LANDSTAR SYSTEM INC Q3 2025 earnings call

Thank you, Elmer. Good afternoon and welcome to Landstar System third 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 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 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 Cantu from Laredo, Texas, with a new 2026 Freightliner Cascadia. 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 three discrete, non-cash, non-recurring items. As we disclosed via the 8-K we filed with the SEC on August 15th, the largest of these items related to the decision to actively market for sale to Landstar Metro, our wholly owned Mexican logistics subsidiary that is principally engaged in the 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 unsighted 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. 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 non-cash, non-recurring 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 EPS were $0.56. Excluding the impact of these three items, adjusted EPS was $1.22. JT will cover these three impairment charges in greater detail during his prepared remarks. Turning to slide five, 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 continued 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 nine months of 2025, we deployed approximately $143 million of capital toward buybacks and repurchased approximately 995,000 shares of common stock.

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 toward refreshing our fleet of trailing equipment, with a particular focus on investment in unsighted platform equipment. Turning to slide six and looking at our network, the scale, systems, and support inherent in the Landstar model help 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 at Landstar. I'm proud to report an accident frequency rate of 0.60 DOT reportable accidents per million miles during the first nine 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 five-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 agents based on our 2024 fiscal year results.

Importantly, retention within the million-dollar agent network continues to be extremely high. Turning to slide seven 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 seven 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 four 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 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 zero violations of the English Language Proficiency regulations and no reported issues with non-domiciled CDL regulations. 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. Turn to slide nine. 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 unsighted 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 unsighted platform equipment hauled by BCOs was 6% above the 2024 third quarter, and revenue per mile on van equipment hauled by BCOs was 2% above the 2024 third quarter. Delving deeper into seasonal trends, revenue per mile on loads hauled by BCOs on unsighted 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 underperform pre-pandemic seasonal trends, while the August to September increase outperformed pre-pandemic historical trends. With respect to loads hauled by BCOs on van equipment, revenue per mile was more stable.

Revenue per mile on 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 unsighted platform equipment are generally more volatile compared to that of van equipment. This relative volatility is often due to the mix between heavy specialized loads and standard flatbed volume. As Frank alluded to, we've 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 unsighted 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 five 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 five 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%. 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 in 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 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 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 nine months of 2025. Turn 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. Turn to slide 12. Operating income declined as a percentage of both gross profit and variable contribution, primarily due to the impact of the non-cash, non-recurring impairment charges included in the 2025 third quarter and the impact of the company's fixed cost infrastructure, principally certain components of selling general administrative costs, in comparison to slightly smaller gross profit and variable contribution bases.

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 non-cash 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 costs 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 was 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 Lonegro referenced earlier during this call and as previously disclosed in a 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 non-cash, non-recurring charges in the aggregate for three discrete items of approximately $30.1 million or $0.66 per basic and diluted share.

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 multi-stage incident. This incident is still in the process of being investigated but could have a material adverse impact on insurance and claims costs in the 2025 fourth quarter.

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