Landstar System, Inc. (LSTR) Earnings Call Transcript

Good afternoon, and welcome to Landstar Inc.'s Third Quarter Earnings Release Conference Call. [Operator Instructions]. Today's call is being recorded. If you have any objections, you may disconnect at this time. Joining us on from Landstar, 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 Cleman, 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 Landstar's 2026 Third Quarter Earnings Conference Call. Before we begin, let me read the following statement. Following the safe harbor statement of the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements. During this conference call, we may make statements that contain forward-looking information that relates to Landstar's business objectives, plans, strategies and expectations. Such 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 20,262nd quarter describing the section Risk Factors and our other SEC filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking statements, and Landstar undertakes no obligation to publicly update or revise any forward-looking statements. I'll now pass it to our CEO, Frank Lonegro, for his opening remarks.

Thanks, J.T., and good afternoon, everyone. I'd like to thank our BCOs and agents and all the line our 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 8 different field meetings throughout the country over the past 3 months. One of the highlights of the BCO event was Landstar's 54th truck giveaway where I had the honor of awarding BCO Dean Web of Pelzer, South Carolina, a new 2027 freight line of Cascadia as part of our delivery 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 truckload 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 to continuous improvement in the level of service and support we provide to our customers, agents, BCOs and carriers each and every day. Turning to Slide 5. 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 a 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 health 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 BCO truck count increased by 165 during the third quarter, the strongest quarterly improvement since the third quarter. 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 adjustments to prior year claim estimates. As noted in the press release, the highly elevated insurance and claim cost quarter is primarily attributable to: one, approximately $13 million or $0.29 per share of unfavorable actuarial adjustments to insurance and claves reserves as compared to the last actual review conducted as of the fourth quarter of 2025. And two, approximately $8 million or $0.18 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 plan and 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 the subsidiary of the company. It's no secret -- the truck transportation industry has been under attack of late by an incredibly aggressive plaintiff 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 5 years, and we will continue to work diligently on reducing the frequency of incidents. However, the inflationary pressure on claim 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 and 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 or 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. Agent AI workflows are now actively deployed in 8 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 share repurchases, and yesterday afternoon, our Board declared a regular dividend of $0.44 per share payable on December 8 to stockholders of record as of the close of business on November 17. Turning to Slide 7 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. J.T. 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 and well below the last available national average DOT reportable frequency rate released by the FMCSA for 2021 and lower than 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. It speaks to the strength, skill, talent and dedication of our BCOs and provide 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, and Importantly, retention within the 1 million agent network continues to be extremely high. Turning to Slide 8. 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 4 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 J.T. to walk you through the 2026 third quarter financials in more detail.

Thanks, Frank. Turning to Slide 10. As Frank mentioned earlier, overall truck revenue per load increased 25% in the 2026 third quarter compared to 2025 third quarter, primarily attributable to a 29% increase in revenue per load on loads hauled by unsided 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 truck a pure reflection of market pricing as it excludes fuel surcharges billed to customers that are paid 100% to the BCO in 2026 third quarter revenue per mile and unsided platform equipment hauled by BCOs was 19% above the 2025 third quarter, and revenue per mile and van equipment hauled by BCOs was 23% above the 2025 third quarter. Delving deeper in the seasonal trends, revenue per mile and those hauled by BCOs on unsided 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 prepandemic seasonal trends, while the July to August increase outperformed prepandemic historical trends. Turning to van freight revenue per mile and band equipment all 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 unsided platform equipment are generally more volatile compared to that event 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 oil 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 20,263rd quarter was 13% or $13 million below the 20,253rd 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. Turning to Slide 11. We've 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 5 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 share 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%, and 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. Turning to Slide 12 and the 2026 third quarter gross profit was $126.5 million compared to gross profit of $111.1 million in the 20,253rd quarter. Gross profit margin was 8.4% of revenue in the 20,263rd 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 2016 3rd 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 decrease 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 2025 third quarter mostly offset by an increase in the percentage of revenue generated from BCO independent contractors. Turning to Slide 13. Operating income increased as a percentage of gross profit, primarily due to the impact of the noncash impairment charges during the 2025 period. Operating income increased as a percentage of variable contribution, similarly due to the impact of the noncash 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 20,263rd quarter compared to $33 million in 2025 the increase in insurance and claims 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 quarter insurance and claims costs included $21.9 million and $9.2 million of net unfavorable adjustment to prior year claim estimates, respectively. Selling, general and administrative costs were $62.4 million in the 263rd 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, 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 in 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, J.T. Given the highly fluid freight transportation backdrop and a dynamic geopolitical and macroeconomic environment, coupled with a highly volatile litigation and claiming 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, and prepandemic 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 all 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 a slightly outperforming normal seasonality. We're excited to build upon the positive momentum generated during the first 9 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 4 years appears to have turned in our favor. With that, operator, we'd like to open the line for questions.

[Operator Instructions]. We have a question on the line from Jonathan Chappell from Evercore.

Thank you Jim, can you help us understand the two different pieces of this insurance increase? It feels like that $8 million completely onetime? Don't extrapolate that going forward. But this $13 million of adverse actuarial adjustments? And is there a reason you didn't kind of strip it out in the 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 onetime in nature and how much of it may be repeatable as we try to model that line item going forward?

Yes. No, John, it's a great question. I'll take a shot at it. So as you are probably well aware, Lascar has a long-standing policy of engaging a third-party actuary review essentially the entire population of planned reserves twice a year, both in 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 clip 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% and 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 about 7% of BCO revenue. So can see the inflationary pressure that hit us along with the industry. If you look at it, John, on a trailing 4-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 the trailing 4 quarter average, you're at about $46 million a quarter, a trailing 6-quarter average is about $41 million, $42 million a quarter. The actuary adjustments, we certainly had to increase our loss burn rates for 2026. And to your good point, want to continue to book to those higher loss estimates prospectively. On the settlements, you may recall, we had adjusted 3 truck brokerage claims in the second quarter. Two of those claims were in jurisdictions where we previously had a federal preemption that, of course, was impacted by the Montgomery decision. One of those -- 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 dollars to resolve that third truck brokerage plan. The $3 million BCO accident, you may recall, we recorded an $11 million reserve attributable to two accidents significant accident BCO access in the fourth quarter of 25%. Our best guess now with 9 more months of experience is $14 million for those 2 crashes.

I'm going to burn my follow-up here, just to make it perfectly clear and not change topic. So you would had $47 million in the insurance and claims line if we strip out that $5 million in the 3-month completely understand, again, not repeatable. But you mentioned that 41% to 42% kind of 6 quarter run rate. Is that what 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 million to $48 million quarterly basis going forward. SP999 I get your question.

Piling through the phone body. 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 BCO 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. $5 million a quarter probably feels too heavy, and you got a bigger brand than I do. I think you'll probably land closer to a reasonable spot.

Next one is from Chris Wetherbee with Wells Fargo.

Maybe picking up on the line of questioning and just maybe zooming out of the thinking big picture. Frank, as you think about Montgomery and the dynamics there, maybe bringing agents to the business, maybe attracting more BCOs 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 Landstar 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?

Yes. Look, I think, Chris, the opportunity set for us kind of uniquely given the agent model is a positive. We signed up [indiscernible] and into the out in the Midwest that joined us about a $20 million independent brokerage that 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 land 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 2 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 the lawsuit and have to pay its earning fees and ultimately have to settle or some of the 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. 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 water mark 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?

Yes. Chris, I'd be happy to. I think Landstar is all-time high. New agent revenue year was something like $180 million, and we've had a couple of years as high as $140 million, $160 in. We've been in kind of that 30 to 50 2023, 2024, 2025 freight recession periods to Frank's point, when you get $18 million at one bite, we had another decent size 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 in the green zone, call it 10-yard line 15-yard line. So certainly, if we can just tork back kind of strong years, there's probably $100 million tailwind. And I would agree with Frank. I think the setup for Landstar right now is very nice.

Our next one is from Jason Seidl with TD Cowen.

Frank, team. Appreciate you guys taking the time today. wanted to look at the BCO thing and maybe going away from the agents, what kind of opportunity do you see to grow the BCO count in this sort of changing environment as a lot of shippers may be looking to go to more well-established companies. And you might have some trucking companies out there that 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.

Yes. I'll get started on and 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 4 or 5 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 leveraging honestly, the BCO -- existing BCO community and the existing agent community is kind of lines in the water, right? You catch more cushion when you have more lines in the water. So we've leveraged 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 loans and revenue, which then impacts generally speaking, smaller owner operators who are 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 going let Matt pick that up.

Sure. Thanks, Frank, and thanks for the question. I think 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 adds 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 watermark 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 we have a 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 your -- 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.

Our next one is from Scott Group with Wolfe Research.

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

Yes. Scott. 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. So August for Landstar, this was only the third time in 16 years that August rates at Landstar were higher than July. Now we did see rates back up a little bit, Scott, in September, to your point, but that's reaccelerated. So as I look at October rates, historically, we typically get about 40 basis points of lift September into October. And as we sit here today, we're trending like 180 basis points of lift. So if you get 100 basis points sequentially normally, and I just gave you the outperformance 4 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 ex 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 ex fuel.

And how is that BCO like Rev promote look in October relative to the 29% for the full business?

Scott, it's a great question. It's day 2 would close, 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 troughs around 35,000. It's now like starting to head back up towards 40,000. So I know like there's always 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?

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 betting 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 betting 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 in 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 are certain steps that are 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 it's worthwhile, Matt, is just to let me know that we don't take newly-minted as over operated. I mean our standards are higher than that.

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 related to identity oriented things where there's fraud being perpetuated in the industry, where other folks are taking possession of their operating authority unbeknown to the underlying carrier. So there's a lot of things on the carrier betting 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 at for sure.

Our next one is from Tom Wadewitz with UBS.

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

Tom, I'm happy to lead off, and then I'll let our sales team chime in. But just in terms of the quarter, 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 of momentum. As we sit here kind of late October when we think about peak season, we've seen some good demand out of the gate, the first 4 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 clients.

I'll let Bill talk a little bit about the data center ecosystem between the hyperscalers and the AC providers in 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, 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 us frag about heavy haul. We'll continue to do a good job there. But maybe, Bill, a little bit on the data center side.

Yes. 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 in volumes on the automotive side and some of the government business. But building materials, energy and power, industrial machinery, consumer goods, the consumer durables just Frank just referred to is all good. I mean 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, I mean, the residential housing and the automotive, I mean, you're obviously going to going to see some softness there relative to where interest rates are.

Okay. Yes, 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 November, December, kind of holiday peak, you get to higher rates than you were at in July for I guess I'm thinking dry van? And then you think there's more momentum in the pipeline for spot rates to be higher in '27? I guess kind of different views on how much of regulatory initiatives have already played out. And obviously, the markets can be -- freight markets can be tricky, but what's your best kind of take on where things go from here in spot rates?