Good morning, and welcome to Landstar System Inc's Year-End 2021 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 objection, you may disconnect at this time. Joining us today from Landstar are Jim Gattoni, President and CEO; Fred Pensotti, 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. And before I 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 2020 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. Landstar's fiscal year 2021 performance exceeded even our highest expectations. 2021 revenue was $6.5 billion, $2.4 billion or 58% above the 2020 fiscal year. Variable contribution exceeded the prior year by 53% and operating income was double that of 2020. During the year, 80% of the growth in variable contribution was passed to operating income resulting in earnings per share more than doubling from $4.98 in fiscal 2020 to $9.98 in fiscal 2021. It would be an understatement to say 2021 was an outstanding year for Landstar. The year started with record first quarter financial results and each quarter grew from there. In fact, each quarter of 2021 set a new all-time Landstar record for revenue and earnings per share for that quarterly period. Actual second and third quarter revenue and earnings per share exceeded both our initial and updated revenue and EPS guidance provided during those quarters. The 2021 fourth quarter was more of the same initial guidance updated mid-quarter to increase revenue and earnings estimates for the quarter followed by actual fourth quarter results exceeding the updated guidance. The 2021 fourth quarter earnings per share beat up $0.06 to our updated guidance was largely due to a favorable tax rate that added $0.04 to our results. Early in 2021, there was a lot of speculation by many in the industry trying to predict a peak to truck pricing at some point during 2021. However, that peak never materialized during the year. And in fact, December's revenue per load hauled via truck was the highest monthly revenue per load in the company's history. Overall, the company set many financial records in the 2021 fourth quarter ending the year with a record 11,864 trucks provided by BCOs and had a record 90,000-plus third-party carriers approved to haul Landstar freight, of which over 64,000 have hauled the Landstar load in the 180 days preceding year-end. Agents generating at least $1 million of Landstar revenue during the fiscal year climbed to 593, a 17% increase over the number of million-dollar agents in 2020. New agent revenue in fiscal year 2021 was an annual record of $181 million. As it pertains to the 2021 fourth quarter, revenue, variable contribution, operating income and earnings per share were all-time quarterly records. Revenue in the 2021 fourth quarter was a record $1.945 billion, 50% above the previous fourth quarter record set last year. The 2021 increase in revenue over the 2020 fourth quarter was driven by an increase in revenue hauled via van and unsided/platform equipment of 45% and 40% respectively, which combined made up 75% of revenue in the 2021 fourth quarter. Other truck transportation that includes primarily power-only expedited cargo van and straight truck increased $95 million or 61% over the 2020 fourth quarter. Additionally, ocean cargo, although a small percent of all of our revenue increased over the 2020 fourth quarter by $88 million on a 61% increase in loadings and an average rate increase of 127%. Landstar operates primarily in the spot market for US truck transportation, where truck rates are generally a function of the balance in market demand and available truck capacity. Revenue per load hauled via van and unsided/platform equipment in the 2020 fourth quarter each exceeded the 2020 fourth quarter by 20% as market dynamics strongly favored the truck provider. As it relates to the number of loads hauled via truck, the diversity and depth and expertise among members of the company's agent family and our employees enable the network to handle the needs of most shippers, whether it be drop and hook, unsided/platform, heavy-haul, expedited hazmat, power-only, cargo van services or straight truck. Through the efforts of our unique capacity network, the total number of loads hauled via truck exceeded the record 2020 fourth quarter by 22%. That increase in the 2021 fourth quarter over the 2020 fourth quarter was driven by an impressive increase in the number of loads hauled via van, unsided/platform equipment, less-than-truckload and other truck transportation services by 21%, 17%, and 13% and 43%, respectively. In the 2021 fourth quarter each of these lines of business within our truck service offering set a new all-time quarterly record for the number of loads hauled. The number of loads hauled via truck increased 7% over the 2021 third quarter, one of the highest 13-week period increases from Q3 to Q4 in Landstar history. The increase in loadings was mostly due to consumer durables, automotive and substitute line haul loads, while metals and machinery loadings were approximately flat to the 2021 third quarter. However, the number of loads hauled via truck in the machinery and metals commodities in the 2021 fourth quarter compared to the 2020 fourth quarter increased 14% and 25% respectively, contributing to the 70% increase in loads hauled via unsided/platform equipment. That growth is a positive sign for flatbed business heading into 2022. Loads hauled via BCO capacity increased 6% over the 2020 fourth quarter on a 10% increase in the average number of BCO trucks during the 2020 fourth quarter, offset by lower truck BCO utilization up 3%. During the 2021 fourth quarter, approximately 78% of loads hauled via BCO truck utilized a Landstar trailer, primarily in drop and hook operations. Truckloads hauled by third-party truck brokerage carriers increased 36% over the 2020 fourth quarter to a new quarterly record of over 400,000 loads. Ocean revenue increased 266% above the 2020 fourth quarter. Rates, which are somewhat influenced by mix, increased 127% over the 2020 fourth quarter, while ocean volume increased 61%. The growth in loadings was attributable to a few new agents in 2021, plus growth within the existing agent network. Landstar's customer base continues to be highly diversified. During the 2021 fourth quarter, revenue contributed by Landstar's top 100 customers by 2020 fourth quarter revenue contributed 44% of the 2020 fourth quarter revenue. Revenue from those top 100 accounts in the 2020 fourth quarter increased 33% over the 2020 fourth quarter. Revenue of customers beyond those top 100 accounts increased 66% over the 2020 fourth quarter. To put Landstar's lack of customer concentration in perspective, revenue from the 100th customer by revenue was only $2.8 million in the 2020 fourth quarter. I will now pass it to Fred to comment on additional P&L metrics and a few other fourth quarter financial statement items. Fred?

All right. Thanks, Jim, and good morning, everybody. Jim covered certain information on our 2021 fourth quarter and full-year performance. I'll cover some of the other key fourth quarter financial information included in the press release. Starting with the gross profit and variable contribution. This is a reminder of what we discussed last quarter. Cost of revenue has two categories: variable cost of revenue and other cost of revenue. Variable cost of revenue includes purchase transportation and agent commissions, while other cost of revenue includes numerous costs that fluctuate to differing degrees with revenue, including trailer depreciation and maintenance costs, BCO recruiting, training and qualification costs, insurance-related expenses such as premiums paid and cost of claims for various freight transportation-related insurance policies and other costs included in SG&A in the company's consolidated statements of income. For example, insurance brokerage commissions and other fees incurred to administer the insurance programs available to BCO independent contractors that are reissued by the company, reinsured by the company, as well as costs related to our internally developed technology that directly supports our revenue, as detailed in the table in our earnings release reconciling gross profit to variable contribution. In the 2021 fourth quarter, gross profit was $209.8 million, an increase of roughly 48% compared to $141.7 million in the 2020 fourth quarter. Gross profit margin was 10.8% of revenue in the 2021 fourth quarter, only slightly below the 10.9% gross profit margin in the same period of 2020. Also as a reminder, in conjunction with the definition of gross profit, we initiated the use of the term variable contribution last quarter. This is a non-GAAP financial measure to refer to the amount represented by revenue less our variable cost of revenue, which again includes purchase transportation and agent commissions, as detailed in the table I just alluded to in our earnings release. In addition, we define variable contribution margin as a non-GAAP financial measure as variable contribution divided by revenue. This measure has always been and continues to be an important one for us. Purchase transportation and agent commissions are the primary expenses that are 100% variable with revenue and give us a view into spot market trends in the freight transportation industry on a shipment-by-shipment basis. In the 2021 fourth quarter, variable contribution increased roughly 44%, $263.3 million compared to $182.4 million in the 2020 fourth quarter driven by strong revenue. Our variable contribution margin was 13.5% of revenue in the 2021 fourth quarter, compared to 14.1% in the same period last year. The decrease in variable contribution margin compared to the 2020 fourth quarter was entirely attributable to the mix between our BCO independent contractor capacity as our brokerage business increased from 53% of total revenue in 2020 fourth quarter to 59% of total revenue in the 2021 fourth quarter. It's important to note that while our gross profit and variable contribution margin might feel some compression in times of significant growth where excess volumes are handled disproportionately by brokerage capacity, we still benefit significantly in terms of additional accretive earnings growth and cash flow. So, in my view, that's a good trade-off. Last point I'll make on these margins is that the year-over-year growth rate and margin performance of gross profit exceeded that of variable contribution due to the ability of the Landstar model to leverage the mostly semi-variable costs I described earlier that are included in gross profit. Moving on to our costs. Other operating costs were $9.4 million in the 2021 fourth quarter, compared to $7.4 million in 2020. This increase was primarily due to increased trailing equipment costs, increased BCO recruiting and qualification costs, and an increased provision for contractor bad debt. Insurance and claims costs were $30.3 million in the 2021 fourth quarter compared to $21.2 million in 2020. Total insurance and claims costs were 4.2% of BCO revenue in the 2021 period and 3.8% of BCO revenue in the 2020 period. The increase in insurance and claims compared to 2020 was primarily due to increased severity of current year claims during the 2021 period and increased unfavorable development of prior year claims. Selling, general and administrative costs were $62.6 million in the 2021 fourth quarter compared to $42.9 million in 2020. As we discussed last quarter, the majority of the increase is related to our variable cost, cash incentive compensation plan, and stock-based compensation arrangement driven by a record-setting financial performance this year. Wage and benefit pressure also contributed to the increase, partially offset by a decreased provision for customer bad debt. In the 2021 fourth quarter, stock compensation expense was $8.8 million and the provision for incentive compensation was $8 million. In the 2020 fourth quarter, stock compensation expense was $1.9 million and the provision for incentive compensation was $1.7 million. Depreciation and amortization was $13.1 million in the 2021 fourth quarter compared to $11.6 million in 2020. This increase was primarily due to increased depreciation of technology tools, resulting from the recent deployment of new and upgraded applications for use by agents and capacity. Our effective income tax rate was 23.3% in the 2021 fourth quarter compared to 22% in 2020. The effective income tax rate was favorably impacted in both periods by the resolution of certain tax items and tax benefits resulting from equity compensation arrangements. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $251 million. Cash flow from operations for 2021 was $277 million and cash capital expenditures were $23 million. In 2021, we returned $235 million to shareholders through a combination of regular dividends of $35 million, share repurchases of $123 million, and a special dividend of $77 million paid in January of 2021. After an increase in our authorization by our Board of Directors in December of 2021, we now have three million shares available for purchase under the company's stock purchase programs. And since we're on the topic of returning capital to shareholders, I want to be clear that returning capital is important but investing in our business is just as, if not more important for the long-term health of our company. These investments relate to our people, our agents, and our capacity, which we refer to collectively as our network, as well as our technology ecosystem. And they will continue to grow as we support a business that is much larger today than it has ever been and that is operating in an increasingly competitive environment requiring continuous improvements to our systems and processes. With that, I'd like to thank you all for joining us today and we'll now turn it back over to Jim.

Thanks, Fred. The environment continues to be strong as ever. Typically the first quarter of any year is seasonally softer than the preceding fourth quarter. I expect that to be no different in 2022, although at these levels, we expect a record first quarter performance. As such, I expect revenue per load on loads hauled via truck to be flat to down 3% compared to the recently completed 2021 fourth quarter. I expect the number of loads hauled via truck to be 8% to 10% below our record-setting truckload count of the 2021 fourth quarter. Based on those expectations, revenue guidance for the 2022 first quarter is estimated in a range of $1.7 billion to $1.75 billion. And based on that level of revenue, I expect earnings per share to be in the range of $2.70 to $2.80 per share. Assuming we achieve revenue guidance, revenue would easily be a record for any first quarter, 32% to 36% higher than our record 2021 first quarter revenue. Also, assuming we achieve our earnings per share guidance in the 2022 first quarter, earnings per share would exceed the record 2021 first quarter earnings per share by 34% to 39%. Although it’s too early to predict operating conditions for fiscal 2022, operating conditions that led to our record-breaking year have so far carried through the first few weeks of January. As demand for van capacity as well as other truck services remain robust throughout the 2021 fourth quarter, we experienced our strongest quarter of the year with respect to the demand for flatbed services. We also continue to see very broad-based demand for our services across industry sectors. We begin the year with a record number of trucks provided by BCOs, a record number of approved carriers, and an unparalleled network of independent agents ready to meet and exceed the needs of our customers. Landstar is very well positioned heading into 2022. Landstar's network of small and large business owners provides the expertise to satisfy shipper demand in almost every sector in every geographic region in North America, sourcing capacity of varying equipment types, while Landstar provides the tools, financial support, and capacity network to empower their success. The strength and resiliency of the model proves itself over and over again; 2021 was no exception. As a final note, before we turn to questions, I want to take this opportunity to recognize and thank all of our Landstar employees, agents, BCOs, and other capacity providers for an incredible performance in 2021, as we now look forward to all we can accomplish together in 2022. And with that, we will open to questions.

Thank you very much, Sir. At this time we will begin the question-and-answer session. [Operator Instructions] Our first question is coming from the line of Todd Fowler of KeyBanc Capital Markets. Your line is open.

Great. Good morning.

Good morning.

Thanks for taking the question.

Yes.

So, Jim to follow up on your comments there about looking out into 2022, and certainly, I understand that there's a lot of moving parts at this point. But you've shared in the past kind of your thoughts on how the years can progress, and it sounds like that you're comfortable starting off pretty strong here in the first quarter. What would your expectations be? I mean would you expect to follow normal seasonal trends off of 1Q, or do you expect things to kind of tail off as we get into the back half of the year?

You know, my position on optimism and pessimism, right? So I'm always – look we all thought after coming out of March, we were at peak. We thought coming out of June, we were at peak. Coming out of September, we thought we were at peak. And we're going to slow down in the fourth quarter. Here I am sitting here going to tell you the same story because that's who I am, right? I think eventually we're going to see that whether the shippers start to lock up long-term contracts, right. We shift a little bit from spot to contract pulling rates down a little bit or we see a softness in demand. I don't think the capacity is coming back in as much as we look at maybe the demand side a little bit more coming into the – maybe the end of the second quarter back half. But I still anticipate we're going to see some kind of transition, where spot pulls back a little bit and the contract market kind of accelerates with these longer-term deals as opposed to where we have been. Look for four quarters in a row, we've been saying we're going to see some kind of peak and we're going to see a conversion. But my pessimism will say, I just think we're in an extended cycle. And I think we're going to cycle back and a question everybody's asking is when does it happen? And if you ask me, I would say that I don't think it's going to be dramatic but I think you're going to see leveling off or cycling down a little bit maybe early summer. It's just based on the way things cycle over time and some of the things we're seeing. So you are getting a little more increase on 12-month contracts as opposed to the many bids. It's not a big deal, but that would be a sign that maybe shippers are starting to understand that these prices may stay. And if they do lock up 12 months, clearly, they'd be a little bit lower than spot. But I think that's what you're seeing in some of the indications with driving that summertime thing. The other thing we got -- like we don't give full-year guidance really because of the unpredictability of the spot market you see how it turns. But the one thing we do, we would -- you're talking about -- there's a little more predictability in our cost below the line below variable contribution and to share some of that Fred probably can give some input on what we think like below the variable contribution line.

Yeah. Sure, Jim. So just to give you some context you recall that in the -- for our cost structure you'll recall in the third quarter we talked about having some tailwinds going into 2022 from our variable compensation and stock-based comp plans, I think we said specifically $35 million of tailwinds. So that's obviously part of the cost structure picture. And as you might expect, there's also some headwinds going into this year. So let me just put those into maybe three broad categories. First, I think of a category being as kind of a normalization of our cost, as we hopefully are able to do things this year that we were not able to do in 2021 for that matter even in 2020 due to COVID. So I'll elaborate a little bit on that in a moment. The other two kind of buckets I kind of think of is costs related to just supporting what is now a much larger business than it was even a year ago and then investments that are going to enable our growth going forward. So let me just go through those in a bit more detail and give you some of the rough ranges for the expense lines as we report them in our P&L. So first, as I mentioned, we expect to spend more on travel. This is related to COVID as we have more events to support and recognize our agent capacity compared to what we did in 2021, where of course our spend was quite suppressed due to COVID. So we're at least planning for a more normal year on both the travel and events front. Second, we're continuing to make investments in people and external services to support the growth that we've experienced over the last year and support our strategic long-term investments in technology. So that means more people to keep up with higher truck volumes, more load volumes, and more external spend including software and services to accelerate our IT investments. And you won't be surprised to hear that we experienced a fair amount of inflation last year on wages and benefits, which we haven't fully lapped as we enter 2022 and frankly, I think most people I think would agree with me that that's not going away anytime soon in 2022. So everything I just mentioned will impact our SG&A costs, which are expected to run roughly $50 million to $55 million per quarter, lower in the first quarter and then increasing in the second quarter due to our big agent convention in the second quarter that I think you all are probably familiar with, as well as some of the items -- some of the other items that I just mentioned. And then just as a reminder, our SG&A costs are comprised of probably 65% to 70% of that is related to compensation and benefits. And then lastly, but very important on the investment front, we did make investments in trailers last year to keep up with a growing number of BCO trucks. That investment was a bit more skewed to the second half of the year. So we have yet to lap the full depreciation impact of those acquisitions. And then in addition, we also plan to take additional trailer deliveries this year to replace some older trailers. So a little bit of growth, but a lot of that being replacement in 2022. And unfortunately, and probably also not too surprising, we're seeing inflation on trailer prices that are in some cases in excess of 30% in 2022 above what we were paying in say early 2021. So that obviously will come into play as well on our depreciation expense line this year. So between the trailer investments and the launch of some of the new and enhanced software tools that I was alluding to both what we deployed last year and what we expect to deploy this year is going to have an impact on depreciation. Our expected total depreciation expense will be in the range of $14 million to $16 million per quarter, again similar to SG&A a little bit lower in the first quarter and then increasing in the following quarters as we take more trailer deliveries and also put into service some of the various tools that I was just alluding to. And then on our other operating costs those should range from between $9 million to $11 million per quarter subject to gains on the older trailer dispositions that I was just referring to. We do expect trailer maintenance, which makes up about 75% of our other operating costs to go higher as the cost of labor have gone up as well as we've got more expensive tires and parts largely related to parts shortages that we've been seeing for some time. And then our largest -- our second-largest expense line rather is insurance and claims, second-largest after SG&A. And we do expect it to trend higher this year compared to last year. Just as a reminder about 25% of that insurance and claims expense line is made up of fixed insurance premiums and the remainder relates to insurance claims, which are highly unpredictable just based on the nature of our business. We typically measure insurance and claims cost as a percentage of BCO revenue since a significant majority of the cost relates to revenue hauled by our BCO network. And then just for purposes of forecasting, we're using 4.2% of forecasted BCO revenue for the full year estimate. But, obviously, the ultimate outcome as you can imagine will vary it will depend by the severity and frequency of accidents that we'll have this year along with any changes to the BCO rates of revenue per load, which can impact the insurance and claims as a percentage of BCO revenue compared to the 4.2% forecast that I just mentioned. So that's a not so short rundown of how we're thinking about our cost structure for 2022, but I thought it might be helpful to just take you through that.

So Todd with that question, we probably only have time for one more.

I've got to turn it over at this time.

We just really want to -- we always like to start the year. Like I said those costs are a little more predictable. I'd just like to share that so you guys have a feel about what we're thinking about below the line again unpredictability of the spot market. but we're kind of comfortable with the below-the-line cost a little bit other than as you know insurance is a little bit more unpredictable.

Yeah. No I appreciate the line of sight into what you guys know. Jim, I will ask one follow-up and I'll turn it over. But can you speak to the shift to the percent of revenue that's coming from brokerage revenue versus BCO, and I know you're not having a problem finding capacity, BCO utilization is coming down a little bit. But do you expect that to be a shift here that we're going to see for the next couple of quarters and then normalize or is that more of a permanent shift in the business?

I think if you look over time it's been a permanent shift in the business. To the extent -- like if we -- I would love to add another couple of thousand BCOs and just hold that 50/50 split, but in reality, it's just not the way it works. So all the excess freight, it's not even excess. Some of the brokerage freight is truly brokerage freight because of third-party trucks. But I would expect that's a continuing part of the business model where the brokerage continues to grow. And that's fine with us because there's not a lot of infrastructure costs on that third-party truck business when a third-party truck hauls a load, like insurance is a lot lower risk for us on a third-party truck than a BCO. As you know we're subject to the liability independent BCOs and acts whereas we're not necessarily subject on the broker. So I would expect that brokerage -- truck brokerage to continue to grow as a percent of our revenue over time.

Yeah. Okay, make sense. Hey, thanks so much for the time, and congratulations on a really strong year.

Yeah. Thanks, Todd.

Thank you. Our next question is coming from the line of Scott Group from Wolfe Research. Your line is open.

Hey, thanks. Good morning guys.

Good morning.

Good morning.

Jim when I look at the first quarter guidance on the sequentials, it looks like maybe pricing a little bit better than historical and volume sequentially maybe a little bit worse. Can you just talk about the pricing and volume environment you're seeing so far in January if you're seeing any impact from Omicron?

No. On the pricing side, probably a little bit better because January doesn't seem to be pulling back -- we're four weeks into January, and the revenue per load is still pretty elevated compared to where you'd see it drop from December to January. So it's seasonally a little bit better than what we're seeing. So it's really that pricing is just based on what we've been seeing and we don't expect a significant turn in the next -- what is it -- what we got left, eight weeks. So that's on the pricing side. On the volume side, I'll just tell you that we had a little weather disruption in January. So it's a little hard to predict. I can't tell you that the four weeks of January are represented the entire quarter. So I would say that we might have been a little conservative on the volume side to be honest with you. That 8 to 10 might be conservative. So I think that's what you kind of implied and I would agree that we probably may have built to maybe a little more storms and a little more disruption because it was based on a January run rate but nothing unusual. Really, it's just we might like I said it is a guess for the next eight weeks where we think we're going to come out based on what we're seeing in the market.

Okay. The net operating margins were, I think, 55% last year. The expense guidance last question was helpful. But when you add it all up do you think you can improve on that this year?

I think it's going to be very difficult to improve on that. But it really all has to do with yes we can if we can get the variable contribution to grow. But I think it would be a little bit difficult to grow for that 55% that we've put up this year. Now again there's a whole bunch of factors in there right? If we're safer in 2022 than we were there's more chance that we can do it. But you need safety, you need to be safe and we need a little bit of boost in the variable contribution to offset some of that inflation we're seeing in the cost.

And then just last thing just big picture. We've never seen this magnitude of brokerage volume growth for you guys. And it seems like it's happening when asset-based guys are struggling with probably from a volume standpoint. So I guess how are you thinking about the sustainability of this brokerage volume growth?

Well, I think it's -- we're highly diversified. So it's really market demand driven. And the one thing when the demand is like this and shippers can't find capacity it helps our agents build relationships where they haven't had relationships before. So I think it's sustainable, but it really has to do with demand side. If demand side drops the brokerage will come down as a percent of total. It's just the way the cycle works. But I think the higher highs with us if you follow over time things dip down but then we come out of these higher highs and brokerage is always the driver of the bottom, not always, but typically the driver of the volume, and I expect that to continue. And so I think it's sustainable just like every other cycle and continues to elevate higher you make it a little pull back based on what we're seeing or what we expect from a cycle side, but then it elevates again. But it's highly diversified. It's across so many customers. It's really hard to speak to specific customer-specific industry where it's driven from. It's really a demand-driven cycle.

Okay. Thank you, guys. Appreciate it.

Yes.

Thank you. Our next question is coming from the line of Allison Poliniak of Wells Fargo. Your line is open.

Hi. Good morning.

Good morning.

I want to talk to -- obviously the cycle is still strong and that softening expectation continues to get pushed to the right. But assuming that it will happen inevitably can you talk to what your team is doing to better prepare your agents and carriers to better manage that inflection versus prior cycles? Any color there?

I think they live it, right? Our agents have been on for a long time. We -- clearly we add new agents every year. You can see by our $181 million new agent revenue for 2021. But they live the cycle just like we do. We push out information as much as we can. If we start seeing the pricing and demand start to slide a little bit we try and push it out. Some of these guys -- we've got a lot of agents between $1 million and $2.5 million -- and they don't they're not up on the amount of information Landstar here has a corporate is a lot better than the information that a guy like maybe in Arkansas somewhere who's running $1 million and $2 million business. So we try and push out as much information as possible whether it's pricing capacity availability or stuff like that to the agent family so they can react properly in the event we see pricing starting to pull back. Historically what you'd see is our guys don't the agents don't necessarily react fast enough when pricing starts to pull back and then shippers what they do is they pull a business and they go to the lowest price. And those are the things we try and avoid. I think we're doing a better job at that today than we were five years ago because we have a pricing tool that didn't exist before. And we have a lot of -- we automated a lot of things over the last three years to help them in making quicker decisions on some of that. Of course, they're showing up in our depreciation as we roll these tools out but it's a benefit to the efficiencies of the agent family to try and react to the shifts in the market dynamic.

Great. That's helpful. And then I just want to go back to the comments on capital deployment. You share authorization I think you said $3 million. But just my -- I guess my expectation or the tone that I came away with was that's going to be less important versus the capital investments as we enter 2022. Just any color there in terms of how to think about balance as we move through 2022?

No. It's a cash spend thing more than it is. Depreciation is going to climb based on investments we made in the past. But I wouldn't say that our investments that we discussed during -- that Fred discussed are much higher than they were in 2021. It's really what's happening is on the expense side. It's starting to roll over. So, no we invest where it's important, but I don't think it's going to impact our ability to give back to shareholders to any material degree. We're really just trying to point out the investments we made and we'll be making and the impact more on the -- from the depreciating a software cost over the next five years right is really where we are. But the spending this year on those investments if it's $5 million or $10 million more than it was in 2021 that's all -- we're talking about. We're not talking about like a $50 million spend in excess of what we've done historically. It's pretty similar year-over-year.

Great. Thanks for the color. I’ll pass it on.

Thank you. Our next question is coming from the line of Bascome Majors from Susquehanna. Your line is open.

Yes. Thanks for taking my questions. Bringing it back to the SG&A comments within that $50 million to $55 million a quarter that you outlined earlier, can you talk about; number one, what the embedded reduction in incentive comp and including the stock comp is for the full year? And Jim, does the Board outlook to get to a 'target incentive comp level'? Does that assume the kind of 10% to 15% long-term growth rate of the company, or is there something different in that because of the unique cyclical environment we're in? Thank you.

The targets -- first off, I'll just say, we're still sticking with that $35 million tailwind.

Yes, that's right…

Heading into. But our targets vary each -- so the bonus the cash compensation is based on a target that is established actually in early January as a budget for 2022. And that does vary based on market conditions. Like if we have a -- if we -- for example, if we have a really bad safety year in 2021, we might see improvement in that line growing our target. But if we have a really safe year in 2021, we may have more insurance embedded in 2022 than we normally would have. So there's no -- we don't tie the 10% to 15% goals. The 10% to 15% is more of a long-term it's not year-over-year. Typically, if you look at the way we cycle, I mean, you kind of have to build that out over three to five years is what we're looking for as opposed to a year-over-year. The cash bonus target is one year and we really look at what we think is going to happen in a year to establish that which is like a onetime bonus is about $9 million compared to, I believe, we had $30 million this year. So it's really our target built on our expectations for 2022, which we're kind of outlined from the expense side Fred gave you those. We just don't really speak to the target we've established on the top line.

Thanks for clarifying that. And from a high level, over the last five years a couple of lines have really outgrown others like this other truck revenue 8% to 12% of your revenue. I mean, ocean and in air 2% to 5% of your revenue. And I think people understand a lot of what's driving the ocean in ARPs. But can you talk to rate impact there versus share gain and how durable you think some of that could be? And maybe a little more information on what's happening in this other truck in kind of business and how sticky versus cyclical that is? Thank you.

Hey, Bascome. Excuse me, this is Rob. On the ocean side, I think, it's no surprise that we continue to see disruption. We continue to see ships especially at the L.A. ports that they can't get in. The supply chain is disrupted. You've got several issues that are coming on especially in China with the Olympics. We've got Chinese New Year's going on. I think that continues. I think the rates obviously are elevated. I think it stabilized to a point to where they are. We saw a bit of a dip in rate just a little bit in December. It's kind of come back up in the first four weeks of this year. So I think that disruption for -- is just going to hang it kind of goes back to Jim's opening comments, as to when things start to tail off it really kind of depends on when we ship from consumer spending to more of a products and services spending it. And we believe at this point in time that's midyear. As far as the other truck transportation, we're talking substitute line hauled things. A lot of that is built around consumer spending. A lot of that is built around what we do from a substitute line haul from a package piece from different retail -- big box retail and things of that nature. So again, we're looking at it from a consumer spending side. And as long as we have people at home as long as we're disruptive COVID, we kind of see that trend continuing in the manner which is trending. Also to that point from the spot side of things, traditionally you're looking at 80-20, 90-10 kind of contractual versus spot market and that's split on its head right now. As Jim mentioned in his opening comments, we're kind of seeing the mini bids are still there but we – but I think on the contractual side of things, the customers are – while I don't see those rates decreasing, a whole lot, they're looking for stability, especially on the low-priced commodities they're looking for stability and what their supply chain is going to cost. And they're looking for the tender rejections to go down. They just have no clue right now. So they're looking to gain some control I guess over the supply chain. Is that answer for what you were looking at more?

Yes. I mean on the substitute line-haul and the other trucks just to clarify so that business is more heavily retail and parcel than most of the rest of your business? And to the point about spot, were you suggesting that there's more contractual sticky relationships there, or is it still fairly transactional?

No. No. I think it's more – mostly transactional right now. Again, I think tender rejections continue at an all-time high. And yes, I think from what you were speaking to the other it is absolutely – the majority of it is consumer driven.

Thank you.

Thank you. Our next question is coming from the line of Jack Atkins from Stephens. Your line is open.

Hey, guys. Good morning. Thanks for taking my questions.

Hi, Jack.

So I guess first question, Jim last week there was a lot of press around vaccine mandates at the US-Mexico border. Just sort of curious if you guys have seen any disruption from that in terms of freight flows? And as you kind of think about looking forward there is this perhaps an opportunity for some share gains, given your scale and presence within Laredo specifically?

Hey, Jack, this is Joe. I would have told you, I thought there would be some disruption but I talked to my guys yesterday and we really have not seen any significant disruption with the operators that are moving that freight across the border. They've done a pretty nice job at the crossing points, I think of communicating the need for the vaccination and they've actually set up a lot of mobile locations for those shuttle drivers to get the vaccine. So I think it's kind of a non-issue on the southern border at least to this point. And again, it's more about a weekend or so. On the northern border, I think there were some communication issues with Canadian agencies kind of contradicting each other a little bit, at least that's what I've heard. So I think it's a little bit different on the Canadian border. And I think it's catching some people a little bit more by surprise. And I would – as you would think and that will probably impact rates if it doesn't get resolved.

Okay.

Just to put it in perspective so you guys have a sense of what we do. Our cross-border Mexico business was about $550 million of revenue in 2021 and cross-border Canada was about $160 million.

Okay. That's helpful. Thanks so much for that Jim and Joe. And I guess Rob maybe follow-up questions for you. Could you maybe give us an update on Landstar Blue? And maybe what are your expectations for that business in 2022?

Yes. Landstar Blue continues to grow in the contractual brokerage market while we continue to add trailers. We continue to put on awards. Again, I think the time is right kind of as I spoke to the last question as to tender rejects are all-time low. We continue to reach out and work with our customers. We continue to bring on that business and then match that with the capacity that we have available to us as we continue to grow our capacity models.

Okay. So you would expect just given what you were saying earlier about shifting from the spot market to the contract market, can we see some pretty meaningful growth? And could Landstar Blue be a pretty – a much more significant contributor to the top line in 2022, do you think?

Yes. 2021 I think we put up – roughly $42 million in revenues for the first year and we absolutely look for that to continue to grow. Again, capacity continues to come to us. We continue to work strategically from a contractual standpoint with our customers and I absolutely believe, as we look at this business year-over-year moving forward, it will be a greater contributor.

Jack there's – we still have a little build out to do there with on the tech side. We're not fully automated. We've built out – it's a separate TMS really over a Blue to handle dedicated more contract-type business. But there's still a little work to do to get to accelerate growth there right now it's a little bit more manual -- and over the next year or two we should be able to automate some more of that functionality when you automate the capacity side and the customer side. So, it's kind of a standalone really to head more contract business as opposed to that spot business. So, we need a little of that technology in place to really accelerate some growth there. I'm not trying to discount Rob's ability to grow but he is a little hampered until we get him the tools they need --

Well, I'm a positive guy in the company which doesn't go well.

Well that sounds great. Thanks so much for the time guys. Always appreciate it.

Yes, thank you.

Thank you. Our next question is coming from the line of Charlie Yukevich from Evercore. Your line is open.

Good morning. Thank you for taking my call and congrats on the quarter. I was wondering if you could give us some more color on the individual truck segments for the first quarter guidance just with regards to volume and pricing? And then how those segments have been performing in January so far?

Well, I think what you're seeing is more of the same from the fourth quarter. It's all carried over. Flatbed was a record volume in the fourth quarter and there's still strength there. On the van side, it's more of the same. We're still seeing strong consumer durables coming across. And then on the -- what we call the other truck transportation which is 70% to 80% power-only is kind of where we bring in a tractor and there's a load of trailer for us and not one of our trailers, it's a third-party trailer. We're seeing consistency coming out of the fourth quarter. So, I don't think there's any special thing to say we're seeing flatbeds booming. Although flatbed is doing really good I think we're seeing consistent as we travel out of December into the first quarter. And typically you'll see a little bit of drop off in the flatbed side due to freeze and stuff like that. I'm not sure we're seeing that this year on the flat side. I think it's -- flat is still holding on pretty well.

Okay, great. And then as a follow-up when you talk about the cycle leveling off and cycling down early summer do you see that more as a product of additional capacity coming online or demand?

I think it's more of a shift from spot to contract and more of maybe a softening in demand. But my crystal ball is about as good as anybody else's. We've been guessing peak for the last four quarters. But to me it's a demand thing. I still think there's issues with even though you see some of the truck manufacturers starting to push out more trucks I still think you got a little couple of issues there. You still have the there’s no resolution to the drug and alcohol mandate which has got I don't know 80,000 guys on the sideline. They're talking about putting these younger drivers to do an interstate but they're required to have a driver with them. So, I don't see the capacity side really turning that quickly. I think what would turn quicker is based on inflation consumer confidence being done is the demand. I'm more of a demand guy here on my pessimism.

Okay, great. Thanks a lot.

Thank you. Our next question is coming from the line of Jordan Alliger of Goldman Sachs. Your line is open.

Yes hi. We've obviously seen big surges for everyone in ocean and air forwarding previously segments that perhaps weren't such a major focus or a major growth area. Just curious with this bigger chunk of growth in terms of revenue? Is it an area that you may need to scale into more? Is it something you feel has a permanence to it once all the supply chain stuff goes away in terms of emphasis?

Well, part of the growth is actually a few new agents we put on board. So, that's clearly the market share gain with guys who have real expertise in that area. But in all honesty, we probably have 10 agents that are experts on the ocean side maybe now we have 12. So, it's really driven by those guys. It used to be more project-driven, but I think we are doing a better job in getting more routine ocean line stuff. So, if we're going to grow it out of there that's where the expertise is. But I don't -- I think we did a pretty good job of recruiting agents into that this year with some guys of expertise. We have a good support function of employees here and good connections. But from a long-term perspective I think truck is still going to dominate and we're trying to break more into ocean there's no question, but I wouldn't expect to see accelerated growth coming out of there like it just did. Remember a lot of it was rate although we did good on volume rate and new agents.

Yes, Jordan, if you look at what we released in our earnings release we do break out volume and rates on ocean and air cargo carriers. And as Jim said rate was up almost 150% right compared to volume which was also good up closer to 29%. So, clearly a rate-driven revenue increase and the question is how sustainable is that longer-term right when you -- rates going from $4,700 to almost $12,000 per load.

Makes sense. And then you alluded to IT and some things you may do for a particular area. I'm just curious, broadly speaking as you think about your technology and you also mentioned there would be some investment there versus competition overall. How do you feel you benchmark or stack up? Is there things that you need to catch up on or is it really just more on the margin in certain products?

I don't think we need to catch up on everything -- anything. I think we've got everything everybody else has. We just don't talk about it as much. We're not -- like I say, I'm not pitching my technology investments to the investment community. I'm doing it for the people who drive the business, right? And you look at what we've done over the last three years, we've probably, I would admit that maybe five years ago we were a little concerned that we weren't keeping up with the app-based and cloud-based world. But in the last three years, we've gotten to the cloud, we've developed the information highway we have. We're using middleware to share, like I said -- like I tell everybody for simple minds like mine, we've gone from a concrete block to Mr. Potato Head, so we can plug and play. We've rolled out pricing tools, a visibility tool. We've automated the credit process. We -- our trailer pool. So, as I said at the opening, I think about 80 -- 70% to 80% of the BCO freight is actually on one of our trailers and there was a lot of manual process behind that. And we're a little unique in the way we do our trailers, but now it's all monitored electronically, they can see where trailers are our stuff. So that's what we're doing. There's no way I think we're behind. I would say that we're probably ahead. Our mobile app, we call it Landstar One has all the capability of anything else you'll see out there. I mean, it provides all the available loads, advises fuel stops and stuff like that. So, what it is, is that -- what you're seeing is the things we've invested over the last three years, we continue to enhance them. We're adding new tools and it's just adding a little bit to our depreciation line. But I think we're -- I'm not going to ever refer to this as cutting edge because that's not really our job, but we are right in line with or above anybody else that's got the technology out there.

Great. Thanks so much.

Thank you. Our next question is coming from the line of Bruce Chan from Stifel. Your line is open.

Hi guys, this Casey Deak stepping in for Bruce today.

Sure.

How are you?

Good.

So first, I wanted to ask a little bit about the end markets. It looks like we saw some good growth auto and industrial growth. Do you look at that or those end markets and look at that as an indication that there's some fluidity back in the supply chain seeing some things work together a little better?

Well, when you look at automotive, I think we're just doing a good job of penetrating into an account that isn't necessarily driven by the big three, right? So there's a -- within that grouping, it's a little more concentrated than most of our other groups as it relates to customer base. And I think there's still disruption in the auto side. I think we're just doing a pretty good job with satisfying the request from certain customers we have out there. But we can kind of speak to most of the sectors and what we think is going on at the level that's in our earnings release. Consumer durables you talk to that one. That's so highly diversified. It's hard to -- it's such a big part of our business. It really flows with what's going on in the consumer market, right? There's not a single customer that makes up more than 3% or 4% of that business. So, it's really -- that's a market-driven, where automotive really is more of a line on about four or five specific shippers. And as I said, we're doing a pretty good job penetrating into one shipper, as opposed to an overall industry. Machinery stuff by up 43% again another dynamic that's just -- it's part of -- I think if you go back to last year, we were talking about if consumer -- flatbed was kind of soft, right because the manufacturing sector, the heavy manufacturing was kind of soft in the first half of 2021. And consumer demand was through the room. We were growing revenue and it was all coming from then and we started talking about well, if consumer drops off, we'll probably see flatbed start to pick up because sooner or later manufacturing has got to come back and it's actually -- that's what's going on, right? So we're seeing -- on the machinery side and even the metal side, we're seeing some pretty growth there, but just because that environment is coming back. So that's kind of what we see. Substitute line haul, we see it only grew 11%. But the thing there is the volumes actually grew as just we saw to a specific business, we were counting those multi drops was going to be one load. It was driving the rate up higher, but we saw the rate drop, but it's really a condition of mix, not necessarily the rates going down there. So we only grew 11%, but it was actually on a volume growth with decrease in revenue per mile just because of that. We went from having multi drops in a long route and then we're now doing shorter routes. But that's kind of what goes on. If you have any other sector stuff, food stuff is pretty small, but it's mostly highly diversified customer base within here other than the automotive, which is a little more concentrated.

Yeah. I'd say, the only other sector stuff that I wanted to ask about was kind of building products. It looked like it grew pretty well. The – we heard one of the rails speak about their expectations for soft housing starts in 2022. Do you guys – what are your expectations there? Is there an agreement with that assessment? And what's the impact that you would expect for flatbed in the event that we had those soft housing starts this year?

Well, if you ask me I'm a pessimist. It's all going to go to zero. In all honesty, look no, I would say that that building products thing has been relatively strong. And I would expect the housing starts or stuff like that to kind of pull it back. I think everybody's got a new roof on their house or siding and stuff like that. So, my expectation would be that you do see that's part of the slowdown in the summer. But again, my crystal ball is as good as anybody's.

Yeah. Okay. I got you. And then I just have one more for you and I'll turn it back. We know that M&A has been lower on the kind of the capital stack for you guys not a huge lever that you pulled. But we do see some of your peers some of your competitors making some investments in logistics technology and of the sort. I heard about you talking about some of the needs in Landstar Blue like is that something that you consider that you look at that you might need for use of cash going forward here?

Yeah. Well absolutely. If we saw an opportunity on the tech side or the capacity side, we would look at it just nothing's popped right now. We do use some third-party services that actually provide some of the tools that we use over at Blue. If there was an opportunity, our eyes are open. I'm not saying we see one out there right now, because our technology actually is all. We like the homegrown stuff that we have and we haven't found anything that would actually be additive. But if there was something we clearly would look at it. There's nothing on the horizon though.

Okay. That sounds great. I’ll turn it back. Thanks, guys.

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

Yes. Thank you, and I look forward to speaking with you again on our 2022 first quarter earnings conference call currently scheduled for April 21. Have a good day.

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