Q1 2021 CH Robinson Worldwide Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the CH Robinson first quarter 2021 conference call.

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

During the company's prepared remarks, we will open the line for a live question and answer session.

To ask a question. Please press star one on your telephone keypad.

If anyone needs assistance at any time during the conference. Please press Star zero.

As a reminder, this conference is being recorded Tuesday April 27th 2021.

I would now like to turn the conference over to Chuck <unk> Director of Investor Relations. Please go ahead.

Thank you Donna and good afternoon, everyone on the call with me today is Bob Easter fell our Chief Executive Officer.

Microsoft Meister, our Chief Financial Officer.

Bob and Mike will provide a summary of our 2021 first quarter results and we will.

And then open the call up for questions.

Change to live Q&A from our previous practice of responding to the pre submitted question is in response to value the input from our analysts and shareholders.

Our earnings presentation slides are supplemental to our earnings release and today's comments and can be found in the Investor Relations section of our website at C. H Robinson dotcom.

I'd like to remind you that our remarks today may contain forward looking statements.

Slide two in today's presentation for.

Factors that could cause our actual results to differ from management's expectations.

And with that I'll turn the call over to Bob.

Thank you Chuck and good afternoon, everyone. We're proud of our first quarter results as global shipping markets remain disrupted our team around the globe stayed focused on serving the needs of our customers and delivering innovative solutions to keep global supply chains moving.

During the quarter, we delivered strong financial results, while continuing to deliver against many of our initiatives related to growth productivity and the advancement of our digital strategy.

Highlights some of these areas of progress as I walk through my prepared comments surrounding our Q1 results.

In the first quarter of 2021, we generated 125% growth in earnings per share due to profit growth in our two largest business segments, North American surface transportation and global forwarding.

Our nast business generated double digit growth in both adjusted gross profit or AGP and operating income in the quarter Nast AGP per business day increased 15% and operating income was up 39% compared to the first quarter of last year. These.

These results were driven by a 23% improvement in AGP per truckload in our truckload business, coupled with continued strong market share gains in our less than truckload business, where volume per business day increased 17% year over year.

Bolstering. These results were continued benefits of our technology investments, which continue to unlock productivity gains and deliver customer value and new and exciting ways.

The macro environment in the first quarter continued to be one of tight capacity and increased pricing in the marketplace driven by several supply side constraints, including the ongoing challenges of driver availability, coupled with robust demand.

The weather events from February demonstrated how quickly supply chains can get disrupted in this capacity constrained environment.

For the quarter, our Nast truckload volume was down approximately six 5% or five per cent per business day compared to first quarter of last year.

While our business on a spot market increase significantly our volume in the contractual business declined because we continue to pursue profitable volume growth by reshaping our portfolio through repricing the book of business with new and existing customers.

It's our belief that given the current structural constraints around expansion of truckload supply coupled with additional government stimulus or back half reopening of the economy and potential infrastructure spending the market conditions that were existing today have the potential to remain out of balance for the next several quarters.

For first quarter, we saw routing guide depth of tender in our managed services business maintained between one seven and one eight which is consistent with fourth quarter of last year.

As one of the world's largest logistics platform and the largest provider of truckload capacity in North America, we are uniquely positioned to help both customers and carriers navigate these market conditions one of the ways that we do this by leveraging our scale and the size of our carrier network in the first quarter, we welcomed 6900, new carriers to our network, which represented.

72% increase year over year and represented the most carriers added in the quarter in our history.

Coupled with these new carrier ads, we also saw a record use and adoption of our carrier facing digital products NAV as to your carrier and NAV is for your driver further advancing our digital initiatives.

Our average truckload line haul cost per mile paid to carriers, excluding fuel surcharges increased 33, 5% compared to the first quarter of last year.

Our average line haul rates billed to our customers, excluding fuel surcharges increased 33% year over year.

And for the second quarter in a row, we saw a sequential change in price per mile that exceeded the change in cost per mile. As we continue to reprice, our contractual truckload business to reflect the current environment.

Our first quarter rate per mile billed to customers increased 2%, while our cost per mile to carriers increased 1% sequentially.

We closed the quarter with an approximate mix of 55% contractual volume and 45% transactional volume versus a 65 35 <unk> in the year ago period, and consistent with our mix in the fourth quarter of 2020.

Nast less than truckload services continues to grow volume faster than the market with 17% year over year growth in volume per business day in Q1.

Our value proposition that combines a full suite of <unk> services, including common carrier warehousing and retail consolidation temperature controlled parcel home delivery and reverse logistics continues to resonate with customers across industries, and we continue to benefit from a tailwind in some of the fastest growing customer segments, including retail.

E Commerce and manufacturing.

Within LCL, we're winning new business and growing our existing business with customers of all sizes from small businesses that utilize our freight quote by CH Robinson platform to large enterprise shippers that look to us as a strategic partner to manage and optimize their LCL freight networks.

The March 2020 acquisition of Prime distribution services, coupled with our existing retail consolidation network has made us the largest and most comprehensive provider of retail consolidation services in the industry.

In total NAV overall volume per day grew 7% year over year. This was slightly below industry volume growth during the quarter of approximately seven 5% as measured by the cash freight index.

Turning to page for global forwarding.

Our global forwarding business once again delivered excellent results in first quarter we.

We delivered 118% increase in total revenues within the forwarding segment of 67% increase in adjusted gross profit and a 658% increase in operating income the forwarding team at Robinson successfully worked with customers across the globe to navigate a difficult in a disrupted market leading to it.

Increased award sizes from customers and thousands of new commercial relationships.

The airfreight market continues to be impacted by reduced cargo capacity and we continue to position charter flight capacity to support demand from both existing and new customers.

Our customers continue to value working with Robinson local experts and officers around the world that can deliver a full suite of global logistics services and technology solutions the.

The resulting market share gains combined with the strength of the market produced a 27% increase in ocean volumes during the quarter and a 7% increase in air shipments.

Candidly three years to five years ago, we wouldn't have been able to deliver these types of results in our forwarding business, but we've made substantial structural and strategic changes and have increased our investments over that time, we've invested in technology data and analytics as well as our global network and leadership team and we bolstered our commercial and strategic <unk>.

<unk> teams and forwarding to strengthen our customer relationships and to support emerging vertical strategies, while creating sustainable high value revenue streams.

Additionally, we've expanded our geographical strength in areas, such as Europe, Oceania, Latin America, and South Asia, while we continue to grow our core Trans Pacific and Trans Atlantic business.

Within forwarding, we've implemented a more centralized global pricing framework that combined with an increased use of data and analytics is enabling us to employ improved and agile pricing strategy, leading to growth and market share.

We believe that these strategies and competitive advantages will enable us to create more value for customers and in turn win more business and sustain our market share gains that we've achieved and will continue to have forwarding contribute and drive parts of our long term growth.

Because of the efforts of our CH Robinson team members around the World. Our total company adjusted gross profit per business day improved by 11% sequentially in the first quarter and 26% year over year.

Yeah.

Related to technology, we continue to make progress on our strategic initiatives and transformation efforts as I've stated in the past the three primary areas of investment in technology are focused on creating value for customers value for carriers and driving productivity improvement for our teams, which in turn drives improvements to both our top and our bottom line.

Results.

Looking at the impact of technology through the lens of customers and carriers.

The number of daily and monthly average users across our customer and carrier facing platforms continues to grow.

An area that we've invested heavily in is the ability to deliver real time pricing for truckload shippers through digital channels that are most convenient for our customers to use it.

Enabling these digital connections improves efficiency for our customers. It improves our response time to request and improves our win rates today more than 30% of our transactional business is being price via our proprietary transactional pricing engine, which we call TBE.

Today, we are delivering real time pricing with capacity assurance from the largest network of truckload capacity.

Volume driven through our transactional pricing engine has more than doubled when compared to last year's first quarter and the volume executed through digital connections via API and Adi has grown four times over that same time.

We continue to add customers at an accelerated pace with over 100, new customers connected via Tms and ERP connections in the first quarter of 2021 alone.

The pipeline for adding both direct customer connectivity and Tms connections is robust and we expect to achieve strong growth in our platform connections and tenders throughout 2021.

Our customers now have access to real time pricing via our NAV is to your customer web portal direct through their Tms, our ERP integrations as well as via freight quote by CH Robinson in total we've enabled these dynamic pricing capabilities for over 85000 customers across these points of connection.

Small businesses continue to see the value in our freight quote by CH Robinson platform as the number of customers utilizing this has grown 30% year over year and the adjusted gross profit generated through freight growth is up 137%. We've had over 1 million unique visitors to the freight quote platform just since the product launched and we.

Continue to be excited about the total addressable market of small businesses and our ability to serve them in a fully digital and frictionless manner.

Earlier this quarter I hope that you saw that we launched emissions IQ. The first free self serve tool for customers that will instantly allow a customer to view their carbon emissions across all modes of transportation globally.

This product was created in our innovation incubator Robinson labs and built in response to the growing priority around sustainability.

Emissions IQ includes partial truckload emissions methodology that was created in collaboration with <unk> Center for transportation and logistics and the U S. EPA.

This collaboration focused on developing a standardized way to measure the emissions of LCL for the first time.

By putting useful technology and data at our customers' fingertips, we're not only increasing the transparency of the emissions in our industry, but we're servicing the best strategies for customers to make a meaningful carbon reductions.

On the carrier side, we continue to deliver new capabilities and benefits to our carriers through our web and mobile versions of Nanosphere carrier and NAV is for your driver.

During the quarter, we saw significant increases in the occurrence of fully automated bookings in our Nast truckload business via the web and the App <unk>.

Approximately 90% of our North American truckload freight is now available to be booked via Weber, App and a fully digital and frictionless manner.

The number of carriers that adopted this capability was up 50% sequentially from fourth quarter of last year to the first quarter of this year.

And finally as it relates to productivity, we highlighted a couple of key metrics for Nast on page four of our earnings presentation.

We continue to show year over year improvement in productivity as indicated by the $270 favorable spread in our Nast productivity index, which represents the difference between the year over year change in Nast volume and the change in fulltime equivalents of Nast.

Another key metric that we review as shipments per person per day, and this metric is up 13% in first quarter compared to the same quarter last year.

Both charts show very clearly the relationship between the timing of our increased technology investments and the impact to these key business metrics.

We are encouraged with the progress that we're making on our technology journey and the impact that these investments are delivering for our customers for our carriers and the impact to our overall results I will now turn the call to Mike to review the specifics of our first quarter financial performance.

Thanks, Bob and good afternoon, everyone as Bob mentioned, we delivered solid financial results during the quarter due to strong profit growth in Nast and global forwarding, Despite lower truckload volume in Nast, where we work to improve AGP per load by addressing unprofitable loads in the tight freight market.

Total company ADP per business day was up 26% compared to Q1 of 2020, driven by performance from our Ocean and truckload services teams.

As a reminder, our first quarter had one less business day compared to Q1 of last year.

On a sequential basis, all of our business segments and service lines delivered increased AGP per business day compared to Q4, our truckload service line delivered.

Largest absolute increase on a sequential basis with a 6% increase in AGP per load and a 4% increase in truckload volume per business day.

This sequential volume growth was achieved despite the negative impact of winter storm here in the U S, which we estimate had a net decline of a half a day of truckload volume and a full day of LDL volume.

On a monthly basis compared to 2020, our total company AGP per business day was up 34% in January up 17% in February and up 26% in March.

Q1 personnel expenses were $368 million up nine 3% versus Q1 of 2020, primarily due to higher incentive compensation costs that are aligned with our expected 2021 results.

Q1 average head count declined two 9% compared to Q1 last year, including the Prime acquisition, which added one percentage point.

The Q1 growth in our business with reduced head count shows how our technology and process improvement investments are delivering efficiency to our business model.

We continue to expect our full year 2021 personnel expenses to be approximately $1 4 billion.

Including the higher incentive compensation the impact of our ongoing long term cost savings efforts and the reinstatement of our company match on retirement contributions in the U S and Canada, which started on January one.

Q1, SG&A expenses of $118 2 million.

We're down seven 9% compared to Q1 of 2020, driven by reduced travel and improved credit losses.

We continue to forecast 2021, total SG&A expenses to be approximately a half a billion dollars, including the expectation that travel expenses will build in the back half of 2021 as the impact of the pandemic subsides.

2021, SG&A is expected to include approximately $85 million to $90 million of depreciation and amortization, which is down from $102 million in 2020, primarily due to the completion of amortization related to a prior acquisition.

Regarding our long term cost reduction efforts through Q1, we delivered approximately 90% of the $100 million per year of long term for permanent cost savings, we expect to deliver the remaining $10 million for long term savings by the end of Q2.

In the back half of 2021 and beyond we will continue our long term cost savings efforts, primarily through process redesign and automation across the enterprise.

Our first quarter adjusted operating margin was 31, 8% an increase of 250 basis points compared to Q1 last year, primarily due to the increase in adjusted gross profit and success of our cost savings efforts. The Q1 adjusted operating margin delivered on our 30% long term enterprise.

<unk> expectation.

Our first quarter effective tax rate was 18, 3% up from 17, 1% in Q1 last year due primarily to the higher income this quarter.

Recall that our first quarter typically has a lower effective tax rate due to the tax benefits related to the delivery of our annual stock based compensation in the quarter. We continue to expect our 2021% effective tax rate to be 20% to 22% assuming no 2021 impact from changes to U S state.

Our international tax laws.

Q1, net income was $173 3 million.

Up 122% compared to Q1 last year and as Bob highlighted.

Diluted earnings per share finished at $1 28 up 125% versus Q1 last year.

Turning to cash flow Q1 cash used by operations was approximately $56 7 million.

Compared to $58 5 million provided by operations in Q1 of 2021.

$115 million decrease in operational cash flow versus Q1 last year was driven by a $468 million sequential increase in accounts receivable and contract assets compared to Q4, which was partially offset by a $216 million increase in total accounts payable and the.

<unk> $95 billion year over year increase in net income.

The $17, 7% sequential increase in accounts receivable and contract assets was driven primarily by a sequential increase in total revenue that was more concentrated in the last two months of Q1 compared to Q4 as well as the mix shift associated with higher total revenue growth in global forwarding.

Where our DSO runs almost double that of our Nast business. It's important to note that we are not seeing a deterioration in the quality of our receivables.

Q1 results included sequential and year over year improvements in credit losses and percentage of accounts receivable that are past due.

Over the long term, we expect working capital to grow at a slower rate than our adjusted gross profit.

Q1 capital expenditures totaled $13 5 million compared to $14 7 million in Q1 last year. We continue to expect our 2021 capital expenditures to be $55 million to $65 million, we're seeing solid results from our investments and we'll continue to prioritize the highest returning.

<unk> initiatives on a risk adjusted basis, we remain committed to our $1 billion investment in technology from 2019 to 2023.

We returned approximately $221 million of cash to shareholders in Q1 through a combination of $151 million of share repurchases and $70 million of dividends that level of cash returned to shareholders represents a 45% increase versus Q1 last year, when we paused our share.

Late in the quarter to assess the impact of the pandemic.

During Q1 this year, we repurchased approximately one 6 million shares at an average price of $92 84 per share.

At the end of Q1, we had approximately $6 4 million shares of capacity remaining on our $15 million share repurchase authorization from may of 2018.

We continue to be committed to disciplined capital stewardship, maintaining an investment grade credit rating and returning excess cash to shareholders through dividends and opportunistic share repurchases.

Now onto highlights from the balance sheet.

We finished Q1 with $218 million of cash and cash equivalents down $77 million compared to Q1 of 2020.

Over the long term, we intend to carry only the cash needed to fund operations and efficiently repatriate excess cash from foreign entities.

We ended Q1 with $968 million of liquidity comprised of $750 million of committed funding under our credit facility, which matures in October of 2023, and our Q1 cash balance.

Our debt balance at quarter end was 134 billion up $250 million versus Q1 last year, our net debt to EBITDA leverage at the end of Q1 was one three times.

I'll close by saying that I have great confidence in our team and their ability to build on the solid results from Q1 by continuing to execute our plans to generate sustainable long term growth and our total shareholder returns and thank you for listening this afternoon and I'll turn the call back over to Bob now for his final comments.

Great. Thank you Mike So as I said in my opening comments, we're proud of the results that we delivered in the first quarter. We delivered record revenues adjusted gross profits net income and EPS relative to all past first quarters.

We grew adjusted gross profit in the quarter by 24%, while operating expenses increased by less than five this demonstrated the strength and the earnings power of our non asset based business model.

Looking forward, we will stay the course with our strategy of pursuing market share gains that align with our profitability expectations and will continue to invest back into the business in order to drive innovation and improve service to our customers and to our carriers.

Within our Nast business based on what we know today, we expect tight market conditions to continue through the balance of the year, but regardless of how cyclical market conditions change and evolve we'll stay focused on driving growth and expanding our business with customers across our global suite of margin services.

We're very pleased with the results for global forwarding, where we built sustainable competitive advantages due to the structural changes that we've made over the last few years occur.

Across the board as one of the world's largest aggregators of this highly fragmented and diverse carrier base on multiple continents, we're committed to creating better outcomes for our customers and carriers by delivering industry, leading technology, that's built by and for supply chain experts.

As shippers and carriers continue to increase their adoption of our new digital capabilities, we expect to see continued productivity benefits and to grow market share across our service lines as we create value for customers in new ways.

As an organization, we're committed to continuous improvement driving further efficiencies into the model and leveraging our unmatched combination of experience scale technology and information advantage to create better outcomes and to unlock growth.

We're also firmly committed to being a responsible corporate citizen and we're proud of the tools that we can now offer to advance sustainability across the logistics industry.

Over the past year all of our lives have been challenged in unforeseen ways and the priority to build more flexible and adaptable supply chain is a top priority for shippers and receivers globally. We are uniquely positioned as an organization to offer solutions and to innovate by leveraging our non asset based business model, our global suite of services and the most.

<unk> team of supply chain experts in the world. The team at Robinson is excited by the opportunities in front of us and committed to providing solutions to their most difficult challenges facing our industry lastly, I'd like to thank the team at Robinson and around the world for continuing to drive our company forward and to help us emerge stronger.

Concludes our prepared comments and with that I'll turn it back to Dana for the live Q&A portion of the call.

Thank you ladies and gentlemen, the floor is now open for questions.

I would like to ask a question. Please press star one on your telephone keypad at this time I'll.

I'll call for Mason total indicate your line is in the question queue you.

You May press Star two if you would like to turn with your question from the queue for.

All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

In the interest of time, we do ask that you limit yourself to one question and one follow up before re queuing for any additional questions.

Once again that is star one if you'd like to register a question at this time.

Our first question is coming from Jack Atkins of Stephens. Please go ahead, great. Good evening. Thanks, so much for taking my questions.

No.

I guess Bob for first question is for you when I when I think about the.

The volume decline of six 5% I guess, it's more like 555% on a per business day within the truckload operations in the quarter.

And I understand it's against a more challenging year over year comparison in the first quarter.

How do you think about when we're going to see an inflection in volume growth I mean, the productivity gains are there in the real we can see them and in the slides that you are presenting.

Is it a head count issue do you need more more folks to be able to attack the volume I guess.

One of the biggest pushback I get from investors is it.

Just struggling to understand why such a strong transactional market isn't translating into more robust volume growth for CH Robinson can you help explain what sort of limiting that for you guys over the last several quarters.

Yes, Thanks, Jack its a great question and your assessment is right. The volume per day was down about about 5% against a relatively frankly, a really difficult comp Q1 of 'twenty and was our third highest truckload volume on on record, but let's let's peel it back a level because if you look at just the spot market business, we had wrote.

<unk> growth in the spot market double digit growth in that space, but the shift between contractual and spot is an important one that we that we peel back in and so I wanted to I want to talk a little bit about the efforts that we took to re price our contractual business in the fourth quarter and in the first quarter and frankly on going into the second quarter.

I'll start with pricing and if we look back to where we were in the back half of 2020, we had negative files at a record level right. Some 15% of our loads were resulting in a negative outcome and that cost us somewhere north of $100 million in the back half of last year and negative.

Just the gross profit so we had to stare that down first and foremost and target a yield and in adjusted gross profit for our contractual business that was more sustainable the second the second piece of that is that as we thought about where the markets were going to unfold in 2021, we have to take a position we have to take a position because by nature.

We.

We saw long largely end by short and as I stated in some of my prepared comments, we believe that there's some sustainability to the market that we're in right now.

Given the driver shortage given some of the delays on the order to build and delivery cycle on class eights, given the continued inventory restocking given the upcoming produce season et cetera, and so what we saw through our bidding activities in Q4 and into Q1 and the contractual work.

We took that position, but leaving that to be correct and that impacted us somewhat negatively in terms of our awards on a year over year basis with some of those customers. So we improved our adjusted gross profit per shipment in Q1 as I think I've said in the earlier remarks for about 23%.

Certainly significantly off the trough of Q3 of last year, and we're back into a more normal range about adjusted gross profit per load what we've seen as the as the quarter has progressed Jack is that the market seems to be coming back a bit to our thesis and so it now does appear at least based on what.

We sit today that this this market does have some legs on it we're seeing opportunities come back to us either through the spot market or kind of this gap between what is spot and contractual where we're able to provide dynamic pricing and in additionally, seeing contractual opportunities come back to us with a more favorable.

A more favorable AGP profile thats sustainable for us to help those customers through through the course of the next year I mean, I was involved in a lot of customer conversations and.

The point is is that we wanted to put pricing in front of our customers that we could stand behind that were good for us and good for the customer without transferring the risk at the level that we did in 2020, because that number of negative files and those negative outcomes just simply wasn't sustainable.

Okay that definitely helps to clarify that and just I guess for the follow up I mean.

Do you feel like now the market is coming back to you.

Do you feel like Youre at a point now where volume growth can turn positive and you've eliminated a lot of the issues around these negative files.

And as we sort of looked prospectively here with the strong freight market and are back.

We should be expecting truckload volume growth, but.

Beginning in the second quarter, we absolutely expect truckload volume growth through the balance of this year Jack as you know the comparisons are a little bit wonky for lack of a better term as we go through the next few months given the impact of the pandemic last year in the ups and downs associated with the freight market there, but we do expect to deliver truckload volume growth.

The balance of the year.

Okay, that's great I'll turn it over from there. Thanks, so much guys. Thanks Jack.

Thank you. Our next question is coming from Todd Fowler of Keybanc capital markets. Please go ahead.

Great. Thanks, and thanks for going back to the live format.

Just piggybacking on <unk> question, I think coming into the first quarter, you had talked about about $1 billion six of the book being up to re price can you talk about how much of that progress you had made in <unk> and also where youre seeing contract pricing come in at and is it at a level right now where it's exceeding where the spot market is.

Yes, Thanks Todd.

It's going to be back in the live Q&A format.

I agree.

Think about the.

Whether it's the 1 billion sex or whatnot, maybe I'll phrase it a little bit differently, and we think about the contractual market that we have are for our book of business. We believe that we have priced and implemented about a half of our contractual business in what I'll call current pricing or pricing that was delivered in either for quarter or first quarter.

This year, we've priced more that hasnt quite gone live yet and we'll continue to price more in the in the second quarter based on our forecast run rate right now by the end of the second quarter, we'll have about 75% to 80% of our contractual book repriced in either the fourth first or second quarter. So for all practical.

Purposes, we'll call that current truckload market pricing.

Okay got it that helps and then that's at a level, that's exceeding where the spot market is right now or at least it's more current with where our kind of industry pricing.

I'd call it more current with our with our thesis of where we see the market going and where we see the market today. The spot market does continue to pull the contractual market up and not necessarily down it's our expectation that over time as routing guides continue to perform a bit better given the increase in pricing that perhaps.

That spot market does.

Dropped below the contractual market, but that's yet to be seen.

Understood and then just for my follow up the <unk>.

Kids are helpful on the productivity gains.

Do you think that any S. T is at the point, where volume growth can permanently outgrow head count growth.

What are your expectations for NASD head count for the remainder of the year. Thanks for the time.

Thanks, Todd and I'm going to tie back to your question and to Jack's we do think that overtime that nast volume in aggregate will grow at a pace above head count growth I do think though there may be times, where we need to add some headcount to fuel the fire, perhaps just in certain pockets of the business to unlock.

To unlock opportunity and thats not a forecast that theres going to be a significant head count add but there could be quarters or periods, where those two things come closer together or move further apart, but over time that long range goal of growing volume at ahead out ahead of head count is applicable for Nast as well as forwarding.

Great and then just any thoughts on the remainder of the year at this point for Nast.

We would anticipate head count being relatively flat in nast for the balance of this year.

Okay. Thanks, so much for the time.

Thank you. Our next question is coming from Thomas <unk> of UBS. Please go ahead.

Yes, good afternoon.

Wanted to I guess get your thoughts on kind of the progression in Nast.

I guess, if I go back to 2018, and I know, it's not a perfect analogy, but I think it's kind of the.

Best prior cycle year I think of.

I think you've tended to build stronger net revenue growth at you priced up more of the contract business I think since the challenges of third quarter last year, you had been building momentum in terms of I think.

And if it's growth gross profit per load youre talking about but how do we think about that in the second quarter third quarter would you expect.

Further momentum in terms of net revenue growth in Nast.

Driven by stronger higher contract rates.

Or other factors or how would you look at that that couple of quarters.

Well I think I think the comparison to call. It late 2017 into 18 is an important one and I agree with you. It's kind of a two two cycles that we can refer to if I think about kind of the.

I'm not going to call peak to peak, but let's let's go back to Q1 of <unk> compared to Q1 of 'twenty, one and in aggregate what we've seen over that time period for us is.

Customer pricing is up about 12% carrier cost is up about 15% right. So let's call. It on average 5% here on the cost side for percent of year on.

On the customer side, so while that's a bit higher than the trailing five or 10 year run rate on change in rate and cost it doesn't necessarily feel to us Tom that thats necessarily like a bubble in terms of where the pricing is if you go back to our results in 2018, where our adjusted gross profit per lot.

So it is today is probably much more reflective of the back half of 2017, and you did see that build through that.

Through that cycle as we saw.

Pricing of the cost of purchased transportation start to drop in the back half of 18 in the first half of 19, I'm nervous about trying to draw too many parallels between <unk> and today because it does feel like there are some things today that are structurally very different than what was happening in 2018. It felt.

In 2017 and 18.

There were a lot of that was built on buying the news around electronic logging devices and the potential disruption in the marketplace and how that was going to have some artificial constraint around capacity.

And today this does feel much more driven by supply chain dislocation driven by inventory restocking driven by a real sustained pressure on on hiring and maintaining drivers and so.

I'm not in a position where I feel comfortable kind of calling the ball on how how long the cycle is going to go or in what direction, but those would be maybe the parallels I would draw between the two periods.

Okay.

It's a reasonable parallel but.

You know maybe not maybe not perfect are tracking.

My second question would just be how you think about sustainability.

They're really high level of performance in forwarding.

I mean, obviously, you're just doing executing well in the market is giving you a lot of opportunity in forwarding.

Do you think we can stay at the kind of level of gross profit and operating income.

You produced in first quarter can you stay at that level.

Throughout 2021, or you think that Thats unrealistic.

I wouldn't think you would have much visibility on 'twenty, two but just how do you think about the forward looking in for it and given how strong the results are.

Tom part of why we don't give guidance is because of the challenges of forecasting just those exact things that you are asking.

We're committed to delivering industry, leading operating margins and our forwarding business. We've been on record several times that we think are sustainable 30% operating margin is really within our reach and forwarding and that we can we can get there over time clearly the market has been a tailwind for us on a lot of these parts are forwarding, but I do really want to have.

Our home the fact that Mike shorten as forwarding leadership team has just done amazing work over the course of the last few years around process standardization about leveraging technology around the centralization of pricing strengthening the relationships with the steamship lines from the airlines that we really do think that we've unlocked something pretty special here.

Ahead of where we probably thought that we could.

Okay, great. Thanks for the time.

John.

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

Hey, Thanks afternoon, guys. So Ken.

Can you give us the monthly net revenue trends for Nast and then when I look at Nast gross revenue, it's up 14%.

Truckload pricing is up 33, LDL volumes up 17, I know truckload volume was down six but I guess I'm struggling with why the gross revenue is not up more.

Sorry, Scott I'm looking for the monthly here real quick so let me see if I can get that.

Hi can I ask another I can ask my second one if you want to come back to that.

And on that and Mike if you could find that monthly that'd be great.

Okay, and just on the productivity slides. Its helpful is there any way to think about shipment per person.

At LPL versus truckload is there a big difference there because clearly we're seeing a lot more <unk> growth in truckload growth.

Just trying to understand if that is having an impact.

And some of the overall productivity metrics, yes.

So clearly the outsized growth in <unk> is having an impact on that on that blended metric of shipments per person per day, but I think it's also just.

Net of the <unk>.

Removed about 900 to 1000 heads from Nast over the course over the last couple of years and so that in itself I mean, taking head count down by about 12%.

<unk> has had an impact there against against both the truckload and the <unk>, but no question the growth in LPL has helped to improve that metric.

And what we provide is our company AGP per business day, and there were up 34% in January up 17% in February and up 20.

26% in March year over year.

Okay. Thank you guys.

Great. Thank you.

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

Thanks, Operator, Hey, guys afternoon. It is nice to be back live.

Quick questions one on.

The Nast side, how should we think about your three Q comparison in terms of your gross margin because if I recall last third quarter, just the the pace that spot moved up.

Well, it's just something that I have never seen before and so I would imagine that would have impacted your ability.

To adapt in the marketplace. So if we just assume spot continues to remain strong but doesn't move up as much as it did last year should we expect more.

Improvement in gross margins and <unk> on a year over year basis.

Yes, I mean for <unk> for US last year was the trough in terms of our truckload earnings from <unk>.

Adjusted gross profit per load I mean that was that was the absolute low point and frankly, the last decade, and so it would be likely that we would expect improved operating margins relative to that.

Okay.

Switch over a little bit now.

On your forwarding side talk a little bit about any.

Any ocean business you may have it seems like some of the.

The Ocean shipping lines are actually changing.

The length of some of the content contracts that they're giving to some of your customers how does that impact the business if at all going forward.

So our ocean procurement strategy is really a blend of long term and shorter term commitments and so we haven't seen any noticeable impact from from some other state of changes around length in terms of contracts one of the things that I think we've seen as a byproduct of the way that some of the ship for the carriers have been managing pricing is is a greater demand for the.

<unk> for <unk> like us because of the complexity because of the changes in the environment.

We're seeing larger shippers larger <unk> come to us.

To help them navigate the ever changing global Ocean landscape, which is we've seen that's driven up our average award sizes, that's driven up the average size of our customers and so that's been a nice a nice win for us there.

That's good color. So the in terms of your overall length of your contracts on the blend you haven't really seen any changes that we really have not.

Okay perfect.

Two I appreciate the time as always gentlemen be safe out there great day. Thanks.

Thank you. Our next question is coming from Chris Wetherbee of Citi. Please go ahead.

Hey, Thanks, good afternoon guys.

I guess I wanted to come back to Nast, and maybe ask it sort of market dynamic question.

Volume was down your margins were impacted profit, presumably by sort of the move in spot rates that we saw intra quarter.

I guess you guys, obviously, you're talking about sort of reducing some of the negative loads, but it.

It feels like the combination of loads and margin doesn't necessarily square as well as maybe.

What are your thoughts.

We're sort of preserving price.

And not necessarily ceding share.

I guess I just wanted to maybe understand.

You see the competitive market dynamics in the brokerage market right now specifically as it pertains to truckload because we are seeing some management of margin in some volume gains coming from admittedly your smaller carrier.

Competitors, but I guess I just wanted to make sure I understood sort of where you see yourself from the market and maybe how you think you can kind of grow into this market.

Yes, so again I'll start with I'll start with the comparison is a point here.

First quarter last year, I think our truckload volume was up about seven 5%.

Again, we've used the industry dynamic of cash being down about 9% and we were very counter to the rest of the industry or to much of the industry in first quarter last year in terms of that metric and so we've got a little bit of a different starting place.

Our primary focus has been on profitable market share gains right and again evaluating that portfolio getting the adjusted gross profit back into a normal range.

Through the through the quarter here.

In Q1, we saw positive volume growth in January and then as we implemented some of these newer bids that started to turn to turn negative in February and March which landed us about at that 5% down per business day, but like I said earlier, we do expect to be able to drive volume growth.

Without the balance of this year at a much more appropriate adjusted gross profit per shipment, which we think is the right decision to make for our customers because it allows us to be more sustainable for them, where and when they need us and we also think it's the right decision for our shareholders.

Eliminating taking swings about $100 million of negative files that occurred in the second half of last year. We think is in the best interest of everybody because it's just not sustainable.

Okay. Okay. That's helpful and when you think about that sort of approach, particularly as you think about the book of business that maybe wasn't profitable how much do you think that actually can come back on to your network or does that mostly get ceded out to other people who are willing to maybe take a little bit of a lower margin for the kind of business that can ultimately come back for Robinson.

To drive volume growth in the future for you.

Yes, there is not an easy answer to that just given the number of customers that we work with from the different customers. The way that they approach the market I would I would tell you that there are a number I have had some really good conversations with customers where the conversation has simply been look at we may just disagree at this point in time about the direction that the market is moving and if our award has two.

Cut back because of that that's fine we'll figure out the way to best serve that customer and that may or may not end up being primarily in the contractual marketplace, that's where we've got the benefit of pivoting and saying.

<unk> got somebody that you believe can move that freight for less at the same service level for some period of time, that's the customer's prerogative to certainly make that choice, but if that doesn't work out then we're there to step out on the back side and that's what's driven a lot of the spot market growth.

Over the course of the first quarter here as well and we would expect that to continue.

Okay. Okay. That's helpful. Thanks, so much for the time and thanks for doing a lot of Q&A.

Absolutely.

Thank you. Our next question is coming from basket majors of Susquehanna. Please go ahead.

Thanks for taking my questions here.

Earlier, you talked about the gross profit per load in truckload today.

Looking more like the second half of 17, and 2018 and a cyclical context can you, let us know how far below sort of the peak profit period.

Second half 18, one half 19 were tracking now and.

Is there a potential path back to that level, if the cycle and the execution conspiring your favor over the next few quarters.

We're we're kind of within mid single digits mid to mid to high single digits of what I'd call that trailing average right now basket right now.

If you throw out.

Q3, 2018, Q for 18, Q1, Q2, 19 kind of that four quarter period. Those are really the outliers I mean, if you look at if you look at our business over the course of the last 15 years those for quarters, where absolute outliers in terms of the adjusted gross profit per shipment in and I don't know.

That I don't know that Theres, a path back to to those numbers in the immediate future and I think we've found that.

The market conditions were very unique there I mean literally the cost absolutely fell out of the market for whatever reason and that we've seen now this incredibly violent whip back over the course of the last four quarters and so I don't know that we get back to those numbers, but we want to get back closer to that average and kind of play in what is what it is.

A much.

More tightly bound range of our margins, our net revenue dollars or sorry, adjusted gross profit dollars.

Of flexing up 10%, one direction or down 10% the other direction and trying to eliminate some of those some of those peaks and valleys.

Thank you for that and into an earlier comment as a follow up.

On the contractual business and some of your comments that you've made previously in the day about contract duration, maybe getting a little shorter in some cases to the clear those discussions can you talk about how much of your contractual business is on a.

236 months, whatever that number is contract versus your traditional one year end and how that could impact some of the cyclical volatility in your margins.

I don't have an exact percentage right now basket, but I would tell you that it's a much higher percent than we've had at any point in the past I mean, the proliferation of many beds and short term two and three months kind of bridge price and commitments.

We've seen that more frequently here as of late but at any point that I can that I can recall and I think thats been a good thing for both shippers and transportation service providers, such as us to try to de risk in the short term in order to get to a better long term commitment that.

That works for both parties I'd be guessing to give you a number there and I just don't want to I don't want to go on record with that.

Thank you.

Thanks Beth.

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

Yes, good afternoon gentlemen, thank you for taking my question.

Maybe first one here for you you talked a little bit earlier about fully digital bookings in Nast and uptake on the TCE engine and I'm wondering how you think about freight forwarding in that context is there a goal or even the ability to digitize Ocean. For example for that same extent and if so how far behind is forwarding from Nast.

It's a really good question and Thats what in my short answer is yes, we believe that there is an opportunity there too to introduce more digital capabilities between the customer and and Robinson.

On the forwarding side, we have not invested significantly in that space up to this point and it's an area, where we continue to discuss how and where to prioritize that.

Given the kind of the process that we go through in terms of.

Prioritizing our technology investments, where they can have the greatest impact we think that there is a there there we haven't gotten too far down that path as of yet would be the best way that I would characterize that.

Okay. That's fair and then maybe my related follow up here you gave a head count outlook for Nast is roughly flat for the balance of the year what.

What is that for global forwarding this year and then.

Maybe just in general where does that number go long term in global forwarding versus Nast, yes.

Yes, if you look at our if you look at our forwarding business.

As it relates to head count.

We tend to spend most of our time talking about head count of Nast for Nast head count has been down I think seven quarters in a row, but looking at forwarding they've been down slightly in each of the past five quarters as well and against that we are delivering double digit growth in ocean and over the past couple of quarters, and a strong ocean and air growth this quarter.

Enterprise wide really Bruce.

Bruce we're pretty focused on trying to keep that head count level kind of flattish. This year I think that thats in the playbook for forwarding as well.

You've seen forwarding even.

Through their acquisitions, they've still been able to keep relatively flat head count. So I think that speaks to some of the progress that they're making around operational uniformity and using technology internally to deliver better outcomes, but it's flat is kind of a general tone.

Okay. So maybe if I could just sneak in one more follow up there I guess the expectation would be.

You'd be keeping.

Revenues at an elevated level on top of that flattish pace of head count in order to kind of maintain these target margin levels is that is that fair.

Yes, certainly.

Certainly thank that.

The revenue run rate.

We will kind of play out over the course of the next couple of quarters, but we have given guidance if we call it guidance around our personnel expense in our SG&A that we've provided in past quarters of personnel around a half a bill or personnel around $1 4 billion in SG&A around $500 million. We still think that holds together as we look at our forecast through the balance of the year.

<unk>.

And that's obviously an enterprise number.

Okay terrific very helpful. Thank you for the time and maybe just one other point that I'd make we've talked a lot about flat head count, but I really want to go back again to the thesis that it's about growing volume ahead of head count and we're not afraid to add head count we're not holding back on adding head count. It's just a matter of making making that commitment that we believe that we can deliver volume growth in excess.

For whatever that head count add is.

Thank you. Our next question is coming from Ken <unk> of Bank of America. Please go ahead.

Hey, good afternoon, Bob Chuck and again I agree thanks for returning to the live Q&A and congrats on solid results.

Just to clarify Bob your comments on pricing and spot are you, suggesting that we're at or near a peak or I just want to because it sounded like you were going back and forth that this may be as good as it gets or but then you also through and it's going to hold out a couple more quarters. So just maybe thoughts on that then.

The question I would ask what is your percentage of transactions that are now fully digital.

On the on the NAV side can you maybe give us a little more detail on it.

Yes.

Yeah.

I'm not I'm not forecasting whether we're at a peak or not at a peak I mean everything that we see today in our model is that spot market pricing is still elevated relative to contractual pricing and in my experience.

<unk> always tends to lead contract and so that would that would tell me that there is potentially still some room to run on the upside on the contractual on the contractual pricing so.

Timmy peak as maybe defined when that spot starts falling beneath the need for contract but anyway.

It's kind of my my opinion on where we're at there and realize I am not a very good prognosticator, where these markets go.

In terms of the fully automated are fully digital.

It's a difficult question to answer and I'm not trying to be elusive just because there is no universal definition of what a fully automated shipment looks like and I could give you statistics on the customer side.

Everything on the customer side is fully automated and that a carrier side things are fully automated and those two those two lines may not cross perfectly we've made significant increases if I just talk about the carrier side in a fully digital bookings I think the run rate was we had 50% more carriers participate.

And kind of the auto booking functionality on NAV as for driver and <unk> carrier this quarter than we did last quarter.

Every week it seems as though we're taking we're making a step change in terms of the amount of our business that is moving in a fully digital manner. If I were to if I were to put an estimate against it I would say, we're still probably sub 20% of our total truckload volume that's moving in a fully automated manner with with our carriers and that could be the <unk>.

<unk> booking auto tenders.

Multiple ways in which we automate that with carriers, but that would be my estimate of where we sit today.

That's great and then just a follow up then on your.

Your thoughts on the progress if we're going to stay tight for a couple more quarters in this market it doesn't seem to be letting up in the near term.

How do you think about net margins as as you progressed through that.

Yes.

We've repriced, 50% of our of our contractual business by the end of the second quarter and implemented that pricing will be at 75% to 80% by the end of third quarter or second quarter, rather and thats, aged old pricing right that we're replacing with that was that was quoted.

Middle of last year, and very different market conditions. So as we as we reprice that that should that should deliver an uplift and an AGP per load I think.

One other things that we saw in February Ken was was the impact of.

The winter storm, Yuri and how Dislocating that was for the marketplace I think as we look through the second quarter and we think about the Cvs a road check and the impacts of that on carrier cost as we think about mother's day Ross as we think about the produce season and how that wraps I think we'll all learn a lot about the for agility or the stability of this market.

Some of these some of these things roll in and we'll see how able the capacity network is to respond to those in kind and so I think that will set the tone for the balance of the year.

Great. Thanks, a lot.

Thank you.

Thank you we're showing time for one last question today for our final question will be coming from Amit Malhotra of Deutsche Bank. Please go ahead.

Hey, Thanks, guys.

Bob just a quick question about the weather in the quarter, just wondering if the weather, particularly in Texas.

How do you guys to maybe excuse me pull forward some contract re pricing it seemed like a pretty real force majeure event I'm just not sure. If that gave you guys the opportunity to revisit contracts earlier.

If I think about shipper behavior during a kind of a crazy periods like this.

Are you seeing shippers kind of move more towards a gravitate towards.

Carriers with actual assets.

Given kind of the deeper the day.

For the routing guide and maybe that May explain some of the market share shifts. If you can just talk a little bit about that.

Yes.

Related to the storm in February I think what that really did was it took a period of time that was normally kind of a cooling off period in the market and its just drove it right out of town right and it eliminated that time when rates typically come back a bit in the in the spot.

It didn't cause us to call force majeure with any with any contracts that certainly influenced some of the conversations on the other side of that if there was wide gaps between when pricing was submitted.

In late fourth quarter early first quarter and wasn't being implemented until.

Later in the quarter it brought to light some conversations here about where we saw the market going and it certainly influenced some of our thoughts of where we saw the market going the impact of the business, though we believe we lost about a day of revenue in <unk> and about half a day of revenue in truckload net net once we once we figured out one day at <unk>.

Half day of truckload.

Net net once we kind of figured out the pull forward in the last the last shipping so.

That's kind of what I comment about that in terms of this thesis that the market is shifting more towards asset based players.

We've certainly not seen that in any way I mean, there the demand for for our services has been robust I can't think of any instances, where we've been excluded from a large bid quite the opposite of that I would say.

Okay. That's helpful and just as a follow up.

We talked a lot about technology and digital.

Digital freight matching you guys. Obviously, you have a platform that can match demand and supply a digital platform, but I was just wondering how you guys measure how well youre buying capacity programmatically if.

If you can help us think about that in terms of maybe identifying backhaul capacity or however, you look at it.

Maybe can programmatically drive down the buy rates and improve the margins. Yes, we continue to monitor the buy rates that we achieve in the marketplace against against a couple of different publicly available indices and we look at how that how that moves both on our our digital bookings are manual booking.

And we continue to tune our engines to try to keep those things in line, we know that given our size given the density of our freight network that we historically do purchase transportation at less than those public publicly available benchmarks are mostly because we are eliminating so many empty miles for these for these.

Carriers that net net it's better for the carrier and better for for our customers as well.

Yes.

Last follow up here, if I could do you think that this volatility over the last six months or so really over the last year.

Made shippers embrace digital.

Digital marketplaces, a little bit more wholeheartedly.

And just related to that like what.

What is your assessment of where you think take rates or growth gross margins are going to evolve.

Five years from now.

Some of the digital only platforms kind of continue to grow and scale I mean that would be really helpful. Because I think we're all trying to figure out where we're the terminal value of this is and it would be helpful. If you had a sense of if you could offer a sense of where you think that where net revenue margins kind of play out over time.

Yeah. So like I've stated a couple of times I talked to a lot of our customers and I don't know that any of the customers that I've talked to think that the future of surface space transportation is a 100% digital only play I think quite the opposite the volatility of the course of the lab.

Last year has shown the importance of having really really good people, coupled with really really good technology and a really really big base of carriers that allows you to converge those things together because ultimately our customers first and foremost we're in execution company right our customers come to us to execute really difficult challenging things for them in their supply chain.

Where nobody else can.

Either willing or able to do those things and we do that through digital but we also do that through old school rolling up the sleeves, and making sure that the promises that we make or promises promises delivered for for our customers. So.

There is a value to that and I don't think the terminal value of that is 5% margins five years from now I think that the value that we create is very unique and we will continue to make that more digital but digital is just part of the story right. Our rushes to provide the best service, we can for customers at a fair value that helps them to derisk their supply chain without us taking all of that risk down.

Ourselves and doing that in a more efficient and more effective way through great people, great technology, and evolving digital experience, but not a digital only experience.

Sure Yeah makes sense, okay. Thank you for taking the questions I appreciate it you bet. Thank you.

Thank you at this time I'd like to turn the floor back over to Mr. Ayers for closing comments.

Yes. Thanks for everybody that concludes today's earnings call. Thank you everyone for joining us today, and we look forward to talking to you again.

Good evening.

Ladies and gentlemen, thank you for your participation you may disconnect your lines or log off the webcast at this time and have a wonderful day.

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