Good morning, and welcome to Landstar System Incorporated, Second Quarter 2020 Earnings Release Conference Call. [Operator Instructions]. If you have any objections, you may disconnect at this time. Joining us today from Landstar are Jim Gattoni, President and CEO; Kevin Stout, Vice President and CFO; Rob Brasher, Vice President and Chief Commercial Officer; Joe Beacom, Vice President and Chief Safety and Operations Officer. Now, I would like to turn the call over to Mr. Gattoni. Sir, you may begin.

Thank you, Missy. 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 2019 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 any forward-looking information. Through the end of Landstar's first quarter, the COVID-19 pandemic began to have a significant adverse impact on the US economy. The rapid decline in industrial output that began in mid-March accelerated into April, and carried through most of the second quarter. Although conditions in the industrial markets Landstar serves improved somewhat in June, the 2020 second quarter experienced the most significant and rapid reduction of US industrial output in decades. The Company's truckload volume began to experience the adverse economic impact caused by the pandemic in late March when state and local governments began to issue shelter in place mandates and manufacturing facility started to close. Several weeks later, as truck capacity began to loosen due to the severe reduction in demand, revenue per load on loads hauled via truck began to rapidly deteriorate. These conditions persisted through April, and most of May, followed by relative…

Thanks, Jim. Jim has covered certain information on our 2020 second quarter. So I will cover various other second quarter financial information included in the press release. Gross profit defined as revenue less the cost of purchased transportation and commissions to agents was a $113.1 million and represented 13.7% of revenue in the 2020 second quarter, compared to $158 million or 15.1% of revenue in 2019. Included in the 2020 second quarter is the impact of approximately $12.6 million paid to BCOs and agents in April and May under the Company's previously disclosed pandemic relief incentive program. Excluding the effect of these payments, gross profit in the 2020 second quarter was approximately $125.7 million or 15.3% of revenue. The cost of purchased transportation was 77.1% of revenue in the 2020 second quarter versus 76.5% in 2019. Excluding the cost of these payments under the pandemic relief incentive program to BCOs, the cost of purchased transportation was 76.4% of revenue in the 2020 quarter. The PT rate paid to truck brokerage carriers in the 2020 second quarter was 37 basis points lower than the rate paid in the 2019 second quarter. Commissions to agents as a percentage of revenue were 9.1% in the 2020 second quarter compared to 8.4% in the 2019 second quarter. Excluding the cost of payments under the pandemic relief incentive program to agents, commissions to agents as a percentage of revenue was also 8.4% in the 2020 second quarter. Other operating costs were $7.4 million in the 2020 second quarter compared to $9.9 million in 2019. This decrease was primarily due to decreased trailing equipment rental costs, decreased BCO recruiting costs, decreased contractor bad debt, and increased gains on sales of trailing equipment. Insurance and claims costs were $19.8 million in the 2020 second quarter compared to…

Thanks, Kevin. With that, Missy, we will open to questions.

Thank you so much. At this time we will begin the question-and-answer session. [Operator Instructions]. Our first question is from Scott Group of Wolfe Research. Your line is now open.

Hey, thanks. Good morning, guys. So Jim, I wanted to ask about some of the yield trends. So we're seeing obviously spot rates have turned nicely positive, and even some of the TLs are talking about their yields turning positive in the third quarter. Why do you think you were still down mid-single digits? Do you think that your visibility to that getting better as the quarter plays out or maybe looking out into next quarter. Just some perspective there.

Sequentially, Scott, if you look at the historical trends, when you move through April, May and June and into July. Sequentially, we are improving better if you looked over the last five years. So pricing is getting better from a trend standpoint when you move month to month. So the pressure of prior years, I think as you know, our agents tend to be a little bit slower in reacting to market conditions as opposed to what happens in different type of companies who run more Company store operations, and have the centralized power to move rates within that organization where our agents, kind of out there, kind of making their own decisions running their own business, so they tend to be a little slower. So I think that's where you see where our -- when you looked at our pricing drop off, it was little bit lagged. Our pricing drop-off, and we are at the end of April talking about the first quarter and what we are seeing. Our pricing hadn't really been that affected yet. And then a couple of weeks later started to drop off. And I think what you're doing to see it, on the similar side, you'll see us climb a little bit slower, and we didn't project any acceleration of growth into our -- into our forecast for the third quarter. We just kind of trended along the path that was taken to June and July, which generally is a bit slower to react than the most -- than the other brokerage companies.

And then in July, are you seeing any difference in van versus flat pricing?

Well, it's -- that's hard, we don't have over the last couple of weeks, it's hard for us to take one week carve out of information like that. So it's really hard to talk about individual, whether it's van or flat that are customer type information, it's really just general trends combined van and flat.

Okay. And then how are you thinking about net operating margins as we go forward in the cycle? We haven't seen them this low in a while. And can we -- do you think if we get another cycle here that those can get back toward those mid to high 40 levels?

Yeah, absolutely. I think one -- clearly one headwind is going to be the 175% increase in our fixed cost in insurance. And, we have some thoughts about not in the short term, but probably sometime 2021, we're going to look at some things that we might be able to make a move on and offset some of that increased cost. But, you know, if we get the growth back to where you had 2017, 2018, yes, I think we can get back to that high 40s. Our goal is to get back to the high 40% to possibly 50% operating margins. Clearly not this year and depending on what happens with economic conditions in '21, but in a longer-term view, yeah, absolutely our goal is to get back there.

Okay. And then last one from me. The BCO count ticked up a little bit sequentially. Do you think that continues again in the third quarter?

Yeah, Scott, this is Joe. I do think we'll see some -- some growth in the third quarter. I think conditions are again improving, and I think our growth to this point has been very retention oriented. So, and we see a lot of things that's working pretty well there. So, yes, so I think some modest growth in the third quarter would be what we would expect.

Thank you so much. Our next question is from Ravi Shanker of Morgan Stanley, your line is now open.

Hey, this is Christine on for Ravi, thanks for taking my question. Maybe circling back to sort of the earlier comments on end markets. I know you called out autos as sort of being a headwind in 2Q and some of the other commodity end markets. But how has that trended as you guys have moved into July, has autos pretty much entirely come back or how are those moving as we head into 3Q?

Hey, Christine, this is Rob. Actually in the flatbed markets, if you kind of look, we've had some struggles I guess I should say with government and that had kind of stop quarter, in March it wasn't lifted until late May. So we looked to come back on that. We also don't know what's going on with Aerospace and Automotive. In automotive, both direct automotive and indirect, we serve a lot of industries that service the automotive, that doesn't necessarily go down as automotive steel. I think it's kind of at an all-time low since 2008. We've seen plant shutdowns and import shutdowns, heavy equipment, oil and gas machinery. So kind of those first three government aerospace, automotive steel, we look for those to start coming back. So we will look to start getting gains and have already seen gains, especially in automotive in the third quarter.

Got it. Okay. That makes sense. And that's helpful. Maybe switching gears to some of the technology initiatives. I believe, you know, on the last conference call, you had indicated that the rollout was maybe even better than expected during some of the productivity gains from working from home. I was wondering if we could get an update on sort of the current tech program in terms of rollout and then looking down the line, further out, what's sort of the next gen of technology initiatives for Landstar?

Yeah, when we talk about the -- when we talk about initiatives, it's really when you think about automation -- automation of the entire cycle from order to cash. So there is components in there, whether its tracking visibility pricing tool, simplifying our credit process, trailer management, all those things pulled together as we talk about our trends, our technology basically transformation, we are working on for three to four years. And when -- the productivity of our IT guys is up based on what our projection was for having them do for the quarter as compared to once they went home and what they've accomplished, it's far ahead of where -- where we thought it would be. We have recently just rolled out our -- we're beginning to rollout our new track and visibility tool, which is a lot more sophisticated than our older tool, it started rolling out two weeks ago. Pricing, we're working on Phase II of that of the pricing tool that is, that is used by the agents to be able to do quick quotes and direct quotes into the -- out into the -- to shippers. So it's a -- we're going to continue to spend at -- probably two or three years ago, we're probably increased $8 million to $10 million annually. We're still spending that run rate on new technologies and building out our modular system instead of being in the old legacy single platform. So when we talk about technology, it's all encompassing of everything we're doing. So when we talk about productivity, the productivity acceleration and visibility got it out, we got it out over the -- over the last few weeks. So it's the individual items that are coming in faster and rolling out quicker. On the TMS side, which is the application we started three or four years ago, we're running about 7% of our volumes through our agent network right now on the new TMS that's rolling out.

Thank you so much. Our next question is from Bascome Majors of Susquehanna. Your line is now open.

Yeah, thanks for taking my question. I was hoping that you could help a little bit on some of the SG&A and in other cost items, particularly with some of the noise around the agent convention typically being 2Q, but being canceled this year, any thoughts on maybe where the annual accrual for incentive comp is right now, along with stock comp expense versus what would be in a more typical year and thoughts on how the pacing of some of these operating cost items will go in the second half. Thank you.

Yeah, Bascome, this is Kevin. As far as the MICP accrual goes, we're accruing to a one-time payout. So, as you all know that's a $8 million annually. So $2 million a quarter, so we're about halfway accrued for 2020. The SG&A going forward, I would expect the amount in Q3 to be very similar to the amount in Q1 or Q2, sorry. And obviously there is -- we're spending a little bit more on the technology initiatives, that amount annually on an incremental basis is $8 million to $12 million, probably closer to the higher end of that this year.

Thank you so much. We have several questions on queue. And our next question is from Jack Atkins of Stephens. Your line is now open.

Okay, great. Good morning, everybody. Thanks for taking my questions. So just going back to the capacity side of things for a moment, the BCO count ticked up sequentially, but your third-party broker carrier count actually ticked down. So I was just curious what you guys are seeing out there from a capacity perspective, I mean do you feel like capacity has come out of the truckload market? You know, maybe it's temporary, maybe it's more permanent. Any sort of comments you could maybe provide around that?

Yeah. Jack, this is Joe. I think -- a couple of comments. I think more specifically, if you, I think it's somewhat of an utilization issue. So if you're a BCO at Landstar and your utilization is down because you're maybe sitting on the sidelines, or you're a high risk BCO, you don't necessarily come out of the account, because you're still active. If you're a carrier, and our loads that were put into the third-party boards declines because the demand is off and the economy is a little slow, and you're not in a position to haul load for us and your insurance expires, you come out of the count, right? So, it's just -- it's kind of how we -- how we do the accounting. If you're not active as a carrier, you can come out of the count. If you're not immediately active as a BCO, you can stay in the count. I think that's just the different way in which we account for the two capacity types. And I think more broadly, I kind of always look at Landstar's BCO population as a good guide as to what's going on in the greater industry, and I think as our results demonstrate, we are growing the capacity count, but utilization is off, right for obvious reasons. I think the carriers out there, many of the small ones are probably not as active maybe they've got high risk drivers or what have you. Outside of the already pretty obvious bankruptcies, and so forth, I think it's really difficult to read whether they're leaving the market permanently. Obviously, they've got the same insurance headwinds of a different type than we do, but the same sentiment, and it's really hard to say until things tighten up a little bit more. But certainly no indication that we've seen any major decline in that, ten trucks and less population that we tend to deal with mostly.

Okay. Okay, that's helpful, Joe. Thank you. And I guess just back to the insurance comment, Jim that you made earlier. Are there some things that you guys can do to incentivize BCOs to maybe install safety equipment that can help sort of lower your potential insurance costs? I'm just curious if maybe you could expand on that for a moment, because we have seen some fairly steady inflation in that line over the last couple of years. And maybe if you could just expand on sort of some of the initiatives that maybe you'll be rolling out next year, I think it'd be helpful for folks.

Yeah, Jack this is Joe, I'll kind of give you our thoughts on the technology because there has been a lot of conversation and -- generally about truck technology and where it's going. You really have to look at the BCO fleet itself, and most of the truck technology that's out there, the collision avoidance technology, assisted break technology is really only applicable in trucks that are 2017 and newer and the majority of our BCO fleet have trucks that are older than 2017. So, really not a candidate for much of that technology that you hear about, unlike some of the company iron large publicly traded companies who rotate their fleet every three years or so. And so we're -- most of our BCO fleet, not a candidate for much of that, but there are some other technologies whether it be alerts and those kind of things that we're looking at that can be more of an aftermarket application. And so that's kind of where our -- we're headed and kind of focused to see what we can do to implement something like that in '21.

Okay, that's great. One last question if I could just on peak season expectations, obviously it's been an extremely volatile market here over the last six months, seven months, but what are your customers telling you about their expectations around peak season? I know in the past you guys have had a little bit more e-commerce exposure and obviously eCommerce has been growing very rapidly here over the last several quarters. But is there a thought that maybe you know, the increased adoption of e-commerce combined with peak season could be a good guide for Landstar in the fourth quarter? How are you guys thinking about that, what are you hearing from your customers?

Hey, Jack. This is Rob. Yeah. A lot of the customers that we deal with that handle e-commerce, they're expecting big years, their business has obviously improved through this pandemic in some degree or another, and we are seeing direct effect of that. That being said, a lot of the customers we talked to also they feel that as business comes back, things are improving and things look good moving into the future. But, they don't know what the future of the pandemic is. They don't know what the future of their plant closures or openings are. Everybody is kind of influx right now. So the sentiment right this second is, things look good and improving into the third and fourth, but there is still that unknown that's kind of sitting above everyone.

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

Great. Thanks, and good morning. Jim, on the gross profit margin expectations for 3Q to be pretty consistent with 2Q, if you ex out the agent and BCO bonus, yeah, I would think with revenue per load going up a little bit that, that would help gross profit margins. Is the offset there that you're expecting a little bit more compression on the brokered loads or is there something else going on where gross profit percent is going to be relatively flat sequentially 3Q versus 2Q?

Yeah, it's pretty much exactly what you described as I think we're going to see a little bit tighter capacity coming out of the weakness of April and May. So you're going to get a little more compression on the broker side. But I think utilization of BCO will go up. So it will be an improved BCO utilization and driving the gross profit margin up a little bit, while we're getting pressure on the third-party truck side. It's the net of the two.

Got it. Okay, that makes sense. And then to your comment about the challenges right now in recruiting agents. Can you remind us, I think that every year, new agent recruitment contributes, I think it's a couple of hundred basis points to top line growth. Can you talk a little bit about that? And then, what would your expectation be, is this something that you know, as long as we're in this environment it's going to be a challenge? Or do you have things in place where may be, there is a pause right now and you could see that start to pick up and get back to more of a normalized level later this year?

Yeah, Todd, what -- we used talk about if you go back a couple of years that new agent revenue would procure about 3% of our revenue. But that's when we were $2 billion to $3 billion Company, when we got to $4 billion, a lot of the growth is coming from our existing agents and our focus really is to help those existing agents grow while we recruit new agents. But our goal every year on new agent revenue, and it has been for quite a while is to add about $100 million in new agent revenue annually. This year based on what just recently going through the pandemic in our recruiting efforts, we don't anticipate that we're going to be near that $100 million. But Rob's probably got some good commentary about recruiting and the effects of the pandemic.

Yeah, Todd, recruiting continues to remain the forefront of what we do. I mean, we'll tell you from an actual ad and leads and interest standpoint. We're kind of running that, the good news is, we're running at the same rate that we ran in 2019. The not as good news is 2019 wasn't a great year either. I think -- I think the reason that is coming off from 2018, coming off the way that, that year was handled by a lot of people in the industry, making a transition. They were comfortable, they were happy, they had a lot of money in their pocket right. So by the end of 2019, when that starts to run out, they kind of look at the industry and making a change, and then all of a sudden, a pandemic here. So while our numbers were there, transitioning those customers over trends in that business over, taking a look as a whole, we've got the numbers coming in, the revenue just hasn't made yet. It will start to come as things loosen up and the economy gets better.

Okay, that makes sense. And I guess that just shows that I go back a little bit too far on the percentage piece. So the last one Jim, I wanted to ask is, on the balance sheets, I understand the uncertainty in the environments right now, but obviously the cash balance has grown, you know, I guess what are you looking for as far as capital deployment, and how do you think about, you know, the cash balance relative to the uncertainty, and maybe you could just put a few parameters around some of the metrics that you're looking at before you either considering buying back stock, and I know you took up the dividend, but something along the lines of how you're thinking about the balance sheet in this environment. Thanks.

Yeah, Todd. If you go back to where we were sitting in mid-March to through our first quarter release in April, clearly, I don't think anybody knew where this pandemic was going to end up. So it was clearly prudent to sit and -- sit on the sidelines and just watch our cash balances, watch our customer receivables, that was kind of a concern there for -- you know we deal with a lot of small customers that probably were a higher risks than some of the larger customers we deal with. So quantifying or trying to determine what kind of risks we would have on our balance sheet from a receivable standpoint was a little bit -- little bit unpredictable at that point. And clearly today, you know, if we remain with a stable output and industrial production, assuming that continues that we're beyond any of those thoughts that we had in March and April. So the level of prudency is probably dropped off a little bit. But I will say that, yeah, we're only in about the fifth or sixth week of a more consistent pattern of freight flows and industrial production, and with the talk of some governments already talking about shutting things back down. I don't anticipate manufacturing be shut down. But you're still concerned about the consumer confidence going on out there, the unemployment levels and how that can impact the next three months to six months out. Clearly not near where we were at the end of April. I'm concerned about maintaining a cash balance. But we're still keeping an eye on the stability of the loadings. The other thing is, you know, we do internally here do forecasts and things like that and do pay attention to market conditions and what we think is going on out there. And that's another factor we look at. So we basically look at confidence levels of businesses, business and consumer confidence. We watch our internal trends, what's going to happen with automotive. Are the consumer going to come back and drive automotive purchases back up to the normal run rate of about $17 million. Those are the things we look at internally before we deploy cash, and I think you're talking about our buyback program mostly. So that's what we're watching. But we are clearly going to continue to be more prudent until we get further out of this economic cycle that we're in.

Thank you so much. Our next question is from Jason Seidl of Cowen & Company. Your line is now open.

This is Adam on for Jason, I want to ask a little bit about capacity, but in light of the PPP loans. I think there are kind of two schools of thought here, one is that as these loans come up that -- that carriers, well particularly smaller carriers who received these loans will kind of run into financial trouble and may exit the market. But the other school of thought is that kind of the government stimulus in general is maybe keeping people at home, maybe a little bit less motivated to go out there and kind of get back to work. And so I wanted to ask about your thoughts with regards to the stimulus, regards to the PPP loans and how you think that may affect capacity in the couple of months and quarters?

Yeah, Adam this is Joe. We don't really have a great deal of insight as to the BCOs or small carriers and how much they are tapping into the PPP loans. I do think it has been a -- in general for those that have participated, I think it's been a nice way to bridge a very difficult time. I think that you know, as things improve, hopefully it's been enough or they've had enough to draw from to sustain themselves. But I think that's one of the big questions. We just don't have a great deal of visibility either into our BCO population or the carrier population, as to know whether or not that occurred. And hopefully the bounce back that we're starting to see continues and moves to the point where we won't need it going forward. But even that, I think is uncertain.

Okay, got that. And then, I also wanted to ask a little bit about some of the end markets, I know we've talked about some of the end markets that really struggled during the pandemic, like autos, I want to ask a little bit about some of the end market that actually saw more strength during the pandemic, I mean, food, consumer products types of categories. How have those levels for those categories trended kind of since coming off the trough, and kind of what do you think what happened kind of in terms of those categories in the coming months.

Well, one of our more stable categories is Hazmat because every one of our BCOs are certified to haul Hazmat. So it was down, but not as significant, and I think you're going to see, you'll see in that trend similar to where we did throughout the quarter. It never dropped off as big as the other commodity groupings, and we're seeing some pretty level play in the Hazmat side. The other one is Foodstuffs which isn't a big component of our overall revenue base. Well, you know, that was throughout April and early April and part of May. It was actually flat to up, it was probably the only commodity grouping that we had that was flat to up, and it is still trending relatively where it was, where it's slightly up compared to where it was in prior year. Other than that most of our commodities were if we were off say 25%, 23% of revenue in April, the big -- the big ones that were hired in that like we said automotive machinery metals, they were above that 23% run rate where consumer durables, foodstuffs and a little bit of energy because we did a little bit of wind, we're above that, you know, better than that 23% drop off. So if you break it down to commodities, most of our big ones were driving that 23% drop-off in revenue, in loadings in the month of April.

Thank you so much. Our next question is from the line of Ben Hartford of Baird. Your line is now open.

Hey, good morning guys. Wanted to just kind of come back to the BCO concept and obviously the program in April and May looked like it was -- it was successful. What we can't see from our standpoint obviously is like utilization of that -- the BCOs within that number. So, as you made the decision to end the program in late May, interested in kind of how that utilization of the BCO count within the network trended in June, and I think you had made the comment, maybe it was Jim that talked about the focus that's going to be on that utilization improving. Any way to incentivize that? Is there some thing that you can do above and beyond just what you did in April and May, obviously to make sure that that takes place? Interested in kind of how that utilization trend may play out above and beyond the count that we can see.

Well, normally we track it on a loads per BCO per week, right. And on a normal trend, you know, it attracts between 1.7 loads per week 1.8, 1.6. April was 1.4 and it's the lowest April we've seen in -- I mean, actually I went back ten years and it was never that low before. So if you start off in April, well, if you think about our BCO network, some of those guys do run routine, right. They kind of build the routine, they build relationship with agents and they go through a weekly routine and when -- our thought was when the revenue was -- when we saw loadings drop-off in the 20% range, those guys who had routines are all of a sudden going to have to go back to the looking for spot business -- looking for business of our load boards and kind of more driving more empty miles. Joe also commented on the impact of utilization could be, some guys who were at a risk of maybe higher risk of COVID, maybe parked their truck for a couple of weeks. You know, there's other things that would drive that utilization down. Now, it went from 1.4 in April, and improved to about 1.5, I think we -- where we were in May, still way below historical levels. And it jumped back up to about 1.7 in June. So it's 1.7 loads. So we're seeing that attrition, that come back to normal trend, so it's slightly below. So I'm not sure there's anything to help. I don't think a program to relaunch a program such pandemic relief was really the intent. The intent of the pandemic relief program is to try and financially help them through the tough time, keep them on board with…

Hey, Ben, maybe the year-over-year by month percentage changes on that utilization would help. April, negative 18, May, negative 16, and then June, negative 4.

Okay. Yeah, that is helpful. Thanks, Kevin. What is that historical low level? Is there a 10-year average as a point of reference?

I would say that you're looking at somewhere between 90 to 95 loads annually is what they haul.

Okay. That's great. And then the sequential improvement in that count. Do you attribute that to the program in April and May? Obviously, it's a little bit counter to what happens when we're in, quote-unquote recessionary periods with account following. What do you attribute that sequential improvement to? I don't know if you touched on that earlier.

Yeah. Ben, this is Joe, it's really been a retention driven growth in the BCO count. And I think -- I do attribute a part of it to the incentive. And I think the gesture as much as the dollars, and I think also the realization that they want to stay in the industry, they want to run their own business, but they want to have a home and somebody who takes care of them in certain respects, that's Landstar. I think that's part of it. I think you've got owner operators either on their own authority. We see some significant challenges as a result of just the general environment, the COVID and an insurance that might come our way. And I think with the slow down you've seen owner operators who were attached to other Company owned fleets as kind of a flex capacity, and they weren't seeing any business and so they see Landstar as an environment where they have an equal opportunity to run their business. So I think all three of those really help us in any environment. But I think it helped us particularly well in the second quarter.

That's great. Kevin, what are you assuming for a tax rate in the back half of the year?

24.2% is our best guess on that.

Thank you so much. We have three more questions on queue. And the next one is from Stephanie Benjamin of SunTrust. Your line is now open.

Hi, good morning. I wanted to touch a little bit on the revenue guidance that you gave, maybe if you could just speak to what you would expect to see in the market, either from a capacity standpoint or maybe some improvement with some end markets to kind of reach the low or high end of that guidance, just any color you can provide on what's baked in there would be helpful. Thank you.

Yeah, I think -- we touched on it a little bit as we expect the -- from a margin top line -- and gross profit, we will talk about. We did expect the capacity to tighten a little bit as industrial -- the industrial economy started picking up about six -- four, five, six weeks ago. So from that standpoint, we expect a margin squeeze on the third-party trucks, but we expected trucks to drive more. From the topline standpoint, we really just -- we discussed, whether we are going to put the guidance out at all based on what's going on. The little bit of uncertainty about the virus shooting back to the communities and whether they'll shut down. Those are the industrial community, which we don't believe is going to happen. We expect a stable economy. But what we did do is we just took the trends that we saw in July and did not elevate them for any pickup in industrial production or advancement. So when you're talking about, when we use mid single digits, we really just took the last four or five weeks trend and used us flow them through the quarter as they would trend in a normal year. Clearly if the industrial economy is better than it was, if we see improvement in industrial economy coming out of that, better than it was in the last four or five weeks, we will see a high-end of that range. If something turns, and the government gets a little more strict on the sheltered home orders again or industrial economy start to shut down again, we will probably be more at the low end. So it's really more based on what we are seeing in the current environment for the last six weeks it trended out.

Thank you so much. Our next question is from Scott Schneeberger of Oppenheimer. Your line is now open.

Thank you very much. I just wanted to go back to the -- to the end markets and talk a bit to the bottom of the slide in other that's creeping up toward the quarter in the business slowly, and I'm guessing it's kind of more by default, but could you speak to a little bit about the puts and takes in there and then the follow-up on that is, you mentioned, wind farms in the second quarter. Just curious what that can do in the energy vertical in the second half. Thanks.

Yeah, I think that the other is primarily FAK, right it's freight all kinds where the agents just putting in a catch all where it's miscellaneous freight all kinds other, there's not a specific category that's greater than like 3% of that category. So it's really general environment. There is a lot of small customers, a lot of different type of commodities within there. So that one is really driven by general economic mostly conditions in industrial, the industrial components could be imports exports, but it's a catch all of various commodity groupings.

Thanks, Jim. In the wind, anything interesting in the second half there?

Kevin has that.

Yeah, last year was our best year on the wind and it was about, let's say $87 million, $88 million. Year-to-date this year, it's about $40 million. So we're close to our best year ever on the wind.

Thanks, Jim. And then just curious on capex size and cadence over balance of the year. You talked earlier about the IT you said, it's coming along nicely. Just curious where spending will be there, very good position with cash. So just kind of curious what the -- what the next steps would be there.

Yeah, the capex year-to-date is $20 million. We've got elevated IT spend in there. Typically we run $8 million to $12 million or $8 million to $10 million annually on cash capex, but again this year all the increase was due to increased technology spend.

Thank you so much. Our last question on queue is from Bruce Chan of Stifel. Your line is now open.

Good morning, gents. I appreciate the time. Just a couple left here on my list. Kevin, on the dividend, it's nice to see the increase there and obviously it seems like that rotation in shareholder return vehicle is a little bit more of a tactical decision. But is there anything more to read from that as far as the Board's appetite for maybe climbing toward a certain yield bogey?

No. In July, each year, we typically increase the dividend and it's usually in the 10% range, I guess, on average. So slightly higher this year, we went from $0.185 to $0.21 quarterly. But no, there is nothing to read into that.

I would still -- I would say that we are still more on the -- we more favor the buyback program and dividends and locking up. We like the flexibility of buybacks as opposed to being locked into a large dividend. But like Kevin said, if you go back to 2004 or 2005 when we first started doing dividends, our first, we've been increasing it in the third quarter every year since then. And that -- the increase, it was actually a little bit larger from a dollar percentage than, I think it was the largest we've ever made is $0.025, but it is consistent with what we've done in the past, and we still like to focus on the buyback program and the flexibility of that.

Okay, great. Fair enough. And then just a last one here circling back to Mexico. I mean, I know that that's a pretty small portion of your revenue, but just want to see, given some of the changes going on, if you have any visibility on whether there has been increased capacity needs as a result of some of the near-shoring efforts?

I think there has -- I mean, we've not seen any really increasing capacity due to near-shoring. I think that's something that people are talking about as potential should that exist because of the trade talks and the climate with China, but I think whether that is something that is probably out in front of us a little bit. So really nothing that attributed business, new business or otherwise. It's been specifically attributed to nearshoring. But I think that cross border business has been impacted like everything else with the virus, but again starting to reopen back up and hopefully be strong going throughout the balance of the year.

Thank you so much. At this point, we do not have any more questions on queue. You may continue.

Thank you as always for your attention. We wish you -- we wish for you and your family to stay healthy and safe and I look forward to speaking with you again on our 2020 third quarter earnings conference call currently scheduled for October 22nd. Have a good day.

Thank you so much, and that concludes today’s conference call. Have a good morning. Please disconnect your lines at this time.