Good afternoon, and welcome to Landstar System, Inc. Second 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 Frank Lonegro, President and CEO; Jim Applegate, Vice President and Chief Corporate Sales, Strategy and Specialized Freight Officer; Jim Todd, Vice President and CFO; Matt Dannegger, Vice President and Chief Field Sales Officer; and Matt Miller, Vice President, Chief Safety and Operations Officer. Now I would like to turn the call over to Mr. Jim Todd. Sir, you may begin.

Thank you, Bill. Good afternoon, and welcome to Landstar's 2025 Second Quarter Earnings Conference Call. Before we begin, let me read the following statement. The following is a safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations. Such information is, by nature, subject to uncertainties and risks, including, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2024 fiscal year described in the section Risk Factors, Landstar's Form 10-Q for the 2025 first quarter and our 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. I'll now pass it to Landstar's CEO, Frank Lonegro for his opening remarks.

Thanks, J.T., and good afternoon, everyone. I'd like to thank our BCOs and agents and all of the Landstar employees who support them every day. It was great to spend time with our BCO Million Milers and Roadstars at our annual All-Star event in Savannah, Georgia recently. And to celebrate their incredible safety accomplishments. It was my honor to preside over Landstar's 51st Truck Giveaway, awarding newly inducted Million Miles Safe Driver, Georges from Owensboro, Kentucky, with a new 2026 Freightliner Cascadian. The capability, resiliency and level of commitment exhibited day in and day out by our network of independent business owners is unique in the freight transportation industry. Their adaptability and dedication to safety, security and service for our customers is truly impressive. They are exceptional business leaders and key to driving the continued success of Landstar's business model. Amidst ongoing challenges in the freight environment, compounded by volatile federal trade policy and lingering inflation concerns, the 2025 second quarter included several important positive developments for Landstar. While overall revenue was down 1% year-over-year, truck revenue was up year-over-year for the first time since the third quarter of 2022. As noted in our earnings release, our second quarter revenue per truckload outperformed prepandemic typical seasonality and the number of trucks provided by BCOs was approximately equal to the 2025 first quarter representing the best sequential net BCO truck performance in 12 quarters. Notwithstanding the political and macro uncertainty thus far in 2025, our focus continues to be on accelerating our business model and executing on our strategic growth initiatives. In one continued major bright spot, I am extremely pleased with the performance of Landstar's heavy haul service offering. We generated approximately $138 million of heavy haul revenue during the 2025 second quarter or a 9% increase over the 2024 second quarter. This achievement was driven by a 5% increase in heavy haul revenue per load and a 4% increase in heavy hauled volume. Turning more broadly to our core truckload service offering, the foundational work we continue to invest in puts us in a great position to leverage the freight environment when it eventually turns our way. We are also focused on our commitment to continuous improvement in the level of service and support we provide to our customers, agents, BCOs and carriers each and every day. Turning to Slide 5. The freight environment in the 2025 second quarter was characterized by relatively soft demand from a seasonal perspective, admittedly comping off a seasonally strong first quarter. The impact of accumulated inflation remains a drag on the amount of truckload freight generated in relation to consumer spending. Truck capacity continued to be readily available with small pockets of supply-demand equilibrium and market conditions continue to favor the shipper amidst choppy conditions in the industrial economy as evidenced by an ISM index below 50 for the entire 2025 second quarter. I would note, however, that the combination of sequential truck revenue per load improvement, coupled with the sequential compression of our brokerage net revenue margins would indicate a market that we believe is working its way back towards being balanced. Considering that backdrop, Landstar's revenue performance was admirable in the 2025 second quarter with truck revenue per load 2.6% above the 2024 second quarter, partially offset by a 1.5% decrease in the number of loads hauled via truck over the same period. Our balance sheet continues to be very strong, and our capital allocation priorities are unchanged. We will continue to patiently and opportunistically execute on our existing buyback authority to benefit our long-term stockholders. As noted in the release, during the first 6 months of 2025, we deployed approximately $103 million of capital towards buybacks and repurchased approximately 686,000 shares of common stock. We continue to invest through the cycle in leading technology solutions for the benefit of our network of independent business owners and have allocated a significant amount of capital this year or refreshing our fleet of trailing equipment, specifically on unsided platform equipment. Turning to Slide 6 and looking at our network, the scale systems and support inherent in the Landstar model helped to drive the operating results generated during the 2025 second quarter. JT will get into the details on revenue, loadings and rate per load in a few moments. As noted during previous earnings calls, Landstar safety culture is a crucial component of our continued success. Our safety performance is a direct result of the professionalism of the thousands of Landstar BCOs operating safely every day and the agents and employees who work to reinforce the critical importance of safety at Landstar. I'm proud to report an accident frequency rate of 0.67 DOT reportable accidents per million miles during the 2025 first half, well below the last available national average released from the FMCSA for 2021. We continue to be committed to driving down that number closer to the company's trailing 5-year average of 0.61 or lower. This long-run average is an impressive operating metric that speaks to the strength, skill, talent and dedication of our BCOs and provides a point of differentiation our agents were able to highlight in discussions with our freight customers. I'd also like to take a moment to recognize Landstar's nearly $500 million agents based on our 2024 fiscal year results. Importantly, retention within the million-dollar agent network continues to be extremely high. Turning to Slide 7 on the capacity side. On a year-over-year basis, BCO truck count decreased approximately 6% compared to the end of the 2024 second quarter. On a sequential basis, BCO truck count was essentially flat, decreasing only 9 trucks in the second quarter from the first quarter, representing the best net truck count performance in 12 quarters. It is typical to incur turnover in BCO truck count in a low rate for load environment. BCO turnover continues to be influenced by a persistent low rate for load environment, combined with significant increase in the cost to maintain and operate a truck today compared to before the pandemic. Directionally, we are pleased to see our trailing 12-month truck turnover rate dropped from 34.5% as of fiscal year in 2024 to 31.9% at the end of the 2025 second quarter. Through the first 4 weeks of our 2025 third quarter, the number of trucks provided by BCO independent contractors has declined by 23 or approximately 0.25% of 1% sequentially, directionally consistent with the trend in truck revenue per load experienced during fiscal July. I will now pass the call back to J.T. to walk you through the 2025 second quarter financials in more detail.

Thanks, Frank. Turning to Slide 9. As Frank mentioned earlier, overall truck revenue per load increased 2.6% in the 2025 second quarter compared to the 2024 second quarter, primarily attributable to a 3.2% increase in revenue per load on loads hauled by unsided platform equipment and by a 1.2% increase in revenue per load on loads hauled via van equipment. On a sequential basis, truck revenue per load increased 3.2% in the 2025 second quarter versus the 2025 first quarter stronger than the typical pre-pandemic normal seasonality increase of approximately 2%. In comparison to overall truck revenue per load, we consider revenue per mile on loads hauled by BCO trucks a pure reflection of market pricing as it excludes fuel surcharges billed to customers that are paid 100% to the BCO. In the 2025 second quarter revenue per mile on unsided platform equipment hauled by BCOs was 14% above the 2024 second quarter, and revenue per mile on van equipment hauled by BCOs was 3% above the 2024 second quarter. Delving deeper into seasonal trends, revenue per mile on loads hauled by BCOs on unsided platform equipment declined 1% from March to April was approximately flat April to May and increased 8% from May to June. The March to April decline in the April to May approximately flat performance, both underperformed prepandemic seasonal trends, while the May to June increase outperformed pre-pandemic historical trends. With respect to loads hauled by BCOs on van equipment, revenue per mile was more stable, grinding slightly higher as we move through the second quarter. Revenue per mile on van equipment hauled by BCOs was approximately flat from March to April, outperforming these trends, increased 1% from April to May, outperforming these trends and increased another 1% from May to June underperforming prepandemic May to June historical trends. It should be noted that month-to-month seasonal trends on unsided platform equipment are generally more volatile compared to that van equipment. This relative volatility is often due to the mix between heavy specialized loads and standard flatbed volume. As Frank alluded to, we've been pleased with the recent performance in our heavy haul service offering. Heavy haul revenue was up an impressive 9% year-over-year in the second quarter, significantly outperforming core truckload revenue. Heavy haul loadings were up approximately 4% year-over-year and revenue per heavy haul load increased 5% year-over-year. This represented a mixed tailwind to our unsided platform revenue for load as heavy haul revenue as a percentage of the category increased from approximately 33% during the 2024 second quarter to approximately 35% in the 2025 second quarter. Non-truck transportation service revenue in the 2025 second quarter was 22% or $21 million below the 2024 second quarter. The decrease in non-truck transportation revenue was mostly due to a 20% decrease in ocean revenue per shipment, a 14% decrease in ocean volume and a 9% decrease in intermodal revenue per load. Turning to Slide 10. We've provided revenue share by commodity and year-over-year change in revenue by commodity. Transportation & Logistics segment revenue was down 1% year-over-year on a 2% decrease in loadings partially offset by a 1% increase in revenue per load compared with the 2024 second quarter. It should be noted that our U.S., Mexico and U.S., Canada cross-border businesses both underperformed our domestic revenue performance during the 2025 second quarter. Within our largest commodity category, consumer durables, revenue decreased 3% year-over-year on a 5% decrease in volume, partially offset by a 2% increase in revenue per load. Aggregate revenue across our top 5 commodity categories, which collectively make up about 69% of our transportation revenue declined approximately 3% compared to the 2024 second quarter. While Slide 10 displays revenue share by commodity, we thought it would also be helpful to include some color on volume performance within our top 5 commodity categories. From the 2024 second quarter to 2025 second quarter total loadings and machinery increased 4%, automotive equipment and parts decreased 16%, building products decreased 6% and Hazmat decreased 7%. Additionally, Substitute Line Haul loadings, one of the strongest performers for us during the pandemic and one which varies significantly based on consumer demand, increased 24% from the 2024 second quarter. As we've mentioned many times before, Landstar is a truck capacity provider to other trucking companies, 3PLs and truck brokers. During periods of tight truck capacity, those other freight transportation providers reach out to Landstar, provide truck capacity more often than during times of more readily available truck capacity. The amount of freight hauled by Landstar on behalf of other truck transportation companies is reflected in almost all of our commodity groupings, including our Substitute Line Haul service offering. Overall, revenue hauled on behalf of other truck transportation companies in the 2025 second quarter was 19% below the 2024 second quarter, a clear indicator that capacity is readily accessible to the marketplace. Revenue hauled on behalf of other truck transportation companies was 11% and 13% of transportation revenue in the 2025 and 2024 second quarters, respectively. Even with ups and downs in various customer categories, our business remains highly diversified with over 23,000 customers, none of which contributed over 8% of our revenue in the 2025 first half. Turning to Slide 11 and the 2025 second quarter, gross profit was $109.3 million compared to gross profit of $120 million in the 2024 second quarter. Gross profit margin was 9% of revenue in the 2025 second quarter as compared to gross profit margin of 9.8% in the corresponding period of 2024. In the 2025 second quarter variable contribution was $170.5 million compared to $175.1 million in the 2024 second quarter. Variable contribution margin was 14.1% of revenue in the 2025 second quarter compared to 14.3% in the same period last year. The decrease in variable contribution margin compared to the 2024 second quarter was primarily attributable to a decreased variable contribution margin on revenue generated by truck brokerage carriers. As the rate paid to truck brokerage carriers is 46 basis points higher than the rate paid in the 2024 second quarter. Turning to Slide 12. Operating income declined as a percentage of both gross profit and variable contribution primarily due to the impact of the company's fixed cost infrastructure, principally certain components of selling, general and administrative costs in comparison to smaller gross profit and variable contribution basis. Other operating costs were $19.6 million in the 2025 second quarter compared to $14.1 million in 2024. This increase was primarily due to the reclassification of the $4.8 million supply chain fraud charge established during the 2025 first quarter from customer bad debt to contractor bad debt during the 2025 second quarter as a result of the finalization of certain financial responsibility related agreements with the affected independent commission sales agency. Excluding the $4.8 million P&L reclassification, other operating costs increased approximately $700,000 as compared to the 2024 second quarter, primarily attributable to increased trailing equipment maintenance costs, partially offset by increased gains on disposal of used trailing equipment. Insurance and claims costs were $30.4 million in the 2025 second quarter compared to $27.2 million in 2024. Total insurance and claims costs were 6.6% of BCO revenue in the 2025 second quarter as compared to 5.8% in the 2024 second quarter. The increase in insurance and claims cost as compared to 2024 was primarily attributable to increased severity of trucking accidents during the 2025 period, increased severity on cargo claims primarily due to strategic cargo theft and increased net unfavorable development of prior year claim estimates, partially offset by decreased BCO miles traveled during the 2025 period and a decreased frequency of cargo claims during the 2025 period. During the 2025 and 2024 second quarters, insurance and claims costs included $2.3 million and $1 million of net unfavorable adjustment to prior year claim estimates, respectively. Selling, general and administrative costs were $55.7 million in the 2025 second quarter compared to $54.9 million in the 2024 second quarter. Excluding the favorable impact of the previously mentioned $4.8 million reclassification from selling, general administrative costs, those costs increased approximately $5.6 million as compared to the 2024 second quarter. The increase in selling, general and administrative costs were primarily attributable to an increased provision for incentive compensation, increased information technology costs, increased wages and employee benefit costs, and increased costs associated with our annual agent convention. The provision for incentive compensation was approximately $1 million during the 2025 second quarter compared to a $1.4 million reversal of previously recorded incentive compensation costs during the 2024 second quarter. Depreciation and amortization was $12.1 million in the 2025 second quarter compared to $14.5 million in 2024. This decrease was primarily due to decreased depreciation on software applications. The effective income tax rate was 24.6% in the 2025 second quarter compared to an effective income tax rate of 24.5% in the 2024 second quarter. Turning to Slide 13 and looking at our balance sheet, we ended the quarter with cash and short-term investments of $426 million. Cash flow from operations for the 2025 1st half was $63 million and cash capital expenditures were $4 million. The company continues to return significant amounts of capital back to stockholders, with $97 million of dividends paid and approximately $102 million of share repurchases during the 2025 1st half. The strength of our balance sheet is a testament to the cash-generating capabilities of the Landstar model. Back to you, Frank.

Thanks, J.T. Given the highly fluid freight transportation backdrop and an uncertain political and macroeconomic environment, as well as challenging industry trends with respect to insurance and claims costs, the company will be providing third quarter revenue commentary rather than formal guidance. Turning to Slide 15. The number of loads hauled via truck in July was approximately 1% above July 2024 on a dispatch basis, while revenue per load in July was approximately 3% below July 2024 on a process basis. As a result, we view July's truck volumes at slightly better than normal seasonality, whereas July truck revenue per load was below normal seasonality. It should be noted that the launch point of the second quarter from a sequential pricing perspective was relatively high given the strong seasonal performance of 2025 second quarter truck revenue per load. Looking at historical seasonality from Q2 to Q3, pre-pandemic patterns would normally yield a slight decrease in the number of loads hauled via truck, almost entirely offset by slight increase in truck revenue per load yielding a relatively flat top line sequentially. As noted above, fiscal July truck volumes trended slightly above normal seasonality while fiscal July truck pricing trended slightly below. With respect to variable contribution margin, the company typically experiences a relatively flat variable contribution margin from the second quarter to the third quarter. Although we are not providing guidance, there are 3 points regarding the expense side in the 2025 third quarter that we want to bring to everyone's attention. First, assuming a normalized provision for customer bad debt and normalized employee benefit costs, we would assume SG&A costs will decline by approximately $3 million sequentially as we cycle the impact of the 2025 agent convention held during fiscal April. Second, that approximately $3 million sequential tailwind to SG&A will be partially offset by the impact of our BCO All-Star celebration in fiscal July which we expect to result in a $1.5 million sequential headwind on the other operating cost line. And third, one of Landstar's operating companies, Landstar Ranger, is a defendant in a trial currently underway in El Paso, Texas, involving a tragic accident between an RV occupied by a family in a small independent trucking company that at the time of the accident was hauling a load brokered to it by Landstar Ranger. The plan is a serve that with respect to the accident, Landstar Ranger impacted as the responsible motor carrier and not a broker. Although it is hard to predict the potential outcome of this matter, the trial could result in a substantial verdict against Landstar during the 2025 third quarter. Landstar intends to preserve its rights to appeal any such verdict. Additional information regarding this matter is included in Landstar's second quarter 10-Q filed today with the SEC. With that, Bill, we'd like to open the line for questions.

We have the first question from Jonathan Chappell of Evercore ISI.

Jim hate to start off with super minutia question, but here we go. Frank gave us that SG&A outlook for 3Q. You had mentioned earlier the $4.8 million impact to the good guy in second quarter SG&A. So when we think about that $3 million minus the $1.5 million sequential decline, is that off the $55.7 million that was actually reported in 2Q? Or is that the $55.7 million plus the $4.8 million and then make the seasonal adjustment?

Jon, all good. Yes, so the $55.7 million on an as-reported basis was inclusive of a P&L reclass out of G&A into other operating costs, so that favorably impacted the customer bad debt line in the second quarter of '25. So I would tell you to put that back and then have the $3 million fall off from convention.

Great. Helpful. And then another one, maybe a bit in the weeds. The unsided platform revenue per load really stepped up sequentially. You'd mentioned kind of the monthly cadence and then that big 8% move from May to June. So how do we kind of put those 2 together? Did you just have a phenomenal June kind of exit rate that kind of helped you both from a volume perspective and a pricing perspective at the same time? And is that the right kind of launch point as we think about seasonal trends in 3Q.

No, Jon, it's a great question. So that comment was specific to BCO van rate per mile on unsided platform. So our BCO as a percentage of that category is probably 30% or so and the folks that play in that space, the BCOs, they tend to skew more on the heavy specialized side. So to your point, on a sequential basis, our unsided platform revenue per load stepped up about 7% sequentially. It was steady, John. So it was a 320 basis point good guy March to April, 620, April to May and 440 May to June. So it was impressive. And each month of the quarter, I would tell you, van revenue per load as well wasn't as pronounced but plus 0.8%, plus 0.6% and plus 1.1% April, May to June. So we felt good about rates on both equipment types all the way through the quarter.

We'll move now to the next person coming from the line of Daniel Imbro with Stephens.

Maybe starting on a higher level one. Frank, feel like a few months ago, a lot of uncertainty from shippers. As we think about some of your bigger movers this quarter, I think auto down 17%, Energy, Electrical up meaningfully. Can you offer some color by end market on how you're thinking about the back half of the year? Any updated thoughts on how they're changing maybe by those big end markets you're supposed to.

Yes, that's a great question. I'll pass it over to Jim Applegate shortly. When we examine the second quarter and consider its implications for the third quarter, we can expect to see similar trends. In the automotive sector, unless there are changes in interest rates or incentives to boost demand, I anticipate it will remain somewhat sluggish until interest rates and tariffs stabilize. The housing market has also not been favorable, impacting the construction side and, consequently, building products. However, the data center business has performed relatively well. JT also mentioned the cross-border operations with the U.S., Mexico, and U.S., Canada. Until we witness a degree of political and trade stability, I expect to see a negative year-over-year trend in that area. On a more positive note, we are seeing growth in data centers, the wind business, government projects, and heavy haul, and I believe that will carry into the third quarter.

Yes. No, I think, I mean Frank well said, we do look at kind of the data centers and everything, it's kind of powering that whole infrastructure build with AI. The electrical equipment and the power generation type stuff has really been a positive, and that's going to continue. We see a pretty long runway and I think a lot of that infrastructure build-out is just in infancy and I think you kind of tack on just some of the administration things now that they're doing with The Big Beautiful Bill and trying to spur domestic investment. It plays very nicely into additional infrastructure type investment. So we're very positive about that. I think Frank touched on kind of some of the negatives around the tariff-related impacted industries. Automotive, obviously, very down. And until you get some clarity as far as where some of these tariffs are going to shake out, I think that continues. Same thing with other like metals and kind of some of the consumer-related products. I think you're going to continue to see some choppiness over on that end.

That's helpful. And then, J.T, maybe a near-term 1 on the 3Q kind of set up. I guess, I think Frank mentioned variable contribution margin is typically flat sequentially from 3Q or 2Q to 3Q. Obviously, rates have underperformed seasonality. I would think that's helping variable contribution margin. But how should we think about BCM relative to that historical flat? Is there any offset we should be aware of from mix or something else that would keep us from being better than that seasonally normal?

It's a good question, Dan. To Frank's point, I mean, we're essentially flat if you go back 15 years and walk 2Q to 3Q, to your point, if the rate softness full disclosure today is day 2 of July close. So I don't have perfect visibility. But to your point, the rate revenue per load softness we're seeing in July results in wider spreads on the brokerage side, that could be a tailwind to VCM outperformance. The other thing I would call out that Miller can speak to better than me, the BCO utilization number was a good number in the second quarter. I think it ticked up 3% year-over-year. Now that could be faced a little bit of a headwind with the rate direction we see rates going in July. But if that continues at a strong clip, that could help conversely, if rates fade a little bit, that could be a headwind from the utilization side. That's how I'm thinking about it.

We'll move now to the next person coming from the line of Scott Group of Wolfe Research.

I want to clarify something about Q2 to start. There was a reclassification of approximately $4.8 million in costs from one line to another, but the overall result is straightforward. The $1.20 reflects a clean quarter, and we simply take the earnings from Q2 and add back $1.5 million for the net of the agent convention. Is that correct?

Yes. Regarding the agent matter we discussed last quarter and its impact on the P&L classification, we had to make some adjustments, but you are correct that the net effect is zero from that reclassification. I'll let J.T. explain the other changes.

Yes. No, that's absolutely right, Scott, you're thinking about the right way. It was a 0 penny impact to the second quarter just P&L geography. So yes, the convention falls off, $3 million tailwind. BCO All-Star is probably a $1.2 million to $1.5 million headwind discrete to the third quarter.

Okay. That's good to see that the BCO count remained flat sequentially. However, the decrease in the number of approved and active brokerage carriers is concerning. Are you experiencing an increase in bankruptcies, or is there any additional insight you can provide on this matter?

One of the things we telegraph, Scott, on the last call was we mentioned on the last call that there would be a pretty significant change as a result of some things that Matt is doing there, so we did exactly what we thought it was going to do but let Matt pick up the color on.

Sure. And just a great deal of effort that's happening on the fraud front and really becoming more selective on who we're choosing to do business with as a result of all the work that's going on there to really pull through the carriers that are in the database and make sure we're partnering with those we want to partner with.

Okay. And then just one last question. You mentioned that revenue per load turned positive in Q2, but it seems to be negative again in July. Is there something unusual about July from a comparison perspective, or do we think we still can't achieve a sustained improvement?

I think the short answer is the last thing that you mentioned. When I observe the sequential improvement that began from March to April, and continued from April to May, and then May to June, we thought we were making some progress. In hindsight, there are a few factors to consider. There were some unique elements in the second quarter, including the road checks and Memorial Day, along with the very late implementation of the English language proficiency, which we only had for a few weeks. It remains to be seen what the effects will be. We may have also experienced some tariff-related pull forwards in the first half of the year, contributing a bit to performance. The jump from June to July was based on a strong June for us and a solid July 2024 number. Currently, we are coming off tougher comparisons and demand seems to be moderate. Inventory levels appear to be somewhat elevated due to those pull forwards, and there is uncertainty related to tariffs. It is too soon to determine the overall impact of the significant bill, but we are optimistic about what we observed.

We'll move now to the next person coming from the line of Bruce Chan with Stifel.

I appreciate the time here. Maybe just a follow-up on some of the end markets. You mentioned that Substitute Line Haul was up nicely this quarter. Wondering if that was related to post pause restocking at the end of the quarter and maybe get your thoughts on whether that sustains into 3Q or maybe that falls off a little bit. And then I know it's early, but any kind of early read on what the sort of peak season looks like, especially with that line.

Bruce, so you know Substitute Line Haul for us is probably our least diversified end market, so we had some pretty good demand in the first quarter from one of the big parcel players. In the second quarter, we had pretty solid demand from the other parcel player along with one of the LTLs. So just less diversified, and you could have 1 or 2 shippers really move the needle there for thoughts on read through to the back half. I'll let the sales team come in.

Bruce, this is Matt Dannegger. Regarding the peak, we're currently at that time of year when we begin to assess it. In relation to J.T's point, it's mainly just a small number of parcel companies in Substitute Line Haul we are focusing on, so we are starting to evaluate that now. We don't have a complete picture yet; we usually firm things up in September and October to gain a clearer understanding of rates and volumes. However, early indications suggest we are not anticipating a significant peak like last year. A lot has changed in the post-COVID landscape over the past couple of years. More people are returning to stores, and e-commerce is adapting its transportation strategies. Therefore, we are observing less Substitute Line Haul from our traditional clients compared to past years. Early estimates indicate it may be relatively flat. Last year, we were 1% or 2% above 2023, and we expect this year to be quite similar, flat or possibly slightly up or down, but no major fluctuations like we've experienced in previous years. We will have more detailed information later in the year, specifically in the fall.

Okay. Yes. That's very helpful. I just want to follow up on the forwarding side. I know it's a smaller part of the business, but there was a significant drop in the second quarter. I would assume that was related to the tariff issues. Do you have any insights on whether that will improve in the third quarter?

Bruce, I do not have a view based on July thus far. We saw ocean rates probably start to roll over a quarter or two ago. And I think on a year-over-year basis that continued and sequential, I believe it continued as well. But to your point, not a huge piece for us and some project type stuff can influence that from quarter-to-quarter.

We'll move now to the next person coming from the line of David Zazula of Barclays.

You answered the question about the brokerage capacity providers, but sequentially, the BCO count, the losses seems to have stemmed. Were there any actions you took to be able to better recruit or better retain BCOs during the quarter?

Yes, David, good question. A quarter ago, we mentioned that as the rate environment stabilized and as the actions that Matt and his team have started to take took hold that we would see fewer cancellations and more adds, obviously, being in the second quarter versus the first quarter is helpful just from a seasonal perspective. But we were delighted to see effectively a flat quarter-over-quarter BCO count and continuing to do everything we can on the recruiting and the qualifications and the orientation and everything we do from a retention perspective, but I'll let Matt say his own phrase because he's done a heck of a job for you here in the last 6 months.

I appreciate that, Frank. I appreciate the question. Yes, ads are tough in this environment. Would love to get a little bit more help on rate. That said, as Frank mentioned, we have a number of strategic initiatives focusing on how we recruit, how we qualify, how we onboard without sacrificing safety. Safety is one of those things we hold near and dear to the heart, a big differentiator for us. That said, best gross adds in 7 quarters. Sequentially, the gross adds were up 9.5% and year-over-year, the gross adds were up 12.5%. So overall, pleased with the improvement we've seen.

And then if I could just squeeze one in on heavy haul. It seems like a very positive environment for you out there. Are there any headwinds on the horizon? Is that segment exposed to tariffs or anything else that would keep that from the continuing the momentum?

Yes. I think on the heavy haul side, not necessarily tariff related. There's a little bit that goes cross-border, which will keep our eyes on, but a lot of that is domestic. I think the question on everybody's mind is we look at the big bill is what the impact of that's going to be on wind energy and some of the things that have been subsidized. But let me let Jim Applegate talk a little bit more about that.

Yes. And as it relates to kind of near term, no, I think we're hearing from all of our customers, and it's pretty broad-based. I mean we're not just kind of pigeonholing one customer or one industry. We're seeing it and when machinery, electrical equipment data centers, even 3PLs are kind of specialize in that type of movement of equipment, we're seeing it across the board. So we think feel pretty well insulated from a customer and industry standpoint, there are some things in the build to Frank's point, the alternative energy credits. We're keeping an eye on that. But we do feel no matter what happens, people need energy people need power, we're going to see that business just kind of move to different customers and different providers depending on where they're going to need to kind of build their power to power all this investment that's happening across North America right now. So we still remain bullish on it, but we're keeping a good eye on what customers might benefit from this bill.

We will move now to the next person coming from the line of Brian Ossenbeck of JPMorgan.

Just to go back to the comment on the ELP and there's a lot of other different implications from that. And there's a few other truckload regulations out there as well that might tighten some capacity. But just want to get your thoughts having some exposure to that, especially down around the border. I imagine a lot of the focus is. So any thoughts in terms of what you've seen so far? And any trends you expect was that going to be a big impact to capacity or not?

Good question, Brian. I'll let Matt fill in some of the numbers that we've been looking at. And obviously, the FMCSA is publishing in arrears their experience with ELP enforcement. We think from a BCO fleet perspective that we don't have any exposure, I mean, we have a very disciplined approach to qualifying and recruiting and retaining our BCO, so we don't feel like we have any unique exposure at Landstar. But obviously, if there are any other capacities that happened to come out, we see that as a benefit to us, certainly regionally, if not nationally, depending on the size, let Matt take over.

Brian, thank you for the question. Regarding Frank's point, we don't consider this a specific issue for Landstar. Up to this point, we haven't received any related violations. This new measure was introduced on June 25 following the executive order from April 28. The FMCSA data we have covers just 10 days, from June 25 to July 4, showing 349 out-of-service violations. The key change here is that it is now classified as an out-of-service violation, which likely means there weren't any prior to June 25. Given that 349 in such a short timeframe is hard to interpret, we expect to have a clearer understanding next quarter. Additionally, stemming from the executive order on April 28, there is a review process for non-domiciled CDLs that could impact us. However, Secretary Duffy has announced that FMCSA will conduct compliance reviews of the states issuing non-domiciled CDLs, and we'll have to wait and see how that plays out. There could be potential implications there, Brian.

Okay. Maybe as a follow-up for Jim. Can you just talk about the insurance costs and claims trends? It sounds like you've got a potential settlement coming out. So if you could talk a little bit more about that? And then also just the underlying trends that you're seeing when it comes to claims and then what you think renewals are going to start to look like before we get there before too long.

Yes. On the first one, Brian, let me take that one. Obviously, we're alerting investors and analysts to the fact that we have an ongoing trial. And given the fact that it's an ongoing trial, we probably shouldn't go into any level of detail. If you go back to my prepared remarks and look at a couple of the disclosures in the 10-Q, you'll get a sense of what we're talking about. I'll let J.T hit the trends as well as potential impact on renewal as we get into next year.

Sure, Brian. And just to be clear, so you're looking for color on the second quarter.

The one coming up, you mentioned that could hit in the third quarter, I think, the accident claim, and then just more broad comments about just severity instance premiums, just generally about the backdrop.

Yes. I think on the claims side, we're definitely seeing an uptick in costs. We are focused on addressing that through our safety programs. We're constantly monitoring and evaluating our processes to ensure we're managing risks as effectively as possible. As we look to renewals, I would expect that premiums may be relatively stable, especially considering that we've put an emphasis on maintaining our safety performance.

So we will have the last person to ask the question coming from the line of Stephanie Moore of Jefferies.

We can go ahead and close out.

I see. That is noted. So 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, Bill. In closing, while the freight environment remains challenging, we do see some positives in the near term. We were encouraged by the sequential pricing trends during the second quarter and with a choppy industrial economic backdrop, we were pleased with the 9% year-over-year revenue increase in our heavy haul service offering. And regardless of the economic environment, the resiliency of the Landstar variable cost business model continues to generate significant free cash flow. Landstar has always been a cyclical growth company, and we are well positioned to navigate the coming months as we continue to look forward to higher highs when the freight market turns our way. Thank you for joining us this afternoon. We look forward to speaking with you again on our 2025 third quarter earnings conference call in late October. Thank you.

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