Chuck Ives:

Thank you, Donna, and good afternoon, everyone. On the call with me today is Dave Bozeman, our President and Chief Executive Officer; Arun Rajan, our Chief Strategy and Innovation Officer; Michael Castagnetto, our President of North American Surface Transportation; Mike Zechmeister, our Chief Financial Officer; and Damon Lee, our Incoming Chief Financial Officer. I'd like to remind you that our remarks today may contain forward-looking statements. Slide two in today's presentation lists factors that could cause our actual results to differ from management's expectations. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we'll let you know which slide we're referencing. Today's remarks also contain certain non-GAAP measures and reconciliations of those measures to GAAP measures are included in the presentation. And with that, I'll turn the call over to Dave.

Michael Castagnetto:

Thanks, Dave and good afternoon, everyone. It has been extremely energizing to be leading the NAST organization and working with our talented and dedicated team members who are committed to delivering the best solutions and service to our customers and carriers every day. While we're still in the early stages of implementing and adopting the new Robinson operating model, I am convinced that this approach is just what we need. Our discipline, execution and accountability has improved more than any other time in my previous 26 years at Robinson and two years in NAST. If it feels different, that's because it is, and it's showing up in our results. Supported by our new operating model, with our product and tech teams delivering new innovative tools like our recently announced digital matching product, our resilient team of freight experts is responding to the challenging freight environment, and we are reacting quicker and more effectively to provide solutions to our customers and carriers. As a result, our Q2 NAST truckload volume increased approximately 1.5% sequentially and year-over-year, which outpaced the market indices for the fourth quarter in a row. Within Q2, we saw some seasonal volume strength in June, primarily related to produce season, but overall seasonality was muted in Q2, as shown in the Cass Freight Shipment Index increasing only 0.2% sequentially versus the 10-year average of a 6.1% sequential increase excluding the pandemic year of 2020. Looking ahead to Q3, the 10-year average of the Cass Freight Shipment Index, excluding the pandemic impacted year of 2020, is a 0.4% sequential decline from Q2 to Q3. At this point, it's hard to say whether the muted seasonality that we saw in Q2 will continue into Q3. From a market balance perspective, we continue to be in a drawn out stage of capacity oversupply. Although carrier attrition is occurring, it remains at a slower pace and not enough to materially impact the overall market. Load to truck ratios did increase in June and put upward pressure on spot rates, but it was largely regional and related to produce volumes in the southern half of the US. In July. However, drive and load to truck ratios have retreated to the level seen in April and May. In Q2, we delivered further optimization of volume and adjusted gross profit per truckload, which increased 6.5% sequentially and year-over-year. The improvement compared to Q2 of last year was driven by improved pricing discipline and revenue management, that led to better AGP yield within our transactional truckload business, as our procurement teams, combined with the intentional usage of digital brokerage capabilities, delivered a cost of higher advantage versus the market average. These practices are part of our operating structures that are integrated into our operating model and ladder up to the NAST divisional scorecard and ultimately into the enterprise scorecard. In our LTL business, Q1 shipments were also up 1.5% on a year-over-year basis and 3.5% sequentially, driven primarily by strength in our retail consolidation service offering. By leveraging our vast access to capacity, broad range of services and our high level of service, our LTL team continues to onboard a solid pipeline of new business and build on our existing $3 billion LTL business. The strength and unmatched expertise of our people enables us to deliver exceptional service and greater value to our customers. We are investing in our sales organization to maximize our growth opportunities. As an example of the operating model at work, we took actions recently to streamline our sales process and reorganize our sales teams, and the result has been a more effective and quicker engagement with our customers and a greater opportunity for our more experienced salespeople to engage with the right customers. We've made net additions to and are actively growing our sales team in line with a disciplined and focused approach to capture growth opportunities in targeted customer segments. Our people are the single greatest differentiator for us versus the competition, and we are going to continue to lean into this. We may have gotten the balance of people versus tech wrong at certain points in our past, but we've learned and we are getting it right now. We will keep evaluating our results and adjust accordingly going forward. From upskilling our people to providing upward mobility and new opportunities, we will continue to lead with our people first. We will support our people with industry leading tech and solutions to enhance their capabilities as we continue to focus on people, process and technology. I'll turn it over to Arun now to provide an update on the innovation we're delivering to strengthen our customer and carrier experience, increase AGP yield, and improve operating leverage.

Mike Zechmeister:

Thanks, Arun and good afternoon, everyone. Disciplined revenue management in the face of continued soft freight market conditions resulted in second quarter total revenues of $4.5 billion and adjusted gross profit, or AGP, of $687 million, which was up 3% year-over-year, driven by a 5% increase in NAST and a 3% increase in Global Forwarding. On a monthly basis compared to Q2 of last year, our total company AGP per business day was down 5% in April, up 1% in May, and up 15% in June. Overall Q2 AGP results reflect progress on the revenue management initiatives that were referenced earlier. The AGP per business day improvement through the quarter also reflects both seasonal increases in freight demand and easier year-over-year comparisons as the quarter progressed. Michael covered the details of our Q2 NAST performance. I'll cover the performance of our Global Forwarding business where the team has had success growing the business profitably and been highly engaged with our customers to help them navigate the ongoing conflicts in the Red Sea. The transit interruptions in the Red Sea have resulted in vessel reroutings that have extended transit times. In Q2, this put a strain on global ocean capacity and created varying levels of port congestion and container shortages. While the Asia to Europe trade lane has been most affected, the impact has also extended to other trade lanes as carriers adjust the geographic placement of vessel capacity based on shipping demand. As we mentioned on our first quarter earnings call, ocean rates had come down from the February peak as capacity was repositioned and new vessel capacity entered the market. In May and June, however, ocean rates rose again as capacity tightened. Given our mix of contractual and transactional business, the impact of changing market rates generally takes one to two months to flow through to our profit per shipment. So even though rates came down from the February peak, our profit per shipment held up through March and into April as we started realizing the declines in May and the first half of June. When the ocean markets rose in May and June, our same one to two-month lag meant we started realizing the positive impact to our profit per shipment in the second half of June and now into July. While the Red Sea disruption continues without any clear timeline of when it will be resolved, ocean rates have declined slightly in July but remained elevated compared to 2023. Our team performed well in Q2, with our ocean forwarding AGP increasing 8.6% year-over-year, driven by a 4% increase in shipments and a 4.5% increase in AGP per shipment. Sequentially, shipments increased 6%, while AGP per shipment declined 2.5%. There are some indications that customers may be pulling forward some of their peak season ocean freight due to ongoing concerns about geopolitical issues and capacity disruptions, as well as the potential for labor issues on the East Coast ports of the United States. One measure of this is that our ocean volume per business day grew 8% sequentially in June versus May compared to a 2% sequential decline over the same period last year. Time will tell as to whether this pulls from the normal July to September peak season in ocean. Turning now to enterprise expenses. Q2 personnel expense was $361.2 million, including $9.4 million of restructuring charges related to workforce reductions. Excluding restructuring charges this year and last year, our Q2 personnel expenses were $351.8 million, down $12.4 million, or 3.4% year-over-year, driven by our continued productivity efforts and partially offset by higher incentive compensation. Our average Q2 headcount was down 10% compared to Q2 last year. We continue to expect our 2024 personnel expenses to be in the range of excluding restructuring, but likely below the midpoint of that range. With that, we expect a slower pace of net headcount reductions in the second half of 2024 compared to the first half. Moving to SG&A. Q2 expenses were $148.1 million, including $5.7 million of restructuring charges, which were driven by reducing our office footprint. Excluding restructuring charges this year and last year, SG&A expenses were $142.4 million, down $12.2 million, or 7.9% year-over-year. The expense reduction was across several expense categories as we continued to eliminate non-value-added spending. We continue to expect SG&A expenses for the full year to be in the range of $575 million to $625 million, excluding restructuring charges, but likely below the midpoint of that range too. SG&A includes depreciation and amortization expense, which we still expect to be $90 million to $100 million in 2024. Our effective tax rate in Q2 was 19.4% compared to 14.9% in Q2 last year and was in line with our expectations. We continue to expect our 2024 full year effective tax rate to be in the range of 17% to 19%. In Q2, our capital expenditures were $19.3 million, down 20.6% year-over-year on more focused technology spending. We now expect 2024 capital expenditures to be toward the lower end of the previously provided range of $85 million to $95 million. Now onto the balance sheet. We ended Q2 with approximately $925 million of liquidity, comprised of $812 million of committed funding under our credit facilities and a cash balance of $113 million. One key differentiator for Robinson is our financial strength. This allows us to continue investing and improving our capabilities even through this prolonged freight recession. As a result, we expect to emerge stronger when the market tightens. Our debt balance at the end of Q2 was $1.6 billion, which was down $127 million from Q2 of last year. Our net debt to EBITDA leverage at the end of Q2 was 2.4 times, down from 2.73 times at the end of Q1, primarily driven by the performance of the business and the resulting decrease in our net debt balance and increase in our trailing 12-month EBITDA. As I depart Robinson for retirement, I'd just like to add that I couldn't be more proud of the accomplishments of the team and I couldn't be more excited about the direction of the company. It feels terrific to be leaving the company in such great hands with a sound strategy and solid momentum on the business. From the deployment of the new operating model to the growth potential from the market segment and vertical focus to the incredible upside of generative AI to enhance the capabilities of our industry leading people, the future looks incredibly bright. I will miss working with the best logistics experts in the business, but will be cheering for Robinson as a shareholder. Best wishes to the entire Robinson team. And with that, I'll turn it over to Damon for a few comments.

David Bozeman:

Thanks, Damon. I want to commend our people for continuing to embrace the changes that we're making to deliver a higher and more consistent level of performance and for the high-quality Q2 results that they delivered in what continues to be a challenging market. As I mentioned earlier, all the changes that we're making are aimed at our North Star of generating incremental operating income and delivering higher highs and higher lows over the course of freight market cycles. We will do this by focusing on two main fronts, growing market share and expanding our operating income margins. We'll continue to grow market share by leveraging our robust capabilities to power vertical centric solutions, by reclaiming share in targeted segments, and by expanding our addressable market through value-added services and solutions for our customers and carriers that drive new volume to our four core modes. We'll also be more intentional with our go-to-market strategy to drive additional synergies and cross-selling across our portfolio. We'll expand our operating income margins by embedding lean practices, removing waste and expanding our digital capabilities. This will enable us to strengthen our productivity and optimize our organization structure in order to be the most efficient operator in addition to the highest value provider. We'll optimize our gross profit by monitoring key input metrics and responding faster to error states and changing market conditions with countermeasures and innovative technology that improves our execution. As we take action on all of these fronts, I'm excited about the work that we're doing to reinvigorate Robinson's winning culture and to instill discipline with our new operating model, removing with greater clock speed and urgency to seize opportunities and solve problems in order to win now and to be ready for the eventual freight market rebound. And we now have a plan to share more about our strategy, how we'll execute that strategy and the resulting financial targets at a 2024 Investor Day that is scheduled for December 12 in New York City. While there's a lot more work to do, I continue to see an opportunity for the company to reach its full potential and create more shareholder value by improving our value proposition, increasing our market share, accelerating growth, further reducing our structural costs and improving our efficiency, operating margins and profitability. Together, we will win for our customers, carriers, employees and shareholders. This concludes our prepared remarks. I'll turn it back to Donna now for the Q&A portion of the call.

Jonathan Chappell:

Thank you. Good afternoon. If I look at page 17 in the presentation, the first page in the appendix, when you have this elongated history of the transportation AGP margin, it's obviously taken two pretty big step ups sequentially in the last two quarters. When you think about the path forward on the market, sounds like it's still pretty volatile with July weaker than June. Is this something that's kind of market independent right now where you can see the AGP continue to move higher based on the initiatives that you put in place and the digital processes? Or at this point, do you really need kind of a market tailwind to help you kind of drive it higher above 16 and beyond?

Michael Castagnetto:

Yeah. Thanks, Dave. And again, thanks for the question. As we mentioned in some of our earlier comments, we're really starting to see the leverage of the tools related to our dynamic pricing and costing come to life over the last couple quarters. Certainly, the team has battled through what has been, as we mentioned, a continued elongated freight recession. And despite that, we're starting to see the efforts come to life. Really, when you take the ability to combine those technologically and product advancements with our operating model disciplines that we've been able to enact, we're really starting to be able to respond quicker and more surgically to our customers and really meet the dynamic market conditions more effectively. As we think about how we'll continue to do that forward, we still have opportunities to continue to improve as we implement our disciplined pricing strategy throughout the business. But I think I'd put it most simply in that I think we're making more deliberate and more informed decisions on the freight that we pursue, the manner in which we pursue it, and then also, just as importantly, how we match the right carriers to that freight to create the best transaction for both parties, and obviously an improved result for C.H. Robinson.

Operator:

Thank you. Our next question is coming from Jeff Kauffman with Vertical Research Partners. Please proceed with your question.

Michael Castagnetto:

Hey, thanks, Jeff. Really good question. And I think you asked really two things, right? So what are we seeing from, in terms of a carrier exits related to the marketplace, and then how are customers reacting to that? We have seen some acceleration of carrier exits throughout Q2, but as we said, not enough to materially impact the market. And really we're not seeing a change even throughout the quarter that we would see that to start impacting us in the near future. As we talk to customers, it's really twofold and it's around what is their look at the health of their long-term supply chain and how do they want to set that up and whether they're really looking at more of a short term or a long-term perspective. I think customers looking for a more long-term solution and long-term supply chain solution are certainly asking, what are we predicting in terms of when the market would change and when does that inflection come, and then how do we set up a supply chain solution that allows them to have a healthy route guide when the market does come back? When you think about it more transactionally or in a more shorter term, customers are being very aggressive and they're continuing to challenge us to meet them, whether it's in short term RFPs or in the transactional space with aggressive pricing.

Operator:

Thank you. Our next question is coming from Chris Weatherby with Wells Fargo. Please proceed with your question.

Michael Castagnetto:

…the color on it, it is higher highs, higher lows. And I definitely would agree with you that it's still a tough freight market out there, as we stated in our comments. But long-term, that's still the right way to look at the business. We feel really good about it, especially with the things that we're doing and enacting, long-term 40% for NAST, 30% for GF. And that's what we still hold on to, and it's the right way to look at it. And again, we feel we've got confidence about that and what we're doing, but the market is the market right now, and we're going to continue to do the things that we're doing in the tough market right now and be prepared for this change in the market when it comes.

Michael Castagnetto:

You're welcome.

Tom Wadewitz:

Yeah. Good afternoon. And yeah, I would also certainly say congratulations on the good results. How do you think about the progression? I think, Mike, you mentioned the by month and the net revenue growth was a lot stronger in June. Should we think of that as a better representation of the growth as you look at July and as you look forward? Or is there something we should be mindful of that would have made June a lot stronger? I think you mentioned a little easier compensation, but just some more thoughts on kind of that greater strength in June and whether that gives us a look forward or if we should be more cautious. Thank you.

Tom Wadewitz:

Does the read on July look kind of similar to June? Any thoughts on July?

Tom Wadewitz:

Okay. Thank you.

Scott Group:

Hey, thanks. Good afternoon. So, just following up there, I know there's obviously some noise in the forwarding results right now. Just directionally, did NAST see a similar trend in that monthly net revenue in terms of a big acceleration throughout the quarter? And then separately, just the headcount overall down 10% year-over-year, down another 3.5% sequentially, how much more is there to go on headcount here? Can we get -- I know you've been talking about it, but is there a lot more in terms of volume growth and headcount down 10%? Can that persist for a while?

Mike Zechmeister:

Yeah. Just maybe an additional comment on the headcount part of your question. So we're going to continue our productivity initiatives. We continue to be committed to getting work out and therefore not needing folks to do that work and really helping our folks focus on the value-added things that they do. So far year-to-date, as you saw, we're down 10% headcount year-over-year. And so we've done quite a bit there. And what we've talked about and what our plan is for the back half is really a slower pace of net headcount reduction than you saw in the first half. And our guidance, you can read through our headcount into our expense guidance, and you can see that stabilization in the back half, particularly in personnel.

Operator:

Thank you. Our next question is coming from Ken Hoexter with Bank of America. Please proceed with your question.

Mike Zechmeister:

Yeah. Thank you again for those questions. First, from a sales perspective, I think it's really important, and we said it earlier, we are actively growing our sales team. What we did during the quarter was really changed the methodology and the process through our operating model to make sure that we're putting the right sales process in place and doing it with the right folks, with the right customers. And so while we had some changes in how we manage that group, our overall sales team, throughout the quarter and for year-to-date and throughout the rest of the year, our anticipation is that we're going to continue to add to that group and pursue growth opportunities where we have those opportunities. From a pricing perspective, we've said we're in an elongated freight recession. Pricing has certainly been pretty low and it has been pretty relatively inactive for the quarter. And while we think -- we saw some spot market movement during events or specific weeks during the quarter, nothing that would stick and really nothing that would say there's a market inflection going on, and that we think there's an immediate and consistent change to the marketplace.

Operator:

Thank you. Our next question is coming from the line of Daniel Imbro with Stephens. Please proceed with your question.

Michael Castagnetto:

Hey, Daniel, this is Michael. Thanks again. Good question. As Dave mentioned, route guide, they're holding, right? We're not seeing a lot of freight fall out of those route guides and into the transactional space. And you saw that even in our own ratio as we moved from a 65/35 contractual transactional mix to a 70/30. Really, I think what we're seeing is customers are being aggressive in how they're planning their route guides. So far, the market is continued to be oversupplied. So we're seeing those route guides hold. But really I think it's -- and we've mentioned this, it's about long-term health of those route guides. And that's where we're going to have to lean into our operating model and revenue management rigor once the market does inflect. But as we mentioned, at least for the foreseeable future, we're not seeing any shoots that would say that, that we're in the middle of that right now.

Operator:

Thank you. The next question is from Brian Ossenbeck with JP Morgan. Please proceed with your questions.

Arun Rajan:

Yeah. Thanks a lot for the question. I'll go ahead and start and answer your tech question and productivity. So as it relates to productivity, our tech investments are very well lined up. We've delivered 17% productivity improvements in '23, another 15% targeted for this year. Combined those investments give us very high confidence that we've decoupled headcount and volume growth. In terms of our continued investments, we think there's still opportunity and we will continue to go after that opportunity in '24 and '25, but we feel very confident with our investments and the takeout as it relates to touches, which is the most important measure in that context.

Mike Zechmeister:

Yeah. Maybe I'll just add a couple more points on that. The sale of EST, since you asked about it. But over time we hadn't proven that we could scale or be consistently profitable. When you consider covering a portion of allocated corporate overhead that goes to the business on EST, which is one of the reasons for the sale. And secondly, I would just make a couple comments about the size of the business. And you know that EST had a minor impact on our enterprise results. And just to put some numbers to that, in Q2, it was about 2% of our enterprise AGP. And it's in the other -- all other segment. It's the smallest business unit within that all other segment.

Operator:

Thank you. Our next question is from Christopher Kuhn with Benchmark Company. Please proceed with your question.

David Bozeman:

Yeah. Hey, Christopher, good question. Yeah. The short answer is, yeah, it has changed, but I would call it modified as part of the way that we're operating. And I will tell you that we will continue to tweak our operations to make sure that we're driving and doing the things that we're getting from an efficiency perspective. Right now, I would say we feel really good about how we've got that lined up on our overall incentives. And really, if you think about it, we don't -- I don't look at it as if, hey, when the market changes, then your incentive has to change. You really should be fixing those things now, which is what we're doing. That's part of the operating model. So we feel pretty good about the elements of the business that we're doing now, that when the market inflects that, we're already set and ready to go. And so when it comes to the alignment, the organization, we feel pretty good. That doesn't say that we won't continue to tweak some things if we see it, but that's discovery, and that's part of the discipline of the operating model. Michael, anything you would add to that?

David Bozeman:

Yeah. And just to put a period on that, I mean, at the end of the day, all of that is going to support our two key themes, and that is, growing market share and expanding margins. That's ultimately what all of this is setting up to do. And I think what you're seeing is some of that operational discipline, and we've got a lot more to go and do, and that's what we're going to go out and do.

Operator:

Thank you. Our next question is from Stephanie Moore with Jefferies. Please proceed with your question.

Michael Castagnetto:

Sure, Stephanie. And thanks again for the questions. I'll start and then hand it over to Dave. From a NAST perspective, I think I'd point you back to the comments we made about the Cass Shipment Index. And normally we do see a slight decline from Q2 to Q3 from a seasonality perspective. But overall, I'd say we've seen muted seasonality throughout Q2. We're continuing to see that, or it's really hard to say whether, how far that will head into Q3. And then, as Mike mentioned, it's pretty rare that the first month of the quarter gives a great predictor. And so we really won't comment on it much further, but I'll hand it over to Dave to talk about the Europe question.

Stephanie Moore:

Thank you, guys. Appreciate it.

Operator:

Thank you. Ladies and gentlemen, this does conclude today's event. We thank you for your participation. You may disconnect your lines at this time.

David Bozeman:

Thank you, Chuck. Good afternoon, everyone, and thank you for joining us today. Our first quarter results and adjusted EPS of $0.86 reflects a change in our execution and discipline as we began implementing a new lean-based operating model.

Arun Rajan:

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, we increased the rigor and discipline in our pricing and procurement efforts in Q1, resulting in improved AGP yield across the contractual and transactional portfolios in our NAST business. With continued investment in our pricing science, contract management and digital brokerage technology and deployment of our new operating model, we are responding faster than ever to dynamic market conditions with the tools and capabilities we've developed.

Michael Zechmeister:

Thanks, Arun, and good afternoon, everyone. The continued soft freight market conditions outlined by Dave resulted in first quarter total revenues of $4.4 billion and adjusted gross profit, or AGP, of $658 million, which was down 4% year-over-year, driven by a 7% decline in NAST and partially offset by a 1% increase in Global Forwarding.

Scott Group:

So you mentioned this new operating model a lot. I just don't know that we got any color on what it actually is, so maybe just some details of what's actually changing here. And then just as I think about this net revenue inflection in March, is this just truckload spot rates that moderated throughout the quarter? How sustainable is this? Does this -- do we get positive net revenue in Q2? And I guess, what about this new model, what happens when we see the eventual spike in spot rates as gross profit per load gets squeezed again? So I know there's a lot, but...

Arun Rajan:

Scott, just a little bit more on that in terms of how we actually achieved some of these results and input to the operating model, is our revenue management practice that we discussed in the last call. And while we're not immune to market inflections, but the point is we've invested in pricing science, costing science and technology that allows us to respond quickly to whatever event causes an inflection, whether that be short term or long term. And January, you saw a short-term inflection due to weather, but we had signals that we could respond to quickly and adjust based on revenue management principles.

Jeffrey Kauffman:

Congratulations to see numbers like this. Mike, a question on the working capital because I want to come back to this. Thank you for explaining that the ocean rates were driving the use of working capital. But I guess given what's going on in the world, is this going to continue to be a drain? And could we be looking at negative free cash flow for the first half or 2/3 of the year?

Michael Zechmeister:

Yes.

Christopher Kuhn:

Dave, can you maybe just talk about any changes to the compensation structure as part of this new model and if some of those changes impact maybe some of your better [ agents ]? And how are people reacting to some of the changes that you've implemented?

David Bozeman:

Yes. As I said before, 4 Ps, people, product, process portfolio, that's going to -- that's not just static. That's dynamic. I'm going to continue to look at the company under those 4 Ps, but I've also said we're going to drive focus, right, and focus within our company in North America truckload, LTL, ocean and air. That's really just getting the company back to having that focus and driving that very well and implementing and performing very well within those kind of core focus stacks.

Operator:

The next question is coming from Stephanie Moore of Jefferies.

David Bozeman:

Yes. Thanks for the question. There's been a number of things in these -- the first 10 months. I mean as we talked and we talked in person and on the calls, the first thing is to really diagnose. I mean you can't start any type of fix or treatment if you don't really understand or, as I said before, I needed to go to Gemba, right? That's goal to the work and really understand the company.

Stephanie Benjamin Moore:

Got it. And then just a follow-up to a question that was asked earlier. In terms of the AGP per day inflection that we saw kind of going from January to positive in March, I'm kind of -- we kind of all hear the same trends or we've been hearing the trends for the last week or so about it still being a pretty weak freight environment. Rates from what we track haven't changed too much. So can you really talk a little bit about what you were able to do to execute on kind of such an inflection in results?

Operator:

The next question is coming from Elliot Alper of TD Cowen.

Michael Zechmeister:

Yes, Elliot, this is Mike. I'll take that question. So I think our view is consistent with what was implied in your question. And as the Red Sea disruptions happened as the Canal issues kind of came and have now -- haven't completely been solved but are more solved, that repositioning of capacity really puts a pinch on the market and what drove prices up.

Thomas Wadewitz:

Yes. Wanted to see if you could give some thoughts on -- I know you talked about the progression. Within April, are you seeing kind of a similar dynamic to what you said in margin, that improvement? And is that kind of more of a volume improvement? Or is that a gross margin percent improvement if you think about NAST?

Michael Zechmeister:

Yes, I'll take your productivity side and then maybe pass it off to take another shot at the trends going forward in the market. But on the productivity front, the shipments per person per day front, we really have to be flexible to adapt our productivity delivery based on what kind of market we're in.

David Bozeman:

Yes. And I think -- Tom, this is Dave. The -- adding on to that, I -- where the team is doing a really nice job is -- at the end of the day, you have to look at work differently and take it away, the manual work that in a sense is capacity, right, I mean when you -- at our scale, when we have our people doing nominal task, that eats up capacity of a person.

Michael Zechmeister:

Yes. I think we've covered that.

Michael Zechmeister:

Yes. We made comment earlier about Q1 and the progression that we made Q1 and our confidence in some of the progress we've made and the various elements inside the operating model. And as we move into Q2, just the way that a typical Q2 unfolds is that we get the produce business. We get the beverage business, and that strength is usually in the back half of Q2 for our business model.

Operator:

The next question is coming from Jonathan Chappell of Evercore ISI.

Arun Rajan:

Yes. I would -- thanks for the question. I think it's both. This disciplined execution on our side, we've talked about that a lot. But clearly, there's pressure in the brokerage industry. And I think you've seen some of the exits. You saw Convoy last year. And I think we continue to get reports of smaller brokers who are unable to sustain this market. So I think it's both.

Jonathan Chappell:

That makes sense. Do you have a sense, just as a quick follow-up, that the broker business at large is closer to balance, maybe closer to, let's call it, 2019 levels than the truckload market from an asset-heavy perspective is?

Operator:

At this time, I'd like to turn the floor back over to Mr. Ives for closing comments.

Operator:

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Chuck Ives:

Thank you, Donna, and good afternoon, everyone. On the call with me today is Dave Bozeman, our President and Chief Executive Officer; Arun Rajan, our Chief Operating Officer; and Mike Zechmeister, our Chief Financial Officer. Dave and Mike will provide a summary of our fourth quarter results and our expense guidance for 2024. Arun will provide an update on our initiatives to improve the customer and carrier experience, improve operating leverage and increased focus on revenue management. And Dave will share the findings from his initial diagnosis of the company. From there, we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. Today's remarks also contain certain non-GAAP measures and reconciliations of those measures to GAAP measures are included in the presentation. I'd also like to remind you that our remarks today may contain forward-looking statements. Slide 2 in today's presentation lists factors that could cause our actual results to differ from management's expectations. And with that, I'll turn the call over to Dave.

Arun Rajan:

Thanks, Dave, and good afternoon, everyone. As Dave said, we continue to execute on a handful of concurrent workstreams that are addressing significant opportunities to eliminate productivity bottlenecks and to deliver process optimization and an improved customer experience. Two of the workstreams on the productivity roadmap are aimed at quoting and order entry. In both areas, we are reducing manual touches and our response time to customers driving faster speed-to-market and higher customer engagement. In addition to our past learnings, we're leaning more heavily on Generative AI to deliver process improvements. In our order entry workstream, we're utilizing GenAI to translate structured and unstructured emails, PDFs, and Excel files that we receive from customers and their vendors into orders on our system. This solution fills in customer-specific requirements based on their past history and customer-specific prompts and scenarios entered by frontline teams who know the customers' business. GenAI puts the power of large language models into the hands of our front-line teams, rather than relying solely on data scientists to train models for unique customer requirements. While our preference is still to receive an order via API or other structured electronic means, there's large variability in how customer orders are transmitted. And this new method allows customers to have an interaction as though we receive their order via structured electronic means even when they choose to email an order to us. With more data and history to leverage than any other 3PL, we have opportunities to harness the power that Generative AI now offers to further capitalize on our information advantage, and we'll continue to look for and pursue those opportunities. Another area where we've advanced our capabilities is in touchless appointments where we've introduced technology to automate the entire process. This technology also uses AI to determine the optimal appointment based on transit time data from our millions of shipments across 300,000 shipping lanes, facility data such as peak dwell time and the most convenient time windows for carriers. This advancement saves shippers a considerable amount of time, enables them to achieve higher service levels and saves them money by avoiding chargebacks or fines they might face due to freight arriving too early or too late. In addition to an improved customer experience, our efforts are increasing the digital execution of critical touch points in the lifecycle of an order from quote to cash, thereby reducing the number of manual tasks per shipment and the time per task. This translates to productivity improvements, measured in terms of shipments per person per day, which creates operating leverage. As Dave mentioned earlier, we surpassed our 2023 goal of a 15% year-over-year improvement in NAST shipments per person per day with 17% improvement achieved in Q4. As we deliver further process optimization and an improved customer experience, we plan to deliver the compounded cost structure benefits of additional 2024 productivity improvements of 15% NAST and 10% in Global Forwarding with technology that supports our people and processes. As Dave also mentioned, revenue management is a key focus for us as we navigate this difficult freight market. With continued investment in our pricing science and contract management technology over the course of 2023, we're now in a better position to respond to dynamic market conditions with the tools and capabilities we've developed. In 2024, we will increase our rigor and disciplines of the application of these tools and capabilities. These tools, together with our scale, data and customer and carrier relationships underpin our revenue management function through which we can be more surgical in how we approach customer discussions and how we implement a disciplined pricing and profitable growth strategy based on individual customer value propositions. With that, I'll turn the call over to Mike for a review of our fourth quarter results.

Dave Bozeman:

Thanks, Mike. We shared a sentiment of some of our peers in that we're happy to say goodbye to 2023. And although 2024 still presents some of the same challenges and headwinds, I'm excited about the work that we're doing to reinvigorate Robinson's winning culture. Over my first six months here, I completed my initial diagnosis and we're taking actions to chart our path forward. At a high level, we need to focus on both our customer value proposition and revenue generation, and our structural cost, and we need to aggressively seek the optimal balance. Let's review my findings. First, our structural cost base grew too much during the pandemic and we made significant progress on reducing that cost structure in 2023, but it needs to continue to improve. We will do that by embedding lean practices, removing waste and expanding our digital capabilities. This will enable us to strengthen our productivity and optimize our organization structure in order to be the most efficient operator in addition to the highest value provider. Second, as I listen to our customers, it's clear that their logistics needs are becoming increasingly complex and robust capabilities are required to power vertical-centric and value-added solutions. I have found that C.H. Robinson has people with deep expertise in the freight market and long standing trusted relationships with our customers and carriers. This is a competitive advantage, but we can do a better job of leveraging our unique expertise and information advantage and advance our cutting-edge technology to deliver more robust capabilities and market leading outcomes. Third, we need to focus on profitable growth in our four core modes, North American truckload and LTL, and global ocean and air as the engines to ignite growth by reclaiming share in eroded segments and expanding our addressable market through value-added services and solutions that drive new volume to the core modes. And fourth, we need to drive better synergies across our portfolio of services to accelerate profitable growth. One way that we're going to do this is by improving how we go to market as one company with unified account management versus showing up as distinct business units. Our journey to unlock the power of our portfolio is underway as we take action on all of these fronts. One example of this is the recent launching of our Enterprise Strategy Program Management office and the addition of Jim Reutlinger to the senior leadership team to lead our strategic approach to our critical planning activities. Jim is an expert in continuous improvement and lean methodology and he brings learnings from his leadership experience at Danaher, a company with a well-established reputation for continuous improvement. Jim will help us drive lean principles and continuous improvement deeper into the organization and create growth and success in our strategic priorities. I continue to see an opportunity for the company to reach its full potential and create more shareholder value by improving our value proposition, increasing our market share, accelerating growth, further reducing our structural cost, and improving our efficiency, operating margins and profitability. I'm confident that together we will win for our customers, carriers, employees and shareholders, and I'm incredibly excited about our future. This concludes our prepared remarks. I'll turn it back to Donna now for the Q&A portion of the call.

Brian Ossenbeck:

Hey, afternoon. Thanks for taking the question. Dave, maybe I can just ask you to give a little more context around the rationale of pivoting more to the spot market. You've been running a little bit harder in contract for longer, so just wanted to see what changed in terms of why you went that route and then maybe tying on to that, the revenue management focus things would be really important, especially given we all know what happens when the market recovers, contracts get squeezed. Last cycle, Robinson had a pretty big headwind from negative files. So wanted to hear if this new focus was potentially going to limit that eventuality as we see the market turn? Thanks.

Arun Rajan:

Yeah, Brian, I think the way we look at it is it's opportunistic, right? I mean, where the -- where we can get profitable demand, we will go. And there was an opportunity in the spot market, so we went there. As it srelates to revenue management, ultimately, as you know, the market is soft and so it's a very, very competitive environment. And the reality is, I think everybody's in this situation where prices are low, costs are also low. And I think what we have to think about it from -- think about from a revenue management perspective is sort of the short term and the long term. I mean there's two different perspectives. Right. And so seasonally we expect around the holidays costs to go up and then settle back down. What's different this year is the winter storms and such have kept costs a bit elevated. But regardless, in the short term, we have contracts, we have commitments, and based on our revenue management objectives, our value proposition to the customer and certain customer attributes, we make a determination on when we reprice certain targeted lanes. In the short term, we don't see an inflection in the market. So we're not really triggering any major repricing other than making sure we're trying to grab as much volume as we can in the spot market. But the revenue management sort of -- discipline will really kick in if there's a true sustained inflection in the market and we don't quite see that yet.

Jack Atkins:

Okay, great. Thanks for taking my question. And first, Mike, I just want to say really enjoyed working with you and congratulations as you move on to the next phase of your career. I guess, a lot of different ways we could go with this, I guess, would love to get your thoughts on just broadly the first quarter. We've had -- Arun, to your point, things have tightened up here in January with the winter storms. We've seen some volatility in the Global Forwarding markets as well. How does that impact -- how has that impacted your business through January? Are you seeing AGP get squeezed a bit? Could you maybe walk us through what you're seeing in the business so far this year?

Jack Atkins:

Okay, got it. And then, Arun, could you maybe touch on the Global Forwarding side of it as well, just because there's been volatility there too?

Jack Atkins:

Okay, thank you very much. Really appreciate it, guys.

Jon Chapelle:

Thank you. Good afternoon. So clearly this tough market had an impact on others as well. Those are not as well as financially secure as C.H. Robinson is. We've seen some bigger names go out of business. I'm just wondering now, as this elongated market reaches almost the third year, are you seeing any desperation in some of the newer or maybe even established competitors out there that's creating an even more either volatile or kind of punitive pricing environment? And if so, what's the opportunities and risks to you in that type of backdrop?

Jon Chapelle:

Okay. Thank you.

Chris Wetherbee:

Hey, thanks. Good afternoon, guys. It looks like from a cost perspective, as you think about 2024, that you're guiding OpEx to be roughly flattish year-over -year. I think you guys have also said that you're not necessarily expecting a freight rebound coming in 2024, at least as far as you can see in the relative near term. So I guess I was just trying to square that up. Obviously, you guys have added a lot of costs for COVID, Dave, as you noted. So as you think about sort of the opportunity here, is flat enough for 2024, and maybe you can help us give some perspective of what the longer term might look like on a cost basis.

Dave Bozeman:

Yeah, Chris, just to add on to what Mike said, we're also looking at this to, as we've said before, is really position ourselves to be in a strong pole position for the market rebound, and we feel good about where we're headed there. Best data we have is back half of this year. If we start seeing that inflection, we're driving our cost structure to have really that operating leverage put us in a great position as well as continue to go after structural cost while creating that balance. So I feel really good about that and the things that we're putting in place to drive that. So thanks for the question.

Operator:

Thank you. The next question is coming from Stephanie Moore of Jefferies. Please go ahead.

Arun Rajan:

Yeah. Thanks for the question, Stephanie. In terms of bids, there's a variety. Customers come in their own forms and there are different customers with different approaches. A lot of customers want resilient pricing in their contracts. So, meaning, like, they know the market is going to turn at some point and they want to price some of that prediction in such that the contract doesn't have to be repriced, whereas others want to be more aggressive and want us to quote, based on what the market looks like today, understanding that none of us have a crystal ball. So there's a variety of contracts and variety of customers in terms of the bid environment. Having said that, the way we approach pricing any of these contracts is obviously a combination of our revenue management objectives, the attributes of the customer, things like their customer lifetime value and so on. And finally, the value proposition that we deliver. So on balance, we have to consider all those things in terms of how we respond based on what the customer is asking for, such that we can sustain through the contract in a way that meets our objectives. And in terms of capacity coming out of the market, Mike, do you want to take that?

Stephanie Moore:

Helpful. Thanks so much.

Jeff Kauffman:

Thank you very much. And thank you for laying everything out so clearly today. I want to revisit David's assessment and in particular the focus on the core four. Is there an implication here that we're applying the 80/20 rule and those are the four businesses that we really want to drive, or is the implication here that we're going to simplify the structure at Robinson? And if you're not part of the core four, then eventually that might not be a business we're in in the long run.

Jeff Kauffman:

Okay, that's my one. Thank you for the clarification.

Operator:

Thank you. The last question today is coming from Bruce Chan of Stifel. Please go ahead.

Dave Bozeman:

Yeah, Bruce, thanks for the question. The -- today if you look at -- let's just focus on our two largest businesses, which really kind of drive overall for Robinson, in NAST and Global Forwarding. We track today our customers. Half of our customers use essentially both NAST and Global Forwarding Services are driven by [half] (ph). So what we're looking at is that the opportunity there, while that's good, we think that there's a opportunity for more wallet share that we have there by unlocking the potential of those services. And as I look at this, showing up in a more synergistic fashion, which is something that I notice going forward, our customers really want that. They want solutions to complicated problems that they have in their supply chain. We can offer that, and I think that separates us out. But showing up as kind of a la carte or individual solutions, I think while we're generating some value there, there's more value we get by really showing up as a suite of services to solve more complicated, deeper issues for the customer. And that's why we're focusing on that. We have good momentum and energy around that, and we have some structured things that we're doing already within the company to drive and unlock some of that value.

Operator:

Thank you. We actually do have time for an additional question. The next question is coming from David Vernon of Bernstein. Please go ahead.

Mike Zechmeister:

Yeah, thanks, David. So I would say a couple of things on that. We have a history of giving you expense guidance across the business. So we give you personnel, SG&A, CapEx, depreciation, amortization, tax rate, but we don't give AGP. And that's really because of the volatility that we all experience in this business and the difficulty in predicting the macro demand and capacity elements that drive the pricing there. So we've tried to stay away from that. Part and parcel to that, to your question about we're here in the trough, how long does the trough last? When do we come out of it? We provide some guidance on our website about where we think pricing is going, but again, we're doing our best to forecast where we're at, but those things are very difficult to know with certainty. And so kind of the same element there of the comments that we've made, I think our back half of the year is when things start to really turn around the truck.

Chuck Ives:

Thank you, everyone, for joining us today. That concludes today's earnings call. We look forward to talking to you again. Have a great evening.

David Bozeman:

Thank you, Chuck. Good afternoon, everyone, and thank you for joining us today.

David Bozeman:

Thanks, Mike.

Christian Wetherbee:

I'd like to start, maybe it's helpful to get the monthly breakout of AGP. Could you give us a sense of maybe how October is trending? Kind of keeping in mind that there have been some changes in the dynamics within brokerage, obviously, there's some headlines about some high-profile exits from the market. Just kind of curious about how October is trending.

David Bozeman:

Yes. Chris. I'll have Mike break in and just kind of give you some details of what we're seeing. You set that question up well, then let's just jump in.

Jack Atkins:

So I guess I would love to get your thought kind of broadly as we kind of begin the bid season process here over the next 30 to 45 days and kind of think about the spring bid season of next year. How are you guys approaching that? Obviously, it's an extremely challenging market out there. I think most folks are expecting additional capacity to come out and perhaps a turn in the freight market at some point in 2024.

Michael Zechmeister:

Yes, Jack, let me touch on some things there. So first of all, just maybe I'll cover the capacity side. The carrier capacity is contracting, but I think less so than we would have expected at this point in the process. And when the market has been bouncing along the bottom like it has, pricing is really -- we're really pricing at or near the breakeven cost for the carriers.

Operator:

The next question is coming from Jeff Kauffman of Vertical Research Partners.

David Bozeman:

Yes, good question. It's something that we talk about often. First of all, I'll start and say I feel really strong about our capacity, and it's something that we execute on each day. As a matter of fact, we're building ourselves up, as you know, for the eventual rebound of the market. And that eventual rebound, we need to have the capacity while keeping our headcount in check.

Operator:

The next question is coming from Scott Group of Wolfe Research.

Ken Hoexter:

Dave or Mike, maybe just to clarify a comment earlier in the LTL, I think you noted that temporary capacity exited the market. Are you then assuming a rebound in that? It sounded like you said you were assuming a rebound in capacity. Just want to understand that commentary on the LTL.

Michael Zechmeister:

Yes. So on the second part of that, the -- I think you were talking about Convoy going out of the market and how does that impact the market? I'll make a couple of comments on that.

Michael Zechmeister:

Yes, LTL capacity temporarily leaving the market. Yes, thanks for picking up on that point. The idea there was while Yellow went out of business and that capacity then came out. There is a process there where the assets that are still useful will be redeployed by new ownership and through the new hubs and probably come back into the market at some point. And so that was the intent of the word temporary to the extent that the assets are still viable and useful they'll find a new owner, a new home, and probably make their way back into the system.

Michael Zechmeister:

Yes. On the LTL side, I think what we've seen in the near term has been positive in terms of an increase in AGP per shipment related to that move because they were a bigger part of that market in terms of the capacity to serve. And so I think that, unlike the Convoy example is a more meaningful impact and it did -- we did certainly see it.

Operator:

The next question is coming from Jon Chappell of Evercore ISI.

Arun Rajan:

I can start. In terms of productivity improvements, we're at 15% -- 18% year-to-date, and we expect to end the year at 15%. Having said that, we feel pretty confident in setting targets for subsequent years at a similar rate. So we're working on our 2024 operating plans, and I would expect we target a similar productivity improvement, compounded that would be over 30% by the end of next year in terms of productivity improvements. So I feel pretty good about that. Productivity is -- and the way I said this in my prepared remarks, productivity ultimately is a measure that considers volume, right?

David Bozeman:

Jon just to add on that. And Arun hit it is that the key there is we're laser focused on driving productivity as well as growth, whichever one will do it in combination in driving that. So that's super important. And it's -- and that laser focus extends to the rebound as well. I can't express that enough that as we get ready for this market rebound. This will be -- this is super important from a productivity perspective and separating that headcount and volume growth.

J. Bruce Chan:

Nice to see some of the progress here in a tough market. Wanted to zoom out a little bit. When I think about some of the cycles, maybe 1 cycle or 2 ago, there was talk about structural pressure on AGP as a result of -- I don't know, better customer price discovery and digitization trends. Obviously, you've had a lot of changes in the industry since then. How are you thinking about a good baseline AGP for the business through the cycle based on what you're seeing now?

Michael Zechmeister:

Yes. Let me take that one. I think your observations are accurate. Generally, when you talk about the industry and price transparency and I would even perhaps add length of load being pressures on AGP that are kind of realities in the marketplace. Now what we're focused on are other things that help us in that regard. So in our plans, the ability to buy better. And also, I talked a little bit about the competitiveness that we're seeing right now.

Operator:

The next question is coming from Jordan Alliger of Goldman Sachs.

Michael Zechmeister:

Yes. Let me hit that a little bit and then pass it over to Arun. We've got a great pipeline. We've been executing on the pipeline. I think you can see it in our results. If you go back to some of the cost savings initiatives we talked about. We started at $150 million cost savings against Q3 run rate last year. We increased that to $300 million. We're now talking about $360 million.

Operator:

The next question is coming from David Vernon of Bernstein.

Operator:

The next question is coming from Tom Wadewitz of UBS.

Michael Zechmeister:

Yes. Tom, let me take your -- the first part first, which I think we've covered a variety of elements around that. But I think you've characterized it fairly within that contract space as prices come up, there is some ability to get squeezed. And whether this cycle is like the past cycles, what will really matter is the pace or the magnitude at which those pricing increases come back as the market normalizes.

Michael Zechmeister:

[indiscernible] GF I think generally, we have to hit bottom on GF and what I would say to that is, we haven't seen any meaningful changes from Q3 on the GF side. We feel great about our business there and the share that we've been growing and the work that the team has been doing and the preparations for when that demand comes back. But no green shoots to speak of there yet.

Stephanie Benjamin Moore:

I think it might be helpful just for us on the outside kind of looking in here. Maybe could you give us some examples of the tech changes or digital changes that you've implemented year-to-date?

Arun Rajan:

Yes. Let me give you a couple of examples. One example might be appointment automation. We work with a lot of customers. A lot of customers have different systems into which we have to go to make appointments for our carriers to go load and unload, right?

Charles Ives:

Yes, that concludes today's earnings call. Thank you for joining us today, and we look forward to talking to you again. Have a great evening.

Chuck Ives:

Thank you, Donna, and good afternoon everyone. On the call with me today is Dave Bozeman, our President and Chief Executive Officer; Mike Zechmeister, our Chief Financial Officer; and Arun Rajan, our Chief Operating Officer. Dave will provide some interdictory comments. Mike will provide a summary of our 2023 second quarter results and our outlook for 2023. Arun will provide an update on our efforts to improve our customer and carrier experience and operating leverage, and then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. I'd also like to remind you that our remarks today may contain forward-looking statements. Slide two in today's presentation lists factors that could cause our actual results to differ from management's expectations. And with that, I'll turn the call over to Dave.

Mike Zechmeister :

Thanks Dave and good afternoon everyone. Global freight markets in Q2 continue to be impacted by weak demand, high inventories and excess capacity, which resulted in a more competitive marketplace with suppressed transportation rates. North American freight volumes and load-to-truck ratios remain near the low levels of 2019. In the freight forwarding market, ocean vessel and air freight capacity continues to exceed demand, which has kept ocean and air freight rates low during the period of significant declines that extends back to the second half of 2022. Despite the weak demand, new vessel deliveries are expected to continue to add capacity to the ocean market. This suggests that the influence of excess capacity may persist for several periods, despite the steamship lines efforts to manage capacity through blank sailings, slow steaming and redeploying capacity to other lanes. We are staying focused on what we can control, providing superior service to our customers and carriers and streamlining our processes by removing waste and manual touches. The result has been meaningful cost reduction and productivity gains across our business. With our record quarterly financial results in Q2 of last year as a comparable, and the macro forces that I outlined as the backdrop, our second quarter total revenues of $4.4 billion declined 35% compared to Q2 last year. Our second quarter adjusted gross profit or AGP was also down 35% year-over-year or $366 million, driven by a 45% decline in our global forwarding and a 36% decline in NAST. On a sequential basis, total company AGP was down 3%, driven by a 6% decline in NAST, that was partially offset by a 1% increase in global forwarding and a 6% increase in the total of our other segments. On a monthly basis compared to Q2 of last year, our total company AGP per business day was down 30% in April, down 39% in May and down 37% in June. In our NAST truckload business, our Q2 volume declined by approximately 6.5% on a year-over-year basis. Within Q2, average daily volume in April was stronger than March, but weakened in May and held in June, which resulted in a 0.5% sequential decline in Q2. During Q2 we had an approximate mix of 70% contractual volume and 30% transactional volume in our truckload business. Routing guide depth of tender in our managed services business, which is a proxy for the overall market, declined from 1.4 in Q2 of last year to 1.1 in the second quarter of this year, which is the lowest level we've seen for a full quarter since the recession of 2009. The sequential declines in our truckload line haul cost per mile since Q2 of last year began to level off and increase sequentially in May and June, causing the June cost per mile to be only $0.02 below the March cost per mile. On a year-over-year basis, we saw a decline of approximately 19% in our average truckload line haul cost per mile paid to carriers, excluding fuel surcharges. Due to the time lag for contract pricing to follow spot market costs, Q2 truckload line haul pricing continued to decline on a sequential basis, resulting in a 23% year-over-year decline in our average line haul rate for price billed to our customers, excluding fuel surcharges. These changes resulted in a 41.5% year-over-year decrease in our truckload AGP per mile and AGP per shipment, with declines in both contractual and transactional AGP per shipment. This is the largest year-over-year decline in AGP per mile that we've experienced in the last 10 years and is in contrast to the 46.5% increase in Q2 last year. In our LTL business, shipments were flat on a year-over-year basis and up 5% sequentially. By leveraging our broad access to capacity and all modes of LTL and our high level of service, our LTL team continues to onboard a pipeline of new business that is offsetting the softness in the LTL market. AGP per order, however declined 19% compared to Q2 last year, driven primarily by the market conditions and lower fuel prices. As I mentioned, market conditions in our global forwarding business were also soft behind weak demand and plenty of capacity. Despite that, our ocean and air volume each grew sequentially, exhibiting the progress our global forwarding team has made through adding new customers, diversifying trade lanes and verticals, and leveraging investments in technology and talent over the past several years. In Q2, global forwarding generated revenue of $780 million and AGP of approximately $179 million, which declined 45% year-over-year compared to the record high from Q2 last year. Within these results, our ocean forwarding AGP declined by 53% year-over-year compared to 51% growth in Q2 of 2022. The Q2 results were driven by a 49.5% decrease in AGP per shipment and a 7% decrease in shipments. Turning to expenses, we delivered on our expense reduction and productivity expectations for the quarter. Q2 personal expenses were $377.3 million, including $13.1 million of restructuring charges, down 15.2% compared to Q2 of last year. Excluding the restructuring charges, our Q2 personnel expenses were down 18.1% year-over-year, primarily due to the cost optimization efforts and lower variable compensation. Our headcount was also down significantly in Q2, with ending headcount at 15,763, down 13.1% year-over-year. In Q2 we elevated our cost optimization efforts, which began in Q4 of last year, as we streamlined our workflows and removed waste to help ensure a more competitive and sustainable long term cost structure. As a result, our shipments per person per day in NAST has increased by 12% year-to-date through Q2, and we remain on track to deliver on our target of 15% year-over-year improvement by Q4 of this year. I'd also note that we were able to achieve the productivity gains in a soft volume market, which sets us up well for when the market demand returns. Going forward, we expect continued improvements in shipments per person per day and the associated cost benefits through the remainder of 2023, as we streamline processes and improve customer outcomes with technology that supports our people and processes. As a result of the progress on our cost optimization efforts, we now expect 2023 personnel expenses to be toward the lower end of the $1.45 billion to $1.55 billion range that we previously provided. As a reminder, our expense guidance excludes restructuring expenses. Moving to SG&A, Q2 expenses were $155.6 million and included $1 million of restructuring charges. Excluding the Q2 restructuring charges and last year's $25.3 million gain on the sale leaseback of our Kansas City Regional Center in Q2, SG&A expenses were up approximately 8.5% compared to Q2 of last year, primarily due to increases in claims and warehouse expenses. We continue to expect our 2023 SG&A expenses to be $575 million to $625 million, including $90 million to $100 million of depreciation and amortization expense. As you may recall from our Q1 earnings call, we raised our cost savings commitment to $300 million of net annualized cost savings by Q4 of this year, compared to the annualized run rate of the Q3 expenses from last year. We continue to be on track to deliver those expense reductions, and the majority are expected to be longer-term structural changes to our cost base that will help us improve operating margins once demand returns. Q2 interest and other expense totaled $18.3 million, down $9.1 million versus Q2 last year. Q2 included $23.2 million dollars of interest expense, up $6.3 million versus Q2 of last year, due to higher variable interest rates against a reduced debt load. Q2 also included a $3.5 million gain on foreign currency revaluation and realized foreign currency gains and losses, compared to a $10.3 million loss in Q2 last year, with both driven by various foreign currency impacts on intercompany assets and liabilities. As a reminder, our FX impacts are predominantly non-cash gains and losses. Our Q2 tax rate came in at 14.9%, compared to 21.3% in Q2 of ‘22. The lower tax rate was driven by lower pre-tax income and incremental benefits from tax credits and incentives. We now expect our 2023 full-year effective tax rate to be in the range of 16% to 18%, assuming no meaningful changes to federal, state or international tax policy. Adjusted or non-GAAP earnings per share, excluding the $14.1 million of restructuring charges, was $0.90. Excluding the $25.3 million gain from Q2 last year, non-GAAP earnings per share was down $0.64, compared to the $0.75 increase in Q2 last year. Turning to cash flow, Q2 cash flow generated by operations was approximately $225 million, compared to the $265 million in Q2 of 2022, demonstrating our ability to generate cash and make investments in the business through the freight cycle. The year-over-year decline in our cash flow was driven by a $251 million decrease in net income, partially offset by $144 million sequential decrease in net operating working capital in Q2, resulting from the declining cost and price of ocean and truckload transportation. Over the last four quarters, as the cost and price of purchased transportation have come down, we have realized the benefit to working capital and operating cash flow of more than $1.4 billion. In Q2, our capital expenditures were $24.4 million, compared to $43.2 million in Q2 of last year, and we continue to expect our 2023 capital expenditures to be in the range of $90 million to $100 million. We returned $106 million of cash to shareholders in Q2, through $73 million of cash dividends and $33 million of share repurchases. The cash returned to shareholders exceeded net income, but was down 74% versus Q2 last year, driven by the $137 million of cash used to reduce debt. Now, on to the balance sheet highlights. We ended Q2 with approximately $1.1 billion of liquidity, comprised of $859 million of committed funding under our credit facilities, and a cash balance of $210 million. Our debt balance at the end of Q2 was $1.74 billion, which includes debt pay down of $532 million versus Q2 last year. Our net debt to EBITDA leverage at the end of Q2 was 1.81x, up from 1.39x at the end of Q1. Our capital allocation strategy is grounded in maintaining an investment grade credit rating, which allows us to optimize our weighted average cost of capital. With the year-over-year earnings reduction and the $0.5 billion of debt pay down, we'll continue to manage our capital structure to maintain our investment grade credit rating. As you would expect, the cash that we use to reduce debt, generally reduces the amount of cash available for share repurchases. Over the long term, we remain committed to growing our quarterly cash dividend in alignment with long-term EBITDA growth. Our dividends and share repurchase program are important levers to enhance shareholder value as we're delivering quality customer service more efficiently than anyone in the marketplace. As we have demonstrated through the ups and downs of our highly cyclical freight market, the strength of our business model makes us a reliable partner for our customers and allows us to invest through the cycle. Our customers value the stability and reliability that we provide as we work to optimize their transportation needs. I'd like to close by adding that I am incredibly excited about the direction we are headed and our ability to build on the productivity and cost control progress that we've made. By leveraging lean principles to reduce waste, and the emerging benefits of our combination of machine learning and generative AI across our scaled model, we are positioned well to deliver greater efficiency and improved competitiveness in the marketplace, to generate greater value for Robinson shareholders. With that, I'll turn the call over to Arun to provide more details on our efforts to strengthen our customer and carrier experience, and improve our efficiency and operating leverage.

Dave Bozeman :

Thanks, Arun. C.H. Robinson is a great company, with the largest market share, the most developed freight-brokers network, longstanding relationships with global blue chip customers, deep carrier relations, strong technology, and a larger data set than any other market participant. While the near-term freight environment presents some challenges, the strength of our people, scaled network, financial model and investments in improving efficiency, position us well for the eventual rebound. I see an opportunity for the company to reach its full potential and create more shareholder value by improving our value proposition, increasing our market share, accelerating growth, improving our efficiency and operating margins, and increasing overall profitability. Robinson has great people with a passion for winning and the grit, grind and hustle needed to innovate and solve challenges for our customers and carriers. To enable greater agility and flexibility and to accelerate our clock speed, I'm empowering our people to uncover new ways to challenge the status quo, move faster and act boldly to better anticipate our customers' needs, exceed their expectations, and make us indispensable. Shippers are looking for stable and innovative logistics partners. Robinson has shown the strength of its model through cycles. Our balance sheet continues to be strong, and we plan to invest in initiatives that we expect to amplify the expertise of our people and generate high returns on investment. I'm excited about our opportunities and our future. This concludes our prepared remarks. I'll turn it back to Donna now for the Q&A portion of the call.

Jack Atkins :

Okay, great. Good evening, and Dave, congratulations on your new role at C.H. Robinson.

Jack Atkins :

So, I guess I'd love to start going back to something that you mentioned in both your prepared remarks and also in the press release. It's making C.H. Robinson essential. I guess my first question is or just broadly like, what is – you know what about C.H. Robinson right now is that essential? Because I look at a company with unparalleled scale in the marketplace, a leading technology platform. What do you think you need to do differently as a company to really make yourself essential in what is ultimately a highly commoditized part of the transportation supply chain, which is brokerage?

Jack Atkins :

Okay, thank you.

Scott Group :

Hey, thanks, and congrats Dave. I look forward to meeting you next week.

Scott Group :

I guess a near-term question and a longer-term question. Just, you know help us think about the puts and takes on sequential net revenue and earnings trends from the second quarter, third quarter. Do you think we should be higher or lower? And then just Dave, maybe too early to ask, but just as I think about the margin opportunity longer term that you talked about, this used to be a 40% net operating margin business. This year, probably closer to 20%. What do you think is the right margin range to think about for CH over time? Can we get back to where we were?

A - Mike Zechmeister:

Yes Scott, first of all, on the first part of your question, just thinking about the outlook on as you said, net revenue margin or AGP, Q2 to Q3, and I'd point to a few things. So first of all, obviously we're in a market that has been weak, and no matter how you look at it, we've come a long way since Q2 of last year when we were sitting on record highs across the board and particularly in our biggest service lines, truckload and ocean. And so as we sit here today, you've got the demand factor and you've got the capacity factor. On the demand side, that's a macroeconomics trends thing. As we look at our shippers and the way they've been seeing the market and acting, they've been working on inventories here for, geez, it seems like almost a year now. They've been trying to work them down and optimize them. And so have they got there? Are they there yet? You know can we expect demand to come back there? We'll see where that heads. On the capacity side, we've been balancing on the bottom in terms of the cost per mile for carriers, in terms of where their break-even is at. And so qualitatively, I think capacity is probably coming out of the market. I think it's tough for some of the carriers. They are probably more likely now to be parking the truck and finding employment elsewhere given the good economy. And so I think on the capacity side, we probably are close to the bottom. And so as you go forward, one of the things that we provide for you in terms of forecasting is on our website, chrobinson.com under Resources. We've got a section called North American Freight Market Insights. And we provide a forecast of DAT line haul, cost per mile per van, for not only the remainder of 2023, but also we've added another year to it now and we're giving you 2024. And if you look at that, I think it's really important. And the reason we give you cost is because, as you know, in this market in truck load, price follows cost, and that gets right to the root of the issue for us here in Q2 and probably in Q3, which is because we have a significant portion of our business, that is contract, where the prices are established and set for most frequently one year. When the cost side of the equation has been coming down like it has, and it takes a while. There's a lag there between when we're renegotiating those contracts with shippers and so there's a lag on pricing, and that's been coming down. And so one of the key things from a margin standpoint for us in the quarter was the fact that price came down 23%, but cost came down 19%, and that’s price catching up with cost, that's margin compression for us. So it's not what we would expect going forward. You see that through the cycle. That's the point in the cycle that we're at right now, and so there's a little bit of extra margin compression there that'll work itself out over time as cost leads price. And so when you're back on that website looking at our forecast, you'll see that we've got costs going up for the remainder of this year. We're kind of at the bottom in terms of our forecast now. And then as you get to the holidays, you see a little spike up, and then it comes down a little bit, and then we see it really getting back to normal as you get through 2024, and so a pretty dramatic increase in costs there, and of course, price will follow as we get into new contracts with our shippers.

Mike Zechmeister:

Yes. So on the 40% operating margin, that's the target that we've got out there for NAST. It's been out there for quite a while. There are different dynamics going on there that impact that. But I'll tell you what, we feel really good about the progress that we've made on productivity. We reported the shipments per person per day on NAST. We put a target out there to improve that by 15% on the year. We're six months into the year, and we're at 12% already. And that's on the back of some really quality work from the teams, looking at where we're spending our dollars, where we're spending our time, and taking that waste out of our system and translating that into productivity. So you saw that on those numbers. Those efforts will continue. We've got plenty to do there on that front. We're really excited about Dave's leadership as a lean practitioner. I believe in those principles. I've worked in that environment in the past. It's a really methodical way to find waste and eliminate waste in an analytical, data-driven kind of way, and so we'll continue to be able to take costs out there. We talked about machine learning and generative AI, and I really believe that Robinson is in a unique position in that regard. And unique, because we have a scaled business with an enormous amount of data, and because of our history, it's to some extent unstructured. And so from a machine learning standpoint, the key for us has been to standardize and automate. But one of the great compliments from generative AI is the ability to go in and find inconsistencies, missing data, and actually take it through to getting that data and reinserting it and plugging it back into our machine learning. And so there's really some great complementary things there that can help us with our productivity and allow our folks really to focus on quality and more strategic work with our customers. So I think that inside of that you get growth, inside of that you get efficiency, and the growth and efficiency continue to keep us on our 40% operating income margin for NEST. I don't know if Arun, if you've…

Scott Group :

Thank you, guys.

David Vernon :

Hey, good afternoon guys. Thanks for taking the questions. So Dave, first question for you is really kind of your background in some of the other, maybe more disruptive parts of the brokerage industry that have shown an ability to take quite a bit of share in very short periods of time. You know, what's different about them versus what Robinson's been doing recently? And then how do you think about, you know the moat of C.H. Robinson. Having been kind of on the other side of the barricades, you know throwing barrels of burning oil at the company, how do you think about the moat of C.H. Robinson?

David Vernon :

Thanks for that. And maybe just as a quick follow-up, we're talking a lot about lean, we're talking a lot about process improvement. Can you talk to the mandate you have from the Board? Are we really just kind of focused on improving what Robinson does, the how of what it does, or are we still also looking at the what of it in terms of maybe some structural change to the business? I think there was some discussion with one of the activist shareholders a while back about a strategic committee. Can you give us a sense for kind of what the marching orders are from the Board, from your perspective?

David Vernon :

All right, thanks so much for the time and look forward to meeting you.

Operator:

Thank you. The next question is coming from Christopher Kuhn of The Benchmark Company. Please go ahead.

Dave Bozeman:

Yes, nice to meet you as well. From a portfolio perspective, same thing. Its early days, right, on this, and I'm driving in, but my point is clear, is I'm looking at the entire business and as I said with an open mind on the portfolio. Make no doubt about it right, there is a clear focus, a driving focus within the organization on some of these, the core business and we all know truckload and making sure we drive truckload, LTL, Ocean Air, really driving that kind of focus on portfolios. And then with all the other businesses, continuing to evaluate how we best unlock that additional value for our shareholders. So it's an open mind approach. It's early days, I'm diagnosing, I'm diagnosing hard, and certainly we'll come back to that, but just wanted to give a little bit of color to that.

Operator:

Thank you. The next question is coming from Jason Seidl of TD Cowen. Please go ahead.

Dave Bozeman:

Yes. Pleasure to meet you, and great question, because there's a lot of ways to go into this. I mean Arun, why don't you start off and I’ll finish on a couple of things here?

Dave Bozeman:

Yes, I would just plus one on that. I agree with Arun there in previous experience and seeing the teams build these things, that it's about ease of use. It's really about allowing those carriers to get the things that they want, such as pay and access to loads. So I think he hit on all the key points that when you do that, you really – and that spreads, right, when you hear about the ease of use. So it's a good question. I'm glad you said it, because it highlights kind of where we are in this space and where we're going to continue to go. So thanks for asking that.

Mike Zechmeister :

Yes, thanks for the question, Jason. You're right, you have to look through the markets that we've experienced here over the past couple of years. Obviously, the comp this quarter is against all-time record highs on record highs from Q2 last year. But our long-term operating income margin goal for global forwarding is 30%. We feel like that's achievable. The playbook there is in a lot of respects similar to the playbook that we've got on the NAST side. In other words, the team has done a really nice job developing their capability from a technology standpoint. There's plenty of excitement out there around Navisphere 2.0, and that was launched, and the customers are having a better experience there. We're seeing monthly average users go up, track and trace better, data quality better, feature usage by customers better, so on the tech side, that's great. Operational uniformity is an important element for them there; the standardization in a very complex business to create efficiency; generative AI can help as well there. Scale is something that the team has been working on. They've done a really nice job here through the ups and downs of the market, gained market share and increased the scale in that business, which will be important to getting the returns where we need them to be going forward. Probably the biggest highlight over the past year has been their expense management. So they've taken headcount down by about 12% year-over-year, and at the same time, they've been able to handle the loads and handle the volume that they've been working on. So that's been a really nice enhancement that should really serve them well once we get back to some more normalization there. And then the last thing I'd say is the development of their business. They've done a nice job of bringing some talent in, in some new geographies. They are looking at new verticals, and they've had a fair amount of success in new trade lanes and opening up to some places that they haven't had a developed business in the past. They are getting excellent results. They are number three in the Trans-Pacific to U.S., number two in India to U.S., and number one in U.S. Oceana. So a lot of great progress from the team there and I think all those factors are important in coming together to get back to a more normalized 30% operating income margin.

Dave Bozeman:

Absolutely, Jason. I'm looking forward to it.

Matthew Spahn :

Thank you, operator. And congratulations, Dave, and welcome to C.H. Robinson. I have a question about engagement. When a company has highly engaged employees, quality and delivery improve. In drawing on your prior experiences leading lean transformations, can you share one or two learnings that you can apply to foster a culture of deeper employee engagement at C.H. Robinson?

Matthew Spahn :

Thank you. I really appreciate that. I mean, it's – I appreciate that. I mean, the culture matters most right now. I mean, you're being I feel like the champion of lean, you know like the powerful cultural enabler, so welcome and good luck.

Operator:

Thank you. The next question is coming from Stephanie Moore of Jefferies. Please go ahead.

Dave Bozeman:

Thanks Stephanie. I appreciate it.

Dave Bozeman:

Yes, that's a good question Stephanie. It's one that can take us well past the call, so I won't do that, but I will give you some color on it. The focus is around driving waste out with the end game of profitable growth and really getting the organization to latch on to faster speed of decisions, speed of innovation, and ultimately looking around corners to set itself up for what is going to be an eventual turnaround. And that will put us in a very strong position with our scale and our balance sheet. And so, just focusing on that, and then also technology. We talked a bit about it. Arun's talked a bit about it. These large language models, again don't underestimate just the scale of Robinson, and then attaching that level of technology on top of that, I think can be a strong competitive advantage for us. So, me focusing on driving that adoption of that type of technology, driving waste out of the system, this all adds up to a profitable growth setup for this company and really puts it in a strong position. I feel really, really strong around where we are, and that's why I decided to take this move.

Operator:

Thank you. The next question is coming from Bruce Chan of Stifel. Please go ahead.

Dave Bozeman:

Yes Bruce, I'm going to double team you here a bit, because I'm 4.5, 5 weeks here on my diagnosis there. So I am going to call a comma, not a period on this question, because I do want to continue to diagnose. But I will tell you this, and as I'm talking with a ruling team, it's breaking down this kind of life of an order and really going through the origination of this order all the way through the end, and then understanding those error states and pinch points along the way. That's going to generate kind of where the cost opportunities are along that line, along that cycle. And I'm in the middle of doing that. I have some points that I see, but it's not complete. And I think Arun sees some of that as well. So I will come back to you on that, because it's a fair question, but I'm in the middle of it. Arun, would you add any other color to it?

Bruce Chan :

Okay, that's super helpful. And Dave, fair point about the brevity of your tenure. So maybe just to follow-up a little bit on that and direct the question more again at you Arun. We've had some nice reductions here in personnel cost. Is the tech and the platform at a place now where we can grow in the next cycle without adding additional resources or do we have a little bit more work to do?

Bruce Chan :

Great. Very helpful. Thank you all.

Operator:

Thank you. We're showing time for one final questioner today. Our final question will be coming from Chris Wetherbee of Citi. Please go ahead.

Mike Zechmeister :

Yes, let me take that. So first of all, you're right. We've had great progress on our headcount, down 13% year-over-year. And because of the efforts and initiatives that we have ongoing in place that will continue, and really, I think we've got a great pipeline of things to work on. We'll continue to draw that headcount down as we go forward and get to some of these things. Although, I would say the back half of ‘23 won't be nearly as dramatic reductions as we saw in the first half. Now, when you talk about those operating targets and the macro things, we're trying to help you understand that we feel like we've got some accelerants here in terms of our ability to improve our performance, our efficiency, and get us to growth. And the headlines on those are lean principles, the diagnosing of our issues, finding waste, eliminating the waste, whether that's with technology, with process, with adoption, with giving self-serve to customers or carriers, these kinds of things, and so that's one accelerant. The other accelerant as we talked about, is really the combination of the machine learning work that we've been doing, but then enabled by Generative AI, where it can go in and it can find the exceptions and the work that really our people have been handling here historically. Where you build a model that handles things, if everything's been input properly, and then in many cases our staff was going after the exceptions, and so now, with Generative AI, we've got the ability to do that in a more automated way and really enable our folks in ways that we haven't before. So those are the key headlines.

Mike Zechmeister :

Yes, the progress we've made so far. Yes.

Dave Bozeman:

Thank you, sir. Appreciate it.

Chuck Ives :

That concludes today's earnings call. Thank you everyone for joining us today and we look forward to talking to you again. Have a great evening.

Chuck Ives:

Thank you, Donna, and good afternoon, everyone. On the call with me today is Scott Anderson, our interim Chief Executive Officer; Mike Zechmeister, our Chief Financial Officer; and Arun Rajan, our Chief Operating Officer. Scott and Mike will provide a summary of our 2023 first quarter results and our outlook for 2023. Arun will provide an update on our efforts to improve our efficiency and operating leverage, and then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. I'd also like to remind you that our remarks today may contain forward-looking statements. Slide 2 in today's presentation lists factors that could cause our actual results to differ from management's expectations. And with that, I'll turn the call over to Scott.

Mike Zechmeister:

Thanks, Scott, and good afternoon, everyone. As Scott mentioned, our Q1 results were impacted by a soft freight market. Prices for surface transportation and global freight forwarding have been declining with the weakening demand and excess capacity. With these macro forces as a backdrop, our first quarter total revenues of $4.6 billion declined 32% compared to our record high of $6.8 billion in Q1 of last year. Our first quarter adjusted gross profit or AGP, was down $221 million or 24.3% compared to Q1 of last year, driven by a 45% decline in Global Forwarding and a 16% decline in NAST. On a sequential basis, total company AGP was down 11%, including a 15% decline in NAST and a 6% decline in Global Forwarding. On a monthly basis compared to Q1 of last year, our total company AGP per business day was down 23% in both January and February and down 27% in March as the typical seasonal acceleration in March did not materialize this year. So far in April, we've experienced similar freight market conditions to those we saw in March. In our NAST truckload business, our Q1 volume declined 3.5% on a year-over-year basis. Within Q1, average daily volume in March was weaker than January and February, resulting in a 1% sequential decline in Q1 compared to Q4 of last year. Our AGP per truckload shipment decreased 19% versus Q1 last year, primarily due to a decrease in our transactional or spot market truckload AGP per shipment. During Q1, we had an approximate mix of 70% contractual volume and 30% transactional volume. Routing guide depth of tender in our managed services business, which is a proxy for overall market, declined from 1.7 in the first quarter of last year to 1.2 for the first quarter of this year, which is the lowest level we've seen since the pandemic impacted second quarter of 2020. The sequential declines in truckload linehaul cost and price per mile that we experienced in Q2 through Q4 of last year continued in Q1. However, the declines in Q1 were the largest that we've seen in over 10 years on a percentage basis. In Q1, we saw a 28.5% year-over-year decline in our average truckload linehaul cost per mile paid to carriers, excluding fuel surcharges. Our average line haul rate or price billed to our customers, excluding fuel surcharges, decreased year-over-year by approximately 27.5%. With the price decline coming off a higher base than cost, these changes resulted in a 20.5% year-over-year decrease in our NAST truckload AGP per mile. Market conditions in our Global Forwarding business were also soft behind weakened demand and plenty of capacity, combined with the extended shutdowns around the Lunar New Year holiday. This contributed to significantly reduced import volumes and prices across the trade lanes for ocean and air freight. In Q1, Global Forwarding generated AGP of $177.9 million, representing a year-over-year decrease of 45% versus the record high for our first quarter last year, which was up 50%. Within these results, our ocean forwarding AGP declined by $111 million or 50% year-over-year compared to 63.5% growth in Q1 of last year. The Q1 results were driven by a 41.5% decrease in AGP per shipment and a 14.5% decrease in shipments. Despite the soft market, our forwarding business continues to have success adding new customers and strengthening its geographic diversity behind many of the investments made technology and talent over the past several years. In addition to our strength in the Trans-Pacific trade lanes, our forwarding team generated over 50% of new business AGP from customers outside of the US in Q1. Turning to expenses. Q1 personnel expenses were $383.1 million, down $30 million or 7.3% compared to Q1 of last year, primarily due to our cost optimization efforts and lower variable compensation. Our Q1 average head count declined 2% versus Q1 of last year and 4% compared to our Q4 average. As another point of reference, our Q1 ending head count declined approximately 6% compared to the end of Q4. Our cost optimization and restructuring efforts that began in Q4 of last year continued into Q1 as we found more opportunities to help ensure a more competitive and sustainable long-term cost structure. As we indicated on our Q4 earnings call, we continue to expect our head count to decline throughout 2023, as we streamline processes and leverage technology to allow our industry-leading talent to focus on more important work like growing the business. As a result of the progress on these cost optimization efforts, we are now lowering our personnel expense guidance for 2023 by an additional $100 million at the midpoint. We now expect our 2023 personnel expenses to be in the range of $1.45 billion to $1.55 billion, compared to our previous guidance of $1.55 billion to $1.65 billion. This updated guidance excludes the Q1 restructuring expense and additional restructuring costs that we expect to incur during the year. Excluding the restructuring charges in 2022 and 2023, the midpoint of our updated 2023 guidance for personnel expenses is now down approximately 12% year-over-year. These expense reductions are primarily long-term structural cost reductions with a lesser amount attributable to softer market conditions that we referred to earlier. Moving on to SG&A. Q1 expenses of $141.5 million were down $5.9 million compared to Q1 of last year primarily due to a decrease in credit losses and a reduction of purchased services, including temporary labor. We continue to expect our 2023 SG&A expenses to be about $575 million to $625 million. 2023 SG&A expenses are expected to include approximately $90 million to $100 million of depreciation and amortization expense. As you recall from our Q4 earnings call, we committed to $150 million of net cost savings by Q4 of this year, compared to the annualized run rate of Q3 last year. Our updated total operating expense guidance for 2023 now represents approximately $300 million of net cost savings compared to the annualized run rate in Q3 last year. As mentioned earlier, the majority of the expense reductions are expected to be long-term structural changes to our cost base. Q1 interest and other expense totaled $28.3 million, up $14.1 million versus Q1 last year. Q1 of 2023 included $23.5 million of interest expense, up $9 million versus the prior year due to higher variable interest rates. Q1 results also included a $9.6 million loss on foreign currency revaluation and realized foreign currency gains and losses, up $8.1 million compared to Q1 last year, driven by the translation impact of the various foreign currency-denominated intercompany exposures that we had in Q1. As a reminder, our FX impacts are predominantly non-cash gains and losses, which is why we're not actively hedging them to reduce volatility. Our Q1 tax rate came in at 13.5% compared to 18.4% in Q1 of 2022. The lower tax rate was driven primarily by the incremental tax benefits that we typically see from stock-based compensation deliveries in Q1 as well as additional U.S. tax credits and incentives in proportion to the lower pre-tax income. We continue to expect our 2023 full year effective tax rate to be 19% to 21%, assuming no meaningful changes to federal state or international tax policy. Q1 net income was $114.9 million and diluted earnings per share was $0.96. Adjusted or non-GAAP earnings per share, excluding the $3.7 million of restructuring charges, was $0.98, down 52% compared to Q1 of 2022, which was up 60% versus the prior year. Turning to cash flow, Q1 cash flow generated by operations was $254.5 million, compared to $13.9 million of cash used in Q1 of 2022. The $268.5 million year-over-year improvement was driven by a $235 million sequential decrease in net operating working capital in Q1 and driven by the declining cost and price of ocean and truckload in our model. Conversely, Q1 of last year included a $289 million sequential increase in net operating working capital as costs and prices were rising. Over the past three quarters, as the cost and price of purchased transportation has come down, we have realized a benefit to working capital and operating cash flow of more than $1.2 billion. That benefit highlights some of the inherent resilience in our model. In Q1, our capital expenditures were $27 million compared to $26.2 million in Q1 of last year, and we continue to expect our 2023 capital expenditures to be in the range of $90 million to $100 million. We returned $125 million of cash to shareholders in Q1, through $73.4 million of cash dividends and $51.2 million of share repurchases. The cash returned to shareholders exceeded net income but was down 50% versus Q1 last year driven by the $101 million of cash used to reduce our debt. Now on to the balance sheet highlights. As we have demonstrated through the ups and downs of the highly cyclical freight market, the strength of our balance sheet and business model makes us a reliable partner for our customers and allows us to invest through the cycle. Our customers value the stability and reliability that we provide as they work to optimize their transportation needs. We ended Q1 with approximately $1.5 billion of liquidity comprised of $1.22 billion of committed funding under our credit facilities and a cash balance of $239 million. Our debt balance at the end of Q1 was $1.87 billion, down $293 million versus Q1 last year. Our net debt-to-EBITDA leverage at the end of Q1 was 1.39 times, up from 1.29 times at the end of Q4. Our capital allocation strategy includes maintaining an investment-grade credit rating to allow us to cost of capital. With the anticipated earnings reduction in 2023, we have reduced our debt to deliver our leverage targets. As you would expect, the cash that we used to reduce debt generally reduces the amount of cash available for share repurchases. Over the long-term, we remain committed to growing our cash dividend in alignment with alignment with our long-term EBITDA growth. Our dividends and share repurchase program are important leverage to enhance shareholder value, as is delivering quality customer service more efficiently than anyone in the marketplace. With that, I'll turn the call the call over to Arun to walk through our efforts to strengthen our customer and carrier experience and improve our efficiency and operating leverage.

Scott Anderson:

Thanks Arun, as inflationary pressures continue to weigh on global economic growth and freight markets present cyclical challenges, the competitive landscape has changed. With lower available demand the competition for volume is intense, and shippers are looking for stable and innovative logistics partners. We've shown the strength of our model through cycles; our balance sheet continues to be strong and we plan to continue investing in initiatives that we expect to provide innovative solutions and generate long-term profitable growth. At the same time, we're continuing to evolve our organization to bring greater focus to our highest strategic priorities, including keeping the needs of our customers and carriers at the center of what we do, while lowering our overall cost structure. We expect this initiative will continue to drive improvements in our customer and carrier experience and amplify the expertise of our people, all of which we expect to drive market share gains and growth and lead to improve returns for our shareholders. After my first 100 days in this role, I'm even more excited about C.H. Robinson's opportunities in future. We have some of the best people in the logistics industry, and they're dedicated to solving challenges for our customers. As a result of the exceptional service that our people provide to customers during the period of extended market disruption, our customer experience scores are very high, and we're having more strategic customer discussions about our ability to provide an integrated service solution. So while the near term freight environment presents some challenges, our differentiated value proposition and strength of our people, processes and technology provide many opportunities. This concludes our prepared comments. And with that, I'll turn it back to Donna for the Q&A portion of the call.

Jack Atkins:

Okay, great. Good evening, and thank you for taking my question. So I guess, Arun, maybe this one is for you, but Scott or Mike, if you want to chime in, please do. But I guess I'd be curious to get your take on how you're looking at the market for the balance of the year. It sounds like April is trending kind of in the same ballpark as March, if I understood your comment correctly. But if I think back to the last time you guys updated this, the thought was maybe the market would be troughing sometime in the second quarter and then beginning to see some improvement in the back of the year. Any sort of update to that view? Any update to what your customers are telling you about sort of their business plans? I think that would be really helpful. I'll stop there and hand it back. Thank you.

Jack Atkins:

Okay.

Scott Anderson:

Yes, Jack, maybe just a little customer feedback. I've been lucky to be in probably about 20 meetings in the last 1.5 month with our top customers. I would say sentiment is pretty consistent with what you're hearing with retailers and sort of higher levels of inventory. But it's really dependent by vertical. There are areas of strength. Automotive, health care, are some. I would say a common theme of these meetings, too, is just sort of the longer-term partnership aspect of working with Robinson and us helping them solve their logistics challenges going forward with our full portfolio. So, the one thing we're doing in a softer market is we're really leaning into customer engagement and face-to-face meetings.

Scott Anderson:

Thanks, Jack.

Stephanie Moore:

Hey. Good afternoon. Thank you. Scott, I wanted to maybe get a little bit more color around the ongoing CEO search. I do think that in general, the market would like to see some certainty here. Now that it's been, call it, several months of this evaluation process, if you could just provide any update of what expertise you, the Board are looking for in the new CEO in the evaluation of candidates, maybe some that might have specific brokerage experience or just transportation experience as well as the view of someone who might have experience outside of transportation entirely, just maybe how the Board is thinking about these factors? Thanks.

Stephanie Moore:

Great. Thank you. And then lastly, I appreciate the additional color that you gave in response to Jack's question about what's going on in the NAST business. But maybe you could give us some color about what's going on in the Global Forwarding cycle. I think it started to deteriorate a bit earlier. Is there an opportunity for that to also rebound a bit faster, too? Any color there would be helpful? Thank you.

Scott Anderson:

I would add, Stephanie, we've been very active in the RFQ process with customers back to sort of that strategy of leaning in. And obviously, peak season coming, we'll be prepared for that. And if it is soft, we'll also be in a position to adjust cost in that business as we see fit.

Operator:

Thank you. The next question is coming from Jason Seidl of TD Cowen. Please go ahead.

Mike Zechmeister:

Yes, I mean one of the things that we do is we forecast pricing in the marketplace. If you go to our website, and we give you a look at what we think the market is going to be, and right now, from a pricing standpoint, we kind of feel like we're probably at the bottom or very near the bottom of the spot market. When you think about the contract market, the contract pricing will follow the spot market. So there's still some downward pressure on pricing within the contract market as those -- the contracts that were a year old come to reprice. And so there's still a little bit of that going on. I think on the ocean air side, we're just getting to the end or nearing the end of the annual rebidding cycle on pricing in that market. I think our team has been pretty encouraged. In that business, we've been able to grow share here over the past few years. And that market is one that we participated pretty effectively in both ocean and air. We brought on some talent. We've had some technology advances, and we've had some geographic expansions and some in some verticals that we've gone into, too. So, I think we feel pretty good about the customer engagement there. We feel pretty good about the bid process. And coming out of this last round, I think we feel optimistic that we'll be able to continue to grow share in the market on both ocean and air.

Mike Zechmeister:

Yes. Down -- we're kind of feeling like we're at the low now. We feel like that will come up as we go through the year and probably end the year higher than where we're at.

Mike Zechmeister:

Obviously, on that, I'm talking -- what we've got on the website is our spot market. And like I said, price and contract follows the spot market. So, as those contracts reprice, those will come along with it.

Operator:

Thank you. The next question is coming from David Zazula of Barclays. Please go ahead.

Mike Zechmeister:

Yes. On the LTL side, we've reported Q1 volumes down 5%. That was lower than our expectations going in, but that market also faces a similar softness that we're seeing across the board. What we've talked about on our LTL business has been the impact of a couple of large customers that we lost during the pandemic that we've had to lap. But we feel good about the automation that we've been able to bring to that business and our effectiveness at getting out there and competing from a margin standpoint, that business kind of runs a little bit with fuel prices. So, that's the one part of our business where margins are improved when fuel is up and come down a little when fuel comes down. And so as we comp last year, from a fuel perspective, I think in Q1, we were down about $3 on impact on fuel, and so there's a little bit of that margin going on there. But overall, we feel like we've been able to compete there despite the results coming in softer than we originally expected.

Arun Rajan:

Yes. Good question. So most of the automation that we're doing actually should have extreme customer benefit. Much of what we're doing is automation on the carrier side or internally as it relates to appointment-related tasks. And where customers have -- so on the customer side, will customers have systems or scheduling systems that we can integrate with to do appointments, that's great, and/or they allow us to reach into their systems via automation and book and scheduled appointments. Ultimately, it's a cost savings for them as well, so they don't really push back at all. And as it relates to in-transit tracking and track and trace, most of that -- the heavy lifting is about -- it's not really heavy lifting. It's about like self-server carriers, ultimately, right? Carriers now have the ability with better and hardened technology to self-serve as it relates to giving us visibility to their locations, which then gives us greater confidence that we can relay back to our customers around service performance. So, ultimately, on both sides of the marketplace, we haven't really found significant pushback on the activities that we're currently working on.

Operator:

Thank you. The next question is coming from Chris Wetherbee of Citigroup. Please go ahead.

Mike Zechmeister:

Yes. Sure, Chris. So we talk about the $300 million cost savings relative to the commitment that we have put out there on our last call. And just to recap that, we had originally said we were going to do $150 million in net annualized cost savings, and we use the base on that as Q3 expenses from last year, which were about $600 million. So, you annualize that $600 million, that's the $2.4 billion. Midpoint of our new guidance is $2.1 billion. That's how you get the $300 million of overall savings. And then what you saw in the guidance that we put out there was $100 million reduction in 2023 on the midpoint of our personnel expense. When you get into the composition of that, we do have some tailwind from normalized incentive for our folks. And then we also -- going forward, our annual salary increases go into effect in March. And so they didn't impact Q1 fully, just the end of it. And so that will be a little bit of a headwind going forward for us on the expense side. But the primary force behind the personnel expense guidance change was our staffing. And so we've made really nice progress on our staffing in Q4 and in Q1. We ended -- if you look at ending head count in Q1, we were about 16,400, which is down about 1,000 from where we were at the end of Q4. And if you went back to Q3, we're down about 1,500 from where we were in Q3. And so we talked about the fact that we needed to get out there and kind of fix our cost structure from a long-term perspective. And I think we've done a pretty decent job of both rightsizing for some of the expense escalation that we had when the market was hot and the volumes required more service, frankly, because times are tenuous. And so we had to correct for that a little bit. And then just looking at the long-term cost structure that we need to be competitive going forward, we really felt like we needed to do some things there, and we did. And all along, we've had really good work on streamlining our processes and putting automation in to really allow our people to do more value-added tasks, things that they want to do more, getting rid of some of the work that is less desirable and building that toolbox for them so that they can focus on growing our business profitably with the great tool box to support them.

Chris Wetherbee:

Okay, that's extremely helpful color, so I appreciate you guys running me through that. And maybe a quick follow-up to sort of transitioning a bit to the Global Forwarding business. There has been some signs of life off of a very low bottom in terms of spot rates on the ocean side over the course of the last couple of weeks. I think some other players have had maybe better success with contracting relative to the beginning of the contracting season for this year relative to what the spot market might suggest. I don't know if those are that's sort of how you guys are thinking about that market as you move into the spring season as we're going through that annual shipping contracting season. Is that something that you've seen? Or is it continuing to sort of follow the path of the spot market?

Chris Wetherbee:

Okay. Very good. Thanks very much for the color. I appreciate it.

Bruce Chan:

Yes. Thanks everyone, and good afternoon. Maybe if I could just follow-up here on the commentary around Navisphere 2.0. I mean, I know it's still very early in the deployment. But when you think about it, is this a tool that we need to start seeing EBIT conversion or profit per head start to close the gap with some of your best-in-class peers? What's sort of the time line for that process, if you don't mind sharing some color there?

Arun Rajan:

Yes. So, to kind of elaborate when you reference Navisphere 2.0 or online 2.0, that's really more about customer self-service capabilities. And so it's more about customer engagement, customer retention and growth, to Mike's point. As it relates to productivity, there are a whole set of activities similar to how we're doing in transit tracking, automation and self-serve and we're doing appointment-related task automation and NAST to drive up productivity. Global Forwarding has similar activities as it relates to how a given file, we call it the metric we track internally, is something along the lines of shipments per person per day. It's files per person per day, and we have various activities or underlying initiatives similar to NAST to unlock productivity there. So, I'd say that's a little bit decoupled from the reference to Navisphere 2.0.

Mike Zechmeister:

Yes. Let me start, and again, I'll let Arun make some comments as well. The team has been growing share. We've been happy with the progress that they've been making talked about, new geographies. Currently, top three Ocean forward China to the US, from India to the US, US to Oceania. They've made progress in the Europe to US trade lanes. They achieved the number four ranking there in Q1, just expand it geographically into the Middle East, opened an office there in Dubai in mid-February and picked up customers really all around the world, not just Trans-Pacific, but Europe, Southeast Asia, Oceana, Latin America, India, et cetera. So, the team has been doing a pretty good job. And the journey to optimization there is -- it's -- there's a lot of runway there. It's a complex marketplace, and there's a lot of ability to streamline processes and automate and get ourselves to an efficiency level that we want to. So I think the performance has been good. I think the runway is pretty solid there, too.

Bruce Chan:

Okay. Very good. Thank you

Jordan Alliger:

Yes. Hi. You referenced, I think, the bottom of the cycle in a few different ways. And one of the things I think you talked about was spot prices approach operating breakeven costs. It will start taking out capacity. I'm just curious your thoughts on how quick the processes could be, especially given demand. And then maybe what's been your experience from your carrier partners? Have you seen anything in that regard? Thanks.

Jordan Alliger:

Thank you.

David Vernon:

Hey. Good afternoon. Thanks for fitting me in here. The rate or month per mile on your truckload slide six there, being down 28%, that's kind of well ahead of some of the benchmark indices that you follow from CAS and some of the other third-party stuff. Can you give us a sense for how much of the book is getting repriced at this level right now? And what does that mean kind of from a go-forward perspective? Are we going to be stabilizing at these levels? Or is there still some more maybe pain to take as this truck cycle reaches its trough?

David Vernon:

Okay. And then maybe just as a quick follow-up. You don't give us some of the same detail in terms of the buy and sell rates for the business and understand different modes, more complicated. But I guess as you think about the rate at which your customer rates are coming down and correcting with the -- available indices we will be looking at, is that spreads, also widening a little bit, or are we getting to the point where your Forwarding business has caught up to where sort of market rates are today.

David Vernon:

And on the air side?

David Vernon:

All right. Thanks for the time guys.

Operator:

Thank you. We're showing time for one last question today. The final question is coming from Ken Hoexter of Bank of America. Please go ahead.

Scott Anderson:

Yes, Ken, great question. I think it's a combination of both. I think the technology amplifies the expertise of our people and our ability for our people to drive continued growth and drive operating leverage for the business and grow without adding headcount is one of the key things to what we're doing. So, to me, we're on a path to have multiple wins win for our customers, win for our carriers and a win for our people when we do this the right way.

Scott Anderson:

No, I think one of the things that Robinson is so strong at is our commercial engine. And I think one of the things we have to do is leverage the technology. We've seen that in terms of how we compete against our technology competitors. So, this is an additive game, a one plus one equals four or five. And one of the things Arun is doing and part of our cost reduction strategy here is also to drive costs out of areas and take complexity out of the organization to drive it towards the right things that grow the business and grow margin.

Mike Zechmeister:

Yes, I'll make a couple of comments there, Ken. So I mentioned that the competitiveness seems to have heated up, particularly on the brokerage side here. And we could certainly go out and get more volume, but we're committed to getting profitable volume. And so we are not interested in getting into any kind of competitive situation that would lead us to issues with negative loads or chasing that kind of volume. So, we've been pretty disciplined there. We've got really good pricing engines. We feel like we've got great understanding in the market. And so we feel like we can compete pretty effectively there with our data advantage and our people and connectivity to the customers in a way that will continue to be able to make strides both on a market share gain standpoint and against our margin targets.

Mike Zechmeister:

Thank you.

Chuck Ives:

Yes. Thank you, everyone, for joining us today. That concludes today's earnings call, and we look forward to talking to you again. Have a great evening.

Chuck Ives:

Thank you, Donna, and good afternoon, everyone. On the call with me today is Scott Anderson, our Interim Chief Executive Officer; Arun Rajan, our Chief Operating Officer; and Mike Zechmeister, our Chief Financial Officer. Scott and Mike will provide a summary of our 2022 fourth quarter results and our outlook for 2023. Arun will provide an update on our path to a scalable operating model to improve the customer and carrier experience. And then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found on the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. I'd also like to remind you that our remarks today may contain forward-looking statements. Slide two in today's presentation lists factors that could cause our actual results to differ from management's expectations. And with that, I'll turn the call over to Scott.

Mike Zechmeister:

Thanks, Scott, and good afternoon, everyone. Our Q4 financial results reflect the price declines and slowing demand in the freight forwarding and surface transportation markets that Scott referenced earlier. Our fourth quarter total company adjusted gross profit or AGP was down $88 million or 10.3% compared to Q4 of 2021 driven by a 39% decline in Global Forwarding and partially offset by a 5.7% growth in NAST. The market softness was also prominent on a sequential basis, with total company AGP down 13%, including a 24% decline in Global Forwarding and an 11% decline in NAST. On a monthly basis, compared to Q4 of 2021, our total company AGP per business day was down 10% in October, down 7% in November and down 14% in December. In our NAST truckload business, our volume declined on a year-over-year basis for the first time in seven quarters with shipments down 4%. Within the fourth quarter, monthly volume declined sequentially from October through December as freight demand weakened. Our AGP per truckload shipment increased 6.5% versus Q4 last year due to an increase in our contractual truckload AGP per shipment. On a sequential basis, however, our truckload AGP per shipment came down 6.5% but remained above our 10-year average. During Q4, we had an approximate mix of 65% contractual volume and 35% transactional volume compared to a 55-45 mix in the same period a year ago. Routing guide depth of tender in our Managed Services business, which is a proxy for our overall market, declined from 1.3 in the third quarter to 1.2 in the fourth quarter, which is the lowest level we've seen since the pandemic impacted second quarter of 2020. The sequential declines in our truckload linehaul cost price per mile that we experienced in Q1 through Q3 continued in Q4 as excess carrier capacity, combined with slowing demand, led to the softening market conditions. This resulted in an approximate 24% year-over-year decline in our average truckload linehaul cost paid to carriers, excluding fuel surcharges. Our average linehaul rate billed to our customers, excluding fuel surcharges, decreased year-over-year by approximately 21%. With the cost down 24% and price down 21%, we saw a 3% increase in our NAST truckload AGP per mile on a year-over-year basis. In our Global Forwarding business, higher customer inventory levels, combined with softening demand, contributed to significantly reduced import prices for ocean and airfreight. In Q4, Global Forwarding generated AGP of $188.7 million, representing a year-over-year decrease of 39% versus the record high fourth quarter in 2021, which was up 72%. With these results, our ocean forwarding AGP declined $89 million or 43% year-over-year compared to an 86.5% growth in Q4 of 2021. The Q4 results were driven by a 36.5% decrease in AGP per shipment and a 9.5% decrease in shipments. AGP in our airfreight business declined by $33 million or 51.5% year-over-year compared to a 92% growth in Q4 of 2021. This was driven by a 40% decline in AGP per metric ton and a 19.5% decrease in metric tons shipped. Despite the soft market, the forwarding team continues to add new customers and diversify our industry verticals and trade lanes. In Q4, approximately 50% of our AGP from new business was generated from trade lanes other than the trans-Pacific lane. Now turning to expenses. Q4 personnel expenses were $427.3 million, up 1.7% compared to Q4 last year, including $21.5 million of severance and related charges driven by the restructuring that we initiated in November. The restructuring-related costs were partially offset by a decrease in equity compensation as we reversed some previously accrued expense due to financial results that came in lower than previously expected. On a sequential basis, Q4 personnel expenses declined $10.2 million. Excluding the restructuring charges in Q4, personnel expenses declined $31.7 million sequentially due to lower incentive compensation and lower salaries and benefits associated with reduced headcount. Our Q4 average headcount declined 2% versus our Q3 average. The workforce reduction initiated in November affected approximately 650 employees. While nearly 150 of those employees had left the company prior to December 31, over 600 had exited as of early January. As we continue to make progress on delivering a scalable operating model, we expect our headcount to decline throughout 2023 as productivity improves. For 2023, we expect our personnel expenses to be $1.55 billion to $1.65 billion, down approximately 7% at the midpoint compared to our 2022 total of $1.72 billion, primarily due to reduced headcount. Excluding the restructuring charges in Q4 of 2022, the midpoint of our 2023 guidance for personnel expenses is down approximately 6% year-over-year. Moving on to SG&A. Q4 expenses of $176.8 million were up $27.9 million compared to Q4 of 2021 driven primarily by $15.2 million of restructuring charges and a year-over-year increase in legal settlements, partially offset by a decrease in credit losses. The restructuring charges in SG&A primarily included an impairment to internally developed software related to the reprioritization of our technology investments that Arun will speak to shortly. Our approach to investments and investment prioritization is more data-driven and more focused on delivering a scalable operating model than in the past, which is improving the value of the benefits we are delivering and allowing us to pivot more quickly if investments are not delivering as expected. For 2023, we expect our total SG&A expenses to be $575 million to $625 million compared to $603.4 million in 2022. The slight decrease at the midpoint includes an expected decrease in legal settlements in the absence of two onetime items that occurred in 2022. Those include the $15.2 million Q4 restructuring charge and the $25.3 million Q2 gain from the sale and leaseback of our Kansas City regional center. 2023 SG&A expenses are expected to include approximately $90 million to $100 million of depreciation and amortization expense compared to $93 million in 2022. Q4 interest and other expense totaled $42.5 million, up $24.1 million versus Q4 of last year. Q4 of 2022 included $24.8 million of interest expense, up $10.7 million versus the prior year, primarily due to higher short-term average interest rates. Q4 results also include a $16.9 million loss on foreign currency revaluation, up $10.4 million compared to Q4 of last year driven by the relative weakness of the U.S. dollar. As a reminder, the FX impacts are predominantly non-cash gains and losses on intercompany balances, which is why they are not hedged. Q4 tax rate came in at 20.9%, bringing our full year tax rate to 19.4%. We expect our 2023 full year effective tax rate to be 19% to 21%, assuming no meaningful changes to federal, state or international tax policy. Q4 net income was $96.2 million, and diluted earnings per share was $0.80. Adjusted or non-GAAP earnings per share, excluding the $36.7 million of restructuring charges, was $1.03, down 41% compared to Q4 of '21, which was up 61% versus the prior year. Turning to cash flow. Q4 cash flow generated by operations was a record $773.4 million compared to $75.9 million in Q4 of 2021. As we have talked about in prior earnings calls, we were expecting an improvement in working capital when the cost and price of purchase transportation came down. The $698 million year-over-year improvement was driven by a $650 million sequential decrease in net operating working capital in Q4 due to the declining cost and price of ocean, air and truckload in our model. Conversely, Q4 of last year included a $200 million sequential increase in net operating working capital as costs and prices were rising. If you look back at the period when cost and price of purchased transportation was rising from the end of 2019 to Q2 of 2022, our net operating working capital increased by approximately $1.5 billion. Between Q3 and Q4, as the cost and price of purchased transportation has come down, we have realized over $1 billion of benefit to working capital and operating cash flow. That benefit has come on a lag basis based on our DSO and DPO. Driven by the increased free cash flow generation in Q4, we returned $507 million of cash to shareholders through $438 million of share repurchases and $69 million of cash dividends. The Q4 cash returned to shareholders significantly exceeded net income and was up by 128% versus Q4 last year driven by the record cash flow. Consistent with our capital allocation strategy, to the extent that we have excess cash after managing through our commitments, investments and holding to an investment-grade credit rating, we are committed to returning that cash to shareholders through share repurchases. Capital expenditures were $27.8 million in Q4, bringing our full year capital spending to $128.5 million, up $58 million compared to 2021. The increase was primarily due to an increase in internally developed software. We expect our 2023 capital expenditures to be in the range of $90 million to $100 million. Now on to the balance sheet highlights. We ended Q4 with approximately $1.34 billion of liquidity comprised of $1.12 billion of committed funding under our credit facilities and a cash balance of $218 million. Our debt balance at the end of Q4 was $1.97 billion, up $55 million versus Q4 last year, primarily driven by our expanded capacity to borrow given the strong EBITDA performance. Our net debt-to-EBITDA leverage at the end of Q4 was 1.29 times, down from 1.42 times at the end of Q4 last year. As I mentioned, our capital allocation strategy is based on maintaining our investment-grade credit rating, which allows us to optimize our cost of capital. As we anticipate reduced earnings in 2023 given the strong results in the first half of 2022, we are planning for a lower level of debt to deliver our leverage targets. To the extent that we reduce our debt levels, this may reduce the amount of cash used for share repurchases. In December, our Board authorized and declared a 10.9% increase in our regular quarterly dividend taking it to $0.61 beginning with the dividend that was paid in January. We have now distributed uninterrupted dividends without decline for more than 25 years. Over the long term, we remain committed to growing our quarterly cash dividend in alignment with long-term EBITDA growth and using our share repurchase program as important levers to enhancing shareholder value. With that, I'll turn the call over to Arun to walk through our strategy to deliver a scalable operating model and strengthen our customer and carrier experience.

Scott Anderson:

Thanks, Arun. As inflationary pressures continue to weigh on global economic growth and freight markets present cyclical challenges, we need to continue evolving our organization to bring great focus to our highest long-term strategic priorities, including keeping the needs of our customers and carriers at the center of what we do while lowering our overall cost structure by driving scale. I believe in the strategy that the team is executing on to deliver a scalable operating model. We expect this initiative will continue to drive improvements in our customer and carrier experience and amplify the expertise of our people, all of which will drive share gains and growth. And as Arun said, we expect these efforts will also improve our productivity, which will reduce our operating costs and lead to improved returns for our shareholders. I'd like to close by saying thank you to our employees for persevering during the period of extended market disruption and the market correction that is followed and for continuing to provide industry-leading service to our customers and carriers. This concludes our prepared remarks. And with that, I'll turn it back to Donna for the Q&A portion of the call.

Jack Atkins:

Good afternoon. And thank you for taking my question. So Scott, if I could address this to you. The change in leadership at the CEO level would indicate that the Board believes that a change in strategic direction is necessary. But if I listen to the message on the conference call today, it's very similar to the message three months ago from the company. So I guess my fundamental question here is, what is actually changing at C.H. Robinson today? And as you think about the qualities that you're looking for in the permanent CEO, what are those? And where does the Board want to take this company over the long term? Thank you.

Jack Atkins:

And then in terms of the qualities for the next CEO, can you maybe talk about that for a moment?

Jack Atkins:

Okay. Thank you for the time.

Bruce Chan:

Thanks, operator. And good afternoon everyone. Maybe just a follow-up on the strategic question and maybe in a little bit more of a pointed way. But when you think about your customer base, how many of them use you for end-to-end service? How many are both NAST and Global Forwarding customers? And then when you think about Bob's kind of statement before that Global Forwarding was an intrinsic part of Robinson, do you feel the same way about that division going forward? Thank you.

Mike Zechmeister:

Yes. As we look at the combination of NAST and Global Forwarding, we've seen some great opportunities from a cross-selling standpoint between the two. And as we pointed out, if you look at the last 12 months, we've had over half of our revenue in AGP comes from customers who use both, Surface Transportation and Global Forwarding, services. We've looked deeper into this. We could probably do a better job at taking advantage of the relationships on both sides, but we have had some pretty compelling results. And I'll share with you one of the studies that we did where we looked at the last five years and we looked at customers who use both NAST and Global Forwarding versus customers who use one or the other. And the five-year compound annual growth rate for customers who use both was 400 basis points better than those who use one or the other. So we've been able to leverage customer relationships, bring business from NAST customers to Global Forwarding customers and vice versa. We believe as we think about customers and what they need and what they want that we can bring a full complement of services that they really need where they can get stuff from center Asia, center China to center U.S. with us and do it in a way that is value-added to their supply chain. So we believe in the ability to leverage both of those businesses, and that's our plans going forward.

Bruce Chan:

And just a quick follow-up there. You all talked a lot about this new, I guess, global platform and some of the tech changes that you're making. Arun, I didn't hear a whole lot about the Global Forwarding side of that. Maybe just some quick comments about what's in store on the technology side for Forwarding. And ultimately, do you feel that Navisphere is the right platform there?

Mike Zechmeister:

And I would add on to that, that in the Global Forwarding business, the opportunity for tech enhancements is probably greater. The business is probably further behind truckload in the U.S., for sure, and LTL. And so there's more complexity in Global Forwarding when you get languages, currencies, culture, customs that makes it a more challenging environment from a tech enhancement standpoint. But that being said, the tech enhancements on the Global Forwarding side have been great. They've done some really nice backhouse automation. They've got some customer-facing features that have improved services. And they're excited about the tech for 2023. In fact, they've shown the tech to some customers. Nav 2.0 is something that customers are excited about. And it's been a while, I mean, since our team internally has been excited about the upcoming year with respect to tech and Global Forwarding. Certainly is.

Bruce Chan:

Great. Thanks for the color.

Jeff Kauffman:

Thank you very much. I had a question for Arun. Arun, where -- when you think of digitalization and digital transactions on the platform, how do you define what's digital versus what's not digital? And thinking about both the Forwarding and the NAST businesses separately, where are you in terms of percent of transactions that are -- you consider digital today? And where do you want to be by the time we're finished with this change?

Scott Anderson:

Yes. I would just add sort of how I talk about it to the employees as sort of an incumbent leader in the space that is using technology to sort of modernize the business is through sort of some business examples, I come from a distribution background. So you look at a company like Grainger and how they've leveraged technology to really drive tasks but then unleash the expertise their employees have for their customers. That's very similar to, I think, the opportunity we have here is really make our employees or logistics experts much more productive and then make technology tools that are sticky to the customer and that they really appreciate in terms of just making us easier to do business with. And I think Arun's product team is absolutely on that track.

Jeff Kauffman:

And then the second part of that question, please, Arun, where are you today in terms of -- however you choose to think of it. I was thinking percentage of transactions that are digital. Where do you want to take that in two or three years? And where do you want to take that long term?

Jeff Kauffman:

Okay. Thank you very much.

Chris Wetherbee:

Thanks. Good afternoon. Scott, maybe a question here about Global Forwarding. So it sounds like this is something you think is key to the portfolio going forward. So I think it would be helpful to maybe give a bit of a perspective of where you think we are in sort of the normalization cycle. Obviously, the pandemic boosted rates to extraordinarily elevated levels, and as you noted in the release, were kind of back down to pre-pandemic levels in some of these end markets. So prior to 2020, this business was generating net revenues north of $500 million. It peaked out, obviously, a multiple of that. What is the right number for Global Forwarding as we start to go forward? I guess maybe in other words, how much share has been sort of captured there? What's the cross-selling opportunity? Just if you could give us some perspective of how to think about it in the context of normalization, I think that would be great.

Mike Zechmeister:

Yes. Chris, happy to do that for you. So after running operating income margins of over 50% in Global Forwarding in Q1 and Q2, obviously, we knew that wasn't a sustainable level, and the market would come back to us at some point. The normalization, if you call it that, has surprised us a bit in terms of the speed and magnitude of the correction. And so I think in that process, we found ourselves with cost structure that didn't match the business. And so we are in the process of kind of rightsizing that cost structure. During the pandemic in some of those periods, we were intentionally investing in our business. There was the ability to get the attention of customers to a greater extent. We were improving customer service. We're investing in technology. And the intent all along was to come out of the pandemic in a better place. And we feel like we've done that. But as Q4 demonstrates, when you look at the operating income margin, we've still got a ways to go in rightsizing our cost structure, and Mike and the team have been getting after that. Headcount is down and will be down further as we enter into the New Year. We do think that a 30% operating income margin for the long term is still the right number. And I mentioned the technology and how the technology can help improve the operating margin on a go-forward basis, but I'll mention a few other things that I think are key to success in that Global Forwarding business, too, and things that the team is encouraged for in terms of continuing to gain market share as we go. But another one I'd mention is operational uniformity. That's really standardizing a lot of the work and activities that are done there. They have a good start on that, but there are still quite a bit more there that generates efficiency. And the good news is that as they come out of the pandemic here, the customer excellence scores are pretty solid. Team wants to make them better, but they're in pretty good shape from that perspective. Continuing to build scale. So the pipeline for new customers has been solid. They're looking at new verticals. They're looking at new trade lanes. And building that scale will be important to help us leverage the investments that we're putting in on that business to ensure that they've got a good return. I talked about their intentions and actions around managing expenses and headcount. That did get out of line a little bit here in the back half as rates in ocean and air really came back quite dramatically. And then the last thing I'd mention would be talent acquisition. So there's a lot of talent out in the marketplace. The team has done a pretty good job of bringing in folks that can help us extend into new verticals and extend into new trade lanes and geographies. And so continuation of that also gives us confidence that they can continue to grow market share going forward. And that will be the key to success and the key to getting that margin to 30% long term.

Mike Zechmeister:

I think that's fair.

Jordan Alliger:

I was wondering if you could talk a little bit to where you think we are from a spot market perspective for truckload pricing. And sort of based on where you think maybe that bottoming occurs, how are we in terms of contract timing on your non-renegotiated contracts to this point? Thanks.

Jordan Alliger:

No. I appreciate the answer. Thank you.

Jon Chappell:

Thank you. Good afternoon. Scott, in the answer to an earlier question, you'd mentioned kind of no change in strategic direction, and however, maybe greater sense of urgency and timing. You talked about the annualized savings by the end of '23. But as you've been in this new role, have you found either new opportunities or ways to kind of front-end load some of the cost alignment that you have planned for the year? So therefore, you're kind of timing that more with the macro headwinds or some of the volume headwinds you see and are still cutting in the back half of the year when conceivably things may be getting better?

Mike Zechmeister:

And I can add a little color to just on the cost savings front. So we did make some progress against that expense reduction target here in Q4, particularly on the personnel side. And just as a reminder, back to the commitment. So we were taking the run rate of Q3 and annualizing it, and the commitment was that we would get to a net cost reduction of at least $158 million by Q4 of 2023. And if you look at what we delivered in Q4, you take out the restructuring expense and annualize where we're at, you get to a number that's about $2.27 billion. So the run rate that we were -- if you take the Q3 and the annualized run rate of that, that was about $2.4 billion. So that implies that we've already -- are already at about $130 million savings versus that original commitment. Now you can't read into that too much because in Q4, as I had spoke to earlier, we did have a benefit to our equity compensation that reduced the overall expense in Q4, and we wouldn't expect that to continue into 2023. But the net of that is we have made some decent progress. We are, I think, much better focused going forward on headcount. And that will be a key since that's such a big part of our cost structure as we roll through 2023.

Operator:

The next question is coming from Brian Ossenbeck of JPMorgan. Please go ahead.

Scott Anderson:

Yes, I'll kick off on Global Forwarding and toss it over to Mike. The Global Forwarding team has a history of managing expenses really well through cycles. Obviously, the last 18 to 24 months was very unique. So I'm confident that they're on point. And where they can find expense reduction that makes sense, they're absolutely going to do it. And then maybe Mike can give some color to that.

Brian Ossenbeck:

Thanks for all that, Mike. So I guess the difference between the $150 million and the $200 million you guided to you, that would be basically the transitory of the market-based impact. Is that what you call out there?

Operator:

We are showing time for one final question. The final question for today is coming from Stephanie Moore of Jefferies. Please go ahead.

Scott Anderson:

Yes. Thanks, Stephanie. I'll have Mike start, and then I'll wrap up and maybe talk about our capital allocation committee a little bit as well.

Scott Anderson:

Yes. And Stephanie, I would just add from a Board perspective, we're making our Capital Allocation Committee a permanent committee, and we're also going to be soon adding additional members to that. And I think this is really going to serve as a great partner to the management team in terms of looking at areas that we can drive value across the organization for both customers and shareholders.

Operator:

Thank you. At this time, I'd like to turn the floor back over to Mr. Ives for closing comments.

Operator:

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time. And enjoy the rest of your day.

Charles Ives:

Good morning, everyone. On the call with me today is Bob Biesterfeld, our President and Chief Executive Officer; Arun Rajan, our Chief Operating Officer; and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2022 3rd quarter results and outline some new cost reduction actions. Arun will provide an update on the innovation and development occurring across our digital platform, and then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found on the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we’re referencing. I’d also like to remind you that our remarks today may contain forward-looking statements. Slide 2 in today’s presentation lists factors that could cause our actual results to differ from management’s expectations. And with that, I’ll turn the call over to Bob.

Arun Rajan:

Thanks, Bob, and good morning, everyone. I’ll begin by saying that I’m excited to take on an expanded role as the company’s Chief Operating Officer. I look forward to further building the integration between our digital product strategy and our technology and marketing teams to accelerate delivery and adoption of our meaningful products, features and insights to both sides of our 2-sided marketplace. During the third quarter, we continue to deliver enhancements to our Navisphere product platform, while extending the penetration of our digital offerings with both our carriers and our customers. Due to the digital improvements that have been delivered, the number of carriers looking loads, the Navisphere Carrier in Q3 increased 77% compared to the third quarter of last year. Since providing carriers with enhanced capabilities to place digital offers and loads via Navisphere Carrier, which improves the carrier experience and our productivity, we saw a 34% sequential increase in digital offers from Q2 to Q3. Another data point that demonstrates our progress is the execution of 615,000 fully automated bookings with carriers in our NAST Truckload business during Q3, which is an increase of 87% compared to the same quarter last year, and represented $1.2 billion in digital bookings in Q3 alone. Broadly speaking, we’re focused on providing scalable digital solutions that deliver improved customer and carrier experiences and service levels by working backwards from their needs. Much of this is about operationalizing our information advantage at scale through features such as backhaul load recommendations for carriers. On the customer side, it’s about giving customers insights around price and coverage. And one way to do this is to scale our Market Rate IQ and Procure IQ products. Scalable digital processes will enable us to decouple volume and headcount growth and drive increased productivity and we are laser-focused on opportunities to automate or make self-serve processes that are core to our operating model. This includes increasing the digital execution of all the touch points in the life cycle of a load including order management, appointments, in-transit tracking, cash advances and financial and documentation processes. Scaling these processes are foundational to being the lowest cost operator which ultimately gives us the pricing flexibility to accelerate growth and gain market share in the new side of the marketplace that we serve while delivering our long-term operating margin targets. I’ll turn the call over to Mike now to review the specifics of our third quarter financial performance.

Bob Biesterfeld:

Thanks, Mike. As inflationary pressures weigh on consumer discretionary spending and global economic growth, we continue to believe that our global suite of services, our growing digital platform, our responsive team and our broad exposure to different industry verticals and geographies, supported by our resilient and flexible non-asset-based business model put us in a position to continue to deliver strong financial results. But we also need to continue evolving our organization to bring focus to our highest strategic priorities, including keeping the needs of our customers and carriers at the center of what we do, while lowering our overall cost structure by driving scale. The work that our team is executing on related to scaling our digital processes and operating model while working backwards from the needs of our customers and carriers is entirely focused on driving improvements in our customer and carrier experience which in turn will drive market share gains and growth. We’re focused on improving productivity, which in turn reduces our long-term operating costs and increased profits, leading to continued strong returns to shareholders. This concludes our prepared comments. And with that, I’ll turn it back to Donna for the Q&A portion of the call.

Todd Fowler:

Great. Bob, I guess maybe to start, if you can maybe share with us on the cost savings that you’re expecting going into ‘23, maybe some comments around the buckets where you see those savings coming from? How we should think about those across segments? And as you think about kind of this initial stab on the cost side, do you see additional opportunities as you move beyond this? Do you have to wait until you get to the end of these cost savings for some other opportunities? Or can you identify some things as you continue to move forward? So a lot kind of packed in there, but maybe you can share some thoughts on that?

Mike Zechmeister:

Yes. I think that covers it. I think I’d put an additional emphasis just on the digitization efforts. And while 175 worth of cost reduction initiatives, net 150 is important for our model. It’s not where we end. It’s just an articulation of the progress that we’re making and that digitization is really the key for us to continue to drive cost down going forward.

Operator:

The next question is coming from Jason Seidl of Cowen.

Bob Biesterfeld:

Yes. So I’ll talk a little bit about the cycle and spot more specifically. We often use the TMC routing guide as a proxy for kind of where we see the industry overall in terms of routing guide performance. And obviously, it’s critical to understand how effectively routing guides are holding up in the contract space to kind of get a sense of the unplanned freight that moves into the spot. The TMC routing guide depth of tender was hovering around 1.3. In September, it dropped to 1.24. And so when we look at that from a historical context, from a load acceptance perspective, that’s really reflective of times like 2009, 2019 and the first half of 2020. So I think that kind of helps to paint the picture of the current contract compliance that exists. In terms of where we see the cost market going, in general, as we think about 2023, we think that the cost forecast that we have -- the beginning of the year and the end of the year looking pretty similar. But with the deceleration in spot pricing and truckload pricing in the first half of the year with a slight reacceleration in the back with -- we kind of think that, that floor, the cost floor comes in kind of that April, May time period. And so there is very little unplanned freight in the spot market today. I think we are seeing a number of shippers intentionally use the spot as a mechanism to capture lower cost savings and keeping some freight out of the contract market. As it relates to your second question around forwarding, we’ve -- we’re certainly proud of our leadership position in the transpacific. And we continue to add business in the transpac, but we’ve also been very focused on diversifying the overall global forwarding portfolio. So it’s not to be so reliant upon that. And so you’re seeing strong growth in Europe, in Southeast Asia, Oceania, Australia, LatAm, India as examples. We climbed to the #1 spot as the leading forwarder from India to the U.S. as well as from the U.S. to Australia. So hopefully, that gives you some color.

Bob Biesterfeld:

Yes.

Brian Ossenbeck:

So I just want to come back to the conditions in the contract market, Bob, you had a 65-35 split. You had spreads with spot market contract kind of widening out through the quarter but margins came in a little bit weaker than we would have thought or at least that would have historically suggested. Was that the compliance aspect of it that caused some of that weakness? Was it just less spot market volume than we would have thought? I mean it does seem like it declined fairly quickly. And then just a quick clarification, maybe for Mike on that legal settlement. It sounds like that’s in the SG&A guide and offsetting the other charge-offs. I wanted to see if you could expand on that and perhaps where that was located from a segment perspective because that was a fairly large number you just called out.

Mike Zechmeister:

Yes. And then, Brian, just to add a little bit of clarity on SG&A. We were up 21% in the quarter, 28% overall, guiding to the high end of our original guidance, including the $25 million gain on sale leaseback of our Kansas City Regional facility, which was in Q2. But we also had called out in your point about nonrecurring legal settlements in the quarter and on the year, largely offsetting that gain from Kansas City. And so just a little more specifically in the quarter on the legal settlements. They represented about 1/3 of that increase in expense in SG&A for Q3.

Mike Zechmeister:

Yes, it’s a corporate line item, but impacting NAST business.

Bruce Chan:

Yes. Thanks, operator, and good morning, everyone. Bob, just going back to your second quarter commentary back in July, you had some pretty cautious outlook comments, especially with regard to Global Forwarding, and it looks like that caution was on point. You had division EBIT down almost 50% sequentially. So I guess, we were a little surprised to see that you were still adding headcount there, up about 100 people quarter-over-quarter. Just -- maybe you can help us to reconcile those 2 things? Why you were adding when the outlook was so conservative?

Bruce Chan:

Okay. Fair enough. And then just maybe to follow up really quickly. Can you give us an update on how you’re thinking about the portfolio just in terms of strategic alternatives that maybe you consider what businesses you see as core or noncore? And whether you have any kind of processes in place to maybe monetize some of those assets?

Operator:

The next question is coming from Jack Atkins of Stephens.

Mike Zechmeister:

Yes, Jack, let me just start off and cover your question about the legal settlements the legal settlements in Q3. The legal settlements were $9.4 million, they impact NAST, the business.

Arun Rajan:

Yes. Jack. So right now, we have a clear road map to increase productivity in NAST by roughly 15% by the end of 2023, which all ladders up to the $150 million that Bob described. As it relates to additional opportunities. So we’ve -- if you recall, we’ve talked about the life cycle of a load. So starting from order management to appointments in transit tracking and financial documents, et cetera, right? So what we’re focused on as part of this initial unlock, 15% productivity improvement is on in-transit tracking and appointments. Having said that, there are certainly the other opportunities that are starting that are probably earlier in the cycle. We have more confidence in the 15% based on in-transit tracking and appointments. As we gain confidence in other efforts, there is likely more opportunity, but we don’t have line of sight to that just yet.

Jordan Alliger:

Maybe just following up a little bit. Can you talk to a little more of the timing of the cost savings as they roll through next year? Or is it evenly spaced? And is there a way to get some sense for what SG&A and personnel expense could look like in 2023 after all these savings? And then finally, I know you don’t give guidance per se, but holistically thinking about this plan and the productivity savings you just mentioned, can that EBIT margin stay north of the 30% level for the total company?

Bob Biesterfeld:

Yes. And in terms of kind of the operating profits of the business, we will continue to work backwards from our stated operating margin targets of 40% for NAST, 30% for Forwarding and mid-30s for the Enterprise. And so we’re using that as a guide as we continue to move forward here and kind of solve for and so that in itself will help to kind of determine the pace in which the cost reductions come.

Ken Hoexter:

Great. So Mike, just to clarify because you signed a way we keep getting on this cost, I guess, because it wasn’t as explicit as possible. The $25 million gain last quarter is just partially offset by the $9 million legal sentiment, right? It wasn’t a full up. So I just want to clarify that from your earlier statement. And then I guess looking at the difference, Bob, on the profitability on NAST and in Truckload in specific, was there just inordinate fuel gains last quarter that added to this? I’m trying to figure out why the decline -- sequential decline in these margins. What shifted here to make that? I mean your percentage went down from -- on the spot from 40% to 35%, right? So you went up on the contract. And so you said the contract margins were much, much greater. Just trying to figure out why that margin then overall went down so dramatically? And is it worth then chasing that spot volume business? Is it still contributory?

Ken Hoexter:

Yes.

Ken Hoexter:

And then just to clarify on the $150 million, Bob, is that a shift in incentive comp pay and commission structure? Or is that just reducing the people, as you mentioned earlier, given the digitization? Just -- I guess sorry for the follow-on.

Operator:

The next question is coming from Bascome Majors of Susquehanna.

Bob Biesterfeld:

Yes, it’s almost exclusively personnel expense, Bascome.

Bob Biesterfeld:

There -- as part of this, there is a plan in place to control that moving forward. We continue to believe that 30% operating margins is the appropriate level of profitability for that Forwarding business. And so as we think about how do we solve for that, it’s really -- it’s 3 levels -- 3 levers, right? And I don’t mean to oversimplify it, but it’s -- what are the trends in volume? What are the trends in AGP per shipment? And what are ultimately the personnel expenses needed to support that -- to deliver that operating margin?

Chris Wetherbee:

Bob, I wanted to ask you about your sort of philosophy on volume growth. I think there’s been push to continue to try to gain share through fluctuations in the market in NAST. And it sounds like this quarter, that was challenging from a spot perspective. So I wanted to get a sense of maybe how you think about it. Volume growth was pretty close to breakeven in NAST. Is it something that you think you can do? Does it make sense to do in these types of markets where you might end up seeing sort of an impact on profitability as a result? I just want to get your sense on how you’re thinking about that.

Chris Wetherbee:

It does. It’s helpful. I guess, that sort of gets to the point that you mentioned on the approach to contract pricing. Anything you can share with sort of where the market is today relative to how you might think about that, what type of aggressive actions you might need to take to be able to get share in that piece of the market?

Operator:

The next question is coming from Scott Group of Wolfe Research.

Mike Zechmeister:

Yes. So first, I’ll kind of go backwards. So first of all, the annual run rate is just as reported. So not including the legal settlement. The SG&A, we guided to the high end. And so yes, I guess, if you take the very high end of our guidance of $600 million, and look at our year-to-date, you’d be seeing 172, 173-ish kind of number would be the Q4 plug to get to the high end, which is higher than what we had in Q3 of 162-ish. And then back to your first question, I think you were asking about in our all other and corporate results, our income from operations, which was a $10 million loss compared to what would have been a $3.4 million loss a year ago, and that’s driven by unallocated expenses that we hold at the corporate level and think about that as primarily our investments in growth in the product organization. In terms of the other business units, like Robinson Fresh, Managed Services and EST, which are included also in that group, those are generating income positively and up versus Q3 last year.

Bob Biesterfeld:

Sorry, can you repeat that? You cut out a little bit. Can you repeat that?

Bob Biesterfeld:

From where I sit right now, I would believe that to stay positive in Q4.

Jon Chappell:

I think we’ve covered a lot, Bob, about the ever-evolving market here. It’s changing awfully quickly. I was wondering if you can provide some perspective on this cycle versus prior cycles, most especially how are some of your competitors acting? If you’re going after volume aggressively maybe at the expense of yield, are others doing the same? Is it more discipline this time? Does it offer you a better opportunity for Robinson specific market share growth versus prior cycles? Just any context to this upcoming maybe 12 months versus ‘19 and ‘16.

Jon Chappell:

Would it be fair to say the high highs of this cycle could potentially translate to possibly a higher floor? Or does it just make the volatility more extreme?

Operator:

The next question is coming from Amit Mehrotra of Deutsche Bank.

Mike Zechmeister:

Yes. Just on the first question there, Amit, the run rate or how much of it drops to the bottom line in 2023. That will be guidance that we provide when we come back on our Q4 earnings call, we -- as we customarily do, we’ll provide you guidance for the year on personnel and SG&A that will help you understand how that drops in comparison to the headwinds on inflation and merit increase investments and all the rest.

Amit Mehrotra:

Yes. So that’s fine. But the question I have, though, is like does that translate to like greater drop-through of net revenue as net revenue grows, greater market share gains? I mean like that’s the real question and how quickly can kind of this acceleration or change in leadership at the operational level kind of help realize that opportunity?

Operator:

Unfortunately, that brings us to the end of the time we have for the Q&A session. I would like to turn the floor back over to Mr. Ives for closing comments.

Operator:

Ladies and gentlemen, thank you for your participation and interest in C.H. Robinson. You may disconnect your lines. I’ll log off the webcast at this time, and enjoy the rest of your day.

Chuck Ives:

Thank you, Donna, and good afternoon, everyone. On the call with me today is Bob Biesterfeld, our President and Chief Executive Officer; Arun Rajan, our Chief Product Officer; and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2022 second quarter results and Arun will provide an update on the innovation and development occurring across our platform, and then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found on the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. I'd also like to remind you that our remarks today may contain forward-looking statements. Slide 2 in today's presentation lists factors that could cause our actual results to differ from management's expectations. And with that, I'll turn the call over to Bob.

Arun Rajan:

Thanks, Bob, and good afternoon, everyone. As I said before, the role of our products is to relentlessly address customer and carrier needs, and we continue to make good progress on both fronts. During the quarter, we continue to deliver enhancements to our Navisphere product platform while expanding the penetration of our digital offerings with both our carriers and our customers. Our work is improving both the customer and carrier experience with Robinson as evidenced by the results outlined on Slide 12 in our earnings presentation. I won't touch on each of these data points in my prepared comments, but I'll highlight a few that are extremely relevant and show progress and the benefits of our digital investments. In the second quarter, we executed nearly 600,000 fully automated bookings in our NAST truckload business, an increase of 107% compared to the same quarter last year. This represents $1.1 billion in revenue flowing through this digital channel. Because of the digital improvements that have been delivered, we've increased the number of carriers looking loads to our digital channels by 96% year-over-year. On the customer side of our marketplace, through further integrating and scaling a real-time dynamic pricing engine, we priced 71% of our spot truckload volume through this digital tool, resulting in $597 million of truckload business. Extending this capability allows us to be more responsive to changes in the market, better meet the needs of our customers while also creating additional stickiness in our customer relationships. More broadly, we're focused on designing and delivering scalable digital solutions for growth, such as the progress I just described by transforming our processes, accelerating the pace of development and prioritizing data integrity. The four main pillars of this effort are scaling capacity and procurement, scaling demand generation, scaling quality customer outcomes and scaling our marketplace dynamics as outlined on Slide 11 of our earnings presentation. These four pillars are focused on improving both the customer and carrier experience by working backwards from their needs and increasing the digital execution of all touch points in the life cycle of the load, including order management, appointments, carrier offers and looking, in-transit tracking and financial and documentation processes. As we do this, we will continue to fly the appropriate rigor to direct our test and investments towards products, features and insights that increase the rate at which we acquire, retain and grow share of customers and carriers, which in turn serve as the primary inputs to power our future growth in the two-sided marketplace that we serve. I'll now turn the call to Mike to review the specifics of our second quarter financial performance.

Bob Biesterfeld:

Thanks, Mike. So as questions linger about global economic growth, inflationary pressures and consumer discretionary spending, our global suite of multimodal services, our growing digital platform, a responsive team of logistics experts, our broad exposure to different industry verticals and geographies and our resilient and flexible non-asset-based business model put us in a position to continue delivering strong financial results. While we're pleased with our performance this quarter and the fact that both NAST and Global Forwarding delivered operating margins above our publicly stated targets, we know that we have work to do to consistently deliver at these targeted levels. The work that the teams are executing that Arun referenced, related to scaling our model, eliminating internal legacy processes and improving quality while working backwards from the needs of our customers and carriers will drive continued improvement in operating profits long term. As this work is focused on growth, customer satisfaction and productivity improvements, which will in turn reduce our cost to serve our customers. As we look to the second half of the year, we are watching economic conditions closely, and the management team and the Board continue to consider all strategies to grow operating profits and maximize long-term shareholder returns through all phases of the business cycle and various economic scenarios. This concludes our prepared comments. And with that, I'll turn it back to Donna for the Q&A portion of the call.

Todd Fowler:

Congratulations on the results. Bob, I guess maybe to start, if we take a look at Slide 7 where you've got the truckload AGP. And it's certainly helpful to see, obviously, the profit per load versus the percentage. But can you talk to your thoughts around the sustainability. The profit per load is obviously at a very elevated level versus the last 10 years would you expect it to be able to remain at this level with some of the dynamics in the marketplace? Or how do you think about kind of the sustainability of the profit that you're seeing right now?

Todd Fowler:

Yes. No, I got that in the comments. So that makes sense, and it sounds like that from your view, we're still relatively early in kind of the cycle with what we typically have seen.

Jason Seidl:

Bob and team, congrats on a good quarter. I wanted to talk a little bit on the pricing side. I think you guys said that pricing ex fuel was up on the contractual side, about 1.5%. But you also made some comments that you were proactively repricing some business. Can you talk to the instances where you took the proactive stance to reprice that business and just how much that might have come down from prior pricing trends? And where do you think that should set up for in 3Q?

Operator:

The next question is coming from Brian Ossenbeck of JPMorgan.

Bob Biesterfeld:

Yes, you bet. I'll use the technical term that Arun and I will ham and egg the answer to this one, and I'll kick it off. I mean on the carrier bookings side, we had about $1.1 billion in freight that was booked through the digital channels. If you think about the question of how much of your freight is that, I think we were right around $4 billion in truckload freight in NAST for the quarter. Check me on that, Chuck, right. And so about 25% of the revenue running through that fully digital channel, and that will give you a perspective of the $600 million on the customer side as well. From a productivity perspective, even with the additional headcount that we've added and to NAST over the past several quarters. If I use -- I'll use 2018 or 2019 because the head count was virtually flat is kind of the pre-pandemic comparison, our shipments per person per day in NAST are up about 16% in total. And obviously, the technology investments have a lot to do with that. One point that I'd add to that, though, and I think an area where we could be -- could have been more effective in communicating with our investors and the analyst is that over that time period, our headcount has started to include more and more employees that work in our consolidation and warehouse facilities post the acquisition of Prime. So knowing that those warehouse employees are never going to really contribute to the productivity focus of our truckload marketplace. If you net out the increase in those warehouse employees, our headcount in NAST is actually down about 2% in terms of the employee base that really focuses on the customer and carrier marketplace compared to 2019. And so the productivity index there, the shipments per person per day were actually up about 1%, and in total over that time period. As it relates to kind of the digital natives, we're not seeing anything necessarily drastically different in terms of how the marketplace is acting right now. I think there's less focus of growth at all costs, I guess, I would say, in this industry and many others. And so rational pricing environment and an environment where industry participants with scale are pricing the market rationally, we think is a good thing for Robinson. I maybe open it to Arun to see if there's anything you'd add.

Brian Ossenbeck:

Arun, could you phrase that maybe use a baseball analogy, what inning we're in? How far you can get to 25%, anything else just to give us some additional context of where you are versus where you expect to be in several years' time?

Bob Biesterfeld:

Yes. And I would say, too, just some of our conversations in terms of our prioritization of work. While digital bookings is probably the metric that people talk about the most as being kind of the leading edge of digital transformation. We actually believe the highest leverage points are not the actual booking and much more so some of the operational tasks that Arun spoke to because that's really where a lot of our people's time ends up being spent. And the more we can move those towards digital on the back end of a digital demand signal from a customer or before digital booking with a carrier. That's where the real productivity lift and ultimately, our ability to drive down the cost of an incremental transaction really happens.

Ken Hoexter:

I thought that was a great answer. Thanks on the digital side, and congrats on a great quarter. Just a bit intrigued Bob, on your market comments. Other carriers seem to suggest they're not feeling in yet. Yet most obvious, you're seeing it in the spot rates as they come down and the benefit you're talking about on the cost. So maybe talk a little bit about what customers are saying in terms of the impact and your thoughts on where we are in that -- in the market. And is this a factor of what the smaller carriers are feeling versus the larger in terms of that spread widening?

Operator:

The next question is our coming from Gordon Alliger of Goldman Sachs.

Bob Biesterfeld:

It's a lot there, Jordan. No, that's all right. I probably won't get these in the right order. So I might ask you to repeat a couple of those. So let's talk first about kind of the customer base and where the growth is coming from. If I give you a really simple customer segmentation, A, B, C, D, with A being really big customers and B being smaller customers. Going into the pandemic, our customer mix tended to skew towards the seasons, right, more mid-cap to smaller customers. As we went into the pandemic and throughout and into today, the vast -- we've won in all segments, and we've grown in all segments, but we've grown outsized in really that what I'll call customer type A or the really large global customers is where we're winning the most and the most impactful to our overall volume. In terms of the forward look on the Forwarding business, we do expect that we will continue to see some softening in the marketplace within forwarding and domestically as well. But given the share gains that we've made, given the work that the Forwarding team has done in order to really structurally, I think, put that business in a different place in terms of profitability. We feel like we've got a forward look that's going to allow us to continue to deliver at or above the kind of stated 30% operating margin targets for that business. We are today the number one NVOCC from all of Asia to the U.S., along with the number one from China to the U.S. So if we are going into some moderating economic environments, we're doing it with a strong tailwind and still a strong pipeline of customers to implement. So maybe tell me if I hit on your question and what did I miss?

Bob Biesterfeld:

It's really difficult to assess. I think you can look at our share gains relative to some of our peers and draw your own conclusions on that Jordan, but I don't have a kind of a play-by-play that I would feel comfortable sharing in a public forum that would have any level of accuracy to it.

Jizong Chan:

Congrats on the great print here. Bob, you've had some really helpful comments on the overall demand equation, and I just maybe wanted to pick up on some of that. I know it's still kind of early to talk about peak season here, but as you start discussions for capacity planning on the Global Forwarding side, what are you hearing from them, especially if you think about some of those issues that you mentioned with labor disputes and increasing congestion at ports.

Jizong Chan:

Okay, that's really helpful. And then, just maybe a quick follow-up. We've heard some noise about maybe some concerns about production over in Europe with some of the Russian gas supply. Have you seen any of that on your European trans business or on your forwarding side?

Operator:

The next question is coming from Jack Atkins of Stephens.

Bob Biesterfeld:

Yes. It's the right question to ask, Jack, and I'll take that on and then open it up to the rest of the team here, too. So I want to lead in with one comment, when you say that the work that a room is leading and leading is the appropriate thing, but I also want to characterize this work is not just being technology work or product work, but really us thinking about the entire system of how C.H. Robinson works and system, not in the reference of technology systems, but just the entire system from quote to cash. And how do we best engineer every touch point along the way, both through technology and thinking differently about how we execute the business. And so that is critical work at the core of unlocking value at C.H. Robinson, and we're making progress there. But let's go back to kind of how indirectly, I think your question, Jack, is, hey, if AGP comes down, can you grow volume enough to drive the business. And so here's how I'm thinking about that a bit is we've now grown truckload volume for five consecutive quarters. And that's the first time we've done that since 2016 into 2017. Volume in our truckload business in July is -- continues to be positive year-over-year. And actually, on a per business day basis, it's at the highest level of the year in both truckload and LTL. Our total truckload volume has increased on a per business day basis sequentially each month of this year, including July. The employee additions that we've made into the team over the past several quarters are starting to get their legs under them a bit, a little bit more capable to actually help us drive growth, and there are signs that the freight market is decelerating. And you probably saw in our client advisory that we published on July 21, but based on the indicators we look at, we now expect truckload costs to decline on a full year basis around 15% for the full year. Now given that type of environment, what we also believe is that we will continue to see increased acceptance rates in our contractual business. We would expect to see less volatility in the cost of purchase transportation over the next several quarters in that environment, which allows us to lean in a bit more in terms of accepting volume, taking on a bit more risk. Because the risk on the downside just simply isn't as great in that type of environment. And so, I do feel very confident in the fact that our team should be and will deliver volume growth through the back half of this year. And I think that if we execute the plan accordingly, we could start to see that volume growth ahead of headcount growth even by the end of this year.

Scott Group:

If I go back and look at some prior cycles, your costs and pricing historically have bottomed at sort of low double-digit declines. It sounds like you think it will be worse this time around. And just curious for your thoughts on why? And then if I look at your price versus cost in second quarter, it was 650 basis point spread. Do you think that that spread starts to compress from here? And I guess if that does happen, just any thoughts, implications on margins, PGP all of that.

Scott Group:

Sure. So, I just -- I mean, if you go back and look, you've been giving us this -- your price and your cost numbers for a while and they typically bottom at low double digit and kind of -- yes?

Mike Zechmeister:

And Scott, I'd add relative to the 650 basis points that you're referring to, which is price up 1.5% cost down in this business, as you know, the price follows cost. And so that spread will really be determined by how steep that cost drop-off is. So if it tapers off, you could expect, I think, that spread to be lower if it's steeper, that spread gets wider. And so that's really back to how long will it take for this thing to bottom out.

Bob Biesterfeld:

Yes, yes, yes. Yes, that's accurate, Scott. And more specifically, I would say, within that advisory, we go on to say that we believe that the first quarter is the only quarter that's going to see any sort of industry-wide price increase in order to get to a year-over-year down 15%, you have to see some decreases in the back half of the year. We're kind of calling week 43 the floor because you kind of run in the support of the cost to operate a trucking -- truck at that point. We would expect to see it kick up there for the seasonal last several weeks of the year leading into the holidays.

Chris Wetherbee:

I wanted to comment the 40% operating margins in NAST, a little bit from the cost side. So you talked a bit about the volume growth on the truckload side, which obviously has been really strong over the last few quarters, as you noted. I guess I want to get a sense in a tougher market, sort of the cost initiatives that you're working on, and I know heads are first half weighted. So, we'll probably see some benefit as we move into the back half of the year. What are the other things that you think can help support that 40%? And the last quarter, you gave us sort of a peak into the second quarter in terms of how things were operating from an operating margin perspective in April, not curious if you have the ability to do that in the month of July, just to give us a sense of how things are going. .

Arun Rajan:

Yes. I would just say, I think Bob nailed it with like it's really scalability of the operating model that we're going after, and that means changing processes eliminating processes that maybe don't make sense, automating things that ought to be automated or making self-serve things that are better made self-serve. But that impacts the whole system, like Bob said, the business system and the operating model. And we have clear line of sight in terms of initiatives that drive unlocks in terms of manual work that could be directed elsewhere or manual head count that can be directed elsewhere.

Tom Wadewitz:

Bob, you've seen quite a few freight cycles. You got great information for understanding how the cycles work. And your commentary today seems fairly cautious just in terms of activity and kind of coming weakening in freight. Do you think that -- I guess when I look at second quarter, it seems like there hasn't really been that much of a decline in activity. If you look at imports, they've actually continued to be pretty strong in first half. So do you think that what we're looking at is a fairly significant step down and you're kind of anticipating that in the next month or two that there's just kind of a delay between the impact of weaker consumer activity and any actual step-down in freight. Or are you just seeing kind of more of a moderation? And then, I guess, I don't know if this is related or not, but on contract and spot, do you think that kind of contract rates hang in there a bit better and that there's just a lot more pressure in spot? Or you think contract has to have a Truckload has to have a big step down as well. So I guess two questions within that.

Tom Wadewitz:

Yes. And it's really focused on the market, not so much. Your business has performed remarkably well in the quarter, right? It was a great quarter, and you can do better than the market, but it's more a question on the market. So it sounds like you think maybe more moderation as opposed to a big step down in activity in the market.

Operator:

The next question is coming from Jon Chappell of Evercore ISI.

Bob Biesterfeld:

It's interesting that there's some 20,000 different property brokers in this industry, right? And from small mom and pops that operate every other house to those to the size and scale of ours. One of the biggest challenges, I think, for -- I think one of the reasons why there's so many small brokers and so many very few of scale is one of the biggest challenges is just simply working capital. And as truckload pricing has been so high over the course of the past couple of years, it takes a lot of working capital in order to fund and scale a business like that. So I think many of those businesses have been constrained based on that. If we start to see the market come down, you may likely see some exits of some of those smaller brokers. But given their size relative to ours, there's not a real -- I don't know, I want to say, an imminent threat to our model that comes from that population. I think many of the upstart companies that have come on in the last five years that have gotten to some scale that have been largely funded by VC and private equity, likely their owners are taking a different approach right now to profitability versus growth at all costs. And so again, I think that adds some rationalization to the overall environment that we're seeing that we're competing in and winning in every single day.

Chuck Ives:

That concludes today's earnings call. Thank you, everyone, for joining us today, and we look forward to talking to you again. Have a good evening.

Chuck Ives:

Thank you, Donna, and good morning everyone. On the call with me today is Bob Biesterfeld, our President and Chief Executive Officer; Arun Rajan, our Chief Product Officer; and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2022 first quarter results and Arun will provide an update on the innovation and development occurring across our platform, and then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we’re referencing. I’d also like to remind you that our remarks today may contain forward-looking statements. Slide two in today’s presentation list factors that could cause our actual results to differ from management’s expectations. And with that, I’ll turn the call over to Bob.

Arun Rajan:

Thanks, Bob, and good afternoon, everyone. As I said last quarter, the role of our products is to relentlessly address customer and carrier needs and our strategy is to go deep with data and research to inform technology investments that deliver value to both our customers and our carriers at scale. We are more intentionally connecting our business, data science, digital marketing, and technology teams to bring meaningful products, features and insights to both sides of the two sided marketplace that we serve, and to our employees who are critical to our success. We are also taking a lean approach to delivering products and digital features, rapidly testing and evolving our digital features and functionality to deliver the outcomes we seek. In early February, we launched enhancements to our Navisphere Carrier product, including the ability for carriers to digitally place offers and loads and provide personalized load recommendations based on the unique behaviors of carriers on our platform. The initial results from these enhancements are promising. Visits per day to Navisphere Carrier are up 45% from January to March. We also saw a significant increase in the number of carriers booking loads via Navisphere Carrier with a 51% increase from January to March. These input metrics combined with a few others resulted in a 100% increase in loads booked digitally by carriers from January to March, and a 346% increase from March of 2021 to March of 2022. Ultimately, providing a strong self service solution for our carriers will give us access to additional carriers and create greater loyalty, which is critical to our ability to continue growing volume. Access to more capacity gives us the opportunity to cover more freight on behalf of our customers by meeting carriers where and how they want to engage with us. Working backwards from our carriers and customers leads, we will continue to apply the appropriate rigor to direct our tasks and investments towards products that drive up the acquisition, retention, and growth of carrier and customer share. Positive impact on these metrics is and will be the clearest signal that we are making the right investment decisions in the context of carrier and customer facing products. The digital investments we’re making, and the rigorous test and learn approach we are taking to inform these investments are essential to our continued and future success. The products we develop will aim to strengthen relationships with customers and carriers by delivering value on their terms. When we combine innovation and value with high performance and excellent service, we create sticky relationships with customers and carriers because they trust us. The success of every new product, feature, or insight that we deliver will be evaluated on its efficacy to increase the rate at which we acquire, retain and grow share of customers and carriers, which in turn serve as the primary inputs to power our future growth. I will now turn the call to Mike to review the specifics of our first quarter financial performance.

Bob Biesterfeld:

Thanks Mike. So as questions linger about the impact on global economic growth from the Russian invasion of Ukraine, higher energy prices, and inflationary pressures, among other impacts, we believe that our global suite of multimodal services, our growing digital platform, and our resilient and flexible non-asset based business model will continue to deliver strong financial results through the cycle. We will continue to benefit from our product and technology investments while delivering on opportunities to integrate our services to help our customers solve their complex global supply chain issues. We are uniquely positioned to orchestrate end-to-end supply chain success for our customers, and to help them not only navigate uncertain market conditions, but to succeed in doing so. Our Robinson team and their responsiveness and ability to provide true value continues to be a key differentiator and our ability to win in the market. One of the core values that we live by is we evolve constantly. To advance our industry leadership in a more digital environment, we’re evolving to a product led organization by reorienting the intersection of our growth strategy and our engineering and technology teams with the needs of our customers and carriers. And we’ll continue to differentiate ourselves in the market by having great people that our customers can rely on. I’m excited by the initial results that Arun described related to the enhancements that were rolled out in February for our Navisphere Carrier product. We’ll continue to build on our customer-centric commitment by continuing to invest in smart customer and carrier focused products and we’ll launch several new products that we believe will benefit our customers and carriers, as we continue to build out the most powerful supply chain platform. This concludes our prepared comments and with that, I’ll turn it back to Donna for the Q&A portion of the call.

Todd Fowler:

Hey, great, good afternoon, and congratulations on the results. Bob, I wanted to start with contract pricing and really to get a sense of where you’re at with repricing the book, what percent was effective here in the first quarter? And then with the contracts that you’re signing, is there any change in kind of the nature of the contracts, the duration or anything that would cause them to reset if we see the market continue to evolve going forward?

Todd Fowler:

Got it. And then Bob if you could just comment on percent effective in 1Q versus to still be implemented for the rest of the year.

Todd Fowler:

The contracts that are implemented. So you’ve got the new rates in your contract book in 1Q versus still coming in for the rest of the year.

Todd Fowler:

Okay, that’s fine. I’ll pass it along. Thanks for the time.

Operator:

Thank you. The next question is coming from Jordan Alliger of Goldman Sachs. Please go ahead.

Bob Biesterfeld:

Yeah, thanks. Thanks, Jordan. I’ve said for the past several quarters that our goal is to get NAST back to that 40% range and a couple of factors in play, obviously this quarter. The first being the re-pricing of the book, right, and so, taking down some of the loss making loads being more intentional about the freight that we are targeting and accepting, and obviously the market. The market itself gave us some benefits there outside of our own intentional repricing. And so I think I said last quarter that one of the keys there was really improving the health of our contractual truckload portfolio. I mean, we’ve certainly done that this quarter and we would look for that to continue to get, I guess, “healthier” through the balance of this year. The second is around expense control and ensuring that we’re managing our underlying expenses and investing in the things that are delivering the greatest return. And so I don’t know that -- I don’t -- I won’t prognosticate whether we get there throughout first, second quarter, third quarter, fourth quarter. Within the months, we got pretty close there, within the quarter and so I think we’re on a really good trajectory.

Jordan Alliger:

Thank you. The next question is coming from Scott Group of Wolfe Research. Please go ahead.

Bob Biesterfeld:

What I would confirm and what you just said there Scott is throughout the course of first quarter what we saw was a moderation in terms of the cost of purchase transportation. We saw a moderation in the overall marketplace dynamics in kind of the load to truck ratio. And our model responded the way that we would expect our model to respond. A better part of our while we grew truckload volume in both contractual and transactional, as we would expect, our book starts to shift a little bit more towards the contractual in a loosening market. And as I said, I mean, the model is holding up the way we would expect it to in a market that starts to soften a bit.

Bob Biesterfeld:

Sure. And so maybe I’ll just take a second Scott to level set just to make sure everybody that’s participating in the call has the same information. On February 28, we announced via an 8-K and a press release that we’d reached a cooperation agreement with one of our large shareholders Ancora and through that process, we’ll be adding two new directors to our boards, Jay Winship and Henry Maier. In addition to that, we formed a Capital Allocation and Planning Committee as part of the Board of Directors, which is made up of my Chairman of the Board, myself, and Jay and Henry and that the purpose of that committee is to really objectively assess value creation opportunities for the company, make recommendations to the full board, and to really support management’s review of the company’s capital allocation operations and strategy, including enhanced transparency and disclosures to shareholders. Now, we came to that agreement at the end of February. We’re a couple of months into that engagement, less than 60 days into the engagement. We’ve been working hard over the past couple of months to onboard two new directors who have been incredibly engaged, establishing the priorities of the committee and I’m really encouraged by the engagement and the skill sets of the new directors and the fresh perspective that they’re bringing. I think they’re both going to bring great experiences to our Board. And we’ll continue to work together to maximize shareholder value. Being at its early stages I don’t have a lot to share in terms of outputs of that committee or a specific focus areas, but I would say, kind of that general framework as we’ve communicated publicly at the end of February, is the scope.

Operator:

Thank you. The next question is coming from Jack Atkins of Stephens. Please go ahead.

Bob Biesterfeld:

Yep. I’ll give you a brief answer on the first part, Jack, and I’ll try to build upon the specific question around China. I mean, relative to anything that we do strategically within the organization, as we always have, and as we always will, we’ll evaluate strategic alternatives for the company that are best focused on maximizing shareholder value for the long term. And so new committee, no committee that’s been the lens that we’ve taken. And so as things come, if things come, obviously public disclosure, if we make decisions, we’ll follow that. But we likely won’t be dropping breadcrumbs, so to speak ahead of kind of what we’re looking at, or what we’re working on, for obvious reasons. So, let me shift and pivot to China, Jack. Here’s how we’re thinking. I mean, this is, to me, one of the biggest unknowns, in a long list of unknowns and what’s going to happen in our market, whether it’s Ukraine, whether it’s energy prices, whether it’s inflation, but clearly China and the lockdown there is something that we’re watching really keenly. With them experiencing really the worst COVID outbreak they’ve had since the beginning of the pandemic, to put it in context, there’s more people under lockdown in China right now than the entire population of the United States. And so we know that their freight has been disrupted inland from lack of trucking, freight is piling up, and when trucks are finally permitted to start moving goods, and we get back to some normal fluidity in China, we expect that that’s going to create a surge of freight, but likely will at some point down the road negatively impact some of the progress that we’ve made here in terms of the backlogs at the US ports. I don’t know that any of us know, Jack, what the real impact will be. We’ve got almost 40% of the country’s GDP existing in provinces that are locked down along with two of the world’s largest ports. I think I have the belief right now that we’re in more of an air pocket caused by this related to the imports from China, but eventually that demand comes back online and the timing of that, and the impact is yet to be fully understood. But given the integrated logistics system needed to move goods over the water, the air, the road and the rail, there’s likely to be some impacts later on in the year, I guess, maybe sooner, to maybe depressing demand and later in terms of disrupting demand. That’s kind of the best lens that we’re taking against that, Jack.

Operator:

Thank you. The next question is coming from Bruce Chan of Stifel. Please go ahead.

Bob Biesterfeld:

I mean, I think that specific to China, here’s what I would say, I forget who asked the question earlier about kind of the makeup of the contracts, but it’s 57% of our large customer contracts that were signing for 12 months forget the percent, 25% at six months and the balance at three. I think just that makeup of the contract portfolio is so different than anything, pre-pandemic. We are -- we and I think many industry players are trying to figure out what these impacts are and manage and mitigate risk appropriately because of it. Certainly in 2019, that number would have been, all of the contracts were 12 months in length. So I don’t know that we’ve got great information in terms of what that impact will be.

Bob Biesterfeld:

It has in some cases, subjectively, yeah, anecdotally.

Bob Biesterfeld:

Okay. Thanks.

Chris Wetherbee:

Hey, thanks. Good afternoon, guys.

Chris Wetherbee:

Quick questions here. Just first loss making loads, can you remind -- can you give us a sense of sort of where you are in the first quarter and, and what you’re competing against from a full year basis what you did in 2021? And then I guess, when we think about the truckload volume environment, obviously in a decelerating freight environment, I guess the idea would certainly be to maybe lead in a little bit more from a volume perspective. Can you give us a sense of maybe how you see the opportunity set playing out as the year progresses?

Chris Wetherbee:

Okay. But there still is, like you said, an opportunity from a loss making load perspective in terms of catching up relative to where you’ve been?

Chris Wetherbee:

Okay.

Chris Wetherbee:

Okay, thanks very much. Appreciate it.

Operator:

Thank you. The next question is coming from Ken Hoexter of Bank of America. Please go ahead.

Bob Biesterfeld:

Ken, in our pricing strategy now, so I’ll maybe zoom out a little bit realizing that our business and our mix between contract and spot typically moves as much with kind of first tender acceptance, right, and kind of the movement in the overall market as much as it does our kind of intentionality. But we do obviously take different pricing strategies, given where we see the market either rising or falling. But as you know, first tender acceptance increases across the industry, so as does ours, right. And so that inherently in itself is going to move more of our business into that committed space. What we’re seeing in the market right now can -- we saw this load to truck ratio, kind of using some calculations against the DAT data, finished out the end of last year at six to one. We opened up right out of the gates in the beginning of first quarter, and having that skyrocket up to 12 to one, really as we had a really a broad outbreak of COVID that has started to trend down and into April, we’ve seen it actually hit that three to one range, which is kind of that balanced market, if you will. But what I would say is even today and looking at some current data, we’re starting to see, I don’t know if I want to call it a floor yet, but we’re seeing resistance in terms of how far that’s coming down in certain geographies, and even starting to see some upward pressure in terms of costs in some geographies. And so I don’t get a sense that we’re in this freefall necessarily, but I think we’re going to meet resistance as we see incremental demand with produce season and beverage season and the subs coming on over the course of the next few weeks.

Bob Biesterfeld:

Yeah but for the year, yep.

Bob Biesterfeld:

Yeah, you bet.

Tom Wadewitz:

Yeah, good afternoon. I wanted to -- I think you’ve had a decent amount of commentary on this but how do you think that 2Q will like should we think of this as kind of a -- you’re in the sweet spot for a little bit in 1Q and in terms of NAST and truckload kind of thinking my conventional hat of gross margin percent but if you want to say gross profit per load, however you think about it. Is there you had a touch of it, like March in 1Q, and then you kind of have an extended sweet spot, or each cycle is different, but how do you think about that? And I guess it sounds like you’re constructive on loads and loads are still pretty good. I think that’s where people are trying to get their arms around spot markets a lot looser, but companies don’t seem to think there’s weakness in loads. So anyways, if I get some comments around that would be helpful. Thank you.

Tom Wadewitz:

So you think it’s easing or it’s just shifting from spot to contract?