Landstar System Inc Q1 FY2023 Earnings Call

Good morning, and welcome to Landstar System Incorporated's First Quarter Earnings Release Conference Call. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us today from Landstar are Jim Gattoni, President and CEO; Jim Todd, Vice President and CFO; 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, Bill. Good morning, and welcome to Landstar's 2023 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, by nature, is subject to uncertainties and risks included, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2022 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. Given the current freight environment with soft demand and readily available truck capacity, Landstar performed relatively well in the 2023 first quarter. Heading into the 2023 first quarter, demand for truck transportation services was somewhat soft. In addition, Landstar was faced with probably the most challenging quarterly financial comparison in its history. Landstar's 2022 first quarter was not only our best ever first quarter performance, but the best quarterly financial performance for any quarter in the company's history. Prior to 2022, the 2021 first quarter established a new all-time record for first quarter revenue at Landstar. 2022 first quarter revenue exceeded the '21 first quarter by 53%, growing by over $683 million. In fact, net income and diluted earnings per share each established new all-time Landstar quarterly records in the 2022 first quarter that remain unbroken today. In contrast, the freight environment was dramatically different in the 2023 first quarter. Looking back at the 2022 first quarter, consumer demand was very strong and supply chain disruption was at its peak. Those conditions resulted in a lack of available truck capacity, driving truck transportation pricing to all-time highs. Following the 2022 first quarter, demand began to soften as supply chain bottlenecks began to clear. Beginning in the summer of '22 and carrying through today, we are clearly in a different freight environment. Truck capacity is more readily available with market conditions currently favoring the shipper. As it relates to Landstar's 2023 first quarter performance, our results were generally in line with what we expected. Our first quarter guidance calls for the number of truckloads hauled via truck to be below the 2022 first quarter in the 10% to 12% range and overall revenue per truckload to be below the 2022 first quarter in a range of 15% to 17%. The actual number of loads hauled via truck in the 2023 first quarter was 12% below the 2022 first quarter at the low end of the truckload volume guidance. Actual revenue per truckload in the 2023 first quarter was 14% below the 2022 first quarter, slightly better than the high end of the truck revenue per load guidance. The slightly favorable variance on revenue per truck load compared to guidance was mostly driven by a higher-than-anticipated revenue per truckload in January, offset by lower-than-anticipated revenue per truckload in February. March came in near our expectations. In the first several weeks of April, truck revenue per load is trending slightly below normal sequential month-to-month trends. As to our air, ocean and rail intermodal transportation services, 2023 first quarter revenue was $108 million or 55% below the 2022 first quarter. The significant decrease in this non-truck transportation revenue was in line with our expectations of lower volumes across all the other modes and the expectation of a significant decrease in ocean revenue per shipment. The decrease in revenue of our non-truck transportation services was mostly due to a 48% decrease in ocean revenue per shipment, and lower volume of 39%, 32% and 9% in rail, ocean and air services, respectively. With respect to conditions in different parts of the truckload market, as mentioned in the earnings release, revenue on unsided/platform equipment held up considerably better than revenue hauled via van equipment and other truck transportation services. The quarter over prior year quarter revenue comparison for van were much more challenging than those for revenue on unsided/platform equipment. Revenue on van equipment in the 2022 first quarter crushed all-time first quarter records for van loadings and revenue per load. Revenue hauled via unsided/platform equipment, although also still strong in the 2022 first quarter by historical standards, was less impacted by peak supply chain disruption and heightened consumer demand. One metric we follow is revenue per mile on loads hauled by BCO trucks, which tends to be a more pure indicator of pricing, as this data excludes fuel surcharges billed to customers that are paid 100% to the BCO. Revenue per mile on van equipment hauled by BCOs in the 2023 first quarter was 26% below the 2022 first quarter. In contrast, revenue per mile on unsided/platform equipment hauled by BCOs in the 2023 first quarter was only 6% below the 2022 first quarter. It should also be noted that although the market has softened significantly from a year ago, Landstar revenue per mile on BCO van and unsided/platform equipment both remain above the pre-pandemic 2020 first quarter by approximately 30%. I believe the rates will remain higher than pre-pandemic levels given the significant amount of additional cost pressure to operate a truck today as compared to 3 years ago. Turning to volume. Total loadings on all modes in the 2023 first quarter were almost 13% below the 2022 first quarter. Loadings in our top 25 commodity categories, which make up about 70% of our load volume, were down a combined 10% compared to the 2022 first quarter. From the 2022 first quarter to the 2023 first quarter, total loadings of consumer durables decreased 11%. Automotive equipment and parts decreased 15%, hazardous materials decreased 4% and building products decreased 16%, while machinery increased 2%. Landstar is known throughout our industry as a key truck capacity provider to other trucking companies, 3PLs and truck brokers. During periods of tight truck capacity, those entities reach out to Landstar to provide truck capacity more often than during times when more readily available truck capacity exists. The freight hauled by Landstar on behalf of other truck transportation companies includes almost all our commodity group base, including our substitute line haul service offering. Substitute line haul loadings was one of our strongest commodity performances throughout the pandemic. However, load volume for this service offering varies significantly based on domestic consumer demand and decreased 60% in the 2023 first quarter from the 2022 first quarter. Overall, revenue hauled on behalf of other truck transportation companies in the 2023 first quarter was 47% below the 2022 first quarter, a clear indicator in our model, that capacity is more readily accessible. Revenue hauled on behalf of other truck transportation companies was 18% and 24% of revenue in the 2023 and 2022 first quarters, respectively. Our business remains highly diversified with over 25,000 customers, none of which contributed over 4% of our revenue in the 2023 first quarter. The decrease in truckload volume we experienced quarter over prior year quarter was primarily driven by changes in the overall freight environment rather than the loss of any major accounts. During the 2023 first quarter, BCO truck count decreased by 472 trucks and has decreased approximately 9% versus this time last year. Historically, Landstar has experienced increased turnover in BCO truck count when truck rates decreased. Over the past 12 months, truckload rates decreased at the most rapid pace in recent years. The largest truckload rate decrease was with respect to services provided on van equipment, which is a primary equipment type hauled by BCOs. BCO turnover has also been influenced by a significant increase in the cost of repairs and extended periods of time trucks are out of service awaiting parts. The ability to get back on the road is also impacted by the high cost of used trucks, which impacts the potential for BCOs to trade their existing used truck for a newer used truck that may be less subject to unscheduled maintenance issues and unforced downtime. I will now pass to Jim Todd to comment on other additional P&L metrics regarding the 2023 first quarter performance.

Thanks, Jim. Jim G has covered certain information on our 2023 first quarter, so I will cover various other first quarter financial information included in the press release. In the 2023 first quarter, gross profit was $152.9 million compared to gross profit of $214.6 million in the 2022 first quarter. Gross profit margin was 10.7% of revenue in the 2023 first quarter as compared to gross profit margin of 10.9% in the corresponding period of 2022. In 2023 first quarter, variable contribution was $208.7 million compared to $270.5 million in the 2022 first quarter. Variable contribution margin was 14.5% of revenue in the 2023 first quarter compared to 13.7% in the same period last year. The increase in variable contribution margin compared to the 2022 first quarter was primarily attributable to an increased variable contribution margin on revenue generated by truck brokerage carriers as the rate paid to truck brokerage carriers in the 2023 first quarter was 330 basis points lower than the rate paid in the 2022 first quarter. As a result, variable contribution per truck brokerage load increased 9% in the 2023 first quarter compared to the 2022 first quarter, despite a 10% decrease in truck brokerage revenue per load. Other operating costs were $12.4 million in the 2023 first quarter compared to $11.1 million in 2022. This increase was primarily due to increased trailing equipment maintenance costs and an increased provision for contractor bad debt, partially offset by increased gains on sales of used trailing equipment. Insurance and claims costs were $27.6 million in the 2023 first quarter compared to $30.8 million in 2022. The decrease in insurance and claims costs as compared to 2022 was primarily attributable to decreased net unfavorable development of prior year claim estimates and decreased severity of accidents during the 2023 period. During the 2023 and 2022 first quarters, insurance and claims costs included $1.9 million and $4.3 million, respectively, of net unfavorable adjustments to prior year claim estimates. However, total insurance and claims costs were 5.3% of BCO revenue in the 2023 period and 4.2% of BCO revenue in the 2022 period. The 110 basis point increase in insurance and claims cost as a percentage of BCO revenue was almost entirely attributable to the 19% decrease in BCO revenue per load. Selling, general and administrative costs were $53.6 million in the 2023 first quarter compared to $52.7 million in 2022. The slight increase in selling, general and administrative costs was primarily attributable to increased information technology costs and increased wages, almost entirely offset by a decreased provision for compensation under the company's variable programs and decreased employee benefit costs as a result of favorable medical and pharmacy loss experience. In the 2023 first quarter, the provision for compensation under variable programs was $3.3 million compared to $7.2 million in the 2022 first quarter. Depreciation and amortization was $15.2 million in the 2023 first quarter compared to $13.8 million in 2022. This increase was almost entirely due to increased depreciation on software applications, resulting from continued investment in new and upgraded tools for use by agents and capacity. The effective income tax rate of 23.3% in the 2023 first quarter was 50 basis points higher than the effective income tax rate of 22.8% in the 2022 first quarter, primarily attributable to larger net excess tax benefits from stock-based compensation arrangements during the 2022 first quarter. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $388 million. Cash flow from operations for the 2023 first quarter was $139 million and cash capital expenditures were $6 million. Back to you, Jim.

Thanks, Jim. Our record success in the 2022 first quarter made for very difficult year-over-year comparisons. Heading into the 2023 second quarter, year-over-year comparisons are only slightly less challenging. Beginning in the 2022 second quarter, we began to see truck pricing soften. Sequentially, revenue per truckload in the 2022 second quarter was 3.7% below the 2022 first quarter. However, truckload has continued to be strong in the 2022 second quarter, increasing 3.6% over the 2022 first quarter. Yesterday's earnings release made note that early April truckload count was trending below historical seasonal monthly patterns. Given the lower start in truckload volume in early April, we are anticipating that sequential month-to-month trends in truckload count will return to more normal patterns in May and June. Taking into account our early April loadings experience and assuming the return to normal month-to-month trends, we expect truckload count in the 2023 second quarter about equal to the 2023 first quarter. This compares to an average increase in truckload volume of approximately 8% when comparing historical first quarter to second quarter truckload volume. We expect truckload pricing to be significantly below the 2023 first quarter as rates have slightly softened in early April. We expect 2023 second quarter revenue per truckload to be below 2023 first quarter revenue per truckload in a range of 1% to 3%. The decrease compared to the 2023 first quarter is primarily due to January 2023's relatively strong truck revenue per load which drove the average for the first quarter above the starting point of the second quarter. We also expect revenue for our non-truck modes to exceed the 2023 first quarter by 10% to 15%. Based on these assumptions, we expect revenue in the 2023 second quarter to be in the range of $1.4 billion to $1.45 billion, and diluted earnings per share to be in the range of $1.90 to $2. The 2023 second quarter guidance incorporates a variable contribution margin range of 14.2% to 14.4%, and insurance and claim costs similar to the 2023 first quarter. There are some specific items impacting the 2023 second quarter range of diluted earnings per share guidance of $1.90 to $2 compared to the 2023 first quarter actual diluted earnings per share of $2.17. Second quarter SG&A is expected to be above the first quarter due to the cost of Landstar's annual convention in April, plus we expect employee benefits, primarily medical loss experience, to return to more normalized levels. We expect variable contribution to be 2% to 4% below the 2023 first quarter. This anticipated variance results from the expectations of a higher rate of purchased transportation that would be paid to truck brokerage carriers in the 2023 second quarter versus what was actually paid in the 2023 first quarter. Also, the second quarter tax rate is expected to be slightly higher than the first quarter, driving a $0.03 unfavorable earnings per share variance compared to the first quarter. And with that, Bill, we will open to questions.

We have the first question coming from Scott Group of Wolfe Research.

Jim, I just want to get your perspective on you're counting on normal seasonality in May and June. What changes in May to sort of start to get freight more in line with seasonality? What's driving that assumption?

It's actually the lower April that's affecting us because we've noted a decline followed by some stabilization. We believe this isn't quite a trough, but it's a reaction to the situation in April. The volumes remain relatively strong compared to 2020 and continue to be robust, but we are observing a slight stabilization. We expect to reach this April low and then return to typical seasonal patterns, primarily due to the softness we saw in April.

Okay. And then when I look at rev per load down from 1Q to 2Q a few percent, are you expecting that to be the bottom for rev per load? And then there's a lot of talk about this huge spread still between contract rate and spot rate. And if spot doesn't get better, do you think that means further pressure to contract rate? How are you thinking about all that?

When analyzing what we look at, Scott, we consider a 20-day rolling average. I receive that report daily to monitor the trends over the last 20 days because our daily spot rates fluctuate significantly. Currently, we're witnessing considerable volatility day-to-day, which makes predictions a bit challenging. We're confident in the short term that our figures will remain within the minus 1% to minus 3% range for the first quarter, slightly below the first quarter forecast. Beyond that point, it becomes more complex. I continue to believe in market cycles and expect that the contract rate and spot rate will either diverge further or maintain their difference, ultimately leading to a strengthening of the spot rate, whether that occurs soon or later in the summer. While I hesitate to label it a trough, we have indeed noticed spot rates dip a bit more in April. Therefore, we have some concerns that the 1% to 3% range might be a bit optimistic, yet we feel fairly secure in our assessment. Currently, spot rates seem elevated because the gap between contract and spot rates is notably wide, and it’s uncertain how much lower they can go.

I guess that was my question. If Q2 is the bottom for spot rates, do you think it's also the bottom for your revenue per load in Q2, or do you expect further pressure on your revenue per load in the second half due to the contract spot spread?

I don't expect any additional pressure in the latter half of the year unless the economy worsens significantly. I'm quite confident that we will see the usual seasonal trends in revenue per load after we move past the midpoint of the second quarter. As economic demand rises, I'm reasonably sure we'll observe normal trends slowing down after the second quarter, following the typical cycles. During the pandemic, we saw a substantial peak followed by a drop into a trough. Our rates began to decline in February, which was about 13 or 14 months ago. Considering an 18 to 24-month cycle from peak to trough, I believe in this cyclical pattern. It occurred during the pandemic, and I think we will see it happen again.

We have the next question coming from the line of Jordan Alliger of Goldman Sachs.

Just curious, interesting with the pricing in the dry van versus the unsided, the gap of the minus 26% versus the minus 6%. I'm just sort of curious, does that spread narrow with dry van worse with the unsided sort of worsening? Or is it more the other way around where at all sorts of converges? Like I'm just sort of curious the dynamics on the unsided versus the dry van around the pricing from here.

I would say it's converged at this point. If you examine the difference between our revenue per load on van and on flatbed, it's noteworthy that last year's first quarter had the smallest gap I've ever observed. Typically, flatbed rates are higher than van rates, and I’ve never encountered a flatbed rate below a van rate. In the first quarter of last year, the difference between the van revenue per load and the flatbed revenue per load was only 25%, which I consider an all-time low. Historically, this difference ranges from about 40% to 70%. Currently, we are back to the more typical 60% to 70% gap between van and flat revenue per load. So, I believe it's already at a normalized point regarding the differences between these two.

We have the next question coming from the line of Jack Atkins at Stephens.

Okay. Continuing with the topic of rates for a moment, Jim, referring back to your comments about the significant premium in today's rates per load compared to pre-pandemic levels. However, when we examine spot market rates, they seem to have generally returned to 2019 levels, excluding fuel. As a player in the spot market, what leads you to believe that your rates will significantly diverge over time from the settled spot market rates?

I believe our rates tend to be somewhat higher than what you often see in the industry, primarily due to our BCO operations, which include drop and hook and specialized, non-routine irregular routes that aren't really dedicated business. When it comes to spot runs, that's not our area of focus. Therefore, our rates usually remain a bit elevated. I keep track of various statistics, and if you recall a report from last February or the preceding year, it indicated that revenue per mile was below pre-pandemic levels, which was surprising, considering we were still performing 30% to 40% above that level. It's challenging for me to comment on industry data from that time since it was difficult to comprehend. However, we are seeing relative stability now. Our long-term trends, which I have tracked for a decade, indicate that while our performance is below historical averages, it's not so extreme that I fear we would drop below pre-pandemic levels. We don't own trucks, but we are aware of the rising costs in the system. For example, our insurance costs have increased from approximately $80 per BCO load in 2019 to over $125 per load today. These factors are all contributing to the industry landscape. I don't anticipate a significant drop in rates. Recent statistics on truck authorizations and revocations indicate an uptick, suggesting a shift in available capacity in the industry. I expect that, over the next few months or quarters, more trucks will exit the market. Consequently, I see a level of stability here, as lower rates would likely result in more trucks leaving the system.

Yes, yes, absolutely. That makes a lot of sense. I guess maybe shifting gears for my follow-up question. I'd love to kind of get your thoughts on cross-border. You guys have a large cross-border franchise. There's a lot of good things that could perhaps happen in terms of cross-border freight over the next few years. Just would be curious to get your kind of take on what you're seeing in your cross-border business today, how you think that's going to trend over the course of this year. And then we are seeing some new rail partnerships to start to move some of this cross-border freight via the rail. Do you think that sort of reinforces a longer-term positive view there? Or does it increase competition? Just would love to get your thoughts on that item.

Well, Jack, you didn't say good morning to Joe, but Joe is with us today, and he's actually an expert at Mexico Cross-border.

Yes, that's a great question. We remain very optimistic about cross-border trade and are seeing signs of near-shoring that we've anticipated for some time. Compared to the overall market, this segment has performed significantly better in terms of both volume and pricing. So, we're quite hopeful about the opportunities here. Regarding rail, we'll have to wait and see. I've noticed some discussions around mergers that could lead to increased competition in the rail sector. Ultimately, it will depend on how things develop and the requirements for service to determine whether it is beneficial or more competitive for us. However, we continue to be optimistic about the cross-border business moving forward, due in part to the near-shoring trends and the strong relationships we have along the border, as well as the capabilities we are building in terms of carrier partnerships and transloading. So, we're feeling positive about the prospects in this area.

Jack, our revenue decline was significantly greater than the approximately 9% decrease in our Mexico cross-border revenue compared to the overall revenue drop.

We have the next question coming from the line of Stephanie Moore of Jefferies.

Jim, I always appreciate your perspective on where we are in the cycle. It’s been a pretty unusual three years with everything that has happened. I wanted to get your thoughts on the current capacity and demand levels. How do you think this could play out if the U.S. moves into a broader economic recession in 2023 and early 2024? Many economists are suggesting this, so what do you think it could mean for the current freight cycle, especially in comparison to historical ones?

Yes. The key factor to consider is the transition from contract rates to spot rates, which sets us apart from some competitors who still have contract rates. When I mention an 18- to 24-month cycle, I'm suggesting that if the economy weakens, we will likely see a decline in volumes beyond our current expectations. This could lead to a further decrease in rates as well, particularly if economic conditions worsen later this year. However, I believe that rates will eventually return to pre-pandemic levels due to the significant expenses faced by the industry. The costs associated with owning a truck today—such as purchasing a new truck, repair expenses, driver wages, and insurance—will likely cause trucks to exit the market more quickly. I am somewhat concerned about a potential decline in volumes, which is something we aim to manage. I anticipate that rates will remain relatively stable in the event of a volume drop. Eventually, we may reach a point where trucks will no longer be able to transport freight, and I believe we are nearing that point.

No, understood. As a follow-up, in the current environment, what are you observing from a competitive perspective in this market? Is there any increased rationality considering our rates, or how does it compare to previous periods at this stage in the cycle?

Well, in this point of the cycle, the usual stuff is happening. We're getting a lot of requests for quotes and pricing and the shipper is at the advantage. I don't think there are any questions right now, shippers are still looking for price cuts. And it's typical for this time of a cycle for them to be coming at us with price cuts for some of our normalized business. Some of the stuff we do routinely, even some of the drop-and-hook business, we're getting that. And you try and hold off as much as you can, and sometimes we have to walk away because you can't get trucks to haul the freight. And that's one of the things that you see a trigger. Now we're not seeing that yet with trucks being like, I can't haul it for that rate. But sooner or later, they're going to push pricing low enough where it's going to be hard to find a truck. Now we're not there yet, but that's the typical cycle, right? That's what drives our spot rates back up over time.

We have the next question coming from the line of Bascome Majors of Susquehanna.

Jim G, starting in October, you began discussing a hypothetical revenue downside scenario and how the business might perform. You initially estimated a 20% impact and refined that in January or February. Can you explain how the business might perform as it reaches its lowest point and whether you would adjust your previous insights based on the current developments of this year?

Nothing has really changed from what we mentioned earlier, except that the expected 20% drop in revenue seems less likely based on current trends. However, if we were to face a 20% drop, I would likely reiterate what I stated in October. There is probably more cost pressure now than I expected back then. We are still witnessing rising costs, whether it's wages or insurance risks. If we can have a stable year and still end up with a 20% revenue decline compared to 2022, I believe that is achievable. Nonetheless, I am somewhat concerned about the costs, particularly with inflation affecting areas like trailer repairs, which has impacted us in terms of trailer tires and other items. Although these expenses represent a small fraction of our business, they could still affect our margin.

My follow-up from Jim Todd was to ask if you could discuss some of your expense outlook that you shared with us a few months ago. Have any changes occurred? Also, if there are areas experiencing inflation compared to what you mentioned previously, could you provide us with some insight on that? Additionally, we would appreciate an updated perspective on the incentive compensation tailwind as we consider how to model the bottom line.

Sure. Bascome, I would echo some of Jim's thoughts with respect to other operating. Back in February, I gave a plus $1 million to $3 million year-over-year. I'm probably closer to that plus $3 million whereas the depreciation number I gave, I think, a 4 to 7, we're going to be, just in the environment we're in, a little bit more disciplined there on the CapEx side, so I'm probably closer to the low end. With respect to the compensation under variable programs, back in February, I gave a base case assumption of $12 million of tailwinds there and a total bear case of $18 million to $20 million in tailwinds. Based on first quarter, I'm probably wrapping $16 million to $18 million best guess of tailwinds from those programs, '23 over '22, which probably gets you to a flattish. 1Q of '22, SG&A was favorably impacted to the tune of about $2.5 million from forfeitures on equity compensation arrangements. So that's why we had a slight increase year-over-year. 2Q '23, I think, we'll be down on the SG&A line year-over-year.

We have the next question coming from the line of Bruce Chan of Stifel.

Jim, I always value your insights on activity by sector, and it appears there has been more stability in the industrial sector compared to the consumer side. Can you provide any details on whether the industrial economy is performing better or if it is just lagging behind in inventory replenishment? Additionally, as you begin to strategize for restocking, do you have any indication of which part of the economy might experience recovery first?

I believe it's primarily a year-over-year comparison rather than determining which segment is performing better. The peak for vans was significantly higher than for flatbeds, that much is clear. There appears to be greater stability in the industrial sector compared to the consumer side, which has experienced significant growth over the past two to three years, mostly independent of the industrial economy. When I analyze the situation, one positive aspect we noticed was in machinery, which only had a slight increase of about 2% on low volume—definitely not remarkable. Looking back at last year, van revenue per load peaked in February while flatbed only reached its peak in July, but the extent of their peaks was quite different. The peak for vans in February was roughly 50% of what it was three years ago, while the peak for flatbeds was 20% to 30%. So, in summary, what I'm seeing is that flatbeds demonstrated much more stability throughout the pandemic compared to vans. Vans have driven the business for the last two and a half years, but they are declining more rapidly than the industrial economy.

Okay. Great. That's really helpful. And then just a quick follow-up maybe for you or Joe. If we could just get your perspective of what's happening here on the lending side, I mean not just with the rates, but with potential credit crunch. How is that affecting your business on the BCO side, but also on the truck brokerage carrier side?

As it relates to people buying, they'll buy new trucks. That one, I'm not sure I follow the question.

Yes, exactly. Just as far as the potential entry for new equipment, new trucks, new capacity in the marketplace.

Yes, on the new truck side, what impacts us the most is the pricing of used trucks because our drivers typically do not purchase trucks priced at $180,000 or $200,000. As I mentioned earlier, the high used truck prices cause drivers to delay repairs, which leads to lower utilization. Our utilization is below last year’s levels, measured as loads per BCO per week. This situation may keep some drivers off the road for a while due to needed repairs, even though they are not in new trucks. Currently, I don't see a lot of demand for used trucks because prices remain relatively high compared to historical levels. The new truck pricing isn’t a significant issue for us like it would be for someone who relies on those assets.

We have the next question coming from the line of Scott Schneeberger of Oppenheimer.

Sorry, I was on mute. I want to follow up on Bruce's first question regarding the flatbed side. Jim Gattoni, could you discuss the trends from February to March and especially in April? You mentioned that it appears very stable. Do you expect this stability to continue? I'm interested in knowing if there are specific factors contributing to this stability, such as the manufacturing reshoring trend, developments in renewables, or the infrastructure bill, anything you’ve been hearing from the field?

The flatbed unsided service offering tends to be more volatile due to factors like heavy haul mix and the length of haul impacting revenue per load. When analyzing the flow from January to March compared to the previous year, we saw a 6% increase in January, followed by a 10% decrease in February and a 3% decrease in March. This makes it challenging to assess short-term fluctuations on a month-to-month basis. Therefore, we focus on longer-term trends. In terms of end markets, we aren't heavily involved in infrastructure, like road construction. However, as flatbed services become more tied up, it leads to reduced flatbed capacity in the market, which in turn drives rates up. If industrial production slightly declines in heavy machinery while infrastructure costs rise, we may see more stability in the flatbed sector compared to the van sector. This pattern has been consistent over the past three years. While I don't expect explosive growth in the flatbed area, I never believed that any growth would make up for a drop-off in consumer demand. I maintained this stance two years ago and it remains true today. I prefer the stability we see in flatbed compared to the van side and feel confident in a more stable flatbed environment based on current demand, which primarily comes from agriculture, mining, and potentially infrastructure projects, though we don't engage in building bridges and similar structures.

Got it. I guess, I'll follow that. Maybe some monthly commentary on the van side and anything particularly interesting in April over on van?

I would say that in January, the situation was relatively stable with only a 2% decline compared to the previous year on the van side, which is somewhat unusual as we typically see a more significant drop. However, the significant decline occurred in February, where it fell by 17%. By the end of February, things returned to a more typical decline pattern. The year-over-year numbers show a 2% drop in January, a 17% drop in February, and a 14% drop in March. Despite the unusual stability in January, the decrease in February offset that, leading to what we considered normal trends by March. The van side showed a steeper decline than the flatbed side, and we monitor these figures month-to-month, which makes more sense than the flatbed side.

We have the last question coming from the line of Christopher Kuhn from The Benchmark Company.

You have an impressive balance sheet. I'm curious about your plans for the cash in this challenging environment. Are there any potential acquisitions or buybacks?

Chris, yes, you know our model. We had 625 Million Dollar Agents in 2022, generating 97% of the consolidated revenue. Therefore, we prefer to invest in technology tools to enhance their success. You're right. Even with $83 million in dividends paid in the first quarter and $15 million in buybacks, our cash increased in the first quarter of 2023 compared to year-end. We are opportunistic and will make moves when we believe it adds value. Looking at last year's performance, we will be aggressive.

Okay. Just to follow up, you mentioned the variable compensation and the 20% decline in revenue, but your previous commentary on cash flow guidance suggested it could still be around $300 million. Are you still confident in that estimate?

Yes. Last summer, we announced $300 million and then adjusted that in February to $350 million in free cash. In the first quarter, we generated about $133 million in free cash, which included a $41 million net working capital release due to the step down. If our guidance for the second quarter holds and we progress throughout the year, I remain confident in achieving $350 million or more.

And I just want to touch on a clarification. Before we have another question, just to clarify, I want to re-clarify our revenue per load trends for van and flatbed. So year-over-year, van, January was minus 2%, February was minus 17% and March was minus 14%. And flatbed year-over-year, January was plus 6%, minus 10% in February, minus 3% in March, just to clarify.

We have the last question coming from the line of Felix Boeschen of Raymond James.

I was just hoping we could talk about BCO utilization. Jim, I understand some of the comments around parts maintenance, but I'm curious just how you're thinking about BCO utilization through the year. And bigger picture, if you think anything structural has changed in utilization versus pre-pandemic levels?

Felix, this is Joe. We've discussed the utilization trends, which fell by 5% year-over-year this quarter. Utilization typically decreases when there is a drop in demand or pricing, and we've experienced both for about a year now. There seems to be a lot of hesitancy in the market. The equipment issues Jim mentioned earlier are significant; there's a lot of uncertainty. For instance, if someone is operating a used truck and it breaks down far from home, and they face delays of three weeks for parts, that can be intimidating. This situation, combined with the options available and the costs facing capacity providers, contributes to the current uncertainties around equipment. All these factors, along with the ongoing decline, mean we haven't yet reached the lowest point. As these conditions improve, I believe utilization will increase, along with truck counts. To address your other question, Felix, I don't see any structural issues with utilization. It's primarily a matter of uncertainty, which makes people more cautious and less productive.

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

Thank you. In closing, we don't expect much change to the overall freight economy in the near term. Truck revenue per load remains well above pre-pandemic levels. Demand for freight transportation has significantly softened compared to a year ago, driving truckload volume lower. Directionally, it is difficult to forecast truck volume levels beyond the next few months as future economic conditions are very unpredictable. Regardless of the economic environment, Landstar's challenging year-over-year comparisons, the resiliency of Landstar's variable cost business model continues to generate significant free cash flow with fiscal 2023 free cash flow expected to exceed $350 million. 2022 was a historic year for Landstar, achieving new levels of record financial performance. Landstar has always been a cyclical growth company, reaching higher highs, as we did in 2022, with higher lows, like we expect in 2023. Landstar has no reason to believe history won't repeat itself, and we look forward to achieving higher highs when the freight economy turns. Thank you, and I look forward to speaking with you again on our 2023 second quarter earnings conference call currently scheduled for July 27. Have a good day.

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