Q1 2020 Earnings Call

[music].

Good morning, ladies and gentlemen, and welcome to the CH Robinson first quarter 2020 conference call.

At this time, all participants are in listen only mode.

Following today's presentation ball towable facilitator, if you have previously submitted questions.

If anyone needs assistance at any time during the conference. Please press star followed by zero under telephone keypad.

As a reminder, this conference is being recorded Wednesday April 29 your 2020.

I'd now like turn the conference over to pop Health <unk>, Vice President of corporate finance.

Thank you Donna and good morning, everyone.

On our call today will be Bobby's tripled, our chief Executive Officer.

Zechmeister, our chief Financial Officer.

In order to the bulk as much time, it's possible to the Q when a portion of our call.

Implementing a couple of changes this quarter first we will not be covering a review of our segment performance in our prepared remarks. As this information is included in both our presentation slides and in our press release.

We also made the decision to no longer include the truckload volume growth per business day, and total company net revenue growth per business day for the current month.

Bob and Mike will provide brief commentary on our 2021st quarter results.

Presentation slides that accompany that remarks can be found any investor relations section of our web site at sea at Robinson Dot com.

We will follow their comments with responses to the pre submitted questions. We received after our earnings release yesterday.

Like to remind you that remarks today may contain forward looking statements.

Hi, tooling today's presentation, let's factors that could cause our actual results to differ from management's expectations.

And with that I will turn call over to Bob.

Thanks, Bob and good morning, everybody I'd like to start my remarks today by recognizing over 15000, CH Robinson employees around the world for their tireless efforts during these unprecedented times.

Every day I see examples of how they're stepping in and delivering excellence to the nearly 200000 customers and carriers across our platform in order to keep commerce blowing and helping doesn't so stay open.

We're delivering critical any central goods and I'm thankful for everything that they're doing.

Since the beginning of the Cobot 19 pandemic. Our team is focused on three key pillars as guidepost for our decision making.

First ensuring the health and the safety of our employees.

Second providing supply chain continuity for our customers and carriers and third protecting the economic security of our people to the greatest extent possible.

We believe that these pillars are the right way to evaluate our decisions and to keep our focus on the long term health of our organization.

Given the global nature of our business, we gained early visibility into the disruptive nature, but cobot 19 virus.

Because of these insights coupled with the output from our investments in technology, we were able to effectively convert to a remote workforce without disruption to our customers are carriers, while enabling our employees to work safely from home.

Today over 90% of our global workforce is working remotely and we have ample bandwidth to move to 100% remote work if needed.

Our teams are experienced in managing through crisis situations and are committed to ensuring that our customer supply chains continues to move.

Whether its facilitating the global movement, a personal protective equipment.

Leveraging our expertise and produce distribution to help retailers meet the surge in demand for fresh food items are simply providing truckload capacity to customers when they needed. The most our employees have been laser focused on enabling the continued movement of goods and services in this environment.

Related to this current environment.

We're constantly evaluating our global business operations and monitoring the changing economic conditions.

Well the duration and the effective cobot 19 is still one no we have taken steps across our organization to reduce costs.

We're implementing furloughs across our workforce that will reduce operating expenses in the short term while industry volumes are down.

Our cost reduction efforts also acute elimination of non essential travel.

Temporary salary reduction for company executive officers, a temporary reduction of cash retainer fees for our board members and a temporary suspension of the company matched in retirement plans for U.S. and Canadian employees.

These actions are prudent short term decisions and we'll continue to monitor the current environment and take additional steps to further reduce costs as needed to navigate through this difficult time, and we merge and even stronger company.

Before I turn the call over to Mike I'll briefly touch on highlights for the quarter.

We continued to make progress on our strategic long term initiatives around market share gains and productivity improvement.

Our first quarter results included significant market share gains announced a 7.5% volume growth in both truckload and LTL.

In a quarter, where industry volumes as measured by the cast freight index declined between eight and 9%.

We continue to see our investments in technology drive operating efficiency in the business as indicated by 1270 basis point favorable spread between truckload volume growth and head count growth in our announced business.

As we said in the past this is an important productivity metric in a key focus of our technology investments.

Our recent acquisition of Prime distribution services is delivering outstanding performance at a time, a significant increase in demand for retail consolidation.

And during a quarter when global trade volumes were down significantly our global forwarding business performed well with only modest declines in both air and Ocean.

We have a strong balance sheet and we exit in first quarter with over $1.2 billion of liquidity.

Our business model is resilient and highly responsive to adversity, and we're well positioned to weather the economic uncertainty in the months ahead.

I'll now turn the call to Mike to review, our first quarter financial performance.

Thanks, Bob and good morning.

I'd like to begin my comments by adding some color to Bob's remarks about our solid liquidity position.

At the end of Q1, we had $1.22 billion and liquidity, which was comprised of $929 million of committed capital under our 1 billion dollar credit facility, which matures in October of 2023.

In addition, we finished Q1 with $295 million and cash our business model continues to deliver solid operating cash flow, including $637 million over the past four quarters and 59 million in the difficult to one environment.

Our model also benefits from very low customer concentration with our top customer representing less than 2% of our net revenue.

Slide four shows our Q1 income statement summary, as a reminder, our first quarter results contained one extra business day versus Q1 last year.

Our first quarter results also included one month of contribution from the acquisition of Prime distribution services.

First quarter total gross revenues increased 1.4% driven primarily by higher volumes in our truckload and LTL service lines, mostly offset by lower pricing in truckload.

Total company net revenues decreased 16.3% in the quarter led by margin compression in our truckload service line.

A decline in Q1 truckload net revenues per shipment was largely anticipated as the first quarter last year benefited from expanding margins in our contractual truckload business due to rapidly falling carrier costs.

Q1, net revenues per business day were down 17% in January down, 14% in February and down 21% in March when compared to the same periods last year.

For reference in 2019 total company net revenues per business day increased 9% in both January and February it increased 13% in March.

Total first quarter operating income was down 51.3% versus last year operating margin declined by 1300 80 basis points compared to Q1 last year, driven primarily by the drop in net revenue dollars.

Q1, SGN a expense was higher than Q1 last year, primarily due to increased technology spend in purchase services related to accelerating our growth and cost savings initiatives.

These increases were partially offset by a reduction in personnel expenses related to lower variable compensation.

And a reduction in travel expense.

Diluted earnings per share was 57 cents in Q1 down 50.9% from Q1 last year.

Slide five coverage other highlights impacting net income our first quarter effective tax rate was 17.1% and improvement of approximately 490 basis points from the 22.0% rate in Q1 last year.

Our first quarter typically has a lower effective tax rate due to the tax benefit related to stock based compensation.

Well the dollar value of this tax benefit was essentially unchanged versus Q1 last year. It had a larger impact on the tax rate due to the lower pretax earnings in Q1.

We expect our 2020 full your effective tax rate to be on the lower end of the 20% to 24% range that we provided in late January.

First quarter interest in other expense totaled $15.2 million down from 17.1 billion in Q1 last year.

Interest and other expense includes the impact of currency revaluation, primarily related to the conversion of working capital in cash balances to the functional currency in each country, where those investments reside.

Q1. This year included a 2.9 million dollar expense from currency revaluation compared to Q1 last year that included a 5.0 million.

Expense.

Q1 interest expense declined by $1.1 million, driven primarily by a lower average debt balance in the quarter.

Turning to slide six cash flow from operations declined 77.2% versus Q1 last year due to unfavorable changes in working capital and decreased earnings.

In Q1 of last year, both gross revenues in receivables declined sequentially compared to Q4, 2018, which drove a 118 million dollar source of cash from lower working capital in Q1 last year.

In Q1 of this year working capital increased sequentially. Following the reduction in receivables as business slowed in the back half of December of 2019 that drove a 133 million dollar use of cash in Q1 this year.

There was also an uptick in our Q1 past due receivables balance which amounted to less than 20%.

The increase in our Q1 accounts receivable balance.

We have tightened our credit and collection processes to minimize risk in exposure, particularly in higher risk categories and with higher risk customers.

Q1 capital expenditures totaled $14.7 million, we continue to expect 2020 full year capital expenditures to be in the 60 million to $70 million range with spending primarily dedicated technology.

We continue to prioritize the highest returning technology initiatives on a risk adjusted basis, and we remain committed to the 1 billion dollar investment in technology from 2019 to 2023.

Over the long term, we continue to be committed to opportunistic share repurchases to enhance shareholder value.

However out of an abundance of caution we have temporarily suspended our share repurchase activity as we continue to assess the impacts of cobot 19.

Our last share repurchase was on March 12.

While solid liquidity during uncertain times is of the utmost importance, we remain committed to maintaining our quarterly dividends in Q1, we returned approximately $152 million to shareholders through a combination of share repurchases and dividends, which represents a 4% increase versus Q1 last.

At year.

Now onto some balance sheet highlights on slide seven.

First quarter operating working capital decreased 6.3% versus the prior year driven by an increase in accounts payable our debt balance at quarter end was $1.41 billion.

Up approximately 70 million versus the end of Q1 last year and our weighted average interest rate was 3.9% in the quarter compared to 4.0% from Q1 last year.

As previously announced the acquisition of Prime distribution services was completed in Q1 and contributed to our results for the month of March the 225 million dollar acquisition was financed with a combination of cash and borrowing from our existing credit facilities.

Integration plans and synergy assumptions for the Prime acquisition are on track and the business growth in earnings were ahead of expectations in Q1.

Historically, we have provided specific in quantitative intra quarter performance on volume and net revenue trends.

Given the uncertain and changing dynamics within the freight industry and broader economy. We believe it is more relevant to provide a description of the recent trends in volume growth.

In general we continue to see Cobot 19 impact our results at the beginning of April we saw a continuation of the truckload volume growth that we experienced in Q1. However, after the first week, we've seen volume declines within our truckload business.

Thanks for listening this morning, and now I'll turn the call back over to Bob to provide some additional context on the business.

Thank you Mike as Bob indicated in his opening I will not be going through all of the segment slides on todays call, but I do want to touch on the state of the truckload market during the quarter. Since it is our largest service line and represents about half of our net revenues.

On slide eight delight and dark blue lines represent the percent change amassed truckload rate per mile build to our customers and cost per mile paid to our contract carriers, excluding fuel costs over the current decade.

During the quarter price per mile build to our customers declined 8.5% well cost per mile paid to our contract carriers net of fuel declined two and a half per se.

The rate of cost decline moderated on a year over year basis versus the fourth quarter, resulting in net revenue margin compression.

However, first quarter truckload net revenue per mile was very much in line with levels experienced during the balance freight market in 2016.

As we've indicated in past earnings calls, we experienced historically high net revenue per load for NASA truckload in the first two quarters of 2019 and this will continue to serve as a headwind through the first half of 2020.

CH Robinson, we talk a lot about our ads values edge is an acronym for evolving constantly delivering excellence growing together and embracing integrity.

One way that our customers experienced these values is through our focus on honoring our customer commitments, even when markets are disrupted.

Throughout the first quarter, we continue to meet and exceed our commitments on our contractual pricing agreements with our truckload customers. Despite instances, where the cost of purchase transportation exceeded our customer pricing.

This resulted in an increase in negative truckload files for the quarter.

We believe that honoring these commitments during difficult times is just one of the reasons that we have such high retention rates with our customer base.

As I mentioned earlier first quarter, NAFTA truckload volumes increased 7.5% and LTL volumes increased 7.5% significantly outpacing the 8% to 9% decline in the cast sprayed index. Our Q1 volume represented the fifth consecutive quarter of market share gains.

I'll wrap up our prepared remarks. This morning with a few final comments on slide 14.

The direction of the freight market and a broader global economy will be very difficult to predict over the next few quarters and logistics industry supply and demand volume pricing and cost will likely vary significantly from month to month and across different industry verticals.

And looking at our April North American data volumes continue to grow across food and beverage retail paper and packaging as well as technology.

Well volumes are declining meaningfully in manufacturing automotive chemical and the NRG verticals combined these verticals comprised 86% of our company gross revenues in 2019.

So while the situation remains fluid one thing to certain.

We're committed to our vital role in the global supply chain by delivering critical any central goods and services, especially in this time of crisis.

We'll continue to make measured and thoughtful decisions that are in the best interest of our employees customers contract carriers and the long term health of the company, while remaining true to our values and the pillars that died our business decisions.

We'll also continue to act and the best long term interest of our shareholders by balancing prudent short and long term cost reduction efforts with continued investments in technology to maximize our long term value creation.

Well this is a challenging environment for all of US there will be a recovery and as that recovery starts to happen, we'll be ready at CH Robinson and will emerge as an even stronger company.

We believe this approach will leave us well positioned to drive growth and create value for all of our stakeholders.

And finally, I'm incredibly proud of the focus the effort and the dedication of our employees around the world I mean is truly unprecedented times my thanks to each and every one of them for what they do to deliver excellence to our customers on our carriers and the support that they provide to their communities that we all live and work in.

That concludes our prepared comments and with that I'll turn it back to the operator, so we can answer the submitted questions.

Mr. How in the floor is yours to the QNX session.

Thank you Donna first I'd like to thank the many analysts and investors for taking the time to submit questions. After our earnings release yesterday.

For today's QNX session I will find out the question and then turn it over to Bob or my core response.

First question is for Bob from Jack Atkins from Stephens, Scott Schneeberger with Oppenheimer, Todd follow with Keybanc and context or with the ebay asked a similar question.

This was the lowest quarterly net operating margin and see it's robin since history as a public company.

What steps are you taking to balance cost containment initiatives, given the slower macro versus investments in the business to meet your long term strategic goals.

Good morning, and thanks for the question gentlemen, so there's no question that the macro environment, it's being impacted by Cobot 19.

And that impact to our revenue is definitely put pressure on our cost structure.

The duration did that impact is unknown, but we have taken several steps already to address cost containment in the near term.

To recap a few the decisions that we've made we made the very difficult decision to implement furloughs across portions of our workforce.

The implementation of these are underway now and will directly impact about 70% of our workforce and none of that work is represented in our first quarter results.

Earlier in April we shared that we temporarily suspended the mass to our retirement plans for our us and Canadian employees and the executive team and taken temporary reductions and pay starting with a 50% reduction of my compensation and 20% for my direct reports.

Additionally, our direct our directors our board of directors have taken reductions in their cash retainers and 50%.

Prior to the cobot outbreak, we'd already started to limit non essential business travel and that obviously was expanded through the quarter and at this point, we've limited virtually all domestic and international travel and associated expenses.

Furthermore, we've implemented a hiring freeze through the balance of this quarter and given our expected attrition rate. This will also drive some cost savings.

So these steps along with several others are smaller in nature should drive savings of around $60 million between personnel and SDMA and the next three quarters.

These are short term savings, but they are incremental to the 100 million dollar cost savings target that we previously discussed.

As reported and asked we had an extremely strong quarter volume growth in both truckload and LTL.

We did this with 7% fewer employees on an organic basis and 5% fewer when you factor in the impact of the additional prime employees.

Simply put we are doing more with less in the field today and this is due to the output of our technology investments and the work that our teams have been going to standardize centralized and automate the core processes within our business. There's no doubt theres more work to be done here in order to harness the full impact of these investments in the coming quarters, but progress is being made.

So I want to take a moment address the second part of that question, which is around investments in the long term strategic goals of the enterprise.

First quarter was a tough quarter, there's no way to call. It anything other than that we gave up over $130 million and net revenue margin compression announced truckload in the quarter alone.

So really talk single variable to overcome in a quarter, but we did and we still delivered almost $100 million and income from operations in the quarter alone and mass.

Many of the incremental headcount additions in the past couple of years that we've made our in areas of engineering data science and other professional shared services.

These are critical roles to our future and their critical teammates at Robinson, but in order to attract the highest level of this type of talent. These teams on these employees come with a compensation cost structure, that's less variable than what we're used to in the Robinson branch model, where our account managers sales and network leaders have highly variable compensation.

The showed in our personnel expenses for the quarter and it shows up in our results.

So long term our strategic focus remains unchanged and it continues to center around taking share more fully digitizing parts of our business improving productivity in that relationship between volume and head count and expanding our operating margins over time, while continuing to provide industry, leading service to our customers.

I've said that in the back in the past, but over time I also believe that margins could trend down so we need to make investments today to engineer costs out of our model for tomorrow.

So the short term, we're faced with a challenge or a question are we best often stopping or significantly scaling back investments in our future and the long term success in the enterprise or should we stay the course with our strategic roadmap and managed through some of the short term paying that that will cause.

At this point I feel good about the prudent short term decisions that we've made around cost reductions, but I still feel great about our future there could be more short term cost reductions to calm depending on our results, but I really want our teams much more focused on doing the work that it will take to reduce cost and drive growth in the long term and not sacrifice.

In the future value that we're capable of creating in order to minimize the impact to a couple of quarters.

The next question is from several analysts like net revenue per employee, it's down 17% well personnel cost per employee is down only 3% historically that relationship has been more in line.

Can you talk to why their traditional shock absorber in the business has not kicked in and whether we should expect this to be a temporary dislocation or a more permanent change.

Yeah. Thanks for the question the increased volatility in the freight market. In recent years has made the alignment between personnel expense and net revenue more difficult than it has been historically.

The additional $60 million and short term cost takeout, certainly improve that cost versus net revenue alignment this year.

As Bob pointed out historically, our personnel expense was more heavily weighted to variable cost components like bonus commissions and performance based equity.

Well that enabled our personnel expenses to more closely align with changes in net revenue. It also meant that in a softer freight cycle. Our employees saw significant reductions in overall compensation and we experienced talent retention issues.

Over the past several years, we've brought our compensation programs more in line with the overall market from a fixed versus variable standpoint.

To provide some additional clarity on how our long term commitment to technology investment plays a role.

Increasing I T headcount has grown more than 30% in the past two years.

These folks play a critical role in unlocking value for our customers carriers and cost structure, but their compensation is more fixed than our customer and carrier facing employees.

Our next question for Bob is from Jack Atkins from Stephens.

Yeah on with Morningstar, and Chris Wetherbee with Citi asked a similar question.

Can you provide any color on trends you are seeing thus far in April are you seeing some relief in your purchase transportation costs given the changes in the spot market and has your strong truckload volume growth and outperformance relative to the broader market continued into April.

Related to truckload growth first off on obviously proud of the growth of the team delivered and first quarter I think it's important to point out that volume grew in each of the three months of the quarter and in a fully remote environment, we entered our commitments and delivered when our customers needed and them almost.

Industry wide pricing, if you compare it to caster DHC was down about seven or 8% and our pricing was down in a similar range. So we're pricing rationally with the market.

We did see through the quarter significant, albeit short term spikes in the cost of purchase transportation. Both as we started the year as we are coming out from the disruption of the December holidays, and then again in March as retail restocking was extremely robust.

During those times this led to our negative files exceeding 10% of our shipments during those during those periods and that had part of the contribution of the wide spread between the change in rate and cost for the quarter.

In terms of April I realized our decision to suspend providing month today April truckload volume in total company net revenues is not appearing to be a popular one amongst the analysts and investors on the call.

But we made this decision not with the intent to limited visibility that you all have but to try and provide information that's more relevant to the state of the business.

Given the large variations in market dynamics that have occurred between the beginning of April and the end of April simply providing an average of but to have given all the other uncertainties in the marketplace, just didnt seem prudent or reliable.

I made a couple of comments in the prepared remarks, but I think it's important to reinforce what we saw in the quarter and how that carries forward into April.

As the Cobot 19 pandemic took hold in the U.S. cities across the country entered into strict shelter in place orders. We saw this drive market disruption and we start commerce outside of critical industries virtually draws to a halt.

The seem to hit small businesses first in the hardest and had an outsized impact the LTL compared to truckload.

Obviously his entire industry shutdown such as automotive this had a negative impact on volumes.

For us the hardest hit verticals have been automotive and manufacturing and these account for about 25% of our revenues.

The flip side of this is that consumer staples, and food and beverage retail paper and technology. All continued to perform really well and show volume growth. These industries make up about 40% of our revenues.

So looking at the market today.

It's loose by all accounts routing guides are performing almost perfectly demand is down across some industries and there's actually a fair amount of truckload capacity that would normally be dedicated to these shuttered industries. That's now available in the general for higher space.

The duration of the confluence of these factors is unknown.

No that we continue to have 65% or more of our current truckload portfolio exposed to longer term customer rate agreements.

So we're not trying to be elusive and scaling back the intra quarter information. We just believe that the unknowns around when cities or states plan to reopen when industry has come back online what the consumer response will be one stores and manufacturers do open up can't really be answered in our April month.

Great results and any attempt of us using that to guide to the quarter would really be unrealistic.

The next question from might comes from several analysts. Please provide an update on your previously announced $100 million of cost reductions.

The cost reductions realized in first quarter 2020 earnings if so how much and how much do you anticipate to realize in 2020.

How should we think about the cost reductions relative to the increased SGN a to reduce costs longer term.

We continue to expect a third of that hundred million dollar cost savings benefit to be realized in 2020.

Having the least impact on Q1, increasing as we move through the year.

Most of that benefit will come to nast and be realized through projects designed to enhance efficiency.

We also referenced an increase in SGN aid for technology and purchased services to help accelerate growth and cost savings initiatives.

These expenses should not be considered ongoing once those projects are completed the associated expenses will go and of course the savings are ongoing.

And as Bob mentioned earlier, we expect the near term cost takeout initiatives to yield approximately $60 million of personnel and SGN a costs over the next three quarters for clarity. These these are short term steps and incremental to the 100 million dollar long term cost reduction initiatives.

That we announced in late January.

The next question for Bob is from Bascome majors with Susquehanna.

There are a number of substantial cyclical challenges facing Robinson today, but as investors trying to set realistic expectations for what your business looks like on the other side of this.

There are one or two more structural changes from your historic model other financial our strategic that we should be prepared for.

Thanks, Bascome, so we've been going through a tremendous amount of change in the past couple of years much of which we've talked about on these calls and other forms.

Some of that's been pretty apparent unclear and other parts has been more subtle if you're looking from the outside in.

We're in this process of making large scale changes to our global network terms of how it's structured how our teams collaborate and work together the speed in the manner in which decisions are made and how we capitalize on the strength of our people in order to deliver deliver services to our customers and carriers and how we leverage the scale of our model even more effectively through price.

That's automation and digitalization.

Our future model will be much more connected much more deeply integrated with our customers.

I'll be more platform enabled and digital in nature.

Our model will be fueled by a lower cost to serve but we will continue to be driven by a network of global supply chain experts.

We're fairways down this path already and there's a number of initiatives that come to come together to deliver value in this future state.

Some of these initiatives across the finish line already and are already creating value. Some will deliver in the next couple of quarters in summer longer term in nature.

As our continued is our industry continues to evolve.

We plan to continue to lead that evolution as we have throughout the history of our organization.

Our strategy is the right one.

We're pursuing it aggressively and we're moving faster than anytime we have in our past in order to reach those targets.

The next question for Bob is from several analysts how would you describe the current competitive environment in brokerage at the digital freight brokers began focusing more on increasing gross margins.

So the truckload market as is always competitive and given our mix of 65% contractual 35% spot for the quarter in how we ebb and flow there I still tend to think that we compete as much with large asset base trucking companies within many of our within many of our customers as much as we compete with with other brokers.

The market is lose some further in April as I said as the economy has slowed and routing guides are literally performing almost perfectly.

In many of lanes and in many regions supply seems to be exceeding demand.

In terms of be digital brokers I really don't have a perspective on on their go to market. We're continuing to stay focused on the thing and the variables that we can control and ensuring that the service that we stand up for our customers and is holding strong and that we're continuing to earn their business through cycles.

The next question is from Ravi Shanker from Morgan Stanley Todd Fowler with Keybanc asked a similar question.

Mike can you clarify your plans for long term leverage and how youre thinking about liquidity at this point.

Can you lay out your priorities for capital allocation.

Thanks Robbie.

Our balance sheet remains healthy as we mentioned in the prepared remarks, we have ample liquidity at over 1.2 billion in.

In Q1, we borrowed from our $1 billion credit facility and ensure that was working properly we have plenty of clearance on our debt covenants. Our leverage continues to be low finishing at 1.8 times at the end of Q1, which included the impact of the Prime acquisition in early March.

From a refinancing and ongoing liquidity standpoint, our credit facility matures in October of 2023, or 600 million dollar unsecured note matures in eight years and the majority of our $500 million private placement matures in more than eight years.

As I mentioned earlier out of an abundance of caution we have temporarily suspended our share repurchases.

That said, we remain committed to opportunistic share repurchases to enhance shareholder value over the long term. We will also maintain our quarterly dividend and manage to get investment grade credit rating on our corporate debt.

The next question is for Bob from Jack Atkins.

Can you talk about what you are seeing affording market in April have you been able to benefit from the surgeon airfreight activity that we have seen over the past six to eight weeks.

We've had several quarters in a row here of strong really strong sales activity in our forwarding business and we've had added many new customers across air Ocean and customs.

During the first quarter and into April we have been able to help our customers security our charters and capacity on our air charters to meet their unique demands as manufacturing in China continues to come back online.

Our April Ocean volumes are being driven largely by a mix of backlogs in the ocean shipping industry as well as existing with existing customers as well as a nice mix of new customer additions.

The next question comes from Allison Landry with Credit Suisse, Jack Atkins with Stephens asked a similar question, Mike our shippers looking to extend payment terms and could you speak to any customer liquidity concerns.

Yes, we have seen an increase in the frequency of requests for terms extensions over the past several weeks.

In total these requests represent less than 1% of customers in the U.S and Canada.

As a general practice, we don't except request for extensions and payment terms.

In certain circumstances, we may entertain extensions when there are when they are accompanied by a from exchange of greater value.

We continue to monitor our receivables by customer and by category across a variety of key metrics, we're utilizing internal and external credit risk data to enhance our credit and collections results.

And we have recently tightened credit limits across a wide range of customers with a focus on higher risk categories, and we put additional safeguards in place.

As an example early on when customers began converting to remote remote workforces, we proactively moved targeted customers to electronic invoicing and converted customers to electronic payments to help facilitate collections.

From a liquidity concerns standpoint, as you would expect we're having conversations with a variety of higher risk customers to better understand their liquidity outlook and moving terms requirements in credit limits accordingly.

The next question for Bob is from Brian Ossenbeck with JP Morgan.

What are you seeing on the capacity front.

You started to see small carriers exit or park capacity, yet or is it too early to tell.

I do think it's too early to tell I think we put in our slides that we added about 4000, new carriers to our contract carrier program in the first quarter and these were virtually all small trucking companies I don't anticipate that these are all new adds to the industry, but there are new to Robinson.

Typically when we see.

Balanced markets and freight slowdown, we see a bit of retreat to quality and we see carriers come towards Robinson, because we do have more truckload freight than anybody else in the industry.

In terms of them exiting we're working really hard to keep the small carriers in business right and keep them moving goods across North America, helping them to eliminate waste in their networks getting a miles and helping them to improve their yields. The small carriers are critical part of our economy and there are critical to our success.

As an example, one of the steps that we took in the quarter what to help small carriers was to extend some of the benefits of our carrier advantage program to all carriers.

That worked with Robinson, which allows them to capitalize on some of our affinity programs specifically our fuel program that allows them to save up to 30 cents a gallon on diesel we extended that to them through the end of May.

The next question is for Bob from Jordan Alger with Goldman Sachs.

How does the bid season look from a contract perspective is it on holder as a proceeding and how to contract prices look relative to a year ago.

Just wanted a little bit of a moving target and obviously varies from customer to customer I think it's fair to say that bid activity did slow over the past month or so as companies have been dealing with their own challenges with with coated 19, but we do expect activity to pick up as businesses come back online more fully.

I expect a little bit of a forward look I expect that many of our customers and we've heard from many of our customers that they intend to stick with their annual bid cycles.

I think as the economic picture becomes clear, though there will likely be some occurrences of renegotiations. Many bids pulling bids for readout of the cycle I think a lot of that will be dependent on how far the market moves and for how long.

Given given some of those uncertainties I want to be a little bit careful not to guide, where we see pricing moving.

The next question from I guess from day burdened with Bernstein.

That's headcount is down 5% while volume is up 7.5% is this the early signs of technology paying off or is that that productivity is going up as a result of shallower routing bad debt.

Thanks for the question. The short answer is yes. The improved productivity is an indication of the success, we're seeing with technology investments.

As we've talked about one of our key non financial productivity metrics is volume per head count historically volume and head count had been correlated.

We're now a year into our increased tech investments and you're seeing a shift change that we've been expecting and will continue.

As for your question on routing guide depth average routing guide depth has been 1.2 for the last five quarters, so that would not be contributing to the favorable year over year volume to head count comparisons in Nast.

The next question for Bob is from Scott Schneeberger from Oppenheimer, How are you balancing volume and price and the current environment.

Thanks, Scott as you saw in the first quarter, our pricing to our customers largely moved in line with the movements in the market and I've said it before market share as really key to our future growth and we're focused on growing our market share across all of our services and in this market is really no exception.

The next question is from Chris Wetherbee from Citi, Bob volume growth returned to truckload in Q1 should be read this as a more sustainable move towards capturing market share and a weaker environment.

So it's a similar question in the one that Mike just a draft I look at this and that the results in Q1 is us executing the plan that we've laid out around taking share and becoming more efficient in terms of that relationship between volume and people.

Truckload volumes up 7.5% in an environment, where volumes are down in the industry I think speaks positively for the for the output in Q1.

When you look at our volumes, we make up I don't know somewhere in the area of 15% of the brokerage market, which continues to expand.

And we're somewhere in the area of 3% of the total for higher marketplace. So there's a ton of room for us to continue to grow share through cycles and as we demonstrated in the quarter, we were able to do that with around 450 fewer people and mast than we had at the same time last year.

The next question for Bob is from Allison Landry from Credit Suisse can you talk about headcount plants is there the ability or willingness to lower headcount sequentially.

Allison head count has come down in each of the past three quarters and Nast as we've implemented structural changes and launch new technologies.

Annualized this amounts to about a $40 million positive impact of personnel expense on a go forward basis.

Because the current market dynamics as I said, we've made that difficult decision to begin implementing furloughs that are going to impact about 7% of our global head count.

We made the decision to use the approach a furloughs, though and in some case our reductions because we felt it was the right thing to do to align our workforce to the demands in different parts of our business.

We really clear, though these furloughed employees are still employees of CH Robinson, we're going to continue to support them through this time of their unplanned leave of absence covering their medical insurance and other benefits and we will work to bring them back as soon as the demands of the business dictate.

In terms of the overall macro we're going to continue to monitor the health of the business and the demands across different divisions and shared services and we'll continue to evaluate staffing levels as we always have as we move forward.

Next question is from Chris Wetherbee with city for Mike are they're interesting M&A opportunities for Robinson in 2020, you think you aren't as strong enough financial position to consider M&A.

Our balance sheet and liquidity are solid and that gives us capability.

However, given the uncertainties in the marketplace, we're taking a more conservative approach, we will continue to evaluate acquisition opportunities that can generate strong risk risk adjusted returns.

As you know, we prefer opportunities with a compelling strategic and cultural fit in a proven non asset based business model.

We're also excited about the prospects of the transformation office initiatives at NASS, and we would hesitate before making an acquisition that would distract us from those critical initiatives.

That said, we will continue to maintain a pipeline of opportunities and remain disciplined about how about the book value creation and capital deployment.

Our final question for Bob is from Allison Landry with credit Suisse.

Given the deceleration in spot rates and loosening truckload capacity do you expect sequential improvement and nast's net revenue margins in Q2.

In the short term given the mix of our business between contract in spot on the customer side, coupled with the dynamics, we're seeing on the supply and the cost side I would expect improvement in our net revenue margins and to see them returned to more and more normal levels from where they were in a depressed say state that we saw in first quarter.

Yeah.

The duration of that improvement as a bit unknown given all the market factors in play, including any depth or length of any potential recession.

Speed in which the economy restarts and been demand accelerates across different industry sectors as well as the overlap underlying health of the capacity network and the pace of repricing activity that may occur on the customer side. So a lot of convergence of different factors there, but in the short term, yes, we would expect our net revenue margins.

To return to more normal levels.

That concludes the Q and a portion of today's earnings call. A replay of today's call will be available in the Investor Relations section of our web site at CH Robinson Dotcom at approximately 11 30 am eastern time today.

If you have additional questions I can be reached by phone or email.

Thank you again for participating in our first quarter 2020 conference call have a good day.

Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines golf the webcast at this time and have a wonderful day.

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