Landstar System Inc (LSTR) 2021 Q1 法說會逐字稿

Good morning, and welcome to Landstar System Inc.'s First Quarter 2021 Earnings Release Conference Call. (Operator Instructions) Today's call is being recorded. If you have any objections, you may disconnect at this time.

Joining us today from Landstar are Jim Gattoni, President and CEO; 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. Jim Gattoni. Sir, you may begin.

Thank you, Missy. Good morning, and welcome to Landstar's 2021 First Quarter Earnings Conference Call.

Before we begin, let me read the following statement. The following is a safe harbor statement under the Private Securities Litigation Reform Act of 1995. Statements made during this conference call that are not based on historical facts 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, included, but not limited to, the operational, financial and legal risks detailed in Landstar's Form 10-K for the 2020 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.

Our 2021 first quarter financial performance was by far the best first quarter performance in Landstar history. First quarter revenue was a first quarter record, while gross profit, operating income and earnings per share were all-time quarterly records.

During our year-end 2020 earnings conference call, we provided 2021 first quarter revenue guidance to be in a range of $1.1 billion to $1.15 billion and diluted earnings per share to be in the range of $1.55 to $1.65.

Our initial guidance anticipated the number of loads hauled via truck in the 2020 (sic) [2021] first quarter to exceed the 2020 first quarter in an upper single-digit percentage range and revenue per load on loads hauled via truck to exceed prior year in a mid-teen percentage range. Actual first quarter results were significantly higher than anticipated as both the number of loads hauled and revenue per load on loads hauled via truck exceeded the high end of our guidance.

Revenue in the 2021 first quarter was $1.288 billion and diluted earnings per share was $2.01, both significantly above the high end of the range of our earlier guidance.

Loads hauled via truck in the 2020 (sic) 2021 first quarter increased 13% over the 2020 first quarter, while revenue per load on loads hauled via truck increased 24% over the 2020 first quarter.

Truckload volume by month in the quarter increased over the prior year month by 12%, 8% and 17% in January, February and March, respectively. February and March truckload volume were impacted by the severe storms that hit the central U.S. in Landstar's last week of fiscal February. We estimate the storms decreased truckload volume by approximately 7,000 to 8,000 loads in February. We also believe, though, that Landstar hauled most of those loads in fiscal March. Under that assumption, the percentage growth in load volume each month in the quarter compared to the prior year month was rather consistent and within a range of 12% to 14%.

Consumer demand for building products, consumer durables and small package via e-commerce continue to drive 2021 first quarter record van volume, which grew 17% over the 2020 first quarter. The number of loads hauled via unsided platform equipment grew 5% over the 2020 first quarter, mostly due to improvements in the U.S. manufacturing sector in March. Typically, truck revenue per load in the first quarter is seasonally lower than the second quarter, third quarter and fourth quarter.

Revenue per load on loads hauled via truck in the 2020 first quarter was an all-time quarterly record. Revenue per load on loads hauled via truck increased over the prior year month by 18%, 19% and 31% in January, February and March, respectively. Although we believe part of the significant increase in truck revenue per load in March was a result of the disruption caused by the late February storms, strong demand and tight truck capacity continued into late March and early April, with revenue per load continuing at elevated levels. Overall, truck revenue per load on loads hauled via van and unsided platform equipment in the 2021 first quarter increased 30% and 14%, respectively, over the 2020 first quarter.

We continue to attract qualified agent candidates to the model. Revenue from new agents was $20.3 million in the 2021 first quarter, the best new agent quarterly revenue in 8 quarters. The agent pipeline remains full.

We typically experience a net decrease in the number of trucks provided by BCOs during the first quarter of any year. We ended the quarter with a record 11,268 trucks provided by business capacity owners, 277 trucks above our year-end 2020 count. During the 2021 first quarter, we recruited a slightly higher number of BCOs compared to the 2020 first quarter, while BCO retention was significantly better than during the 2020 first quarter.

The number of BCO cancellations in the 2021 first quarter was 38% below the 2020 first quarter. Overall, the net increase in the number of BCO trucks in the 2021 first quarter speaks to Landstar's ability to attract quality capacity in a tight truck capacity market.

Loads hauled via BCOs increased 5% in the 2021 first quarter over the 2020 first quarter on higher truck count, partly offset by a 4% decrease in BCO truck utilization, defined as loads per BCO truck per quarter. I believe the decrease in BCO utilization was mostly due to the storms that disrupted freight transportation in late February.

We ended the quarter with a record number of approved third-party carriers in our network, while the number of third-party carriers hauling freight in the 2021 first quarter increased 23% over the 2020 first quarter.

I'll now comment on a few specific line items with the company's first quarter financial statements. Gross profit increased 32% to $189.2 million compared to $142.9 million in 2020. Gross profit margin was 14.7% of revenue in the 2021 first quarter and 15.4% in the 2020 first quarter. The 70 basis point decrease in gross profit margin was attributable to mix at -- mostly attributable to mix as a percent of revenue contributed from the higher-margin fixed margin business decreased, and the cost of purchase transportation paid to third-party carriers under variable cost arrangements as a percent of revenue increased 89 basis points. The decreased gross profit margin from those items was partly offset by a 36 basis point decrease in the rate of commission paid to agents on total revenue, which is partly attributable to a reduction in agent commissions in the 2021 period, resulting from the termination of certain BCO domicile commission arrangements at year-end 2020.

Other operating costs were $7.6 million in the 2021 first quarter compared to $8.3 million in 2020. This decrease was primarily due to decreased provision for contractor bad debt and decreased trailing equipment maintenance costs, partly offset by decreased gains on sale of used trailing equipment during the first quarter of 2021.

Insurance and claim costs were $21.5 million in the 2021 first quarter compared to $25 million in 2020. Total insurance and claim costs were 3.8% of BCO revenue in 2021 period and 5.8% of BCO revenue in the 2020 period. The decrease in total insurance and claim costs compared to 2020 was primarily due to a provision for severe accident that took place in the 2020 period as well as the impact of a $2.2 million of net unfavorable development of prior claims impacting the 2020 period, partly offset by a $3.3 million increase in insurance premiums, primarily for commercial trucking liability coverage renewed in May 2020 at a significantly increased cost.

Selling, general and administrative costs were $45.4 million in the 2021 first quarter compared to $45.3 million in 2020. The slight increase in SG&A cost was attributed to a few items of significant increase and a few items of significant decrease year-over-year.

For one, the estimated cost of the company's variable cost, cash incentive compensation plan and equity incentive plan increased $5.7 million over the 2020 first quarter due to the expectations of a record-setting financial forecast in 2021. Additionally, technology costs, including maintenance contracts, professional fees and software license costs, exceeded prior year by $800,000. Offsetting those cost increases were decreases in employee medical benefits, customer bad debt and travel entertainment costs.

Depreciation and amortization was $12.1 million in the 2021 first quarter compared to $11.5 million in 2020.

Operating income was $103.3 million or 54.6% of gross profit in the 2021 quarter versus $54 million or 37.8% of gross profit in 2020. Operating income increased 91% year-over-year, and along with operating margin, represent new all-time quarterly records for Landstar.

The effective income tax rate was 24.4% in the 2021 first quarter compared to 22.9% in 2020. The increase in the effective income tax rate was primarily due to lower excess tax benefits on share-based compensation arrangements in the 2021 period and an increased provision or estimated nondeductible executive compensation during the 2021 period.

Looking at our balance sheet. We ended the quarter with cash and short-term investments of $261 million. Free cash flow from operations in the 2021 first quarter was $70 million compared to $99 million during the 2020 period. The decrease in cash flow from operations was mostly due to the significant increase in March revenue, which drove up net receivables, defined as accounts receivable, less accounts payable. As it relates to the company's second quarter projection, quarter over prior year quarter financial comparisons are not meaningful due to the significant downturn in the U.S. economy and demand for freight services due to the COVID-19 pandemic along with the cost of various initiatives Landstar took in 2020 second quarter to support its network of agent BCOs in response to the pandemic.

As it relates to our 2021 second quarter expectations, I anticipate the strong freight environment to continue from the 2021 first quarter.

Through the first several weeks of April, truck revenue per load remains consistent with the truck revenue per load generated in March. Given that March recorded the highest monthly truck revenue per load in the history of the company and assuming we maintain the March and early April level of truck revenue per load through the entire second quarter, truck revenue per load would be above the 2021 first quarter in a mid-single-digit percentage range or 34% to 37% above the 2020 second quarter.

The first quarter of 2021 was a record truckload count. Landstar's second highest first quarter truckload count was in 2019, and at the time was a first quarter record. Follow the record 2019 first quarter truckload count, the 2019 second quarter truckload count increased 3.5%. Considering the record number of truck loadings in the 2021 first quarter, I expect a 2021 second quarter truckload count to trend similarly to slightly ahead of the 2019 first to second quarter percentages, and therefore, expect truckload count to increase over the 2021 first quarter in a mid- single-digit percentage range. As such, I expect the number of loads hauled via truck in the 2021 second quarter to increase 28% to 31% over the 2020 second quarter.

Based on the expectations of the truck revenue per load and the number of loads hauled via truck previously mentioned, I currently anticipate 2021 second quarter revenue to be in a range of $1.40 billion to $1.45 billion.

Based on that range of revenue, assuming insurance and claim costs are approximately 4.3% of BCO revenue, I anticipate 2021 second quarter diluted earnings per share to be in the range of $2.20 to $2.30.

Overall, I'm extremely pleased with the start to 2021. 2021 first quarter revenue was the highest first quarter ever in the company's history and increased approximately 39% compared to the 2020 first quarter. More impressive was the fact that the 2021 first quarter gross profit, operating income, net income and diluted earnings per share were the highest ever achieved by Landstar in any quarter in the company's history. In our view, the overall environment for Landstar is as strong as has ever been at any point over the last 2 decades, and Landstar is well positioned for a tremendous year of success.

We continue to focus on profitable load volume growth and increase our available capacity to haul those loads. We also remain focused on our strategic priority. We continue provide an enhanced technology-based tools for the thousands of small business owners in our network.

2020 is setting up -- 2021 is setting up to be a record-setting year for Landstar as we look to surpass $5 billion in annual revenue for the first time in our history.

And with that, Missy, we will open to questions.

(Operator Instructions) The first one is from Bascome Majors of Susquehanna.

Congratulations on the results. Maybe on the cost side, just from a modeling perspective, can you give us a little more fidelity on where you're accrued for the cash incentive comp and the stock comp, given the start to the year on an annualized basis? And just how that might trend quarterly just for our cost projections?

If we put it in perspective in the first quarter, okay, we typically, our first quarter EPS is the lightest EPS of the year, right, to the other quarters. And to simply put it in perspective to kind of -- if you just take the $2 that we earn and multiply it by 4, you're looking at maybe an $8 EPS. That would drive about $25 million to $26 million additional cost into the P&L for the variable comp programs, both the incentive comp and the equity comp, so I would look at it this way. If you believe that this was our -- either this quarter, EPS was equal to the next 3 or maybe a little higher, you'd see $26 million -- $25 million to $26 million increase in SG&A over 2020.

And on a normalized basis, would 2020 be something that we could think about being normalized?

No, I think from -- actually, from an incentive comp standpoint, yes, that was about $8 million, which is typically what we have in a year, that's kind of the target. But the equity comp was rather low because our expectations of performance, we weren't hitting targets on the equity comp. But we're looking at the equity for 2021 and now those -- there's some performance units now that are actually going to look like they're going to vest where prior they weren't.

We were low -- I think all last year, I want to say that we were at $4.5 million. You would see that climbing up to $16 million to $17 million. So the combination of those 2 gets you to the $26 million. The growth will drive a little more volatility in that equity comp because we switched to variable comp equity programs about 2012, 2013, and they kind of ride with our projections over the next 4 to 5 years. So it's not just a 1-year event. Our performance teams actually vest over 5 years. So we do 5-year projections out. And as those have changed, we change the estimation of what's going to vest. And clearly, coming into the end of 2020, we did not anticipate -- looking at something to be upwards of $8 in EPS in 2021. And that caused the revision of the upward equity comp.

And maybe I'll ask 1 more from a high level. I mean the environment that will be better for your business model and the way that this year is starting to play out, can you give us some perspective as you have in recent quarters about how unusual this is and as things start to mean revert, whenever they do and however they do, how the financial aspects of the model need to kind of go back to baseline?

Yes. We'll talk about some of the unusual things. I mean when you're talking about the first quarter records, that is very unusual because typically, our first quarter is seasonally softer than the other 3 quarters. And to come out with gross profit and operating income EPS all like all-time quarterly records, that's unusual. From an operations metric, the other thing that's unusual, the trailer demand that we have coming through the first quarter, it's usually our lighter quarter for demand. We're kind of setting up for the rest of the year. And our trailer guys here on the fourth floor are just trying to get trailers for most anywhere. So that's pretty unusual right now. So there's high demand for equipment in the marketplace. In some cases, we're having difficulty satisfying some trailer demand, and that typically is a fourth quarter phenomenon, not a first quarter phenomenon.

The high rates climbing into the -- coming into March, there's a lot of things unusual right now. But I'm not -- I don't know if it's not going to continue at least for a while. Now my pessimism would typically say, and as I said in January, that I would expect we're in a typical cycle and that cycle goes 12 to 18 months, we would see softness coming into the back half of the year. Based on the dynamics we're looking at right now, my pessimism, I'll still say it's going to slow down back half, but not back half. I think maybe after the third quarter, but I'm feeling a little bit more like this as an '18 to '19 transition, where '18 was relatively good throughout the year and then '19 really saw the softness after the first quarter.

Some of the things I think that will carry us to is, things are getting more expensive, too. Insurance costs today are up 200% compared to where they were. Claims costs, whether it's claim cost or premiums cost and you can read a lot about what's going on with driver wages and the asset-based guys are trying to do anything they can to get drivers and seats. So they're driving wages up. So I think we will probably see a normal cycle, whether it starts in the fourth quarter or sometime next year, I just don't see the spot market pulling back as far as the 2016, '15 numbers or '17 numbers, due to the costs that have come into the system.

So I think -- in my thing, I'd say we're going to see some kind of normal cycle, but not to the extent it's going to get rid of all the benefits we're getting today. And in this environment, we build relationships with new customers, customers who can't find trucks come to us. And I think all that benefits our future into pulling -- not having -- we're not looking at -- '08, '09 crash, right? We're looking at just a normal cycle where spot rates pull back a little bit. So that would be my take on where we are and what I see going out.

Our next question is from Jack Atkins from Stephens.

Congrats again on a great quarter here. So I guess, Jim, if I could maybe start and maybe think about cross-border activity, which is really kind of coming into focus here more and more, especially given the activity we're seeing with rail M&A or proposed rail M&A, but you guys really have a unique asset down in Laredo with your cross-border facility there. Could you just talk about your long-term sort of vision for cross-border activity and sort of how that plays into the investment process over the next several years because it really seems like you guys are in advantaged position there to take it -- to really benefit from what we're seeing with regard to near-shoring and things like that?

Yes. Jeff, this is Joe. I'll take a crack at that. So I would agree with you. When we built our facility in Laredo in 2017, previous to that, we really didn't have a well-established cross-docking capability. We didn't have a customs brokerage capability. We had fewer trailers in markets. And while a good service offering, we saw the opportunity that it could be better. And we've seen that in the quarter. Volume across the border for us was up about 18%. And we're not -- we're nowhere clear what we could do. We've still got capacity there if we add people, add shifts and I think we continue to invest in trailing equipment in the market as we see the opportunities and the revenue grow.

So -- and again, there's room to move there. And I'd also say that we've -- while we don't have company facilities at other points across the border, we do have similar capabilities in third-party locations. So we're not just stuck with Laredo as the only gateway, where we're doing similar things in California, Arizona and across the border in Texas.

So like what we're doing there, dedicated sales force to support that effort now, and it's only gotten stronger. And I think you'll see other people trying to do what we're doing, and -- but I think we've got a lot of carrier relationships south of the border that are very strong that we work with those carriers, provide visibility, and I think things are going -- couldn't be going better down there, Jack.

Yes. No, absolutely. And then I guess, maybe 1 other, and this is just another high-level question, and I'll leave the cyclical questions for others. But I think recently, you guys had an opportunity to purchase in an agency sort of bring that agency in-house. And I think maybe the idea is to use that as a platform for bidding on larger freight packages. Could you maybe talk about that opportunity set over the next several years as you sort of -- I think people traditionally think about Landstar as being more of a spot market-focused player. But do you see some opportunity to take market share with larger contractual-related customers over the next few years? If you could just talk about that for a moment, that would be great.

Sure, Jack. This is Rob. Yes. So we purchased the agency. And we started a company called Landstar Blue. The initial reasoning for doing so was simply to test and develop new technologies and also go out to committed contractual freight opportunities. And we absolutely believe it fits well within our model because as you and everyone else points out, we play heavily in the spot market. But as we go out and develop these relationships with customers, on a contractual committed capacity standpoint, it also brings other opportunities. It brings other opportunities in the spot market for those customers. It brings other opportunities in other modes. So we absolutely look to continue to grow that. We get deep relationships with our customers and better understanding of what their needs. And quite frankly, we're embedded more deeply with them and work to help them grow with everything that we have to offer as a company.

Our next question is from Todd Fowler of KeyBanc Capital Markets.

Jim, just want to follow up on your guidance commentary. It sounds like for second quarter, the revenue per load expectations is that it's going to be flat with March. I understand that March was elevated. Typically, I think we think about some seasonal build throughout 2Q. So can you kind of square a little bit how you're thinking about the seasonality into the second quarter?

Yes. I think when you do tracking Q1 to Q2, you're really seeing maybe historically a 1% bump, taking out 2020, obviously, but if I look back '16, '17, '18, '19, you're seeing that 1% bump. What we're basically saying is we're going to see a mid- single-digit increase over the first quarter because of -- we're going to run -- we think that we're going to stay elevated at the March rate, which would put us in that mid-single-digit growth over the first quarter. So it's actually the seasonally better, but it's really just because we had that jump up in March, right?

So like just to repeat in summary is, historical, last 4 years excluding -- last 5 years, excluding 2020, we would see about a 1% bump in rate, but we're looking at mid-single digits because of the way March acted and how March spiked up, and we don't see that pulling back at least. And the things that drove it, even -- we believe part of that was from disruption early in the month. It just continued through April. So we're anticipating a good strong number throughout the rest of the April, May and June periods.

Yes. Okay. That makes sense, and that's consistent with the numbers that we see. But it sounds like if we do see some seasonal strengthening in May and June that, that would be -- your guidance could be conservative if we see upside from where we're at right now.

That would be a true statement.

Got you. Okay. And then I just wanted to follow-up, thinking about the mix of your business in the first quarter, van revenue was over 70%. Obviously, you're seeing a lot of strength in the substitute line haul offerings. Can you talk a little bit about how much of that is by design?

I know you've been investing in the trailer pool. You've got some initiatives, obviously, to kind of grow there. Is that something that you expect that makes the business to remain at that level going forward? Or as the industrial markets come back, do you think that you see unsided and platform kind of get back to that normal 35% or so of revenue? I think that would be helpful.

Yes. I think it's more of the environment that's driving us. Like the one thing good about us, we live in the spot market, we go to the demand, right? If the demand is in e-commerce, we end up there. If the demand is on flatbed, we end up there. And we're very reactive, and we're very good at attacking the markets that are hot. So it's not a deliberate move to drive more van business into the system. It's just a very attractive market right now.

So when you look at the e-commerce stuff or what we call the substitute line haul business or the consumer durables of stuff in van, that's really where the shift in. You're seeing that a little bit of growth on the van percentage as opposed -- as compared to where the flatbeds are. I wouldn't say that we're deliberately doing that. I think it's just a -- it's the way the model works. We have -- clearly, we have more agents moving van freight. So when the van freight gets hot, they penetrate that really good. And on the flatbed side, those guys -- our guys running flatbeds on the agent side, when it starts to heat up, they'll get in there. But right now, it's not -- it's just not as good as where the van play is.

Our next question is from Stephanie Benjamin of Truist.

I was hoping you could just touch on the unsided side of your business and the LTL side, nice acceleration from the fourth quarter. Maybe just you're seeing from the overall industrial economy standpoint and really your view on that side of the market as we move through 2021.

Yes. You know what, it's just -- it's more general demand than it is like specific sectors or anything like that. That's why when we -- on the read through, we kind of talk about metals and machinery got a little bit better, but not to the point that it's great right now. But if you were to look at our customer list of what's driving the improvement on flatbed, it's just -- there's 500 customers that are contributing to that growth. So it's more of a pretty diversified group of customers that are helping improve that machinery business compared to where it was 6 or 8 months ago. But it's really hard to talk to specifics of whether it was specific to metals and machinery because it's kind of -- it came equally across from various customers and industry sectors that drove that little improvement in flatbed we saw as compared to last year.

Absolutely. And then -- go ahead.

I think you also asked a question about LTL.

I did.

LTL as substitute line haul or LTL as true LTL?

Honestly, both. Sure.

What you've got kind of in the LTL market, where we're a reseller of that. You've got other disruption, right? So it kind of follows the same thing. The consumer spending is high. The LTL, they're stressed. And right now, that market that we deal with -- so we're seeing a lot of that overflow into other areas because they're stressed with their capacity. They're not taking on any new customers, new opportunities. The rates are going sky high. They're kind of limiting their services in areas and increasing in others where they can maximize it. So we've been able to -- we've got great partnerships with our LTL companies, and we've been able to leverage our relationships to get exactly what we're doing in the spot market on to their size and help increase their profitability.

And on the substitute line haul, that's where I was coming on to the end of the year into January. I was a little more pessimistic on that one. It's why maybe part of the reason why we significantly exceeded, not the entire reason, I just think we had a great quarter. But if anybody recalls the conversations for me end of January, I would have expected to substitute line haul to slow as e-commerce demand coming through the system. So I was expecting that to slow down a little bit, and it didn't. So I got that one a little bit -- it wasn't actually correct on my assumptions there.

But the anticipation now and what we're hearing from the capacity or the companies who provide that freight to us, is that they expect it to continue further along the year -- into the year. So another reason why I'm taking my cycle thing and saying, maybe it's late this year and next year because it does feel like that e-commerce business will continue as compared to my prior comments back in January, I thought it would pull back a little bit as they optimize their systems and get it more routine. Right now, there's still more freight coming through the system. So I think it's going to stay elevated for longer than I thought.

Great. That's really helpful. And then more is just a housekeeping question. Could you remind us what the normal seasonal pattern for gross margin is from 1Q to 2Q? And to the best that you can kind of talk through that now, what are you kind of looking at for this year, just given how the dynamics are shaking out?

Well, seasonally, typically, you feel a little bit -- it depends on who's calling the freight, right? In the first quarter, you tend to see a little bit improved gross margin if the freight -- more freight being hauled by the BCO as opposed to the brokers. So -- but the back 3 quarters are kind of -- there's not a lot of consistency there and come up with a gross margin trend or anything like that because sometimes in a tight market, we get more broker freight, but the margins get squeezed and then there's less fixed business.

So your markets get squeezed a little bit more. So it's really hard to speak about those trends. I will say through for our second quarter estimate, I'm using a 14.7% to 14.9% gross margin, which is slightly ahead of the first quarter. And the reason I believe it's going to be a little ahead is because, if you recall, I made a comment about BCO utilization being down in the first quarter because we had that 1.5 weeks of storms where the BCOs kind of idled themselves and -- but -- so I don't expect to have that impact.

So I could see BCO utilization climbing into the second quarter and with the bottom end of 14.7%, which is what we did in the first quarter and an upper end of 14.9% of BCO utilization stays higher in the second quarter. So that's the second quarter. Beyond that, I would expect that we -- if the conditions to stay like they are, I would expect a 14.5% to 15% throughout the rest of the year.

We have 2 more questions on queue. (Operator Instructions) Our next person on queue is Scott Group from Wolfe Research.

Jim, you had a comment earlier about -- you didn't going to the year thinking you do over $8 of earnings. If we just assume that the back half of the year is similar with the second quarter, it'd be closer to $9 of earnings. Is there something wrong with that assumption that the back half should be similar with given everything that you're saying?

There's nothing wrong with your math. I'm just conservative and pessimistic. I mean look, if you look at our trends over the last 10 years, the first quarter is usually softer. And if you just assume that Q3, 4 and 5, the 220 to 230, it's a valid comment. You're talking to a guy who tries not to get ahead of everything. It would be -- yes, it would be somewhere in the mid- to high 8s as opposed to just $8.

Right. And so I mean, one of the things that stands out here is the net operating margins well above 50% now. And I guess I want to think to sort of the other side here if and when rates start to normalize, can you stay above a 50% net operating margin? Or do you think we normalize back below that 50% as we think about what could happen earnings when rates start to fall, if that happens?

I would, again, remember who I am. I always take the pessimistic view. Absolutely, I think we'll pull -- not that we will, but yes, there's a good chance that we will pull back under 50%. I mean we just -- if you -- look, it's easy. If we continue to push out the $180 million gross profit in the quarter, we're going to be over 50%, right? So that's really how you got to look at because we don't have to grow the infrastructure, other operating costs, SG&A.

Insurance is a volatile, right? That one could drive it up or down. So that one could cause a miss to the 50% in depreciation. We do have continuing investments coming across in technology. But our goal was to get to 50% was to do a mid-single-digit gross profit growth, and we just blew it out. If gross profit stays elevated, yes, we can stay at 50%. If we cycle like '18 -- if we cycle back away, if you believe that we're in -- this year looks like '18, and we're going to follow that path to '19, we'll pull back below 50% sometime in '19 -- 2022, I'm sorry.

Okay. And then just last question. Everyone is talking about drivers, and it's -- I mean -- and it's everywhere beyond just the trucking world. Why is success on BCOs right now?

Scott, this is Joe. I think Jim hit on it in his comments. We've done a little bit better job bringing trucks in the door, but we've done a really nice job of keeping those that are here. And I think a lot of that is environment. I think we've done some things internally with how we've structured our retention efforts. We've done some things on how we've deployed tech to help them be more productive, right, and to run their businesses better. We've created field operation centers that are not yet fully deployed, but aim to make Landstar, which is a large organization feel small when you're an owner operator, right? So just provide services differently. So it's really -- it's largely around the environment and the retention effort that's here and just having a pretty good network of support, both from employees and our agent family.

The van business strength and the drop and hook clearly helps. All those things are really coming together to help on the BCO side. And then on the carrier side, again, I think there are -- the environment helps bring carriers, small carriers, in particular, who maybe were on the sidelines, off the sidelines based on the strong rate per load. And that's, I think, going to continue to be seen as we move through 2021. I like the way our capacity offering has grown. And I think, I don't see any reason that it wouldn't continue to grow as we move through the year.

Our last question on queue is from Scott Schneeberger of Oppenheimer.

Congratulations. Just curious, it looks like it's going to be a very robust cash flow year of free cash flow. Curious what your thoughts are with regard to CapEx and use of cash? And just anything on the technology initiatives and/or trailers that you're going to be doing differently, given the strong start to the year?

No, we are definitely going to be adding some more trailing equipment over the next couple of months into the system to try and satisfy the current demand and be ready for peak season. But those -- you'll see that we borrow to get those. So it doesn't really impact the cash when we're buying those. So it's really tech spend, and it's not going to be anything different than last year. So there's not unusual in our capital allocation as compared to last year. So it's really -- you're looking at this run rate, it would probably be about $300 million of cash flow or a little bit more. And then we look at share buybacks versus dividends.

And as you know, and we talk about it all the time, as the stocks running up. We don't chase the run-up. We let investors get in when they want to get in. And when it settles, we'll get in. So again, management really likes the buyback programs. And at the end of the year, we sit in on, we're looking at our cash balance and looking at projections what's going to happen into the future. We could end up doing a dividend. That's -- so our philosophies haven't really changed, but there's nothing unusual in the year that we're going to start -- no big CapEx that would be abnormal in the situation we're in. Like I said, we will be adding some trailers, but that's through capital leases.

And then, I guess, I kind of have to ask, it seems the demand is so strong right now, but the infrastructure build is going to be off in the distance when it applies. But any positioning you're doing now or getting set up for that with regard to, particularly the upside of business?

No. Typically, anything like that, where it's road construction or bridges or stuff like that, that doesn't directly impact us, but it absorbs the flatbed market. The capacity gets tighter. So indirectly, it helps us a lot, right? Because we have -- we're doing $1 billion worth of flatbed every year and one of the biggest providers. So anything that tightens that flatbed market, it's more of an indirect impact to us in a direct. We're not staging or setting up or having significant conversations with the entities that might be taking advantage of the infrastructure bill. So I would say that it's just -- it's good for everybody's haul in the flat bit if they start doing -- if they pass an infrastructure bill and eat up that flatbed capacity.

At this time, we don't have any more questions on queue. You may continue, Mr. Gattoni.

All right. Thank you, Missy, and thank you, and I look forward to speaking with you again on our 2021 second quarter earnings conference call currently scheduled for July 22. Have a good day.

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