Good afternoon, and welcome to Landstar System Incorporated's Third Quarter 2015 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 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. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Thank you. Good afternoon, and welcome to Landstar's 2015 third 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 2014 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…

Thank you, sir. At this time, we will begin the question and answer session. Our first question is coming from Ms. Allison Landry from Credit Suisse. Ma'am, your line is open. Danny C. Schuster - Credit Suisse Securities (USA) LLC (Broker): Hi. Good afternoon. This is Danny Schuster on for Allison. Thank you for taking my question. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Sure, Danny. Danny C. Schuster - Credit Suisse Securities (USA) LLC (Broker): Great. Just wanted to ask on the automotive contract, is that a Mexico cross-border move? And have you gained any share given the rail service issues that have been prevalent in that region this year so far? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Danny, this is Pat O'Malley. It is not related to cross-border moves. Danny C. Schuster - Credit Suisse Securities (USA) LLC (Broker): Great. Thank you. And would you expect that to continue beyond 1Q 2016 at all? I guess, you started moving those loads in April, so is that expected to run through for a 12-month timeframe or should it go any further than that? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: We have a commitment to the end of the year and we're working with the client at present to see where it goes from there. Danny C. Schuster - Credit Suisse Securities (USA) LLC (Broker): Great. Thank you so much. I appreciate your time.

Next question is coming from Alex Vecchio from Morgan Stanley. Alexander Vecchio - Morgan Stanley & Co. LLC: Hey there. Good evening. Thanks for taking the questions. Jim, you noted that that the unsided core volumes softened in the third quarter. Could you maybe quantify exactly how much they were down on a year-over-year basis in the third quarter? And then, yeah, we'll kind of go from there. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yeah. From a volume perspective, if you recall, in the second quarter, the flatbed volumes, excluding that automotive client, were pretty much flat year-over-year, second quarter over second quarter. Where we stand now – and this is a volume comment, this is all based on number of loads. We were – it slowed into the third quarter. Now excluding that automotive business, we are down 4% in volumes compared to last year's third quarter. So, it has slowed. Alexander Vecchio - Morgan Stanley & Co. LLC: Okay. That's helpful. And then the fourth quarter guidance for total truckloads to be up mid-single-digits year-over-year, had you not won this contract, what would your core total truckloads, what would you have expected them to grow in the fourth quarter? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Negative. I don't really have that number, probably somewhere in the negative mid-single-digits. Alexander Vecchio - Morgan Stanley & Co. LLC: Okay. And that's – again, this is total truckloads, not just the unsided? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yeah. Yeah, that's just total truckloads. That's... Alexander Vecchio - Morgan Stanley & Co. LLC: Okay. Got it, thanks. And then just lastly here, over the past three quarters, you've generated some strong incremental margins here, over 80%,…

Next one is coming from Jason Seidl from Cowen. You may begin. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hey, Jason.

Hey, guys. How's everything? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Terrific.

A couple quick questions. Going back to that new automotive client, if you guys were to renew that contract the exact same way that you're seeing it now, what would you expect volumes to be? Because we've had a really, really strong automotive year right now. We've seen it. It's one of the few things that's going right in the rail industry if you look at their numbers. Even if you got it again, would you expect those numbers to be up or down next year? James B. Gattoni - President, CEO, Director, CAO & Executive VP: You're talking specific to flatbed, or you're specific to that client?

Just automotive in general, for your exposure on the flatbed side, assuming you got the same customer back next year. Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Jason, this is Pat. Provided we continue this contract next year, we would expect volumes to be the same as they are this year.

So about flat volumes. Okay. And I think you mentioned that ex this client on the flatbed side, things are down about 4%. What about the dry van market? How does that compare to the flatbed market if you parcel that out? James B. Gattoni - President, CEO, Director, CAO & Executive VP: That actually is still going well. I mean we're still – for the quarter we were up 6% in volumes. And it's still driving on the van side. We felt a little softness in flatbed for months, right? But on the van side we've been seeing mid- to upper single-digit percentage growth for the last 18 months. And there's pretty high demand for drop and hook-type operations, where we leave trailers at a facility and they load them up and we send a truck and haul it away. So that's still pretty strong. It's – where we're seeing the softness really truly is on the flatbed side.

Okay. No, that's great color. I guess final question, when we think about your BCO count going into 2016, you obviously have done a fairly decent job of growing it this year. With some of the markets softening is the BCO count going to soften? Or are people just going to still sort of come to you guys as potential providers for freight? Joseph J. Beacom - VP, Chief Operating & Safety Officer: Yeah. Jason, this is Joe. I think we'll continue to grow the BCO count, really predicated upon if there's demand out there for their services. And clearly we expect that to be the case. I don't think we'll grow it as we have. 2014, we grew it 500. This year we're looking to grow it by a number even a little bit bigger than that. So I don't think we'll see that kind of growth. But I do think you'll see incremental BCO growth in 2016.

Okay. That's perfect. I don't want to take up all your time. I do appreciate it as always. I'll turn it over to somebody else.

Next one is coming from Jack Atkins from Stephens. You may begin.

Good afternoon. Good afternoon, guys. Thanks for taking my questions. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Sure, Jack.

So, Jim, I guess if you could maybe talk just for a moment. You guys sit in an interesting place with your customers for a view into the economy. Could you maybe just speak for a moment on what you're hearing from your customers about just the macro? I mean obviously the industrial economy seems to be a little bit more muted. But just would love to know what you're hearing from your customers around demand for peak season? And then as they look forward for the next call it six months? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Jack, this is Pat. As you know we provide capacity and support to numerous customers during the holiday peak shipping season. And at this point they're all anticipating similar, if not slightly up from last year on the peak season business. What we're hearing from our industrial base customers is the strong dollar has really impacted exports. The depressed commodities market has really impacted Cat and the large producers of machinery. Aerospace seems to be healthy. Energy seems to be reasonable. Oil and gas is down, and nobody looks for that to rebound. I think the customer base remains concerned about capacity. They've enjoyed this period of where it's balanced. But they're concerned that it could turn at any given moment.

Okay. Thanks for that, Pat. And then, Joe, I guess question for you on the BCOs. If we get a final rule on ELDs here in the next couple of days, how is Landstar approaching making the remaining owner-operators that don't have ELDs put one of those on? Is that going to be through the implementation period? Or will you require something sooner? And then how do you think that impacts the BCO utilization once those ELDs are rolled out across the fleet? Joseph J. Beacom - VP, Chief Operating & Safety Officer: Jack, good question. Our intent would be to allow for the entirety of the rollout period to let the remaining BCOs get their ELD. We're about 60% today, so to your point, about 40% to go. We would work with them across that timeframe to get that done. And then from a productivity standpoint, we really haven't seen a marked difference between BCOs with an ELD or without. We really haven't seen that. It's really been pretty flat either way. So, I think within the fleet, we really wouldn't see a significant change. Industry-wide, I'm not so sure I can say that. I'm not sure how others operate. But here within the BCO community, it's been pretty even.

Okay, great. And one, if I can squeeze one quick one in as well. With the significant growth with one large automotive customer, are there any mix issues happening from a revenue per load perspective in unsided equipment or should we not think about that being part of the headwind there? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yeah. That's not driving much of the revenue per load variances year-over-year, so, it's kind of consistent with what our normal flatbed rates are.

Okay, great. Thanks again for the time, guys.

Next one is from Matt Brooklier from Longbow Research.

Hey. Thanks. Good afternoon. If you have the number or at least could talk to it, I think machinery makes up roughly, I think, 20% of your volume, maybe 15% of your total volume. I'm just curious to hear where those volumes are trending on the flatbed side of things. James B. Gattoni - President, CEO, Director, CAO & Executive VP: We are looking that up.

Okay. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Do you have a second question or just wait for that one? L. Kevin Stout - Chief Financial Officer & Vice President: Yeah. Machinery is about 14% to 15%. James B. Gattoni - President, CEO, Director, CAO & Executive VP: What direction did it move?

Okay. And what, I guess, what – do you have a volume number in terms of where that stands versus a year ago in 3Q? James B. Gattoni - President, CEO, Director, CAO & Executive VP: It was pretty much flat to – volumes are pretty much flat to where we were last year.

Okay. Okay, that's all I've got. Thanks.

The next question is coming from Rob Salmon from Deutsche Bank. Sir?

Hey, good evening, and thanks for taking the question. Jim, with that automotive contract that you guys brought on, can you give us a sense what sort of capacity, if any, that Landstar is allocating to that customer? James B. Gattoni - President, CEO, Director, CAO & Executive VP: If you assume we're doing – well, I'll give you that – we did about 20,000 loads in the third quarter, about 60% BCO – broker. I'm sorry. 60% broker, about 40% are BCO capacity.

And was there any sort of like trailers that you were using from a drop and hook which would really make them... James B. Gattoni - President, CEO, Director, CAO & Executive VP: It's BCO and broker provided trailing equipment there. We may have a couple of old trailers in there, but it's not our trailer gain.

Got it. I guess switching gears over to the other operating expenses. Kevin, in your prepared comments, you had called out just kind of the higher levels of drop and hook, a little bit of maintenance on the trailer side, offset by less gains. If we're assuming no gains, what's a good number to use for that other operating expenses looking forward? L. Kevin Stout - Chief Financial Officer & Vice President: $7.5 million to about $8 million would be my best guess for that.

Perfect. Those are my Q.

The next question is coming from Todd Fowler from KeyBanc Capital Markets. James B. Gattoni - President, CEO, Director, CAO & Executive VP: It's just the way we do our insurance using 3.3%. If you look at that number, when we were at $10 million I think or something in the third quarter and the 3.3% calculation is going to give us like $12 million or $13 million in expense. That's really what's driving the variance on the per share.

So basically the bit of the softness that you're seeing in the unsided equipment that gets offset by some of Pat's comments on the expectations for peak on the van side, so that that washes on the revenue piece. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes. Yes. I think we'll continue to flow through how we did through the third quarter. I think it'll be made up by that peak season stuff.

Okay. And then I'm going to take one more stab at the large customer win here this quarter. And I think what everybody is trying to get at is the potential impact if you don't have that in the numbers going into 2016, but can you give us just a sense maybe in the third quarter because it was in there for the whole quarter of a revenue number that would have been associated and, if you could, maybe even like an earnings per share number? And, again, I think where that would be helpful is just as we try and think about if you retain that business or if you don't retain that business what it could mean into 2016. James B. Gattoni - President, CEO, Director, CAO & Executive VP: We'll give you the revenue number because there's some ins and outs...

Sure. James B. Gattoni - President, CEO, Director, CAO & Executive VP: ...on EPS and I don't want to carve it down to that level, but the revenue number in the third quarter was $35 million.

Okay. That really helps. Thanks for the time tonight, guys. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes.

Our next one is coming from Scott Schneeberger from Oppenheimer. Daniel E. Hultberg - Oppenheimer & Co., Inc. (Broker): Hi, guys. It's Daniel in for Scott. I'm curious on alternative energy, if you can talk about the outlook there as we look into next year. Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: This is Pat. In the third quarter the wind business that we do was up year-over-year. Our line of sight as it relates to the fourth quarter is favorable. Daniel E. Hultberg - Oppenheimer & Co., Inc. (Broker): Okay. Thank you very much. And then just generally I'm curious on how you think about the spot markets next year? Any commentary there would be helpful. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Well, if you really have a look at what's going on in industrial production when you think about Landstar, I don't see any significant catalyst changing the environment over the next 12 months to 18 months. I think the catalyst people are talking about is not necessarily what's happening in the economy, it's going to be happening – what's happening to trucks and how it relates to regulation, right, and tightening capacity towards the end of 2016 or 2017 and into 2017? That's really the catalyst I see coming up maybe 12 months to 18 months out. But the numbers coming out for projections of industrial production and manufacturing activity in the U.S. for the next years is kind of sluggish. So I would expect the spot market to kind of remain where it is with not a lot of healthy pricing and buy-ins relatively where they are to slightly up. Now in this environment we're still pushing van volumes pretty well as that demand for our trailing equipment is kind of offsetting any softness on flatbed side. But that's what I would expect looking out. I don't see a catalyst to drive the economy to get the spot market to pick up. Daniel E. Hultberg - Oppenheimer & Co., Inc. (Broker): Okay, great. Thank you very much.

Mr. Scott Group from Wolfe Research, your line is open.

Hey. Thanks. Afternoon, guys. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hey.

So why do you think you're not seeing any impact in productivity from the ELDs? We hear from everybody else that there's a big impact when you make the changeover. And then with the question on ELDs, do you change anything on the brokerage side in terms of how you source capacity with carriers that may or may not have ELDs yet? James B. Gattoni - President, CEO, Director, CAO & Executive VP: I mean, why we're not seeing a change in productivity, we addressed that on the BCO side. Our BCOs aren't running the wheels off the track, right. They're pretty selective in the freight they take. They're only running about 90 loads a year. They're not banging up against the hours of service rules. I don't think they're in a situation where they have to park their truck. Might they get hung up on a load where they have to park? Yes. But I don't think that's what they do. I think when they are doing paper logs, they manage their time and they have plenty of time to pick up and deliver and satisfy the hours of service requirements. Putting an ELD on them, I don't think that changed for them. And on the second question?

Just on brokerage, like do you change anything on the brokerage side with your carriers if they don't have ELDs? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: No. We typically don't make that a requirement for anything. We look for visibility on shipments, and a lot of times they'll have a unit in the truck that accomplishes both. But really we're looking for visibility. And as far as whether they're doing their logs in cab or not is not anything we really get into.

Okay. And then just want to clarify one of the comments about fourth quarter volume. So if you take out that auto contract, you would have had like 3% volume growth this quarter. And, Jim, I think you said you'd expect volumes ex that customer to be down a few percent in fourth quarter. Is that a comp issue? Is that just demand is getting worse? Can you just help us bridge that gap? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Well I think because you saw that – I think I said that if you pull that out of the third quarter, flats were down 4%, vans up about 6%. So maybe we'd be flat to down as opposed to down.

Okay. Perfect. All right, thank you.

Next one is coming from Matt Young from Morningstar.

Good afternoon, guys. Can you hear me? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes. Yes.

Thanks. In the past I think you guys had mentioned that agents have boosted penetration of smaller shipper, smaller accounts, ones that wouldn't historically use Landstar. Obviously you probably got more of that last year when things tightened. And I'm guessing it's transactional in nature. Wondering if you're seeing that business stay with you? If you're still getting some of the loads that you received last year from smaller shippers, because capacity was tight? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes. I think you were right on with saying that there seemed to be a lot more of that last year, where we were really getting penetrated into these accounts, who we'd be talking to for two years and wouldn't use us, and then capacity got tight. I think those accounts stayed with us. I think we're still serving those accounts. You're not talking about a $10 million account, but someone who's given us $500,000 to $1 million worth of revenue. We're still getting that. I don't think we've lost that. And you can see it, because those small accounts are still kind of growing. They grew 4% in the third quarter, about $19 million of revenue. So once we get in and we prove the service that we can provide, they generally, the agents kind of stay into those customers. It's just getting in the door. And once they get in, they're pretty good at servicing.

Okay. And has there been any shift to, just because of worries over capacity? I know things have loosened a little on the spot side. Has there been a shift at all among large shippers to kind of lock in pricing at all over maybe worries over ELDs tightening capacity? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Not necessarily with us, no, because again we're doing a lot in the spot market. When we commit trailers that we have locked-up, we kind of lock up rates, so that's kind of committed for us. But there hasn't been a lot of long-term contract requests coming into us.

Okay. So you're not getting more committed business or committed brokerage business? James B. Gattoni - President, CEO, Director, CAO & Executive VP: No, no.

Okay. That's all I had. Thanks.

Next one is coming from Zax Rosenberg from Robert Baird. Sir, your line is open. Zax Rosenberg - Robert W. Baird & Co., Inc. (Broker): Hi, guys. Actually all my questions have been answered. So thank you. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Great.

Next one is from Tom Albrecht from BB&T. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hey, Tom. Thomas S. Albrecht - BB&T Capital Markets: Hey, guys. Congratulations on fighting these tough trends. I got just a little bit confused on your insurance comment. I understand a year ago was only $8.5 million. Were you trying to say that we should thinking about modeling back to that 3.3% of revenues, just because that has been the five-year average? Or you already know that it's going to be closer to $12 million plus? James B. Gattoni - President, CEO, Director, CAO & Executive VP: No, no. We do not know. We just model on 3.3%, because as you know it's very unpredictable. There's nothing to tell us that it's not going to be $15 million and there's nothing to tell us it's not going to be $8 million at this point. So we just model it at 3.3%. If we knew something we'd probably say, hey, we had a situation that we have to provide for in the third quarter, fourth quarter, but that's not the case. It's just modeling. Thomas S. Albrecht - BB&T Capital Markets: Okay. And then as I think about load growth for the van side, it sounds like what you're saying is that the 275,000 van loads you had in the third quarter, kind of think about a comparable number for the fourth quarter, which obviously has a lower year-over-year growth rate. But sequentially I mean is that kind of what you're saying? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes, sequentially. Yes. Thomas S. Albrecht - BB&T Capital Markets: Okay. All right. Thanks very much. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Sure, Tom.

Next one is coming from Tyler Brown from Raymond James. Patrick Tyler Brown - Raymond James & Associates, Inc.: Hey, guys. Good afternoon. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hey. Patrick Tyler Brown - Raymond James & Associates, Inc.: Hey, Jim, just real high level question on the model, but can you kind of go over how the gross margin profile differs when you do provide the trailing equipment, versus when the BCOs provide it themselves? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes, there's about an 8% spread. If a BCO brings his own equipment, they generally get paid 75%. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. James B. Gattoni - President, CEO, Director, CAO & Executive VP: If we provide the equipment, based on what contract they have with us, that we'll pay them 65%. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. So you get a small uplift on the gross margin split? James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes, you get the uplift there. And our trailer cost is in other operating costs and depreciation. So you've still got that 8%. It's just in a different spot, right. Between maintenance and depreciation, it's similar percentage. It's just below the gross profit line. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. Perfect. And then I'm just curious, so what percent of those BCO loads are on your equipment versus their own? James B. Gattoni - President, CEO, Director, CAO & Executive VP: BCOs are doing about – there's about 60% to 65% of BCO loads are on our equipment. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. Perfect. And then any comments on the agent pipeline. Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: The agent pipeline remains what I'll refer to as robust. We've got a lot of interest and a lot of activity along those lines. We're satisfied with where we're at and where we anticipate being in the future. Patrick Tyler Brown - Raymond James & Associates, Inc.: Okay. Perfect. Thanks, guys.

And our next question is coming from Kelly Dougherty from Macquarie. Your line is open. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Hey, guys. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Hi, Kelly. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Thanks for taking the question. Just to touch back on commitments. I know you're obviously not looking to do anything long term, but as we head into like the last two months of the year into peak, are people more interested in getting committed capacity? And might that be something that you'd be open to? Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Kelly, this is Pat. Certainly in some of these peak situations, we're committing capacity to that particular customer to handle the business that they've got. We're not uninterested in committed capacity as long as it's priced right and we understand what those commitments are and what our obligations are under those commitments. I think what we were answering earlier is that we have not received from shippers a lot of bids that are trying to lock us in on capacity, so that if the capacity equation turns, they'll have Landstar locked in. Again, certainly on the peak business we have commitments that we've made to customers. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Yes. It's more of a short term. Patrick J. O'Malley - VP, Chief Commercial & Marketing Officer: Yes. James B. Gattoni - President, CEO, Director, CAO & Executive VP: It's like November, December. And we'll commit trailers and capacity during peak season for certain customers. Kelly A. Dougherty - Macquarie Capital (USA), Inc.: Sure. And then that kind of is what gives you the confidence that maybe you're bucking some of the…

At this time I show no further questions. I would like to turn the call back over to you, sir, for closing remarks. James B. Gattoni - President, CEO, Director, CAO & Executive VP: Well, thank you. And I hope everybody appreciated it, we limited our opening remarks to only 17 minutes. And with that, I have decided to discontinue the company's historical practice of providing mid-quarter update calls. And as such, I look forward to speaking with you again on our 2015 fourth quarter and year-end earnings conference call currently scheduled for January 28. Thank you and have a good day.

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