Good afternoon and welcome to Lansar System, Inc.'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. If you have any objections, you may disconnect at this time. Joining us today from Lansar are Mr. Frank Lonegro, President and CEO, Mr. Jim Applegate, Vice President and Chief Strategy and Transformation Officer, Mr. Jim Todd, Vice President and CFO, Mr. Matt Miller, Vice President and Chief Safety and Operations Officer, and Mr. Bill Clement, Vice President and Chief Commercial Officer. Now, I'd like to turn it over to Mr. Jim Todd. Sir, you may begin.

Thanks, Elmer. Good afternoon and welcome to the Land Search 2026 Third 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 or 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 statements are 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 2025 fiscal year and Form 10-Q for the 2026 second quarter, described in the section Risk Factors and our other SEC filings from time to time. These risks and uncertainties could cause actual results or events that differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking statements, and Landstar undertakes no obligation to publicly update or revise any forward-looking statements. I'll now pass it to Landstar CEO, Frank Lonegro, for his opening remarks.

Thanks, JT, and good afternoon, everyone. I'd like to thank our BCOs and agents and all the Landstar employees who support them every day. The capability, resilience, and commitment demonstrated day in and day out by our network of independent business owners is truly unique in the freight transportation industry. It was great to spend time with many of our independent owner-operators during our annual BCO Appreciation Days event in Las Vegas in September and with hundreds of our independent agents at eight different field meetings throughout the country over the past three months. One of the highlights of the BCO event was Landstar's 54th Truck Giveaway where I had the honor of awarding BCO Dean Webb of Pelzer, South Carolina a new 2027 Freightliner Cascadia as part of our Deliver to Win Truck Giveaway. Events like this remind us that our success is driven by the independent business owners and employees who make up the Landstar network and the dedication they bring to serving our customers every day. They are exceptional business leaders and key to driving the continued success of Landstar's business model. The freight environment in the 2026 third quarter was characterized by strong year-over-year truck pricing, low single-digit truck load volume growth, and tight truck capacity. Market conditions, which favored the shipper since late 2022, have shifted rather rapidly in favor of the transportation provider. Notwithstanding the geopolitical uncertainty experienced thus far in 2026, our focus continues to be on accelerating our business model and executing on our strategic growth initiatives. We are continuing to invest in the foundational work that puts Landstar in a great position to leverage improving freight market conditions. We also remain focused on our commitment continuous improvement in the level of service and support we provide to our customers, agents, VCOs, and carriers each and every day. Turning to slide five, Landstar's revenue performance was strong in the 2026 third quarter, with overall revenue up 25% year over year. Importantly, as noted in our earnings release, our network generated truck revenue of $1.407 billion, an increase of 29% compared to the 2025 third quarter, with truck revenue per load 25% above the 2025 third quarter and the number of loads hauled via truck up 3% over the same period. I continue to be extremely pleased with the performance of Landstar's heavy haul service offering. We generated approximately $185 million of heavy haul revenue during the 2026 third quarter, a 25% increase over the 2025 third quarter. And on the capacity side, our net VCO truck count increased by 165 during the third quarter, the strongest quarterly improvement since the third quarter of 2021. While I was very pleased with our revenue, variable contribution, and net truck count performance during the 2026 third quarter, the quarter was not without challenges that require our focus and attention. We had a challenging insurance and claims cost quarter with approximately $22 million of net unfavorable adjustment to prior year claim estimates. As noted in the press release, the highly elevated insurance and claim cost quarter primarily attributable to one, approximately $13 million or 29 cents per share of unfavorable actuarial adjustments to insurance and claims reserves as compared to the last actuary review conducted as of the fourth quarter of 2025. And two, approximately $8 million or 18 cents per share resulting from the settlement of two claims during the 2026 third quarter with respect to the $8 million on two specific cases The company took a $5 million charge during the third quarter related to the settlement of a truck brokerage claim in an adversarial venue and a $3 million charge due to the settlement of a claim related to an accident that occurred during the fourth quarter of 2025 involving a BCO independent contractor leased on with a subsidiary of the company. It's no secret the truck transportation industry has been under attack of late by an incredibly aggressive plaintiff's bar emboldened by the prospect of nuclear verdicts and the Montgomery decision. We're proud of our DOT accident frequency. We are encouraged by the favorable safety trend over the past five years, and we will continue to work diligently on reducing the frequency of incidents. However, the inflationary pressure on claims severity or cost per crash affecting the transportation industry is something the company and the trucking sector are focused on mitigating to the extent possible. We continue to invest through the cycle in leading technology and AI solutions for the benefit of our network of independent business owners, and have allocated a significant amount of capital this year for refreshing our fleet of trailing equipment with a particular focus on investing in new van equipment. We are very encouraged by the pace of our AI initiatives and continue to expand our efforts across Landstar. Agentic AI workflows are now actively deployed in eight independent agent offices and AI powered corporate support capabilities have been deployed across our broader agent network. At the same time, we continue to build the technology and operating capabilities needed to scale AI safely and responsibly, with an emphasis on configuring these solutions to fit the unique needs of individual agent offices. While we remain early in our journey, we are excited about the progress we are making and the potential for AI to improve productivity, enhance service, and create additional capacity for growth across our entrepreneurial network. Even with those investments, our balance sheet continues to be 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 slide deck, during the first 39 weeks of 2026, the company returned approximately $175 million to shareholders through dividends and shared purchases. And yesterday afternoon, our board declared a regular dividend of 44 cents per share payable on December 8th to stockholders of record as of the close of business on November 17th. Turning to slide seven and looking at our network, the scale, systems, and support inherent in the Landstar model helped to drive the operating results, excluding insurance and claims costs generated during the 2026 third quarter. JT will get into the details on revenue, loadings, and rate per load in a few minutes. Safety is crucial to 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, security, and service at Landstar. I'm proud to report an accident frequency rate of 0.57 DOT reportable accidents per million miles during the first 39 weeks of 2026, well below the last available national average DOT reportable frequency rate released by the FMCSA for 2021 and lower and the 0.60 DOT accident frequency we reported during the comparable period of 2025. The company's 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 are able to highlight in discussions with our freight customers. We remain committed to driving best-in-class safety. I'd also like to take a moment to recognize Landstar's $457 million agents based on 2025 fiscal year results a number we would expect to increase in 2026. Importantly, retention within the million-dollar agent network continues to be extremely high. Turning to slide eight, on a year-over-year basis, BCO truck count increased by 91, or 1%, compared to the end of the 2025 third quarter and increased nearly 2% sequentially. As noted above, our net 165 truck count additions during the third quarter was the strongest quarterly improvement since the third quarter of 2021. We were also pleased to see our trailing 12-month BCO truck turnover rate drop from 31.4% as of fiscal year in 2025 to 26.6% at the end of the 2026 third quarter. This is a positive trend that we hope will continue into the fourth quarter. Along that line, through the first four weeks of the 2026 fourth fiscal quarter, the number of trucks provided by BCO independent contractors increased by 22 compared to the end of the 2026 third quarter. I'll now pass the call back to JT to walk you through the 2026 third quarter financials in more detail.

Thanks Frank. Turn to slide 10. As Frank mentioned earlier, overall truck revenue per load increased 25% in the 2026 third quarter compared to the 2025 third quarter, primarily attributable to a 29% increase in revenue per load on loads hauled by unsighted platform equipment and an approximately 23% increase in revenue per load on loads hauled by van equipment. On a sequential basis, truck revenue per load increased 7.5% in the 2026 third quarter versus the 2026 second quarter. That represents the second largest second quarter to third quarter sequential increase in truck revenue per load over the past 15 years, second only to the 2020 third quarter when the economy began its rapid recovery from the depths of the COVID-19 pandemic. 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, Thank you for joining us. Delving deeper into seasonal trends, revenue per mile on loads hauled by BCOs on unsighted platform equipment increased 3% from June to July, and increased 6% from July to August, but decreased 3% from August to September. The June to July increase and the August to September decline both underperformed pre-pandemic seasonal trends, while the July to August increase outperformed pre-pandemic historical trends. Turn to van freight, revenue per mile on van equipment hauled by BCOs increased 7% from June to July, decreased 2% from July to August and increased slightly from August to September. The June to July increase significantly outpaced pre-pandemic historical trends. The July to August decrease was slightly better than the pre-pandemic historical trend, while the August to September slight increase was slightly softer than pre-pandemic historical trends. It should be noted that month-to-month seasonal trends on unsighted platform equipment are generally more volatile compared to that of 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 particularly pleased with the sustained strong performance of our heavy haul service offering. Heavy haul revenue was up 25% year-over-year in the 2026 third quarter. Heavy haul loadings were up 11% year-over-year, and revenue per heavy haul load increased 13% year-over-year. Non-truck transportation service revenue in the 2026 third quarter was 13% or $13 million below the 2025 third quarter. The decrease in non-truck transportation revenue was primarily due to an 18% decrease in ocean revenue per load and a 9% decrease in ocean volume. Turn to slide 11, we provided revenue share by commodity and year-over-year change in revenue by commodity. Transportation logistics segment revenue was up 26% year-over-year on a 22% increase in revenue per load and a 3% increase in volume compared to the 2025 third quarter. Within our largest commodity category, consumer durables, revenue increased 34% year-over-year on a 28% increase in revenue per load and a 5% increase in volume. Aggregate revenue across our top five commodity categories, which collectively make up about 70% of our transportation revenue, increased approximately 28% compared to the 2025 third quarter. While slide 11 displays revenue shared by commodity, we thought it would also be helpful to include some color on volume performance within our top commodity categories. From the 2025 third quarter to the 2026 third quarter, total loadings of machinery increased 1%, automotive equipment and parts decreased 4%, building products increased 1%, and electrical loadings increased 44%. Even with the ups and downs in various customer categories, our business remains highly diversified with approximately 20,000 customers, none of which contributed over 8% of our revenue in the 2026 39-week period. Turn to slide 12. In the 2026 third quarter, gross profit was $126.5 million compared to gross profit of $111.1 million in the 2025 third quarter. Gross profit margin was 8.4% of revenue in the 2026 third quarter compared to gross profit margin of 9.2% in the corresponding period of 2025. In 2026 third quarter, variable contribution was $212.1 million compared to $170.2 million in the 2025 third quarter. Variable contribution margin was 14% of revenue in the 2026 third quarter compared to 14.1% in the same period last year. The 10 basis point decrease in variable contribution margin compared to the 2025 period was primarily due to decreased variable contribution margin on revenue generated by truck brokerage carriers, as the rate paid to truck brokerage carriers was 161 basis points higher than the rate paid in the 2025 third quarter, mostly offset by an increase in the percentage of revenue generated from VCO independent contractors. Turn to slide 13, operating income increases a percentage of gross profit primarily due to the impact of the non-cash impairment charges during the 2025 period. Operating income increases a percentage of variable contribution similarly due to the impact of the non-cash impairment charges during the 2025 period and a strong variable contribution performance during the 2026 period, partially offset by the increase in insurance and claims costs during the 2026 period. Other operating costs were $21.2 million in the 2026 third quarter compared to $15.6 million in 2025. This increase was primarily due to the impact of the favorable resolution of a value-added sales tax matter during the 2025 period and increased trailing equipment maintenance and rental costs during the 2026 period. Insurance and claims costs were $55.3 million in the 2026 third quarter compared to $33 million in 2025. The increase in insurance and claim costs as compared to 2025 was primarily attributable to one, approximately $13 million of adverse actuarial adjustments to reserves as compared to the last actuarial review conducted as of year end 2025, and two, approximately $8 million of prior year development attributable to settlements of two accidents during the 2026 period. During the 2026 and 2025 third quarters, insurance and claims costs included $21.9 million and $9.2 million of net unfavorable adjustment to prior year claim estimates, respectively. Selling general administrative costs were $62.4 million in the 2026 third quarter compared to $57 million in the 2025 third quarter. The increase in selling general administrative costs was primarily attributable to an increased provision for incentive compensation and increased stock-based compensation. partially offset by a decreased provision for customer bad debt. The provision for incentive compensation was $6.9 million during the 2026 third quarter compared to $1 million during the 2025 third quarter. Depreciation and amortization was $9.9 million in the 2026 third quarter compared to $11.5 million in 2025. This decrease was primarily due to decreased depreciation on software applications and decreased depreciation on our fleet of trailing equipment. The effective income tax rate was 26.3% in the 2026 third quarter compared to an effective income tax rate of 25.8% in the 2025 third quarter. The increase in the effective income tax rate from the 2025 third quarter to the 2026 third quarter was mostly due to a higher provision for state income taxes. Turning to slide 14, looking at our balance sheet, we ended the quarter with cash and short-term investments of $351 million. Cash flow from operations for the 2026 39-week period was approximately $99 million. and cash capital expenditures were approximately $12 million. The company continues to return significant amounts of capital back to stockholders with approximately $110 million of dividends paid and approximately $65 million of share repurchases during the 2026 39-week period. The strength of our balance sheet is a testament to the cash-generating capabilities of the Landstar model. Back to you, Frank.

Thanks, JT. Given the highly fluid freight transportation backdrop and a dynamic geopolitical and macroeconomic environment, coupled with a highly volatile litigation and claimant environment, the company will be providing fourth quarter financial and operational commentary rather than formal guidance. Turning to slide 16 and looking at historical seasonality from Q3 to Q4, pre-pandemic patterns would normally be expected to yield a sequential increase of approximately 1% in truck revenue per load and an approximately 1% increase in the number of loads hauled via truck, resulting in a slightly higher top line sequentially. Please also note that historically the company has experienced a 20 to 30 basis point compression in variable contribution margin from the third quarter to the fourth quarter. The number of loads hauled via truck in fiscal October 2026 was approximately 7% above October 2025 on a dispatch basis and revenue per load in October was approximately 29% above October 2025 on a process basis. As a result, we view anticipated truck revenue per load even off of an elevated base and the number of loads hauled via truck in October is slightly outperforming normal seasonality. We're excited to build upon the positive momentum generated during the first nine months of 2026 and are energized by the opportunity to support the best network of independent business owners in the transportation space, especially in an environment that after nearly four years appears to have turned in our favor. With that, operator, we'd like to open the line for questions.

Thank you very much, sir. At this time, we will begin the question and answer session. If you would like to ask a question, please press star 1 on your touchstone phone. Once again, that is star 1 to ask a question. And to cancel your requests, please press star 2. We have a question on the line from Jonathan Chappell from Evercore ISI. Your line is open. You may begin.

Thank you. Good afternoon. Hey Jim, can you help us understand the two different pieces of this insurance increase? It feels like that $8 million completely one-time, don't extrapolate that going forward, but this $13 million of adverse actuarial adjustments, is there a reason you didn't kind of strip it out in a non-GAAP table? Is that something that's going to be incorporated in that line item going forward? Just trying to figure out how much of this $0.47 in total is completely one-time in nature and how much of it may be repeatable as we try to model that line item going forward.

Yeah, no, John, it's a great question. I'll take a shot at it. So as you are probably well aware, Lansar has a longstanding policy of engaging a third-party actuary to review essentially the entire population of claim reserves twice a year, both at the third quarter balance sheet date and the fourth quarter balance sheet date. As you're probably also aware, claim cost severity has been going up at a decent cliff that we felt like for a period of years that we were sufficient, i.e., our incurred but not reported reserves were up 27% gross dollars from fourth quarter 22 to the fourth quarter 25, and that's on a declining truck count. If you look at those reserves on a per truck basis, they had increased 73%. over a 36-month period. And clearly we had to true those up a little bit more. So we started with insurance expense guidance back in 2016 at 3.2% of BCO revenue, and I think we concluded at about 7% of BCO revenue. So you can see the inflationary pressure that's hit us along with the industry. If you look at it, John, on a trailing four-quarter basis, I think that would point you to, and that includes kind of an elevated fourth quarter of 25 where we had two BCO accidents, significant accidents, and then this third quarter, 26. So if you look at kind of a trailing four-quarter average, you're at about 46 million a quarter. A trailing six-quarter average is about $41, $42 million a quarter. The actuary adjustments, we certainly had to increase our loss burn rates for 2026, and to your good point, we'll have to continue to book to those higher loss estimates prospectively. On the settlements, You may recall we had adjusted three truck brokerage claims in the second quarter. Two of those claims were in jurisdictions where we previously had F4A federal preemption that, of course, was impacted by the Montgomery decision. Two of those three claims were settled at amounts that were inclusive of the reserves established in the second quarter. We had to book $5 million additional to resolve that third truck brokerage claim. On the $3 million BCO accident, you may recall we recorded an $11 million reserve attributable to two significant BCO accidents in the fourth quarter of 25. Our best guess now, with nine more months of experience, is $14 million for those two crashes.

I'm going to burn my follow-up here just to make it perfectly clear and not change topic. So you would add $47 million in the insurance and claims line if we strip out that $5 million in the three-month. Completely understand, again, not repeatable. But you mentioned that 41 to 42 kind of six-quarter run rate. Is that where you're saying we should be looking going forward or because of this new actuarial adjustment, which looks like it would have been 47 on a clean basis. We should now be looking at something like in a 46 to 48 million quarterly basis going forward.

I get your question. I'm smiling through the phone, buddy. As you know, we stopped giving insurance and claims. That is the most challenging. This is a highly complex environment. to estimate insurance and claim reserves. So we no longer give the percentage of VCO revenue. And to even give the guidance over any 90-day period, it is very lumpy. In a non-sophisticated way, John, I would tell you $35 million a quarter feels probably too light these days. $55 million a quarter probably feels too heavy. And you've got a bigger brain than I do. I think you'll probably land close to a reasonable spot.

All right. I appreciate it, Jim. Thanks.

Likewise.

Thank you. Next one is from Chris Rederby with Wells Fargo. Your line is open. You may begin.

Yeah, hey, thanks. Good afternoon, guys. Maybe picking up on the line of questioning and just maybe zooming out a bit, thinking big picture. You know, Frank, as you think about Montgomery and the dynamics there, maybe bringing agents to the business, maybe, you know, attracting more VCOs or accelerating that process here versus what we're seeing with the insurance, I guess, I think we're still trying to make sure we understand how Lantra fits into this. Is this sort of a net positive in your view? Do you think it's a net negative? I mean, I guess, how do you think about sort of the earnings opportunity for the company post-Montgomery with all of these moving parts?

Yeah, look, I think, Chris, the opportunity set for us kind of uniquely given the agent model is a positive. We signed up Show Me Global, an entity out in the Midwest that joined us, about a $20 million independent brokerage that sort of saw us as a great spot to plant the flag, and we've got traction with some others. They haven't crossed the finish line yet, but we've got some traction with others who, for lots of reasons, not the least of which is the Landstar value proposition, but also then even emboldened by the Montgomery world, we're seeing lots of really good conversations where folks are really looking for a safe haven. They're looking for a company that does things really, really well, that prides itself in safety, security, and service, and doing the hard things well. So I feel like we've got the upper hand in that one. I still think it takes a good year or two for the impact of Montgomery to hit sort of the entirety of the brokerage and the owner-operator world because of renewal cycles in the insurance world. I think that what's going to happen is, as people understand that this has a real impact on their bottom line and then they go to market on renewal, and they end up with a multiple of their insurance costs going forward and then, Lord forbid, they get named in a lawsuit and have to pay attorney's fees and ultimately have to settle or stomach a verdict, I think people are going to get religion pretty quickly and realize that being with a scale player is a really important phenomenon.

Okay, that's really helpful. And I guess maybe just picking up on the agent comment, I think, Jim, in the past, you've given us some context of new agent acquisitions to the business on an annual basis. I think you've been sort of at a relatively low watermark the last couple of years, but have been significantly higher, maybe north of $100 million. Can you just give us a sense of maybe what the opportunity could be from an agent acquisition standpoint?

Chris, I'd be happy to. I think Landstar's all-time high new agent revenue year was something like $180 million, and we've had a couple of years as high as $140, $160. We've been in kind of that $30 to $50, the 2023, 2024, 2025 freight recession periods, to Frank's point. When you get $18 million at one bite, we had another decent-sized one that came across in the last week or so, and two more of What I would call pretty good size that I think are, you know, in the green zone, call it 10-yard line, 15-yard line. So certainly if we can just torque back to kind of strong years, there's probably a $100 million tailwind. And I would agree with Frank. I think the setup for Lancetar right now is very nice. Okay.

Very helpful, guys. Thank you. Appreciate it.

Thanks, Chris.

Thank you. Our next one is from Jason Saddle with TD Cowan. Your line is open. You may begin.

Hey, thanks, Operator. Hey, Frank. Hey, team. Appreciate you guys taking the time today. Wanted to look at the BCO thing and maybe, you know, going away from the agents, what kind of opportunity do you see to grow the BCO count in this sort of changing environment as, you know, a lot of shippers may be looking to go to more well-established companies? And, you know, you might have some trucking companies out there that, you know, Don't have great overall ratings, but some of the drivers do, and maybe they look to go to other places. Maybe you can talk about some of the opportunities going forward.

Yeah, I'll get started on it, Jason. Good to hear from you, and let Matt Miller chime in as well. We've been real excited about what we've seen here the last four or five months on the BCO count. It's a combination of factors, a lot of the great work that Matt and his team are doing on the recruiting and the orientation side and really reducing the time to qualify, and then you know leveraging honestly the BCO existing BCO community and existing agent community is kind of lines in the water right you catch more fish when you have more more lines in the water so we leverage that as well I think what we're going to see as an industry is customers are going to prefer scale we've already seen some impact positive impact from that that then impacts the ability for smaller brokers to generate loads and revenue which then impacts generally speaking smaller owner-operators who are and the folks that they go to to handle the freight. So I think we're going to see it work from the bottom up, and a lot of the work that Matt's doing is already leveraging that. We've got a really good carrier base that we're tapping into as well. So let me let Matt pick that up.

Sure. Thanks, Frank, and thanks for the question. The historical context is we've been leaning into safety, security, and service for quite some time, and that sets us up very well for an environment like we're seeing. That said, you look at the current quarter, we saw an acceleration in the rate of gross trucks being leased to the company. Gross truck ads were up 11% sequentially in the quarter. That's pretty significant. And during the quarter, gross truck cancels were down 6.1% sequentially. and that third quarter marks our 11th consecutive quarter of turnover improvement where the high water mark during the downturn was in Q4 of 23 at 41%. We're sitting beneath our long-term average of 26.6%. What I would say that tells you is that Once those folks can arrive in the door, which there are hurdles that it takes to get in the door. We're very selective on who we let in. They tend to flourish. They tend to be successful. We see that on the utilization where they're hauling Where do I have it? 6.7% more loads in the quarter year over year. Also, we look at year to date, BCO 1099. We're pushing on challenging the record that we've seen in the history of the company for BCO 1099, which was recorded in 2022. So I think to the point of your question, a lot of success is being seen. That tends to be spread both by word of mouth and The growth that we'll see, I anticipate, we'll continue to see growth. The fourth quarter and the first quarter historically have been our challenging quarters, just seasonality there, but second and third tend to be our stronger quarters.

Gentlemen, I really appreciate the time and the color there. Thanks, Jason.

Thank you. Our next one is from Scott Group with Wolf Research. Your line is open. You may begin.

Hey, thanks. Afternoon. So I want to ask about the revenue per load trends. July was up 26. The full third quarter was up 25. So it slowed a little bit, and now we're back to plus 29. So is that re-acceleration, is that just the impact of fuel, or are you seeing underlying rates start to re-accelerate? And I guess ultimately what I'm trying to figure out, like this 29% in October, like That's a lot better than the normal seasonality of up slightly Q3 to Q4. What do you think is the better way to think about Q4? That 29 or up slightly sequentially, which would be less than that 29?

Great question. 7.5% sequentially in the third quarter is about 5x what we typically do. To your point, some of it was front-loaded, but that strength continued into August. August for Landstar... This was only the third time in 16 years that August rates at Landstar were higher than July. We did see rates back up a little bit, Scott, in September, to your point, but that's re-accelerated. As I look at October rates, historically, we typically get about 40 basis points of lift September through October. As we sit here today, we're trending like 180 basis points of lift. If you get 100 basis points sequentially normally, and I just gave you the outperformance the first four weeks of the 13-week fourth quarter, I think there's opportunity to outperform the benchmark. Finally, on the last point, I would tell you, if you just look at BCO pricing sequentially, which again is X the impact of fuel surcharge, BCO revenue per load was up 10.9% sequentially. So there is strong, strong momentum in the business on the pricing side, whether you look at fuel or whether you X fuel.

And how does that BCO, like RevProLoad, look in October relative to the 29 for the full business?

Scott, it's a great question. It's day two of close, and I don't have that number in front of me.

Okay, okay. And then just one other on capacity. So if I look, like, third-party approved truck, approved and active brokerage carriers, like, peaked at around 70,000, troughed at around 35,000. It's now, like, starting to head back up towards 40,000. So I know like there's all this talk about like regulatory capacity leaving the market, but are you actually starting to see with higher rates capacity start coming back to the market?

Hey Scott, it's Frank. I'll take a crack at the first level answer on that one and turn it over to Matt here in a second. I don't think that the change in our capacity getting north again has anything to do with new entrants into the market. I think what's happening is the folks who have been in the market for a while are realizing there's a new level of rigor, not just at Landstar, but in the industry, and they ultimately have to make some changes in the way that they do business in order to be able to haul freight for the more sophisticated brokers and carriers. So I think it's largely to do with that. Matt can get into some history. I mean, we obviously got a little bit of religion on this one earlier on and taking the carrier count down because of some of the fraud in play. And I think Matt's done a really good job of the vetting procedures and some of the new technology and tools and data and things like that. So I feel good about where we are from a capacity perspective. Let me turn it over to Matt.

Sure. Thanks for the question. Thanks, Frank. Back in Q2 of 22, we had roughly 100,000 approved carriers in the network. And I think we were really on the front end of bringing more rigor to those carrier vetting standards That was really in response to fraud, but has paid benefits across the board for us. That was taken down from 22 in the second quarter down to the second quarter of 26. We were at 64,000, so a lot of culling of the herd. And the additional rigor that we put on, some of those carriers were reluctant to meet the standards that we had placed back then. What I think you're seeing in the third quarter is others have embraced a similar approach, and as a result, the carriers are beginning to understand there's certain steps they're going to need to go through in order to get qualified with folks as an approved carrier. That's what I think you're seeing, the increase from Q2 to Q3, roughly 3,300 or 5% is relating to.

One other thing I think is worthwhile, Matt, is just to let them know that we don't take newly minted MCs as owner-operators. I mean, our standards are higher than that.

Oh, absolutely. Our standards are... There's a certain length of time. We tend not to market exactly what that length of time is, but there's a certain length of time you have to have an MC number in order to get approved, and there's dozens of other requirements that we have in place. A lot of the things that I'm saying, those carriers originally weren't necessarily receptive to going through relate-to-identity-oriented things where... There's fraud being perpetuated in the industry where other folks are taking possession of their operating authority unbeknownst to the underlying carrier. So there's a lot of things on the carrier vetting side that are now in place that are going to mitigate all that, and that prevented some folks from being willing to take those additional identity-related steps that they are now willing to do.

And a lot of good work by FMCSA and DOT. For sure.

Very helpful. Thank you, guys.

Thanks, Jeff. Thank you. Our next one is from Tom Wadowitz with UBS. Your line is open. You may begin.

Yeah, good afternoon. Wanted to ask about just the different customer segments and where you're kind of, you know, most optimistic on demand remaining strong or even getting stronger and where you see maybe potential for softness. I guess that could be kind of like, you know, dry van versus flatbed or kind of retail versus industrial, but Any kind of thoughts on, like, within the customer mix, you know, how do things feel?

Hey, Tom, I'm happy to lead off, and then I'll let our sales team chime in. But just in terms of the quarter, you know, heavy haul, I think we're poised to put up our third back-to-back-to-back record year in the heavy haul vertical. If you look into that vertical, we had 20 customers individually grow volumes with us by at least 50 loads, heavy haul loads, year over year. Largest one was a data center. There's some aerospace and defense, electrical you heard us talk about in the commodities, big heavy machinery. So that's really a lot, a lot of momentum. As we sit here kind of late October and we think about peak season, we've seen some good demand out of the gate the first four weeks, and really we've not had a traditional peak season in several years. Demand from those customers is performing rather nicely. and then other transportation companies in a tight environment, they bounce back and come back to Landstar as well. So those are some at a high level that we see clip across.

Yeah, we'll let Bill talk a little bit about the data center ecosystem between the hyperscalers and the AC providers and the heavy equipment and generator folks. But before he jumps into that, the other thing that I think has been really helpful is to see the consumer durables element of our business, which is, call it and a third of the business. When that does well, Landstar generally does well along with it. So I think that's an important thing. And then you heard a brag about Heavy Hall. We'll continue to do a good job there. But maybe, Bill, a little bit on the data center side.

Yeah, sure. Well, Tom, I mean, I'll just add that we're really seeing strength across almost all of our verticals, including the 3PL brokerage has really peaked up. The data center business continues to be strong and shows a lot of legs. We're seeing a little bit of softness on volumes on the automotive side and some of the government business, but building materials, energy and power, industrial machinery, consumer goods, consumer doorables, Frank just referred to, is all good. The bulk of our verticals are up and we expect them to continue to be up here into the fourth quarter.

I think on the interest rate sensitive side of things, the residential housing and the automotive, you're obviously going to We're going to see, you know, some softness there relative to where interest rates are.

Okay. Yeah, I appreciate that. And then just, I mean, I think you have a great pulse on the market and see it from a number of different perspectives. What's your view on just kind of how spot market evolves? Would you think that, you know, November, December, you know, kind of holiday peak, you get to higher rates than you were at in July for, I guess I'm thinking drive-ins, and then you think there's more, you know, momentum in the pipeline for spot rates to be higher in 27. I guess, you know, kind of different views on how much regulatory initiatives have already played out and, you know, obviously the markets can be, you know, freight markets can be tricky but, you know, what's your best kind of take on where things go from here in spot rates?

Yeah, I mean, I think JT gave some color to Scott just a few minutes ago on fourth quarter and where it started and what normal sequentiality would do on a month-over-month-over-month basis. I mean, the nice thing is we actually are seeing a bit of a peak. We can read that through the parcel volumes. We can read it through the 3PL volumes. So it's nice to actually see that after a couple of years of not really seeing any peak. The length of that peak, as you know from our old railroad discussions, can go from several weeks to several months just depending on when it started and when the new year is and all of those factors, how long is there between you know Thanksgiving and Christmas type things so obviously you've got a pretty good read on that one so I think that's an important thing to understand when you look at the regulatory impacts if we assume that the ELP and the non-domiciled CDL and all the work that's being done on the mills as well as the ELDs and things like that like I don't think that's anywhere near completed I think there's still a ton of enforcement out there and then you have the Montgomery overtones as people begin to renew policies on the insurance side. So I feel like there's support for the spot rates as we get into the fourth quarter and into next year.

Great. Thank you. Thanks, Tom.

Thank you. Next one is from Jordan Allager with Goldman Sachs. The line is open. You may begin.

Hi. This is Paul Stoddard. I'm for Jordan. Thanks for taking our question. I guess as we start to think about where we are in this cycle, you know, we're talking about spot rates potentially moving higher into the fourth quarter and into 2027. I guess where would we tend to think we are in this cycle? Are we starting to see more of that demand side come through to push those spot rates higher or are we still more on the supply side?

I think it's been supply side for most of the year, just given the regulatory items that I just talked about, Paul. At the same time, when you look at volumes in Q3 and in October, and you begin to see things with low single digits to mid single digits, we'll see what the rest of the quarter looks like, then you begin to shift the narrative a little bit more to the demand side, which is something that's certainly welcome to all of us who are in the freight hauling business. We want the volume. It's nice to get both volume and rate. You can look down the P&L and if you skip one line known as insurance and claims, you'd have a lot of good news to write home about from the Landstar P&O in the third quarter.

That's helpful. And then I guess as a follow-up, I guess my question is, so as we start to see a little bit of demand coming in, when we start to see that bounce off the bottom and we start to see load and demand come in greater than seasonality, How many quarters do you think we could see where there is that greater quarter over quarter low growth than normal seasonality? How long could that cycle last?

Yeah, Paul, I'm happy to talk about kind of pre-pandemic patterns. What I would tell you is demand in the third quarter hugged normal seasonality pretty tight, right? We're typically down 150. I think we were down 190 or something. If you look back into the second quarter, I think we slightly beat normal seasonality in the second quarter. So you got about six months now where it's been pretty tight. Pre-pandemic, typical up cycles were in the range of 24 to 30 months. So if you're a believer that the cycle started Halfway through the fourth quarter at 25, you know, you could do the math. We should have still a good way to run.

Great. Thanks for the questions.

Thanks, Paul. Thank you. Next one is from Brian Ostenbeck with JP Morgan. Your line is open. You may begin.

Hey, guys. Afternoon. Thanks for taking the question. So I guess one follow-up on all the insurance issues. The $8 million, I know these are accidents that happened a while ago, but given the environment that we're in right now, isn't it reasonable to believe these are more of a cost to doing business? And I guess, Frank, you mentioned doing things to mitigate the cost. Is there anything that you can – and it's not just Landstar issue, of course. It's industry-wide. Is there anything you can listen on how that effort is going, if there's anything in D.C. or anywhere else that – or the industry is particularly interested in that might be able to provide some relief here?

Well, there's certainly the advocacy both at the regulatory side as well as the congressional side and we'll continue to work that both federally and on the state level and obviously you can see the positions that, you know, TIATC, AATA are taking on these and you should assume that we're both aligned with those and helping with those. When you look at things from a more practical level basis, what are within Our control is really on the incident side. We've got to do everything we possibly can to drive the frequency of incidents down. And so Matt and his team and all of us, honestly, that are helping with the BCO community and the third-party carriers, we've got to do ever better on safety, security, and service. That's the type of business that we're in. The trend lines that I would point to in terms of the things that we do and report on, the most significant being the DOT frequency rate that we talked about earlier today. We continue to drive that down, and that's really good news. When we have a case that we think we should settle, then we're going to look for opportunities to settle it. If it's a case that we think we're going to fight, then we're going to fight it because we can't shape the law otherwise unless we take something to court. Now, we may fight one and miss and lose, and we'll take it on the chin, and we may fight some cases and win and set up good law for both ourselves and for the industry going forward. So it's all of those things wrapped up into one. We've been toying around with how can AI help and things like that, and we'll continue to look for unique ways to get ever better on safety, security, and service.

Understood. And then I guess relatedly, it's not quite 100% tied to your business given just the unique model we have, but any thoughts on Crane v. Penske case related to double brokering, essentially. Not really sure if there's a way for anybody to prevent that from happening, especially in this case. There was really no knowledge of it, to my understanding. But certainly it seems like there's some challenges to see where the liability sits. So I don't know if you guys have any specific views on that, but just wondering where that one sits from your perspective. Thank you.

Yeah, we look at all of the marquee cases in the space, Brian, as you would expect that we would, the same ones you're watching. So we'll watch it go through the process. Every case is different. Every fact and circumstance is different. Who knew what when, who did what, and who didn't do what they were supposed to do. Those are all going to be facts and circumstances on a case-by-case basis, but that's a case that we clearly have our eyes on. We have our eyes on the You know, the $604 million plus interest Robinson case. And then, you know, there are others out there that we're watching both in terms of, you know, verdicts and settlements and wins for that matter. There's been quite a few wins as well in the industry. So we certainly cheer those on. And like I said earlier, we're going to choose the cases that we think are the right ones for us to fight. And we're going to resolve the ones as appropriately as we can and the ones that we think that, you know, we ought to resolve.

Okay, thank you, Frank. Appreciate it.

Thank you. Our next question is from Brandon Oglenski with Barclays. The line is open. You may begin.

Hey, good afternoon, and thanks for taking the question. Frank, maybe we can come back to this idea that, you know, insurance rates are actually going to increase for some of your competitors because I think, as we were talking about three months ago, you guys had just renewed your coverage, right? And I think for not a lot of increase in your underlying rates. So, How do you compare those two there?

Yeah, I think we were both lucky and good, to be honest with you, Brandon. Our timing was somewhat impeccable relative to the issuance of the Montgomery opinion. We had already been in deep negotiations with the brokers and the carriers in the insurance world and had the majority of the tower locked down in advance of the Montgomery decision. At the same time, The underwriters knew that Montgomery was out there and could be decided one way or the other, but I felt like our timing was really good. And our loss history was good. I mean, that's one of the things that the underwriters always look at is, what's our experience been with you over one year, three year, five year, ten year, etc.? And so we go through all of that. They look at our truck count, obviously. They also look at our safety indices. And when we're doing what we can do to drive safety in the appropriate direction, we're making investments in the trailers to reduce the number of rear-end collisions and things like that. They see what we're doing. They also see that we're a strong company with a strong track record and a strong balance sheet. And those are all things that the underwriters take into consideration when they let the policies. What I'm saying is not everybody's going to have those good facts and circumstances when they go to renew. And those are the folks that are going to get really significant increases. And then they have to look at their P&L and say, is this a business that I can continue to be in? or do I want to come underneath of an umbrella like Landstar's and be a safe driver for them or be a great agent for them?

Appreciate that. And I think, you know, you guys have brought up AI a number of times maybe in regard, you know, both safety initiatives and efficiency, but how is that playing a part here going forward? Thank you.

Yeah, I think in the safety side and security for that matter, you know, there are some some workings inside the company to try to make sure that we can predict things or early detect things that are on that safety and security side. I think the big thing that we're doing in the agent office really has to do with almost sales productivity, if you want to look at it that way. It's how you take some of the back office burden off of them so that they can deploy their resources more onto the sales side. I'll let Jim Applegate talk a little bit more about that.

Yeah, and as it relates to safety, that's also going to have an impact over there as well, too. I think any time that you put in technology and you get standard business processes, standard practices, it just tightens up how you execute and how we can execute across our network. So I think that's inevitably going to have an impact as it relates to really kind of driving our agents in the right direction as far as how we want them to behave and how we want them to really kind of manage different situations. As far as our progress over on the AI side, we're making quite a bit of progress. grabbed a partner that's very well known in the space and is really kind of helping us implement agentic AI through several workflows within the agent offices. So we're able to deploy it. We're able to configure it specific to those agents and how they want to run their business and how they want to manage their customers. And we're seeing quite good results from an efficiency standpoint, their ability to kind of process calls, to get out in front of exceptions, We're really liking what we're seeing as far as how we're deploying that, and we continue to gain steam, and we see this as a huge area, not only for growth, but to your point, how can we strengthen the network as well, too, as far as how they execute.

Thank you.

Thanks, Brent. Thank you. Next one is from Ravi Shankar with Morgan Stanley. Your line is open. You may begin.

Hi. This is Madison. Pass the check on for Ravi Shankar. We're just wondering how sympathetic the customers are to insurance headwinds in this inflationary environment and wondering how willing they are to raise rates or is there a risk that they've moved to kind of asset-based companies in an environment like this?

Yeah. Hey, Madison. I've never thought that a customer was sympathetic to rate increases regardless of the reason, but look, I When the market has moved up because of secular changes in the market, like fuel is an example or insurance is an example, I mean, those have a tendency to raise the market price, the value in the market for those services. And so I think that the market is showing all of us that the costs have increased, the supply has come down, and therefore Economics 101 says that rates are going to go up. So I feel good about us relative to the competition. We also play in a little bit of a different space in the market than your typical broker or asset-based carrier. Nothing has really changed in the asset-based carrier side. They have thin margins. They have lots of reinvestments. They have low ROIC. You know all this. But we've got to do as good a job as we can as a carrier to be the safest that's out there, run the freight securely, run the freight with a high level of service. And then on the brokerage side of our business, we have to do always an excellent job every single day in vetting the carriers. And we vet them every 24 hours. They rerun through the algorithm to make sure that they're still up to our standards. That's probably the largest way, the most important way that we can make sure that we don't have broker liability claims is we vet the carriers and we execute at 100% efficiency every single day in the freight that we tender to the broker carriers.

Got it. Thank you. And then if I could ask a follow-up Just wondering on any prospective pivots on end markets or customers to kind of avoid the more maybe higher risk customers if you guys have been seeing any kind of patterns in that.

You know, I'll let Matt Miller talk a little bit about fraud and what we do on that side of things, but there certainly are commodities that we pay much more attention to that are have a higher prevalence of fraud. And every once in a while, we may exclude something and put it on what we call our prohibited list. But usually, we find good ways to make sure that we run that freight securely. And we do it with kind of extra insurance if you want to look at it that way. But let me let Matt talk about it.

Sure. Sure. Appreciate the question. And I think if you went back just a handful of years, the bad actors were less sophisticated in primarily stealing anything that they could possibly steal, primarily through fraud, but also traditional theft existed. So it really didn't matter what was being hauled. They were looking to circumvent that load and take possession of that load and do with it what they will. Today, we're seeing much more sophisticated players that are targeting those high-value commodities. And of course, we have a robust risk assessment process where anything that's in excess of a certain value goes through a litany of criteria that we evaluate for additional insurance measures or additional parking requirements with security and things of that nature. So I would say today it's much more on that high value end of the spectrum in terms of commodity value versus just a handful of years back it was just about anything that was being targeted.

Got it. Thanks so much for the call, guys.

Thank you. Next one is from Baskin Majors with Stephens. Your line is open. You may begin.

Yeah. Thanks for taking my questions. There's been a couple of questions on the agent side of the business. And your responses have been continuously constructive on what's happening in brokerage and small brokers and inflation being a growth opportunity for your business long term. But if we look short-term, the agent count was actually down slightly, sequentially. Can you talk a little bit, or if there's any visibility you have with exit interviews or discussions on whether that was a blip or if there was some pattern to the short-term decrease before we get to the scenario where you should be able to grow the system on the sales side? Thank you.

Hey, Batson. This is JT. I'm not aware of a short-term blip in agent count. You know, we tend to focus more on the million-dollar agent count. We had 457 million-dollar agents in 2025. If you go back 15 years or so, we tend to retain those folks at a 97-plus percent retention rate. I think we were a little better than 97 percent last year, and we are on track to grow the number of million-dollar agents 2026 through 2025. Happy to connect offline if you're seeing something else.

Yeah, I was just looking at the total agent count in the slide deck, but you've answered the question there. Thank you.

Thank you. Our next one is from Bruce Chan with Stifel. Your line is open. You may begin. Hey, good evening, guys. I just want to come back to some of your comments around the supply side. You mentioned, I think, Frank, the Montgomery overtones.

I'd imagine that could be fairly material as shippers and brokers start to maybe take a harder look at the selection criteria. I think several quarters ago you talked about something around 15% impact to the OTR market from some of the regulatory initiatives.

Any idea what that maybe looks like for Montgomery? I know it's still early, but just trying to get a ballpark sense of what the magnitude is here.

Yeah, that's a really difficult one to answer, to be honest with you, Bruce. More than zero, I know that doesn't really help you. My sense is this will take another year or two to play out because of what will happen in the insurance side of things. If you've been a broker in an F4A jurisdiction, you didn't really have any liability. Not that you could operate with impunity, but it was a really difficult hill to climb for the plaintiff's lawyers to sue and be successful at suing a broker. I think now A lot more lawsuits probably will be filed. I don't have any facts to tell you that they've actually gone up in number yet, but you've got to think that that'll happen, which means that every broker is going to have to defend itself, and that's just dollars going out that are not in the P&L today. And then when you get sued, then you've got to disclose that to your insurance company, or if you don't have insurance, then it's just coming out of your pocket. So I think there's going to be a little bit of a snowball here in terms of insurance renewals. But I couldn't tell you whether that means it's going to be 30% up or 300% up. I think that's going to be really dependent on the types of renewals that come up and what the loss history looks like between now and when they do renew. But I think the impact, certainly from our perspective, I think more people will want to become VCOs and I think more people will want to become LAMPSTAR agents. Okay, fair enough. Thank you.

Thank you.

Thank you. And we have Stephanie Moore from Jefferies. The line is open. You may begin.

Great. Good afternoon. Thank you. I guess just looking at your balance sheet, sitting here, pretty nice net cash position, a lot of balance sheet capacity. Obviously, we've seen some more aggressive M&A in the asset light space as of late. So I'd love to just get your thought on potentially looking to inorganically grow your business, especially in the face of what seems to be ongoing or potentially ongoing industry consolidation. Thanks.

Yes, that's a good question. We're proud of the balance sheet and it gives us the ability to have optionality. When you see a situation like Robinson RxO, a lot of people ask, well, are you going to do something similar? We are not going to buy a big brokerage and bring that in-house and compete against our agents. That's not the model that we have. Now are we thinking a lot more about at least what we around this table refer to as little M&A, meaning how do we put a little bit of capital at work to bring on agent candidates into the Landstar network who want to be independent entrepreneurs and grow their business and get some of the benefits, for example, the protections on the insurance side, and access to the BCO network and the 40,000 or so carriers that you just heard Matt Miller talk about. Yeah, I do think there's real opportunity there, but we have to be respectful of the model when it comes down to large-scale M&A. But I do think there's opportunity in a post-Montgomery world for us to grow the million-dollar agent count through the little M&A that I referenced.

Absolutely. Thank you, guys. Appreciate it.

Thanks a bunch.

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

Thanks very much. In closing, while we are disappointed with the challenging insurance and claims environment, the management team has been energized by our interactions with our BCOs and agents thus far in 2026. We are all encouraged by the current freight environment and what we believe are the strongest unsighted platform and heavy-hull service offerings in our industry. And regardless of the economic environment, the Landstar Variable Cost Business Model continues to generate significant free cash flow Thank you for joining us this afternoon. We look forward to speaking with you again on our 2026 Fourth Quarter Earnings Conference Call in late January. Thank you.

Thank you for joining the conference call today. Have a good evening. Please disconnect your lines at this time, everyone. Thank you very much.