James Gattoni - President and Chief Executive Officer Kevin Stout - Vice President and Chief Financial Officer Joseph Beacom - Vice President, Chief Safety and Operations Officer Patrick Malley - Vice President, Chief Commercial and Marketing Officer.

Alexander Vecchio - Morgan Stanley Jack Atkins - Stephens Inc. Jason Seidl - Cowen and Company, LLC Seldon Clarke - Deutsche Bank Securities Todd Fowler - KeyBanc Capital Markets Matthew Brooklier - Longbow Research Benjamin Hartford - Robert W. Baird & Co., Inc. Kelly Dougherty - Macquarie Capital (USA), Inc.

Scott Group - Wolfe Research John Larkin - Stifel Financial Corp. Matthew Young - Morningstar, Inc. Barry George Haimes - Sage Asset Management, L.L.C..

Good morning and welcome to Landstar System, Incorporated’s First Quarter 2016 Earnings Release Conference Call. All lines will be in 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 Landstar are Mr.

Jim Gattoni, President and CEO; Mr. Kevin Stout, Vice President and CFO; Mr. Pat O’Malley, Vice President and Chief Commercial and Marketing Officer; Mr. Joe Beacom, Vice President and Chief Safety and Operations Officer. Now, I would like to turn the call over to Mr. Jim Gattoni. Sir, you may begin..

Thank you, Olive. Good morning, and welcome to Landstar’s 2016 First Quarter Earnings Conference Call. This conference call will be limited to one hour. Due to a high level of participation on these calls, I’m requesting that each participant have a two question limit. Time permitting we can circle back for additional questions.

But before we begin, let me read the following statement. The following is a Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts are forward-looking statements.

During this conference call, we may make statements that contain forward-looking information that relates to Landstar’s business objectives, plans, strategies and expectations.

Such information is by nature subject to uncertainties and risks, including but not limited to the operational, financial and legal risks detailed in Landstar’s Form 10-K for the 2015 fiscal year described in the section Risk Factors and other SEC filings from time to time.

These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking information. And Landstar undertakes no obligation to publicly update or revise forward-looking information.

Late yesterday afternoon, we filed our traditional 8-K with the SEC that included our quarterly earnings release. We also included with that filing a slide presentation with some additional information regarding revenue, gross profit margin, operating margin and a few other performance metrics.

This information has been provided to assist with the earnings conference call and to provide some additional information on the results of the quarter. I will not be talking to these slides during my prepared remarks but feel free to ask questions on any of the information included in the slide presentation during the Q&A.

I’ll now touch on a few first quarter highlights. For the second straight quarter, new agent revenue exceeded $25 million. This key metric reflects the continued strength of the Landstar model in attracting quality agents to the network.

We ended the quarter with 9,497 trucks provided by BCOs, the highest number of trucks provided by BCOs at the end of any first quarter. We also had a first quarter record number of truck brokerage carrier small freight on Landstar’s behalf during the 2016 first quarter.

The number of loads hauled via truck in the 2016 first quarter was a first quarter record, and diluted earnings per share of $0.69 in the 2016 first quarter was another first quarter record. As you know, Landstar filed an 8-K with the SEC on March 29, providing updated first quarter revenue and earnings guidance.

First quarter revenue of $712 million was in line with our revenue guidance of $705 million to $725 million. Revenue in the 2016 first quarter was 7% lower than revenue in the 2015 first quarter. The decrease in revenue as compared to the 2015 quarter was due to decreases in revenue per load across all modes.

In particular, Landstar experienced a 10% decrease in revenue per load on loads hauled via truck. We also saw lower revenue per load on loads hauled via rail, air and ocean cargo carriers.

Revenue per load on loads hauled via van equipment was 8% below prior year’s first quarter and revenue per load on loads hauled via unsided/platform equipment was 13% below prior year’s first quarter. Overall truck capacity was more readily available than it was in the 2015 first quarter, putting downward pressure on spot market pricing.

During the first quarter and through the first two weeks of April that availability is more pronounced in the unsided/platform market as compared to the van market. Additionally, revenue per load has been negatively impacted by a lower cost per gallon of diesel, which was over 25% lower in the 2016 first quarter as compared to the 2015 first quarter.

One final point on rates, Landstar’s truck revenue per load was in a record level in the fourth quarter of 2014. In 2014, higher fuel prices, truck productivity reductions due to the new Hours of Service regulations, rail congestion and peak U.S. industrial production drove rates to their higher point in the company’s history.

During 2015, we experienced decrease in revenue per load as the new Hours of Service provisions were suspended, fuel prices began to contract, congestion was reduced at the rails, and the growth rate of U.S. industrial production slowed.

Those industry dynamics continued into the 2016 first quarter, but with additional deceleration in the growth rate of U.S. industrial production resulting in additional pressure on price. During the first two weeks of April, we have seen a normal seasonal uptick in rates on loads hauled via truck.

I believe we will continue to see the normal seasonal uptick in pricing as we move through the second quarter. Thus far, the price of fuel has been fairly stable and truck capacity, although clearly more readily available during 2015, seems to be holding at a consistent level.

As it relates to volumes, the number of loads hauled via van equipment increased 4% compared to the 2015 first quarter. Unsided/platform loadings increased 1% and the number of LTL loadings increased 3% over the 2015 first quarter. We continue to experience increased demand for services provided via Landstar provided trailing equipment.

The number of loads hauled via Landstar controlled trailing equipment, mostly van equipment hauled by BCOs and drop-and-hook operations was 31% of truck loadings in the 2016 first quarter and increased 9% over the prior year. Overall, we have maintained stable unsided/platform volumes in a difficult flatbed environment.

Heading into the second quarter, our quarter-over-quarter comparisons of volumes on unsided/platform equipment gets more difficult as we hauled over 13,000 loads via flatbed equipment in the 2015 second quarter, under a project for a specific account in the automotive industry. That project concluded at the end of 2015.

As it relates to the company’s customer account base, the company’s top 100 customers, ranked by 2015 first quarter revenue, comprised approximately 41% of 2016 first quarter total revenue. 2016 first quarter revenue from those top 100 accounts decreased 10% from the 2015 first quarter, while the remaining accounts decreased 4%.

From an industry standpoint, revenue from the building product sector was one of few industry sectors that grew over the 2015 first quarter. As to revenue declines, freight relating to the energy sector, which was 3% of revenue in the 2016 first quarter, decreased almost 50% compared to the 2015 first quarter.

Other sectors showing significant revenue declines over the 2015 first quarter were machinery, metals, foodstuffs and automotive products.

Gross profit decreased 3% compared to the 2015 first quarter, 4% better than the quarter-over-quarter decrease in revenue, as gross profit margin expanded 70 basis points in the 2016 first quarter compared to the 2015 first quarter.

Lower diesel fuel prices and the favorable impact of more readily available capacity drove down the cost of purchased transportation paid to the truck brokerage carriers in the quarter, helping to increase the gross profit margin.

Notably, the gross profit margin on loads hauled via truck broker carries under variable cost arrangements expanded 80 basis points over the 2015 first quarter. I expect softer capacity conditions to persist through the 2016 second quarter.

And therefore expect gross private margin to exceed the 2015 second quarter, at a level somewhat similar to the margin expansion experienced in the 2016 first quarter over the 2015 first quarter. Here is Kevin, with his review of other first quarter financial information.

Kevin?.

Thanks, Jim. Jim has covered certain information on our 2016 first quarter, so I will cover various other financial information included in the press release.

Gross profit, defined as revenue less the cost of purchased transportation and commissions to agents, decreased 30% to $112.2 million and represented 15.8% of revenue in the 2016 first quarter compared to $115.4 million or 15.1% of revenue in 2015. The cost of purchased transportation was 75.9% of revenue in the 2016 quarter versus 77% in 2015.

The rate paid to truck brokerage carriers in the 2016 first quarter was 163 basis points lower than the rate paid in the 2015 first quarter. The decrease in the cost of purchased transportation was mostly due to the effect of lower diesel fuel costs among revenue and the cost of purchased transportation on freight hauled via truck brokerage carriers.

Commissions to agents as a percentage of revenue were 46 basis points higher in the 2016 quarter as compared to 2015 due to an increase in net revenue margin, revenue less the cost of purchased transportation on loads hauled via truck brokerage carriers.

Other operating costs were $7.4 million in the 2016 first quarter compared to $7.7 million in 2015. This decrease was primarily due to increased gains on the sale of used trailing equipment and decreased trailer rental cost, partially offset by increased trailing equipment maintenance costs.

The company has increased its company-controlled trailer fleet to 10,700 trailers, a 10% increase over prior year, as the number of BCOs hauling Landstar trailing equipment has increased with the increased demand for drop and hook services. Insurance and claims costs were $14.2 million in the 2016 first quarter compared to $14.8 million in 2015.

Total insurance and claims cost for the 2016 quarter were 4.3% of BCO revenue compared to 4.2% in 2015.

The decrease in insurance and claims compared to the 2015 period was due to decreased unfavorable development of prior year claims in the 2016 period, as the 2015 period included a $4.5 million charge related to a single accident that occurred in 2011.The decrease was partially offset by increased severity of commercial trucking accidents in the 2016 first quarter as compared to 2015.

Selling, general and administrative costs were $34.6 million in the 2016 first quarter compared to $37.2 million in 2015. The decrease in SG&A cost was primarily due to the timing of the company’s annual agent convention, decreased employee health benefit cost and decreased stock-based compensation, partially offset by increased professional fees.

SG&A expense as a percent of gross profit decreased from 32.3% in the prior year to 30.8% in 2016.

Included in SG&A costs are cost of $1.5 million in the 2016 first quarter and $250,000 in the 2015 first quarter related to the company’s multiyear project that we believe will increase the efficiency, primarily through technology and improve the processing of transaction, order to delivery, at both the agent’s office and at Landstar.

Depreciation and amortization was $8.4 million in the 2016 first quarter compared to $7 million in 2015. This increase was entirely due to the increase in the number of company-owned trailers.

As it relates to operating leverage, operating income was $47.9 million or 42.7% of gross profit in the 2016 quarter versus $49 million or 42.5% of gross profit in 2015. Operating income decreased 2% year-over-year. The effective income tax rate was 38% in the 2016 first quarter compared to 37.8% in 2015.

The effective income tax rate which has historically approximated 38.2% was impacted in both periods by tax benefits resulting from disqualifying dispositions of the company’s common stock.

Turning to our balance sheet, we ended the quarter with cash and short-term investments of $217 million, cash flow from operations for the 2016 period was $72 million, cash capital expenditures were $1 million and the company acquired $12 million in trailing equipment financed under capital leases.

During the 2016 period, we purchased 175,000 shares of Landstar common stock at a total cost of $10 million. And there are currently 1.6 million shares available for purchase under the company stock purchase program. Back to you, Jim..

Thanks Kevin. Overall, considering recent industry fundamentals of low demand and losing truck capacity, Landstar had a good first quarter. I expect the current freight environment to continue throughout the second quarter.

Although we have experienced a normal seasonal uptick in pricing into the first two weeks of April, I expect revenue per load on loads hauled via truck in the 2016 second quarter to be lower than the 2015 second quarter in a high-single-to low-double-digit percentage range.

Excluding the 13,000 loads related to the automotive project from the 2015 second quarter, I expect their number of loads hauled via truck to increase over the prior year second quarter in a low-single-digit percentage range.

Based on the continuation of recent revenue trends, I currently anticipate 2016 second quarter revenue to be in a range of $770 million to $820 million.

In comparing the 2016 second quarter diluted earnings per share guidance with the second quarter of 2015, the 2016 second quarter will be negatively impacted by approximately $0.03 per diluted share related to the company’s annual agent convention, which was recently held in the 2016 second quarter compared to 2015 when it was held in the first quarter.

Additionally, the 2015 second quarter include approximately $0.05 in diluted earnings per share attributable to the project for the automotive customer. Based on the range of revenue estimate and considering the timing of Landstar’s annual agent convention, we anticipate 2016 second quarter diluted earnings per share to be in a range of $0.80 $0.85.

2016 has started off with a soft operating environment. With that said, however, the model performed well in the current low-growth environment. We continue to add agents and capacities to network and are well-positioned for when the market improves. And with that, Olive, we will open to questions..

Thank you very much, Sir. At this time, we will begin the question-and-answer session. [Operator Instructions] Our first question comes from Alex Vecchio of Morgan Stanley. Your line is open..

Good morning. Thanks for taking the questions.

Hey, Jim, can you walk us through how total truck load volumes trended on a year-over-year basis through the quarter on the monthly basis?.

Yes, sure, month over prior year month..

Give me a second there, Alex..

Sure..

It was 3%, 4%, 2%..

3%, 4%, 2%..

January, February and March..

Yeah, 3%, 4%, 2%..

Okay, got it. Thanks, all right. And then, just higher level - you had some good commentary on capacity overall. I think, Jim, you noted that it’s still relatively elevated, but seems to be holding at a consistent level. It looks like your broker carrier count actually continued to tick-up sequentially.

Is that more of a function of kind of Landstar-specific initiatives? And then also, what do you think we need to - what needs to happen in order for capacity to start coming out at a quicker pace and maybe start supporting the pricing environment? What do you need to see there for that to kind of change on the margin materially?.

Yes, Alex, this is Joe. The broker carrier count, you did see an increase. And I think that’s a function of carriers seeking out quality loads and looking perhaps at places that they hadn’t looked before, right? So they’re out there, becoming approved perhaps with people that they had been approved with before. We do a pretty strong outreach effort.

And I think we have a good reputation. And I think you’ve seen that grow significantly over the last few years. I think it’s just a continued growth in carriers wanting to do business with Landstar. That’s what I would attribute that to..

Well, I would say, Alex, so that you did see the normal - there was a little bit of a downtick in the active account from the fourth quarter to the first quarter. So, I mean, you did see the normal drop-off and a little bit less participation. It’s only 200 out of 29,000 it drop off.

But as to what has to happen, clearly we can’t have industrial production that’s ticking almost flat. It looks slightly down in the prior year. So, I mean, that puts a little pressure on rates clearly. And you’re going to have to have some trucks come out of the market, if we don’t see a turn in manufacturing in the U.S..

Yes, now that makes sense. Okay. I appreciate the color, gentlemen..

Thank you. Our next question comes from Jack Atkins of Stephens. Your line is open..

Good morning, guys. Thanks for the time..

Good morning..

I guess, Jim, when you think about intermodal here and ocean volume, both were up materially in 2015, and then, both were off to a good start in 2016.

So could you maybe talk about what’s driving that and would you expect these type of growth rates to continue for the next several quarters?.

Jack, this is Pat O’Malley, if you look at the intermodal sector, that’s really driven by a couple of customers that we’ve done a nice job in converting business over to Landstar’s. We’ve taken market share in that segment. On the air and ocean, it’s a couple of customers combined with new agents that are offering that service.

So, clearly, we continue to call on our customers and position ourselves well with them. We think we got a pretty good intermodal solution. It’s certainly proven itself with the number of customers. And, obviously, our initiatives are always to bring on quality agents..

Okay. Okay, Pat. Thanks for that. And then, Kevin or Jim, when you think about the guidance for the second quarter, what does that assume in terms of insurance and claims expense as a percentage of BCO revenue? I think, historically, we’ve been sort of cautioned to think about it as 3.3%.

Is that still the right number to use?.

Well, it slipped a little bit. The average has dropped to 3.2%, but, yes, we’re using 3.2% currently..

Okay. Thanks again for the time..

Yes..

Thank you. Our next question comes from Jason Seidl of Cowen and Company. Your line is open..

Hey, Jason..

Hey, good morning, guys.

You made a comment that flatbed was a little bit more under pressure, can you elaborate on that? What’s putting on that pressure on flatbed and where are you seeing the weakness, what areas?.

Well, I think it continued, just saw what happened in our - even though that energy is only 3% of our business, you could see what’s going on there. And it just seems a little be - being a little bit more focused this year than it was last year. And I think it’s still coming from that energy sector.

I think those flatbeds coming into our market driving rates down. That’s the primary driver. And that’s been a kind of a consistent story. It seems a little more intense that it was..

Okay. Now, that makes sense. Also you said that, unless things pick up more trucks are going to need to come out of the market.

What’s the magnitude that we need? Do you think if we had a 2% reduction in fleet sizes, whether there are bankruptcies or just reductions, does that kind of get us more towards equilibrium or do you think we need more than that?.

I tend to be a little more optimistic. I look at - what I look at is our revenue per mile on BCO. That’s kind of a pure-play without much fuel in it. And those rates right now, when you’re look at van or flatbed, there on a revenue-per-mile basis it’s tracking about where 2013 was; which wasn’t a great year, but it wasn’t really a bad year.

So how much capacity has to get back to be a little bit better than 2013, 2% or 3%? I don’t think its significance is what I’m reading. But I think I have got guys in this that say, maybe it is a little bit more than I think. But I’ve been a little more optimistic than what I am reading about and all these reports coming about how soft things are.

Because, again, our revenue per mile on BCO rate - on BCO equipment, whether it’s van or flat, it’s grown 20% in last five years, which is pretty historic high, right? And it’s going back to about 2013 level. So we need to get some of the trucks out that came in 2014, 2015. From a significance say, I can’t tell you how many, whether it’s 2% or 3%.

I don’t want to put a number on that..

What’s your read on ELDs and when we are going to start to see impacts in the marketplace?.

Jason, this is Joe. I think most larger tiers are addressing that now. And I don’t think you will see a major impact. I think those smaller carriers, the ten trucks guys or less that are propondence [ph] carriers out there, I think they won’t address that until probably the middle of next year, maybe a little bit before that.

I don’t think we’ll see anybody leaving the market if that’s the question, because of ELDs, if you are smaller until sometime in 2017, probably the middle of the year..

Okay. Gentlemen, I appreciate the time and the color as always..

Sure..

Thank you. Our next question comes from Rob Salmon of Deutsche Bank. Your line is open..

Hey, Rob..

Hey guys, it’s Seldon Clarke on for Rob..

Okay..

So I know you are talking about capacity just staying at a consistent level.

Are you referring to just overall truck or is that more so in van and less so in flatbed?.

As it pertains to each, I think we’ve seen a consistent level in both flat - I mean, flats are little softer than what a van is. But I think we are seeing consistently. Just based on the pricing we are seeing recently on the - coming into April.

If we are seeing normal seasonal upticks, like we do, to me that kind of indicate it’s kind of we’ve stabilized on where the capacity is. And, again, I am not saying that we are tightening. I am saying we’re kind of still in the readily available capacity as compared to last year, on both van and flat.

And, remember, flat to me is clearly softer than what the van is..

Okay.

And then, did flat really like, it’s just tough to tell like comp-wise because of the auto contract, did flat like, that’s going to accelerate into Q1 or, I guess, towards the end of the year or how does that really trend?.

On the flat side?.

Yeah. Like, I mean, I just feel like it was a little - there is a little delay with the energy CapEx coming down..

Yeah. It felt like there was a delay. I think we would have anticipated that we’d have felt more pressure in early 2015 or halfway through 2015 from the energy side..

Right..

It feels - like I said, it feels a little more intense right now than it felt throughout last year. And it actually, to tell you the truth, from January, February, March the flat softened on a year over year slightly. So, yes, we felt a little more pressures as we moved through the quarter on the flatbed side..

Okay, thanks. And then, just a little bit more of a minor question. I think there was a decent sequential drop off in ocean and air cargo revenue per load.

Is there anything that read into there or is it just typical seasonality or is there going to be a lower base moving forward or…?.

Yes. It’s such a small component of our business. I wouldn’t read that into any industry trends..

Okay..

It’s really basically the handful of agents we have moving ocean freight in the accounts that they’re and the lanes they’re moving freight. And that’s not - I wouldn’t use as a read into the ocean dynamics..

Okay. All right, thank you very much..

Thank you. Our next question comes from Todd Fowler of KeyBanc Capital Markets. Your line is open..

Good morning, Todd..

Hey, good morning, Jim, great. Hey, just on the 2Q guidance and the sequential ramp from 1Q. And I know that there are some moving parts with the timing of the agent convention this year.

But can you help us think about kind of the seasonality that you have baked in? I think when you build your guidance you normally think about the normal seasonal trends and then kind of where you are at in 1Q.

Are you just kind of thinking about a normal sequential progression into 2Q or are you factoring in maybe some potential softness on the flatbed side into the second quarter? How are you thinking about the ramp, 2Q over 1Q?.

I’m expecting the normal seasonal uptick based on what we’ve seen over the last three to four weeks, because we’ve seen it. And generally what happens, we see the revenue per load tick up about 1% to 2%. That’s kind of what we built into the, sequentially, first quarter and the second quarter. Like I said, it’s soft, but I’m not sure it’s softened.

It’s kind of consistent with where we were through the first quarter..

Okay, so….

We’re seeing the normal seasonal uptick in the last four weeks..

Okay.

And maybe where you’re not seeing and it may be works a little bit softer, to the one of the earlier questions is just on the flatbed side?.

Yes. It is an overall. I don’t have flatbed information for April yet, so you know the mix side. But I would expect it might be little softer on that side. But right now, combined for van and flat it’s showing the normal uptick..

Okay. And then just for my second question, with all the rate pressure on the spot side, is there a point where you see loads not moving that are posted on your load board? I mean, is there a rate level where the BCOs just won’t accept the freight at that certain price? And if there is, I mean, have you started to see that.

I mean, really what I’m trying to get a sense is, I mean, can you still see more downward pressure in spot rates or is it just a point where people just won’t accept loads at a certain price point?.

I don’t think we’re seeing that. And you know where we can actually measure with one of our BCOs, right? But their utilization is consistent where it was a year ago. So they’re still hauling as many loads than they were a year ago. So we’re not seeing that..

Okay.

So you still could see - you’re not seeing loads not being cleared basically at what are the spot rates are right now?.

No..

Okay, good. Okay. Thanks a lot for the time this morning, guys..

Yes..

Thank you. Our next question comes from Matt Brooklier of Longbow Research. Your line is open..

Hey, thanks. Good morning. I think you talked about your truckload volume growth in April, but you didn’t put a number to it.

Do you have the number in terms of truckload volume growth less thus far in April?.

Yeah. We’re running that low-single-digit rate over the prior year same four weeks, three weeks..

Okay.

I mean, I guess is it more similar to March or is it more similar to Jan, Feb when you were at I think three, four?.

More similar to March..

Okay. And then my second question, it’s pretty clear there is incremental capacity availability within the truck market. The thought process is that current pricing doesn’t really support incremental trucks being added and we’re going to go through this process of supply rationalization.

I think that the message is heard loud and clear amongst the publicly-traded trucking names.

I guess my question is, is the other portion of the market, the private carriers, do you think that kind of the rationale there is that there at a point where they understand that adding trucks at this point in time is probably not the right move? I guess, my question being, are you still seeing a portion in the market adding trucks at this point in time or do you think in general most carriers at this point are kind of pairing [ph] back to fleet growth initiatives for 2016..

Well, I think if you just look at the orders on Class 8s where they went and the direction that’s going, I wouldn’t even think private fleets are adding. And the one indicator we can look at is those companies that we’ve operated have private fleets. I don’t think we have seen or heard where they’re going to add trucks in the system.

I think our volumes there are consistent with where they were. So I wouldn’t anticipate that even the private fleets would be adding any kind of equipment into the system based on what’s going on. But that’s a good question, but hard to answer..

Yes. Okay, I appreciate the time..

Thank you. Our next question comes from Scott Schneeberger of Oppenheimer. Your line is open..

Good morning. This is Daniel in for Scott. Jim, could you provide how flatbed volumes trended month by month in the first quarter 2016? And if you can, discuss your expectations for the next couple of quarters..

Yes, I can. If you just give me one second, I can flip that page for some reason. Flatbeds were relatively stable. I think I got, Kevin will confirm it, 2% in January plus, minus 1% in February and then plus 1% in March. And I would say, we are going to stay in this relatively flat territory right now. And if you look at March and what was going on U.S.

manufacturing, I mean it wasn’t a strong environment, it’s relatively flat. And if it holds where it is today on U.S. industrial production, I’d say, we’d hold this flat volumes. Now, excluding this automotive project, right, without the automotive in there, we think we can hold flat based on just looking at where March was on demand.

And I think we’ll hold that flat. We are doing a good job of maintaining flat volumes on these unsided/platform equipment environment that’s pretty soft..

Okay, I got it. And following up on that, I mean, historically you have like large projects such as the auto contract last year, and I think some alternative energy a few years ago.

Do you anticipate any significant project work in 2016 and how strong is your visibility into such project work?.

This is Pat. Obviously, we are in front of our customers frequently. And I think our reputation and our ability to gin up capacity in a critical situation is well-documented. So when those customers have the needs for that type of service, we are certainly I think one of the first people they think of. We don’t plan for any projects.

We don’t currently anticipate that any projects will come our way. But in a manufacturing environment that’s very dynamic, when those opportunities present themselves, we are able to capitalize on them..

Okay. Thank you very much..

Thank you. Our next question comes from Ben Hartford of Baird. Your line is open..

Thanks. Kevin, really quick on the net working capital side for 2016, what are you targeting for the year? I mean, I am not asking for a specific number, but relative to perhaps 2015’s contribution, the first quarter appears to be very healthy.

For 2016, something above or below 2015’s level, what is most reasonable?.

On the CapEx?.

On the net working capital contribution..

On net working capital, really, I’m less influenced on. We will pile up assets right on the balance sheet with being cash in an environment, where we are seeing - where we recently saw our price - our stock prices is probably in the mid-50s during the first quarter. We got up to a 175,000 shares. Then it ran up to the mid-60s.

So we - you kind of step back. Managing our working capital will be all based on what we are going to do with our cash. And if we settle in this range, we’ll be back into the market. That’s kind of how we manage our working capital on our balance sheet. Other than that, we have no intentions on utilizing any kind of the assets or the cash.

Right now, we have no acquisitions on the pipeline. And we are just going to historically manage that working capital the way have in the past..

Okay. I guess, what I am getting at it is, it looks like it’s going to be a healthy year from net working capital contribution perspective, overall operating cash flow. And the leverage on the balance sheet is still fairly limited, particularly given where you’ve been in the past.

So what’s the appetite to use that cash more aggressively to be in the market and perhaps even use the balance sheet, add some leverage to support some share repurchases above and beyond what may have been previously thought?.

We are going to do it the way we’ve done it historically and be opportunistic in the market, and which settles into a range, we’ll get in. Again, we do - we know we have significant cash on the balance sheet and we’ll be watching the opportunities as they come..

Okay. Thank you..

Thank you. Our next question comes from Kelly Dougherty of Macquarie. Your line is open..

Hi, thanks for taking the question. Just want to talk a little bit about the BCO side of things. When we saw company like J. B. Hunt, add a lot of owner operator capacity in the fourth quarter and the first quarter. Your BCO growth continues, but seems that tapered off a little bit.

So can you maybe talk about the nuances there? Are there other companies that are being more aggressive in courting independent operators or are the BCOs that you guys pull from just a different animal so there is not as much competition with the traditional asset based guys? And then, just any color how you can think about - how we should think about BCO growth in 2016 that will be helpful?.

Okay, Kelly. Yes. This is Joe Beacom. I don’t know exactly what Hunt did to add their owner operators. But I would tell you that other companies often times will take somebody from - with little less experience than we might have. Some other companies will have trucks that they’ll lease-purchased to company drivers to turn them into owner operators.

So I think there can clearly be a difference in the owner operator. We’re taking people that own their own truck and have been out on their own for at least a year. So there can be a little bit of a difference there.

And they might be recruiting to a little different piece of business in a different dispatch system where at Landstar BCOs can have complete independence and pick from whatever loads that we have in order to generate their income.

So I think there is a pretty big difference perhaps in the lifestyle of the BCO or owner operator at Landstar versus other companies. And I think that’s pretty well known to the operator community and those that want to have the freedom and the opportunity to run their own business, truly run their own business, I think tend to come to Landstar.

But they have to start somewhere, right? So they start at other places where the opportunity presents itself. And sometimes getting into a truck is easier if a company that you’re with driving as an employee/driver offers you a lease-purchase option and that’s what some of the asset-based carriers have done historically..

That’s helpful. So maybe it is a bit of a different animal.

And just wondering, if these guys have to able to run their own business, is there kind of a big pool of Landstar appropriate BCOs or how do you think about growth in that in this year?.

Well, I think we’ll draw from individuals that are out there running their own authority, running their own business and they want a place that’s a little bit more stable or offers some benefits that Landstar offer. So we might draw from that pool.

I think the growth in BCOs in 2016 just based on demand and where pricing is and so forth, it doesn’t - the first quarter, we were pretty flat, which is pretty typical. There has only been once in the last six years that we’ve actually net grown BCOs in the first quarter. So I guess it remains to be seen.

If the economy improves and the volume of freight in the system improves, I think we remain a very attractive option to owner operators who want to call the shots and run their own business. So we’ll see where that goes. We’re looking to grow - I don’t think you will see the growth this year that you saw last year..

Okay. Thanks, Joe..

Yes..

Thank you. Our next question comes from Scott Group of Wolfe Research. Your line is open..

Hey, Scott..

Hey, thanks. Good morning, guys.

So couple of quick things, first, on the tech rollout is that still $0.05 to $0.10 for the year and can you just walk us through the cadence in terms of what’s in second quarter and then what’s in the back-half?.

I think it should be consistent on a couple of pennies a quarter. And, yes, we’re still in that range of $0.05 to $0.10..

Okay. Perfect..

The $1.5 million, [ph] it was about $0.02 in the first quarter..

Okay. Okay. I think I heard you guys say that you expect the pure brokerage margins to be up a similar amount year over year in the second quarter as the first. And I think that’s a little bit more optimistic than we’ve heard from some other guys in terms of brokerage gross margins.

What are you seeing that gives you confidence [most to see] [ph] gross margin expansion there?.

I think, yes, just the marked condition in where we were last year. I mean, when you look at last year where we were and where we came out of the first quarter, you kind of look at sequential trends. It generally tightens up a little bit into the second quarter. But I - and I think what I said is somewhat similar.

I don’t think we’re going to probably be at the level of the - was it 160 basis points, Kevin?.

160..

I don’t think we’re going to be at the 160 basis point level, but I do think we’ll be up somewhere between that 120, 150 range. So it’s somewhat similar. We’re still going to get margin expansion of the broker stuff. And fuel is still going to be lower compared to second quarter last year, which also drives a little bit of that pickup..

Okay. Yes, that’s right. And then, I don’t know if you just went through this with Kelly. I just still have some question.

But on the BCO, again, should we make anything - read anything into kind of that slight sequential drop from 4Q to 1Q? And is it getting any tougher to find BCOs? I guess, I’m just wanting like if that’s assigned to you that the small truckers are starting to leave the market at all?.

Scott, first, yeah, - we think we lost; we were down three trucks at the end of Q1 from the year-end. So pretty typical first quarter as I was saying to Kelly, only once in the last six years have we actually net grown BCOs in the first quarter. So that’s not abnormal at all. The pipeline for BCOs, coming into Landstar is very strong.

A long - and there’s just a lot of guys out there interested. So adds are up considerably, deletes are also up, right? So it’s really a matter of managing the adds and the deletes. And that’s what we are going to spend our time to get the net growth as we move throughout the year..

Okay. That’s helpful.

And just last, can you just remind us, what percent of your BCOs have ELDs, and what the timeframe is for you to roll that out to everybody?.

We’re sitting, Scott, around 65% of our BCOs have ELDs. And we are working now on a timeline to get them installed before the mandate in 2017. I don’t think we’ll have a huge issue there. I think it’s, we’ve kind of taken the approach we’ve taken knowing we had the time.

And we’ll just kind of continue to progress and be where we need to be in plenty of time. No worries from our end on that issue..

Do you see a difference in utilization or productivity from guys with ELDs versus guys without?.

We haven’t done the side by side in a little while, but when we did do it last year there was virtually no difference..

Okay. All right, thank you, guys..

Thank you. Our next question comes from John Larkin of Stifel. Your line is open..

Hey, John..

Hey, good morning, gentlemen, thanks for taking the questions. On Page 17, you have a pretty daunting set of charts there, which shows the revenue per load just really cratering more so for flats than for vans.

Could you fair it out, how much of that was fuel and how much of that was rates? And then, maybe another way to differentiate would be how much of that was - what you would consider to be contract business versus spot business?.

Yes, John, this is Jim. I would say that beginning at the early 2015, if you’ve listened when we did our quarter calls, remember the - fuel only really affects the….

That’s right..

Right..

Got it..

We are saying anywhere between, I would say 5% and 8% or in any given quarter was attributable to the fuel, a drop off, the 5% to 8% of the decrease in the revenue per load was due to fuel.

I’m sorry, the second part of the question was…?.

Second part of the question was related to how much of this was related to softness in the spot market versus softness in what you might call the contract market?.

Yes. We are probably, almost all of our freight - I’d say that probably 80% to 90% of freight is spot market. So there is not a lot of contract right in here. So the majority of our freight is just spot market driven. We are negotiating rates every day between our - even in our contracts that have some rate information it.

When it gets up like the shippers come back in, say, hey - because we don’t guarantee the truck, therefore the ship will come back and say, hey, you’re going to have to take the rates down a nickel or dime otherwise I got the option to go someplace else. So that’s even in our contractual relationships. It often happens that they drive the rates down.

So I would just assume it is majority mostly, but spot market, what would show up..

And there is a second question, you had mentioned in your list of sectors that were particularly soft in the quarter, the auto sector. I think the broader perception is that auto is one of the few stronger areas in the economy.

Are you saying something different or is it particular to the plants you serve or the business you have in particular?.

Yes, John, actually, I think a lot of that is just because the rates were down 10%. I don’t think it’s a volume thing, right? I think automotive was - if I remember right it was down 5% and pricing was down 10%. So I think those comments were based on revenues as opposed to volume. So I think it’s mostly a volume game.

And the other thing too is, if automotive builds stay consistent, I don’t see the growth in the automotive you kind of flatten out..

Got it. Maybe one quick one on the ELD mandate, which everyone I guess assumes will be fully implemented by the end of 2017. But this OOIDA lawsuit is out there right now. And historically they have had some success in either delaying or getting the rule to be revised.

Do you have any particular read on how that might play out? Are you hearing anything out there in the marketplace or are your lawyers advising you one way or the other?.

John, this is Joe. I’m familiar with it to an extent. And I think it was somewhat predictable. I tend to think because the ELD discussion has been going on for so long, and I think it’s been vetted and I think FMCSA has handled it a little bit differently than some of the other stuff they’ve tried to throw out there.

I’m not as optimistic that OOIDA will delay it. But, who knows? I guess, it just depends, it seems like there is more positive momentum from a lot of large carriers that this is good. So I think it becomes a little bit more of an uphill battle for OOIDA, but I’d have to wait and see. I really haven’t heard one way or the other..

Thanks very much. I appreciate the time..

Thank you. Our next question comes from Matt Young of Morningstar. Your line is open..

Good morning, guys.

Just wondering with the overall demand relatively sluggish here, do you still expect growth in your drop and hook operations or the drop and hook opportunities in the quarters ahead? And along those lines just which end markets are most likely to use that?.

Matt, I’m looking back and forth at each other. I’ll start with the request for dropped equipment. It continues to be pretty strong. It’s diversification across a growing number of customers looking for dropped equipment. So from that perspective, the demand appears to be pretty strong.

Moving loads in and out of Mexico is obviously an attractive part of what we’re doing and that’s trailer intensive as well. And a big part of doing business in Mexico is providing drop and hook equipment at the border and/or in the interior. So I think both of those things are driving some of our demands.

And I’ll let Pat try to tackle the end markets, if he wants to….

Well, I mean, I think what Joe said is appropriate. Also the natural diversification at the Landstar model has, because of the agent network. It’s not concentrated in one specific industry but across a multitude of industries. And so, we see, again to repeat what Joe said, we see an increase in requests for spotted equipment.

Our spotted equipment continues to be utilized and we anticipate that to continue through the balance of the year..

And, Matt, one thing to understand, to make clear, is the majority are, we generally only allow BCOs to haul our drilling equipment unless it’s in kind of a dedicated route on a broker carrier. So we’re kind of relying on the number of BCOs we have we want to haul our equipment to grow that drop and hook.

Now, we got a great job of adding BCOs to haul the drop and hook. So it’s the one spot where we have some capacity constraints, not they were constrained significantly. But if we get more drop and hook opportunity, we got to get the BCOs into the network to actually haul those drop and hook opportunities..

That makes sense.

And what of your trailer - of the business that uses your trailers, how much of that is the drop and hook or is that most of it?.

60% of what the BCOs haul is actually on our trailer which majority of that is drop and hook..

Yes, about 31% of the total that’s drop and hook..

Okay, thanks..

Thank you. Our next question comes from Alex Vecchio of Morgan Stanley. Your line is open..

Hey, Alex..

Hey, there. Hey, thanks for taking the follow-up.

Can you remind us what the volume contribution from the auto contract was in 3Q and 4Q of 2015?.

About 90,500 loads in Q3 and 18,700 loads in Q4..

18,700 in 4Q..

They’re about 51,000 for the year. If that adds up, then I got it right..

Great. Okay, thanks. That’s all I had, appreciate it..

Yeah..

Thank you. Our next question comes from Barry Haimes of Sage Asset Management. Your line is open..

Thanks for taking my question. Just following up on the ELDs, within your broker carriers have you canvassed them to see what percent are already on ELDs? What percent plan to convert and what percent if any just plan to leave the business altogether? All right, thanks..

Barry, this is Joe. At this point we have not canvassed our carriers. That is something that we’re anticipating - trying to do, but at this point we have not started the process..

Okay. Great, I appreciate it. Thanks..

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

All right. Thank you, Olive. And thank you, and I look forward to speaking with you again on our 2016 second quarter earnings conference call currently scheduled for July 21. Have a nice day..

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