Landstar System Inc Q3 FY2023 Earnings Call

Good morning, and welcome to Landstar System Incorporated's Third Quarter Earnings Release Conference Call. All lines will be in a listen-only mode until the formal question-and-answer session. Today's call is being recorded. 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. Good morning and welcome to Landstar's 2023 third quarter earnings conference call. Before we begin, let me read the following statement. The following is the 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 relate 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 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 unless or until we undertake no obligation to publicly update or revise any forward-looking information. Throughout my remarks, I will mention the concept of normal seasonal patterns or normal trends. For purposes of my remarks today, normal seasonal patterns and normal trends refer to Landstar's sequential revenue, load count pricing, or other trends for monthly or quarterly periods from 2015 to 2019 and exclude our historical results from 2020, 2021, and 2022 due to the highly unusual dynamics reflected in those metrics during the pandemic-driven freight cycle. Given the current freight environment with soft demand and readily available truck capacity, Landstar performed relatively well in the 2023 third quarter. Actual revenue and earnings per share both arrived within the ranges of the guidance we issued in our July 26 second quarter earnings release. We provided revenue guidance of $1.275 billion to $1.325 billion and earnings per share guidance of $1.65 to $1.75. 2023 third quarter revenue was approximately $1.290 billion, and earnings per share was $1.71. Considering the narrative that the U.S. has been in a freight recession for several quarters, it is worth noting again that the 2023 performance continues to significantly outpace pre-pandemic levels. The 2023 third quarter revenue and earnings per share each exceeded the 2019 third quarter by over 25%. Overall truck revenue was $1.174 billion in the 2023 third quarter, 27% below the 2022 third quarter on a 16% decrease in load volume and a 12% decrease in revenue per load. As we entered the 2023 third quarter, we were facing difficulty over your financial comparisons, while truck revenue per load and the number of loads hauled via truck from the end of the 2023 second quarter to early July were both trending below normal seasonal patterns. Those trends continued through July with actual physical July truckload volume and revenue per load and loads hauled via truck below what would be expected based on normal seasonal patterns. The below-normal trend in the number of loads hauled via truck from June to July followed the pattern that started at the beginning of 2023, as almost every sequential month-to-month change in truckload count during 2023 has been below normal seasonal patterns due to the softening consumer demand and a slowing U.S. manufacturing sector. In contrast, sequential month-to-month revenue per truckload trends during 2023 had been very inconsistent. Through September, sequential month-to-month trends have been below normal seasonal patterns four times, equal once, and better than normal seasonal patterns four times, including recently in July to August and August to September. Landstar's normal seasonal patterns for truckload volumes have reflected an average sequential decrease of approximately 1% from the second quarter to the third quarter. Given the softness of freight demand, actual third quarter truckload volume for the 2023 third quarter was almost 6% below the 2023 second quarter, in line with our guidance but well below normal seasonal patterns. Moreover, the changes in truckload volume from June to July, July to August, and August to September were each below normal seasonal trends. From a longer-term historical perspective, our truckload volume in the 2023 third quarter was still Landstar's third-best all-time third quarter truckload count, behind only the consecutive third-quarter records set in the pandemic impact of the years of 2021 and 2022. The inconsistency in truckload pricing month-to-month has been very atypical from a seasonal perspective, making it difficult to project spot pricing even in the near term. As it relates to month-to-month revenue per truckload trends during the quarter, from June to July, the change in revenue per truckload was below normal seasonal patterns. Yes, I mentioned earlier the change in revenue per truckload from July to August and August to September were both better than normal trends. At the breakdown for truck transportation by equipment type, unsided platform equipment held up comparatively better than revenue generated via van equipment and other truck transportation services. The quarter-over-prior-year quarter revenue comparisons for van are much more challenging than for revenue hauled on unsided platform, especially as it pertains to revenue per load. The pandemic-driven spike in consumer demand drove van revenue per load from its trough in May of 2020 to its peak in February 2022, up 76%, while revenue per load on unsided equipment increased 54% from its low point in May of 2022 to its peak in July 2022. Based on industry data from ATRI, the cost to operate a truck excluding fuel costs in fiscal year 2022 is approximately 20% greater than in 2019, during which we also experienced a relatively soft freight environment. Year-to-date revenue per mile, which excludes fuel surcharges, on van equipment and unsided equipment in September 2023 were 23% and 22% respectively above September 2019. As I mentioned during our second quarter earnings conference call held on July 27, looking forward, we expect little room for spot market decreases due to these cost pressures. That expectation has held true, as revenue per mile on BCO van and unsided platform equipment held relatively stable over the summer and through the end of September. I believe that rates in the spot market will stay relatively higher than the pre-pandemic levels given the significant amount of additional cost to operate a truck today. Our rail, air and ocean services in the 2023 third quarter were 54% or $103 million below the 2022 third quarter. The significant decrease in non-truck transportation revenue was in line with our expectations of lower volumes across all non-truck modes, and the expectation of a significant decrease in ocean revenue per shipment. Total loadings in the 2023 third quarter were 17% below the 2022 third quarter. This is the same percentage decrease we experienced when comparing the 2023 second quarter to the 2022 second quarter, although on an easier year-over-year comparison. Total load volume is somewhat influenced by customer mix. For example, Landstar provides truck capacity to other trucking companies, 3PLs, and truck brokers, where volumes tend to vary more widely period-to-period with changes in the levels of freight demand. Revenue hauled on behalf of other truck transportation companies was 15% and 18% of transportation revenue in the 2023 and 2022 third quarters respectively. During periods of tight truck capacity, other trucking companies, 3PLs, and truck brokers reach out to Landstar to provide truck capacity more often than during times of more readily available truck capacity. The freight hauled by Landstar on behalf of other truck transportation companies includes almost all of our commodity groupings. Overall, the number of loads hauled on behalf of other truck transportation companies in the 2023 third quarter was 28% below the 2022 third quarter, contributing significantly to the 17% decrease in quarter-over-prior-year quarter network volume. During the quarter, the BCO truck count decreased by 295 trucks. Overall, BCO truck count has decreased approximately 12% since the end of the 2022 third quarter. There do not seem to be any unusual factors driving the recent reduction in BCO truck count. The 12-month rolling average turnover at the end of the 2023 third quarter was 39%, which is slightly higher than the 36% turnover rate Landstar experienced in 2019 during the most recent relatively comparable soft freight environment. I believe the increase in the turnover rate compared to the comparable 2019 period was due to the significance of the decrease in rates and the increased cost to operate a truck today as compared to pre-pandemic periods. I will pass the call to Jim Todd to comment on additional P&L metrics regarding the 2023 third quarter performance.

Thanks, Jim. Jim Gattoni covered certain information on our 2023 third quarter, so I will cover various other third quarter financial information included in the press release. In the 2023 third quarter, gross profit was $128.1 million compared to gross profit of $185.7 million in the 2022 third quarter. Gross profit was 9.9% of revenue in the 2023 third quarter, as compared to a gross profit margin of 10.2% in the corresponding period of 2022. In the 2023 third quarter, variable contribution was $187.4 million compared to $245.7 million in the 2022 third quarter. Variable contribution margin was 14.5% of revenue in the 2023 third quarter compared to 13.5% in the same period last year. The increase in variable contribution margin compared to the 2022 third quarter was primarily attributable to a mix effect, as an increased percentage of revenue was generated by BCO independent contractors, which typically has a higher variable contribution margin than revenue generated by other modes of transportation; and to an increased variable contribution margin on revenue generated by truck brokerage carriers as the rate paid to truck brokerage carriers in the 2023 third quarter was 95 basis points lower than the rate paid in the 2022 third quarter. Other operating costs were $50.2 million in the 2023 third quarter, compared to $13.4 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 sale of used trailing equipment. Insurance and claims costs were $29.5 million in the 2023 third quarter compared to $31.4 million in 2022. The decrease in insurance and claim costs as compared to 2022 was primarily attributable to a decreased severity of accidents during the 2023 period and a decrease in BCO miles traveled in the 2023 period, partially offset by increased cargo claims costs. However, total insurance and claims costs were 5.8% of BCO revenue in the 2023 period and 5% of BCO revenue in the 2022 period. The 80-basis point increase in insurance and claims cost as a percentage of BCO revenue was almost entirely attributable to the 10% decrease in BCO revenue per load. Selling, general, and administrative costs were $51 million in the 2023 third quarter, compared to $53.5 million in 2022. The decrease in selling, general, and administrative costs was primarily attributable to a decrease provision for compensation under the company's equity and cash incentive programs, partially offset by increased information technology costs and increased employee benefit costs. In the 2023 third quarter, the provision for compensation under variable programs was $1.3 million compared to $8.1 million in the 2022 third quarter. Depreciation and amortization was $14.4 million in the 2023 third quarter, compared to $14.6 million in 2022. This decrease was due to decreased depreciation on the company's trailer fleet, partially offset by 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 was 24.3% in both the 2023 and 2022 third quarters. Looking at our balance sheet, we ended the quarter with cash and short-term investments of $497 million. Cash flow from operations for the first nine months of 2023 was $304 million in cash, and capital expenditures were $50 million. Back to you, Jim.

Thank you, Jim. We don't expect any changes in the overall freight economy in the 2023 fourth quarter compared to what we've experienced thus far throughout 2023. We also anticipate a muted peak season this year. Overall demand for freight transportation is expected to remain relatively soft for the remainder of 2023, continuing to drive truckload volumes significantly lower compared to 2021 and 2022. Directionally, it is difficult to forecast truckload volume levels beyond the next few months as future economic conditions are very unpredictable. Yesterday's earnings release made note that early October truckload counts were trending below historical sequential monthly patterns. Given the lower starting truckload volume we have experienced at the beginning of the fourth quarter, we expect truckload volume from the 2023 third quarter to the 2023 fourth quarter to trend below normal seasonal patterns. Additionally, due to how our fiscal year calendar works, the 2023 fourth quarter has one less operating week than the 2022 fourth quarter. Given we expect to remain below normal quarter-to-quarter seasonal trends, truckload count in the 2023 fourth quarter is forecasted to be 20% to 22% below the 2022 fourth quarter. Excluding the extra week of operations from the 2022 fourth quarter truckload count, the decrease in truckload volume in the 2023 fourth quarter compared to the 2022 fourth quarter is expected to be similar to slightly worse than our performance in the 2023 third quarter compared to the 2022 third quarter. We expect 2023 fourth quarter truckload pricing to be 6% to 8% below the 2022 fourth quarter, seasonally in line with or slightly ahead of normal seasonal patterns. We also expect revenue from our non-truck modes to be similar to that of the 2023 third quarter. Based on the assumptions mentioned, we expect revenue in the 2023 fourth quarter to be in the range of $1.225 billion to $1.275 billion and earnings per share to be in a range of $1.62 to $1.70. The 2023 fourth quarter guidance incorporates a variable contribution margin of 14.5% to 14.7% and insurance and claims costs to approximately 5.5% of forecasted BCO revenue. And with that, we will open it to questions.

Thank you very much, sir. At this time, we will begin the question-and-answer session. And we have the first question coming from the line of Scott Group, Wolfe Research. Your line is now open.

Thank you, good morning. I want to better understand the volume situation. Looking at your Q4 guidance, volumes are expected to be about 10% lower than in Q1. Historically, they usually grow by 5% to 10% from the start to the end of the year. It's challenging to grasp whether this is solely due to the freight environment or if there is something related to your model with the BCO camp that is causing such a significant decline. Could this be linked to the auto strike? What do you believe is driving the continued underperformance in seasonal volume?

The only aspect I want to highlight regarding our model is the fluctuations in the volume we transported for other third-party logistics providers and trucking companies. As I mentioned earlier, when there is a significant shortage of capacity and it becomes challenging to secure trucks, our agents excel in matching trucks to loads. Consequently, other logistics firms and trucking companies tend to reach out to us more frequently in a constrained market than they normally would. This acts as a differentiator for our model. Beyond that, the overall environment is a factor. Manufacturing activity in the U.S. has been weak throughout the year, showing negative trends since March. I believe the demand simply isn't there, and it doesn't appear to be an issue specific to our model at this time. Additionally, looking ahead to October, our volume trend from September to October is running below the normal seasonal average for truckload. This is partially attributed to some automotive plants halting operations, but it isn't the sole reason; it's contributing to the observed seasonal decline from September to October. Overall, the situation appears primarily influenced by economic conditions affecting demand.

Okay. I know it’s probably difficult to predict, but when do you think you might see the revenue per load start to increase year-over-year? Do you expect that rates and earnings could grow in 2024? Is that too uncertain to determine? How are you approaching that?

If demand does not increase, the only factor that will influence rates is the difference between contract and spot rates. Currently, there is about a $0.40 gap with contract rates being higher than spot rates. Since we are largely dependent on spot rates, we anticipate that shippers will eventually take advantage of the discount in the spot market compared to contract rates, although we haven't seen much of that occurring yet. Over the past year, the gap has narrowed slightly, but not to the extent I expected. This gap has persisted for more than eight months, making it difficult to determine when that will change. Assuming demand remains steady, we might see shippers return to the spot market for discounts, but I don't see that happening at this moment. I previously expressed optimism about a potential change in that gap around late fourth quarter or early 2024, but I am somewhat more pessimistic now and believe we might be looking at a longer cycle of around eight quarters, which could extend into the summer of next year.

I just want to clarify the $0.40 gap with contracts still above spot. What do you consider normal? Do you believe there's additional risk to contracts from this point?

I think that's a very large number, the $0.40 on a $2 revenue per mile. To be honest with you, I'm a little surprised that the gap is holding as large as it is. Maybe it's because shippers are scared to start playing in the spot market. They like the consistency of the contract rates. The other thing that looks good in a shipper's mind, the contract rates have been coming down at the same time. So they're looking at their history, thinking, hey, I'm getting a better deal today than it was 12 months ago. So you might be hesitant to take a little longer to make the shift back to spot, which to me might delay this. That's why I think it might be delayed a little longer. I'm a true believer in cycles. It's going to cycle back, but Scott, I just don't know when. Right now, I'm going to say it's going to be more toward the end of the typical peak to trough cycle.

Make sense. Thank you for the thoughts, Jim. Appreciate it.

Yeah.

Thank you. We have the next question coming from Jason Seidl of TD Cowen. Your line is now open.

Hey, thanks operator. Good morning, Jim and team. Jim, going back to that $0.40 gap between contract and spot. You said it's held in there for about eight months. When is the last time you've seen that something hold that long on a cycle?

I don't believe eight months is particularly unusual. The fact that we aren't seeing much movement directionally is more telling. When you consider that the spot and contract rates are relatively close and shippers have 12-month contracts that could remain in place for the entire duration, they may not enter the spot market immediately. I lack a solid historical perspective, but it feels like the current gap is larger than what we've experienced in the past. I'm somewhat surprised that it hasn't decreased. In 2019, there was a gap, but that was affected by the pandemic, which disrupted the cycle. This made it a shorter-term situation. It's challenging to look back to 2017, when we experienced a significant increase caused by the implementation of ELDs coinciding with a recovery in industrial production, which also disrupted the cycle. Over the past five or six years, there have been numerous disruptions in the cycles, making it quite difficult to assess this as a trend.

All right. That makes sense. And you talked a little bit about pricing in the fourth quarter expectations, a little bit above normal seasonality, I think, was your line. With a muted peak season and an auto strike, should we conclude that you're finally starting to see a little bit of capacity coming out of the marketplace?

It's hard for us to measure the capacity coming out of the marketplace. We read kind of what you read about bankruptcies and truck covers shutting down. What we aren't seeing is load acceptance rates dropping. We're not seeing that. Some of the stats we're looking at do not show that a significant amount of capacity is coming out of the market yet. However, we are hearing about the capacity coming out. I just look at our BCO count, right, being down 39% because things are more expensive. Clearly, there's capacity coming out right now, but I just don't believe that it's had a significant impact on the supply-demand equation to start turning the needle on that metric, supply and demand.

Yeah, that makes sense. My final one here is you're talking about your expectations are now pushed out to the summer of 2024 to see any type of inflection. Should we assume that the inflection on year-end will come first on the dry van side and then maybe followed by your platform? Or do you think they're going to sort of roll together?

There are two very different dynamics at play. One is driven by consumer demand, while the other focuses on manufacturing U.S. machinery. My expectation is that the consumer side will have significantly more volume, particularly in the U.S. van market, where demand can fluctuate. A lot of the capacity that exits the market involves van capacity, while flatbed operations tend to be more stable, accustomed to the ups and downs of the environment. I believe the focus should be more on the van market, as the flatbed segment is less consistent, varying greatly depending on whether we are involved in heavy haul or standard flatbed transport. The industry is diverse and depends on various end markets, which affects transport differently compared to the consumer-driven van sector, where trends tend to follow a more consistent cycle.

Jim, I appreciate the time as always.

Yeah.

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

Okay, great. Good morning, guys. Thanks for taking my questions. So I guess, Jim, I wanted to go back to the guidance for a minute. Just so we've got a clear understanding of it. I mean if I understand what you're saying correctly, the thought is that we're going to have sub-seasonal volume performance in the fourth quarter, I think fairly significantly sub-seasonal, but the revenue per load trends are kind of more in line with normal seasonality. And I guess, so much of the fourth quarter typical quote-unquote seasonality is weighted to later in the quarter, if volumes are that sub-seasonal, wouldn't revenue per load be sub-seasonal? Or do you think we're kind of decoupling at this point based on the earlier commentary around contract versus spot?

It's all based on what's jumping out from the third quarter into October. We're seeing relatively a little more favorable since the first three weeks of October. So we're just carrying that forward, if you take that October number where we think October is coming out, and yet trend seasonally, the quarter will be sequentially better than expected. So it's really because we're starting at a higher point heading into the quarter. That's how we got there.

Okay. All right. I got that. Makes sense. Maybe just a quick follow-up on the guide for a moment. But in terms of like Jim Todd, maybe this is for you, but can you give us a thought on Q4 G&A and maybe the gross margin or net revenue margin that you're assuming in the fourth quarter just within the guide?

Yeah, Jack. With the revenue reduction at the midpoint, we're anticipating a variable contribution margin of 14.5% to 14.7%. Most of the positive guidance comes from the assumed mix. On the general and administrative side, it's fairly consistent, with insurance projected at 5.5% for guidance compared to an actual 5.8% in the third quarter. However, the other lines remain quite stable sequentially.

Okay. Great. And I guess maybe just as a last question here, kind of more bigger picture, but you guys are the first what I would call either truck broker or logistics provider to report so far. And we've had a lot of news here in the last couple of weeks around some of your high-flying competitors facing some financial difficulties, one of which has closed. I guess, Jim Gattoni, I'd love to get your thoughts on how you're seeing the longer-term landscape within the brokerage market evolving here with higher interest rates and higher cost of capital? How do you think that's going to affect the competitive landscape longer-term, not shorter-term but longer-term?

In a light asset business model, one of the examples you mentioned involved shutting down stores, at least temporarily. For us, the cost of capital impacts demand in the economy more than it impacts our financial results. We analyze it from this perspective and consider its potential effects on the economy and the brokerage model. The digital freight matching tools are functioning well, but I am uncertain about the business model of the one that closed. We observed some loads after they ceased operations, but I doubt this trend will last. We have not factored anything from this into the fourth quarter. Long-term, the brokerage service will remain focused on delivering high-quality service and on-time delivery, just as we have emphasized over the past several years. I've always maintained that building an app is easy; effective execution is key. We have been utilizing technology for freight operations since 1999, posting boards on websites for driver spouses to connect. I believe there is a sustainable business in the digital space, but it requires a human element. This brings additional competition into the broker market, but we believe we have a competitive edge due to our human resources spread throughout the U.S. I don't anticipate significant changes in this industry over the long term. While discussions about AI and advanced technologies are common, our core responsibility is to transport freight from point A to point B efficiently, enhancing communication, data accuracy, information sharing speed, and visibility. I do not foresee major disruptions in the brokerage sector or in the functioning cycle of truck brokers due to new technologies.

Okay, really appreciate the thoughts. Thanks, guys.

We have the next question coming from Stephanie Moore of Jefferies. Your line is now open.

Hi, good morning. Thank you for the question. I wanted to touch a little bit again on maybe the BCO count coming down, continuing in the third quarter. I think we're kind of at a multiyear low here. I know you provided a little bit of commentary in your prepared remarks. But maybe if you could touch a little bit about do you think that this is kind of signaling we're at the bottom here? Do you think it could kind of take a leg down further? And then maybe just for context, if you wanted to provide some color on just how BCO utilization has trended in the third quarter and kind of into October.

Thanks, Stephanie. You're right about the BCO count. We've noticed some increased turnover mainly due to the challenging economic situation we've discussed. As long as the current conditions persist, I expect the downturn to continue, resulting in lower rates, volumes, and demand, which could lead to further declines in the fourth quarter. A recovery seems more likely to occur over the next eight quarters rather than six, making it difficult to predict exactly when that might happen. Historically, we've seen a decrease in seven of the last eleven first quarters, which is quite typical for us. I don’t believe we’ve hit the bottom for BCO accounts since demand is still present. Our BCO count has been volatile, reflecting economic conditions. In 2017 and 2018, we saw an increase of around 1,200 trucks. In 2019, there was a slight drop, and we were declining through the first quarter of 2020 until the pandemic hit, after which we added over 1,600 trucks in the subsequent years. Changes in the economy affect our numbers quite rapidly. Although I foresee some declines in the upcoming months, I believe we will recover when the environment improves. Regarding utilization, we were down 5% year-over-year in the first quarter, down 3% in the second quarter, but we saw an increase of 2% in the third quarter. Specifically, we were down 1% in July, up 3% in August, and up 3% in September, indicating some improvement. We provide various analytics tools to help BCOs better understand their businesses. Our aim is to minimize unexpected changes for them, although the current environment has been tough. They didn't anticipate the rapid decline, and while most BCOs can handle a prolonged downturn, the length of this one has affected the sustainability of some operations. Many are choosing to wait it out or potentially step back from the business for a while. Adding new members to our fleet has been robust; our focus now is on retaining those we already have, but many are opting to stay on the sidelines until conditions stabilize.

Got it. Thank you. And then just second for me. I know your guidance assumes a pretty muted peak season in the fourth quarter. Can you give maybe an indication of what you're hearing from your customers around the peak season? Thanks.

Volumes are significantly lower as we enter the fourth quarter. The expectation is for a decrease of 10% to 20% compared to the same period last year. This primarily affects the gas and parcel carriers, particularly on the van side, not the flatbed side. Based on discussions my team has had with customers, while they are not providing specific metrics, they indicate that they do not anticipate a strong peak season.

Thank you. At this time, we have the next questioner from the line of Bruce Chan of Stifel. Your line is now open.

Hey, good morning, team. This is Andrew Cox on for Bruce this morning. I just wanted to get your commentary on the J.B. Hunt acquisition of BNSF Logistics. I wanted to know if they compete with Landstar for agents, is there any kind of overlap there, any commentary? Thank you.

We've not experienced any pressure from BNSF Logistics in the past when it operated under a different name, and we don’t anticipate facing any pressure as it transitions to J.B. Hunt. Currently, we have not observed any impact from the legacy BNSF brokerage as it prepares to move to J.B. Hunt.

Okay. Great. And another one, I'm thinking we haven't heard about the trailer fleet on the call today. I just wanted to get an update on there, where you stand in terms of size, age and any potential CapEx requirements headed into next year?

Yeah, hey, Andrew, this is Joe. I'll take a shot at that. The trailer fleet is just under 15,000 currently. As you may know, or if you don't know, due to the inability to really acquire new trailers for a couple of years during the pandemic, we held on to some of our older equipment, and we're in the process of cycling some of that out. Some of that is what's attributed to what Jim Todd talked about earlier with the increased maintenance costs. So we're in the process of trying to right-size the fleet now. We typically have two van trailers for every BCO pulling vans in the drop and hook market, and we're a little north of that, so we're trying to right-size that through some sales, which you saw in the quarter. Looking forward, the intent is to get into some new equipment in 2024 at some point, but again, watching BCO count pretty carefully.

Okay. That's all I got. Thanks, guys.

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

Well, I would guess that everybody ran to the EPS call, but I'm going to close with a statement regardless. Before I close, I want to briefly discuss freight cycle dynamics to provide additional big picture context to this year's results. Landstar's revenue performance through the freight cycle that occurred over the past three years ultimately set the stage for where we are today. Generally, in the ordinary course of business, we experienced spot market down cycles that drive revenue from peak to trough as well as up cycles that drive revenue from trough to peak. In both cases, the typical spot market freight cycle from peak to trough or trough to peak occurs over a period of six to eight quarters. These cycles are typically driven by three main factors: the level of industry demand for freight services, the level of available truck capacity in the industry, and the differential between industry-wide contract and spot pricing at any given point in time during the cycle. Looking back over the recent down cycle, Landstar's peak quarterly revenue occurred five quarters ago in the 2022 second quarter. Since hitting peak quarterly revenue in the 2022 second quarter, Landstar has experienced a down cycle during which quarterly revenue has thus far decreased each quarter over the following five quarters. The recent overseas conflicts, the impact of student loan repayments on consumer spending, labor disruptions in the U.S., increasing interest rates, political uncertainties, and many other factors make it difficult to predict exactly when the current down cycle will end and revenue will begin to cycle upward. Due to the overall economic and geopolitical environment, I expect the start of the upcycle may be delayed towards the latter part of a typical cycle. Nevertheless, even with the challenges in the freight environment that we, along with many others in our industry, have experienced through 2023, Landstar's driver-focused business model has continued to generate solid returns. Our balance sheet has never been stronger. We remain focused on the elements of our business that we can control. We continue to invest in digital tools, process improvements, and people to empower agents and capacity providers for continued success. Thank you, and I look forward to speaking with you again on our 2023 fourth quarter earnings conference call scheduled for February 1. Enjoy your day.

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