Landstar System, Inc. (LSTR) Earnings Call Transcript & Summary

Okay. Good morning, everyone, and thank you again for joining us here for our day 3 of our Virtual Investment Conference. I'm Jack Atkins with Stephens, Inc. I'm the airfreight and service transportation analyst here. And one of my responsibilities is covering Landstar, Landstar System, and that's -- they've been doing that now for almost 10 years, and it's been great to do. It's a phenomenal company, a great track record of adding shareholder value and growth. And for those of you who don't know the company, they're headquartered in Jacksonville, Florida. They really have a differentiated business model than I think most other folks in the sector. And people really, in my mind, don't fully understand sort of everything these guys bring to the table and how their model works at different points of the cycle. But it's been highly successful, very high returns on invested capital, great balance sheet. And so we've got Jim Gattoni, Landstar's CEO. And I guess he's also temporarily wearing the CFO cap here as well. So Jim, thanks so much for taking the time to be here today at the conference. And why don't I turn the floor to you for some introductory comments, then we'll go into Q&A?

Yes. I think just to point to your comments, Jack, is we are a little unique in the space, right? We -- about $4 billion worth of revenue. 93% of that is full truckload here in the U.S., cross-border Canada and cross-border Mexico. But the differentiator is really is we're kind of a broker, we're kind of not a broker, right? We have DOT motor carrier authority because we have 10,000 owner operators who drive under that authority. And often, we are treated like a carrier when it comes to shippers. And with that comes carrier liability when we have trucking accidents. On the other side of it, we do work as a true broker pretty much and use third-party trucks to haul some about 50% of our freight. So from a capacity standpoint, we have dedicated capacity through our owner-operator network who haul only Landstar loads, which we believe gives us a competitive advantage as it relates to customer relationships, adding value and really having capacity available to us in any environment that they don't go off to haul other shippers loads. They hold the loads of Landstar. On the third-party truck side, as I said, we work as a true broker when it comes to accessing capacity. But we do it through an agency network where our -- every load of freight we have, until recently, was dispatched and coordinated via an agent who is an independent third party who's contracted with Landstar to basically work a little bit as our sales force, represent Landstar out in the network in a positive way, and move freight and build relationship with customers. So the model, the way it's built out is for every $1 of revenue being -- I'm sorry, let me step back. It generates kind of a variable cost business model, highly variable cost business model, because if we don't have $1 of freight, we don't have about 90% of the cost. When you look at the model, on $4 billion of revenue, about, I would say, 76% to 77% of it is used to pay the capacity. Another 8% is paid to the agent, leaving Landstar about 15% gross profit margin. But again, all that cost is variable. If you don't have a load of freight, that 90% of -- if you don't have $1 freight, that 90% of the cost doesn't exist. We did recently open up a little company store. So I can no longer say that every load of freight goes through an agent. We did open a company store where we actually purchased an agent here in Florida to really live the agent experience internally. I think one of our disadvantages you noticed here is we don't use the tools that we provide to the agents to be successful. And I think by opening a company store, now we actually have some experience. We have some employees who are using the tools, and we can make them better as opposed to doing it through focus groups and agents who have all different needs and requirements. We also plan to grow that business on some of the freight that isn't really conducive to the agent family, whether it be high-volume, low-margin freight or things that they typically don't haul. So we do now -- now I have to say that we -- 99.5% of our loads are via an agent. We have maybe 0.5% of it is going through our company store. Other than that, we're highly variable cost below the gross profit mine -- line. We only 1,200 employees. So SG&A runs 5% or 6% of revenue. We have other operating costs, which consist of our -- we have about 12,000 trailers, mostly van trailers, in the system. A lot of the other operating costs are -- whether it's trailer rent or it's maintenance and tires. Insurance is a big ticket for us. I mean as it relates to the industry right now, everybody's heard about nuclear verdicts. We -- since -- we have owner operators, they drive under our DOT motor carrier authority, we are liable for the trucking accidents if they have one. We're self-insured up to $5 million per occurrence. So that drives volatility in our P&L, probably the most variable line item in our P&L. And then there's depreciation, which is really trailing equipment and software. So it's a pretty -- once you get through the concept of the agency base and how this model works and how you get to your variable cost gross margin, it's a pretty easy model to understand. And we don't really need to build much more infrastructure to put a lot more revenue on top of this. The game is to add more agents to put more revenue across the top, which is a variable cost, and maintain that employee base to process all the transactions and just support that agent family. On the type of freight we haul, we're -- I'll say that we're typically tied heavily into the U.S. manufacturing sector with automotive being a big component and machinery and metals, but we also do -- recently, consumer durables has grown into a pretty big component of our freight mix over the last few years. And if you look at what's going on right now, it's really driving significant amount of growth through the organization. We play heavy in the spot market as opposed to the contract market. We don't do a lot of dedicated regular route routine freight that typically drives a lower margin. And what we do is a lot of special nonrepetitive, nonroutine, irregular route freight, but it's consistent. We may be hauling Goodyear tires, for an example. We could -- we'll put 20 trailers at a Goodyear tire location. They may sit there for 4 or 5 days. They load it up, they call us. We drop an empty trailer off, we pick up the full one, but it's not regularly scheduled, right? It might be -- they may not want to start today, tomorrow, but eventually, they're going to call us. So it's nonroutine, it's irregular route and nonrepetitive. And that generally gets us a little bit of a premium on our pricing. We have heavy haul. We have -- 30% of our business is flatbed. And we do heavy specialized. So we're in a whole bunch of market niches, but we also do some consistent but not repetitive van freight. With that, Jack, we'll open up to the thousands of questions. Jack, you never shared the questions with me. So this is going to be a surprise.

Well, yes. It might -- keep you on your toes.

I know. I'm good with that.

Well, I think largely what -- we have sort of where I want to go in the conversation. But I guess maybe the start, you guys released your 8-k yesterday after you have to close kind of updating folks on the fourth quarter trends. It sounds like things are running ahead of expectations. Could you maybe dig into what you're seeing fourth quarter-to-date? And sort of what's driving that better than expected trend?

Yes. I think as we said, we're slightly -- we -- our high end of our range on revenue was $1.2 billion and the high end of our range in EPS was $1.42. What we're seeing through October and through the first couple of weeks of November is our -- since 93% of our freight is truckload, we speak to rate per load and volumes. And what we're seeing in those trends on a rate per load, we initially said we'd be in a low double-digit growth over the prior year. What we're seeing is mid-single digits, and it's holding consistent. It's not like a blip. And it's actually been climbing a little bit as we moved through October and November. So we got the mid-single digits and...

Mid-teens or mid-single digits?

I'm sorry. Mid-teens, I'm sorry, Jack. Yes, mid-teens. No, that was not a typo in the 8-K. That was a misstatement by me, all right? So it's mid-teens. And on the volume side, similar, we said high single digits, and we're sitting at that high -- consistently sitting at that high single digits. So put out the release to say that we expect, based on those trends, any anticipation, those trends will continue because I don't feel a pulling back. We'll be slightly above both the revenue and the EPS guidance. Now what's driving it is -- flatbed is probably finally -- it's starting to kind of level off. It's been negative, both rates and volumes, for -- since the pandemic started. What we're seeing on the flatbed side now is I think volumes are relatively flat to where they were last year, which is actually a positive. And rates are slightly up compared to last year. This is October I'm speaking to. And I think the rate increase is a little bit more mixed than it is than its true rate. I think there, you got some of the heavy haul stuff probably driving that rate a little bit more than -- it's an industry dynamic and you're seeing flatbed rates come up. So the strength is really -- most of the strength is still on the van side. You're talking about consumer durables, you're talking about building products. Some of the -- Jack, as we haul, we call it substitute line hauls. We haul freight between the hubs of the parcel carriers, whether it's FedEx or UPS. That's been strong since August, right? With all the e-commerce business flowing through those entities. They bring us into haul between their hubs, full truckload. That's been relatively strong. Continue to see the softness in the metals sector and the machinery sector. And between those 5 sectors, consumer, durables, building products, and sub-line haul, and then metals and machinery, that kind of makes up the majority of our freight. So it's pretty much consistent with the story we told at the end of -- into September for the quarter closed. And it's just -- it's progressing a little bit better than we anticipated when we put out our original guidance. Machinery, still negative. Metals, still negative to where it was prior year.

Okay. Got you, got you. So as you sort of think about peak season sort of shaping up here, what are your customers -- and I know you're sort of one -- you're removed in away from your direct customers. But -- so what are you hearing from your agents? What are you hearing from your customers broadly about their plans for peak season? And you think we can maybe see an extended peak that kind of goes into the first quarter similar to what we saw in 2018, given how tight the market feels right now?

I do think -- actually, I was with one of your favorite agents, [ Chris Dale ], last night. He's in town. He came to visit. And we met with him, and he's talking about -- they're looking at consumer durables, the appliance sector. They're feeling like that's going to continue into next year, which is kind of driving some of the consumer durables. So if I were to think into -- throughout -- to the end of the year with -- we talked about peak, right? Peak for us, we didn't really have a peak other than the stuff we'd do for the substitute line haul between hubs, right, for the parcel carriers. And it was pretty much UPS starting in November, we'd be hauling. We -- there's a lot of volume coming through their system. So we step into that role. So from a substitute line haul perspective, which was pretty -- a lot of growth coming through August, I think that actually is probably going to level off because we're in peak now. So I think the comps get very similar. We didn't have -- there was no peak comp starting in August. We didn't have peak. And we seem to have a peak this year in August because of that freight. And I think we're going to level off on substitute line haul going forward starting soon as we head into the peak. On the consumer durables, I think you can feel strength there. I don't see that pulling back, at least maybe through the first quarter, especially with the conversations with the -- some of our agents and seeing what's in the pipeline. On the building product side, again, I think we're going to see strengths continuing through the first quarter. It's just -- my crystal ball beyond the first quarter gets a little bit more into the historical trends than actual data that we're looking at today. Being in the spot market, Jack, you've seen the historical trends, right? You're in a hot spot market for 12 months, then things moved to the contract world and spot slows down, right? And if that's normal cycle holds, regardless of what demand does, I think you got maybe spot business moving back into the contract business, contracts swapping for spot, sometime next summer, if you believe in historical trends. But to speak to consumer durables or building products beyond the first quarter, kind of difficult to project what the consumer mindset is going to be and how that plays out into 2021.

Yes. Yes, no doubt about it. I mean I think the big question I get from a lot of investors is, one, sustainability about what we're seeing in the market. But two, this potential shift from goods, hard goods, consumption by the consumer back to services next year once we get a vaccine in place and folks kind of feel more comfortable going on vacations, going to concert, football games, whatever. How do you think about all that?

Well, I think it's a valid point because I think a lot of what the consumer durables have got, for one -- one, the consumer durables is -- people are -- they're not taking -- they have excess cash, right? If they're working, they're not taking vacations. They're not traveling. They're not even trying to like -- like us, no one's even driving to our office or saving on fuel, maybe parking their car and stopping their insurance payments for a little while. So I don't -- does that continue next year? If the -- if people are starting to drive back to the office and travel, I think the consumer durables will slow. I think on the building, same thing on the building product side. I think there's a lot of people spend a lot of time home figuring out they're going to fix up their house. So we got -- you got -- and plus home building. So just remember, I'm a pessimist. I've always been a pessimist. So I think we're in a hot market right now, and I just think all that stuff tends to -- I just don't know if it stays this hot. I mean how many refrigerators does somebody need? How many new homes you're going to build into next year? How many -- my sons just, for some reason, bought a TV for no reason. I guess because he's working from home and not driving his car, traveling on business -- or traveling for pleasure, I mean. So I just don't -- from a pessimistic standpoint, I think we're going to go through a normal cycle. I don't think this is going to be -- even though we came out really strong and we came out fast, I do feel that the cycle is going to be through. And I think the cycle, come next summer, regardless of demand, is going to shift the way out of the spot market and back to contract. The one thing is -- then you got to think on the -- that's kind of the demand side. Then you think on the capacity side, right, and what's really happening in capacity. As you know, it's pretty hard to measure about the active truck count, right? Who's really hauling freight? How many trucks are on the road? How many drivers are -- is there really a driver shortage? And even prior to the pandemic, you had the insurance issue, right? Our premiums for insurance coverage on the truck -- commercial trucking went up 200%. We were paying $8 million for coverage policy a year ago, which is May 1 to April 30. This May 1 renewal went up $14 million. That isn't just impacting Landstar. That's an industry issue. And it's an industry issue for even the small carriers. So if they're feeling pressure from the pandemic, if they're having trouble recruiting drivers, if driver recruiting is getting more expensive, they also have this significant increase in insurance costs that may just keep capacity tight regardless of what the environment is. If capacity comes out, people parking trucks, don't want to pay the insurance on that extra truck until they can see some profitability. So I think there's pressure on the capacity side, especially if you're in the oil and gas or you're in some of those industries that haven't come back yet. So flatbed people, right? I think there's pressure there still on the flatbed side since pricing hasn't come back as strong as the van side. I think the flatbed side is still feeling a little bit of pressure. So capacity side, very tight. I would say, very tight right now when you look at tender rejection rates. But also, if you look -- what I measure it from is what our PT rate is. What are we paying on those third-party trucks? And right now, it looks like we're about where we were in '14 and part of '18, when the market was really strong in the spot market, we're sitting about that level.

And I guess to that point of capacity, though, I wonder like how -- and it goes into your comments around spot versus contract and cycle trends and with that. With driver schools shut down or limited throughput, we've heard about elevated levels of retirements of experienced drivers, folks leaving the trucking industry, going to work in construction industry or competing verticals like that, it just feels like it's going to be difficult to see a lot of capacity growth -- I mean what are your -- kind of what...

Yes, I would agree. I'd agree that I -- and -- but it feels -- we say that -- we always say that when market is really tight, right? And it just feels like, what's going to happen? The asset-based guys are going to see rates climbing. They're going to pay more to the drivers. They're going to put more trucks in the system, and we're going to cycle back like we always do. It just doesn't feel -- I don't know why this cycle would be different than the historical patterns of what happens in our world, right? They -- where spot markets are way ahead of contract rates, they goose the contract rates. They pay more to the drivers, more drivers come back into the system, and then they put more equipment. And now the driver school issue, that's a real thing, right? They weren't pumping out as many new drivers. They weren't getting the throughput there that they need. But I'm not sure you're not going to see that pick up again. I don't know where that's going to end up. But again, we like the tight capacity market. I just -- as my -- the reality is we've been through that 2008, '09 cycle, and everybody is talking about, oh, my God, capacity and then capacity came back. All these cycles, you end up just repeating it. You just -- you kill rates by putting more capacity and more drivers in the system. And then rates kind of pull back or level off. And that's my pessimistic viewpoint of what I see the world in the next 12 to 18 months. I'm not saying, "Hey, we were successful in that environment," Jack, you know that. We generate cash regardless of what environment. We may make a little less money one year, but we make tremendous money in a year like this. So...

Well, Jim, to that point, you guys have shown a track record of compounding through cycles, right? I mean your cycle gets -- cycle [ peaks earn ] and you're higher, and cycle operating are higher, and you just keep doing it over and over and over again. And so I guess that's -- I mean I think people look at you guys as just being a spot market player, but I don't really think that does you guys justice in terms of what you're able to do to expand your low count to sort of grow with your customer. Drop and hook has been a key differentiator for you guys. I mean -- anyway, that's just my opinion about it anyway.

Well, I kind of agree with that, too. We were heavy manufacturing, automotive was a big component. But now we're talking about consumer durables, building products leading the charge. If you told me that manufacturing -- if you told me in April that manufacturing growth would still be negative in October, there's no way I would have predicted what the throughput we have right now. And I think it's part of the agent model, right? What happens in a downturn? If an agent has 2 or 3 customers and those customers, maybe they're automotive customers, and all of a sudden, those automotive plants go -- all of a sudden, they're like building relationships with customers or industries where they haven't had them before. You can haul van freight automotive. But you can also haul van freight that's appliances, right? You've got the experience, all you got to do is move the load. It doesn't really work that way on the flatbed side. You need a different kind of experience. But on the van side, if they're not out selling automotive and that business is dead, they go out and they expand into different markets and sectors. And I think that's what you see as we elevate out. And at a time when shippers are looking for capacity, we have plenty in our system. So we're very capable to fill the holes where shippers can't find a truck. And I think that's the environment we sit in right now. And you're absolutely right. If you were to chart us back to the last 30 years, our peaks are higher and our troughs get lower. And we just -- everybody goes through peaks and troughs, but we continually can climb off the lows to higher highs.

Yes. One of the pushbacks that sometimes I get about you guys from folks who call to get your model is they say why it's pretty difficult to understand when is a good time to cycle the whole Landstar. And my response is literally anytime since 1996.

Long term. How is that?

Anytime on Landstar. So it's just you guys keep executing. And when you generate returns on capital like you do, I mean it's just good, generates enormous value for the shareholders.

Yes.

Okay. Well, let me kind of -- let me pivot a little bit and still on the capacity side. But with insurance rates such a focal point for large carriers, mid-sized carriers and especially for small carriers, you guys really have, I think, an interesting recruiting opportunity for additional BCO capacity because you pay the insurance for your BCOs. Has that -- what has that done for your ability to attract BCO capacity into your network? Have you noticed that as something that's been a major factor in sort of helping you keep those BCO levels up?

It's not a large part of our conversations. I mean it's really just -- again, we're back to kind of a normal environment. What you'd expect to happen in this environment when rates are climbing and there's a lot of available freight, recruiting kind of -- turnover -- I shouldn't say recruiting, but turnovers kind of comes down. We're probably -- in a year when rates are dropping and rates dropping off a little bit, turnover goes up to a bit like the mid-30%. In an environment like this, you're dropping down on the 20%. And that's really the environment we're in right now. I'm not sure it has a lot to do with -- we're not adding like a significant -- or recruiting it. We are not adding a lot of trucks, right? We're adding a similar number we've added in the prior years on a monthly, weekly basis. But they're not leaving, right? The turnover is down. So speaking for are they coming because insurance is getting way too expensive? I don't necessarily -- you're not seeing it in the numbers, right, because we're consistent on our recruiting. And what we do, as long as the BCO is hauling freight, we're covering its commercial auto. If they're not -- if they're driving out unladen or bobtailing, they're required to have their own coverage, but we provide that coverage at market rate, and it's not a lot of money. So yes, it's true. If I was an owner operator out there today, and I just saw my $1 million worth of coverage have to go from maybe 12,000 to 18,000, yes, I will probably be like -- if I go over to Landstar, I'm kind of covered other than for my -- the unladen program that we require you to have. Because the theory there is if you're -- if you're just driving your truck around, we don't want that liability on us. Although we do take the liability to some degree if they are in an accident when they're not loaded. But it's -- we used to collect a little bit of premium for that. But yes, it's exactly what we would think. We were talking about a while ago, as these insurance rates start to come up, it should be an easier sell to recruit a guy into our system when you tell them you're going to cover his trucking, his trucking -- commercial trucking coverage.

Absolutely. You guys have a large trailer pool. You made it really work. I mean we've seen some other companies struggle to implement a trailer pool. I'm not going to name any names, but it's not as easy as that maybe sounds. You guys are with 12,000 trailers. That's a huge strategic asset, in my opinion, for you guys. How are you thinking about -- are you thinking about maybe adding trailers? I know you kind of keep 2 trailers per BCO. Does that number change over time or not? And I guess how are you thinking about that trailer pool?

It -- when it moves from the 2.1, it might go up a little bit, but not a lot because we have the Laredo facility, so we have a lot of spotted trailers down there to -- we do -- we run shuttle trailers back and forth across the border. But 2:1 is pretty -- maybe 2.1:1, so I don't expect we grow the fleet unless we feel like there's opportunity. I think that -- I think what we've been talking about the trailer fleet probably 3 to 5 years now about the benefits and stuff like that and the value that, that adds to the environment when the ELD requirement came in and you could track the downtime of the owner operators. And I think at that point, it was like no one wanted to sit and wait for a trailer to get loaded. So I think all of a sudden that drop and hook got hot 5 or 6 years ago. So what we do -- and the reason that we're so good at it is not necessarily because we're better in the brokerage world. It's because our BCOs are the only ones hauling our trailers, right? We have a dedicated capacity of hauling in our trailers. We don't have third parties pulling our trailers and banging them up and dropping them in places you don't want them, right? It's completely managed by the agent network and the owner operator. And the owner operators take pride in driving shiny new trailers around. And they're responsible. If they're driving a trailer down the road and there's a -- if they get -- if they go through an inspection and there's something wrong with the trailer, they get dinged for it. And who gets dinged for if a third-party trucks pulling it, right? There's a whole different world, if you're going to give trailers to truck brokers to the third-party carriers. We do it, and we do it at a profit. When I started reading about some of these digital companies and others who are putting trailers in the system, great trailer pools or whatever they are calling them, it's not that easy to just throw them out there and make it work. I mean you got to manage it. It's like having rail containers. You got to get a turn. You got to have -- you got to move that trailer a certain amount of times a month or a certain amount of time of week to make it profitable. And if you just have -- a broker doesn't -- a third-party truck doesn't care about your trailer. They're going to pick it up, they're going to haul a load, they're going to get paid, and then your trail is going to sit unless you have someone managing that fleet, right? So it is a difficult -- more difficult than when you read the articles about people trailers in it. It's much more difficult than what I was reading as we saw some of these creating trailer pools in a brokerage network. And look, Robinson does it, but they probably haven't figured out. They've been doing it for a while. But it's not that easy. It's not that easy just to start up a business that you're going to use trailers in a third-party truck world. And it -- for us, it is definitely a value add to our customer base because we're putting trailers with a big list or logo in their parking lots, and they load them up, and we just haul them away.

Okay. Yes. Got you. Makes sense.

Jack, I had 70% -- it's actually about 70% of our BCO loads right now is on one of our trailers.

Yes. And you guys -- you're able to collect a premium on that load, right, because it's moving on your trailing equipment?

Yes, yes. I mean it's not a significant premium, but it -- you have to entice the BCO to come in there and grab that trailer, right? So there's going to be a little bit of a good market for it.

Okay. Got you, got you. I think you guys get short changed a lot in the minds of a lot -- of some investors on the technology side. A lot of people think about Landstar as being more of an older...

Dinosaur? A dinosaur.

Yes, which is not true at all. I mean you guys were -- I mean a digital broker, way, way before that was a cool term. So can you maybe talk about that, maybe that misconception folks may have and sort of kind of correct that on one hand? But the other hand, talk about some of the additional investments that you're making on the technology side to sort of position yourself for the future.

Yes. Jack, the business model has always required us to stay up on the technology because our role is, we don't have 1,000 dispatchers sitting in this office. We have 1,200 dispatchers all over the country moving freight, right? So we always had to be capable of sharing, loading information, tender -- all that stuff had to be done electronically with the best technology that was out there at the time. So when the Internet first started really humming back in the late '90s, we created load boards. And the way those -- we created a load board for our BCOs. We're pushing the loads into a website and what it typically was happening, the spouse of the driver would be at home looking for loads for that person, right? And it was -- that's how it started. We had pagers where the agents would page someone and say, "I got this load for you." So they went from pagers to load boards to now phones and tablets, right? We have -- the thing we don't do, we don't pat ourselves on the back and go running around the world telling all the great tools we have. We use -- we tell the agents all the great tools we have. And we tell our shippers the great tools we have. And we tell our carriers the great tools we have, but it's not -- I'm not marketing -- which is -- I want our performance to speak for our -- to the investment community, not me just putting out a freaking release that says, "Hey, here, look at all these great tools we have." We have apps that if a BCO wants to haul a load or a broker wants to haul a load, it's got all the loads listed. It's got a price on there for the BCO. They call the agent, and they move the load. It's -- we have -- we just rolled out our visibility app so that you can see where all your loads are, origin to destination. You set up geo fencing, and all that stuff. We have everything that people are pitching to the world right now about how great all their tools are. We have it. It exists with us. One thing though that -- one thing that's a little bit different is -- in our world is we continue to hear from our agents they want a phone call. What the digital freight guys are pitching, you can get rid of the phone call, you could do this, you can do that. Our agents and trucks don't. They want to make a phone call. So we have in beta right now what everybody's pitching, the Book It Now technology, where the load hits the load board or the -- or your phone, the truck just accepts the load. He goes about his merry way to haul it. They want to make a phone call because the world doesn't work that way, all right? That load, something may have happened. Before you're going to drive your truck 200 miles and dad had to go pick up the load, I'm pretty sure our drivers want to call someone, confirm that it's actually there, right? There's that discomfort. And I know that the digital freight guys are growing. I know that they're moving freight. And I think there is a spot for them. I think there is a market for that kind of freight. I just don't think it's where we play, especially with the nonroutine, irregular route, specialized-type freight. And again, like you said, we have the technology. We have a pricing tool that all the algorithms people talk about. And we have -- but we'll speak the reality of it. You can't project spot market to Christmas right now. You just can't do it yet. You read how some of these apps are saying that they can project a spot market into next year. I couldn't tell you what spot market is going to do tomorrow. Who would have thought -- you're going to tell me that in April that someone had a model out there that said spot markets are going to be up 20% by the end of the year? I mean it's -- we're realists, right? And we're actually pretty open about our business model. We believe there's a good price, and we believe we have a pretty good pricing tool that's good for about 14 days, right? And if someone wants to move a load today, we can get you a price of what the industry looks like and what's paying. So it's that kind of thing. So we have a pricing tool. We have the visibility tools. We have the handheld load boards. We have all that stuff. It's just we don't need to market it to the world because we use them. It's part of our business model, right? So that's kind of thing. And that's kind of me, too, because I'm not the one that -- I'm not one that's going to just -- I want our performance to speak to the investment community, not just an occasional, hey, look what we're doing and then hopefully it produces something. Because I can't tell you how our pricing tool has added to growth. I can't tell you how our visibility tool has added to growth. I can't tell you how our load boards add to the growth of the business. But I can tell you that, all combined, it creates a pretty good business model.

Yes. Absolutely, it does. Absolutely, it does. Maybe kind of shifting gears here a little bit. Just going back to something you said earlier in the conversation that you guys have your first kind of company store business. So you brought this agent in, that's definitely different when I think about Landstar historically. Is that something that we should be hearing more about kind of going forward? Do you think you could be doing more sort of in-house business versus having everything moved to the agents?

Would that be our plan? Would I like to see half of our business coming in from that?

Well, no, I mean, it's a long way to go for 50 basis points to half of your business but...

No, no, no. What I was saying...

There may be something in it, becomes a bigger part of the story.

It becomes a bigger part as long as the freight we're moving doesn't conflict with the agent model, right? And so we have some limitations of what we should and shouldn't do there. And right now, our focus is really is more on that dedicated, low-margin business. In our world, an agent doesn't want to move 6% freight because we're getting 3% each. And once he puts a person on it, he's not making money on it. But can we -- everybody is talking about -- I'm not saying I'm a believer or not, but margins are going to get compressed over time with all this competition coming in. Well, if that's true, and the agents start walking from more and more freight and just focus on the premium freight, can we play in that market? Yes, that's part of why we set it up. But the other part is really, we think of it like a QSR, right, a quick service restaurant. When you think about all these franchises out there, all these restaurants like McDonald's, they have their own company stores to really live the experience of what a franchisee would do. And that was really the thought is, we're rolling out all these tools. We don't know how the agents are -- we can talk to the agents about how they're using, but it's hard to measure their use. And really, as I said, is that pricing tool really adding -- growing -- helping grow our business? If we own that company store and we use all the tools, it gives us better experience. It puts us in the -- it actually puts us in the place of the agent. We haven't had that before. And I think we need to be living the life of an agent so we get the better experience. So that's kind of what that is. Is this an agent you'd speak to? You ever talk to a guy named [ Mike McSwain ]?

No.

Okay. Just checking. Because I don't want to say anything that you might know different. So now I can say almost anything, right? I'm pretty open to speak. He was doing -- I'll tell you, he was doing $20 million to $30 million a year, running pretty much third party. We don't want to use the BCOs, right? This is more third-party truck business because we don't want to compete for the BCOs with the agent family. We want them to just stay with the agent family. And we're building up tools there and testing tools there. It's an incubator for technology and kind of dabbling in this more lane dense-type freight that it's not really agent type.

Would you consider kind of using that as maybe a platform to do more contract relative to that?

Yes, absolutely. Absolutely, absolutely. And if you can see -- and if you can build it seamless, right? You want to build it seamless so there's not a lot of -- so you can -- the thing that always scares us is that, when the market slips and your contract rates are locked in at, say, 1,000, the next, the truck wants 1,200. That's good -- in that world, that's what happens. If you're going to commit to the customer and you're not going to pull your trucks from there. But if you can do it seamless, order delivery and do all that stuff, which -- we have the technology to do it today. Let's put that technology into a real working world and see how it works in that lane dense maybe contract-type business.

Yes. I mean to your point, it's an incubator, it's just kind of experiment around it. And if it works, you can scale it. Yes.

Right. Right. Baby steps, Jack, right? That's what we've always done. Historically, it's the baby steps. You've never seen us go in -- we go in gradual, we don't really just dive in and put the organization at risk. We take baby steps.

Sure, sure. No, I get it. It makes sense. So in the sort of last phase of the conversation here, I'd love to talk about capital deployment. You guys have a fantastic balance sheet in the agenda. A huge strategic asset when we're going through the crisis earlier this year. Now as you look forward, you guys are generating a lot of cash, the cash balance keeps growing, net cash to the balance sheet. Not really going back a ton of stock. I know -- but maybe you could talk about sort of what the Board thinks about share repurchases. And how do you balance that with special dividends or just building cash? Because I know M&A, M&A really doesn't fit what you guys are trying to do, so...

No. Yes, the model hasn't really changed, Jack. There's -- a big acquisition like we just talked about, I'm not going to -- it will conflict with every agent we have, right? If I -- so the large acquisition is highly unlikely in our organization because if we bought a broker, anybody who is in this industry, they're going to compete -- they're going to sell against our agents, which is not what we want to do. We believe in the small business. We believe in the entrepreneur. And we believe that's what drives this business, is these guys, they kind of eat what they kill. So you don't expect an acquisition from us. So it leaves us pile of cash. We're -- like I said, we're a variable cost business model. And it ultimately, almost in any environment, generates cash. The philosophy hasn't changed. We prefer the buybacks over dividends. And every year, we routinely, in December for the last few years have had a pile of cash sitting on the balance sheet. And we have a Board meeting at the beginning of December, and that's where the decision would be made and the discussions are had about whether we do a special or not. The difference about this year though is, I don't foresee -- I forget where we ended with cash at the third quarter, $280 million or something. Jack, I don't really remember. I don't see that growing because in this -- in our world, as business grows on the -- like this rapid growth, we collect receivables in 50 days, but we pay the carriers rather quickly. So you actually end up -- your free cash flow in the quarter may actually be flat, right? So I'm not sure I'm going to see that cash balance grow. And the conversation is really just that. It's like we have this much cash, do we see us being opportunistic in the market for the next 6 to 12 months? What are we anticipating there? What are we looking at from a performance standpoint? How much cash we can generate next year? And then is there -- is it time to do another special? But that always happens at the beginning of December, but our philosophy hasn't changed. I would guess that the cash we're sitting on the balance sheet at the end of September is probably going to be similar to where we are -- when we're having that conversation. It's kind of up to a conversation. Would I expect maybe based on that cash balance, based on the historical comments? Yes. Conversation with the Board, you might see that we're going to do that again. But I can't guarantee anything at this point.

Yes. Sure. Okay. All right. Well, so I'm sort of out of questions. I think we kind of hit on a lot of different topics here. But it certainly feels like there's a lot of momentum in the business who's moving into 2021. Obviously, it's been an unexpectedly good year, knowing what we both know about the macro. And I think, obviously, some opportunities on the capital deployment side. So anything else that we should maybe talk about, Jim? Anything else to sort of make sure shareholders understand about Landstar?

Yes. I think maybe, Jack, maybe the headwinds and tailwinds, right? If you just look at them and because it's been a very unusual year, it's been very unusual, some stuff loan to the P&L, favorable and unfavorable. So if you just think about what next year is going to look like from just special things that happened this year. As you know, we gave -- we did this pandemic relief incentive of $12.6 million that we had paid to the BCOs and to the agents in April and May to just help them get through the downturn. We anticipated that drivers are going to be driving further to get that load as more empty miles. So we kicked in $50 per load to each BCO opportune. So $12.6 million. We got this $15.5 million that we're going to now -- that we, actually, I think we've already settled with the agents on this domicile incentives. So that's in our number this year. You've got -- we're booking incentive comp at a one-time target. So I don't think that's a headwind or tailwind. If we hit target next year, it will be a very similar number. One thing that -- it's -- they're small numbers, but when you add them up, whether it's T&E, canceled agent convention, canceled BCO All-Star, canceled BCO appreciation days, you got probably $5 million or $6 million is -- if the economy -- if the environment opens up where you can have conferences again. And T&E, if our -- if my sales guys start traveling again, you got $5 million or $6 million that's going to come back in next year. So those are kind of things from a year-over-year comp standpoint. And then you got the big insurance hit, right? Starting May 1, I told you that we went from $8 million to $14 million in premium. So you're going to have -- it's almost a $3 million per quarter in the -- for the first at least 5 months of the year. Or at least the first quarter and then 2 months of the year, you're going to see a little bit higher insurance premiums. Unusual year. We generally don't have that much noise in our numbers, but those are kind of the -- that's kind of the noises we're heading into 2021 as it relates to the comparatives year-over-year.

But back to -- just as we close, just to make -- just to round it all out. The BCO incentive buyout is going to save you on your spending...

10 -- about -- yes, yes, it will reduce the commission line by about $9.5 million to $10 million annually.

Right, right.

That's what we're saying.

No, no.

I missed that one. Good, Jack. I'm glad you're keeping score.

I am a buyer -- I buy rate on stock, Jim. I'm laying it all out [indiscernible] there. Okay.

I forgot about that one.

Okay. That's good.

Just like me to forget the favorable one, right?

That's right, that's right, that's right. Because you're pessimist, I know you try to keep [ level flow ]. Okay. Well, Jim, thank you so much for making time to be at the conference today. Really, really appreciate it. And hope you have a great rest of your time here with you all on the rest of the afternoon. And thanks, everyone, for joining us for this fireside chat. And Jim, I hope you have a great holiday.

You too, Jack. We'll see you.

Thanks a lot. Take care.