Good morning, and welcome to Landstar System Incorporated Second Quarter 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: Jim Gattoni, President and CEO; Jim Todd, Vice President and CFO; Rob Brasher, Vice President and Chief Commercial Officer; Joe Beacom, Vice President and Chief Safety and Operations Officer. Now, I would like to turn the call over to Mr. Jim Gattoni. You may begin.

Thank you, Missy. Good morning and welcome to Landstar's 2022 second quarter earnings conference call. Before we begin, let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. 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, included, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2021 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. Our 2022 second quarter financial performance was the best ever second quarter financial performance in Landstar's history. Although revenue and earnings per share came in below our second quarter guidance provided on April 20th, second quarter revenue and earnings per share exceeded the 2021 second quarter by 26% and 27% respectively. Truck revenue was 21% over the 2021 second quarter, on 10% increases in both volume and truck revenue per load. Revenue held via other modes of transportation increased 93% over the 2021 second quarter, mostly attributable to higher ocean and air revenue per load. Earnings per share fell short of a low-end of our April 20th guidance by $0.17 or 5%. Insurance and claims cost exceeded guidance by approximately $0.10. And variable contribution was below the low-end of the variable contribution included in the guidance by…

Thanks, Jim. Jim G has covered certain information on our 2022 second quarter so I will cover various other second quarter financial information included in the press release. In 2022 second quarter, gross profit was $208.1 million, an increase of 19% compared to gross profit of $174.8 million in 2021 second quarter. Gross profit margin was 10.5% of revenue in 2022 second quarter as compared to gross profit margin of 11.1% in the corresponding period of 2021. In the 2022 second quarter, variable contribution increased 21% to $267.5 million compared to $220.8 million in 2021 second quarter driven by strong revenue growth. Variable contribution margin was 13.5% of revenue in 2022 second quarter compared to 14.1% in the same period last year. The decrease in variable contribution margin compared to the 2021 second quarter was primarily attributable to mix, as an increased percentage of revenue was generated in the 2022 period by one, truck brokerage carriers, which typically has a higher rate of purchase transportation than revenue generated by BCO independent contractors; and two, multimode capacity providers which typically has a higher rate of purchase transportation and revenue generated by third-party truck capacity providers. The unfavorable mix impact was partially offset by an increased variable contribution margin on revenue generated by truck brokerage carriers, as the rate paid to truck brokerage carriers in the 2022 second quarter was 183 basis points lower than the rate paid in the 2021 second quarter. Other operating costs were $10.4 million in the 2022 second quarter compared to $8.9 million in 2021. This increase was primarily due to increased trailing equipment maintenance costs and an increased provision for contractor bad debt, partially offset by increased gains on disposal of operating property. Insurance and claims costs were $34.1 million in the 2022 second quarter compared…

Thanks, Jim T. As it relates to our 2022 third quarter expectations, I assume the stable freight environment that we experienced from May to June and into the first several weeks of July to continue through the 2022 third quarter. Given that assumption, I expect year-over-year growth and revenue to be at a decelerate as compared to the previous eight quarters. In June, revenue per load for all our truckload revenue was approximately equal to that of May. Through the first several weeks of July truck revenue per load has remained consistent with June. Given that start to July and assuming that truck revenue per load throughout the remainder of the third quarter trends consistent with normal seasonal patterns and few costs remain relatively steady throughout the remainder of the quarter, I would anticipate truck revenue per load to be about equal to the 2021 third quarter. The second quarter of 2022 was a record second quarter of truckload count, typically a normal seasonal pattern results in third quarter truckload count to be slightly below the second quarter truckload count. I expect the 2022 third quarter truckload count to experience normal seasonal trends. Given that assumption, I expect truckload count to increase over the 2021 third quarter in a 3% to 5% range. Based on these expectations, the truck revenue per load and the number of loads hauled via truck, I currently anticipate 2022 third quarter revenue be in a range of $1.800 billion to $1.850 billion. Based on that range of revenue and assuming insurance and claim costs are approximately 4.2% of BCO revenue, I anticipate 2022 third quarter diluted earnings per share to be in a range of $2.75 to $2.85. Overall, I am pleased with Landstar's performance in the first half of 2022. 2022 first half revenue…

Certainly. At this time, we will begin the question-and-answer session. [Operator Instructions]. We have several questions on queue and the first one is from Jon Chappell of Evercore ISI. Your line is now open.

Hey, Jon.

Thank you, Missy. Good morning, Jim. Hey, Jim. Jim Gattoni, first question for you. I was going through my notes from April and you had said you were seeing little signs of softness seeing recovery in auto and easy comps, e-commerce lines are strong. I mean clearly this was still a great quarter by any historical context, but you were caught by surprise by a few things in May and June. Can you maybe just explain a little bit of where the surprises came from and where that may recur in the third quarter, maybe in the fourth quarter as you look out?

Well, I think the -- one was, I wouldn't call them a surprise. I would say that when we miss, we miss by a slight bid on the low-end on both volume and rates. When I look at the rates, we talk about truck rates. Let's talk about like the bigger pictures rates and volumes, right? Not specifically into the detail of customers and commodities, which I'll talk about in a second. But when you talk about rates, we were tracking about when we were looking at our March revenue per load, compared to where we were looking tracking the first couple weeks of April, we came out, it was -- it was flat to down like 1%. So we kind of went with a flat and I think ultimately we closed out April, the revenue per load was about 2% declined sequentially. It was like 1.8%. So it was a little bit high -- that was look a slight bit higher, but then we move into May. And I think we dropped down like 3% or 4% and that was where we saw the decline. So it was a -- it moved into after the April call, we saw the decline and then things balanced back out coming into June as I said, May to June was kind of what we anticipated the whole quarter be like. So it kind of happened in May is where most of the drop off fell off. And it was in that the revenue per load, I'm sorry. When you talk about commodities and things like that, I was about 15 months early on my prediction that substitute line-haul volume would slow down. I thought they would optimize quicker and that the consumer would demand would pull back. I think I recall of April of 2021, we talk about sub line-haul pulling back. And then I didn't take it out of our guidance in the second quarter and that's when it hit us, right? So we had a substitute line-haul decline a little bit bigger than I thought. And I think so those volumes declined. So from a commodity standpoint, that's where I saw softness coming in from the first quarter to the second quarter when you look at that transition. Foodstuffs was off a little bit more than we anticipated too that was, it's not a large category for us, but we saw a little volume decline there. So there's little pockets of softness that really weren't anticipated. Nothing big. There was -- I can't other -- look other than the substitute line-haul, which was a bigger decline in volume that I thought, I think there wasn't not any other category in there that really caught us by that much by surprise. I think it was just as I said, a May hit on rates and then gradually dropping off in sub line-haul through the quarter and a couple other the smaller commodities that we saw.

Okay. I hope that helps. And just for a follow-up, I hate to ask a super big picture question, especially one were not many people may know the answer, but for Landstar specifically, we're getting a lot of questions about the impact or lack of build thereof, of these AB5 in California. Can you just speak to us a little bit for how you're prepared for that? How you think it may impact your business or not? And, you know, kind of, how you see the implementation of that?

That's a real question. I think that's good for Joe to answer.

Hey, John. Joe Beacon. So, yes, we went through this preparation and a lot of planning around this back in 2019, when -- when this was all being talked about then, and we really hadn't just picked up the same playbook. We've got about 360, 365 BCOs who are potentially affected and what we're doing is just making them aware of the legislation and the fact that the Supreme Court didn't pick it up, and in going through the actions that they have to continue to either stay with Landstar, which would be to relocate out of California, or not haul California for retaining loads, or they can move to their own authorities and continue to haul Landstar loads. So it's a relatively small number of guys, 365 BCOs, and those are the options and we're helping them work through that process. And we're having conversations as we speak, to see what direction they want to take.

Thank you so much. Our next question is from Todd Fowler of KeyBanc Capital Markets. Your line is now open.

Hey, great. Thanks and good morning. So, Jim Gattoni, I think you covered some of this at the end of your prepared comments, but, I'm curious on your expectations for revenue per load to stabilize into the third quarter, and maybe just some thoughts on why, it dropped down in 2Q and then you're seeing the stabilization now is that the, kind of, the gyrations between the shift from spot to contract and some of that balancing out? And then when I think about your model, historically, I think you've talked about a little bit of a lag between the agents adjusting rates versus where the spot market is. And so I'm curious, is that caught up, and you think that, kind of, your revenue puller is more reflective of the market or is there the potential that there could be some lag in what you're seeing with relative to broader industry trends?

Well, I'll start with the end there. There continues to be a lag, if you look at what we -- how our percentage change year-over-year moves compared to some of the industry data. Directionally, we, kind of, move that way, but it's suffice to say that's maybe a 30, maybe a little bit longer 30 day, a little bit longer lag, so I would say there's still lag. I think maybe that actually showed up when we -- when we went down in May compared to everybody else going down March, April, right. So I -- that might be an indicator -- I think that was a clear indication that we do lag a little bit in the -- as it relates to our, revenue per load and what would you compare the industry trends. I thought that we're in a very unpredictable environment right now with, what's going on with consumer demand inflation. Manufacturing is pretty strong for us on the flatbed side. Really hard to predict what the next six months is going to look like. I think we're comfortable with the next two months. We're halfway through July. But again, if you look back at what happened to me in April, we lost 2% or 4% of revenue per load from April to -- from -- I'm sorry, from April to May, we lost 4%, which was unanticipated. I think, you know, a move of offered, I don't think we're going to go up 2% but could I lose 2% where I -- or I just stable? Absolutely. But I think we're comfortable with the stability, because it's been about six weeks where we've seen these revenue per load numbers, kind of, hold on. Nothing specific in there. It's not like driven by anything like automotive or any kind of special. It's just kind of a general feeling over the rates right now and that we're comfortable sitting here today. But again, I think we're in a very unpredictable environment. Just hoping to hold the rates where they are. And I think you talked to some of our field guys, you've talked to Rob Brasher, there's a lot of different opinions on what the next six months is going to look like coming from some of the shippers out there. Some are thinking that the peak -- peak is going to be a little softer, some thinks it's going to be terrific, so the inconsistencies coming out of the field staff and Rob's team. And some of the shipper surveys they have done is indicating that's unpredictable and that they don't know what direction is going to move but at the same time, they are concerned that if it does get strong, they want to have capacity locked up. So that's, kind of where -- the kind of, the conflicting messages get up to a stable environment for the next few months out there.

Yes. No, Jim, I mean, all of that's helpful, and we understand, kind of, the lack of visibility, so just it's helpful to kind of hear your thought process behind it. Yes, we look at one of those industry reports and we've seen a little bit of stabilization recently as well. So we won't comment on the quality of that data, but, hey, just a follow-up, I'm kind of curious about your comments around the mix and what's happening with, higher third-party brokerage revenue versus the BCOs. And so, I guess, can you just unpack that a little bit? And is there anything to read into, why the mix is shifting more away from BCOs and to third-parties, right now?

That's absolutely has to do with how many BCOs we have, right. We're doing a really good job of executing on load volumes. And that's, kind of, the game we pitch here for years. It's been -- we don't control price, so let's just -- you go after volume, profitable load volume growth, as we say, so it's really just more of the magnitude of the growth in volume than it is, you know, any deliberate move by us. The one thing that we put that I talked about as one of the misses on the variable contribution margin was really because of BCO utilization was down with, you know, in this environment, when you see the fuel costs, one of the things we have that happens is the fuel surcharges also lag. So when you have that sudden spike in fuel coming into March, April, it takes us a couple of weeks to catch-up and get that fuel surcharge passed to get the BCO recovery, that may be a little bit of the impact of why BCOs cut back a little bit. Also, the dropping rates, you know, a little bit, they maybe wait for rates to pop. So you see that utilization come down. So that the things that's really going on. It's a little bit twofold. As one is, the volume has to go to third-party trucks, if we don't have the -- if we don't have the BCOs to haul at and then there was a slight dip in the BCO utilization in the quarter, which really drove a little bit, the percentage of revenue driven by third-party trucks as opposed to BCO.

Okay. Got it. Thanks for the time. And Jim Todd, welcome to the call.

Thanks so much.

Thank you so much. Our next question is from Allison Poliniak of Wells Fargo. Your line is now open.

Hi, good morning. I'm not sure if I missed this, but other truck revenue is sequentially declining. Could you give a little color what's really on there? And there's a couple of pieces in that business as well.

Yes. There's a part of the substitute line haul business there on power-only, which is priced, most of the drop off in there. I mean, that's really -- and, like, I said, I believe that the load volume on that substitute line haul business was sequentially down about 18% or something.

Okay. So power-only though was still fairly positive for you on that side?

Yes. Well, I would say stable. I wouldn't necessarily see, there high or low.

Got it. And then on the trends within the truck transportation and van versus the unsided/platform, that revenue per load, did those trends, I know, you talked about overall stabilization, but the revenue per load on the unsided/platform, are you still seeing that trend continue on the upward curve or is it flattening out at this point?

Yes. Allison, this is Rob Brasher. From a revenue per load, we're still seeing a high-level. We're above 2021 levels. I don't know we're forced to say that rates are getting down to the 2019 levels. But that's not what we're seeing. We're starting to come more in line with the 2021 as we progress further into the year. But again, we're starting to see some improvement in some manufacturing, we're starting to see some improvement in some projects, some building projects that are coming back. We're seeing a lot of steel, a lot of metals that have impacted that. So I -- we'll call it a stabilization for now. Just don't know what the future looks like as far as how these projects and such come back as to how it's going to impact that.

Thank you so much, Allison. Our next question is from Bascome Majors at Susquehanna. Your line is now open.

Thanks for taking my questions. You talked a lot about the changes in incentive comp year-over-year and the quarter. Can you lay out where you're accrued for the full year with the new outlook here, the incentive comp and in stock compensation for kind of a total variable costs?

Yes. So for total variable cost some of the comp plans full year 2021, we have $57 million. In total for 2022, I'm anticipating right now $32 million on a full year basis, so down about $25 million.

Okay. And if we roll the 2023, and you had an earnings decline of anywhere close to the 20-ish percent, the Street is modeling, what would that number look like in 2023?

Bear case from total variable, I would say probably somewhere in between 8% to 10% in total.

Okay. Thank you for that. And last piece there was a lot of noise in the second quarter in the G&A line, with the aging convention coming back? And stock -- I'm sorry, the incentive comp pieces and -- in some of the debt you talked about, like, you -- do you have a way or can you help us with what are the underlying inflation rate you're seeing in that number is or a rough proxy of it?

Sure. Specific to the G&A line in total or just all the indirect?

I mean, yes, all of the above would be fine. Thank you.

Yes. So the way I think about it years ago that the inflationary pressures really were isolated to, the insurance and claim line and the tech line, and if you look at the indirect costs today, I mean, the trailing equipment costs inflation, trailer maintenance inflation, wage inflation, benefits inflation. We finance all our trailers by capital lease. Our weighted average borrowing cost was 240 bps, I think at first quarter, that's up 4.4%, 4.5% now. So it's kind of all over. If you want to SG&A 1Q to 2Q, 1Q was favorably impacted by about $2 million on the equity line for forfeitures related to former executives. And then also sequentially, you've got the $2 million agent convention in 2Q. So that's $4 million of the number there. And then we did see a little pressure on the customer bad debt line in 2Q 2022. One part -- one small bankruptcy that was about a $0.01 bad guy and then just the rest was general aging buckets. And then we did see a little PPM pressure on the benefits line for med claims.

Yes, Bascome, from an inflationary standpoint, Jim is right on the trailing equipment. You're talking about maintenance and labor costs on getting the trailers repaired, quantifying that might be a little difficult, but it's out there, it's driving our other operating costs higher. And we have 1,300 or 1,400 employees who support this network. And we clearly have had to increase wages just to keep the salaries in line and the pay in line with what's going on in with inflation. So there's inflation there too. Benefits cost is up. So it hard to quantify exactly what it -- how much inflation is within these numbers. But clearly costs are going up due to the current conditions going on in the U.S. economy in the inflationary conditions we're dealing with.

Thank you so much. Our next question is from Jack Atkins of Stephens. Your line is now open.

Hey, great. Good morning, everybody. And Jim Todd, congratulations on your promotion to CFO.

Thanks so much, Jack.

So I guess maybe if we could just drill down for a moment for my first question into the substitute line-hall. Can you maybe help us a little bit? Is that largely parcel or is there also some like LTL carrier capacity in there as well? Just what type of customers are you kind of servicing with that business line?

A lot of it is that we hauling full truckloads between the DCs of the large parcel carriers.

Okay. Okay.

And there is some little bit of LTL and scattered around there, but the bigger pieces are just that.

Yes. There is some line-haul. Hey Jake, this as Rob. There is some line-haul substitution for LTL carriers. But when Jim talks about the decline and some of that, that's mostly from the, I would say the majority from the partial carriers.

Okay. All right. I just wanted to make sure that was understood. And then I guess maybe kind of going back to the AB5 question for a moment that Jon asked, that was a great question. We've been getting questions on that as well. But I guess Joe, as you sort of think about the potential for AB5 like legislation to spread to other states, there's been talk about in New Jersey and Michigan and maybe other places. I guess how do you think about kind of getting in front of that? Are there some changes that maybe need to take place with a model to maybe account for that type of legislation in other parts of the country? And I'm thinking in particular about how you leverage your trailer pools, which if I understand right now is principally tied to BCOs or maybe it's BCO only can utilize your trailer pools.

Sure. Yes. Jack, all good questions and all things that we've been thinking about for quite a while. And if it does migrate to other states, clearly we think we've got a good process to mitigate that from a what I just already described. But to your point about, if you look into the network and each state is different, but if you look into the network, we've got a tremendous growth in brokerage capacity. So we don't think we're going to have a capacity related issue with meeting customer demand. It would fall around some of that trailer-related, if it's a trailer-related an account or something like that. And we're prepared to work through that. And I think made mention on other calls that we have instances where we'll put Landstar trailers in the hands of carriers on certain business. And then certainly, we need to look at that a little bit more closely if that would've come to be and we would.

Okay. Makes sense. Maybe one last question, I guess Jim Gattoni or Rob would love to get your thoughts on peak season. I -- Jim, I heard you a moment ago talking about it being kind of volatile in terms of what the shippers are telling you, what's your gut telling me about peak season this year? Just would love to get your thoughts there.

Hey, Jack, I'm glad you asked that question, because my gut is upside down, because no one can tell me what's going to happen. We base our peak really off of two parcel carriers and one big box retailer. And I will tell you those three are about as far apart on what's going to happen when you talk to them. One of them absolutely says that peak is going to fall in line with last year. One of them says that their inventories are a little bit, we'll say at a high-level now, but they are gearing us up for August and they think it's going to be consistent, but they're unsure. And one of them says that they're absolutely going to have a tremendous peak and it's going to be bigger than last year. So I guess to answer your question, no one knows. And it's kind of like Jim alluded to earlier, they're keeping us real close because they don't want to get into a situation where there's -- they don't have capacity going into the third and fourth quarters. So I know I didn't answer your question, but I haven't been able to get a straight answer out of them either. There's just uncertainty around what peak looks like.

Glad we could help Jack.

Well, if you can't get an answer, I can't get an answer. So that, that makes sense. Okay. Thanks.

Like I -- it's just -- it's very difficult to get a read from the business community right now. Like Rob said, there are some think it's going to be like. Some think it's going to be gangbusters. Some things it's going to be same as last year. It's really tough to get your hands around. But like Rob said, they aren't talking to us to make sure if it does get, if capacity gets tight, we were there to help them.

Okay. All right. Well, thank you for the time. Really appreciate it.

Thank you so much. Our next question is from Scott Group of Wolfe Research. Your line is now open.

Hey, thanks. Good morning, guys. I don't know if you gave this already, so I apologize if I missed it, but can you just share the monthly trend in rev per load on a year-over-year basis throughout Q2 and then July?

I don't measure, we have July. We're going up. I get a daily report that shows me one number and that's what tells me it's stable. So July is a little bit rough. But Scott, I'll give you the -- and Jim Todd will verity that I'm giving you right numbers is that, now I'm looking --

You are looking for car pricing year-over-year.

I got you. This is the question. I got the year-over-year. You got it?

Yes, I got it.

You read it. I'll verify.

Yes. Plus 15, plus 8 and plus 7s got April, May, June compared to prior period.

Okay. Helpful. And then you don't have a, like a, obviously you don't have a final number for July, but is -- how is July relative to your guidance of flat? Is it better than that flat or you're already flat, how is July directionally?

It is -- July is typically growth from June on the revenue per load. That growth is slightly less than what you'd see seasonally. And then what we baked in is typically you see a little drop up back in the August. So we kind of took that little bit of growth from June to July and then trended it seasonally into August and September, and came out with kind of a consistent quarter number as compared to June.

Okay. Okay. And then just want to get your thoughts on just broader capacity, right? BCO count came down a little bit. Do you think that trend continues just in a softer market? Are you seeing any signs of the third-party carriers exit the market? Any signs of capacity pressure?

Sure. Yes. Scott, this is Joe. Yes. To your point, and Jim mentioned some of it earlier. I think when you see the rates coming down and costs going up, there's the challenges is there, right? I think what you're also seeing when utilization drops, then you also tend to see truck count decline and we're seeing that as well. And part of that is the inability to get their trucks fixed, our BCOs typically operate used equipment, but several years old and the inability to get parts and get them timely. Sometimes that affects turnover as well. So all those things, I think factor into that. And I also think from the addition side, we've been challenged pretty much all year with the fact that it's very difficult to get used trucks, if you can get them. And so the ads coming into the system are lighter than typically we -- what we see and so that's impacting it as well. So I would think that you would continue -- there's some potential for some downward trajectory of the BCO account based on that. And I've seen some recent data where the net authority revocations are calling me. So I think in the big picture overall carrier capacity front, they're seeing the same increasing costs, whether it's their operating costs or their insurance costs and so forth. So I do think if the pricing stabilizes or continues to go down, I think you'll see some capacity come out of the larger network as well just based on those factors.

Thank you so much. Our next question is from Scott Schneeberger of Oppenheimer. Your line is now open.

Thanks very much. Appreciate it. Could we speak in the press release the average length of haul was brought up, noted, Jim Gattoni. Could you please touch on what you think may -- may we should see for third quarter second half, and how that may be impactful? Thanks.

Specifically to the length of haul, I think, we've been consistently off, maybe I think it was about off 6% year-over-year on a shorter -- shorter length of haul, I think, it was both in van and flatbed, Q2 or prior to Q2, pretty close to that. And I think you'd expect that to just be consistent. Look, when you break -- if you take our van, and you take -- you take our van revenue per mile, and you break it down into the categories, we do a bunch of loads that are 250 miles or 500 miles, we do bunch of loads 500 to 700 miles, we do bunch of loads over 750. And when you break that all down, it ends up being averaging about 700 miles and that move 6%, so it's down 6%. But it's really hard, it's more like of a mix than it is a specific business that's driving that. We do, like, a significant amount of van loads, so it's really hard to get my hands around what direction that's going to go on. We can pick up some accounts that are longer length of haul and just drive that mileage up. So it's more of a mix than it is a condition of what's going on in the industry. I don't think it's an industry trend where the longer hauls are going on rail. I don't think that's it. I think it's just -- our agents are hooking into more than 250 and 500 to 500 mile loads, and they were hooking into the over 107 to 150. So again, unfortunately, it just tastes a little unpredictable and very diverse within that population of van loads.

Thanks, appreciate that. Couple more if I could, a quick one here. Could you provide a status on the Ukraine operations, just, production relative to prior year and how that's stabilizing things?

Yes. The Ukraine operation, as we've said in the first quarter had a little bit of a blip for a couple of weeks. They have responded tremendously. We see the same production pretty much that we've seen out of them the past year as the past month, and that business continues, will continue in the same manner that it has. So we have -- we see no issues there.

Excellent. And then, lastly, just how should we think about the variable contribution margin trend in third quarter and beyond? What's the trajectory there? And any inflection points or thoughts on that context?

Well, I -- that would -- if mix stays the same, which we anticipate it will stay pretty close to what it was in the first and second quarter, you're looking at that 13.4%, 13.5% type margin. Really remember with us it's a lot of mix. It's how much -- how many loads, the percentage of loads produced by the BCO -- hauled by the BCOs versus the brokers. You think about that margin movement in the quarter, it was really mostly because we did more brokerage and I think that's why you're asking the question. If, you know, our anticipated third quarter would be similar to the margin we had in the second quarter, third quarter, and then to the year-end, is -- if the mix stays the same, we expect to be within that 13.3% to 13.5% margin.

Thank you so much. Our next question is from Bruce Chan of Stifel. Your line is now open.

Hey, thanks, operator and good morning, everyone. Just Jim and Jim want to get a little bit more color here on that decline in the substitute line haul. You're really just wondering if that decline is stabilized at this point, or are you still expecting a little bit of a sequential deceleration there?

Bruce, this is Rob. So on the substitute line haul, it's stabilized. And again, we're starting to gear up for peak and what that's going to look like. So what we saw is, again, on the partial companies and things of that nature, they geared up, they've added more, what they've tried to do is add more teams or added more capacity to their networks. One of the partial companies offset and pushed a lot to the rail during this time trying to realize the cost savings. As far as from the from the LTL community that we do business with, that is still -- the word coming out of that is that is still a hot market and that it has definitely stabilized and actually on the rise. So to answer your question, I believe we've absolutely stabilized. And then depending upon the peak will take us to where we're going moving forward.

Okay, got it. Now that's very clear and very helpful. And then maybe just one last follow-up here on Landstar Blue haven't heard a whole lot about it this quarter. Any updates there?

Absolutely. Landstar Blue, again, just to remind everybody, it's not a huge part of what we do. It's a very small company. We have doubled it in size. It is a contractually committed business. We continue to prove the concept of what we can do there. It continues to grow. It's a double both in volumes -- in revenue and volumes. And we'll continue to move forward with it. We're still working on the technology piece of it, so again, but a very small piece of what we do.

Perfect. Super helpful and I'll turn it over there.

Thank you so much. At this time, I'm showing no further questions. I would like to turn the call back over to you Mr. Gattoni for closing remarks.

Yes, sure. Thank you, Missy. And thank you, and I look forward to speaking with you again on our 2022 third quarter earnings conference call currently scheduled for October 20. Enjoy the rest of your day.

Thank you so much. And that concludes today's conference. Thank you for joining the conference call today. Have a good morning. Please disconnect your lines at this time.