Good morning, and welcome to Landstar System Incorporation’s First Quarter 2020 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; Kevin Stout, 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. Sir, you may begin.

Thank you, Missy. Good morning, and welcome to Landstar’s 2020 first quarter earnings conference call. Before we begin, let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. 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 2019 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. Through the first 12 weeks of the thirteen-week 2020 first quarter, Landstar’s results were in line with our expectations. During that period, the freight environment was somewhat more balanced than during the back half of 2019 with truck rates and volume trends following normal seasonal patterns. In late March, however, impacts from the COVID-19 pandemic resulted in accelerated softening of truckload demand throughout the United States. This deterioration late in the quarter did not have a significant adverse impact on the first quarter overall but will negatively impact volume in April and likely the remainder of the second quarter. Thankfully, Landstar’s variable cost business model is highly resilient to rapid expansion and contractions in demand for freight transportation services. Demand for Landstar’s services is mostly correlated to the output of the North American manufacturing sector. As a response to the pandemic generated high demand for perishable consumer goods and much-needed medical supplies in March, the U.S. industrial manufacturing sector began closing facilities and furloughing workers. The speed with which the freight environment deteriorated into the beginning of the second quarter was like nothing experienced in the history of the company. The actions taken by government authorities and private industry to slow the speed of the coronavirus significantly impacted Landstar’s loading opportunities at the end of March. It is safe to say that nobody knows the depth of the impact the pandemic will have on the freight transportation industry or how long this current crisis will last. Over the past 20 years including 9/11 and the great recession of 2008 and 2009, Landstar’s models endured periods of tremendous challenge. We expect no different in 2020. Getting back to the first quarter, Landstar’s 2020 first quarter revenue and earnings were in the range of the first quarter guidance provided as part of our year-end 2019 earnings release distributed on January 29, 2020. In that earnings release, we provided first quarter 2020 revenue guidance in the range of $915 million to $965 million. Actual 2020 first quarter revenue is $928 million. We also provided diluted earnings per share guidance of $1.10 to $1.20. The range of earnings per share guidance did not include an estimate for the financial impact on insurance and claims cost of a known severe vehicular accident that took place in January 2020. At the time of the release of earnings per share guidance, the financial impact of the severe accident on insurance and claim costs in the quarter was not estimable as the company continued to gather facts regarding the accident. Actual diluted earnings per share for the 2020 first quarter would have been at the upper end of the earnings per share guidance before giving effect to the financial impact of the severe accident on first quarter insurance and claim costs. Inclusive of the estimated financial impact from the severe accident actual earnings per share were $1.04 in the 2020 first quarter. Our first quarter revenue guidance anticipated that the number of loads and revenue per load on loads hauled via truck would both be lower than the 2019 first quarter in a mid-single-digit percentage range. First quarter 2020 loads hauled via truck were 6% below last year’s record first-quarter truckload volume. Revenue per load on loads hauled via truck in the 2020 first quarter was 5% below the 2019 first quarter. Load volume and revenue per load on loads hauled via truck trended fairly consistent with the normal seasonal patterns on a month-to-month basis during the quarter. First quarter insurance and claim costs were estimated at 4% of BCO revenue in the first quarter guidance. This estimate did not include any financial impact from the severe accident I previously referred to. Actual insurance and claim costs in the 2020 first quarter were 5.8% of BCO revenue. During March, it became clear that Landstar needed to address potential unprecedented operational challenges that could result from the pandemic. As a safety-first company, Landstar has always placed safety at the forefront of all we do. The health and well-being of the members in our network, the company's 1,200 employees, 10,000 BCOs, 1,200 agents and their staffs, and over 25,000 customers and 59,000 other third-party capacity providers has always been a part of our safety-first culture. As a sense of business, we have taken actions to ensure that freight is delivered safely while maintaining all of the social distancing recommendations and other guidelines provided by U.S. health authorities and various government agencies. As the pandemic grew, Landstar took major steps to prioritize the health and well-being of all Landstar employees and their families and limit the risk of community spread of the virus within our main offices, while we also sought to limit possible business disruption that could be caused by the potential impact of reduced staff in the event of an outbreak within our offices or from a government-mandated shutdown. As it relates to business continuity, our focus was to ensure trucks and agents would be paid timely, customers would be billed, collections of receivables would continue to flow, the IT systems powering our network would continue to function, and BCO's agents would continue to have uninterrupted access to trailing equipment and customer service. Over the course of several weeks in mid-March, the company transitioned over 800 of its 1,200 U.S. based employees from its two main corporate facilities to work at home. The transition helped to secure business continuity and maintain a healthy work environment for Landstar's employees. We now have over 1,000 Landstar employees working remotely. From an administration and operations standpoint, the transition of so much of our employee base to work at home has been a great success, and currently it is business as usual at Landstar. From a freight standpoint, however, it is far from business as usual. We expect a very difficult freight environment during the second quarter with vital manufacturing plants and shrinking industrial and consumer demand. The sphere of change in demand for freight transportation services caused by the pandemic has resulted in significant inconsistencies in the level of demand amongst various sectors. Beginning in early to mid-March, industry demand for transportation in consumer goods and medical supplies skyrocketed, while demand for transportation in the industrial manufacturing and oil and gas sectors experienced severe decreases. These industry trends became clear in Landstar's truck loadings toward the back half of March. During the first 12 weeks of the 13-week first quarter, Landstar's dispatched truckload volume was 5% below the comparable weeks of 2019. In the last week of fiscal March, dispatched load volume was 14% below the number of truckloads dispatched during the same week of March 2019. This was one of the swiftest and most dramatic reductions in week-to-week load volumes in the history of the company. The drastic slowdown in loadings experienced in the last week of March was the result of states beginning to implement stay-at-home orders, shutting non-essential businesses along with a wide number of auto plants announcing temporary closures. Overall, in the last week of fiscal March, we experienced increased dispatched truckload volume in foodstuffs and packaged commodities. Those increases were more than offset by significant decreases in output of automotive parts and supplies, building products, and machinery. Due to the unpredictable nature of the current environment and the necessary role of the federal, state and local governments in lifting the stay-at-home orders and other measures that will be needed to help the economy transition back to a more normal operating condition, we will not be providing earnings guidance for the 2020 second quarter. Long-term growth and earnings are highly important to Landstar. Currently, though, our near-term approach is focused on alleviating some of the business disruption and financial challenges caused by the pandemic that are facing our small and large business owners who have helped make Landstar one of the most successful freight transportation companies in the country. We are fortunate that the Landstar model provides the flexibility and resilience to provide financial relief to agent BCOs in these unprecedented times. Part of Landstar's pandemic relief effort provides an initial $100 per load, $50 to the agent dispatching the BCO and $50 to the BCO delivering load, for all loads delivered by a BCO from April 1 to April 30. Based on our anticipated BCO load volume, we forecast that portion of our pandemic relief effort will pay out between $6 million and $7 million in the second quarter. We also are providing $1,000 per week for a two-week period to any BCO who contracts COVID-19 or has been mandatorily quarantined by public health authorities. As we move through the quarter, we add to or expand our pandemic relief efforts and commit additional funds to support our network. During the 2020 first quarter, Landstar purchased up to 1.2 million shares of stock at a total cost of approximately $116 million. We ended the first quarter with approximately $211 million in cash and short-term investments and $366 million available for borrowing on Landstar's revolving credit facility. Although we do not envision any liquidity concerns over the next few months or in the long term, we believe it prudent to conserve cash until the duration and depth of the crisis becomes clear. Until then, we will be prudent in our approach to share purchases. Although we are not providing guidance for the 2020 second quarter, for the sake of providing an example of how our model may respond under certain adverse business assumptions, if one were to assume a revenue decrease in the 2020 second quarter of 20% to 30% as compared to the 2019 second quarter, revenue would be in a range of $730 million to $835 million. Under that scenario, we believe the model would likely produce earnings per share in the range of $0.70 to $0.85, which would be net of an estimated $0.13 per share related to Landstar's April pandemic relief effort currently in place which, as I stated above, could be expanded as we move through the quarter. The resiliency of Landstar's light asset-based business model will continue to generate outstanding returns over time relative to the overall environment. For every $1 decrease in revenue, direct freight-related costs decrease by approximately $0.85. The significant percentages of costs tied directly to revenue somewhat insulate Landstar model from significant downturns in freight and typically generate positive free cash flow throughout most business cycles. We continue to believe Landstar is well-positioned with a strong balance sheet and expect positive cash flow generation throughout this down cycle. In the past 20 years, the Landstar model has generated positive free cash flow every year, but one, and positive earnings in every year. Although 2020 has become a challenging year, we remain confident in our model not only to endure through times like these, but also to come charging back as business conditions improve. And here is Kevin to provide additional commentary on the 2020 first quarter financials.

Thanks, Jim. Jim has covered certain information on our 2020 first quarter, so I will cover various other first quarter financial information included in the press release. Gross profit defined as revenue less the cost of purchased transportation and commissions to agents was $142.9 million and represented 15.4% of revenue in the 2020 first quarter compared to $155.6 million or 15.1% of revenue in 2019. The cost of purchased transportation was 76.5% of revenue in the 2020 quarter versus 76.6% in 2019. The rate paid to truck brokerage carriers in the 2020 first quarter was 39 basis points higher than the rate paid in the 2019 first quarter. Commissions to the agents as a percentage of revenue were 16 basis points lower in the 2020 quarter compared to 2019 due to a decrease in net revenue margins, revenue less the cost of purchased transportation on loads hauled by truck brokerage carriers. Other operating costs were $8.3 million in the 2020 first quarter compared to $8.2 million in 2019. This increase was primarily due to increased trailer equipment cost and increased contractor bad debt partially offset by decreased trailer rental expense. Insurance and claims costs were $25 million in the 2020 first quarter compared to $15 million in 2019. Total insurance and claims costs for the 2020 quarter were 5.8% of BCO revenue compared to 3.3% in 2019. The increase in insurance and claims compared to 2019 was attributable to the impact of a single claim related to an accident in early January 2020 and increased unfavorable development of prior year claims. Selling, general and administrative costs were $45.3 million in the 2020 first quarter compared to $41.3 million in 2019. The increase in SG&A costs was mostly attributable to increased customer bad debt and an increase in the provision for bonuses under the Company’s incentive compensation plans, and increased employee wages and benefits partially offset by a decrease in stock compensation expense. In addition, the 2020 first quarter SG&A costs included approximately $800,000 related to the cancellation of the company's annual convention. Customer bad debt expense was $2.9 million in the 2020 first quarter compared to $1.3 million in the 2019 first quarter. Stock compensation expense was $631,000 and $1.9 million in the 2020 and 2019 first quarters respectively. The provision for incentive compensation was $2 million in the 2020 first quarter compared to $1 million in the 2019 first quarter. Quarterly SG&A expense as a percent of gross profit increased from 26.5% in the prior year to 31.7% in 2020. Depreciation and amortization was $11.5 million in the 2020 first quarter compared to $11.3 million in 2019. This increase was primarily due to increased IT-related depreciation. Operating income was $54 million or 37.8% of gross profit in the 2020 quarter versus $80.9 million or 52% of gross profit in 2019. The decrease in operating margin was driven by increased SG&A expense, increased insurance and claims costs, and the effect of decreased gross profit. Operating income decreased 33% year-over-year. The effective income tax rate was 22.9% in the 2020 first quarter compared to 21% in 2019. The effective income tax rate was impacted in both periods by excess tax benefits related to investing of equity awards to employees. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $211 million. Cash flow from operations for the 2020 first quarter was $99 million and cash capital expenditures were $6 million. There are currently 1,821,000 shares available for purchase under the company's stock purchase program. The unpredictable nature of the current freight environment makes it very difficult to forecast revenue and resulting gross profit even in the near-term. However, we are more comfortable with forecasting the indirect costs for the second quarter. In yesterday's earnings release, we provided a revenue and earnings scenario to show how the model reacts under certain unfavorable assumptions. The assumption we used was the reduction in revenue from the 2019 second quarter to the 2020 second quarter of 20% to 30%. Under that assumption, we said revenue in the 2020 second quarter would be in a range of $730 million and $835 million and earnings per share would range between $0.70 and $0.85. Our calculation assumed that the combined total of the indirect costs consisting of other operating costs, selling, general and administrative costs, and depreciation in the aggregate to be similar to the $65 million reported in the company's 2020 first quarter. We estimated insurance and claims cost at 4% of our projection of BCO revenue for the quarter.

Thanks, Kevin. And with that, Missy, we will take questions.

Certainly, our first question is from Scott Group from Wolfe Research. Your line is now open.

Hey, thanks. Good morning, guys.

Hey, good morning.

So, maybe if you can give us just some more color on exactly what you guys are seeing in April from a volume standpoint maybe from a van versus flatbed perspective as well and then what you're seeing, how are you seeing pricing trend so far in the month?

Yes, we base everything on a dispatch flow which isn’t exactly tied back to our revenue, but it is pretty close. So, we look at the daily load count and we get that report every day. And in the report, as I said at the end of March showed pretty significant declines and I think I had said that we were 14% load volume in our last week of March, we were running about 5% in the previous 12 weeks. Going into April for the last three weeks we're ranging on a daily from 20% to 30% down on volume. It is kind of a little more down on flats and bands, but I would say it's about equally as weak. And from a pricing standpoint what is surprising us slightly is that our pricing has not moved all that much. Seasonally it is down a little bit from March to April, but it is not lined up with some of the industry stats you are seeing coming out of some of the companies who put out the metrics. So from a pricing standpoint, it seems a little slightly less than normal seasonally and from a volume standpoint like I said we're down probably 20% to 30% on a daily basis and anticipate that will continue at least through April and somewhat into May until some of the industries, the manufacturing industries starts to ramp back up. Significant, if we talk about commodity areas, I would say that of that drop off about 8% to 10% of our business is in automotive that we know specifically related to automotive. That 8% to 10% went down about 2% of our business in the first three weeks of April dropping off product contributing about 30% to 40% of that 20% to 30% drop off. So that's a big piece of it. Building products is off not quite as much as automotive, but it's off. Machinery and metals all down and even consumer durables is slightly down. Again consumer durables for us isn’t like consumer perishables. It's more the longer term. And between those five commodities the dispatched loadings mix is about 85% of the 20% to 30% drop off in loadings in the first three weeks of April.

And that's great color. Are you seeing that 20% to 30% is sort of, has that been all month or is it getting worse as the month is going on, any thought there?

I think it has leveled off now in the last week or two, but it was accelerating from the end of March into the first week of April, and I think we're seeing it settled off between, it's actually and probably more through the first three weeks I'd say 20% or 30%. But we're trying running 25% to 30% right now. So it is probably going to hover around there.

Okay. The bonus that you guys are doing, how if it is on a per load basis, how comfortable are you or confident that you can take that back in a couple weeks?

We are receiving inquiries from agents and BCOs about whether we will extend it. We can either extend or terminate it. Once it expires on the 30th, we will decide in the next few days. We are closely monitoring volumes, BCO utilization, and turnover to guide our decision on whether to extend it for two weeks or the entire month of May. Currently, while rate per load is somewhat stable in certain areas, volume is concerning. This situation is part of the disruption caused recently, leading to our drivers covering more deadhead miles and running empty to maintain movement. If load volumes remain steady, we might consider an extension, but if they decline, we may not. We plan to make this decision by next week, as we need to act before next Friday.

And then just last thing, when I look at the BCO count it is down about 5% year-over-year more since 2010. What trends are you seeing as this issue is getting worse or has gotten worse in the second quarter, what trends are you seeing on the BCO count?

Scott, this is Joe. In April we have actually seen a little bit of growth, it is small, 15 to 20 truck growth in the month of April and so we're encouraged by that. That could be a function of where the price is and holding I think. Just to give you a sense, I think a lot of BCOs are active. Those that aren’t active, I think are just waiting just like we're waiting to see if it does begin to turn and in which direction and when they are trying to hold on. So, that's kind of what we're experiencing the last few weeks.

Okay, thank you for the time guys, I appreciate it.

Sure Scott.

Thank you so much. Our next question is from Jason Seidl of Cowen. Your line is now open.

Thank you, operator. Good morning, gentlemen. Regarding capacity, what concerns do the smaller carriers and brokerage operations have? Is there a consistent deterioration in the perceptions from the company, or is it stable?

Jason, this is Joe again. Quarter-over-quarter, if you look at the first quarter, the percentage of volume on the smaller carriers which did make up 56% to 57% of our volume has been pretty flat. You've seen the count go down and the approved counts go down. That's really a function of us putting fewer and fewer loads out on the third-party boards for those carriers to find and to haul. Thus, they become inactive in our network. So it's hard to say about the health of them, it is just the fact that we're brokering less volume in those fewer carriers will stay approved in the network. That is just a function of how the process works.

Got you. You mentioned that the trends in April were relatively between flatbed and drive. Looking at the trends by end market, have you noticed any specific decline in those areas?

I believe the end markets we focused on were primarily automotive, which is leading the trends. In the first three weeks of April, our automotive and dispatch segments represented 8% of our business, but that has now decreased to 2%. This decline accounts for about 30% to 40% of our overall volume drop. Building products contributed similarly, and machinery also played a role, though not automotive. Additionally, building products, machinery, and metals all contributed to the decline. On a positive note, foodstuffs showed some strength, but since it's such a small segment of our business, it wasn't enough to counterbalance the declines seen in our heavy industry freight and other sectors.

All right. Some states are starting to explore returning to a more normal operating procedure. When do you think we will begin to see a recovery in freight, which end markets do you think will be involved, and how is Landstar planning to address this in relation to openings in the states?

Well, we're pretty tied into the automotive sector and I think that's the first one we've got to keep our eyes on, because it has been the cause of this significant downturn. And I would expect no different, I would expect that we are so tied into them, that as soon as they start opening up we'll start – we'll be in there moving freight. I mean, and just clearly this has disrupted their supply chains and our agents are in constant contact with them along with some of our employees. We are kind of waiting them to pull trigger and start moving freight and that should turn back pretty quick. From the building products side, it is really up to when they start manufacturing again. I mean, our relationships aren’t broken, it's just the fact that the plants are down.

Okay. I'll turn it over to somebody else. You guys, stay safe out there.

You too.

Thank you so much. We have six more questions on queue. And the next question is from Todd Fowler of KeyBanc Capital Market. Your line is now open.

Great, thanks and good morning.

Good morning.

Jim, just back to the comments and the pricing that you're seeing here in the second quarter, as you think about that, do you think that that's more a reflection of the loads that the BCOs are willing to take in this environment and so maybe not taking some of the lower price freight and if you just have any thoughts in general about pricing within the market, do you think it bottoms out here in 2Q or kind of how you think the rate environment is going to evolve obviously understanding the visibility is pretty limited, but just some thoughts there would be helpful?

Hey, Todd, this is Rob Brasher. As we've said in past calls, our agents and the BCOs kind of lag or adjust to market conditions a little slower than the actual market itself. So if you kind of take that in mind, we're seeing prices hold. Couple that with the fact that we've seen a decline or loss in volumes in the automotive business that supports automotive oil and gas, retail, kind of freight from the ports, which is more of a short haul type business for us. So that's kind of left our longer haul rates in place, revenue per load. So it's kind of stayed at the higher level. That being said, over the last couple of days this week we've started to see a small downtick in rates, and I'll let Kevin or Jim kind of address what they see on a long-term basis, from that perspective. But again, in talking to our customers and kind of looking at what their plans are, as Jim kind of said, there's a lot of uncertainty. There are a lot of customers and a lot of segments that are putting dates out to when they think they're coming back, but there is no real certainty to say that they're coming back at that point in time.

Yes, I would say, just a follow-up. We've always experienced a lag of reaction in our network when agents don't respond to a downturn in pricing. The speed of downturn in this is something we've never seen before and clearly, as they don't react, there is still move in the freight, that's - I don't say highly price but reasonably priced and haven't reacted yet to the downturn. So our expectation is that we're going to start to see some more deterioration in that pricing as we move through the quarter just because of that, maybe 30 to 45-day lag and reaction from the network from our - just the way our model is designed. I do anticipate we're going to see some coming back more to the industry rates or maybe not quite as low as they are saying, but I think we'd see some, some pullback in rates over the next 30 to 45 days.

Okay. That’s helps and that was helpful on the mix issues too Rob. So that was - I appreciate that. Kevin to your comments about the sensitivity where you talked about the indirect cost, the other SG&A, depreciation, assuming those staying at $65 million, is that - I mean, is that what we should use right now for modeling purposes? Is there any reason why SG&A with incentive comp would come down sequentially in 2Q or 3Q or are you really saying that $65 million is kind of the right run rate to think about for, for quarterly indirect expenses?

Yes, Todd, this is Kevin. Yes, we expect the indirect costs to be similar in Q2. I don't see any reason why it wouldn't be similar in Q3 and Q4. In years past, we had the convention expense in Q2, that's no longer going to be there this year. As far as like the run rates, I would say other operating in the $8 million to $9 million range for the quarter, SG&A around $44 million, and then depreciation at $11 million to $12 million, I think it was $11.5 million in Q1. So those are the round numbers. There aren't a lot of levers in our model to pull on those, on those line items. So, I'm pretty confident on those. Obviously, insurance is a wildcard. I still think the 4% of BCO revenue, obviously that's going to be a lower number in Q2, but that's still our best guess on the insurance number.

Okay, great, that helps. And then just the last one from me. When I think about your model, you're kind of tied into the small business community if it's the BCOs or if it's the agents, the BCO count, we talked about that a little bit earlier in the call, but can you speak to maybe the health just at the BCOs and how you'd expect them to fare in this environment? Is it something where they can withstand the sort of drop in volume for a couple of quarters or how do you kind of see the BCO community weathering this environment? Thanks.

Hey, Todd, this is Joe. I think you know from a financial viability standpoint, I think it probably varies considerably from BCO to BCO. Clearly, we've got - because we've seen it kind of flatten out here so far in Q2, I think there is, those that have put aside a little bit of a cushion and they're using that to stay viable and they're using that to sustain their business. How long that can go will really depend I think business to business. And clearly, there is not a, the large exit is now. I think what we've done with the $50 per agent and BCO per loading, I think that's been very well received. We've been communicating very consistently with large conference calls to the BCOs and agents to let them know where we are and what we think. But as Rob and Jim both outlined, there is a lack of clarity on when this thing really bounces back. But to this point, there aren't a lot of really influx of calls or anything like that, that lead us to believe that there is a tremendous amount of desperation or that kind of thinking out there. But really I think the uncertainty is the thing that's probably the most aggravating and the most difficult for them to deal with.

Yes, understood. Okay, I appreciate all the help this morning. Thanks.

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

Hey, Jim. Can you remind us of situations in the past that have led to you for lack of a better term rewriting or tweaking the way that the system shares revenue with BCOs and agents? And does this feel like a situation that may create a shock to the system where you do need to think on ways to tweak that and keep the system intact beyond just temporary bonuses in a weak demand environment?

No, actually, historically, we have not adjusted the arrangements that we have with our BCOs and agents in any of the environments we've been through, whether it was the 9/11 quick drop-off in volumes or it was the 2008/2009 slow painful drop-off in volumes. But we haven't really reacted, to tell you the truth, I think this is the first time that I've been here since 1995 and I don't recall ever a time where we had a situation where in this happens so rapidly that the best decision to make was trying to support them with this $50 a load, just to make sure that they were covered at least through the month of April. I don't anticipate or foresee even in this environment or even if the environment stays that way that the deals that we have with our BCOs and agents and the agreements we have would change from a financial standpoint. I think we're in - we're kind of soft and down now and we're looking at volumes that are, where we were eight years ago where we had the same agreement. So I would say that there are no plans to make any changes to those programs.

Thank you for that. Can you also - and have you seen anything in casualty that could potentially be problematic, there's a single incident so far in the last few months, while we have you, and that will be my last one? Thanks.

Only the one that we disclosed in January, I'm not aware of any significant. But in our world today, you could have a fender-bender that turns into something serious two years from now. But right now we're not aware of any significant items out there that we haven't addressed in our release or in our numbers.

Thank you.

Thank you so much. We have four more questions on queue. And the next one is from Jack Atkins of Stephens. Your line is now open.

Hey Jim, hey Kevin. Good morning, thanks for taking my questions.

Jack, there are four questions left, so if you use them all, I guess it's over.

I guess, I guess, it's over. Okay. Well, I owe you two, how about that? So I guess just to start if we can kind of maybe talk about the flatbed market, obviously there has been a significant disruption here in the energy complex over the course of the last couple of months. I know you guys don't have a lot of direct energy exposure per se, but the flatbed market broadly does. So I guess how are you guys thinking about sort of the structure of the flatbed market as we look out over the course of the next, the next - whether it's several quarters, couple of years, I mean do you think things could be sort of more challenged there for a while, just given what's happening within the energy sector?

Yes, I think Jack it's, everything is a downturn for us whether it's vans or flatbeds. And on the flatbed side, the oil and gas about 2% or 3% of our business and then we actually had a little tick up in energy, because we did some, I think we did some towers, wind generation stuff in the first quarter, but it's like any other environment other than the sharp downturn. I think there's trucks going to be parked along, they're going to be parked against the fence because the freight is not there. People aren't going to - they're not going to be drivers and trucks. I think there's going to be a truck reaction that we got to think about, but the people are going to be idling trucks when this thing, and I think they are already. So there is a, you're back to that balance of supply and demand, and I don't anticipate - it's going to be soft, there is no question we are going to have a soft flatbed environment. But you've got the infrastructure build that hopefully comes around to help us through and tighten that flatbed market up and oil and gas will probably be down for a while, that could be something that helps supplement the demand on the flatbed side, but it's really hard to predict in where we sit today.

No, that's totally understandable and I appreciate that color. And I guess just for my follow-up question, Kevin, for you on free cash flow. And I thought yours and Jim's comments earlier in the prepared remarks were very helpful to understand the cash flow power of the Landstar model. But, with a significant level of exposure to automotive, we've been hearing anecdotes about automotive customers really pushing back on payment terms in particular, what are you seeing in terms of DSOs? And do you think that working capital could be a little bit of a drain here over the next quarter or two until things normalize and just to tag on to that bad debt expense, do you feel like you're accrued properly there?

Yes Jack, I do suspect that over time we're going to see a deterioration on the receivables. Thus far, not too much, but again we're three weeks into April. I suspect that it will drop off. To what extent, I don't know, but we are going to conserve cash. We're keeping an eye on that. Like Jim said we're going to make sure that we don't get into any kind of situation where we're desperate for cash. We obviously have availability on the revolver. We ended the quarter with $211 million of cash and short-term investments with the ability to access another $366 million off the revolver. So liquidity, not so much of an issue just yet, but I am keeping an eye on the receivables. I'm getting a daily aging and yes, it's starting to slip a little bit, but we'll see obviously as the weeks roll by we'll have a better answer for you next time.

And just to quickly follow-up on that, I mean how do we think about the interplay between the aging of those receivables at your agent base? I mean, is there any sort of true up there with agents if the receivables end up aging more than they should?

We do have agent risk. That is a part of our business, but we treat that just like any other receivable. I don't see that as an issue just yet.

If we, the way our business model works, if we give a $100,000 worth of credit to a customer that agent has no risk once we do that as long as he doesn't bill over $100,000. So that - all that risk sits on us.

Okay, got you. Yes, that makes sense.

And yes, Jack, I'm happy with the AR reserve as of the end of the first quarter.

Okay, thanks guys. Thanks for the time. I really appreciate it.

Thank you so much. Our next question is from Stephanie Benjamin of SunTrust. Your line is now open.

Hi, good morning.

Good morning.

I was just wondering if you could ask about or just remind us what the general seasonality is for gross margins from 1Q to 2Q, obviously the environment is significantly different, but if you could just talk about what you're seeing either throughout the quarter and then generally what you see from 1Q to 2Q, that would be helpful?

Yes, Stephanie, this is Kevin. As far as gross profit margins go, it's going to move based on, more for Landstar it's more going to be based on mix more than anything. Obviously, we've got some incentives out there to try to help our BCOs. So I still think the range of the gross profit will be similar. We think the $100 per load has helped us stem the tide so far. But seasonality whether it's first quarter or second quarter, it's really going to depend on the mix of BCO versus brokerage.

Got it. I appreciate. And then I was just hoping that you could speak a little bit about what you're seeing in terms or what you saw throughout the quarter before the impact of COVID just from manufacturing trends. I mean, did - was it a situation where you started to see some improvement, just particularly more favorable comps or maybe you had a pick up a little bit and then all of a sudden we kind of hit this massive Black Swan event. Maybe just anything, so we can kind of think through how it could progress as we start to rebound from the pandemic?

It was more of a very quick-paced event. We were through, our dispatch loadings were actually it was looking positive in week 11 of the quarter, which is probably the middle of March. Our dispatch loadings finally went 1% over prior year same day - week, I'm sorry. So we were seeing an elevation. We're seeing an increase in improvement in our trends from a dispatch loading basis for - on a week to week. In week 12 of the quarter we dropped off and then I said in the last week of the quarter we dropped off to 14%. So it was pretty rapid and then it just continued through there until now that 14% went to 20%. Now we're sitting between a range of 25% to 30%. We've seen no positive signs for many industries yet opening up to get freight flowing. So it was swift over a four-week period to watch the volumes go from positive 1% one week to now looking at negative 25% to 30% and until the manufacturers start to open up plans, we're probably - I expect we're going to hover between that 25% to 30% for a little bit on a week to week - week over prior year week on a dispatch volume.

Great. Well, that's all I had. Thank you.

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

Thank you, operator and good morning, gents. Just want to get your take on maybe overall market capacity. I know we talked about the BCO population a little bit, but we discussed expectations of supply-led tightening on the last call and obviously we're going to have a big glut here in 2Q. But as we shake out of the pandemic, what are your expectations of how market supply shakes out? Is it going to be a much more significant tightening and are there any indications of any material changes right now?

Hey, Bruce, this is Joe. I would think that and we've seen the more and more bankruptcies even in Q1 and prior. So I would think you'd see some of that materializing as the longer this slowdown persists. So I do think there over time would be a tightening. I think you'll see it probably more in some equipment type, perhaps a little bit more on the flatbed market due to the energy impact initially. But again it's hard to say. I mean if things bounce back a little bit sooner, I think the tightness will be less. If it lasts a little bit longer, I think it could be pretty material.

And you still had, we came into this watching insurance rates for these small carriers go through the roof. Right? And actually starting to take some of these - every - a lot of the companies, the small carriers I saw going bankrupt are going out of business mentioned insurance as one of their things, that's just another - this pandemic just creates more havoc to those small business owners.

Yes. And in addition to that, you know, the question prior was to Kevin about DSO. Some of these small carriers when payment terms get strung out so far, I think it gets increasingly difficult. So I think there's just a multitude of factors they're trying to juggle in and it's just a matter of how long and how liquid were they before this all started to turn down.

Okay, that's good, I appreciate that. And maybe just a follow-up on Todd's earlier question, but more on the agent side, can you give us some flavor on the resilience of that agent population? And then just conceptually what tends to happen to that part of the Landstar model during down cycles? Do you see an influx of maybe small independents looking for support from the Landstar model? Do you anticipate or expect maybe some consolidation around $1 million agents, how does that usually play out?

No, I think you know, our - we'll just start with the existing agent base that we have. You know they're so diversified, we have guys doing - we have 200 some guys that do 1 million to 2 million and then we have other guys doing 50 million to 100 million. Right? So you kind of, you got to look at the diversification within the agent base. The smaller guys could be at risk if they didn't diversify within their own little businesses right. If I'm a $1.5 million agent, I got one customer and that customer has shut his plant, well, he is not going to have business for a month. So, they will probably, get through it, if they don't have staff or something like that, it's an individual business owner, he is a one-man team, he can make through a month and a half, when that plant back opens up, he'll probably be hauling freight again. From an existing standpoint, you've got the larger guys who run staff of upwards maybe 100 people. They're managing their business the way a small business owner would manage. You know they're trying to keep the employees engaged or in some cases, they do have to furlough them and let them go. So within our existing network, they're handling it as small businesses would handle it with a little help from us they call us and we'll have discussions with them how we can assist sometimes with them and getting through this month or two of severe downturn. From a new agent prospect, they see us as an opportunity and we tend to get a few more calls coming in from agents. Whether we land them or not is another thing, but there does seem to be to be more activity on phone calls. The problem is and when you're in isolation, it's really tough to have meetings with people and they get to know somebody and try and recruit them into the business. So although, there may be more calls coming in, the interactions don't really, they don't really stick until we can get maybe get out of our homes and start getting out and doing some more sales and recruiting efforts.

Okay, great. Well, I appreciate that color. Thanks, gents.

Thank you so much. Speakers, we have last two questions on queue. And our next question is from Barry Haimes of Sage Asset Management. Your line is now open.

Good morning, thanks for taking my question. I had a couple maybe. First is, when you think about that sort of down 20% to 30% range that you guys saw late March into April so far, is there any way to ballpark how much of that is from companies actually shutting down versus how much of it is from shippers that are still open and just their same-store sales, if you will, are down? So that's the first question. I was wondering if I can get some feel for that.

That's a very difficult question for us because we have 25,000 customers that we bill and there is not one. We could talk from an industry sector standpoint and clearly I think the automotive piece is probably a combination of both, mostly plant shutdowns, but also some other slightly operational. Building products, it's probably operational but way down, steel, metals that stuff slightly - like I think I read that steel was running about 50% capacity when they typically run at 80%. So their operational is just less freight coming. But from an industry sector that's what we know. But from an individual customer standpoint, we have so many customers out there. No one being more than 3% of our business and that's difficult for us to answer.

Got it, thanks. And then just a quick follow-up on a couple of end-markets, within building products, any feel for how much of that relates to new constructions versus remodel? And then within consumer durables, are there any product types that are relatively more important to you or is it pretty broad based? Thanks.

Both areas are quite diverse. In the consumer durables segment, the leading customers represent only about 25% to 30% of the total, meaning no individual product is significantly impacting the decline. In fact, this segment has decreased less than the overall loadings in percentage terms. Regarding building products, we are unable to provide detailed information on the split between new construction and remodeling because it’s challenging to separate those factors. Often, we don’t have visibility into the final market; products might be moved to a staging area before reaching their ultimate destination. This makes it difficult to understand where the constructed building products are ultimately going.

Got it. Thanks a lot. I appreciate it. Good luck.

Thank you so much. Speakers, we have our last question and it's from Ben Hartford of Baird. Your line is now open.

Hey, good morning guys.

Good morning.

Jim, I'm curious about your thoughts. We've been looking at some of the supply issues related to trucks, but how do you see the competition in the brokerage sector? It's early since everything started mid-March, but could you discuss the receivables situation across the industry? You mentioned supply challenges with trucks as we progress through the year. How do you anticipate this will affect brokerage competition? Have you noticed any changes in April, and what feedback are your agents sharing? How are you approaching the current environment in terms of brokerage competition as we wrap up the second quarter and move through the rest of the year?

Through April, we haven't seen many people changing brokers. Freight volumes are low for us because overall freight is down. It doesn't seem like people are moving their freight to other brokers; we're not seeing anything unusual in shippers changing brokers. In our situation, which relies heavily on the spot market, the question arises about the nature of the economic recovery. Will it be slow and gradual, U-shaped, or V-shaped? Each of these scenarios would provoke different reactions from brokers. A prolonged recovery would give brokers more time to compete on pricing, leading to a battle for customers. Conversely, if the recovery is quick, we would be in a better position to respond immediately and would continue to serve for several months before bids are issued again. It's essential to consider how you think the recovery will unfold and its impact on the industry. A rapid recovery would suit us well, as we could mobilize trucks quickly. In a slower recovery, it would turn into a bidding process among brokers, and that’s how we would expect the market dynamics to evolve based on the anticipated recovery.

Okay, that's good. I understand what you've done on the cash preservation side and you have the line here about funding technology initiatives. Can you give us an update in terms of where you sit on that front and has there been any change year-to-date? Do you expect any changes in terms of the pace of the rollout, either because of this or any other factors?

Yes. In fact, I believe the rollout of some of our tools will be quicker because we seem to be more productive working remotely. It's quite remarkable. We are currently implementing the Book-it-Now tools, which are automated solutions, as much of our operations rely on phone calls where the truck contacts the agent. We are enhancing the Book-it-Now tools, tracking and visibility tools, and revamping load boards, all part of a modular Transportation Management System that we are developing independently. We conducted a beta test of the Book-it-Now with one of our agents, and it functioned well. However, due to the decline in loadings, it may not purely be about creating the technology but rather our ability to deploy it effectively at the moment. We are committed to pushing out these products without causing any disruptions. We have them in place, improving them, and we will continue to invest in them. Kevin mentioned that our expenditure on this initiative was approximately $8 million to $10 million.

Yes.

It's actually no longer incremental spend or price. We've been consistently spending that for this stuff for about the last three years. So we're just going to be consistently pushing on the path. We have the TMS that we're trying to roll out. I'd say it's about 8% to 10% of our truck volumes now in the new TMS. That's a slow process over a longer period of time. So that's, our pricing tool has been out for two or three years, there's not a lot of spending going into that. But a lot of it is focused on the front end, customer-facing, tracking visibility, Book-it-Now, ease of use, that type of stuff is what we're working on and trying to advance and that has not stopped. But the IT coders considered home and do this and I think that's why we are getting a little more production. No more meetings.

What's the timeline on when you expect kind of the totality of these initiatives that you've had undergoing for several years now to be kind of done-done?

Yes. To be honest, I'm not sure we'll ever be completely finished. However, the track and visibility features were expected to be released sometime this year. I'm looking at them from a modular perspective because we've created these modules that seamlessly integrate into the system. While TMS may not be fully implemented yet, we could have the track and visibility features available. We can also implement the Book-it-Now feature and other components as they’re ready. We beta test them before launching, so it’s really an ongoing process. As we complete one initiative, we discover something new that we want to introduce.

Okay, and I guess last one since no more questions here, can you remind us the nature of your relationship with the FAA, FEMA. I know it's different than 15 years ago?

Yes, we are currently participating in bids when they put out requests for quotes. We held the FAA contract that expired in 2008, during which we were the only provider for disaster relief. That contract concluded in 2008. Now, we place bids in specific states when they are conducting disaster relief efforts.

Okay. Sounds good. I appreciate the time guys. Stay safe.

Yes, you too.

Speakers, at this point, we do not have any more questions on queue. I would like to turn the call back to you, Mr. Gattoni for your closing remarks.

So thank you. And thank you for as always, for your participation in today's call. We wish for you and your family to stay healthy and safe and I look forward to speaking with you again on our 2020 second quarter earnings conference call scheduled for July 23. Have a good day.

Thank you so much for joining the conference call today. Have a good morning. Please disconnect your lines at this time and please stay safe. Goodbye.