Q1 2022 CH Robinson Worldwide Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the C. H Robinson first quarter 2022 conference call.
At this time all participants are in a listen only mode. Following the company's prepared remarks, we will open the line for a live question and answer session.
I 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 Wednesday April 27th 2022, I would now like to turn the conference over to Chuck <unk> director of Investor Relations.
Thank you Donna and good afternoon, everyone on the call with me today is Bob Bestir film, our President and Chief Executive Officer, <unk>, <unk>, our Chief product Officer, and my exact moisture, our chief Financial Officer.
Bob and Mike will provide a summary of our 2022 first quarter results.
<unk> will provide an update on the innovation and development occurring across our platform.
Then we will open the call up for questions.
Our earnings presentation slides are supplemental to our earnings release and can be found on the investors section of our website at Investor Dot C. H Robinson dotcom.
Our prepared comments are not intended to follow the slides if we do refer to specific information on the slides, we will let you know which slide we're referencing.
I'd also like to remind you that our remarks today may contain forward looking statements slide two in today's presentation lists factors that could cause our actual results to differ from management's expectations and with that I will turn the call over to Bob.
Thank you Chuck and good afternoon, everyone and thanks for joining us today.
First quarter, we delivered record quarterly profits sequential improvement was driven by significant operating margin expansion in our North American surface transportation, our Nast business as we improve the health of our contractual truckload business continued to grow our truckload volume and improve the profitability of our less than truckload or LCL business.
Our global forwarding team continued delivering excellent service to our customers and collaborating with our carriers driving more business to our platform.
And finally, our Robinson fresh managed services and Europe surface transportation businesses, all improve their top line growth and operating income on a year over year basis.
Now, let me turn to a high level overview of our Nast and global forwarding results.
Our Nast adjusted operating margin in the first quarter was 36% up 350 basis points year over year, and 480 basis points sequentially due to improved profitability in both our truckload and <unk> services.
In our Nast truckload business, our volume grew 4% year over year, and our adjusted gross profit or AGP per shipment increased 15% versus first quarter of last year and six 5% sequentially as we repriced more of our contractual portfolio and continue to focus on profitable market share.
Truckload volume growth included year over year increases in both our contractual volume and our transactional volume.
This included a 65% increase in volume that was driven through our proprietary dynamic pricing engine.
And 65% of our spot for transactional business with price through this dynamic pricing engine and first quarter delivering real time pricing with capacity assurance from the largest network of truckload capacity in North America.
During the first quarter, we had an approximate mix of 60% contractual volume and 40% transaction volume. This was compared to a 50 545 mix in the same period last year.
Routing guide depth of tender in our managed services business, which is a proxy for the overall market was flat on a quarter over quarter basis at approximately $1 seven as it was for all of 2021.
But within the quarter. This metric declined in February and March and reached one five by the end of the quarter as more capacity enter the market demand begin to soften in March and first tender acceptance rates climbed across the industry.
These changes in supply and demand drove a similar trend in driving them load to truck ratios, which increased from six to one at year end to a high of 12 to one in early January due to winter storms and rising cases of Covid. They then declined throughout the quarter to approximately 41 by the end of March.
This environment led to a decline in the truckload line haul cost and price per mile in both February and March off of another record high in January .
For the quarter, our average truckload line haul cost paid to carriers, excluding fuel surcharges increased approximately 21% compared to first quarter of last year.
Our average line haul rates billed to our customers excluding fuel surcharges increased approximately 25% year over year.
This resulted in a year over year increase in our Nast truckload adjusted gross profit per mile of 17%.
The combination of our repricing efforts and the sequential decline in the cost of purchased transportation in February and March led to a sequential improvement in our AGP per mile in each month of the first quarter.
In our Nast LCL business record quarterly AGP of $157 million grew by $31 million or 25, 5% year over year through a 27% increase in AGP per order that was partially offset by a 1% decline in volume.
The Q1 decrease in <unk> volume was mainly driven by a normalization of business levels as our <unk> volumes in the first quarter of 2021 continued to be bolstered by a few large customers that benefited from a stay at home trend. During Covid. This contributed 15% <unk> volume growth in the comparable quarter last year.
Our value proposition and comprehensive set of <unk> services continues to resonate with shippers of all sizes and across industry verticals.
In our global forwarding business. The team continues to provide creative solutions and excellent service and an environment in which demand still exceeds capacity.
This resulted in year over year AGP growth in first quarter of $108 million or 50% and operating income growth of $77 million or <unk>, 85%.
Q1 marks the eighth consecutive quarter of year over year growth in total revenues.
And operating income.
Within this result, our ocean forwarding business generated Q1, AGP growth of $86 million or 64% year over year.
This was driven by 52, 5% growth in AGP per shipment and 7% growth in shipments, which topped 27% volume growth in Q1 last year.
Global Ocean demand continues to exceed the industry's overall capacity with limited vessel and container availability.
Port congestion on the West coast improved during the first quarter, but it's been on the rise since the end of March.
Due to customers' desires to mitigate risk ocean carriers have also shifted vessel capacity from the west coast to the east coast ports, partly due to continuing congestion issues and concerns surrounding potential labor disputes on the west coast.
Covid Lockdowns in China have also led to a slowdown in export volumes from Asia to the U S and as of April 19th There were 506 vessels awaiting berthing space at Chinese ports.
95% from the 260 waiting offshore in February .
When exporting to the U S returns to normal levels congestion is likely to increase with limited new vessel deliveries in 2022, we expect capacity to be strained for much of the year and although ocean rates may taper, a little we expect them to remain elevated.
Specific to Robinson, we have not seen a decrease in ocean cargo demand our win rates and our bookings are still strong while beneficial cargo owners are <unk> continue to move more volume to us and we already have a healthy pipeline of business left to implement.
Due to the growing strength of our global multimodal platform and the teams collaborative relationships with our carriers, we've been able to increase our capacity to better serve our customers the.
The global forwarding team has also leveraged our technology investments and data advantage to improve pricing velocity efficiency and precision, which has enabled us to participate in more quotes and to turn them around faster.
In first quarter, we also launched universal vessel tracking and prediction to automate container tracking and arrival predictions, which in turn feeds into our predictive algorithms for inland transportation.
Finally, our international Airfreight business delivered AGP growth of $15 million or <unk>, 34% year over year.
Driven by 21, 5% increase in a GP per metric ton and a 10% increase in metric tons shipped. This is on top of a 46% increase in metric tons shipped in the first quarter of last year.
Airfreight capacity remains tight due to limited belly capacity, but we do expect this to slowly improve in the summer.
We're also starting to see some conversion of air freight back to ocean, but we expect some pent up demand when China fully reopens.
Overall, the forwarding team has a great foundation to continue providing excellent service to our customers and to work with them to leverage our flexible solutions for their shipping needs.
Our customers and our results are benefiting from the investments we've made in Digitization data and analytics as well as our global network, which supports our expansion initiatives in targeted geographies and industry verticals.
For the enterprise, we continue to believe that through combining our digital products with our global network of logistics experts, our full suite of multimodal services and our information advantage from our scale and data we're uniquely positioned in the marketplace to deliver for our shippers and partners regardless of the market conditions.
We believe our strategies and competitive advantages will enable us to create more value for customers and in turn win more business and increase our market share and deliver higher profitability and return on invested capital.
With that I'll turn the call over to Arun to walk you through the product innovation and development that's occurring across our platform. Thanks.
Thanks, Bob and good afternoon, everyone.
As I said last quarter, the rollout of our products is to relentlessly address customer and carrier needs and our strategy is to go deep with data and research to inform technology investments that deliver value to both our customers and our carriers at scale.
We are more intentionally connecting our business data science digital marketing and technology teams to bring meaningful products features and insights to both sides.
Marketplaces that we serve and to our employees who are critical to our success.
We are also taking a lean approach to delivering products and digital features rapidly testing and evolving our digital features and functionality to deliver the outcomes we seek.
In early February we launched enhancements to our <unk> carrier product, including the ability for carrier replace offer isn't loads and provide personalized load recommendations based on the unique behaviors of carriers on our platform.
The initial results from these enhancements are promising.
As per day to Navistar carrier are up 45% from January to March. We also saw a significant increase in the number of carriers looking loads. The analogy of carrier with a 51% increase from January to March.
These input metrics combined with a few others resulted in a 100% increase in loads digitally by carriers from January to March and at 346% increase from March of 2021 to March of 2022.
Ultimately, providing a strong self service solution for our carriers, they will give us access to additional carriers and create greater loyalty, which is critical to our ability to continue growing volume.
Access to more capacity gives us the opportunity to cover more freight on behalf of our customers by meeting carriers, where and how they want to engage with us.
Working backwards from our carriers and customers' needs. We will continue to apply the appropriate rigor to direct drive tests and investments towards products that drive out the acquisition retention and growth of carrier and customer share positive impact of these metrics is and will be the clearest signal.
Making the right investment decisions in the context of carrier and customer facing products.
The digital investments, we're making and the rigorous test and learn approach we're taking to inform these investments are essential to our continued and future success.
Alex we developed will aim to strengthen relationships with customers and carriers by delivering value on their terms when we combine innovation and value with high performance and excellent service, we create sticky relationships with customers and carriers because they trust us.
The success of every new product feature or insight that we deliver will be evaluated on its efficacy to increase the rate at which we acquire retain and grow share of customers and carriers, which in turn serve as a primary insights to power our future growth.
I'll now turn the call to Mike to review the specifics of our first quarter financial performance.
Thanks, Arun and good afternoon, everyone in the first quarter, we continued to build on our results in 2021 with another quarter of record financial results from the topline to the bottom line as we continue to execute on our strategy and a favorable freight market.
Q1 total company adjusted gross profit or AGP was up 29%, reaching a record high at $906 million on a per day basis.
Q1, total company AGP improved by 27% year over year and 4% sequentially.
On a monthly basis compared to 2021, our total company AGP per business day was up 22% in January up 33% in February and up 27% in March.
For the seventh consecutive quarter prices and costs rose across the North American truckload business and for the sixth consecutive quarter. They reached all time quarterly highs.
As Bob mentioned, the line haul cost per mile and price per mile, which exclude fuel surcharges increased in January and then dropped in February and March. However, if you include fuel surcharges cost and price per mile continued to rise through the quarter ending with another all time high month.
In March.
Our Nast team navigated through this environment in Q1 by managing our truck acceptance rates to optimize contractual truckload returns.
And honor our commitments to customers.
As we have done each of the past seven inflationary quarters, we repriced a portion of the contract portfolio to reflect the higher cost of purchased transportation.
As we repriced our truckload AGP per mile continued to improve Q1 marked the sixth consecutive quarter of flat to increasing AGP per mile.
Truckload AGP per shipment improved sequentially each month of the quarter with the full quarter up by 15% compared to Q1 of 2021.
AGP per mile and AGP per shipment are key metrics for managing our Nash business. They reflect our business performance better than AGP margin percentage, which naturally rises or falls with the changing market cycle and fuel pricing.
A rising fuel surcharge reduces the truckload AGP margin percentage, even though we pass through the cost, leaving no impact on our AGP dollars per shipment.
For example to 75% year over year increase in fuel surcharge per mile resulted in approximately 50 basis point reduction to our truckload AGP margin percentage compared to Q1 last year without negatively impacting AGP dollars per shipment.
On slide seven of our earnings presentation. We have provided a chart that shows the historic trend of our truckload AGP per shipment and our Nast AGP margin percent here.
Here you can see that our Q1 Nash AGP margin percent has declined approximately 90 basis points compared to Q1, two years ago, while our truckload A&P dollars per shipment grew by 42% over the same time period.
With our customer focus strong team and digital investments, we expect to continue to drive long term growth and efficiency into our model now.
Now turning to expenses Q1 personnel expenses were $413 4 million up 14, 6% compared to Q1 last year, primarily due to increased head count as we continue to support opportunities across our business.
On a sequential basis Q1 personnel expenses were down one 6% versus Q4 with average head count up four 3%.
For the full year, we continue to expect our personnel expenses to be approximately one six to $1 7 billion.
Including some headcount additions that we expect to be weighted more towards the front half of 2022.
If growth opportunities play out differently than we expect we will adjust accordingly.
Moving on to SG&A Q1 expenses of approximately $147 $4 million were up 24, 7% compared to Q1 of 2021, primarily due to higher purchased services a nonrecurring legal expense and increased travel expenses for 2022, we continue.
To expect total SG&A expenses to be $550 million to $600 million.
Primarily due to higher to a higher level of spending on technology initiatives and travel.
22 travel spending is expected to return to approximately half of our pre pandemic levels.
22, SG&A expenses are also expected to include approximately $100 million of depreciation and amortization.
First quarter interest and other income expense net totaled $14 2 million up approximately $2 9 million versus Q1 last year, primarily due to higher average debt balance.
Our Q1 tax rate came in at 18, 4% compared to 18, 3% Q1 last year 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 2022 full year effective tax rate to.
To be 19% to 21%, assuming no meaningful changes to federal state or international tax policy.
Q1, net income was $273 million up 56% compared to Q1 last year and we delivered record quarterly diluted earnings per share of $2 <unk> up 60% year over year.
Turning to cash flow Q1 cash flow used by operations was approximately $14 million compared.
Compared to $57 million used in Q1 of 2021.
The $43 million year over year improvement.
It was primarily due to a $97 million increase in net income and partially offset by the change in working capital, which increased $288 5 million in Q1 compared to an increase of $251 8 million.
In Q1 of 2021.
The Q1 increase this year resulted from a $479 million sequential increase in accounts receivable and contract assets less a $190 million increase in total accounts payable.
When the cost of purchased purchased transportation and subsequently prices, including fuel surcharge comes down we would expect a commensurate benefit to working capital and operating cash flow.
Accounts receivable and contract assets were up 10, 8% sequentially. While total revenue was up four 8%, the resulting $2. One day increase in days sales outstanding or DSO was driven primarily by sequential increases in total revenue that we're more concentrated in the last two months of Q1 compared to Q4.
From a quality of receivables standpoint, our percent past due is in line with our two year average and our credit losses as a percent of revenue are at four year lows.
Over the long term, we continue to expect AGP growth to outpace working capital growth.
Capital expenditures were $26 2 million in Q1 compared to $13 5 million in Q1 last year. We continue to expect our 2022 capital expenditures to be $90 million to $100 million.
Primarily driven by technology investments.
We returned approximately $251 million of cash to shareholders in Q1 through a combination of $178 million of share repurchases and $73 million of dividends that level of cash to shareholders equates to approximately 93% of our Q1 net income and was up 13% versus Q1 last.
Year.
During Q1 this year, we repurchased approximately one 7 million shares at an average price of $101 93 per share over the long term, we remain committed to our quarterly cash dividend and opportunistic share repurchase program as important levers to enhance shareholder return now.
Under the balance sheet highlights at.
At the end of Q1, our cash balance was $243 million up $25 million compared to Q1 of 2021, we will continue to look for ways to efficiently repatriate excess cash from foreign entities.
We ended Q1 with $671 million of liquidity comprised of 428 billion 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 $2 $1 7 billion up $822 million versus Q1 last year, primarily driven by increased working capital and share repurchases.
Our net debt to EBITDA leverage at the end of Q1 rose to 149 times compared to 142 times at the end of Q4.
From a capital allocation standpoint, we remain committed to disciplined capital stewardship, and maintaining an investment grade credit rating and generating sustainable long term growth and our total shareholder returns. Thank.
Thank you for listening and now I'll turn the call back over to Bob for his final comments.
Thanks, Mike So as questions linger about the impact on global economic growth from the Russian invasion of Ukraine, higher energy prices and inflationary pressures among other impacts we believe that our global suite of multimodal services are growing digital platform and a resilient and flexible non asset based business model will continue to deliver strong.
Financial results through the cycle.
We will continue to benefit from our product and technology investments, while delivering on opportunities to integrate our services to help our customers solve their complex global supply chain issues.
We are uniquely positioned to orchestrate end to end supply chain success for our customers and to help them not only navigate uncertain market conditions, but to succeed in doing so.
Ah Robinson team and their responsiveness and ability to provide true value continues to be a key differentiator in our ability to win in the market.
One of the core values that we live by as we evolve constantly to advance our industry leadership in a more digital environment, we're evolving to a product led organization by Reorienting the intersection of our growth strategy and our engineering and technology teams with the needs of our customers and carriers and we will continue to differentiate ourselves in the market by having great people.
So that our customers can rely on them.
I am excited by the initial results that are rune described related to the enhancements that were rolled out in February for a narrow sphere carrier product will continue to build on our customer centric commitment by continuing to invest in smart customer and carrier focused products and we will launch several new products that we believe will benefit our customers and carriers as we continue to build out the most powerful supply chain.
Platform this.
This concludes our prepared comments and with that I'll turn it back to Dana for the Q&A portion of the call.
Thank you ladies and gentlemen, the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time.
Formation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key we do ask in the interest of time and to allow everyone to ask your questions that you. Please limit yourself to one question. Once again that is star one to budget.
A question at this time.
The first question today is coming from Todd Fowler of Keybanc capital markets. Please go ahead.
Hey, great good afternoon, and congratulations on the results.
Bob I wanted to start with contract pricing and it really to get a sense of where you're at with repricing. The book what percent was effective here in the first quarter.
And then with the contracts that you're signing is there any change in kind of the nature of the contracts the duration or anything that would cause them to reset if we see the market continue to evolve going forward.
Yes. Thanks for the question Todd as you know the first quarter is typically a really busy one for contract bids and renewals in this quarter certainly was not an exception to that really we kind of saw what we expected to see in terms of the overall number of bids.
To maybe address the meat of your question around kind of the timing the cross section of our largest customer bids. We continue to see 12 months awards as being the majority of practice in fact up 57% of the bids of our top customers.
We're tied to 12 months awards.
Six months terms.
Negotiated in about 25% of the bids with the balance being terms of around three months. So that's a bit of what we about what we saw in terms of the terms of those bids over the course of the quarter.
I think the thing with truckload pricing either on the way up or on the way down as there is always some constant repricing in order to ensure that you are saying right with the market and balancing the opportunity for volume growth and AGP. So for us we.
We will continue watching the market and tuning our pricing to capitalize on whatever wherever this environment kind of shakes out in order to best serve our customers and to drive growth I think one of the real advantages for US is given the investments that we've made into some of the digital and algorithmic based pricing tools that we can react a lot faster to changes in the market and we can have.
Just at scale really better than we've been able to do at any point in the past and I think if you follow our customer advisory that we put forward you likely saw that we did lower kind of our forecast during the quarter from <unk>.
Kind of high single digit expectation increase in costs to an expectation of more flat on a year over year, which would if you read through that to say that we would expect those cost to come down a bit in the back half of the year. So obviously a ton of variables that still need to be understood, but thats how were seeing the market right now I would add to that within the con.
<unk> Awards Todd in the in the first quarter, we saw pretty significant increases in our win rates compared to first quarter of of last year. So we do feel really good about how we've adjusted to kind of what the market is bearing right now.
Got it and then Bob could you if you could just comment on percent effected in <unk> versus Q2 still be implemented for the rest of the year.
Say that again in terms of the percentage of the BARDA contracts, who are implemented so you've got the new rates in your in your contract book in <unk> versus still coming in for the rest of the year.
I don't have that I don't have that data point in front of me Todd. We can we can take that as a follow up but I don't have that in front of me in terms of the percentage of the book that was that was a rebid this quarter. Okay. That's fine I'll pass it along thanks for the time okay. Thanks.
Thank you. The next question is coming from Jordan <unk> of Goldman Sachs. Please go ahead.
Yes, Hi, just a question you did a good job this quarter the Nast.
Operating margin I think shot up to around 36% or so I'm just wondering given the dynamics in the favorable pricing.
Maybe the drop in purchase transport I mean, what's your thoughts on the March towards the longer term goal of 40% that means there's something thats attainable this year or.
I'll leave it there.
Yeah. Thanks, Thanks Jordan.
I've said for the past several quarters that our that our goal is to get <unk> back to that 40% range.
Couple of factors in play obviously this quarter.
The first being the repricing of the book right and so taking down some of the loss, making mode as being more intentional about the freight that we are targeting and accepting and obviously the market the market itself gave us.
Some benefits there outside of our own intentional repricing and so I think I said last quarter that one of the keys. There was really improving the health of our contractual truckload portfolio and we've certainly done that this quarter and we would look for that to continue to get healthier.
Healthier through the balance of this year. The second is around expense control and ensuring that we're managing our underlying expenses and investing in the things that are delivering the greatest return and so I don't know I don't I wont prognosticate, whether we get there.
Throughout the first second quarter third quarter fourth quarter within the within the months, we got pretty.
So there within the quarter and so I think we're in a really good trajectory.
Thank you.
Yes.
Thank you. The next question is coming from Scott Group of Wolfe Research. Please go ahead.
Hey, Bob just to clarify your point on that last comment was March got pretty close to that 40% net operating margin. So you would expect implying you think that net operating margins in <unk> would be better than <unk> is that is that fair.
What I, what I would confirm and what you just said there Scott is throughout the course of first quarter. What we saw was a moderation in terms of the cost of purchase transportation, we saw a moderation in the overall marketplace dynamics and kind of the load to truck ratio and our model responded the way that we would.
Expect our model to respond.
Better part of our while we grew truckload volume in both contractual and transactional as we would expect our book starts to shift a little bit more towards the contractual and the loosening market and as I said I mean, the model is holding up the way we would expect it to in a market that starts to soften a bit.
Okay, and then you guys in the quarter announced this new capital allocation Committee, how should we think about what may or may not be coming is the focus more on <unk>.
More buybacks is it on more acquisitions is it on asset sales what are the things that you think you haven't done before that may change going forward.
Sure. So maybe I'll just take a second Scott to level set just to make sure everybody. That's participating in the call has the same information on February 28, we announced via an 8-K in our press release that we had reached a cooperation agreement with one of our large shareholders and Cora and through that process, we'll be adding two new directors to our board they went ship and Henry Meyer.
In additional in addition to that we formed a capital allocation and planning committee as part of the board of directors, which is <unk>.
Made up of my Chairman of the board myself, and Jay and Henry and the purpose of that committee is to really objectively assess value creation opportunities for the company make recommendations to the full board and really support management's review of the company's capital allocation operations and strategy, including enhanced transparency and disclosures to <unk>.
Our holders now we came to that agreement at the end of February where a couple of months into that engagement less than 60 days into the engagement we've been working hard over the past couple of months to onboard.
New directors, who have been incredibly engaged.
<unk> the priorities of the committee and I'm really encouraged by the engagement of the skill sets of the new directors in the fresh perspective that they're bringing I think they're both going to bring great experiences to our board and we will continue to work together to maximize shareholder value being that its early stages I don't I don't have a lot to share in terms of outputs of that committee or a specific focus areas, but I would say.
Kind of a general framework as we've communicated publicly at the end of February as the scope.
Okay.
Thank you I'll get back in queue.
Thank you. The next question is coming from Jack Atkins of Stephens. Please go ahead, okay, great. Good afternoon, and thank you for taking my questions. So I guess, just two if I could squeeze in Boston here first I guess a follow up on Scott's question.
Bob any sense for when we could maybe no more about some outcomes from the decision of the special Committee and what the broader board wants to do there and would you expect any outcomes to be incremental or could there be some more fundamental shifts in the business strategy that that's first question and second question is what do you think about.
The shutdowns Lockdowns in China, and the potential knock on effects of the U S freight markets. Once we see a reopening there do you think that could cause further disruptions in the second half of this year as that freight begins to light in the U S. Just any sort of thoughts around that would be helpful. Thank you.
I'll give you a brief answer on the first part Jack and I will try to build upon the specific question around China, I mean relative to anything that we do strategically within within the organization as we always have and as we always will evaluate strategic alternatives for the company that are focused on maximizing shareholder value for the long term and so.
New Committee know committee, that's been the lens that we've taken in so as as things calm if things come obviously.
Public disclosure, if we make decisions, we'll follow that but we likely won't be dropping bread bread crumbs. So to speak ahead of kind of what we're looking at or what we're working on.
For obvious reasons, So let me, let me shift and pivot to China Jack.
Here's how we're thinking this is to me one of the biggest unknowns and a long list of unknowns and what's going to happen in our market, whether it's the Ukraine, whether it's energy prices, whether it's inflation, but clearly China and the lockdown there is something that we're watching really really keenly.
With them experiencing really the worst COVID-19 outbreak they've had since the beginning of the pandemic to put it in context, there's more people under lockdown in China, right now, but the entire population of the United States and so we know that their freight has been disrupted inland from lack of trucking.
Trade is piling up and when trucks are finally permitted to start moving goods and we'd get back to some normal fluidity in China, we expect that that's going to create a surge of freight but likely will some point down the road negatively impact some of the progress that we've made here in terms of the backlogs at the U S ports.
I don't know.
I don't know that any of us know Jack what the real impact will be we've got almost 40% of the country's GDP existing in provinces that are locked down along with two of the world's largest ports.
I think I am of the belief right now that we're in more of an air pocket caused by this related to the imports from China, but eventually that demand comes back online and the timing of that and the impact is yet to be fully understood, but given the integrated logistics system needed to move goods over the water of the air.
Eroding the rail there's likely to be some impacts later on in the year I guess, maybe sooner to maybe depressing demand than later in terms of disrupting demand.
The best lens that we're taking against that against that Jack Okay. Thank you for the color.
Yes.
Thank you. The next question is coming from Bruce Chan of Stifel. Please go ahead.
Hey, Thanks, and good afternoon, everyone.
Bob just wanted to follow up there on Jack's question.
As you think about the.
China Covid disruption in the West coast potential Port issue and you go through the customer repricing process have those issues been factoring at all into any of those pricing discussions on the Nash side and I guess given that uncertainty are you doing anything to position.
More on the spot.
I mean, I think that specific to China.
Here's what I would say.
I forget who asked the question earlier about kind of the makeup of the contracts but.
It's 57% of our large customer contracts that were signing for 12 months.
Forget the percent 25 at six months and the balance at three I think just that makeup of the contract portfolio is so different than anything pre pandemic.
We are we and I think many industry players are trying to figure out what these impacts are and manage and mitigate risk appropriately because of it.
Certainly 2019 that number would've been all of the contracts, we're 12 months in length. So.
I don't know that we've got great information in terms of what that impact will be.
And I guess, just subjectively has that issue been coming up at all in your customer pricing discussions.
It has in some cases subjectively yeah anecdotally.
Great now that's helpful I'll hop back into queue I appreciate it okay. Thanks.
Thank you. The next question is coming from Chris Wetherbee of Citi. Please go ahead.
Hey, Thanks, good afternoon guys.
Hi, Chris quick questions here, just first lossmaking loads can you remind can you can you give us a sense of sort of where you are in the first quarter and what youre comping against from a full year basis would you did in 2021, and then I guess, when we think about the truckload volume environment, obviously in a decelerating freight environment I guess the idea would certainly be done.
Maybe you can eat in a little bit more from a volume perspective could you give us a sense of maybe how you see the opportunity said playing out as the year progresses.
Yes.
So we made a pretty meaningful swing I guess would be my unofficial term in terms of the reduction in negative files from from Q4 to Q1, we're not back to kind of the normal run rate. So I guess, that's the good news that they are still there's still room to run and if you look at the new slide that we had entered into the back on slide seven in the deck.
Can kind of see what the what the recovery in the AGP per truckload has been and so that's really where I'd like us to put the focus is.
We will.
We're going to continue to work on optimizing that AGP per truckload and the AGP kind of over the lifetime value of our customers and as we get to your point, we may need to get a bit more aggressive to grow share in some corridors and some lanes with some customer types, which may or may not lead to increased reach the risk of negative.
Or loss, making loads, but we want to really look at is maximizing the overall yield in that balance of volume and AGP.
Okay, but there still is like you said an opportunity from a loss, making load perspective in terms of catching up relative to where you've been yes.
Yes, yes, yes.
A couple of hundred 300, I think 300 basis points roughly off it would be average some are that area three to 400.
Okay. Thanks very much appreciate it.
Thank you. The next question is coming from Ken texture with Bank of America. Please go ahead.
Hey, great good afternoon and.
Really solid job on the quarter I am sorry, if I repeat I know you've got a couple of calls going on aftermarket and I read the transcript as quick as I could.
But just.
The shift of contracts you noted the routing guide depth in your in your opening comments.
How do you see if thats a seasonal pocket in terms of what Youre seeing in March you noted kind of we're seeing a little bit lighter demand.
I think even commented that extra supply hitting the market.
How do you kind of see.
See that and make that switch in your business to contract what are the signals that you look forward to kind of switch from that that guide that when that guy that starts loosening to lock in those contracts.
Yes.
And our pricing strategy now so I'll, maybe zoom out a little bit realizing that.
Our business in our mix between contract and spot typically moves as much with kind of first tender acceptance right and kind of the.
The movement in the overall market as much as it does our kind of intentionality, but we do obviously take different pricing strategies, given where we see the market either rising or falling, but but as first tender acceptance increases across the industry. So as those hours right and so that inherently in itself is going to move more of our <unk>.
More of our business into that committed space.
What we're seeing in the market right now Ken is we saw this load to truck ratio kind of using some calculations against the data finish out at the end of last year at six to one.
We opened up right out of the gate in the beginning of first quarter at having that skyrocket up to 12 to one really is we had a really.
Broad outbreak of Covid that has started to trend down and into April we've seen it actually hit.
Three to one range, which is kind of that.
Balanced market, if you will but what I would say is even today and looking at some current data we're starting to see.
I don't know if I want to call. It a floor yet, but we're seeing resistance in terms of how far that's coming down in certain geographies and even starting to see some some upward pressure in terms of in terms of costs in some geographies and so I don't get a sense that we're in this free fall necessarily but but I think we're going to we're going to meet resistance as we see increment.
Demand with produce season in beverage season in a such coming on over the course of the next few weeks.
And just to clarify did you mentioned that your view of purchased transportation went from high single digits to now flattish or is that what youre, saying also for the year.
For the year, yes.
Okay. Okay, great appreciate the time and thoughts thanks, a lot yeah you bet.
Thank you. The next question is coming from Tom <unk> of UBS. Please go ahead.
Yes, good afternoon.
Wanted to I think you've got a decent amount of commentary on this but.
How do you think that.
<unk> will like should we think of this as kind of a you know you're in the sweet spot for a little bit in <unk> and in terms of Nast and and truckload you know kind of.
Thinking my conventional ahead of gross margin percent, but you know if you want to say gross profit per load. How would you think about it is there you know you had a touch of it like March in <unk>, and then you kind of have a an extended sweet spot or you know each cycle is different but.
How do you think about that and I guess it sounds like youre constructive on loads that loads are still pretty good I think that's where you know people are trying to get their arms around spot market's a lot looser, but you know companies don't seem to think there's weakness in load so anyway.
Comments around that would be helpful. Thank you.
Yep.
So you know I.
I would say April marketplace kind of it looks like March right in the model is kind of reacting the way that we would expect it to in terms of demand.
Work.
The market assessment.
The assessment is we're I don't know two or 3% of the overall market and so theres market share for us to gain regardless of market condition and my mindset.
Some of the signals that we saw in the first quarter is we did start to see some softening of demand demand signals in some of our.
Digital pricing tools, where we're standing up those API as we started to see some softening demand in the spot market calls for rates, but the flip side of that as we saw significant increases in win rates on the contract side on a year over year basis, and so again I think it's I think we'll see the portfolio continue to shift, but I'm certainly not worried about again at.
Based on everything that we can see here about demand shutting down.
So you think it's easing or it's just shifting from spot to contract.
Well you can look at you can look at the Cass freight index as a data point and we're still in positive slightly positive territory. There I mean it does it is it demand demand is moderating our supply is increasing in the market is clearly becoming more balanced at least in the near term.
And typically when that happens, we see our portfolio shift more towards contractual freight.
As the spot market opportunities.
Tend to become less and less.
Sure. Okay, yes, it makes sense. Thank you Bob I appreciate it thanks Tom.
Thank you. The next question is coming from Brian <unk> of Jpmorgan. Please go ahead.
Hey, good evening, thanks for taking the question.
You know maybe if you can just talk about hiring and the trends youre seeing there retention with productivity looks like.
We really tried to sort of pick up from.
Some of the additional cuts excuse me that you made.
I can try to catch up with the market how is that working out relative to plan and then we look at some of the automated tools I think youre, calling out about 400000 or so of automated truckload bookings in the first quarter.
How does that run rate from from last year, and maybe you can put some perspective around that in terms of percentage and where you think it should go.
Would be helpful. Yes.
So those those two areas are really I think huge unlocks for growth and I'll tackle them separately because they are two separate and distinct thing. So let's talk about the head count growth in the ads first.
I want to continue to reinforce that our goal is to over time continue to grow volume at a rate ahead of head count growth nothing is changed there, but with that being said, we've ramped up hiring as you've seen in the past couple of quarters. Both to stimulate growth then to respond to the opportunities that are that are in the pipeline. So I'll talk about nast and forwarding a little bit separately.
Because of the stories are slightly different.
I look at NASS and zoom out a bit we've been intentional about driving productivity within Nast and part of that has been limiting some of the head count growth.
If I look at the average head count over time in 2016, we added about 3% head count growth in 2017, we added about two in 2018, we only increased head count by about half a percent and we've decreased head count every year. Since then and so from our you mentioned kind of cutting too deep in 2000.
<unk> from our peak head count in the middle of 2019 to the trough in 2021, we decreased our overall head count by about 13%, but at that same time from peak to trough, we improved our productivity in terms of shipments per person per day by about 33%.
But wed likely constrained some growth opportunities and doing that particularly in truckload and so as we look at our average head count in first quarter of 2022 with these increases it's it gets us back close to our average head count in 2017 candidly with.
More high volume business and higher productivity the.
The increase in Nast head count year over year is really a mix of commercially oriented oriented roles to drive demand carrier facing roles to ensure continental continuity of supply and then operational roles to ensure higher quality of service and I think those three lenses coming together along with the tech.
<unk> investments that we've made that I'll touch on next I think are really critical to drive growth future.
In.
Within forwarding the additions really been made on a global basis to to keep pace with the increase in the business.
The number of opportunities that we still have that we're landing the expansion of our capacity this year.
Into 2022.
And those those ads are being made more on a global basis, they tend to lean a little heavier into the U S, but are really spread across the globe.
On the tech side in terms of the unlocks and some of what a rune talked about on the call just reinforce.
When we talked on the last earnings call. We said Hey, we expected this quarter to be kind of pivotal in terms of demonstrating some results on the digital side.
With what we rolled out in February what we saw was a 45% increase in daily visits to our <unk> carrier products, a 51% increase in the number of carriers that are spent carriers that were booking loads digitally and 100% increase in digital books sequentially from January to March on a year over year base.
It was close to a 350% increase in terms of digital books and again your market size that a little bit and say 440000 shipments $830 million gross Rev. In the quarter I think it's a good signal on some of the progress that we've made whats really encouraging though to me in those numbers is that 40% of those digital books occurred in March.
And so obviously heavily heavier weighted to the back of the quarter and sets up for a very favorable run rate and when you think about annualizing those numbers and kind of comparing them to the some of the other digital platforms in the industry, it's pretty easy to get to a place where you look at it and say Robinson clearly has the largest digital freight marketplace.
Across the industry, but our room mentioned, some key input metrics around acquisition and retention and share growth.
Those are the things we will continue to track and communicate in order to drive the output metrics of volume growth and profit improvement so lots of dry powder in that long answer sorry, Brian in terms of additional heads as well as the expansion of the attack to drive to drive acquisition retention and share growth. The thing that I would comment on current productivity is.
In general New employees don't operate at the same level of productivity as people in our industry that have been here for a while right Theyre building their book of business. They are learning the roles and so you might say that we've got a thousand people doing the job of.
Three or 400, just based on their ramp in productivity over the course of <unk>.
First six to 12 months and so we'll continue to see that increase as those as those employees kind of age under their roles.
Thanks, Bob for all those details.
One quick follow up I know you mentioned a few minutes ago about.
Looking like April .
Can you put some can you quantify that a little bit maybe talk about directionally AGP per load or loads in general just to give a little more finer point on that would be appreciated.
Hi.
A couple of years ago that we really stopped giving kind of the.
Volume and revenue in the in the month in the quarter and so I'll just say directionally the market conditions in April look very similar to what we experienced on the tail end of March.
The model is responding as we would expect it to.
Alright, Thank you Bob for the time appreciate it yeah. Thank you Brian .
Thank you. The next question is coming from Jeff <unk>.
Hoffman of vertical research partners. Please go ahead.
Thank you very much and congratulations.
I wanted to check in on one of the newer initiatives. The the trailer pools, I know theres, a pretty hot topic across the industry and I was just kind of curious how that's progressing how large that Scott and where those metrics are showing up and what kind of difference there making for ya.
Yeah.
So I'll talk I'll talk kind of at a high level about drop trailer.
Drop trailer makes up just under 10% of our total truckload volume.
So it is it is a meaningful and important part of our business the volume associated with drop trailer last quarter increased by 23% and so it's definitely an area where customers are voting.
To move towards more of these power only in drop trailer programs because they are so much more efficient from a load and unload standpoint within the drop trailer business at Robinson, we have a program that we stood up a few years ago called power, plus which is kind of our gray box leased trailer fleet.
And that fleet continues to grow, albeit the.
The size of the growth in that fleet was challenged last year, just with the availability of trailers, we'll look to add another 100 trailers or soda that here in the front part of this year, we measure the size of that Gray box fleet or the power plus fleet in the hundreds of trailers not the thousands of trailers, but that combined with the balance of our of our drop trailer.
Business allows us to really provide some compelling solutions to our customers in an area that's clearly high demand.
Okay.
Great answer. Thank you very much that's all I have.
Jeff.
Thank you. The next question is coming from <unk> majors of Susquehanna. Please go ahead.
Yeah. Thanks for taking the questions here just want to briefly clarify a couple of questions from earlier.
First on the China shutdowns.
You move as much China U S Ocean freight as anybody out there in your global forwarding business I'm I'm curious do you have any data or any way to quantify that.
The drop in and outbound out of Shanghai, or China, as a whole and over the last four or five weeks versus what was happening before the shutdown startup just anything directionally you can put the numbers on that and then I have one more follow up.
Yes, Bascom honestly for us we've not seen any decline in demand for or shipments.
In our ocean business and so.
I don't have industry wide data in terms of.
Overall volumes in front of me.
But for us.
Yes.
It's still maintains a really really strong.
Manned environment and work and we've got the capacity to respond to it.
And that is a comment going into April as these have continue not just a U S.
Yep.
Thank you for that and the <unk>.
First question of the call you talked about about I think 57% of your bids that you were doing were still 12 month and the other 43% were in the six months to three month range is that mix reflected by the number of bids or dollars I'm just trying to understand is the balance of the dollars.
Of truckload freight you're moving much different than that kind of 60 40 mix. Thank you.
Yes, good question.
And again that that is.
As a subset of kind of our global top accounts that we manage the pricing at a at a centralized level I do think it's fairly representative of so thats going to be representative of.
The terms of the bids that are being taken to market in terms of what were being awarded and kind of how that's weighted bill.
Believe that thats going to be more heavily weighted to the 12 month bids and so while 57% of the actual.
Procurement exercises were four.
Awards are 12 months or more of our awarded volume a higher percent than 50% is tied to the 12 month awards. So hopefully that adds some clarity on that.
It does thank you, yes, you bet basket.
Thank you. The next question is coming from David <unk> of Barclays. Please go ahead.
Okay. Thanks again.
Taking the call and taking the questions maybe just a quick question for Bob.
Would you comment on your.
Customer retention that you've seen over the last 12 months.
Maybe talk about any tools that you've developed that either have had an effect or youre targeting specifically for customer retention.
Yeah, So I'll hit on the I'll hit on the current customer retention across our top 500 customers, which makes up about 50% of our revenue our customer retention was nearly 100%.
In 2021 and that carried into the first quarter of 2022 as well our overall customer count in Nast increased on a year on year basis in the first quarter, which was obviously a positive signal and we saw that across different size segments as well from <unk>.
One of the encouraging things that we saw a lot of small business come back in the first quarter or second or the first quarter of 2022 and that was the area of the largest increase in overall customer count was in was in small businesses. So I think thats, an encouraging sign for the economy I don't know Arun if you want to talk at all about some of the customer side yeah.
Focus has been on the carrier side as you heard earlier in terms of like carryover.
Carryover carryover acquisition retention and share growth on the customer side, we've got some things teed up specifically.
Along the lines of you probably heard Bob and others talk about the IQ products the Robinson labs.
Emissions IQ and procure IQ market weight Iq.
Things that are working well with our customers that we need to scale them and so in coming quarters, you'll see us scale those capabilities into our customer facing tools.
Say like at this point.
<unk> are driving.
Driving attention, but not in a way that we can we can play back measurably.
Yeah.
Thanks appreciate it.
Thank you. The next question is coming from Ravi Shanker of Morgan Stanley . Please go ahead.
Thanks, Good afternoon guys.
Thank you for the detail on the AGP per shipment in the history there.
I'm not 100% sure what the message is there.
Can you remind us again, why do you think AG people shipment as a better profitability metrics gross margin and I'll have a follow up to that going up if I look at this chart over the last decade like theres been pretty tight correlation between the gross margin on the ADT shipment until the cycle, where both of those lines have diverged.
Do you think that is the case kind of is there something going on with mix, where you're getting a decent number of shipments but.
The cost per shipments coming down to something.
Ravi.
The.
The reason that we've always believed that AGP per shipment is the most important metric is we can't control much of what drives AGP margin percent, you think about fuel alone in the current environment and the impact of diesel diesel fuel surcharges are an absolute pass through for us in our.
Truckload business, yet they have either negative or positive impacts on AGP percent on a year over year basis, depending on if they're if they're rising or falling.
We used if you'd.
Look at the.
Our low point too.
Kind of mid 2022, where we sit today and you see whatever six seven quarters in a row of increases of AGP per load.
If I'm managing my teams in the field I need them managing that AGP per load up 42%.
I'd much rather have our AGP per load today than the AGP per load in the middle of 2020, yet the AGP margin is irrelevant in terms of in terms of the profitability of our business.
Okay.
Okay got it.
I'm not sure why the margins at the other way, but all of them.
But can you help clarify why those two lines have diverged in the last 18 months I can't I don't think that's fuel.
Yes, the cost of purchased the cost of purchased transportation and.
The sell rate has gone up and at a rate that we've never seen in the past and as you can see our AGP per load is relatively range bound over the course of the last decade.
Okay got it maybe I can take this offline as well thank you for the time.
Thanks Robyn.
Thank you. Unfortunately, we have run out of time for questions. Today at this point I would like to turn the floor back over to Mr. <unk> for closing comments.
Thank you Donna that concludes today's earnings call. Thank you everyone for joining us today, and we look forward to talking to you again have a good evening.
Ladies and gentlemen, thank you for your participation and interest in C. H Robinson you may disconnect. Your lines of I'll go off the webcast and enjoy the rest of your evening.
[music].