Landstar System, Inc. Aktie

Good afternoon, and welcome to Landstar System, Inc. Second Quarter Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time.

Joining us today from Landstar are Frank Lonegro, President and CEO; Jim Applegate, Vice President and Chief Corporate Sales Strategy and Specialized Freight Officer; Jim Todd, Vice President and CFO; Matt Miller, Vice President and Chief Safety and Operations Officer.

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

Thanks, Arlene. Good afternoon, and welcome to Landstar's 2026 Second Quarter Earnings Conference Call.

Before we begin, let me read the following statement. The following is a safe harbor statement on the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relate to Landstar's business objectives, plans, strategies, expectations, such information is, by nature, subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2025 fiscal year described in the section Risk Factors and our 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 CEO, Frank Lonegro, for his opening remarks.

Thanks, JT, and good afternoon, everyone. I'd 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 One Million Mile Safe Drivers and Roadstar Honorees at our annual BCO All-Star event earlier this month in Orlando and to celebrate their incredible safety accomplishments. It was my honor to preside over Landstar's 53rd truck giveaway, awarding One Million Mile Safe Driver and Roadstar Honoree [ German Burgueno ], from [indiscernible], Texas, with a new 2027 Peterbilt 579, 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. Their dedication to safety, security and service is one of the pillars of success at Landstar. They are exceptional business leaders and key to driving the continued success of Landstar's business model.

I was very pleased with our revenue and variable contribution performance during the 2026 second quarter, but the quarter was not without challenges that required our focus and attention. We have a challenging insurance and claims quarter with approximately $10.5 million of net unfavorable adjustments to prior year claims estimates. The prior year development experienced during the quarter was almost entirely attributable to 5 specific claims, 3 of which were truck brokerage claims. We believe greater federal clarity around carrier vetting and selection standards would help support a more predictable operations, insurance and claims environment for truck brokers, carriers and shippers.

Transitioning to overall performance, revenue was up 18% year-over-year. As noted in our earnings release, our second quarter revenue per truckload and the number of loads hauled via truck both outperformed pre-pandemic typical seasonality, and the net BCO truck count performance was the strongest quarterly improvement since the first quarter of 2022. In one continued major bright spot, I am extremely pleased with the performance of Landstar's heavy hauled service offering. We generated approximately $164 million of heavy haul revenue during the 2026 second quarter, an 18% increase over the 2025 second quarter. This achievement was driven by a 9% increase in heavy haul volume and an 8% increase in heavy haul revenue per load.

Notwithstanding the geopolitical uncertainty experienced thus far in 2026, our focus continues to be on accelerating our business model and executing on our strategic growth initiatives. We are continuing to invest in the foundational work that puts Landstar in a great position to leverage improving freight market conditions. We also remain focused on our commitment to continuous improvement in the level of service and support we provide to our customers, agents, BCOs and carriers each and every day.

On the new agent front, we were thrilled to welcome an $18 million freight broker from the Midwest to our agent network earlier this month. This represents one of the largest new agent signings in the past 15 years, inbound interest and conversations with potential new agents has accelerated since the Montgomery decision was released in mid-May. We believe the value proposition of becoming a Landstar independent agent has never been strong.

Turning to Slide 5. The freight environment in the 2026 second quarter was characterized by solid demand from a seasonal perspective with the number of loads hauled via truck slightly outpacing normal seasonal patterns, the first time this has been achieved in the second quarter since 2021. This volume performance in the second quarter supports the ISM Index readings from earlier this year with the ISM index above 50 for all 6 months of 2026. Truck capacity tightened significantly during the quarter as evidenced by the very strong sequential truck revenue per load performance, coupled with a 129 basis point compression in our brokerage net revenue margin sequentially. Market conditions, which have favored the shipper since late 2022 have begun shifting rather rapidly in favor of the transportation provider. Considering that backdrop, Landstar's revenue performance was strong in 2026 second quarter with truck revenue per load 17% above the 2025 second quarter and the number of loads hauled via truck up nearly 2% over the same period.

Our balance sheet continues to be very strong, and our capital allocation priorities are unchanged. We will continue to patiently and opportunistically execute on our existing buyback authority to benefit our long-term stockholders. As noted in the slide deck during the 2026 first half, the company returned approximately $120 million to shareholders through dividends and share repurchases. And the day afternoon, our Board declared a regular quarterly dividend of $0.44 per share payable on September 9 and to stockholders of record as of the close of business on August 18. This quarterly dividend includes a 10% increase over the amount of the company's regular dividend declared following each of the prior 5 quarters. We continue to invest through the cycle and leading technology and AI solutions for the benefit of our network of independent business owners and have allocated a significant amount of capital this year for refreshing our fleet of trailing equipment with a particular focus on investing in new van equipment.

Turning to Slide 7 and looking at our network, the scale, systems and support inherent in the Landstar model helped to drive the operating results generated due the 2026 second quarter Jim will get into the details on revenue, loadings and rate per load in a few moments. Safety is critical 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 support the critical importance of safety, security and service at Landstar. I'm proud to report an accident frequency rate of 0.62 DOT reportable accidents per million miles during the 2026 first half, well below the last available national average DOT reportable frequency rate released by the FMCSA for 2021 and lower than the 0.67 DOT accident frequency we reported during the 2020 first half. The company's 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. We remain committed to driving a best-in-class safety culture.

I'd also like to take a moment to recognize Landstar's 457 million-dollar agents based on our 2025 fiscal year results, a number we would expect to increase in 2026. Importantly, retention within the million-dollar network continues to be extremely high.

Turning to Slide 8. On a year-over-year basis, BCO truck count decreased by less than 1% compared to the end of the 2025 second quarter but increased approximately 80 basis points sequentially. As noted above, our net 68 truck additions during the second quarter was the strongest quarterly improvement since the first quarter of 2022. Continuing that sequential trend, our BCO truck count has also increased during the first 4 weeks of the 2026 third fiscal quarter. We are also very pleased to see our trailing 12-month BCO truck turnover rate dropped from 31.4% and as of fiscal year-end 2025 to 28.3% at the end of the 2026 second quarter. This is a positive trend that we hope will continue into the third quarter.

I'll now pass the call back to JT to walk you through the 2026 second quarter financials in more detail.

Thanks, Frank. Turning to Slide 10. As Frank mentioned earlier, overall truck revenue per load increased 17% in the 2026 second quarter compared to the 2025 second quarter, primarily attributable to a 19.9% increase in revenue per load on loads hauled by unsided/platform equipment and a 15.8% increase in revenue per load on loads hauled by van equipment. On a sequential basis, truck revenue per load increased 14.4% in the 2026 second quarter versus the 2026 first quarter. that represents the largest sequential increase in truck revenue per load over the past 15 years, edging out the 13.5% sequential increase experienced during the 2020 third quarter.

In comparison to overall truck revenue per load, we consider revenue per mile on loads hauled by BCO trucks a pure reflection of market pricing as it excludes fuel surcharges billed to customers that are paid 100% to the BCO. In this 2026 second quarter revenue per mile and unsided/platform equipment hauled by BCOs was 10% above the 2025 second quarter, and revenue per mile and van equipment hauled by BCOs was 11% above the 2025 second quarter.

Delving deeper into seasonal trends, revenue per mile on loads hauled by BCOs on unsided/platform equipment increased 5% from March to April, increased 2% from April to May and increased 6% from June. Importantly, the sequential month-to-month performance as we move through the second quarter when compared against typical pre-pandemic trends suggest positive momentum in this aspect of our business. In fact, revenue per mile on loads hauled by BCOs on unsided/platform equipment outperformed typical pre-pandemic trends in each month during the second quarter.

Turning to vans, revenue per mile and van equipment hauled by BCOs increased 3% from March to April, increased 3% from April to May and increased 7% from May to June. Similar to the onsite of platform revenue per mile, revenue per mile and loads hauled by BCOs on van equipment outperformed typical pre-pandemic trends in each month during the second quarter. Should be noted the month-to-month seasonal trends on unsided/platform equipment are generally more volatile compared to that 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 been particularly pleased with the sustained strong performance of our heavy hauled service offering. Heavy hauled revenue was up 18% year-over-year in the second quarter. Heavy hauled loadings were up 9% year-over-year, and revenue per heavy hauled load increased 8% year-over-year. Non-truck transportation service revenue in the 2026 second quarter was 6% or $5 million above the 2025 second quarter. The increase in non-truck transportation revenue was mostly due to a 50% increase in air revenue per load and a 16% increase in intermodal pricing.

Turning to Slide 11, we provided revenue share by commodity and year-over-year change in revenue by commodity, Transportation & Logistics segment revenue was up 18% year-over-year on a 16% increase in revenue per load and a 2% increase in volume compared to the 2025 second quarter. Within our largest commodity category, consumer durables, revenue increased 24% year-over-year on a 23% increase in revenue per load and a 2% increase in volume. Aggregate revenue across our top 5 commodity categories, which collectively make up about 69% of our transportation revenue increased approximately 20% compared to the 2025 second quarter.

While Slide 11 displays revenue share by commodity, we thought it would also be helpful to include some color on volume performance within our top commodity categories. From the 2025 second quarter to 2026 second quarter, total loadings of machinery increased 2%, automotive equipment and parts decreased 1%, building products increased 8% and electrical loadings increased 31%. Even with the ups and downs in various customer categories, our business remains highly diversified with over 20,000 customers, none of which contributed over 8% of our revenue in the 2026 first half.

Turning to Slide 12 and the 2026 second quarter gross profit was $132.3 million compared to gross profit of $109.3 million in 2025 second quarter. Gross profit margin was 9.2% of revenue in the 2026 second quarter as compared to gross profit margin of 9% in the corresponding period of 2025. In the 2026 second quarter, variable contribution was $199.4 million compared to $170.5 million in the 2025 second quarter variable contribution margin was 13.9% of revenue in the 2026 second quarter compared to 14.1% in the same period last year. The decrease in variable contribution margin compared to the 2025 period was primarily due to decreased variable contribution margin on revenue generated by truck brokerage carriers. As the rate paid to truck brokerage carriers was 136 basis points higher than the rate paid in the 2025 second quarter, partially offset by an increase in the percentage of revenue generated from BCO independent contractors.

Turning to Slide 13. Operating income decreased as a percentage of gross profit due to higher selling, general and administrative costs in the 2026 second quarter. Operating income increased by approximately 20 basis points as a percentage of variable contribution. Other operating costs were $17.9 million in the 2026 second quarter compared to $19.6 million in 2025. This decrease was primarily due to the reclassification of the $4.8 million supply chain fraud charge established during the 2025 first quarter from customer bad debt to contractor bad debt during the 2025 second quarter. Excluding the $4.8 million P&L reclassification, other operating costs increased approximately $3.2 million. This increase was primarily due to increased trailing equipment maintenance costs, increased trailing equipment rental costs, and decreased gains on disposal of used trailing equipment.

Insurance and claims costs were $39.4 million in the 2026 second quarter compared to $30.4 million in 2025. Total insurance and claims costs were 7% of BCO revenue in the 2026 second quarter as compared to 6.6% in the 2025 second quarter. The increase in insurance and claims cost as compared to 2025 was primarily attributable to increased net unfavorable development of prior year claim estimates, increased BCO miles traveled during the 2026 period increased severity of current year trucking claims, partially offset by decreased frequency of both current year trucking claims and current year cargo claims. During the 2026 and 2025 second quarter insurance and claims costs included $10.5 million and $2.3 million of net unfavorable adjustment to prior year claim estimates, respectively.

Selling, general and administrative costs were $68.2 million in the 2026 second quarter compared to $55.7 million in the 2025 second quarter. Excluding the impact of the previously mentioned $4.8 million reclassification, selling, general and administrative costs increased approximately $7.7 million as compared to the 2025 second quarter. The increase in selling, general and administrative costs was primarily attributable to an increased provision for incentive compensation, increased stock-based compensation expense and increased information technology project costs, partially offset by decreased employee benefit costs.

The provision for incentive compensation was $6.4 million during the 2026 second quarter as compared to $1 million during the 2025 second quarter. Depreciation and amortization was $10.4 million in the 2026 second quarter compared $12.1 million in 2025. This decrease was primarily due to decreased depreciation on software applications and decreased depreciation on our fleet of trailing equipment. The effective income tax rate was 25.2% in the 2026 second quarter compared to an effective income tax rate of 24.6% in the 2025 second quarter. The increase in the effective income tax rate for the 2025 second quarter to 2026 second quarter is primarily due to the impact of nondeductible executive compensation on the 2026 income tax provision.

Turning to Slide 14. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $348 million. Cash flow from operations for the 2026 first half was $28 million and cash capital expenditures were $9 million. It should be noted that free cash flow was negative during the 2026 second quarter, given the sharp sequential revenue growth experienced. The 2026 second quarter negative free cash flow represents only the third negative free cash flow quarter in the past decade. The other 2 comparable quarters for the 2020 third quarter when the freight economy recovered strongly from the early impacts of the COVID-19 pandemic and the 2017 fourth quarter when the [ ELD ] mandate took effect. Despite the significant net working capital draw experience during the 2026 first half, the company continues to return significant amounts of capital back to stockholders, with approximately $95 million of dividends paid and approximately $24 million of share repurchases during the 2026 first half. The strength of our balance sheet is a testament to the cash-generating capabilities of the Landstar model.

Back to you, Frank.

Thanks, JT. Before we jump into the current market update, I'd like to briefly touch on our press release from last Thursday. We're extremely excited to welcome transportation industry veteran, Bill Clement, as our new Vice President and Chief Commercial Officer, effective August 1. Bill brings more than 30 years of transportation and logistics leadership experience with them to Landstar. We are eager to introduce Bill to our agent network over the coming weeks through a series of previously scheduled agent meetings throughout the country. Bill will be charged with supporting the success of our agent network, advancing customer relationships and enhancing the effectiveness of the entire commercial organization.

In addition, he will focus on accelerating growth across our strategic initiatives. Importantly, Bill has a proven track record of success in the transportation space. He will be a tremendous addition to our organization and help enhance our safety, security and service value proposition to drive sustainable, profitable growth throughout our network. In addition, we're excited for Jim Applegate to step into his new role as Chief Strategy and Transformation Officer. This newly created position will leverage Jim's deep transportation and logistics experience and unique skill set as we strengthen our ability to deliver innovative solutions and create value for our agents, customers, capacity providers and shareholders.

Turning to Slide 16. Given the highly fluid freight transportation backdrop and an evolving geopolitical and macroeconomic environment, coupled with a highly volatile litigation and claims environment, the company will be providing third quarter financial and operational commentary rather than formal guidance. Looking at historical seasonality from Q2 to Q3, pre-pandemic patterns would normally be expected to yield a sequential increase of approximately 1.5% in truck revenue per load, but an approximately 1.5% decrease in the number of loads hauled via truck, resulting in a relatively flat top line sequentially. Also note that historically, the company has normally experienced a de minimis variance in variable contribution margin from the second quarter to the third quarter.

The number of loads hauled via truck in July 2026 was approximately 5% above July 2025 on a dispatch basis, and revenue per load was approximately 26% above July 2025 on a process basis. As a result, we view anticipated truck revenue per load in July is outperforming normal seasonality, while anticipated July truck volumes are trending slightly ahead of normal seasonality. The slight seasonal outperformance in truck volumes during July was almost entirely attributable to a strong first week of fiscal July, driven in part by the timing of the 4th of July holiday. For context, the year-over-year truck volume increase during the last 3 weeks of fiscal July range from plus 1.5% to plus 3.5% on a dispatch basis.

We're excited to build upon positive momentum generated during the first half and are energized by the opportunity to support the best network of independent business owners in the transportation space, especially in an environment that after nearly 4 years appears to have turned in our favor.

With that, Arlene, we'd like to open the line for questions.

[Operator Instructions] Our first question comes from the line of Scott Group of Wolfe Research.

So I guess, let's start maybe how you're thinking about the business post last week's the nuclear verdict, and how you think about your insurance cost going forward? Do you worry big brokers are just going to be more at risk of these big litigations? And then maybe like what are the positives that you could argue coming out of this in Montgomery, is this good for your ability to get BCOs or gain share from small brokers? I don't know what -- help us think through the pluses and minuses here?

Yes. No, that sounds good, Scott. I anticipated. That would come early on in the dialogue. Obviously, we watch what happens in litigation involving other brokers and other carriers just to get a pulse of what's happening in the environment. We have renewed our insurance tower for the next 12 months. That was effective June 1. So we're in good shape there. I feel like we are amply covered and I think did quite well. I'll let Matt and JT, talk a little bit more about that one.

I think scale remains important. I think safety remains very important. The folks who are going to be successful in this environment in the post-Montgomery world or those that put safety, security and service high on the list. And as you've heard us say for the last couple of years, those are the things that we think we're good at, and we're also the things that give us the opportunity when we do those well to have our agents sell that to customers. You've heard us reference a new agent addition in the quarter, the Midwest broker that I mentioned of about $18 million. That dialogue started prior to Montgomery, but certainly under the possibility of an adverse verdict in Montgomery.

So I think that what you're seeing is in an environment where small- to medium-sized brokers concerned about an existential risk. And I think we're seeing our pipeline of potential agent candidates continue to increase and be, I'd say, in the individual life case, a little bit larger than what we've done historically, if we've generally played in the sub-$5 million space for new agent additions, we're beginning to see traction in numbers that are higher than that.

But Matt, maybe a little bit on the insurance piece, and obviously, your focus on safety, I think it would be important and JT, obviously, any commentary you want to provide.

Sure. Sure. I appreciate that. I think it really reinforces why we're doing what we have been doing with a focus on safety, security and service over more than 20 years [indiscernible], we've always looked for ways to enhance our carrier [ betting ] with people, process, technology and information over the past 4 years, we've gone from over 100,000 approved carriers in the second quarter of '22 to just over 64,000 at the end of the second quarter, or 35% reduction. As new technologies and information become available, we're going to continue to do just that, exactly what we've been doing. We're always looking for opportunities to drive safety, security and service.

On the insurance front, to Frank's point, we had a very favorable outcome on the auto liability tower. We were effectively flat. Again, that was a June 1 renewal. That was post-Montgomery decision, which I think was May 14. And then on the broker liability, we were plus 3%. So net-net, I think we had a favorable outcome there.

Yes. And I would just piggyback that, Scott. Certainly, the Montgomery, half the country free the SCOTUS ruling did not recognize F4A. So now we've got basically half the country that we used to be able to submit a very well-crafted motion for summary judgment and usually get out a very high degree of probability, those now, we'll have to fight those, right? So that will look like the half of the country that did not recognize that F4A pre-Montgomery.

And then I think there's certainly going to be some element plaintiffs being more emboldened to pursue these cases in terms of the figure that came out late last Thursday, I'm not familiar enough with the case. As you know, most of these things on big nuclear verdicts, and we're certainly aware on the BCO side on the trucking side of the business, have got a big degree of experience with large losses, both at the trial level and settlement. But I would expect this thing to play out 2, 3, 5 years through the appellate process, et cetera.

Okay helpful. And then just second question on the BCO count. So picked up a little bit. When we start hearing about rates up mid-teens mid-20s in Q3, like we historically have seen like pretty dramatic increases in the BCO count. Is that something we should expect to start seeing in the back half of the year or in this world of more supply-driven tightness? Do you think it's any different in terms of how quickly the BCO cap starts to really ramp?

Scott, thanks. I mean, we're actually excited about seeing the trend improve here in the last few months. When you look at where we started off the first, [indiscernible], 2 or 3 weeks of January, were a challenge for us and looked a little bit more like prior years. But I think we ended up the first quarter down a very, very modest amount. And in comparison to the [ 4 to 5 years ] was radically better even though it was a slightly negative number. And then what Matt and his team are doing on the recruiting front and shrinking the time to qualify. Obviously, the rate environment is helpful to push more leads our way. But I think it is both the cycle, but I also think it's some of the structural things that Matt and his team are working on that.

Yes. I would say we're encouraged by what we're seeing, 68 trucks [ higher ] in the first quarter of -- I'm sorry, in the second quarter of 2026, that net truck count result in the quarter since the first quarter of '22. And it was the best second quarter result since 2021 and brings us to a positive net truck adds for the year. The net truck count trends improved in each month in the second quarter, and we saw continued growth in net truck count during the most recent 4-week period of July, where we added a net 49 trucks. During the quarter, gross truck adds were up 4.2% sequentially, demonstrating growing interest on the ad side. And then during the quarter, gross truck cancels were down 13.6% sequentially, demonstrating that those that are in the network are finding success.

And then I would say that this is the 10th consecutive quarter of turnover improvement. The high watermark was 41% in the fourth quarter of '23. We finished the quarter at 28.3%, that's beneath our long-term average. And then I would just say the variable pay model is incredibly compelling for those that are interested in finding a home in this environment. And you don't have to look further than 2018, we added plus 900 trucks, 2020 plus 750, '21 plus 870. Typically, the improvement in cancellations leads the improvement in adds, and we're beginning to see that improvement in adds.

Our next question comes from the line of Jonathan Chappell from Evercore ISI.

Jim or Frank, I recognize the reluctance to give guidance. But if we look at Slide 16 here and you provided some year-over-year context. And historical trends that clearly we are not tracking to right now. Is there any way through the first 4 weeks of the quarter, to take these year-over-year magnitudes and kind of help frame out how the 3Q is shaking out relative to those historical trends a little bit more than slight or slight above typical, any type of magnitude would be helpful.

John, yes, I'm happy to. I would just start on the demand side. And really, since March, we have been kind of plus or minus trailing 15-year averages on demand. One month will be slightly better, 1 month will be slightly worse. You saw the outcome for the second quarter, where I think we're about, maybe a little under 100 basis points better than typical 1Q to 2Q trends. We are 60 basis points better on a loads per workday June into July. So again, that dovetails with Frank's slightly better. But again, you've got probably 4 or 5 months now of demand kind of reconnecting to normal.

On pricing, I think on the April deck we had significantly outperformed was the word we used on the slide, and that's because pricing was 640 basis points better than it typically is in April. We were nearly 400 basis points better in May, nearly 400 basis points better in June. We're holding about 150 basis points better than normal in July. John, hopefully, that helps with the model.

Super helpful. Jim, and then just a super quick follow-up. Obviously, there's a big narrative around AI, data center infrastructure, et cetera. Sometimes that's favorable. Sometimes it's unfavorable. Your heavy hauled continue to do very strong. Is there any kind of end market exposure that you can point to there that either kind of prove or disprove this narrative that maybe the data center or infrastructure-related construction may be slowing from kind of peak spend?

John, it's Frank. And then Jim Applegate will pick up after my [indiscernible] here. But we're continuing to see strength in the data center business. We look at it like an ecosystem rather than specific to the hyperscalers. Obviously, there's energy-related items in there and then you got all the cooling as well. So we're looking at it from the broader ecosystem perspective. When you look at the commodity breakdown in the deck and the commentary that JT provided, you're going to see building products has got a piece of it, [indiscernible] got a piece of it, machinery got a piece of it. There's a lot of different areas that have data center exposure. We continue to see strong demand especially from one of our largest customers, strong demand in that space and a continuing need for additional capacity.

So we feel quite bullish about the things that are happening in the data center space and have not felt any pull back or suggested pullback in that space, certainly not in the last 3 or 4 months when we've all read the same articles that you're alluding to.

Yes. Jonathan, just to piggyback on what Frank's comments were, from a customer perspective, we're seeing a lot of new customers pop into our top customer list this year and a pipeline that's looking very strong and new customers that are starting to come through the woodwork here that we really, frankly, didn't anticipate that would be kind of jumping into the game. So with the existing customers that seem to have a continual appetite to invest and then kind of it's spreading across other providers and us getting exposure to these new customers. I see a strong pipeline, not only here for the remainder of the year, but heading into 2027.

And John, just real quick, while the heavy hauled service offering has certainly been helped out from some AI data center type demand. We had [ 22 customers ] in that vertical grow their volumes, their heavy hauled volumes of Landstar by at least 50 loads in the quarter. And besides data center, you've got aerospace, you've got defense. You heard Frank talk about power and energy. So it really is broad-based. It's not just 1 or 2 customers driving the bus there.

Our next question comes from the line of Jordan Alliger from Goldman Sachs.

This is Paul Stoddard on for Jordan Alliger. I guess my question is seeing that the brokerage volumes are still running negative year-over-year. Is this largely because we're not seeing a firming up of the volume? And are we seeing agents direct more volumes towards the BCOs?

Paul, I'll give you my take, and this is JT. So remember, the agents are going out to market to grow transportation volumes, and they are certainly constrained by customer preferences. But for the most part, they're trying to just serve their customer and access capacity. And then we run a non-force dispatch operation here at Landstar. So utilization, if you just take BCO utilization second quarter year-to-date and annualize it, we'd be at 101.9 BCO loadings. That is about 5 loads better than the previous all-time high.

So I think the decline in brokerage, while there are certainly some probably customer preference there, given the elevated fraud in the supply chain. It's been going on since 2022, 2023. I think the BCOs are just more active in -- coming out of the longest down cycle from a rate side, they're hauling more loads. And as such, there's less freight to lay off to third-party carriers.

Got it. And then I guess as a follow-up to that question. Is it potential that since volumes are not growing at a meaningful amount compared to revenue per load. Are we going to see less compression on VC margin because we're seeing more of those loads come through BCO rather than brokerage?

It's a great question. So BCO mix, if you just look at BCO revenue as a percentage of total from first quarter to second quarter, it did dip sequentially. So you've got -- and that's not abnormal in the second quarter. especially when you have a 7% or 8% sequential uptick in loadings. And the other factor there was, Paul, and mainly, that's brokerage and diesel, which is having a tailwind to revenue per load on brokerage that it's not necessarily on BCO but it is a tighter capacity environment. And as a result, I think you heard Frank mention our net revenue margin on brokers business compressed 129 basis points. Some of that is also fuel that you mark up on fuel surcharge is not as much as a line hauled.

Our next question comes from the line of Brandon Oglenski from Barclays.

I think, Jim, maybe you mentioned that your insurance costs, you held pretty much flat or maybe up slightly even in the post-Montgomery world. I mean is this something that we should expect on a go-forward basis? Or is it just like everyone needs to experience what the claims are actually going to be like post-Montgomery and maybe we could see a big reset there in the future?

Brandon, it's Frank first and then JT and Matt may fill in some gaps here. I think the important thing in any insurance renewal is how your company performs on the most important measures not the least of which is going to be safety and certainly the claims history. Then you've got the market phenomenon, which is obviously, if you have some catastrophic issues that impact particular carriers who may be shared across the environment, that's going to impact the overall renewal market. Now walking into the renewal in the April, May time frame. I mean, we felt like we had a pretty good case for a strong renewal. Even though the market has shown us some trends that we're maybe working against the industry, but we're able to point to all of the BCO demographics, we're able to point to the balance sheet, we're able to point to the safety measures. We're able to point to the things that the underwriters look at and say, "Okay, this is a company that I want to underwrite." Matt?

Yes. No, I would agree with you, Frank. And I think a lot depends. I mean there's a lot to happen over the coming months and years. And certainly, we have a renewal in June 1 of next year. there's an opportunity for FMCSA to do some things on the regulatory front. And then there's a variety of things that could happen in sort of litigation that may come out, contrary to what we saw more recently. So I think there's a lot that can happen between now and then. So it's really tough to see.

And gentlemen, I appreciate that response. And I guess, Frank, are you trying to lay the case here that maybe not all is created equal. I mean, is this going to be a larger issue for smaller brokerages?

On the brokerage side, for sure. You have, let's say, you move 100 loads and you have 1 or 2 that go bad as a small broker, as JT pointed out in answer to one of the earlier questions, you're going to have litigation costs that you never had before. If you're in an F4A jurisdiction that was in effect previously but not in effect now because of Montgomery. So now you're going to be paying legal fees as a reformed lawyer. I know that those aren't cheap. And then you have the possibility of a more extended litigation environment and potentially a verdict or a settlement. And as you know, margins in our industry are thin.

And so there's only so many punches to the stomach you can take as a smaller player. So I do think back to the point we talked about earlier on being attractive to small and medium-sized brokers like we think we offer a very compelling value proposition under the Landstar umbrella. And so we're beginning to see some traction there. As I mentioned, the one Midwestern independent broker that signed on as a new Landstar agent and the $18 million annualized range. That's a big deal for us. I mean we'd love to attract folks like that who are out there every day and believe in the safety, security and service proposition that we offer and we expect from the new agents that come on board.

Our next question comes from the line of Tom Wadewitz from UBS.

I wanted to just, I guess, ask -- you've had a lot of questions on this, but I want to get a little more sense of how you look at things. So I guess in terms of the carrier selection, how have you changed your criteria? You mentioned the move down to 64,000 carriers. Is that for broker carriers, do you think that continues to go down? And how do you look at it to say, okay, what would we tighten up or what would we view differently just in terms of how we define a safe carrier that we would work with. So that's one. And then I just had one follow-up, too.

Yes. For sure. Tom, nice to hear your voice. I think on the carrier selection, we've always taken carrier selection very, very seriously. We've always look to evolve that over time as new sources of information become available. And honestly, as different [indiscernible] have different track records of success. And in what they do out there, moving every single day. Matt and his team do a really nice job of understanding exactly what those criteria are. And when things become safety related, obviously, we have to have to move folks to the unapproved category and not use them anymore. So like those are things that Matt and his team are working on.

Customers are beginning to ask for at least at a high level, what our carrier vetting standards are. And so we're beginning to have some really good conversations with direct customers. I do think a point that Matt made earlier, and I mentioned in my prepared remarks, is going to be really important, and that is having some sort of minimum federal selection standards, vetting standards is going to be really, really important. Otherwise, we're going to be subject to 50 different states. And if you counted every county that has a court, it's going to be hundreds, if not thousands of different interpretations of what reasonable care or ordinary care is in the selection of carriers. Matt?

Yes. I think going from, as you highlighted, the 100,000 carriers down to 64,000 carriers. That all started with cargo fraud, right? And the investment in technology and the available technology that became available to us out of the advent of fraud helped us begin to drive further vetting standards within our organization and driving down those overall approved carriers in the network. That sort of dovetails with the safety parameters that we have as well, folks that are not necessarily operating above board from a [indiscernible] standpoint or likely not necessarily operating above board from a safety standpoint. And so we've been able to drive that down into Frank's point earlier, as information technology or an opportunity presents itself, we're going to continue to press that safety, security and service emphasis.

Okay. Great. And then I guess just a second kind of related question. So Frank, you mentioned it would be helpful to get something from FMCSA that defines maybe parameters. Can you give a little more of a sense of what you would want to see from them? And then also just kind of what would you want to see from the courts that would maybe provide some precedence that would give you a little more clear look to say, okay, $600 million verdict against C.H. or whatever broker just doesn't make sense because they did this in that, right? Just some kind of thoughts on what would be helpful to kind of think about how the legal risk could become more better looking forward?

Yes. I think on the second point, Tom, I think the courts are going to every decision, every verdict that comes out is going to set some level of new law and flesh out what is reasonable care in those situations. So that's just going to take a fairly long period of time. to develop. And I think as it develops, we'll see the balance set between, let's call it, the plaintiffs and the defendants, as JT mentioned earlier, right now, there's a little bit of buoyancy in the plaintiff bar and looking at cases that are tending toward broker liability issues.

I think on the FMCSA side, as we talk to folks who or inside the beltway, so to speak, looking at minimum insurance standards for carriers is going to be important. That hasn't been touched in [indiscernible] 40 or 45 years or something like that, thinking about minimum insurance standards for brokers in addition to carriers, looking at literally kind of a 10 bullet checklist of, did you check FMCSA? Did you check the technology tools that were available? Did you check their various records? And things like that. We've got to have something where we can go through our standards relative to a federal minimum and say, "Look, we exercised ordinary care." We were in compliance with the federal minimum standards, and I think that will help reset the balance between plaintiffs and defendants as well. And so I think there's going to be some time for this all to shake out. Right now, the best thing we can do is on the safest possible network we can.

Do you think that's coming soon from FMCSA, or is that just kind of indefinite?

The short answer is I don't know. But I will tell you this, they've moved faster than any other FMCSA or DOT organization in the last couple of years than Indian history. So if they have a mind to tackle this item. My sense is it would happen on a quicker timetable than we're used to.

Our next question comes from the line of Brian Ossenbeck from JPMorgan.

Maybe first, just real quick follow-up on the insurance side. I don't know if you've seen any changes in coverage, endorsements or deductibles or anything along those lines for yourselves? And would you expect that to be part of how risk gets repriced across the industry from a broker liability perspective?

I think over time, Brian, as people renew, they're all going to have to look at who's going to write first dollar coverage or at a certain deductible level. I mean we have deductibles in our space. We have structured deals in our tower. I think it's all going to depend on the risk assessment that the insurance carriers and brokers do, we did not have to make any meaningful adjustments in our self-insured retention levels this go around. But obviously, that will be subject to a dialogue next year.

Yes, I would just echo that, Brian. The broker liability policies we have, which we have an initial policy and an excess policy, we renewed those as existing, I believe, Matt, at a very modest increase, a policy year for policy year.

Okay. I appreciate that. Maybe just Jim obligate, Obviously, the company has been investing in technology for quite a while. You've been involved with that. But any sort of quick thoughts stepping into the new role for our strategy and transformation. Maybe you're going to start with an update on just the AI initiatives, sort of the distributed level and also at the central level at corporate.

We're going to finish up answering that question...

Right. Brian, you know my background, and I think we've had a lot of conversations around technology. I think right now, it's just a great time to really be looking at what technology can do for our agent network. As you know, we've made a lot of progress. I think I spoke on a few different calls about the progress that we've been making around AI, both within the building and within our agent offices, we've delivered several applications that are improving agent workflow. We're getting faster information retrieval, we're improving exception handling and better data visibility, you name it. I mean it's just really powerful what this new technology can do.

I think as we get into the next phase here, we've got a real meaningful opportunity here to get the technology in the hands of the agents. And we're planning on ramping that up. Starting off in Q3, mid-Q3, we've got a plan in place to get out into our agent offices. We have some repeatable applications that we can actually deliver to the agents. And our hope and really expectation is that they're going to be able to use those tools not only get more efficient, but to grow their business.

So it's kind of a twofold approach. One is kind of making sure that they can actually transition to technology but then really getting that technology deployed the right way that they can redeploy the resources and us teaching them best practices and really kind of [ open ] their game and really kind of delivering better solutions in the future on behalf of our customers.

As you guys know, I think we've got the best model in the industry. It's not just the technology. It's making sure that you've got the right people in place to really deploy that technology. This is an execution business. Technology is not going to replace what our agents bring to the table. It's about relationships. It's about trust. It's about safety, security service, delivering that throughout the network. And we're going to make sure that they can do that better than anybody else in the industry.

Our next question comes from the line of Jason Seidl from TD Cowen.

This is Uday on for Jason Seidl. Maybe just start on BCO utilization. I was just wondering how that looked in the second quarter. I imagine there's some excitement there with pricing moving up. I guess is there room for utilization to accelerate in the third quarter, maybe also into the fourth quarter? I know BCO usually take some time off in the holiday season, but it's also like the first time the rate environment has been favorable in 4 years. So just any thoughts on utilization.

Yes, Uday, thanks for the question. Good question. Obviously, we've been very happy with the BCO utilization over the [ last year's 4 ] quarters. The comps will get harder as we lap the third and the fourth quarter of last year. But if you just took a trend line against the kind of 101, 102 that we are -- we came into the last trailing 12 in the second quarter. I think you'll see that we'll continue to show utilization improvements on a year-over-year basis just based on the math.

I think what you're seeing is the sort of pent-up demand to make money given the fact that we've been in a 3- or 4-year freight recession. And look, that's not lost on the BCOs. They had some kind of leaner years in '22, '23, '24 as it was a declining market and into 2025, obviously. So I think they're making hell on a sunshine, so to speak. And making sure that they are able to get the loads. And I also -- I give a lot of credit to the agents. The agents are out there selling really good freight and that puts it on the board for the BCOs to haul. So the fact that we have more BCOs and higher BCO utilization, and we got agents that are out there getting the premium freight, that's what makes this network special to Jim Applegate points.

But Matt, any other comment that you want to put on...

Yes, I would just say that utilization was up 12% year-over-year and 8% sequentially. And I just tip of the hat to the new BCOs coming into the network, they want to get to work and also to the existing BCOs, they were in it for a pretty prolonged downturn and they're also ready to haul more and more loads than we're seeing that.

Yes. All right. That's good to hear. Maybe if I could just go back to the insurance topic, just a clarification, Frank, I think you mentioned the 5 claims reserve headwinds in the quarter. I think related to truck brokerage. Were those brokerage reserves, new reserves that you have now made in light of the Montgomery ruling? Or were those kind of adjustments related to cases going to in the normal course of business, I think like JT said on the half of the country we you still have to cite these?

Yes, Uday, that's a great question. I believe all 3 were 0 reserves previously. And then at each quarter end balance sheet date, we've got to reevaluate from a [ FAS 5 standpoint ]. And there is a nuisance value on some of these 2, right? When you get your quote on what it's going to cost to take the initial trial and then appeal costs, but I think all 3 of those were 0. I'll confirm that when we're offline and get back to you.

Our next question comes from the line of Bascome Majors from Stephens.

If we look back historically, we can see the cost of the rise in claims environment in your P&L, clearly, with the cost as a percent of BCO revenue of the insurance and claims going from, what, 3% or less a decade ago to more like 7% to 8% more recently. But we've heard you talk about BCOs being more attractive to the network. We heard you talk some about attracting some larger agents. Is this shift starting to make the Landstar model and system and platform more valuable to the entrepreneurs on both sides? Is that an emerging trend? Or are we reading too far into this?

Yes. I think on the claims over time, JT will fill in the blanks on that one. Obviously, it's a combination of a lot of things that JT can unpack for you. I do think on the emerging trend idea, I do think that scale is going to continue to matter. I think scale players that have a long track record of being safe and secure and delivering a great service product for the end customer. I think we're going to begin to see more and more customers prefer scale players. I think they have more and more customers that prefer BCOs just because of the track record of success that they have there.

So yes, I'd say it is an emerging trend. I've got one data point. But certainly, the pipeline of potential agent additions, if we're able to get some of those across the finish line, we'd add a couple more data points to that over the next handful of quarters. And then certainly, Matt and all the great work that he's doing. He's, I think, seeing less cancels and beginning to see some green shoots on the addition side and on a net basis, that gives us a good trend in the BCO count. We saw that in the second quarter. We mentioned that we've seen an increase in July. So yes, I mean, I'd like to think that we are the leader in this space and are going to be successful even in a post-Montgomery world. JT?

That's Matt. So I would echo Frank's first out there, the value proposition to become and join the Landstar network, become -- to be an independent freight agent or an owner-operator is very, very strong. But I take your point on insurance, right? So in 2019, we had about 10,500 BCOs in the fleet, and we had an $80 million insurance year. And fast forward 6 years, 7 years, it's trending 2x that with 8,600 BCOs in the fleet. And oh, by the way, our accident frequency and our DOT accident frequency, which are those more severe accidents, we're a safer company. And we were safe in 2019. We're even safer today. I don't think that's unique to Landstar, right? Claim cost severity has been going one way for some period of time. I think other industry peers would echo that.

Certainly, the kind of new elements that Miller touched on earlier, 2022, 2023, the cargo claim environment has gotten really, really tough on the broker side. We've done a lot of good work there in terms of implementing a new team and best-in-class technology, both off-the-shelf and internally developed. And then clearly, this more recent phenomenon, our largest brokerage loss, at least based on the judgment entered last year was $22.8 million -- and you'll recall on that one, the jury apportioned 15% of that $22.8 million to Landstar, and that's one under appeal.

So on the owner operator side of the business, clearly, claim cost severity has been a pressure for the industry and the cargo and the brokerage stuff are more recent. At the end of the day, folks -- it's a higher cost for everybody, our view has been the industry participants are going to have to start to recapture some of that in the top line. And I think some of that you're seeing in the first half of '26 playing catch-up.

Our next question comes from the line of Stephanie Moore from Jefferies.

I appreciate the color on just the changing landscape in this post-Montgomery world, and I think your color around just the impact this could have on small- and medium-sized brokers. Curious if this changes your view from an M&A standpoint, historically, an area you didn't really play much in. But just given the event as of late, is this something that you might look into differently either on the small and medium brokers front or also anything was interesting on the agent front as well?

Good question, Stephanie. It depends on how you define M&A, right? If I look at the Midwest broker that signed on as an agent. Obviously, there's financial incentives to do that. So you could look at that as a kind of small type of M&A. We've looked at a variety of different things over time. It's got to really fit the model. And so it's limited environment of things that would fit the model. We're certainly not averse to looking at it and have looked at a number of possibilities over the last few years. We certainly have the balance sheet to be able to support it.

But I think the best down the middle play for us is could we find 5 or 10 more $18 million agents out of the Midwest that want to come under the Landstar model, like we we're pretty good at doing that. So we want to make sure that we're deploying the shareholders' capital in the right way. And in a risk-adjusted type of return environment, we think that that's a really smart play for us.

There's no response from Bruce Chan. Our next question comes from the line of...

Hello? Can you hear me?

Bruce, you there?

I'm here. Yes. I appreciate the time, James. Just a couple of hopefully quick ones up from my side. The first 1 here, I know it's a smaller part of the business, but it looks like LTL load count was down pretty meaningfully this quarter, revenue per load up anything to maybe glean from the underlying market there? Or is that just agents maybe choosing to spend their time on more lucrative business?

I think with the LTL, it's really more agent-specific as why you're seeing a certain downturn there and customer specific as well too, it's not necessarily a customer preference thing that we're seeing across the board. So I wouldn't make would make a lot out of it. It is a smaller segment of our business. So sometimes it will have a bigger impact when you have a certain agent or a certain customer where you get a little transition.

Okay. Super helpful. Got it. And then just a quick point of clarification. You talked about the traction with the new agent pipeline, which is certainly good news and makes a lot of sense. Is there any liability exposure to Landstar that might maybe come from those agents prior claims? Or is that something that gets extinguished once they come under the umbrella?

No. They maintain a separate corporate status. And so we would not inherit liabilities from them.

Our next question comes from the line of Chris Wetherbee from Wells Fargo.

I guess maybe just one question for me, just to sort of wrap up as we think about the insurance this -- and maybe can you give us some context on what the backlog might look like from a case perspective. I know your increases reserves around severity. But if you think about particularly broker liability, in the 2-plus months since Montgomery, anything materially changed there as you sort of look at what you might be facing over the course of the next several quarters or a couple of years? Just to get a sense of like if there's more activity going on in the market would be helpful.

Yes. In terms of like new cases or something like that, Chris. I mean we haven't seen a meaningful uptick or downtick for that matter. It's been pretty much steady as she goes. I mean, we did have a couple of cases, as JT mentioned, the three that we referenced that we either ongoing and estimates went up or got settled. So there's like that's normal business. I just think that there's a renewed strength in the plaintiff bar to try to press forward in the immediate aftermath of Montgomery and certainly the Robinson verdict and got speed to them challenging that successfully.

But I just think it's going to be a normal course of events. If we have a an issue with a broker carrier like we should expect that we're going to get pulled into it. And to me, it's a question of if we didn't do anything wrong, we shouldn't have to pay a dollar. But my guess is we have to defend some of those, and we may end up to sell some of those for nuisance value that if you go back 5 years, we wouldn't have had to do that.

Okay. But it's not to say that you've necessarily seen something pick up yet sort of just been the wake of so far so good, I guess, on the backlog.

You are right.

We will take the last question from Harrison Bauer of Susquehanna.

A lot of the discussion or really, historically, a lot of the inflationary part of insurance has been on the BCO side. But especially with some of the adverse claims on the brokerage side post Montgomery. Is there any way to frame what either the total or per load claims insurance-related legal fees might be on a BCO load versus broker load? And in the long run, do you see the risk for broker load converging at all towards the BCO load?

Great question, Harrison. So as you can imagine, we have very, very well-developed loss triangles on BCOs going back decades. So as an example, we had 1,600 claims last year between our trucking program and our own [indiscernible] program, and we can look at cost per crash in those 2 programs going back 20 years.

On the brokerage side of the business, Harrison, they're really few and far between. So at the Montgomery ruling, we went back and just looked at total loss, both the insured loss portion and the Landstar deductible portion, we used to have $1 million deductible, that's a $2 million deductible as of a couple of years ago versus our $5 million self-insured retention on the owner-operator side. Very, very low, like less than 20 basis points, less than 25 basis points of gross brokerage revenue, if you go back 15 years, again, with the largest loss reflected in our financials at about $23 million, I think there's a couple of $5 million losses and below the 2 $5 million loss as they get smaller. And as I mentioned earlier on the call, that's what half the country recognizing F4A.

So I certainly subscribe that the frequency of brokerage losses should at least 2x XA and bolt-in plaintiff counsel factor. Does it get to owner-operator type levels? No. Because if you look at the vast majority of accidents, they get set in a primary layer, right? So the FMCSA requires a $750,000 primary insurance program to be a carrier, Landstar requires $1 million to get in our network, probably 98% of the crashes are going to get resolved within that $1 million primary policy. The brokerage stuff comes in over and above that. And again, even without F4A, there's still -- I'm not attorney, so I want to be careful here, but we still have to demonstrate a negligent selection or a broker exerting control over a third-party carrier.

And I think Harrison, that last piece that JT just mentioned, we did pretty good as a non-lawyer. I think that's the most important thing. Like we had to have negligently selected that carrier. The fact that the carrier had an accident does not automatically make us lot...

In closing, the management team has been energized by our interactions with BCOs and agents thus far in 2026. We are encouraged by the current freight environment in what we believe is the strongest unsided platform service offering, including heavy hauled in our industry. And regardless of the economic environment, the Landstar variable cost business model continues to generate free cash flow year after year. Landstar has always been a cyclical growth company, and we are well positioned to capitalize on the improving conditions and positive momentum in the freight markets.

Thank you for joining us this afternoon. We look forward to speaking with you again on our 2026 third quarter earnings call in late October. Thank you.

Thank you for joining the conference call today. Have a good evening. Please disconnect your line at this time.

Good afternoon, and welcome to Landstar System, Inc. First Quarter Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time.

Joining us today from Landstar are Frank Lonegro, President and CEO; Jim Applegate, Vice President and Chief Corporate Sales, Strategy and Specialized rip Officer; Jim Todd, Vice President; and CFO, Matt Dannegger, Vice President and Chief Field Sales Officer; Matt Miller, Vice President and Chief Safety and Operations Officer.

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

Thanks, Arlene. Good afternoon, and welcome to Landstar's 2026 First Quarter Earnings Conference Call.

Before we begin, let me read the following statement. The following is a safe harbor statement of the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts or forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relate to Landstar's business objectives, plans, strategies and expectations. Such information is, by nature, subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2025 fiscal year described in the section Risk Factors and our 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 equally update or revise any forward-looking information.

I'll now pass it to Landstar's CEO, Frank Lonegro, for his opening remarks.

Thanks, Jim, and good afternoon, everyone. We are excited to discuss our results this quarter given the overall sense of optimism, many in our network are sharing with us. It was great to spend time with many of our BCOs at the Mid-America Trucking Show in March and to celebrate the success of our agent network earlier this month at our annual agent convention. The tone and positivity I heard from my personal interactions with BCOs and agents of these events was the best I've experienced during my tenure at Landstar, and provides an emerging sense of confidence as we head further into 2026.

Before diving into our results, I'd like to thank our BCOs and agents and all of Landstar employees who support them every day. 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. Their adaptability and dedication to safety, security and service for our customers is truly impressed. They are exceptional business leaders and key to driving the continued success of Landstar's business model.

I'd also like to thank Derek Barrs, the Head of the FMCSA, who recently appeared at our agent convention and discussed many of the significant initiatives he is leading at the FMCSA. These regulatory efforts are having a real tangible impact on the trucking industry and have been very positive for Landstar. We look forward to continuing our dialogue with the USDOT and the FMCSA in support of these efforts.

Amidst our improved operating performance, the 2026 first quarter was not without challenges that required our focus and attention. We are driving to incorporate AI into our business and do everything we can to mitigate any perceived industry-specific AI disintermediation risk. We were pleased to have Jim Applegate and Rick Coro, participating in the Goldman Sachs AI and Freight Forum in Chicago in late March, where they shared our AI road map and several in-flight initiatives across the network.

We continue to be encouraged by the level of engagement we're seeing among agents and BCOs participating in our beta programs. That collaboration is already yielding tangible progress across a number of workflows, including customer quoting, carrier negotiations, dispatch decision making, automated tracking, appointment scheduling, network modeling and bid optimization. Importantly, these tools are being developed alongside our agents and BCOs with early pilots already live in production or in advanced testing. Initial feedback [ cost ] to meaningful time savings, higher shipment life cycle throughput and improved visibility across the net, empowering our entrepreneurs to spend more time on revenue-generating and relationship-driven activities.

At the same time, we are advancing several AI-driven efficiency initiatives at the corporate level, including our Tier 1 ERP modernization proprietary fraud prevention and detection capabilities, service center workflows, BCO retention models and self-service analytics for operations and customer management. Across both the agent network and in our corporate offices, our focus remains on disciplined deployment and scalable adoption. We look forward to providing additional updates as these initiatives continue to progress.

We, like everyone else, are monitoring the news on the geopolitical conflict in the Middle East and the related volatility in energy and diesel prices. We also continue to monitor the potential effect of tariffs and trade policy on our business, including the impact of the recent Supreme Court decision and tariff refunds from the federal government. Tariffs has certainly already impacted freight flows. For example, the 2025 first quarter reflected the desire by many customers to pull forward shipments in an effort to get ahead of potential tariffs. This contributed to a relatively tough first quarter volume comp for Landstar.

We will also be closely monitoring any developments with respect to trade relations among the United States, Canada and Mexico this year. Against that backdrop, the Landstar business model performed well with revenue increasing approximately 2% compared to the 2025 first quarter, gross profit increasing approximately 14%, variable contribution dollars increasing approximately 7% and basic and diluted earnings per share increasing approximately 36%. As a reminder, earnings per share during the 2025 first quarter were unfavorably impacted by approximately $0.10 per share related to the previously disclosed supply chain for [ automatic ].

As JT will discuss in more detail during his remarks, the 2026 first quarter also experienced lower insurance and claim cost expense compared to the 2025 first quarter primarily due to the company's ongoing efforts to address strategic cargo test. These efforts help Landstar to achieve both a decrease in the frequency of cargo claims incidence during the 2026 period compared to the 2025 period as well as decreased severity of cargo claims incidence.

One consistent highlight in our results remains the strength of our industry-leading unsided platform equipment business. This part of our business posted another strong quarter with an 8% year-over-year revenue increase driven by the performance of Landstar's heavy hauled service offering. We generated approximately $134 million of heavy hauled revenue during the 2026 first quarter, representing an 18% increase over the 2025 first quarter. This achievement reflected a 12% increase in heavy hauled revenue per load and a 6% increase in heavy hauled volume.

Our focus continues to be on accelerating our business model and executing on our strategic growth initiatives, we are continuing to invest in the foundational work that puts Landstar in a great position to leverage improving freight market conditions. We also remain focused on our commitment to continuous improvement in the level of service and support we provide to our customers, agents, BCOs and carriers each and every day.

Turning to Slide 5. The freight environment in the 2026 first quarter was characterized by relatively strong demand from a seasonal perspective and an improving price environment as we move through the quarter. We were encouraged to see the ISM index above 50 for each of the 3 months in the first quarter, a positive sign for our business as readings from the prior 3 years to often reflected a far more challenging economic backdrop.

We were pleased to see sequential outperformance in the number of loads hauled via truck and truck revenue per load compared to pre-pandemic normal seasonal patterns. As noted in the press release, we were encouraged to see that overall truck revenue per load increased 6% compared to the 2025 first quarter.

Our balance sheet continues to be very strong, and our capital allocation priorities are unchanged. We will continue to patient and opportunistically execute on our existing buyback authority to benefit our long-term stockholders. As noted in the slide deck, during the 2026 first quarter, the company returned approximately $104 million to shareholders through our capital return programs. The company returned approximately $82 million in dividends to stockholders during the first quarter and deployed approximately $22 million to share repurchases during the first quarter. And yesterday afternoon, our Board declared a regular quarterly dividend of $0.40 per share payable on June 9 to stockholders of record as of the close of business on May 19.

We continue to invest through the cycle in meeting technology and AI 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 and trailing equipment with a particular focus on investment in new van equipment.

Turning to Slide 7 and looking at our network, the scale, systems and support inherent in the Landstar model helped to drive the operating results generated during the 20,261st quarter. JT will get into the details on revenue, loadings and rate for load in a few minutes. Safety, is crucial 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 critical importance of safety, security and service at Landstar.

I'm proud to report an accident frequency rate of 0.64 DOT reportable accidents per million miles during the 2026 first quarter, well below the last available national average DOT reportable frequency rate released by the FMCSA for 2021, and slightly better than the 0.6 DOT accident frequency we reported during the 2025 first quarter. The company 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 the discussions with our freight customers. We remain committed to driving a best-in-class safety culture.

I'd also like to take a moment to recognize Landstar's 457 million-dollar agents based on our 2025 fiscal year results. Importantly, retention within the million-dollar agent network continues to be extremely high.

Turning to Slide 8. On a year-over-year basis, BCO truck count decreased approximately 2% compared to the end of 2025 first quarter and approximately 40 basis points sequentially. And it is important to note, however, that the 38 BCO truck decline experienced during the 2026 first quarter is significantly better than our experience in other recent first quarters, when on average, Landstar experienced a decline of 365 BCO trucks across the first quarter of 2023, 2024 and 2025. We are also very pleased to see our trailing 12-month BCO truck terminal rate dropped from 31.4% as of fiscal year-end 2025 to 29.5% at the end of the 2026 first quarter. This is a directionally positive trend that we hope to continue in the second quarter. Through the first 4 weeks of 2026 second fiscal quarter, the number of trucks provided by BCO independent contract is approximately equal to the end of the 2026 first quarter.

I'll now pass the call back to JT to walk you through the 2026 first quarter financials in more detail. JT?

Thanks, Frank. Turn to Slide 10. As Frank mentioned earlier, overall truck revenue per load increased 5.6% in the 2026 first quarter compared to 2025 first quarter, primarily attributable to a 10.8% increase in revenue per load on loads hauled by unsided platform equipment and a 5.2% increase in revenue per load on loads hauled via van equipment. On a sequential basis, truck revenue per load increased 0.2% in the 2026 first quarter versus the 2025 fourth quarter. It is an unusual sign for truck revenue per load to be higher in the first quarter than in the immediately preceding fourth quarter as pre-pandemic normal seasonality would typically be expected to yield a 4% sequential decrease and revenue per load in a given first quarter compared to the immediately preceding fourth quarter.

In comparison to overall truck revenue per load, we consider revenue per mile on loads hauled by BCO trucks a pure reflection of market pricing as it excludes fuel surcharges billed to customers that are paid 100% to the BCO. In the 2026 first quarter revenue per mile and unsided platform equipment hauled by BCOs was 2% above the 2025 first quarter, and revenue per mile on van equipment hauled BCOs was 3% above the 2025 first quarter.

Delving deeper into seasonal trends, revenue per mile and loads hauled by BCOs on unsided platform equipment declined 6% from December to January was approximately flat January to February and increased 2% from February to March. Importantly, the sequential month-to-month performance as we move through the first quarter when compared against typical pre-pandemic trends suggest growing positive momentum in this aspect of our business. In fact, while the December to January change in revenue per mile in BCO loads hauled on unsided platform equipment underperformed pre-pandemic seasonal trends, January to February's flat performance outperformed pre-pandemic trends and the February to March increase outperformed pre-pandemic seasonal trends.

Turning to van freight. Revenue per mile on van equipment hauled by BCOs was approximately flat from December to January, outperforming historical trends. increased 3% from January to February, also outperforming these trends, but decreased 1% from February to March, underperforming pre-pandemic February to March historical trends. Based on preliminary April BCO process revenue for load data, we expect the underperformance experience from February to March to reverse during fiscal April.

It should be noted that month-to-month seasonal trends on unsided platform equipment are generally more volatile compared to that van equipment. This relative volatility is often due to the mix between heavy specialized lows and standard flatbed volume. As Frank alluded to, we've been particularly pleased with the sustained strong performance of our heavy hauled service offering. Heavy hauled revenue was up an impressive 18% year-over-year in the first quarter, significantly outperforming core truckload revenue. Heavy hauled loadings were up approximately 6% year-over-year and revenue per heavy hauled load increased 12% year-over-year. This represented a mixed tailwind to our [indiscernible] side of platform revenue per load as heavy hauled revenue as a percentage of the category increased from approximately 33% during the 2025 first quarter to approximately 36% in the 2026 first quarter.

Non-truck transportation service revenue in the 2026 first quarter was [ 19% ] or $16 million below the 2025 first quarter, the decrease in non-truck transportation revenue was mostly due to a 31% decrease in ocean volume, which we believe was partially driven by shipper pull-forward behavior during the first quarter of 2025.

Turning to Slide 11. We've provided revenue share by commodity and year-over-year change in revenue by commodity, transportation and logistics segment revenue was up 2% year-over-year on a 4% increase in revenue per load, partially offset by a 3% decrease in volume compared to the 2025 first quarter. Within our largest commodity category, consumer durables revenue increased 1% year-over-year on a 7% increase in revenue per load, partially offset by a 5% decrease in volume. Aggregate revenue across our top 5 commodity categories, which collectively make up about 70% of our transportation revenue increase approximately 4% compared to the 2025 first quarter.

While Slide 11 displays revenue share by commodity, we thought it would also be helpful to include some color on volume performance within our top commodity categories from the 2025 first quarter to 2026 first quarter, total loadings on machinery increased 5%. Automotive equipment and parts decreased 4%, building products decreased 10% and Hazmat decreased 6%. Additionally, substitute line haul loading is one of the strongest performers first during the pandemic and one which varies significantly based on consumer demand, increased 1% from the 2025 first quarter. The decline in automotive, hazmat and building product loadings noted above was partially offset by a 23% increase in electrical volumes, a 17% increase in energy volumes and an 8% increase in government volumes. Even with the ups and downs in various customer categories, our business remains highly diversified with over 20,000 customers, none of which contributed over 8% of our revenue in the 2026 first quarter.

Turning to Slide 12. The 2026 first quarter gross profit was $112.5 million compared to gross profit of $98.3 million in the 2025 first 1st quarter. Gross profit margin was 9.6% of revenue in the 2026 first quarter as compared to gross profit margin of 8.5% in the corresponding period of 2025. In the 2026 first quarter, variable contribution was $172.2 million compared to $161.3 million in the 2025 first quarter. variable contribution margin was 14.7% of revenue in 2026 first quarter compared to 14% in the same period last year. The increase in variable contribution margin compared to the 2025 first quarter was primarily attributable to an increase in the percentage of revenue generated from BCO independent contractors.

Turning to Slide 13. Operating income increased as a percentage of both gross profit and variable contribution as we cycle the impact of the international supply chain fraud matter in the 2025 first quarter, lower insurance and claim costs in the 2026 first quarter and the impact of the company's fixed cost infrastructure, principally certain components of selling, general and administrative costs in comparison to larger gross profit and variable contribution basis.

Other operating costs were $14.8 million in the 2026 first quarter compared to $11.8 million in 2025. This increase was primarily due to increased trailing equipment maintenance costs, increased trailing equipment rental costs and decreased gains on disposal of used trailing equipment. Insurance and claims costs were $35.6 million in the 2026 first quarter compared to $39.9 million in 2025. Total insurance and claim costs were 7.5% of BCO revenue in the 2026 first quarter as compared to 9.3% in the 2025 first quarter. The decrease in insurance and claim costs as compared to 2025 was primarily attributable to decreased net unfavorable development of prior year claim estimates, decreased severity of current year trucking claims in the 2026 period and a decrease in both cargo claim frequency and cargo claim severity, which reflects a significant decrease in expense related to strategic cargo effect in the 2026 period, partially offset by increased BCO miles traveled during the 2026 period.

During the 2026 and 2025 first quarters, insurance and claims costs included $4.9 million and $11.4 million of net unfavorable adjustment to prior year claim estimates, respectively. Selling, general and administrative costs were $61 million in the 2026 first quarter compared to $61.6 million in the 2025 first quarter. The decrease in selling, general and administrative costs was primarily attributable to the impact of the $4.8 million charge to selling, general and administrative costs during the first quarter of 2025, in connection with the previously disclosed international supply chain fraud matter and a lower provision for customer bad debt, largely offset by an increased provision for incentive compensation and increased employee benefit costs.

The provision for incentive compensation was $3.4 million during the 2026 first quarter as compared to $1 million during the 2025 first quarter. Depreciation and amortization was $10.6 million in the 2026 first quarter compared to $12.2 million in 2025. This decrease was primarily due to decreased depreciation on software applications and decreased depreciation on our fleet of trailing equipment. The effective income tax rate was 25.2% in the 2026 first quarter compared to an effective income tax rate of 24.7% in the 2025 first quarter. The increase in the effective income tax rate from the 2025 first quarter to the 2026 first quarter was primarily due to an increased provision for state taxes, the impact of tax deficiencies on stock-based compensation arrangements during the 2026 period and the impact of nondeductible executive compensation on the 2026 income tax provision.

Turning to Slide 14. Looking at our balance sheet. We ended the quarter with cash and short-term investments of $411 million. Cash flow from operations for the 2026 first quarter was $78 million and cash capital expenditures were $6 million. The company continues to return significant amounts of capital back to stockholders with approximately $82 million of dividends paid and approximately $22 million of share repurchases during the 2026 first quarter. The strength of our balance sheet is a testament to the cash-generating capabilities of Landstar model. Back to you, Frank.

Thanks, JT. Given the highly fluid freight transportation backdrop and a volatile geopolitical and macroeconomic environment, the company will be providing second quarter financial and operational commentary rather than formal guidance.

Turning to Slide 16 and looking at historical seasonality from Q1 to Q2, pre-pandemic patterns would normally be expected to yield sequential increases of 7% in the number of loads hauled via truck and 2% in truck revenue per load resulting in a top line that typically increases by a mid-single digit to a high single-digit change. It should be noted that with respect to the sequential truck volume increase during more recent history, it has been closer to plus 3% to plus 4%. The number of loads hauled via truck in April 2026 was essentially equal to April 2025 on a dispatch basis, while revenue per load in April was approximately 13% above April 2025 on a process basis. As a result, we view anticipated truck revenue per load in April is outperforming normal seasonality while anticipated April truck volumes are trending essentially in line with normal seasonality.

Please also note that historically, the company has often experienced a 25 to 45 basis point compression in variable contribution margin from the first quarter to the second quarter, primarily driven by mix, as BCO revenue typically represents a larger percentage of overall revenue in the first quarter of a given year as compared to the immediately following second quarter. We're excited to build upon the positive momentum generated during the first quarter and are energized by the opportunity to support the best network of independent business owners in the transportation space in an environment that after nearly 4 years appears to be turning in our favor.

With that, operator, we'd like to open the line for questions.

[Operator Instructions] Our first question comes from the line of Jonathan Chappell from Evercore ISI.

Frank or Jim, heavy haul obviously doing really well and also in the backdrop of a narrative about unsided platform or flatbed being incredibly strong. but your 1Q volumes were down 2% year-over-year, 2% sequentially, clearly made up some of that in the rev per load. So can you just help us understand, is that market as strong as it's been portrayed? And if it continues to, say, strengthen or build momentum from here, does that start to show up in the loads as well as in the rev per load? Or is it mostly going to be represented in the price side?

Jon. So clearly, if we see an incremental uptick in demand, you're going to see it on the volume side. I think everything right now is being supply-induced on the capacity side and getting us higher rates. We do think we've got a competitive advantage in heavy hauled and honestly on the platform side. So when you see those ISM numbers and some of the ITP numbers in the kind of low single digits. We're pretty optimistic about how that's going to play through volumes and rate for us going forward into the rest of the year.

And maybe either Jim Todd or Jim Applegate can comment on that.

Yes, Jon. No, good question. From the heavy hauled side, which did experience year-over-year volume growth, Jon, I would tell you, it continues to be very, very strong, broad-based strength. We had 17 individual heavy-hauled customers grow volumes less by at least 50 loads year-over-year in the 91-day first quarter. And those customers came from wide degree of industries of data center customers, energy, government, machinery, aerospace and defense, I think some of the softness to your point, year-over-year, if you look at some of the commodity categories we called out, building products, automotive, that kind of stuff on the standard flatbed, standard step has been a little weaker.

One thing I do want to call out, Jon, from a pricing standpoint on the unsided platform, it's really been a heavy haul mix story, and that continued in the first quarter. but standard platform step deck pricing year-over-year in the fourth quarter was only up 50 basis points. that accelerated the 730 basis points year-over-year. So a meaningful lift in yields on the standard flats and standard steps from a pricing standpoint.

And Jim Applegate, you might just want to talk about the designation of heavy hauled as a strategic initiative and the things you guys are doing among [indiscernible], particular area.

Yes. This is one of our areas that we really identified as far as Landstar goes, where we do the hard stuff well. This is definitely one of those areas that we can lean in. And we've invested quite a bit not only into leadership. We actually brought in almost a couple of years now, a new heavy hauled leader that's really kind of put his arms around that department, brought in some talent and laid out a strategy that's agent engagement, recruiting BCOs into the model making sure that we have the right equipment to go ahead and handle that those agent opportunities, investing in technology. You name it, we've got initiatives in place to make sure that our agents can be successful.

Paired on top of that, we have a dedicated sales and marketing effort. We're really leaning into those markets with messaging and some sales support for our agents to help them grow in those different industries. And I think what's really nice about what JT laid out is the growth is broad-based. It's also a mix of new and existing customers. So we're seeing a lot of new customers come into the fold across the different industries that are seeing success right now. And we're seeing industries even outside of the data centers, you'll start to see oil and gas and some of the other industries that have been historically depressed starting to come back a little bit. So we see this as an area for continued growth, and we've been strengthening up that area over the last couple of years and expect it to continue to be strong for Landstar.

Our next question comes from Scott Group of Wolfe Research.

So your rev per load tends to lag industry spot rates by a matter of months, quarter or whatever. We're seeing it play out, do you think, is it realistic to think that we see a meaningful further acceleration from that 13% in April, as the rest of the quarter plays out. And if that's what's happening, how should we think about margin or a margin in a quarter like that.

Yes. So fair questions, Scott, as always, thanks. I'll let JT walk you through the sequential pricing through the quarter. I think the month-over-month trends are important to understand, and he's got that detail for you. I think if we look forward, assuming that capacity continues to exit and/or we see demand in a spring lock like we do in many years. If those two things happen, then the obvious impact on [indiscernible] is going to be favorable. I think when you see what JT is going to tell you in terms of January, February and February, March and honestly, March into April, I mean, clearly, we're going to have some level of lag, and we're seeing that come through the numbers.

Well said, Frank. And Scott, we are seeing above seasonal pricing strength here into April, both on the BCO side and the brokerage side. I would point out from a comp standpoint, last year's second quarter, we got a 320 basis point lift in pricing, and we typically get about 200 basis points. So the comps do step up a little bit as we get into May and get into June. Certainly, from a margin standpoint, I mean, we just printed the first variable contribution dollar increase since, I think, the third quarter of 2022. And if you do some back of the envelope on adjusting 2025 for the international fraud matter. I think the incremental push-through numbers were well above 70%. So that's where we'll be judging ourselves.

Obviously, when that comes through it's [ great ], it's certainly easy to drop it all the way down.

Absolutely right. Yes. And the final point there, Scott, the BCO utilization numbers, we've talked about in the last 3 quarters strong third quarter '25, accelerated in the fourth quarter '25, accelerated further first quarter '26. So we'll look for that trend to continue. Certainly, that has a big impact on the number of BCO loads that capture that rate increase in the second quarter.

Okay. Helpful. And then on the volume side, it's interesting. You got BCO volume up 7% and brokerage volume down 9%, what do you think is driving such a big sort of mix difference? Is this -- are the agents or maybe the underlying customer? Are they saying we don't want to go through brokerage anymore and maybe tie this into how you think about like the outcome of this Supreme Court case, if you think this could exacerbate some of this trend between BCO and brokerage?

I'll give you my view, Scott, and then Frank will add on. I think, the agents are going to sell what they can sell. And certainly, we have some customers that will engage with us only as BCO only, and then cargo fraud environment. I think that has probably ticked up some. But I think it's a function of the agents that are going to market, servicing their customers and the BCOs have just really been stepping up in this rate environment, and we've seen it in the last 8 or 9 months or so.

Yes. And I think I'd like Matt Miller to comment a little bit on the BCO environment and all the things you're seeing on the BCO front, Matt. But broadly speaking on your Supreme Court question, I mean we're watching it like everybody else and we'll be prepared whichever way it goes. I think ultimately, Congress probably looks at this as a result of the Spring Court decision, whichever way it goes and tries to make policy legislative rather than through the court system, but we're actively looking at what's going to happen there. And I think what many people we would expect a decision sometime in the June, July time period.

But Matt, maybe a little bit on the BCO.

Yes, sure. I appreciate it. First quarter, typically, the most challenging quarter of the year for us when it comes to BCO truck count. And we finished the quarter, as Frank said, earlier, down 38 trucks. That was a better first quarter finish than we've seen in several years. A 100% of that decline happened in January. So that was followed by a positive result -- net result in February and a positive net result in March. So we're encouraged by the trends that we're seeing in net truck count as well as the trends we're seeing in the net weekly check average going to the BCOs after deductions, which more recently is the highest we've seen since the fourth quarter of and an indicator of improving financial health of the BCOs.

In the quarter, gross truck adds were up 2.7% sequentially and effectively flat year-over-year. Gross truck cancels were down 7.8% sequentially and down 23.5% year-over-year. And this marks our ninth consecutive quarter of turnover improvement, where our high watermark on turnover was the fourth quarter of '23 at 41%. And we finished the quarter at 29.5%, just about in line with our long-term average of 29%. As Jim stated, we also saw a very strong BCO utilization in the quarter, up 10% year-over-year. And that comes on the heels of a really strong fourth quarter utilization, which was up 8% compared to the fourth quarter of '24.

And then finally, sort of anecdotally, I'd like to add that we experienced strong interest from potential BCOs at the Mid-America Truck Show in March. And I think should we see sustained pricing, that level of interest and sentiment will be helpful for us as we move through Q2.

Our next question comes from the line of Chris Wetherbee from Wells Fargo.

I just want to kind of piggyback on the BCO kind of outlook. I guess, maybe what do we need to see from a spot perspective, have we seen enough, you think, from a spot perspective to begin to actually moved that up sequentially. It sounded like maybe April was sort of net flattish, I think, from what you said at the end of the first quarter was. But maybe you could elaborate a little bit on how we think about maybe that progress is going to trend throughout the rest of the year.

Chris, so yes, absolutely. When BCOs see multiple months in a row of sustained rate improvement, the word gets around pretty quick and the percentage pay model is a really attractive one as Matt Miller just mentioned. I mean, he and I were both at the Mid-America Truck Show, which is nickname [ Matt ]. So we were out there. And we have a good spot on the expo floor. And I think we had sort of a record take away there in terms of potential BCO candidates. I would say we have people there that are actively recruiting and people who are willing to say, yes, I'm interested, please follow up with me. I mean that was a bigger number at least that we've kind of kept on record over a bunch of years.

So we feel pretty good about the interest. As Matt was just saying a little while ago, we're continuing to see hundreds of ads every quarter, and the cancels are coming down. So what he would tell you is the cancel to [ lead ] the ad. So you see better cancellations and then you see better additions, but I'll let you pick up the thread from there.

No, I would just echo what you said, Frank. Generally speaking, if you look back in history, as the cancels slow and utilization picks up, word starts to spread and it spreads fast. And so that's what I would say as a takeaway. This is pretty much a leading indicator for us on when ads start to turn. And that first quarter tends to be, as I said, a very challenging quarter, and that finish was pretty strong given the backdrop over the past several years.

Okay. That's very helpful. I appreciate that. And then just maybe one quick one on sort of van demand as we think about loads as we go through the second quarter and I guess, trends from an April standpoint. Any sort of indication of if there is some improvement in various end markets kind of towards the end of the month? Just trying to get a sense of whether or not, obviously, the pricing side is really accelerating here. Just want to get a sense of what your view broadly speaking about demand.

Chris, so I think there's a couple of things that happened naturally this time of the year. I mean, building products unlocks on a sequential basis because you're cycling out the January, in the February and you're adding in the May and the June so to speak. So there are certain ones that are much more seasonal in nature Q1 to Q2, which is why you generally get some of the lift on a sequential basis. But then there are things that right now are just not being heavily supported by the interest rate environment. Automotive would be an example of that.

But look, I think the demand that we're seeing right now certainly supports rates where they are, but it's more a reflection of where the capacity is. If we happen to get a couple of points of GDP, IDP type growth, when supply is coming down like our chances this year.

Our next question comes from the line of Jordan Alliger from Goldman Sachs.

This is Paul Stoddard on for Jordan Alliger. I guess the First question I have is, so is the mix gets weaker with BCOs going into the second quarter. How did the mix in the first quarter compare historically? And as rates are increasing in the marketplace, could we see brokers come back into your network and potentially see more compression happening from the first quarter to the second quarter?

Yes. Paul, happy to field that one. So if you recall in the January conference call, we did not want to bake in the full variable contribution margin expansion that typically happens fourth quarter to first quarter. There were two reasons for that. One was the utilization number in the fourth quarter was very strong. And two, we did not think winter storm activity would negatively impact loadings. However, when a BCO is down for a week because of storms, we have seen in quarters past and years past where that could hurt from a [ BCM ] standpoint, that clearly did not happen, right? Utilization accelerated further, and we did get our typical or standard fourth quarter, first quarter variable contribution margin expansion.

In the scenario that Frank laid out, right, of what's normal from a spring peak standpoint and use round numbers, about a 7-point lift in volume sequentially first quarter to second quarter. I would note the last 2 or 3 years, we've not seen that degree of lift. But if we were to get that it would disproportionately come from third-party trucks, right? Because as much as we'd love to grow the fleet 7% on 8,500 trucks in 90 days, that's just not going to happen. So that's really what drives the historical compression. It's just there's more volume flowing into the network, and we've got to utilize brokerage more.

Makes sense. And then I guess kind of a follow-up to the discussion on the Montgomery Supreme Court case. With your unique structure with the BCOs and having insurance already within your model, how does that set you up versus peers depending on how the decision might go?

Yes. I mean, I think the insurance tower we have, it covers BCOs while they're loaded. We also have other insurance programs that cover BCO-type and non-BCO-type issues. I think the entirety of the brokerage population is going to have to look at insurance very differently if the decision goes against the industry than they do today. And right now, they essentially look at F4A and say we're immune. And the truth of the matter is if Supreme Court goes against it, they're going to have to get coverage. I think it likely create a situation where your smaller players are going to get priced out of the market because of the cost structure going up. And I think you've got so much fragmentation in our industry on the brokerage side. that may not survive in an environment where you got to have $5 million or $10 million of insurance just to cover our single incident.

Our next question comes from the line of Bruce Chan from Stifel.

Maybe just to start, you've talked about the tailwinds from data center exposures on, I think, at least a couple of calls, and I know that you've got exposure there in several of your end markets. But I don't think you've ever talked about an explicit revenue percentage. Any sense for what that is today and maybe how that's trended versus prior periods?

Yes. So it's fine. We're sort of smiling at each other because we were looking at this earlier today. So think about it broadly as a data center ecosystem, and I'll let Jim Applegate handle this one in a sec. But you got to look at it not just at the data center itself, but all new [indiscernible] to it. So it's got to have generators for power, it's got to have batteries for power. It's got to have chillers to make sure that the raised floor is cooled and then it's got all the stuff that goes inside of the data center, but if you can give us a sense of kind of what that business looks like.

With our top 100 customers, and we look at this, we look at our exposure, we have 9 of our top 100 fall within directly data center related. It represents about 12% of our total revenue. So from an exposure standpoint, that's what you're looking at. But even if you look at this big build-out and what's been happening and even what's in place today, it's not just the constructing and the actual data center players today. There's real energy needs. There's real kind of side benefits that you get as you're seeing this big build-out happen.

So from an exposure standpoint, we feel like it's a limited exposure from that standpoint. And we've got a lot of other kind of side benefits that are happening just because of the macro environment that's been created here.

That environment is still growing. And then you have all of the refresh and replacement of all of those things over time. So we're pretty bullish on continued investment in maintenance investment on a going forward basis there.

Okay. Yes, that's super helpful. And then maybe just one final question here on the supply environment. Obviously, we've heard a lot of commentary about regulatory changes I think a few carriers talked about an affected OTR population somewhere in the 15% range. Any sense for what the noncompliant population would be in unsided and maybe how fungible those two populations of drivers are in your network?

Yes. I don't know that we have a great read on exactly what that looks like. I mean the interesting thing from a Landstar perspective is we don't have language proficiency challenges. We don't have non-domiciled CDL challenges. All of our folks are professional drivers, average age is 51 years. I mean they suppose to be driving a long time. They are [indiscernible] operators. I mean I can go on and on and on. And I'm sure Matt Miller will have some commentary here, too. But at the end of the day, there is capacity coming out of the environment. It's generally what I believe is coming out of the lower end of the environment, and you're ultimately going to have a much safer and much more professional environment given the work that USDOT and FMCSA are doing. Matt?

Yes. No, I'd agree. When you think about English language proficiency, the non-domiciled CDLs, the CDL mills, the ELD technology. We applaud the actions of Secretary Duffy and FMCSA administrator, Derek Barrs. And we find ourselves virtually unimpacted with our BCOs because of a focus on safety, security and service. And I think there's more to come here. They're sort of telegraphing if you saw the 60 minutes piece on Chameleon carriers, my suspicion is that's probably the next target, and that just serves us very, very well in the grand scheme of things.

Our next question comes from the line of Stephanie Moore from Jefferies.

I actually -- I had a question, but I'm going to ask a different one now just based on this prior question. Maybe just for pure visibility here. I guess, maybe just talk a little bit kind of specifically looking at the [indiscernible] law and really just the use of foreign dispatch and administrative services. So I think in the past, you guys have disclosed having some foreign brokerage. So maybe just talk a little bit about that, if that's still the case. I think this was several years ago, so I could be out of date here. But maybe just if you could talk a little bit about any foreign dispatch that you might have.

Fair question. All of our agents are U.S. domiciled agents. We do have a handful of agents who do some back office work overseas, but we don't believe we have any exposure under our reading of any of the draft in the [indiscernible] law under the phrase that you mentioned.

Okay. That's really helpful. Well, then my actual question here. Maybe just talk a little bit about -- as you think about just your -- as you think about this next cycle, if we are in fact at the beginning of an up cycle. Maybe just talk a little bit about how you think Landstar is positioned from a competitive standpoint to maybe gain share or drive better margin and the like, just as we kind of think through investments that have been made over the course of this down cycle, just how you're in a different position on this up cycle versus past?

Yes. No awesome question. So a couple of different reads from my perspective. I think on the last conference call, I said it was hard to tell whether or not we were at the beginning of the end or the beginning of the beginning. I feel pretty convinced we're at the beginning of the beginning. As we look at the last few months, and our results would prove that out. I think we've done a lot in the last couple of years clearly designating the strategies and the strategic growth areas that we put forward. You know those as heavy all in U.S. Mexico cross-border and things like that. I think we've done the right work internally to put the right leadership there and the right investments as Jim Applegate, referenced a few moments ago.

I think on the BCO side, the work that Matt Miller has done in looking at BCO qualifications and time to qualify and the sort of reduct of orientation and what we call the cabs class. I mean there's a lot of things that are happening there. I think that is showing through in the way that BCOs are sticking with us even in more difficult times at the end of last year, the Q1 numbers in terms of the BCO count looked really, really good. I mean they were 10x better than they were in the last 3 years. So that makes you feel pretty good.

I think the work that we've done in working with the regulators over the last year or 2. I think our relationships are a lot closer with USDOT and FMCSA than they've ever been. I think we have the ability to talk with them about the realities of our industry and what needs to be done and they're moving at pace that I don't think any of us have ever seen. I've said an open company a number of times that, we've never had a more favorable administration to the U.S. trucker than we have right now. And again, as I mentioned earlier, it's making it a safer and more professional environment. And I think those are the important things.

That's what Landstar has always been about. I mean we are independent owner operators, who are out there doing a great job for us every single day. And those are the folks who are going to win in this environment. There's been a bit of a flight to quality. I mean we're getting bids back that, freight back that we maybe lost on rate over the last couple of years because of safety, security and service and customers wanting to make sure that their loans get there on time and the load is secured and not stolen and the track and trailers are not over turned in the side of the road. I mean those are the things that we're really good at.

So I think we're winning in the marketplace with respect to that on the flatbed and heavy haul side, clearly, our numbers over the last 2 years would indicate that we're doing really well relative to that market, and we're going to continue to recruit drivers. We're going to continue to invest in the fleet. We're going to continue to designate the hard things as strategic initiatives, and I look forward to that future.

Our next question comes from the line of Brian Ossenbeck from JPMorgan.

I just want to see if you can get a little bit more detail on the AI initiatives that you guys listed out here in the back slides, both maybe separate the Landstar corporate for the scale network of entrepreneurs. But maybe more generally, do you feel like you can scale some of these productivity initiatives that we hear about across the industry when you have some of the business, it's a little bit more centralized with either corporate or brokerage, and then you've got agents that are a little bit more decentralized, of course. So I would like to get a little bit more specifics on that, including what's the -- you talked about the CapEx budget here being about AI being about half of the IT capital budget. But what's also running through the expense line there?

Good question, Brian. Thanks, good to hear your voice. I think the AI work we're doing, as we disclosed in the Q4 call, those 2 slides are really replicas of what we did in the main deck in the Q4 call, we wanted to put it in there to make sure that everybody had an opportunity to see those that may not have been on the Q4 call. Jim Applegate is the business side of AI. We've obviously got Rick Coro, our CIO, that's on the tech side as we did mention to you a good point. We sort of laid down the expectation that more than half of our capital budget on the IT side will be AI. We met that. My belief is if you in arrears sitting at 12/31/26, it will probably turn out to be more than that as we revisit the other half of the capital that IT spending, just to decide whether or not we truly do need systems versus a top of the existing systems. So I think you'll see that more over time. And certainly, we'll look at a higher expectation as we turn the page into 2027.

On scalability and adoption, as I mentioned in my prepared remarks, are clearly what we're trying to make sure we're accomplishing by virtue of, for example, the pilots that we're doing. Jim Applegate to get you into some details there. We're doing very active agent pilots were working with half a dozen or so AI companies that some of those will be, I'll say, household names. Some of them will be more on the startup side. I mean you've got to make sure that you're playing the field a little bit here. They're doing pilots with about a dozen or so of our agents. And therefore, we are in the agent office working on AI, which clearly gives you the replicability across the age environment. There are things that agents do different, but there are an awful lot of things that agents do similarly that have to be part of the shipment life cycle.

But I'll let Jim Applegate pick up the...

Thanks, Frank. And Brian. I love the way you posed the question separating the corporate from the agent. As you know, corporate is a little bit easier to get your arms around. It's a little bit easier to control with over 1,000 agents in our network. We've got to be a little bit more deliberate on how we go about it, and it's got to be a scalable solution that fits our entrepreneurs, which is really a lot different.

I look at the benefit of what Landstar brings to the table, it is our entrepreneurs and pairing our entrepreneurs with technology, I think, is what wins in this market is one for Landstar in the past. We feel in this next run with AI, it's going to help us win even more so with the motivated agents that we have and given the right tools to compete.

As Frank mentioned, we have several pilots going on right now. We have 7 active pilots. We're hitting all stages of our shipment life cycle. We started off with 6. [ Now we ] got about 10 stages that we're going to get within the shipment life cycle. And when I say that, those are things like how our agents market sell, how they price how they actually find capacity and manage that capacity, assign that capacity, dispatching that capacity, making sure that they're tracking and tracing those shipments within the network.

And we're hitting that right now. We've got about a dozen agents that are in active pilots. And as Frank mentioned, we've got household names, and a lot of new start-ups that we're working with from a pilot standpoint. Those start-ups are going to sit up on top of our technology stack. And we're right now working with our agents to identify the workflows and to implement a agentic AI bots over at the agent office within those different shipment life cycle categories that I mentioned.

We've got a lot of excitement right now with the agents that are using it. We're identifying really a lot of the business cases that you hear out in the industry that's applying directly for our agents. We're getting a lot more shipment life cycle throughput. They're doing things faster. They're able to do more, and we're actually seeing more wins as well, too. It's very early on. As far as how that actually deploys across the network, we're going to get to a point where we say, hey, these pilots are done. We're building out our use cases, and we'll identify the right vendors to work with, and they will also identify how we want to go out to the market to [indiscernible] an agent family.

And if you really look at it, Brian, it's a little bit different. You can't really push that down into the network. It is more influence and control. So part of our plan is to actively look for agents that are going to adopt that technology, we'll do an assessment and we've got agents that want to grow and they want to use their resources to grow, we'll start with them. We'll do that outreach. We'll get them excited about what we're doing. And then from there, there's a consultation and design that we need to do at each agent office. We need to take a look at their business, the types of customers that they actually operate with and we did design the workflows along with the agentic solutions that we put in place specific for those agents.

And then behind that, we're going to be easy behind that. We're going to make sure that we do it safely. We're going to make sure that they have the right resources in place and we're going to be monitoring along the way. Brian, we've done this before. We've done this with our rollout with our different technology tools. We've been doing this since 2014. I don't see it a big difference from what we've done over there, but it's going to be a lot more integrated within our agent offices and is very excited about where we're going.

So more to come on that, but thank you for asking the question. I think it's very fitting for us to be able to tell our story specific to Landstar because I think we've got a great story to tell there.

We will take the last question from [ Harrison Beller from Soskiania. ]

Great. You guys have talked extensively about the BC capacity dynamics. But your third-party brokerage carrier side, approved carrier count there was down significantly around 20% year-over-year, although up a little bit versus last quarter. Can you walk through what's changed in your carrier vetting and approval process, and then maybe connect that to how you could help decrease your expenses related to cargo theft, fraud and then maybe insurance costs and then tie that into how technology might be helping that expense line as well.

Thanks, Harrison. I think you actually answered your own question. You're absolutely right. We have, I'd say, put a higher degree of rigor around vetting our carriers, and it is largely because of the advances that we've made in technology and AI and then some of the relationships that we have with some of our vendor partners and what they're doing to make sure that we have a good understanding of who owns the entity, what is their safety record, whether or not they've involved the double brokering, whether they've been involved in cargo theft incidents like all those things and many more are part of that analysis.

I'd say that we probably got religion a little bit earlier than most because we did have [indiscernible] about a year or so ago, we had a tough cargo that quarter. And so we started down that path before many, and even before that, we had started creating our anti-fraud department and putting resources and technology with 1 of our early AI projects. that we deploy to make sure that we could understand what the parameters that will potentially lost load would look like so that we could try to prevent it before it happened. Part of that is making sure that we're doing business with carriers who are reputable carriers.

Matt, why don't you pick it up from the...

Sure. Sure. I appreciate the question. And I would say if you went back in time, we had probably three attributes that we used to determine if a carrier was eligible to be approved our network. And with the advent of fraud and strategic theft and everything that's happened over the past several years, we've invested heavily. We invested in people, stood up a fraud group. We invested in the process and refining that process and we invested in technology. I don't expect that to stop anytime soon. But we continue to add layers upon layers of attributes. We're up to, say, dozens of attributes that we're looking at to scrub that area database to do our best to mitigate to prevent [ detect, ] any sort of anomalies and the tools that we've invested in are proving to be working, as you saw on the first quarter results.

But this is something that today is a constant defense, and we're continuing to find ways that we can mitigate against it. It's very sophisticated bad actors out there, so you have to remain vigilant, but the technologies that we're adopting are proving very, very valuable and would expect that sort of rigor to continue for the foreseeable future.

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

Thank you. In closing, the management team has been energized by our interactions with our BCOs and agents thus far in 2026. And we are all encouraged by the current pricing environment and what we believe is the strongest heavy haul service offering in our industry. And regardless of the economic environment, 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 capitalize on improving conditions and gathering momentum in freight markets.

Thank you for joining us this afternoon. We look forward to speaking with you again on our 2026 second quarter earnings conference call in late July. Thank you.

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

Good afternoon, and welcome to Landstar System Inc. Fourth Quarter Earnings Release Conference call. [Operator Instructions]. Today's call is being recorded. [Operator Instructions] Joining today from Landstar are: Frank Lonegro, President and CEO; Jim Applegate, Vice President and Chief Corporate Sales, Strategy and Specialized right officer; Jim Todd, Vice President and CFO and Matt Dannegger, Vice President and Chief Field Sales Officer; and Matt Miller, Vice President and Chief Safety and Operations Officer.

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

Thanks, Elmer. Good afternoon, and welcome to Landstar's 2025 Fourth Quarter Earnings Conference Call. Before we begin, let me read the following statement. Following is the safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements.

During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations. Such information is by nature subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2024 fiscal year described in the section Risk Factors Landstar's Form 10-Q for the 20,251st quarter and our other SEC filings from time to time.

These risks and uncertainties could cause 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 Lance, our CEO, Frank Lonegro, for his opening remarks.

Thanks, J.T., and good afternoon, everyone. I'd like to thank our BCOs and agents and all of the Landstar employees who support them every day. 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 -- their adaptability and dedication to safety, security and service for our customers is truly impressive. They are exceptional business leaders and key to driving the continued success of Landstar's business model.

Before we jump into fourth quarter results, I'd like to take a few minutes to provide a brief reflection on my first 2 years leading this great organization. Despite the unprecedented freight recession continuing longer than many of us had expected. We achieved some significant accomplishments over the past 2 years.

We created our key priorities, what we call the 5 points of the start to guide our business, accelerating the model, executing on our growth strategy, managing risk, leveraging our financial strength and enhancing our support. The one at the top of the star is accelerating the model, which is all about our agents and BCOs and -- when they are strong and growing and equipped with the tools and support they need to succeed, the Landstar model really shines, we doubled down on the company's strategic growth initiatives with 2 of those heavy haul and U.S.-Mexico cross-border, representing approximately 20% of our business.

While the cross-border business has been impacted by geopolitics, we are more than ready to leverage our new cross-border leadership as well as our strong agent presence and market position when the environment improves.

On the heavy haul side with new leadership and strong agent focus, not to mention our ability to do the hard things well, Landstar's heavy haul set a new revenue record of $569 million during the 2025 fiscal year, approximately 14% above 2024s record-setting year. We're continuing to build the leadership team of the future with our executives and VPs, what we call our top 60 with nearly half of that team new to their role, new to their responsibilities or new to the company. That group is collectively focused and incented to drive Landstar's growth and profitability and to maintain our industry-leading transportation and logistics business premised on 3 key elements: safety, security and service.

We've reduced the time it takes to become a Landstar BCO while maintaining our highly stringent qualification standards. Huge thanks go to Matt Miller for his efforts here. This year, we will also implement a redesigned BCO onboarding and training program to ensure the delivery of relevant, high-quality instruction and to support Landstar BCOs and upholding the highest standards of service for our customers.

We're leaning into the future in deploying technology and specifically AI to benefit our agents, BCOs and Landstar employees. It's all about enhancing our support for the Landstar network. You'll hear more this afternoon about our AI strategy and specific initiatives like the contact center, our path to deploying an ERP and AI-enhanced tools focused on pricing, BCO retention, trailer requests and credit approvals.

You'll also hear about our new web portal featuring embedded agentic AI that was built specifically for the needs of Landstar freight agents and that we believe is unique in the industry. As we continue our efforts to find new ways to embed AI in our business, I'm pleased to report that approximately 50% of our IT CapEx budget for 2026 is dedicated to AI enablement and solutions.

And importantly, we've continued Landstar's rich tradition of strong capital returns to our shareholders. Over the last 2 years, Landstar returned approximately $261 million to shareholders in the form of share repurchases and another $245 million in cash dividends, we remain committed to our capital return program while continuing to invest capital to improve and grow our business and making our network of entrepreneurs as successful as possible.

We've been busy these last 2 years. We're excited about the future, and we look forward to sharing more with you down the road.

Turning back to the 2025 fourth quarter results, the challenging demand conditions experienced in the Truckload freight environment over the past 3 years continued during the 20,254th quarter. Volatile federal trade policy and lingering inflation concerns continue to generate supply chain uncertainty.

Nevertheless, the Landstar team of independent business owners and employees performed well. Truck transportation revenue in the fourth quarter was nearly flat year-over-year as the slight decrease in total revenue was primarily attributable to decreased ocean revenue. Moreover, as previously disclosed, we are in the process of selling Landstar Metro, the company's Mexican logistics subsidiary. Excluding the revenue contribution from Landstar Metro, for both 2025 and 2024 fourth quarters as well as approximately $16 million in reported revenue during the 2024 fourth quarter that was associated with the previously disclosed agent fraud matter total revenue decreased approximately 1% year-over-year in the 2025 fourth quarter.

As disclosed in our prerelease 8-K filed with the SEC on January 21, and the 2025 fourth quarter financial results were negatively impacted by several discrete items impacting insurance and claims expense.

First, the company recorded pretax charges of $11 million or $0.24 per share related to 2 separate tragic vehicular accidents involving BCOs leased on with subsidiaries of the company.

Second, the company recorded a pretax charge of $5.7 million or $0.13 per share. in connection with the court entry of a judgment in January 2026 that Landstar intends to appeal and which related to a trial that ended in August 2025 relating to an accident that occurred in fiscal 2022.

Third, the company recorded a $5.3 million pretax charge or $0.12 per share related to an increase in the company's actuarially determined claim reserves. JT will cover these items in greater detail during his prepared remarks. Nevertheless, we are encouraged by several positive signs. One consistent highlight is the continued strength in the unsided platform equipment business, which posted another strong quarter with an 11% year-over-year revenue increase driven by the performance of Landstar's heavy haul service offering.

We generated approximately $170 million of heavy haul revenue during the 2025 fourth quarter or a 23% increase over the 2024 fourth quarter. This achievement reflected a 16% increase in heavy haul revenue per load and a 7% increase in heavy oil volume. Our focus continues to be on accelerating our business model and executing on our strategic growth initiatives, we are continuing to invest in the foundational work that will put Landstar in a great position to leverage the freight environment as it turns our way.

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

Turning to Slide 5. The freight environment in the 2025 fourth quarter was characterized by relatively soft demand from a seasonal perspective, the impact of accumulated inflation remains a drag on the amount of truckload freight generated in relation to consumer spending while the industrial economy remains soft as evidenced by an ISM index below 50 for the entire 2025 fourth quarter.

We are pleased to see sequential outperformance by our overall truck revenue per load compared to pre-pandemic normal seasonal patterns despite fiscal October underperforming pre-pandemic seasonal trends. As noted in the press release, we were encouraged to see our overall truck revenue per load increased approximately 6% from fiscal October to fiscal December and appreciate everything the U.S. DOT is doing to support the American trucker.

Considering that backdrop, Landstar's revenue performance was admirable in the 20,254th quarter with the number of loads hauled via truck down approximately 1% and almost entirely offset by approximately 1% increase in truck revenue per load compared to the 2024 fourth quarter 2025.

Our balance sheet continues to be very strong. And our capital allocation priorities are unchanged. And we will continue to patiently and opportunistically execute on our existing buyback authority to benefit our long-term stockholders. As noted in the slide deck, during 2025, we deployed approximately $180 million of capital toward buybacks and and repurchased approximately 1.3 million shares of our common stock.

And yesterday afternoon, our Board declared a $0.40 quarterly dividend payable on March 11 to shareholders of record as of the close of business on February 18. We -- we continue to invest through the cycle in leading technology and AI 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 with a particular focus on investment in new van equipment.

At this stage of the call, I would normally hand it off to JT but we felt it was important to provide analysts and investors with an update on our AI-related activities.

I'll now pass the call to Jim Applegate for a discussion of in-flight and planned AI-related initiatives going on at Landstar. Jim?

Great. Thank you, Frank. Since 2016, Landstar has been executing a digital transformation strategy to ensure our network of agents and BCOs remains highly competitive in an increasingly technology-driven freight environment. Our goal from the outset was not simply modernization, but enablement, delivering tools that help automate the agent office, simplify the experience in operating as a Landstar business capacity owners and scale the efficiency and effectiveness of our entrepreneurs.

Those early efforts branded is Landstar 2020 included the rollout of a new transportation management system, advanced pricing and capacity tools, agent analytics, BCO retention capabilities, mobile applications and trailer management. Landstar 2020 was never viewed as an endpoint. It is the foundation of a long-term commitment to building and deploying industry-leading technology across our entire ecosystem.

As we move beyond 2020, that commitment expanded, we invested further into digital capabilities within our corporate operation and the support we provide in the network, including the rollout of modern contact center technology and significant upgrades to our financial, settlements and back office systems.

These investments strengthen the overall connectivity and support provided to our entrepreneurial network. What truly differentiates Landstar's technology strategy is how it's conceived and deployed. Our approach is not driven by top-down mandates designed solely to reduce costs. Instead, it's built through close collaboration with our agents and BCOs with a clear focus on enabling growth.

By aligning technology investments with the needs of our entrepreneurs, we're able to deliver tools that are adopted and leverage to drive growth and deliver wins in the highly competitive transportation sector.

Our agency model growth is often constrained by resources. Without technology, a new agent may reach a couple of million dollars in revenue before needing to add headcount. This is a difficult decision, given the financial risk involved. Our objective has been to deploy technology to fundamentally change that equation.

By automating workflows and improving office efficiency, we have helped agents to embrace our tools to significantly increase their revenue base without adding resources. The same philosophy applies to our BCOs by eliminating manual and administrative friction, we enable them to be more productive, all more freight and better serve our agent customers.

The end result is a differentiated value proposition for customers, a combination of advanced, purpose-built technology and highly motivated professionals with a direct economic stake in delivering freight safely, securely and with exceptional service.

Artificial intelligence represents the next major acceleration of this strategy. The pace of innovation and breadth of potential applications are unprecedented, and we view AI as a powerful enabler of our entrepreneurial ecosystem.

Importantly, our AI strategy is evolutionary, not experimental. We're building on the strong digital foundation we already have in place. Today, machine learning is embedded within our pricing and BCL retention tools, allowing them to continuously improve as we scale the available data.

Our new contact center platform leverages AI to enhance the knowledge base of the service representatives, analyze sentiment, automate routine tasks, summarize interactions and free our teams to focus on higher-value problem solving. We've embedded AI into our Landstar agent portal, improving access to information, providing actionable business insights and enabling better, faster decision-making.

We've also deployed an AI-powered fraud detection solution that analyzes behavioral patterns, documentation, invoice images and shipment characteristics to identify high-risk freight and reduce shipment losses.

Looking ahead, beginning in the first quarter of 2026, our AI task force will work with transportation-focused agentic AI start-ups and established technology partners to accelerate AI applications across the ship of life cycle and within agent offices. These efforts are focused on driving efficiency, improving decision-making and further unlocking growth across our network.

As technology continues to evolve, Landstar intends to remain at the forefront. We see AI as a strategic enhancement to the competitive advantage of the Landstar business model and the resiliency and capability of our strong network of entrepreneurs. Entering this new era, we believe AI represents another meaningful opportunity to strengthen the safety security and service we provide to our customers every day on every load. Back to you, Frank.

Thanks, Jim. Turning to Slide 10 and looking at our network, the scale systems and support inherent and the Landstar model helped to drive the operating results generated during the 2025 fourth quarter. JT will get into the details on revenue, loadings and rate per load in a few minutes. As noted during previous earnings calls, Landstar's Safety First culture is a crucial component of 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 0.59 DOT reportable accidents per million miles during 2025, and well below the last available national average DOT reportable frequency released from the FMCSA for 2021 and slightly better than the company's trailing 5-year average of $0.61. This long run average is an impressive operating metric that speaks to the strength, skill, talent and dedication of our BCOs and provide the point of differentiation.

Our agents are able to highlight in discussions with our freight customers. We remain committed to driving a best-in-class safety culture. I'd also like to take a moment to recognize Landstar's $457 million agents based on our 2025 fiscal results.

Importantly, retention within the million-dollar agent network continues to be extremely high.

Turning to Slide 11. On a year-over-year basis, BCO truck count decreased approximately 4% compared to the end of the 2024 fourth quarter and approximately 1% sequentially and BCO turnover continues to be influenced by a persistent relatively low rate for load environment, combined with the significant increase in the cost to maintain and operate a truck today compared to before the pandemic.

Directionally, we are pleased to see our trailing 12-month turnover rate dropped from 34.5% as of fiscal year-end 2024 to 31.4% at the end of the 2025 fourth quarter. Through the first 4 weeks of the 2026 first fiscal quarter, the number of trucks provided by BCO independent contractors is down fractionally, consistent with typical first quarter seasonality and I will now pass the call back to JT to walk you through the 20,254th quarter financials in more detail.

Thanks, Frank. Turning to Slide 13. As Frank mentioned earlier, overall, truck revenue per load was up approximately 1% in the 2025 fourth quarter compared to the 2024 fourth quarter primarily attributable to a 7.5% increase in revenue per load on loads hauled by unsided platform equipment and a 2% increase in revenue per load on less than truckload loadings partially offset by a 3.4% decrease in van revenue per load and a 4.2% decrease in revenue per load on other truck transportation loadings.

On a sequential basis, truck revenue per load increased 1.5% in the 2025 fourth quarter versus the 20,253rd quarter outperforming typical pre-pandemic normal seasonality increase of approximately 1% despite a relatively soft start out of the gate with fiscal October underperforming normal seasonality. In comparison to overall truck revenue per load, we consider revenue per mile on loads hauled by BCO trucks a pure reflection of market pricing as it excludes fuel surcharges billed to customers that are paid 100% to the BCO.

In the 2025 fourth quarter, both revenue per mile and unsided platform equipment hauled by BCOs and revenue per mile on van equipment hauled by BCOs were 1% below the 20,244th quarter. Delving deeper into seasonal trends, revenue per mile on loads hauled by BCOs on unsided platform equipment declined 2% from September to October, was flat from October to November and increased 4% from November to December.

The September to October decline underperformed prepandemic seasonal trends, while the October to November approximately equal and the November to December increase, both outperformed pre-pandemic historical trends. Revenue per mile on van equipment hauled by BCO sequentially decreased 1% from September to October and an additional 1% from October to November. Underperforming pre-pandemic historical trends. However, in what we hope was a possible inflection point, revenue per mile on van equipment hauled by BCOs increased 3% from November to December, slightly above pre-pandemic historical trends.

It should be noted that month-to-month seasonal trends on unsided platform equipment are generally more volatile compared to that of band equipment. This relative volatility is often due to the mix between heavy specialized loads and standard flatbed volume -- as Frank alluded to, we've been pleased with the recent performance in our heavy haul service offering.

Heavy haul revenue was up an impressive 23% year-over-year in the fourth quarter, significantly outperforming core truckload revenue. Heavy haul loadings were up approximately 7% year-over-year and revenue per heavy haul load increased 16% 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 38% during the 20,244th quarter to approximately 42% in the 2025 fourth quarter. Non-truck transportation service revenue in the 2025 fourth quarter was 28% or $30 million below the 2024 fourth quarter. Excluding approximately $16 million in revenue reported during the 2024 fourth quarter that was associated with the previously disclosed agent fraud matter, transportation service revenue in the 2025 fourth quarter decreased by approximately $14 million or 15% compared to the 2024 fourth quarter.

Turning to Slide 14. We've provided revenue share by commodity and year-over-year change in revenue by commodity. Transportation & Logistics segment revenue was down 2.9% year-over-year on a 2% decrease in revenue per load and a 1% decrease in loads compared to the 2024 fourth quarter. Within our largest commodity category, consumer durables, revenue decreased approximately 2% year-over-year on a 3% decrease in volume, partially offset by a 1% increase in revenue per load.

Aggregate revenue across our top 5 commodity categories, which collectively make up about 71% of our transportation revenue increased approximately 2% compared to the 2024 fourth quarter. While Slide 14 displays revenue share by commodity, we thought it would also be helpful to include some color on volume performance within our top 5 commodity categories. From the 2024 fourth quarter to 2025 fourth quarter total loadings of machinery increased 6%. Automotive equipment and parts decreased 5%. Building products decreased 11% and hazmat decreased 3%.

Additionally, substitute line haul loading is 1 of the strongest performers for us during the pandemic and 1 which vary significantly based on consumer demand, increased 3% from the 2024 fourth quarter.

As we've mentioned many times before, 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.

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 all service offering. Overall, revenue hauled on behalf of other truck transportation companies in the 2025 fourth quarter was 15% below the 2024 fourth quarter, an indicator that capacity is reasonably accessible in the marketplace.

Revenue hauled on behalf of other truck transportation companies was 11% and 13% of transportation revenue in the 2025 and 20,244th quarters, respectively. Even with the ups and downs in various customer categories, our business remains highly diversified with over 20,000 customers, none of which contributed over 8% of our revenue in the 2025 fiscal year.

Turning to Slide 15 and the 2025 fourth quarter, gross profit was $85.6 million compared to gross profit of $109.4 million in the 2024 fourth quarter. Gross profit margin was 7.3% of revenue in the 2025 fourth quarter as compared to gross profit margin of 9% in the corresponding period of 2024. In 2025, fourth quarter, variable contribution was $166 million compared to $166.5 million in 2024 fourth quarter. variable contribution margin was 14.1% of revenue in the 2025 fourth quarter and 13.8% in the 20,244th quarter.

Turn to Slide 16. Operating income declined as a percentage of gross profit, primarily due to the impact of highly elevated insurance and claim costs in the 2025 fourth quarter the impact of the company's fixed cost infrastructure, principally certain components of selling, general and administrative costs in comparison to a smaller gross profit base.

Operating income declined as a percentage of variable contribution primarily due to the impact of the highly elevated insurance and claim costs in the 2025 fourth quarter and the impact of the company's fixed cost infrastructure, while the variable contribution basis were essentially equal.

Other operating costs were $14.6 million in both the 2025 and 2024, fourth quarters. Insurance and claim costs were $56.1 million in the 2025 fourth quarter compared to $30.1 million in 2024 and Total insurance and claim costs were 12.3% of BCO revenue in the 2025 fourth quarter as compared to 6.7% in the 2024 fourth quarter, the increase in insurance and claim costs as compared to 2024 was primarily attributable to on $11 million of costs related to 2 separate tragic vehicular accidents involving BCO independent contractors leased on with subsidiaries of the company, each of which occurred during the 2025 fourth quarter.

Two, a $5.7 million -- $5.7 million pretax charge associated with a broker liability judgment entered on January 13, 2026, where a trial court in El Paso, Texas, found Landstar Ranger responsible for 100% of the $22.8 million of total damages awarded rather than the 15% a portion to Landstar by the jury during the summer of 2025. Landstar disagrees with the judgment and plans to vigorously appeal this matter.

And three, the impact of a $5.3 million increase in actuarially determined IBNR reserves relating specifically to loss exposure in excess of $1 million per claim. During the 2025 and 2024 fourth quarters, insurance and claim costs included $9.2 million and $2.2 million of net unfavorable adjustment to prior year claim estimates, respectively.

Importantly, $5.7 million of the $9.2 million of prior year development reported in the 20,254th quarter was attributable to the El Paso broker liability judgment entered during January 2026. The Selling, general and administrative costs were $56.2 million in the 2025 fourth quarter compared to in the 2024 fourth quarter.

The increase in selling, general and administrative costs were primarily attributable to an increased provision for incentive compensation, increased stock-based compensation expense and increased wages, partially offset by a decreased provision for customer bad debt.

The provision for incentive compensation was $700,000 during the 2025 fourth quarter compared to a reversal of $200,000 during the 2024 fourth quarter. Stock-based compensation expense was approximately $800,000 during the 20,254th quarter as compared to a $100,000 reversal of previously recorded stock-based compensation costs during the 2024 fourth quarter.

We continue to manage SG&A in part by closely managing headcount at Landstar. Our total number of employees based in the United States and Canada is down approximately 45% since the beginning of 2025. Depreciation and amortization was $10.5 million in the 2025 fourth quarter compared to $12.7 million in 2024. This decrease was primarily due to decreased depreciation on software applications and decreased depreciation on trailing equipment.

The company recorded an additional $2.1 million or $0.05 per share as a noncash impairment charge during the 2025 fourth quarter relating to the ongoing sales process of Landstar Metro.

The effective income tax rate was 18.3% in 2025 fourth quarter compared to an effective income tax rate of 21.4% in the 2024 fourth quarter. The decrease in the effective income tax rate was primarily due to the favorable resolution of certain state tax matters during the 2025 fourth quarter.

Turning to Slide 17 and looking at our balance sheet. We ended the quarter with cash and short-term investments of $452 million. Cash flow from operations for 2025 was $225 million and cash capital expenditures were $10 million. The company continues to return significant amounts of capital back to stockholders with $125 million of dividends paid and approximately $180 million of share repurchases during fiscal 2025. The strength of our balance sheet is a testament to the cash-generating capabilities that Landstar model. Back to you, Frank.

Thanks, JT. Given the highly fluid freight transportation backdrop and an uncertain political and macroeconomic environment, as well as challenging industry trends with respect to insurance and claim costs, the company will be providing first quarter revenue commentary rather than formal guidance.

Turning to Slide 19. The number of loads hauled via truck in January was approximately 1% below January 2025 on a dispatch basis, while revenue per load in January was approximately 4% above January 2025 on a processed basis. As a result, we view truck revenue per load in January as modestly outperforming normal seasonality, while January truck volumes are trending essentially in line with normal seasonality.

Looking at historical seasonality from Q4 to Q1, pre-pandemic patterns would normally yield a 4% decrease in both -- the number of loads hauled via truck and truck revenue per load yielding a top line that typically decreases by a mid-single digit to a high single-digit percentage.

As just noted, though, fiscal January truck revenue per load outperformed normal seasonality, while truck volumes trended essentially in line. It should be noted that we faced a challenging year-over-year truck volume comparison during the first quarter as 2025 first quarter truck volumes exceeded the immediately preceding fourth quarter truck volumes for the first time in 15 years, with tariff pull-forward behavior likely driving the strength.

Moving through the first quarter. Historically, truck revenue per load sequentially declined approximately 1.5% from fiscal January to fiscal February before improving approximately 1.8% from fiscal February to fiscal March, we estimate that in the event fiscal February and fiscal March truck revenue per load outperformed normal seasonality, in line with the outperformance we experienced in fiscal January, the sequential revenue change experienced during the 2026 first quarter could be down low single digits versus the fourth quarter of 2025.

With respect to variable contribution margin, the company typically experiences a 40 to 60 basis point expansion in variable contribution margin from the fourth quarter to the first quarter, typically driven by increased BCO mix However, I would note, we had a very strong BCO utilization in the fourth quarter of 2025 at plus 8% year-over-year. In addition, winter storm activity experienced in January could have a negative impact to first quarter 2026 BCO utilization, resulting in a first quarter 2026 VCM performance that does not necessarily follow normal seasonal patterns.

With that, Elmer, we'd like to open the line for questions.

[Operator Instructions] Our first question is from Jason Seidl from TD Cowen.

Maybe sticking on that last comment, in terms of maybe a sequential decline in utilization for your BCOs, where are you standing right now with the big storm that just swept through the country?

Yes, that's a good question. And look, that's off to the BCOs who are out there and doing it safely every day. We certainly have had folks with a little bit of equipment challenges and also some customers who aren't open to either allow us to pick up or to allow us to deliver. JT can get into the very specifics on the the day-to-day loading challenges that we've had. Typically, if you look back at his again, JT will get into more detail, we generally recover that.

So we're kind of early to mid-quarter. So the hope is that we'll be able to recover it. But this is a fairly with swap of weather that impacts geographically all throughout the country. So let me let JT maybe just chime in on the specifics there because we are watching it very closely, as you would expect.

Yes. No, absolutely. Jason. So I would estimate the storm impact to the fourth week of fiscal January and the first week of fiscal February, probably 5,000 to 6,000 knockdown impacted dispatch loads. But to Frank's point, unlike a dedicated carrier contract carrier, if a plan is shut down and they're not producing and you're not picking up your 15 loads a day, that freight is gone. In our business, we tend to gap back up when the weather eventually clears. So we'll continue to keep an eye on it.

But I do think, to the point you made on BCO utilization, and I'll also get Matt Miller to chime in here in a second. We've had a nice run of BCO utilization even with the the count coming down some in the fourth quarter and as expected in the first quarter. So the folks are out there responding to the demand.

And obviously, we're pushing folks to load BCOs as much as possible, and those guys do a really good job on the 3 things that are really important to customers. meaning safety, security and service, but maybe Matt a little bit on the BCO utilization.

Sure. No, we're definitely encouraged by the utilization we saw in the fourth quarter. When you look at the fourth quarter compared to prior year, we were up 8% compared to fourth quarter of '24. And that compares to the third quarter '25, we were up 6% compared to the third quarter of '24. So that trajectory was absolutely something we were encouraged by.

I appreciate the commentary. If I could slip 1 more in. On the AI stuff, obviously, 1 of your competitors out there,.Robinson has been talking a lot about AI and really showing some results to the bottom line. Where are you guys in AI helping you get more bids out there in the marketplace in general?

Yes. I mean I think the AI for us is a little bit different than Robinson for a couple of different reasons. Obviously, we've got a different business mix. We also have a different model with essentially all of their folks inside the building and the majority of the folks who support Landstar are not W-2s, which is why you heard Jim Applegate talk about here's what we're doing for the network, which would include the agents in the BCOs.

And then obviously, on the inside, what we're doing for Landstar employees to help support the network. I think where you're going to see the benefit for us is not going to be on the cost line given the fact that we have of the employee base that Robinson does. So I really did say 10% of. So they have 10x more employees than we do. So they're certainly going to see it in the cost line.

But what we're doing and going to do is enable the agent offices, the Landstar independent agents to go out there and be able to work smarter and to work faster. And to one of the points that Jim Applegate raised to not have to add employees until much later in their growth trajectory, which obviously allows them to grow faster. But I mean let Jim, you pick up on that?

Yes. No, I think I didn't bring great explanation around the strategy. I think the specific question was around bids at the very end of that comment. We operate in a much different model, specifically in the spot market as it relates to pricing. And we've been kind of underway, and I mentioned in my opening comments in 2016, pricing was one of the first things that we hit, and we built a big machine learning model with our pricing tools they just give our agents just a wealth of information.

And really, the keys for us winning in the spot market is just making sure that we give our agents the confidence, right, to go out there and price the business and to do it quickly. So they got to assess a ton of information depending on the types of customers that they're trying to serve in a very short time period.

And the winner in that game is the one that can do it quickly and confidently. So we'll continue to invest into that. AI is going to help that. We're doing a lot specifically around our complex freight segments around permitting, routing really being able to kind of hone down our pricing down where our agents kind of feel that they have the right information and they can support that and back that up with the capacity that they're out there looking forward within the industry.

So I feel like our model is a little bit different when you start hearing about some of the kind of numbers that CH is putting out there, I will tell you the investment in growth that we're giving for our agents, a lot has to do with pricing. A lot has to do with the matching of different capacity, getting utilization for our BCOs up and just being able to kind of operate within that spot market.

And I think we're ahead of the game there, and we'll continue to invest there when we find opportunities to utilize more data sources. May I should open that up for us.

Our next 1 is from Jordan Alliger from Goldman Sachs.

This is Paul Stoddard on for Jordan Alliger. I guess 1 of the questions I have is just with the BCO count. We see that it came down in the fourth quarter. I mean, typically, you tend to see that come down a little bit, I believe, into the first quarter as well. I guess I'm just curious, what are you guys thinking about when it comes to the first quarter? And do you guys think that you can hold on to those BCOs, especially if rates are starting to come up.

Yes. I think the case for us, as we've talked about many times before, when the rate environment sustainably improves, we generally see an uptick. Obviously, seasonality plays a part of it. We -- I'd say at least half of the time in the fourth quarter, we see a downtick in the BCO count. We almost always see a downtick in the first quarter, so we would expect some seasonality.

We're only down fractionally in the first month or so of the quarter. So I'd say the trend relative to the prior year feels pretty good so far in the first quarter. What's interesting, and I'll let Matt Miller talk more about it because he's living it every day. The additions are still coming in better than expected. So I feel good about the model and the attraction of BCOs to the model. We just got to make sure that the retention keeps up with us.

Sure. Appreciate that, Frank. And Paul, I appreciate the question. So net truck count declined 104 trucks in the quarter. When we compare that to the fourth quarter of last year, we were down $184. So some improvement on a quarter fourth quarter 2024 compared to to fourth quarter of 2025. The gross truck adds were up 8.9% to Frank's point compared to the fourth quarter of 2024. And the gross truck cancels are down 5.1% compared to the fourth quarter of 2024. And this marks our eighth consecutive quarter of turnover improvement where we hit the high water mark back in the fourth quarter of 2023 at 41% and followed by 2024's fourth quarter at 34.5% and then finished this year at 31.4%, approaching our longer-term average of 29%. And turnover over a longer period of time.

And really, our emphasis is on controlling what we can control. We can't control rates -- we cannot control rate and rate really hasn't been too big a friend to us of late. But our emphasis is on what we can control. And so we're focusing heavily on recruiting and qualifications and how we get those folks in the door and how we get them in the door when they express interest in coming to the Landstar to the time that they can be out there on the road hauling loads. And so over the course of 2025, we've made significant improvements by focusing on people, by focusing on process and focusing on technology, driving efficiencies into that process without sacrificing safety. That's something we're not going to sacrifice.

However, meaningful progress on driving down the time that it takes to get in the door ready to haul your first load and at the same time, improving the conversion rate on those folks expressing interest to come in the door hitting a higher bogey when it comes to that conversion rate. What we're we're intending to do in 2026 is drive that onboarding experience further by refreshing our orientation and our ongoing education really setting up the BCOs for success within the network once they're out there on the road.

So Paul, if rate helps us a little bit this year and the things that Matt is working on, combined with some of the AI things that Jim Applegate talked about, we're certainly expecting to grow the fleet in 2026.

That's great. And if I could follow up I guess when I -- how I understand is that the BCO trucks tend to have a higher variable contribution margin. So as we start to see more trucks coming in, could we see that margin improve throughout the year?

Yes, Paul. Certainly, can. To your point, the BCO business tends to be round numbers over several cycles, about 2.5x more lucrative on the VCM line. But remember that we've got cost in between BCM and operating income with trailers and insurance and claims costs, et cetera, et cetera. So to the extent you get growth in the fleet count in '26 and some spot rate improvement, that will absolutely be supportive of VCM and a high degree of drop-down operating leverage rising rate environment.

The flip to that, Paul, is when demand comes back, so think about the second quarter, historically, you get a 7% to 8% sequential lift in loadings I'd love for Miller to grow the BCO count 7% to 8% in the quarter, but typically, that volume growth would get picked up by third-party trucks, which will somewhat -- it's positive variable contribution dollars, but it will work against us a little bit from a variable contribution margin, if that makes sense.

Our next one is from Bascome Majors from Susquehanna.

Just to put a period on the BCO discussion, has utilization been a leading indicator in your own analysis of fleet growth? Or is it really just rate that drives that historically?

Bascome, we certainly see utilization tend to pick up when rates go up. The only thing I would say to caveat that is in fourth quarters historically, if BCOs are having a good year, they tend to take a little holiday time in the fourth quarter. So the utilization acceleration that Miller talked about from plus 6% year-over-year in the third quarter to plus 8% was a positive surprise for us. But yes, longer term, rising rates tend to drive higher utilization.

And Jim, why don't we have you, can you walk us through some of your expense sort of views in a little more detail at any kind of pacing or cadence, things that we should be considering?

Yes. No, happy to, Bas. And the big one, as you're aware, if we kind of reset here in 2026 as we start a new year, a new calendar year and rebuild the variable compensation programs, incentive comp and stock comp comping off 2025 where we had about $10 million in the P&L for that.

We've got a hypothetical $12 million headwind if we hit plan right on the nose in 2026. If we don't hit plan in 2026, that cash comp headwind doesn't come back in, but I would still expect probably $2 million to $3 million headwind on stock-based compensation as a tranche, for which we didn't have any compensation recorded and '25 falls off and a new equity tranche comes on board in '26. We will very much endeavor Bascome, as you're aware, to offset as much of that as possible.

We've got a big van trailing equipment refresh on the books for -- so while that could have about a $750,000 impact on the depreciation line, we typically will ring the register nicely on gains on disposal of used trailers to offset that. And then also, as you'd imagine, maintenance and tires on a brand-new trailer versus a 7- or 8-year old trailer that we'll be replacing, you typically get $2,000 to $3,000 a trailer, a good guy on the maintenance line.

So those are kind of the big ones. Clearly, on the insurance line, which is hard to predict, 90 days to 90 days, we had an elevated experience in the fourth quarter, and the cargo claim environment continues to be tough. We'll work to combat that and hopefully have some tailwinds year-over-year and 26% on the insurance line.

Our next one is from Stephanie Moore from Jefferies.

Maybe it would be helpful if you could talk a little bit about what you're seeing in the current environment. You noted some better than seasonal trends to start January any green shoots that you're seeing in specific end markets or any other supply commentary that would suggest the above seasonal performance.

Thanks, Stephanie. I think if you look at the DOT -- U.S. DOT and everything that they've done, I think the cumulative effect of all of those things, which you would know as English language proficiency, nondomiciled CDL, the CDL schools that are otherwise known as CD mills, some of the ELD providers coming out of the network. I mean I think the cumulative effect of all of those have hit at a point in time during the year, where you generally see a little bit of either seasonal demand or a little pullback in capacity given the holidays.

So I think if you looked at the the DAT rates in December relative to November. On the van side, you saw a pretty significant uptick. It was flattish on the flatbed side, our business mix is a little bit different there. But we saw a sequential improvement month-over-month in the quarter.

And so far, as JP mentioned, when you look at how we're trending in January, that seems to have a little bit of sustainability to us. We haven't had that type of sustainability in a while. But we do think it is largely supply side driven across your fingers hope is that we get the impact of tax refunds and bonus depreciation and some of the fiscal policies as well as a lower monetary rate environment, like all of those things combined, plus all the announcements of of investments in the U.S. infrastructure made by both domestic and foreign companies.

When that unlocks, there's a lot of freight that comes along with it. Have we seen that yet? No, but there certainly is the prospect for those things to unlock freight. And that would be helpful. If you look at what was sort of the goods and the bads of the fourth quarter, and JT help me a little bit on this one, but the data center ecosystem continued to provide real benefits for us that obviously helped us both on the band but predominantly on the platform in the heavy haul side machinery, some of the hazmat mat business units were up.

Energy was up, but then you look at the flip side, the building products, if you exclude the data center business was a challenge given where the housing economy is. The automotive side for the interest rate environment and then some of the cross-border subline haul peak type things were also down. We have a bit of a barbell set of commodities there. Some are doing really well and others aren't doing as well.

But when the things that I mentioned earlier that could stimulate demand happen, especially in a lower rate environment, the -- I'll say, the hypothetical bull case is certainly out there. We just got to see some of that transition from hypothetical to reality.

Absolutely. And then maybe just a follow-up. I think we're all very aware of the hypothetical bull case, and we've been waiting for it for some time now. But let's just say that bull case doesn't materialize this year and maybe that gets pushed into 2027 for whatever reason, what is the strategy or business plan for 2026 if we still see these mining less on the supply side, but the demand just doesn't come through?

Yes. I think if the supply dynamics still stay there, I think we'll continue to see a little bit of rate positivity on a year-over-year basis. I think that our strategies I talked about heavy haul, I talked about cross-border, but I would also mention hazmat and cold chain and some of the other things that we're working on.

We're going to continue to double down in those areas, and we're going to make sure that we have the agents focused on those areas that we have the BCOs helping in those areas and moving that type of freight. So I wouldn't count against this in 2026. We're going to do everything we possibly can to win in the marketplace in areas that we think we have a competitive advantage. You heard me talk about doing the hard things well. I mean that's -- that's a Landstar keynote.

We do that type of stuff really, really well, and we've got a really good track record of being able to sell safety, security and service. And that's what our agents go out there to the customers with every single day. Otherwise, you're having a conversation around rate and that doesn't help anybody.

Our next one is from Bruce Chan from Stifel.

It's Andrew Cox on for Bruce. I just wanted to get some more information and discuss what may be the challenge is, if there are any to disseminating new technologies, particularly the AI tools you guys are building out through the centralized agent network. You guys spoke that it's a different model than CH.

I just wanted to see if you guys are coming up against any incremental challenges in training or in data safety or if there's any additional cost there. And then not -- if there's another way to frame this, if there's any data or anecdotes of maybe some early adopting agents of the tools? Just trying to understand what the opportunity is here and how quickly it could come to life.

Yes. No, really, really good set of questions. We've done a bunch of agents segmentation work over the last couple of years, which gives us a sense of whether it's the size of the agents or the types of businesses that they do, the split between how much spot and how much contract they do, things like that.

So we have a pretty good handle of where some tools would apply to everyone. Pricing would be an example of that one who doesn't want to have good information around what the market price is, and others are going to be a little bit more segmented to it.

One of the unique things is we can't force adoption of tools. We can certainly provide them. And obviously, the agent uptake of that is something that we're going to be accountable for ourselves. And most agents, if they believe it will provide them a competitive advantage in the marketplace. They're going to want to use those tools. So I feel pretty good about that one.

There are tools that are also fraud-related and BCO related and and things like that. So I think the tools that we're providing, the first layer is going to be applicable to all and then there are going to be some other ones that are going to be a little bit more tailored to folks who have certain types of businesses relative to others.

And then obviously, we got all of the work that we're doing inside the building. The data sources, I mean, one thing we have is a lot of data. When you have 2 million transactions a year over a long period of time, you have plenty of data points to be able to figure out trends.

We'll also access data sources outside the company to educate those tools. And as you know, AI is all about getting smarter as it learns more and more from future data. So I think we're well positioned on the data front. And we're working with some pretty neat folks in the AI ecosystem that are going to be able to help us understand what others are doing and what the opportunities are that maybe your ideas from outside the building rather than just the ones that we have inside the building. Jim?

Yes, I think it's a great question, right? And I think it goes back to -- this is something that we're not new at, right? We've been doing this since 2016 and going through this digital process. I will tell you the entrepreneurial model does have challenges -- but at the end of the day, there is no better resource that you have that an entrepreneur that's armed with all these technology tools that can adjust, pivot and really utilize them the right way to service the customer.

And again, it goes back to that safety security and service, these tools that we're building really allow those agents to do that. I will say we're seeing success. We've got different groups. We've got our AI task force that I talked about. We've got certain instances where we've automated data entry, off a bill [indiscernible] where we can shoot that information right back to customers, and we're doing that for agents today.

We're doing some intelligent load matching. We're optimizing some of our BCOs for some of our larger BCO accounts. When I talked about pricing tools and some of the things that we're doing with pricing tools and adding some of that stuff back in tracking. We're investigating some things with agents today over on the tracking side and analytics as well, too.

So as we go through this, as AI comes about we've got resources, we've got beta agents. We've got a process in place to make sure that as we're identifying opportunities. We've got a team of people that can really develop those opportunities, work with vendors and do it safely and do it in a way that we can really have a meaningful impact across the organization.

So the muscle is there. Now we've got this great new opportunity with AI that we can actually use the muscles that we've built as we've gone through this digital transformation strategy. And just kind of leverage more tools on top of it. So I think it's really exciting to think about all these different areas that we can really impact our agents and really what they're going to do with those tools. It's going to be a neat thing to see. So we're excited about it. We see there's a big opportunity.

I'll leave you with 1 final thought. We have an annual agent pickups. We're doing all the agents together virtually, and we talked to them about what the plans are for this year and obviously get some feedback from them. And we ask them in advance, what are the key topics you want to hear from us and the largest by far topic that they wanted to hear was what are we doing on the technology and the AI side. So the poll is definitely there.

And obviously, through all the work that you heard Jim Applegate talk about we are ready, willing and able to fulfill that need and have some pretty neat things on the deck for this year.

Our next one is from Chris Wetherbee from Wells Fargo.

It's Rob on for Chris. We're seeing the BCO productivity kind of achieve levels where historically, it's kind of peaked out at in the quarter. Maybe could you talk a little bit more about are all your AI initiatives can get us above and beyond where we've historically peaked out from the BCO productivity and thoughts about where that can go.

Yes. I would give you 2 thoughts on that 1 and then let others chime in. Can the AI tools help? If it helps match a BCO to a load more quickly, it has them out of route fewer miles to get the next load. Of course, it can impact BCO productivity. At the same time, we sell, what we say, is freedom and opportunity for the BCO.

So there will be some. Again, the average number of loads really belies the truth. You've got people who haul many more loads than the average on the BCO side and some who haul less than that. The mix of the business obviously plays into that as well. given some loads are longer haul than others. So some loads are not long haul, but require a lot of prep work, and therefore, it may take you 2 or 3 days to reach destination rather than 1 or 2 days. So all of those factors play into that. But Matt, commentary or?

Yes. I would just really echo what you said, Frank, I think the tools that we're building allow for the BCO to become more efficient, being able to do paperwork more rapidly having to spend time in a truck stop where they otherwise would have to do scanning and e-mailing things back and forth. -- the tools allow for more effective load selection. So providing those tools to allow for them to optimize load opportunities. But again, to Frank's point, we sell that freedom. We sell, you get to haul what you want when you want, where you want. And so that freedom and opportunity that is there is available to them, but certainly, the tools allow for them to become more efficient in their daily lives.

And Rob, just real quick on historical perspective. It's certainly true that this is the highest BCO utilization year at Landstar in the last 7 years. But if you go back a little further, trailing 15-year average on BCO loads per year, is actually 92.1%, and we finished a little bit better than that at 92.4%. If you look back to '18 and '17, we were at 94% and 96%, respectively. And then similar '14 and '13, we were 95% and 94%.

So if we get the efficiencies that Miller is talking about, plus a good tailwind in rate environment, I think you can get another 1, 2 or 3 loads a year out.

That's really helpful. Shifting gears a little bit to the $1 million agents, that's stepped down a decent amount in '25 off of flattish revenue and flattish loads. What was the big driver of that? And are there a bunch of agents that are just below the $1 million mark in '25.

Good question. I'm glad you're watching it. We're watching it just as closely. So yes, nothing to be concerned about there. Obviously, some agents grow and some agents don't depending on the environment and some of the business mix that I was talking about earlier. So nothing to be concerned about, but JT will give you the numbers here.

Yes, Rob, I'm starting to think you've got my office bug. But no, we had all kidding aside. We had 37 agents, Rob, they just fail below $1 million, they're still with us. So that's a 37 count reduction.

Then we had $4 million agents that were acquired during 2025 by other million-dollar agents. Our $1 million age of turnover was just over 1% in 2025. So right in line, maybe a little slightly better than long run history.

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

Thank you, Elmar. In closing, while the demand for freight transportation services remains challenging, including an unfavorable impact on dispatch loadings at the end of fiscal January, likely driven by winter storm activity, we believe we have seen some positive signals we were encouraged by the pricing improvement we experienced from fiscal October to fiscal December and with a choppy industrial economic backdrop, we were extremely pleased with a 23% year-over-year increase in our heavy haul service offering.

We also believe the potential impact of various federal regulatory developments could provide some positive lift to our BCO business, in particular, 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 freight demand turns our way. Thank you for joining us this afternoon. We look forward to speaking with you again on our 2026 first quarter earnings conference call in late April. Thank you.

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

Good afternoon, and welcome to Landstar Inc.'s Third Quarter Earnings Release Conference Call. [Operator Instructions] Today's call is being recorded. [Operator Instructions]

Joining us today from Landstar are Frank Lonegro, President and CEO; Jim Applegate, Vice President and Chief Corporate Sales, Strategy and Specialized Fright Officer; Jim Todd, the Vice President and CFO; Matt Dannegger, Vice President and Chief Field Sales Officer; and Matt Miller, Vice President and Chief Safety and Operations Officer.

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

Thank you, Elmer. Good afternoon, and welcome to Landstar's 2025 Third Quarter Earnings Conference Call. Before we begin, let me read the following statement. Following the safe harbor statement of the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relate to Landstar's business objectives, plans, strategies and expectations. Such information is, by nature, subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2024 fiscal year in the section Risk Factors, Landstar's Form 10-Q for the 2025 first quarter and our 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 Lonegro, for his opening remarks.

Thanks, JT, and good afternoon, everyone. I'd 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 independent contractors at our annual appreciation days in [ Bossier City ], Louisiana recently and to celebrate their incredible achievements. We were extremely pleased with the turnout. And it was my honor to preside over Landstar's 52nd Truck Giveaway, awarding [ Christian Sanchez Canto ] from [ Laredo ], Texas with a new 2026 Freightliner Cascadian. 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. Their adaptability and dedication to safety, security and service for our customers is truly impressive. They are exceptional business leaders and key to driving the continued success of Landstar's business model.

The challenging conditions experienced in the truckload freight environment over the past 10 quarters continued during the 2025 third quarter. Volatile federal trade policy and lingering inflation concerns continue to generate supply chain uncertainty. However, even as overall company revenue decreased approximately 1% year-over-year, the 2025 third quarter included important positive signs for Landstar, which I'll cover shortly.

As JT and I will discuss in greater depth later in our prepared remarks, and as disclosed in our earnings release, the 2025 third quarter financial results were impacted by 3 discrete noncash nonrecurring items. As we disclosed via the 8-K we filed with the SEC on August 13, the largest of these items related to the decision to actively market for sale Landstar Metro, our wholly owned Mexican logistics subsidiary that is principally engaged in intra-Mexico truck transportation services. We are working towards a late 2025 or early 2026 sale of Landstar Metro and have thus far experienced a good deal of interest in that company.

Excluding the revenue contribution from Landstar Metro from both the 2025 and 2024 third quarters as well as approximately $15 million in reported revenue during the 2024 third quarter that was associated with the previously disclosed agent fraud matter, the total revenue increased approximately 1% year-over-year in the 2025 third quarter. This is a positive marker for our business.

Encouraging signs in our overall performance were highlighted by strength in the unsided/platform equipment business. This service type posted another strong quarter with a 4% year-over-year revenue increase driven by the performance of Landstar's heavy haul service offering. We generated approximately $147 million of heavy haul revenue during the 2025 third quarter, or a 17% increase over the 2024 third quarter. This achievement reflected a 9% increase in heavy haul revenue per load and an 8% increase in heavy haul volume.

And as noted in our earnings release and representing the collective efforts of many people at Landstar, Matt Miller and I are very pleased to report that the number of trucks provided by BCO independent contractors increased during the 2025 third quarter, representing the first sequential growth quarter since the 2022 first quarter. Our focus continues to be on accelerating our business model and executing on our strategic growth initiatives. We are continuing to invest in the foundational work that will put Landstar 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 service and support we provide to our customers, agents, BCOs and carriers each and every day. As I previously noted, in addition to the decision to sell Landstar Metro, our third quarter financial results reflected two other noncash, nonrecurring charges disclosed in our recent 8-K. These three discrete items, in the aggregate, resulted in impairment charges in the quarter of approximately $30.1 million or $0.66 per share. As a result, GAAP earnings per share were $0.56. Excluding the impact of these three items, adjusted earnings per share was $1.22. JT will cover these 3 impairment charges in greater detail during his prepared remarks.

Turning to Slide 5. The freight environment in the 2025 third quarter was characterized by relatively soft demand from a seasonal perspective. 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 continue to favor the shipper amidst choppy conditions in the industrial economy, as evidenced by an ISM index below 50 for the entire 2025 third quarter.

Considering that backdrop, Landstar's revenue performance was admirable in the 2025 third quarter, with both truck revenue per load and the number of loads hauled via truck essentially equal to the 2024 third quarter. Our balance sheet continues to be very strong, and our capital allocation priorities are unchanged. We will continue to patiently and opportunistically execute on our existing buyback authority to benefit our long-term stockholders.

As noted in the slide deck, during the first 9 months of 2025, we deployed approximately $143 million of capital toward buybacks and repurchased approximately 995,000 shares of common stock. And yesterday afternoon, our Board declared a $0.40 dividend payable on December 9 to shareholders of record as of the close of business on November 18.

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, with a particular focus on investment in unsided/platform equipment.

Turning to Slide 6 and looking at our network. The scale, systems and support inherent in the Landstar model helped to drive the operating results generated during the 2025 third quarter. JT will get into the details on revenue, [ loadings ] and rate per load in a few moments. As noted during previous earnings calls, Landstar's Safety First culture is a crucial component of 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 of Landstar.

I'm proud to report an accident frequency rate of 0.60 DOT reportable accidents per million miles during the first 9 months of 2025, well below the last available national average DOT reportable frequency released from the FMCSA for 2021 and slightly better than the company's trailing 5-year average of 0.61. 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 Million Dollar Agents based on our 2024 fiscal year results. Importantly, retention within the million-dollar agent network continues to be extremely high.

Turning to Slide 7 on the capacity side. On a year-over-year basis, BCO truck count decreased approximately 5% compared to the end of the 2024 third quarter. Importantly, as noted earlier in my remarks, BCO count increased by 7 trucks on a sequential basis, representing the first increase in sequential quarterly truck count since the 2022 first quarter. BCO turnover continues to be influenced by a persistent relatively low rate per load environment, combined with the significant increase in the cost to maintain and operate a truck today compared to before the pandemic.

Directionally, we are pleased to see our trailing 12-month truck turnover rate drop from 34.5% as of the fiscal year-end 2024 to 31.5% at the end of the 2025 third quarter. Through the first 4 weeks of the 2025 fourth fiscal quarter, the number of trucks provided by BCO independent contractors is down fractionally versus the ending truck count of Q3. We were encouraged, however, by a recent visit we had with U.S. Secretary of Transportation Sean Duffy. During our meeting, Matt Miller and I discussed several federal regulatory initiatives and administrative -- administration priorities with the Secretary, with a real focus on issues facing truck drivers and the truck capacity marketplace. We were proud to confirm to Secretary Duffy that Landstar BCOs have had 0 violations of the English language proficiency regulation and no reported issues with nondomiciled CDLs. We do not believe we have thus far experienced significant impact to our business from the federal regulatory agenda, but believe there is a potential longer-term positive impact for our BCO business, in particular.

I will now pass the call back to JT to walk you through the 2025 third quarter financials in more detail.

Thanks, Frank. Turning to Slide 9. As Frank mentioned earlier, overall truck revenue per load was essentially flat in the 2025 third quarter compared to the 2024 third quarter, primarily attributable to a 0.1% increase in revenue per load on both loads hauled by van equipment and unsided/platform equipment, offset by a 5% decrease in LTL revenue per load and a 2.2% decrease in revenue per load on other truck transportation loadings. On a sequential basis, truck revenue per load increased 0.5% in the 2025 third quarter versus the 2025 second quarter, slightly softer than the typical pre-pandemic normal seasonality increase of approximately 1.5%. In comparison to overall truck revenue per load, we consider revenue per mile on loads hauled by BCO trucks a pure reflection of market pricing as it excludes fuel surcharges billed to customers that are paid 100% to the BCO.

In the 2025 third quarter, revenue per mile on unsided/platform equipment hauled by BCOs was 6% above the 2024 third quarter, and revenue per mile and van equipment hauled by BCOs was 2% above 2024 third quarter. Delving deeper into seasonal trends, revenue per mile and loads hauled by BCOs on unsided/platform equipment declined 3% from June to July, declined 2% from July to August and increased 3% from August to September. The June to July decline and the July to August decline both underperformed pre-pandemic seasonal trends, while the August to September increase outperformed pre-pandemic historical trends.

With respect to those hauled by BCOs on van equipment, revenue per mile was more stable. Revenue per mile and van equipment hauled by BCOs increased 1% from June to July, underperforming these trends, decreased 1% from July to August, outperforming these trends, and was flat from August to September, underperforming pre-pandemic August to September historical trends. It should be noted that month-to-month seasonal trends on unsided/platform equipment are generally more volatile compared to that 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 been pleased with the recent performance in our heavy haul service offering. Heavy haul revenue was up an impressive 17% year-over-year in the third quarter, significantly outperforming core truckload revenue. Heavy haul loadings were up approximately 8% year-over-year, and revenue per heavy haul load increased 9% 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 34% during the 2024 third quarter to approximately 38% in the 2025 third quarter. Non-truck transportation service revenue in the 2025 third quarter was 1% or $1 million below the 2024 third quarter. Excluding approximately $15 million in revenue reported during the 2024 third quarter that was associated with the previously disclosed agent fraud matter, non-truck transportation service revenue in the 2025 third quarter increased by approximately $13 million or 16% compared to the 2024 third quarter.

Turning to Slide 10. We've provided revenue share by commodity and year-over-year change in revenue by commodity. Transportation & Logistics segment revenue was down 0.6% year-over-year on a slight decrease in both loadings and revenue per load compared to the 2024 third quarter. Within our largest commodity category, consumer durables revenue decreased approximately 4% year-over-year on a 3% decrease in volume and a 1% decrease in revenue per load. Aggregate revenue across our top 5 commodity categories, which collectively make up about 69% of our transportation revenue, increased approximately 1% compared to the 2024 third 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 5 commodity categories. From the 2024 third quarter to the 2025 third quarter, total loadings of machinery increased 4%, automotive equipment and parts decreased 4%, building products decreased 10% and electrical increased 23%. 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 12% from the 2024 third quarter.

We experienced strong demand related to AI infrastructure projects, which is reflected in part in both our electrical and machinery commodity categories, while strong demand for our services and support of wind energy projects drove the strength in our energy commodity grouping. As we've mentioned many times before, Landstar is a truck capacity provided 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. 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 2025 third quarter was 17% below the 2024 third quarter, a clear indicator that capacity is readily accessible in the marketplace. Revenue hauled on behalf of other truck transportation companies was 10% and 12% of transportation revenue in the 2025 and 2024 third 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 8% of our revenue in the first 9 months of 2025.

Turning to Slide 11. In the 2025 third quarter, gross profit was $111.1 million compared to gross profit of $112.7 million in the 2024 third quarter. Gross profit margin was 9.2% of revenue in the 2025 third quarter as compared to gross profit margin of 9.3% in the corresponding period of 2024. In the 2025 third quarter, variable contribution was $170.2 million compared to $171.4 million in the 2024 third quarter. Variable contribution margin was 14.1% of revenue in both the 2025 and 2024 third quarters.

Turning to Slide 12. Operating income declined as a percentage of both gross profit and variable contribution, primarily due to the impact of the noncash, nonrecurring impairment charges included in the 2025 third quarter and the impact of the company's fixed cost infrastructure, principally certain components of selling, general and administrative costs in comparison to slightly smaller gross profit and variable contribution basis. The decline in adjusted operating income as a percentage of both gross profit and variable contribution was significantly less pronounced given the size of the noncash impairment charges and was attributable to the impact of increased costs negatively impacting operating income, while both gross profit and variable contribution were approximately 1% below the 2024 period. Other operating costs were $15.6 million in the 2025 third quarter compared to $15.1 million in 2024. This increase was primarily due to increased trailing equipment maintenance costs, partially offset by the favorable resolution of a value-added sales tax matter and a decreased provision for contractor bad debt.

Insurance and claims costs were $33 million in the 2025 third quarter compared to $30.4 million in 2024. Total insurance and claims costs were 7.2% of BCO revenue in the 2025 third quarter as compared to 6.7% in the 2024 third quarter. The increase in insurance and claims cost as compared to 2024 was primarily attributable to net unfavorable development of prior year claim estimates and increased severity of both current period auto and cargo claims, partially offset by a decreased frequency of both auto and cargo claims during the 2025 period.

During the 2025 and 2024 third quarters, insurance and claims costs included $9.2 million and $4.6 million of net unfavorable adjustment to prior year claim estimates, respectively. Selling, general and administrative costs were $57 million in the 2025 third quarter compared to $51.3 million in the 2024 third quarter. The increase in selling, general and administrative costs were primarily attributable to increased stock-based compensation expense, increased information technology costs and increased employee benefit costs. Stock-based compensation expense was approximately $1.6 million during the 2025 third quarter as compared to a $43,000 reversal of previously recorded stock-based compensation costs during the 2024 third quarter.

We continue to manage SG&A in part by closely managing headcount at Landstar. Our total number of employees based in the U.S. and Canada is down approximately 40 since the beginning of 2025 and down approximately 80 since peak headcount. We also continue to focus on driving efficiencies and productivity gains throughout our network. Landstar is actively engaged in rolling out an AI-enabled customer service solution throughout the corporate organization. We also continue to invest in and develop multiple in-flight AI-enabled products within our portfolio of digital tools in support of our network of agents, capacity providers and employees.

Depreciation and amortization was $11.5 million in the 2025 third quarter compared to $15.4 million in 2024. This decrease was primarily due to decreased depreciation on software applications. As Frank referenced earlier during this call and as previously disclosed in the current report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 13, 2025, the company conducted a strategic review of our operations during the 2025 third quarter focused on efforts to streamline our core operations and position the company for future growth.

In connection with that strategic review, the company recorded noncash, nonrecurring charges in the aggregate for 3 discrete items of approximately $30.1 million or $0.66 per basic and diluted share. First, in connection with the decision to actively market Landstar Metro for sale, the company recorded noncash impairment charges of approximately $16.1 million or $0.35 per basic and diluted share on the company's 2025 third quarter balance sheet based on the estimated fair value less cost to sell this business.

The second charge noted in the earnings release related to the decision to select the Landstar TMS as the company's primary system for truckload brokerage services. And in conjunction with that decision, wind down the Blue TMS, an alternative transportation management system in use by one of the company's operating subsidiaries focused on the truckload brokerage contract services business. The resulting impairment charge, representing the remaining net book value of the Blue TMS, was $9 million or $0.20 per basic and diluted share.

Third and finally, the company recorded a $5 million impairment charge relating to a noncontrolling equity investment in a privately held technology startup company. This charge represented the total carrying value of this investment on the company's second quarter 2025 balance sheet date. The effective income tax rate was 25.8% in 2025 third quarter compared to an effective income tax rate of 22.2% in the 2024 third quarter. The increase in the effective income tax rate was primarily due to: one, the favorable impact of certain federal tax credits during the 2024 period; and two, the deleveraging effect of lower pretax profits, mostly due to the just discussed 3 noncash impairment items during the 2025 period with a similar population of permanent items in both the 2025 and 2024 periods.

Turning to Slide 13 and looking at our balance sheet. We ended the quarter with cash and short-term investments of $434 million. Cash flow from operations for the first 9 months of 2025 was $152 million, and cash capital expenditures were $8 million. The company continues to return significant amounts of capital back to stockholders with $111 million of dividends paid and approximately $143 million of share repurchases during the first 9 months of 2025. The strength of our balance sheet is a testament to the cash-generating capabilities to Landstar model.

Back to you, Frank.

Thanks, JT Given the highly fluid freight transportation backdrop and an uncertain political and macroeconomic environment as well as challenging industry trends with respect to insurance and claims costs, the company will be providing fourth quarter revenue commentary rather than formal guidance.

Turning to Slide 15. The number of loads hauled via truck in October was approximately 3% below October 2024 on a dispatch basis, and revenue per load in October was approximately equal to 2024 on a process basis. As a result, we view October's truck volumes as modestly below normal seasonality and truck revenue per load as lagging slightly behind normal seasonality.

Looking at historical seasonality from Q3 to Q4, pre-pandemic patterns would normally yield both a 1% increase in the number of loads hauled via truck and truck revenue per load, yielding a slightly higher top line sequentially. As noted above, both fiscal October truck volumes and revenue per truck trended slightly below normal seasonality. With respect to variable contribution margin, the company typically experiences a 20 to 30 basis point compression in variable contribution margin from the third quarter to the fourth quarter, typically driven by a combination of decreased BCO utilization and compressing net revenue spreads on our truck brokerage business associated with peak season.

As noted in our 10-Q, which we'll file a little later this afternoon, a BCO independent contractor with a subsidiary of the company was involved in a tragic vehicular accident earlier this month during the 2025 fourth quarter. Importantly, Landstar was not involved in the initial collision of this multistage incident. This incident is still in the process of being investigated, but could have a material adverse impact on insurance and claims cost in the 2025 fourth quarter.

With that, operator, we'd like to open the line for questions.

[Operator Instructions] Our first question is from [ Reed C. ] from Stephens Incorporated.

I want to start off with what you're seeing in the broader truckload market. There's been a lot of noise on some of the temporary tightening we've seen and maybe some subsequent softening. So any commentary you have on the broader market would be greatly appreciated on the capacity exits in particular, if you have any insights there?

Yes. I mean, I think we're pleased with what we're seeing on the BCO side. Again, given the first sequential increase in our BCO count since the beginning of 2022, that feels pretty good. We've been trending relatively flat there pretty close to even keel, but actually seeing a positive sign there. Was really, really helpful for us, if for nothing else other than just morale, I mean just getting 7 additional trucks. I know Matt and his team are fighting every day to keep the folks that we have and to continue to look for ways to onboard high-quality drivers.

I think there is a fair amount of conversation that's happening about the regulatory landscape. And obviously, you're seeing headlines of upwards of 200,000 nondomiciled CDL holders out there. We're seeing ELP getting enforced from time to time in various states. So I would tell you that the impact on the capacity has got to be more than 0, but I also think it's going to come out over a little bit longer period of time than just a matter of weeks or months.

Got it. Makes a lot of sense. And touching on kind of the BCO count decline slowing here in 3Q. It is encouraging to see kind of the truck count increase a little bit, but do you have any visibility to when you can return to BCO count growth here maybe in the fourth quarter or in 2026?

Yes. So again, on the third quarter relative to the end of the second quarter, we actually did increase the count ever so slightly at 7 BCOs positive, so we were happy to see that. We're down just a little bit here in the October to date in the fourth quarter. I'll let Matt give you some commentary around what we normally experience this time of the year. But what I can tell you is that the things that Matt and his team are working on are 100% geared toward making structural changes within what we're doing every day to both maintain the existing BCOs that we have and to onboard new folks. Matt?

Thanks, Frank, and thanks for the question. So the rate backdrop, we're pleased with having the best gross truck adds [indiscernible] in 8 quarters. During the third quarter, we saw gross truck adds up more than 15% compared to the third quarter of 2024. And one of those things -- we can't control rate, but the team is focused on what we can control, which is how we recruit, how we qualify, how we onboard, driving efficiencies and improving that conversion rate of those expressing interest in coming on to Landstar.

Likewise, there's two sides of the coin on the retention side. We saw the seventh consecutive quarter of turnover improvement. High watermark was 41%. That was the fourth quarter of 2023. And we just got down to 31.5% as of the end of the third quarter, really approaching our long-term average of 29%. All that being said, this really hinges on rate, right? If we saw an inflection in rate and rate ticking higher, I could see us finishing the fourth quarter higher than where we finished the third quarter, but that's going to be rate dependent.

Got it. And then if I could squeeze in just a real quick one here. The approved and active carriers that declined from 2Q to 3Q, is that -- could that impact your ability to affect -- to more favorably buy freight, just as you have a smaller pool to choose from?

No. We don't really see that impacting our ability to source and satisfy demand. We're really being selective here. And we talked about that a little bit in the second quarter comments. We're choosing to be a little bit more selective on who we choose to partner with, a pretty big backdrop as it relates to fraud out there in the space. And so throughout the course of the year, those numbers have been coming down.

And it was a -- we're all skeptical around the capacity provider or there's something in the background that we can't verify, we're erring on the side of caution given the fraud backdrop.

And [ Reid ], I would just only add on to that, some of the pruning that in the third quarter around that carrier base during that -- during the third quarter, we saw our net revenue margin on brokerage business actually widened out 78 basis points. So nothing from a capacity procurement side that gives us any concern where we sit today.

Thank you. Next one is from Jonathan Chappell from Evercore.

Thank you. Good afternoon, everyone. So Jim or Frank, you guys can handle this. So I want to go back to the first question. Jim said in his prepared remarks, revenue hauls, other transportation companies down 17%, a clear indicator of spare capacity. Then your revenue per load, October flat year-over-year, slightly below typical seasonal trends. Can you help us align both of those comments with some of the sources out there that have been talking about truckload spot rates spiking basically throughout the month of October? And are you just not seeing that in your particular routes? Or is maybe that a narrative that's kind of more broadly off base?

Jon, so I'll tell you the observations in the third quarter, and all 3 kind of move the same way. So we talked about how our revenue per load increased 50 basis points and typically goes up 150 basis points. So we saw sub-seasonal pricing. We saw our net revenue margin on brokerage business widen out sequentially, and we saw tender rejections actually dropped down a little bit in the third quarter when we saw an uptick, 1Q to 2Q.

As we sit here today, it's day 2 of October close, I anticipate our October pricing is going to be about flat to September. And if you go back 15 years, historically, we get about a 60 basis point uptick, September to October. So it's not that it's significantly lagging, but we are not seeing -- if you're seeing public board data flash that spot rates are ticking up in October, we are not seeing that in our data thus far. Perhaps a bit of a Landstar lag that we've talked about in the past with agent behavior, not wanting to be the first one into their customers with the rate increase, but nothing we see in the numbers so far.

Okay. And then also just -- anything you'd call out? I know you're not giving guidance, but just anything for the fourth quarter that be important to note on the expense side, and also how we think about the bridge to incentive comp in '26 versus '25.

Yes, Jon. So on the expense side, insurance is always noisy and a difficult line to predict in a 90-day period. You heard Frank's prepared remarks about an early accident in October. We just went through an actuary review on the third quarter balance sheet date and had the true-up some prior year reserve estimates. So that one is a little noisy. On the other operating cost line, we held a BCO appreciation event. It's a little over $1 million. That will be a tailwind, 3Q to 4Q. And then finally, on the incentive comp and stock comp, we're accruing to about a $10 million charge, full fiscal year 2025. And that kind of resets. And a onetime number, John, in '26, that'd be about $11 million headwind.

Next One is from Scott Group with Wolfe Research.

So I want to understand maybe some of the October volume trends. Do you have any way of isolating sort of what how government-related volumes are doing? I guess, what I'm trying to figure out is, I think everyone is talking about turns of subseasonal volume in October. Is this a government shutdown phenomenon that you can see it pronounced in this one part of your business? Or is it broader?

It's a little bit of both, Scott. So I'll start and let Jim Applegate chime in. I mean, it's a combination of the government shutdown, which, as you know, we're a fairly significant hauler for various federal agencies. So we're certain that there's some there. The automotive business continues to be in a tough spot. Interest rates aren't helping the housing business either. You heard Matt Dannegger on the prior call talk about our peak expectations, and he can certainly chime in as well.

So I mean I think we're seeing what we have been seeing in the past couple of quarters. Perhaps adding to that is the government shutdown.

Yes. And just around the government shutdown, we're not seeing it in our actual numbers yet just because billings are kind of catching up, but we are noticing in the dispatch loads, we are down over 30% so far within October from a dispatch standpoint as it relates to government loads, and we expect that to continue to trend down. However, it's temporary. You'll see it trend down. When the government does pop back up, you'll see a bump back up, and we'll gain a lot of that back.

And actually, from a disruption standpoint, we probably stand long term to make out a little bit better than some of the other traditional asset-based providers just based on the flexibility of our network. So we're watching it closely. We do see it as something that's going to be a temporary blip, but we do see opportunity on the back end to catch up.

Matt, do you want to comment at all on the peak season?

Sure. Thanks, Frank. JT talked a little bit ago about our Substitute Line Haul numbers being down this quarter. When we talk at peak at Landstar, we're really talking about a handful of customers in that sub Line Haul sector. And then going back the last couple of years, we've just not seen that, coming off of those post-pandemic highs.

So the last couple of years has been a little bit muted. A lot of the transition and people going back to the stores has made a change. Retailers and these e-commerce finding different ways to manage their transportation. You got the tariffs this year, which -- maybe there's a little pull forward there, maybe some disruption on the back end here. So just not seeing the amount of volume that we saw from our traditional partners in the past just because they're not getting the same amount of volumes that they've had in the past. So again, I expect a muted peak season this year, probably similar to what we saw last year and maybe even down a little bit from that.

Yes, Scott, you saw UPS is print. So that will give you some indication of where they are on their peak business anyway to the quarter. And then I look at our numbers in October relative to the backdrop, and I'd say we've performed pretty well in the grand scheme of things.

Yes. Okay. And then on the driver side with all these regulations -- so I get what you're saying, you don't have any BCO exposure here. But how about on the brokerage side of your business? Do you have a sense of what percentage of the broker carriers you're working with have exposure here?

It's hard to get a precise type of exposure. I do know -- and Matt can chime in here in a second. I do know that our vetting criteria are pretty significant. So we also have agents that are always directly conversing with those carriers. So they have to be able to do business with us. So we have a, I'd say, kind of a high probability that there's not going to be significant impact there.

What's interesting is the BCO population should stay relatively stable and increase in that type of an environment. And could actually see some improved utilization there as loads present themselves, that maybe in the past, we're handled by third-party broker carriers who might get impacted by either ELP or nondomiciled CDL.

Yes. And I appreciate the question. The FMCSA on the nondomicile, they're probably the best place to go for data at this point because it's so recent, that emergency action just happened in September. So we're a little bit more than a month beyond, but they put out $200,000 as the potential estimated number of those impacted on the nondomicile. And then since June 25, when ELP enforcement started to ramp, it started slow. We've seen more states adopt, even 2 in the past 2 weeks have begun training enforcement on it. So far since June, 5,900 unique out-of-service violations. So a ramp is still taking place there, but I don't expect to pop.

And Scott, I have not heard -- I think I would. I have not heard any agents say I had to either give a load back or I got a load that was stopped because I had a third-party broker carrier that was taken out of service. So it's an anecdotal sample size, but we haven't heard anything certainly around this table of that.

And then ultimately, what I'm trying to get at is like, you guys tend to be pretty straight shooters and not like overly promotional. Like, do you think this is a big deal or not? Like, is this going to be -- is this like the big sort of catalyst for the cycle we've been waiting for? Or ultimately, do we just need demand and that's going to be the key. Like, what are you -- how are you thinking about the catalyst to get us going?

So the point that I would make here is, if -- and I'll put a big if on it -- if DOT is correct, and we're talking about 194,000 owner operators over the next year or 2, that would be a pretty big deal relative to that population. And I'd like to think that our BCO population is going to be stable and grow in the backdrop of a tighter supply side environment there. So I can certainly paint you a nice picture there, but a lot of that's just going to depend on the enforcement. And the enforcement doesn't really happen at the federal level. It happens at the state level, and you can see the politics around there and some of the banter back and forth between, for example, DOT in the State of California. So like a lot of that's got to happen on the ground in the states. It's not federal law enforcement that's involved in it. It's all the states.

Next one is with Ravi Shanker from Morgan Stanley.

This is [ Madison ] on for Ravi. Just one quick one on the back of Scott's question. I know you mentioned some impact on -- impact on the dispatch loads for the government shutdown. I was just wondering if you could talk a bit about how quickly that business can ramp back up once the government reopens? And if -- I know you talked about a catch-up coming there, if that comes probably within fourth quarter or if it gets pushed out more into 2026?

Yes. No, good question. Really, it's about timing and how long this goes on for. And it's just a matter of the government is getting the money to go ahead and ship. And it's going to be very quickly after the government reopens where you see that pipeline open back up again as well, too. So again, we're not looking at it as something that's kind of detrimental to what we're going to see from a volume standpoint. Long term, we're seeing it as something that's kind of a short-term blip that we're going to get through, and I think there will be some opportunity on the back end.

I think it's going to be measured in days and weeks, not months or quarters.

Got it. Okay. That's helpful. And then a little bit more of a bigger picture one. I know there's been a lot of talk in the market about AI usage and brokerage. I was just wondering if you guys can give a little bit of color about what Landstar is doing there and how you kind of think you differentiate versus peers?

Yes. So the model is obviously a differentiator in and of itself. We've got three different areas that we're focused on. We're focused on AI to assist our agents. So in the agency office, suggested pricing would be an example of that. We're also working on BCO retention. So how do we make sure that we know when a BCO might be sort of sending us the quiet signals that they're maybe not long for the company. So it could be reduced number of loads. It could be a change in the type of freight. It should be the agents that they're dealing with, et cetera. So we're looking at things in that space.

And then we're obviously looking at it inside the building. We are a service provider in many respects, where our corporate support people are designed to serve the BCOs in the agent community. And if they're able to do that more effectively and more efficiently in how they are able to acquire knowledge in a particular question set. So we're working on a whole call center technology and suite of AI tools there that are going to help us be more efficient and effective when we deal with both BCOs and agents.

Thank you. Next question is from Bruce Chan with Stifel.

Yes. Thanks, operator, and good afternoon, gents. Maybe just a follow-up question on the technology side. You mentioned synthesizing the [ TMS ] onto 1 platform. Wondering if there are any identifiable cost savings that come out of that project or program? And then similarly, on the AI side, any margin impact that you expect or that you're targeting internally from the rollout of these tools?

Yes. I think on the first one -- and I'll let sort of JT chime in on the exact. But obviously, we're not going to have 2 TMSs that we're continuing to develop either under capital or operating expense, and he can walk you through the depreciation impacts on that one.

But really just getting onto 1 platform was the important thing there. It will also give our folks within -- which is a very small area, but within our blue organization to be working off of the exact same TMS that our agents are working off of, which I think is going to be helpful on both sides of that equation. On AI, we have not discussed any or disclosed any specific targets. But the increase in service levels is going to be our first area of focus, and then we'll look for opportunities on the efficiency side. JT?

Yes. Thanks, Frank. Bruce, on the Blue TMS, it was about a $750,000 depreciation tailwind already captured in the third quarter. So 3Q to 4Q, I expect no impact.

Next question is from Brandon Oglenski with Barclays.

I'll keep us a little bit longer term, and I know you don't really want to provide guidance here, but net income margins here -- sorry, net operating margins pretty much near the low, and I think that's very understandable, just given where the market is. But how do you think about the ability to get back to maybe the pre-pandemic range, where you were pretty consistently 40% to 50% on net operating margin?

Yes, Brandon, good to hear your voice. Haven't spoken to you in a while. But look, I think the combination of increased revenue, which allows us to spread our fixed cost, the more that we can get in rate, obviously, that's going to be our friend on OM. We've certainly got to turn the corner on insurance and claims and things of that nature. And then we've got to get the efficiencies out of the technology. Whether those happen inside our building or they happen in the agency offices and therefore translate into higher sales productivity within the agent community, that's the right outcome. And then from a BCO perspective, the more loads that are hauled via BCOs is better from a BCO perspective for us as well. So we're looking forward to touching all of those things through the tools and the AI that we're putting out there.

Thanks, Frank. And Brandon, I would certainly piggyback to Frank's comment on insurance. I would point you in 2019, we had about 10,500 BCOs leased on with this, and we had an $80 million insurance line that fiscal year. You take a look at where we were in the first 9 months of 2025 and run rate, and we've got about 8,600 BCOs in the fleet. We are safer today or as safe today as we were in 2019. It's this persistent claim cost inflation that's not only impacting Landstar, it's impacting all the truckers.

I think you're starting to see some chunkier exits in the trucking space. And eventually, the folks are going to have to recapture that in the top line in the form of higher rates. We are clearly doing what we can, as I referenced in the prepared remarks around our headcount is down 80 from the peak. It's down 40 since the beginning of the year. We were talking about a company that's got less than 1,300 heads supporting 8,600 owner operators and 1,000 agents and taking care of 23,000-plus customers. So we'll continue to work on the controllables.

Next one is from Jason Seidl from TD Cowen.

This is Elliot Alper on for Jason Seidl. How are you guys thinking about capacity planning over the next, call it, a year as these nondomiciled CDLs continue to roll off? Or is it just too early to plan for? And then on the same note, are there conversations with your insurers or underwriting partners taking place on any changes to risk or risk premiums associated with any of these nondomicile regulations?

Yes. Good question. In terms of the nondomiciled, as I mentioned to you a moment ago, we don't have it. Our business model where we -- or has not certified across our entire BCO fleet or Jim Applegate talked about the government business that we have. I mean, there certainly are lots of gates or rigor that we put people through to make sure that we're able to support the customers that we have in the way that they need to be supported. So our insurers are going to ask us those questions as they should. And our answer is going to be we don't have any exposure there.

In terms of capacity planning, I mean, our job is to qualify and onboard as many BCOs as possible and to try to retain all of the BCOs that are currently leased on to us. So you're going to see us continue to focus really, really hard on growing the BCO fleet. In terms of capacity itself, we have a lot of different ways that we go about recruiting and retaining appropriate third-party capacity providers. Again, as I mentioned earlier, it's really important that they can support our customers with the appropriate level of safety, security and service that our BCOs do. And so we're going to err on the side of caution when it comes to those 3 things. And so if we have any thought that they're not going to be able to converse in English or they're holding a nondomiciled CDL, then we're going to -- honestly, we're going to vet those out. The quality is what we is what we sell here. We don't transact in price. You can see that just based on our rate relative to where the [ DAT ] board rates are. We're at a different premium level, and we want to maintain that quality.

Okay. Great. And then just following up. So I understand October is trending below seasonality, and helpful commentary around peak expectations. But can you discuss how the load and revenue per load comparisons stack up as we move through the quarter? Just trying to gauge if comps get tougher off at [ Cobo ].

Yes. From my recollection, I don't have 4Qs last year. Bear with me 1 second. So it looks like last year, fourth quarter volumes dropped off 190 basis points sequentially, and it looks like rate was up 100 basis points sequential. So rate was basically right in line with normal seasonality. It looks like we're starting out of the gate here in October, flattish, and October rates typically gap up about 60 basis points. So I would tell you, we're achieving that 100 will take a strong lift here in fiscal November and fiscal December.

From an October standpoint, you heard Applegate talk about government and Frank talked about some of the parcel carriers and some of the automotive. We're running, I think, down 4.5% loads for Workday in October, and we typically drop off about 2% loads per workday, October versus September. So we'll need a little catch-up baseball there as well.

Our last question is from Stephanie Moore from Jefferies.

Maybe circling back to the part of Scott's question on the supply and demand environment, but focusing on the demand environment. Clearly, it's been very weak for some time, and we can all look at the data, including PMIs and the likes. What -- but I guess overall, still a relatively healthy macro depending on what you look at it. So what do you believe we need to see in terms of the demand environment ultimately improving? Are you hearing any early optimism about this in 2026? And then maybe also anything you can call out from an end market exposure where you're seeing maybe some underlying strength or maybe weaknesses too?

Stephanie, so let me try to take a stab at it. What would we need to see in order for the demand environment to improve? I think first and foremost, you need to have stable trade policy and have some of the relations between U.S., China, U.S., Canada, U.S., Mexico. The more normalization we can see there, I think the better for people deploying capital, which is ultimately what it comes down to. I also think the consumer, if they were to shift a little bit more back to goods rather than services, that would certainly be helpful.

I think the Big Beautiful Bill and the unlocked potential there, which is certainly going to create the possibility of additional cash flow in companies so they're certainly going to have the capital to deploy. But again, I think you need normalization of trade relations to get to a better spot to allow people to do that. In terms of interest rates and Fed policy, we'll all be ears open tomorrow to see what the Fed is going to do. And ultimately, what's the impact on medium- and longer-term rates because that would help out on the automotive side and on the housing side.

In terms of bright spots, we clearly have seen a significant uptick in our unsided business and in their heavy haul business. And so continuing to see that play out over time would certainly be helpful from a Landstar perspective, the AI data center, commercial AC associated with that, the power gen, like all of the things that are in that AI ecosystem, we have seen the benefit of. And then I think we've seen a little bit of an uptick in the quarter relative to prior quarters in the U.S./Mexico cross-border business, which has been down for us for several quarters, and we're actually seeing it improve. So that feels pretty good.

So I can paint you a good picture for next year, but we just haven't seen it. Right now, it's on paper. I haven't been able to see anything that would tell you that those are actually what's going to transpire when we flip the calendar to January 1.

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.

Thank you. In closing, while the freight environment remains challenging, we believe we have seen some positive signals. We were encouraged by the modest sequential pricing improvement we experienced during the third quarter. And with a choppy industrial economic backdrop, we were extremely pleased with the 17% year-over-year revenue increase in our heavy haul service offering. We also believe the potential impact of various federal regulatory developments could provide some positive lift for our BCO business, in particular. 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 afternoon. We look forward to speaking with you again on our 2025 fourth quarter earnings conference call in late January. Thank you.

Thank you for joining the conference call today. Have a good evening. Please disconnect your lines at this time. Thank you very much.