Landstar System, Inc. (LSTR) Q3 2015 Earnings Report, Transcript and Summary

Good afternoon, and welcome to Landstar System Incorporated's Third Quarter 2015 Earnings Release Conference Call. All lines will be in a listen-only mode until the formal question-and-answer session. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are: Mr. Jim Gattoni, President and CEO; Mr. Kevin Stout, Vice President and CFO; Mr. Pat O'Malley, Vice President and Chief Commercial and Marketing Officer; Mr. Joe Beacom, Vice President and Chief Safety and Operations Officer. Now, I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Thank you. Good afternoon, and welcome to Landstar's 2015 third quarter earnings conference call. This conference call will be limited to one hour. Due to a high level of participation on these calls, I'm requesting that each participant have a two-question limit. Time permitting, we can circle back for additional questions. But before we begin, let me read the following statement. The following is a safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. 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 2014 fiscal year described in the section Risk Factors and other SEC filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking information and Landstar undertakes no obligation to publicly update or revise any forward-looking information. Before I go into my more detailed prepared remarks, let me touch on a few third quarter highlights. The number of loads hauled via truck increased 8% over the 2014 third quarter on strong demand for van and LTL services. Excluding a significant award for flatbed services that began in April 2015, core unsided/platform loading slowed into the third quarter and heavy specialized services continued to be soft. Revenue per load on loads hauled via truck was 6% lower than the 2014 third quarter. We attribute that decrease to lower diesel fuel prices, a slight decrease in the average length of haul, and somewhat softer demand. Gross profit margin was 15.1% compared to 14.8% in the 2014 third quarter, mostly due to a lower rate of purchased transportation paid to truck brokerage carriers. Now for my more detailed comments. Revenue for the 2015 third quarter was $842 million, at the lower end of the range of previously-issued guidance of $830 million to $880 million. Revenue in the 2015 third quarter increased 3% over the 2014 third quarter. The increase was a result of increased truck revenue of 2% and a 21% increase in rail, air, and ocean revenue. The increase in truck revenue was driven by an 8% increase in the number of loads hauled via truck over the 2014 third quarter, partly offset by a 6% decrease in revenue per load on loads hauled via truck. Overall revenue per load was negatively impacted by the effect of lower diesel fuel prices on loads hauled via truck brokerage carriers. Revenue hauled via truck brokerage carriers comprised 50% of truck revenue in the 2015 third quarter. As it relates to revenue per load compared to the prior year, retailed relatively stable throughout the 2015 third quarter. Revenue per load on loads hauled via BCO capacity, which excludes the effect of fuel surcharges billed to customers, was only 2% below prior year's third quarter. That decrease is mostly due to a slightly shorter length of haul in the 2015 period. Revenue per load on loads hauled via broker carrier capacity, which includes the effect of fuel surcharges billed to customers, was 10% below prior year's third quarter. I estimate that the effect of the lower diesel fuel prices decreased revenue per load by 6% on loads hauled via truck broker carriers. Revenue per load was also impacted by a slight loosening of capacity compared to 2014. During the 2015 third quarter, loads hauled via van equipment remained strong. The number of loads hauled via van equipment increased 6% over the 2014 third quarter. There continues to be strong demand for transportation services requiring Landstar-provided van equipment. Approximately, one-third of Landstar's truck revenue in the 2015 third quarter was hauled on Landstar trailing equipment, mostly drop and hook van services. The number of loads hauled via unsided/platform equipment in 2015 third quarter was 14% above the 2014 third quarter, entirely due to a large award that began in April 2015 from one account in the automotive sector. Demand for heavy specialized services continues to be soft. Overall unsided/platform loadings excluding the loadings resulting from the award from the single account softened during the 2015 third quarter. We expect the softness in the core unsided/platform services to continue through the remainder of 2015. On a final note, as it relates to revenue per load on loads hauled via truck, we came into 2015 expecting slightly higher revenue per load as compared to 2014. Those expectations did not consider the significant drop in diesel fuel prices, which have decreased over 25% since year end 2014. We also were well aware that the record revenue per load on loads hauled via truck in 2014 was going to make for tough comparisons. Given the 6% decrease in revenue per load on loads hauled via truck in the 2015 third quarter, we executed on driving a 5% increase in third quarter gross profit. The increased revenue in rail, air and ocean services compared to the 2014 third quarter was driven by strong execution by our existing agent base, increasing volumes hauled by those modes by 29% over the prior year quarter. Gross profit representing revenue less the cost of purchased transportation and commissions increased 5% over the 2014 third quarter. The 2015 third quarter gross profit margin increased to 15.1% compared to 14.8% in the 2014 third quarter. The increase in gross profit margin resulted mostly from a 143-basis-point decrease in the rate of purchased transportation paid to truck broker carriers. During the 2015 third quarter revenue per load on loads hauled via truck brokerage carriers decreased 10%, while the cost of purchased transportation on those loads decreased 11%. The decrease in the cost of purchased transportation paid to truck brokerage carriers was mostly the result of lower diesel fuel prices and partly due to a loosening of available capacity as compared to 2014. During the 2015 third quarter we net added 133 trucks provided by BCOs and ended the third quarter with over 9,400 trucks provided by BCOs, the highest number of trucks provided by BCOs in Landstar history. Additionally we had the highest number of truck broker carriers haul Landstar loads compared to any quarter in Landstar's history. Landstar ended the 2015 third quarter with a total truck capacity network of over 51,000 providers, nearly 6,400 over the 2014 third quarter. Both approved and active truck broker carrier counts were at record level at the end of 2015 third quarter. New agent revenue representing revenue from agents who joined the company after July 1, 2014, contributed $21 million of revenue in the 2015 third quarter, while revenue at existing agents increased 2% over the 2014 third quarter. As it relates to the company's customer count base, the company's top 100 customers ranked by 2014 third quarter revenue comprised approximately 42% of the 2015 third quarter total revenue. 2015 third quarter revenue from those top 100 accounts increased 1% over the 2014 third quarter, while revenue at customers beyond the top 100 increased $19 million or 4% over the 2014 third quarter. With over 25,000 bill-to customers the customers' account base is highly diversified. From an industry standpoint revenue from the automotive sector and hazardous materials both showed double-digit percentage growth over the 2014 third quarter, while energy-related freight and foodstuff decreased at a double-digit percentage. The automotive increase was primarily due to one customer, while the decrease in foodstuffs was also mostly due to one customer. During the 2015 third quarter automotive freight represented 12% of total revenue, hazardous materials was 7%, energy-related freight was 4%, and foodstuffs was 5% of total revenue. I will now pass it to Kevin for additional comment. L. Kevin Stout - Chief Financial Officer & Vice President: Thanks, Jim. Jim has covered certain information on our 2015 third quarter, so I will cover various other financial information included in the press release. Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, increased 5% to $126.8 million and represented 15.1% of revenue in the 2015 third quarter, compared to $121.1 million or 14.8% of revenue in 2014. The cost of purchased transportation was 76.7% of revenue in the 2015 quarter versus 77.3% in 2014. The rate of purchased transportation paid to truck brokerage carriers in the 2015 third quarter was 143 basis points lower than the rate paid in the 2014 third quarter, and 45 basis points lower than the rate paid in the 2015 second quarter. The decrease in the cost of purchased transportation was mostly due to the effect lowered diesel fuel costs have on revenue and the cost of purchased transportation on freight hauled via truck brokerage carriers. The favorable impact of lower diesel fuel costs was somewhat offset by a decrease in the percentage of revenue contributed by BCOs in the 2015 third quarter, which has a lower cost of purchased transportation. Commissions to agents as a percentage of revenue were 34 basis points higher in the 2015 quarter as compared to 2014 due to an increased net revenue margin, revenue less the cost of purchased transportation, on loads hauled by truck brokerage carriers. Other operating costs were $8.7 million in the 2015 third quarter, compared to $6.5 million in 2014. This increase was primarily due to increased trailer maintenance costs and decreased gains on the sale of used trailing equipment. The company has increased its company-controlled trailer fleet to 10,072 trailers, a 7% increase over prior year, as the number of BCOs hauling Landstar trailing equipment has increased with the increased demand for drop and hook services. Insurance and claims costs were $10.5 million in the 2015 third quarter, compared to $12 million in 2014. Total insurance and claims for the 2015 quarter were 2.7% of BCO revenue, compared to 3.1% in 2014. The company experienced decreased severity of accidents in the 2015 period as compared to 2014. Selling, general and administrative costs were $36.8 million in the 2015 third quarter compared to $36.2 million in 2014. The increase in SG&A cost was primarily attributable to increased employee wages, increased professional fees and increased stock-based compensation expense, partially offset by decreased provision for bonuses under the company's incentive compensation program. Although SG&A dollars increased slightly year-over-year, SG&A expense as a percent of gross profit decreased from 29.9% in the prior year to 29% in 2015. Depreciation and amortization was $7.2 million in the 2015 third quarter compared to $7.1 million in 2014. This increase was due to the increase in the number of trailers. As it relates to operating leverage, operating income was $64 million or 50.4% of gross profit in the 2015 quarter versus $59.6 million or 49.2% of gross profit in 2014. Operating income increased 7% year-over-year and was the highest third quarter operating income in Landstar history. During the 2015 third quarter, 77% of incremental gross profit was passed to operating income. The effective income tax rate was 37.8% in the 2015 period compared to 37.5% in 2014. The effective income tax rate which historically is 38.2% was impacted in both periods by tax benefits resulting from disqualifying dispositions of the company's stock. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $158 million. Cash flow from operations for the 2015 year-to-date period was $148 million and cash capital expenditures were $4 million. During the 2015 year-to-date period, we purchased 1.7 million shares of Landstar common stock at a total cost of $113 million and there are currently 2.6 million shares available for purchase under the company's stock purchase program. At the end of September, shareholder's equity represented 83% of total capitalization. Back to you, Jim. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Thanks, Kevin. Overall, Landstar had a very good third quarter. Currently, industry fundamentals remain similar to those experienced in the 2015 third quarter. We continue to have strong demand for our van services, while demand for unsided/platform services, excluding the award from a specific account, continued to be somewhat soft. I expect the current freight patterns to continue throughout the fourth quarter and also expect the unsided/platform services provided to the single account to continue throughout the remainder of the year. I expect the pricing environment experienced in the 2015 third quarter to continue through the fourth quarter, which includes the impact of lower diesel fuel costs, a lower contribution of revenue attributed to heavy specialized services, and a stable supply and demand environment. Assuming recent trends continue, I anticipate revenue per load on loads hauled via truck in the 2015 fourth quarter to be consistent with the 2015 third quarter which would represent a decrease in an upper single-digit percentage as compared to the 2014 fourth quarter. Historically, the number of loads hauled via truck in the fourth quarter has been somewhat similar to the number of loads hauled in the third quarter. I expect that historical sequential trend to continue in the 2015 fourth quarter. Given that trend, I expect the number of loads hauled via truck in the 2015 fourth quarter to increase in the mid-single digit range compared to the 2014 fourth quarter. Based on the continuation of recent revenue trends, I currently anticipate 2015 fourth-quarter revenue to be in a range of $815 million to $865 million, with the midpoint of the range relatively equal to the company's 2015 third quarter revenue. In estimating the range of diluted earnings per share for the 2015 fourth quarter, we assume that insurance and claim costs in the 2015 fourth quarter would be equal to the recent historical run rate of 3.3% of projected BCO revenue. Based on the previously discussed range of revenue projected for the 2015 fourth quarter and reflecting 2015 fourth quarter insurance and claims at 3.3% of BCO revenue, we anticipate 2015 fourth quarter diluted earnings per share to be in a range of $0.85 to $0.90. And with that, we will open to questions.

Thank you, sir. At this time, we will begin the question and answer session. Our first question is coming from Ms. Allison Landry from Credit Suisse. Ma'am, your line is open. Danny C. Schuster - Credit Suisse Securities (USA) LLC (Broker): Hi. Good afternoon. This is Danny Schuster on for Allison. Thank you for taking my question. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Sure, Danny. Danny C. Schuster - Credit Suisse Securities (USA) LLC (Broker): Great. Just wanted to ask on the automotive contract, is that a Mexico cross-border move? And have you gained any share given the rail service issues that have been prevalent in that region this year so far? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Danny, this is Pat O'Malley. It is not related to cross-border moves. Danny C. Schuster - Credit Suisse Securities (USA) LLC (Broker): Great. Thank you. And would you expect that to continue beyond 1Q 2016 at all? I guess, you started moving those loads in April, so is that expected to run through for a 12-month timeframe or should it go any further than that? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: We have a commitment to the end of the year and we're working with the client at present to see where it goes from there. Danny C. Schuster - Credit Suisse Securities (USA) LLC (Broker): Great. Thank you so much. I appreciate your time.

Next question is coming from Alex Vecchio from Morgan Stanley. Alexander Vecchio - Morgan Stanley & Co. LLC: Hey there. Good evening. Thanks for taking the questions. Jim, you noted that that the unsided core volumes softened in the third quarter. Could you maybe quantify exactly how much they were down on a year-over-year basis in the third quarter? And then, yeah, we'll kind of go from there. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yeah. From a volume perspective, if you recall, in the second quarter, the flatbed volumes, excluding that automotive client, were pretty much flat year-over-year, second quarter over second quarter. Where we stand now – and this is a volume comment, this is all based on number of loads. We were – it slowed into the third quarter. Now excluding that automotive business, we are down 4% in volumes compared to last year's third quarter. So, it has slowed. Alexander Vecchio - Morgan Stanley & Co. LLC: Okay. That's helpful. And then the fourth quarter guidance for total truckloads to be up mid-single-digits year-over-year, had you not won this contract, what would your core total truckloads, what would you have expected them to grow in the fourth quarter? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Negative. I don't really have that number, probably somewhere in the negative mid-single-digits. Alexander Vecchio - Morgan Stanley & Co. LLC: Okay. And that's – again, this is total truckloads, not just the unsided? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yeah. Yeah, that's just total truckloads. That's... Alexander Vecchio - Morgan Stanley & Co. LLC: Okay. Got it, thanks. And then just lastly here, over the past three quarters, you've generated some strong incremental margins here, over 80%, and that's a bit above your target of 70%. Is that kind of the new normal, this kind of high 70%s or low 80%s? Or should we kind of still stick to the 70% incrementals going forward? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yeah, quarter – looking at it on a quarterly basis is a little bit tough because it's got such a short window. So over three months, right? And whatever happens in insurance can drive that. If our insurance number was higher, right, we would have eaten into that a little bit. And if our insurance number is lower, then you've got more incremental profits pushing through. I mean, if you think about the fourth quarter, that's going to be a difficult comp for us because our insurance number in the fourth quarter 2014 is only $8.5 million, right. So that will put pressure on that 70% target in the fourth quarter. So, on a quarter-to-quarter basis, it fluctuates based on what happens in the volatility of insurance. And sometimes it's a little bit impacted on how much we have to put up for MICP incentive compensation in any given quarter. But our target is still 70%. We're not going to come off of that for – and that's kind of an annual target. Alexander Vecchio - Morgan Stanley & Co. LLC: Okay. Great, appreciate it. Thanks very much for the time.

Next one is coming from Jason Seidl from Cowen. You may begin. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hey, Jason.

Hey, guys. How's everything? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Terrific.

A couple quick questions. Going back to that new automotive client, if you guys were to renew that contract the exact same way that you're seeing it now, what would you expect volumes to be? Because we've had a really, really strong automotive year right now. We've seen it. It's one of the few things that's going right in the rail industry if you look at their numbers. Even if you got it again, would you expect those numbers to be up or down next year? James B. Gattoni - President, CEO, Director, CAO & Executive VP: You're talking specific to flatbed, or you're specific to that client?

Just automotive in general, for your exposure on the flatbed side, assuming you got the same customer back next year. Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Jason, this is Pat. Provided we continue this contract next year, we would expect volumes to be the same as they are this year.

So about flat volumes. Okay. And I think you mentioned that ex this client on the flatbed side, things are down about 4%. What about the dry van market? How does that compare to the flatbed market if you parcel that out? James B. Gattoni - President, CEO, Director, CAO & Executive VP: That actually is still going well. I mean we're still – for the quarter we were up 6% in volumes. And it's still driving on the van side. We felt a little softness in flatbed for months, right? But on the van side we've been seeing mid- to upper single-digit percentage growth for the last 18 months. And there's pretty high demand for drop and hook-type operations, where we leave trailers at a facility and they load them up and we send a truck and haul it away. So that's still pretty strong. It's – where we're seeing the softness really truly is on the flatbed side.

Okay. No, that's great color. I guess final question, when we think about your BCO count going into 2016, you obviously have done a fairly decent job of growing it this year. With some of the markets softening is the BCO count going to soften? Or are people just going to still sort of come to you guys as potential providers for freight? Joseph J. Beacom - VP, Chief Operating & Safety Officer: Yeah. Jason, this is Joe. I think we'll continue to grow the BCO count, really predicated upon if there's demand out there for their services. And clearly we expect that to be the case. I don't think we'll grow it as we have. 2014, we grew it 500. This year we're looking to grow it by a number even a little bit bigger than that. So I don't think we'll see that kind of growth. But I do think you'll see incremental BCO growth in 2016.

Okay. That's perfect. I don't want to take up all your time. I do appreciate it as always. I'll turn it over to somebody else.

Next one is coming from Jack Atkins from Stephens. You may begin.

Good afternoon. Good afternoon, guys. Thanks for taking my questions. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Sure, Jack.

So, Jim, I guess if you could maybe talk just for a moment. You guys sit in an interesting place with your customers for a view into the economy. Could you maybe just speak for a moment on what you're hearing from your customers about just the macro? I mean obviously the industrial economy seems to be a little bit more muted. But just would love to know what you're hearing from your customers around demand for peak season? And then as they look forward for the next call it six months? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Jack, this is Pat. As you know we provide capacity and support to numerous customers during the holiday peak shipping season. And at this point they're all anticipating similar, if not slightly up from last year on the peak season business. What we're hearing from our industrial base customers is the strong dollar has really impacted exports. The depressed commodities market has really impacted Cat and the large producers of machinery. Aerospace seems to be healthy. Energy seems to be reasonable. Oil and gas is down, and nobody looks for that to rebound. I think the customer base remains concerned about capacity. They've enjoyed this period of where it's balanced. But they're concerned that it could turn at any given moment.

Okay. Thanks for that, Pat. And then, Joe, I guess question for you on the BCOs. If we get a final rule on ELDs here in the next couple of days, how is Landstar approaching making the remaining owner-operators that don't have ELDs put one of those on? Is that going to be through the implementation period? Or will you require something sooner? And then how do you think that impacts the BCO utilization once those ELDs are rolled out across the fleet? Joseph J. Beacom - VP, Chief Operating & Safety Officer: Jack, good question. Our intent would be to allow for the entirety of the rollout period to let the remaining BCOs get their ELD. We're about 60% today, so to your point, about 40% to go. We would work with them across that timeframe to get that done. And then from a productivity standpoint, we really haven't seen a marked difference between BCOs with an ELD or without. We really haven't seen that. It's really been pretty flat either way. So, I think within the fleet, we really wouldn't see a significant change. Industry-wide, I'm not so sure I can say that. I'm not sure how others operate. But here within the BCO community, it's been pretty even.

Okay, great. And one, if I can squeeze one quick one in as well. With the significant growth with one large automotive customer, are there any mix issues happening from a revenue per load perspective in unsided equipment or should we not think about that being part of the headwind there? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yeah. That's not driving much of the revenue per load variances year-over-year, so, it's kind of consistent with what our normal flatbed rates are.

Okay, great. Thanks again for the time, guys.

Next one is from Matt Brooklier from Longbow Research.

Hey. Thanks. Good afternoon. If you have the number or at least could talk to it, I think machinery makes up roughly, I think, 20% of your volume, maybe 15% of your total volume. I'm just curious to hear where those volumes are trending on the flatbed side of things. James B. Gattoni - President, CEO, Director, CAO & Executive VP: We are looking that up.

Okay. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Do you have a second question or just wait for that one? L. Kevin Stout - Chief Financial Officer & Vice President: Yeah. Machinery is about 14% to 15%. James B. Gattoni - President, CEO, Director, CAO & Executive VP: What direction did it move?

Okay. And what, I guess, what – do you have a volume number in terms of where that stands versus a year ago in 3Q? James B. Gattoni - President, CEO, Director, CAO & Executive VP: It was pretty much flat to – volumes are pretty much flat to where we were last year.

Okay. Okay, that's all I've got. Thanks.

The next question is coming from Rob Salmon from Deutsche Bank. Sir?

Hey, good evening, and thanks for taking the question. Jim, with that automotive contract that you guys brought on, can you give us a sense what sort of capacity, if any, that Landstar is allocating to that customer? James B. Gattoni - President, CEO, Director, CAO & Executive VP: If you assume we're doing – well, I'll give you that – we did about 20,000 loads in the third quarter, about 60% BCO – broker. I'm sorry. 60% broker, about 40% are BCO capacity.

And was there any sort of like trailers that you were using from a drop and hook which would really make them... James B. Gattoni - President, CEO, Director, CAO & Executive VP: It's BCO and broker provided trailing equipment there. We may have a couple of old trailers in there, but it's not our trailer gain.

Got it. I guess switching gears over to the other operating expenses. Kevin, in your prepared comments, you had called out just kind of the higher levels of drop and hook, a little bit of maintenance on the trailer side, offset by less gains. If we're assuming no gains, what's a good number to use for that other operating expenses looking forward? L. Kevin Stout - Chief Financial Officer & Vice President: $7.5 million to about $8 million would be my best guess for that.

Perfect. Those are my Q.

The next question is coming from Todd Fowler from KeyBanc Capital Markets. James B. Gattoni - President, CEO, Director, CAO & Executive VP: It's just the way we do our insurance using 3.3%. If you look at that number, when we were at $10 million I think or something in the third quarter and the 3.3% calculation is going to give us like $12 million or $13 million in expense. That's really what's driving the variance on the per share.

So basically the bit of the softness that you're seeing in the unsided equipment that gets offset by some of Pat's comments on the expectations for peak on the van side, so that that washes on the revenue piece. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes. Yes. I think we'll continue to flow through how we did through the third quarter. I think it'll be made up by that peak season stuff.

Okay. And then I'm going to take one more stab at the large customer win here this quarter. And I think what everybody is trying to get at is the potential impact if you don't have that in the numbers going into 2016, but can you give us just a sense maybe in the third quarter because it was in there for the whole quarter of a revenue number that would have been associated and, if you could, maybe even like an earnings per share number? And, again, I think where that would be helpful is just as we try and think about if you retain that business or if you don't retain that business what it could mean into 2016. James B. Gattoni - President, CEO, Director, CAO & Executive VP: We'll give you the revenue number because there's some ins and outs...

Sure. James B. Gattoni - President, CEO, Director, CAO & Executive VP: ...on EPS and I don't want to carve it down to that level, but the revenue number in the third quarter was $35 million.

Okay. That really helps. Thanks for the time tonight, guys. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes.

Our next one is coming from Scott Schneeberger from Oppenheimer. Daniel E. Hultberg - Oppenheimer & Co., Inc. (Broker): Hi, guys. It's Daniel in for Scott. I'm curious on alternative energy, if you can talk about the outlook there as we look into next year. Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: This is Pat. In the third quarter the wind business that we do was up year-over-year. Our line of sight as it relates to the fourth quarter is favorable. Daniel E. Hultberg - Oppenheimer & Co., Inc. (Broker): Okay. Thank you very much. And then just generally I'm curious on how you think about the spot markets next year? Any commentary there would be helpful. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Well, if you really have a look at what's going on in industrial production when you think about Landstar, I don't see any significant catalyst changing the environment over the next 12 months to 18 months. I think the catalyst people are talking about is not necessarily what's happening in the economy, it's going to be happening – what's happening to trucks and how it relates to regulation, right, and tightening capacity towards the end of 2016 or 2017 and into 2017? That's really the catalyst I see coming up maybe 12 months to 18 months out. But the numbers coming out for projections of industrial production and manufacturing activity in the U.S. for the next years is kind of sluggish. So I would expect the spot market to kind of remain where it is with not a lot of healthy pricing and buy-ins relatively where they are to slightly up. Now in this environment we're still pushing van volumes pretty well as that demand for our trailing equipment is kind of offsetting any softness on flatbed side. But that's what I would expect looking out. I don't see a catalyst to drive the economy to get the spot market to pick up. Daniel E. Hultberg - Oppenheimer & Co., Inc. (Broker): Okay, great. Thank you very much.

Mr. Scott Group from Wolfe Research, your line is open.

Hey. Thanks. Afternoon, guys. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hey.

So why do you think you're not seeing any impact in productivity from the ELDs? We hear from everybody else that there's a big impact when you make the changeover. And then with the question on ELDs, do you change anything on the brokerage side in terms of how you source capacity with carriers that may or may not have ELDs yet? James B. Gattoni - President, CEO, Director, CAO & Executive VP: I mean, why we're not seeing a change in productivity, we addressed that on the BCO side. Our BCOs aren't running the wheels off the track, right. They're pretty selective in the freight they take. They're only running about 90 loads a year. They're not banging up against the hours of service rules. I don't think they're in a situation where they have to park their truck. Might they get hung up on a load where they have to park? Yes. But I don't think that's what they do. I think when they are doing paper logs, they manage their time and they have plenty of time to pick up and deliver and satisfy the hours of service requirements. Putting an ELD on them, I don't think that changed for them. And on the second question?

Just on brokerage, like do you change anything on the brokerage side with your carriers if they don't have ELDs? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: No. We typically don't make that a requirement for anything. We look for visibility on shipments, and a lot of times they'll have a unit in the truck that accomplishes both. But really we're looking for visibility. And as far as whether they're doing their logs in cab or not is not anything we really get into.

Okay. And then just want to clarify one of the comments about fourth quarter volume. So if you take out that auto contract, you would have had like 3% volume growth this quarter. And, Jim, I think you said you'd expect volumes ex that customer to be down a few percent in fourth quarter. Is that a comp issue? Is that just demand is getting worse? Can you just help us bridge that gap? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Well I think because you saw that – I think I said that if you pull that out of the third quarter, flats were down 4%, vans up about 6%. So maybe we'd be flat to down as opposed to down.

Okay. Perfect. All right, thank you.

Next one is coming from Matt Young from Morningstar.

Good afternoon, guys. Can you hear me? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes. Yes.

Thanks. In the past I think you guys had mentioned that agents have boosted penetration of smaller shipper, smaller accounts, ones that wouldn't historically use Landstar. Obviously you probably got more of that last year when things tightened. And I'm guessing it's transactional in nature. Wondering if you're seeing that business stay with you? If you're still getting some of the loads that you received last year from smaller shippers, because capacity was tight? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes. I think you were right on with saying that there seemed to be a lot more of that last year, where we were really getting penetrated into these accounts, who we'd be talking to for two years and wouldn't use us, and then capacity got tight. I think those accounts stayed with us. I think we're still serving those accounts. You're not talking about a $10 million account, but someone who's given us $500,000 to $1 million worth of revenue. We're still getting that. I don't think we've lost that. And you can see it, because those small accounts are still kind of growing. They grew 4% in the third quarter, about $19 million of revenue. So once we get in and we prove the service that we can provide, they generally, the agents kind of stay into those customers. It's just getting in the door. And once they get in, they're pretty good at servicing.

Okay. And has there been any shift to, just because of worries over capacity? I know things have loosened a little on the spot side. Has there been a shift at all among large shippers to kind of lock in pricing at all over maybe worries over ELDs tightening capacity? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Not necessarily with us, no, because again we're doing a lot in the spot market. When we commit trailers that we have locked-up, we kind of lock up rates, so that's kind of committed for us. But there hasn't been a lot of long-term contract requests coming into us.

Okay. So you're not getting more committed business or committed brokerage business? James B. Gattoni - President, CEO, Director, CAO & Executive VP: No, no.

Okay. That's all I had. Thanks.

Next one is coming from Zax Rosenberg from Robert Baird. Sir, your line is open. Zax Rosenberg - Robert W. Baird & Co., Inc. (Broker): Hi, guys. Actually all my questions have been answered. So thank you. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Great.

Next one is from Tom Albrecht from BB&T. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hey, Tom. Thomas S. Albrecht - BB&T Capital Markets: Hey, guys. Congratulations on fighting these tough trends. I got just a little bit confused on your insurance comment. I understand a year ago was only $8.5 million. Were you trying to say that we should thinking about modeling back to that 3.3% of revenues, just because that has been the five-year average? Or you already know that it's going to be closer to $12 million plus? James B. Gattoni - President, CEO, Director, CAO & Executive VP: No, no. We do not know. We just model on 3.3%, because as you know it's very unpredictable. There's nothing to tell us that it's not going to be $15 million and there's nothing to tell us it's not going to be $8 million at this point. So we just model it at 3.3%. If we knew something we'd probably say, hey, we had a situation that we have to provide for in the third quarter, fourth quarter, but that's not the case. It's just modeling. Thomas S. Albrecht - BB&T Capital Markets: Okay. And then as I think about load growth for the van side, it sounds like what you're saying is that the 275,000 van loads you had in the third quarter, kind of think about a comparable number for the fourth quarter, which obviously has a lower year-over-year growth rate. But sequentially I mean is that kind of what you're saying? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes, sequentially. Yes. Thomas S. Albrecht - BB&T Capital Markets: Okay. All right. Thanks very much. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Sure, Tom.

Next one is coming from Tyler Brown from Raymond James. Patrick Tyler Brown - Raymond James & Associates, Inc.: Hey, guys. Good afternoon. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hey. Patrick Tyler Brown - Raymond James & Associates, Inc.: Hey, Jim, just real high level question on the model, but can you kind of go over how the gross margin profile differs when you do provide the trailing equipment, versus when the BCOs provide it themselves? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes, there's about an 8% spread. If a BCO brings his own equipment, they generally get paid 75%. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. James B. Gattoni - President, CEO, Director, CAO & Executive VP: If we provide the equipment, based on what contract they have with us, that we'll pay them 65%. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. So you get a small uplift on the gross margin split? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes, you get the uplift there. And our trailer cost is in other operating costs and depreciation. So you've still got that 8%. It's just in a different spot, right. Between maintenance and depreciation, it's similar percentage. It's just below the gross profit line. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. Perfect. And then I'm just curious, so what percent of those BCO loads are on your equipment versus their own? James B. Gattoni - President, CEO, Director, CAO & Executive VP: BCOs are doing about – there's about 60% to 65% of BCO loads are on our equipment. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. Perfect. And then any comments on the agent pipeline. Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: The agent pipeline remains what I'll refer to as robust. We've got a lot of interest and a lot of activity along those lines. We're satisfied with where we're at and where we anticipate being in the future. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. Perfect. Thanks, guys.

And our next question is coming from Kelly Dougherty from Macquarie. Your line is open. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Hey, guys. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hi, Kelly. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Thanks for taking the question. Just to touch back on commitments. I know you're obviously not looking to do anything long term, but as we head into like the last two months of the year into peak, are people more interested in getting committed capacity? And might that be something that you'd be open to? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Kelly, this is Pat. Certainly in some of these peak situations, we're committing capacity to that particular customer to handle the business that they've got. We're not uninterested in committed capacity as long as it's priced right and we understand what those commitments are and what our obligations are under those commitments. I think what we were answering earlier is that we have not received from shippers a lot of bids that are trying to lock us in on capacity, so that if the capacity equation turns, they'll have Landstar locked in. Again, certainly on the peak business we have commitments that we've made to customers. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes. It's more of a short term. Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Yes. James B. Gattoni - President, CEO, Director, CAO & Executive VP: It's like November, December. And we'll commit trailers and capacity during peak season for certain customers. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Sure. And then that kind of is what gives you the confidence that maybe you're bucking some of the weakness on the industrial side of things with the end volume still being pretty high. But you have some of that at least committed, so you're pretty confident in that number for the fourth quarter, is that fair? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Yes. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Okay. Great. And just one quick follow-up on the ELDs, do you have any sense for what percentage of your broker carriers are using ELDs now? And is that maybe fair to extrapolate towards the broader market? Joseph J. Beacom - VP, Chief Operating & Safety Officer: Yes. Kelly, this is Joe. We really don't have a good sense of what that number is. If you think 50% of our brokerage volume moves on carriers with 10 trucks or less, and my suspicion is that the majority of those carriers don't have ELDs, if that gives you any kind of insight. But beyond that, it's hard to say. We don't do a lot of volume with large carriers who you would expect to have ELDs already. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Sure. Joseph J. Beacom - VP, Chief Operating & Safety Officer: So if that helps, that's kind of what we have in hand. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Does that kind of cause you concern about the brokerage model then? If you guys are arguably dealing with some of the carriers that would have the most economic hardship if they've got to run less miles than they are now. Does that cause some concern about that side of the business? Joseph J. Beacom - VP, Chief Operating & Safety Officer: Well, I think again it depends on what the rule says when it comes out. One of the things that I believe they're supposed to look at is the affordability to the small business and kind of the timeframe that's, I think, why they're giving them a couple of years to make that happen. Is it something that we'll watch closely? Absolutely. Is it something that I think you could say we're overly concerned about today? Not yet. I think maybe a little premature. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Okay. Thanks, guys. I appreciate the color.

At this time I show no further questions. I would like to turn the call back over to you, sir, for closing remarks. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Well, thank you. And I hope everybody appreciated it, we limited our opening remarks to only 17 minutes. And with that, I have decided to discontinue the company's historical practice of providing mid-quarter update calls. And as such, I look forward to speaking with you again on our 2015 fourth quarter and year-end earnings conference call currently scheduled for January 28. Thank you and have a good day.

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