' share of wallet and giving them the right support that they need to go ahead and grow, only within the strategic initiatives, but as an organization. So we'll continue to do that. To Frank's point, ninety days isn't going to make or break the company.

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

I think we've got a really good long term game plan in place to make sure that we can continue to grow in these what we feel are real competitive advantages for our agents. And as the market corrects, we'll be in really good shape.

[Ravi Shanker, Managing Director at Morgan Stanley]

Very helpful. Thank you.

[Operator]

Thank you. Next question will be from Bruce Chan of Stifel. Your line is now open.

[J. Bruce Chan, Director at Stifel Financial Corp]

Hey, good morning, everybody. Sorry to ask another one here on the fraud issue. I know it's under investigation, but you've called out a $00 impact here and there's an implication that it's more one time in nature. Outside of just the magnitude of this charge and the fact that it's in forwarding, this a separate issue because it's more preventable than the double brokering and imposter scams?

[Frank Lonegro, President & CEO at Landstar System]

Yeah, this one is extremely unique. I mean, this was a relationship which was created ten, fifteen years ago, which over a period of time there were some ownership changes and things like that in this satellite environment. Then there was a very unique set of circumstances. This is not your typical double brokering or anything like that, and that's one of the reasons why we feel comfortable that we got our arms all the way around it, as I mentioned, and that the charge, if you took the gross and then looked at the actual and probable recoveries, that's how we get down to the net. We've got a fair amount of, I'll say security around that gross to net changeover.

[Frank Lonegro, President & CEO at Landstar System]

Is it possible that we get some additional recoveries over time? Sure. We obviously are going spend some money and invest and go after the bad guys through both civil and potentially criminal means as well. So we're upset about this to be candid both in the way that the relationship developed years ago but also the fact that somebody arguably stole from us. We're gonna go after the bad guys and I think it's going make us all set up a little straighter and look at any additional unique opportunities that come our way in the future, we're going look really, really hard at.

[J. Bruce Chan, Director at Stifel Financial Corp]

Okay, that's good to hear and really helpful. And then just a quick follow-up here, I know you gave some color on the near term trends with Mexico cross border. Maybe any commentary there on what you're hearing from shippers in terms of the long term outlook there and whether or not you're considering additional investments on an M and A standpoint or maybe on an organic basis?

[Frank Lonegro, President & CEO at Landstar System]

Yes, so good set of questions. Again, do believe that this is the right long term play. M and A is probably not the first thought that comes to my mind when I think about The U. S.-Mexico cross border business. We've got some great agents who do a fabulous job for us in shepherding freight northbound southbound.

[Frank Lonegro, President & CEO at Landstar System]

We are looking at whether or penetrated enough in other gateways. We feel like Laredo is a wonderful footprint for us. Do we need whether it's joint venture lease owned, do we need other facilities along that border as you think further west? It obviously picks up different lanes, it picks up different commodities, things like that. But we are looking at whether or not we should be more penetrated in some of those other locations.

[Frank Lonegro, President & CEO at Landstar System]

But I'll let Jim Applegate touch on some of that.

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

Yes. From a Mexico market standpoint, I mean, obviously, the tariffs, I think, have kind of put a cloud over some of these longer term investment decisions. I think there needs

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

to be a little bit more clarity before you

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

start hearing about any kind of wholesale decisions to deploy capital. But I think from a long term perspective, Mexico is going to come

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

out of here, I think, a

[Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer at Landstar System]

good winner. And I think you're hearing that from shippers, you're hearing that from other people within the industry that are trying to position themselves over the next three, five, ten years. If you see what's happening with these tariffs and trying to kind of push more manufacturing back here to North America, I think Mexico does still come out a clear winner. And we're doing everything we can to make sure that we're in the right position to capitalize on that.

[J. Bruce Chan, Director at Stifel Financial Corp]

Okay, great. Thank you.

[Operator]

Thank you. Our last question would be from Bascome Majors of Susquehanna. Sir, your line is now open.

[Bascome Majors, Senior Equity Research Analyst at Susquehanna]

Thanks for taking my question. Jim, you walked us through your some of your cost items or directional thoughts into the second quarter. Can we zoom out a little bit on that discussion? Where is your accrual for incentive comp and stock comp for the year relative to where you thought it would be when you started the year? And like ultimately, if we get the recovery year we're all hoping for into the 2026, how much of that needs to come back to get you back to a normal level?

[Bascome Majors, Senior Equity Research Analyst at Susquehanna]

Thank you.

[Jim Todd, VP & CFO at Landstar System]

Bascome. Great to hear from you. So on our year end twenty twenty four earnings conference call, I gave a $21,000,000 normalized figure between incentive comp and stock compensation. We're currently accruing to about $12,000,000 this year, Bascome. It's about $4,000,000 from the cash plan and about $8,000,000 from the stock plan.

[Bascome Majors, Senior Equity Research Analyst at Susquehanna]

And if we went back to normal in '26, would that be reflective of where you started '25 or there'd something different that we need to consider there?

[Jim Todd, VP & CFO at Landstar System]

There'd be a little bit of impact on merit wages, I would tell you, Bascome, it's probably a nine let's say $12,000,000 is base case for '25. I would tell you, hypothetical for '26 would be that $9,000,000 headwind or $21,000,000 on a full year.

[Bascome Majors, Senior Equity Research Analyst at Susquehanna]

Thank you so much. Take care.

[Operator]

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

[Frank Lonegro, President & CEO at Landstar System]

Thank you all. In closing, while the freight environment remains challenging, we do see some positives in the near term. We were encouraged by first quarter truck volume performance and with a choppy industrial economic backdrop, we were pleased with the 6% year over year revenue increase in our heavy haul service offering. I was also pleased to see the impact of some cost performance on items within our control. For example, the first quarter was positively impacted by increased gains on sales of used trailing equipment, decreased depreciation on IT software projects, a decreased provision for contractor bad debt and decreased expenses on the company's trailing equipment fleet.

[Frank Lonegro, President & CEO at Landstar System]

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 and we are well positioned to navigate the coming months as we continue to look forward to higher highs when the freight market turns our way. Thank you for joining us this morning. We look forward to speaking with you again on our twenty twenty five second quarter earnings conference call in late July. Thank you.

[Operator]

You for joining the conference call today. Have a good morning. Please disconnect your lines at this time.

Participants

Executives

• Jim Todd, VP & CFO
• Frank Lonegro, President & CEO
• Matt Miller, VP, Chief Safety & Operations Officer
• Jim Applegate, VP, Chief Corporate Sales & Specialized Freight Officer

Analysts

• Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs
• Jason Seidl, Managing Director at TD Cowen
• Jonathan Chappell, Senior Managing Director at Evercore ISI
• Daniel Imbro, Managing Director at Stephens Inc
• Brian Ossenbeck, MD - Senior Analyst, Transportation at JP Morgan
• Scott Group, MD & Senior Analyst at Wolfe Research
• Ravi Shanker, Managing Director at Morgan Stanley
• J. Bruce Chan, Director at Stifel Financial Corp
• Bascome Majors, Senior Equity Research Analyst at Susquehanna