Q1 2023 CH Robinson Worldwide Inc Earnings Call
Speaker 2: Good afternoon, ladies and gentlemen, and welcome to the CA Robinson First Quarter 2023 conference call. At this time, all participants are on a listen-only mode.
Speaker 2: Following the company's prepared remarks, we will open the line for a live question and answer session.
Speaker 2: To ask a question, please press star 1 on your telephone keypad.
Speaker 2: If anyone needs assistance at any time during the conference, please press star 0.
Speaker 2: As a reminder, the conference call is being recorded Wednesday, April 26, 2023.
Speaker 2: I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.
Speaker 3: Thank you, Donna, and good afternoon everyone. On the call of me today is Scott Anderson, our interim chief executive officer, Mike Zechmeister, our chief financial officer, and a rune ragen, our chief operating officer.
Speaker 3: Scott and Mike will provide a summary of our 2023 first quarter results and our outlook for 2023. A room will provide an update on our efforts to improve our efficiency and operating leverage and then we will open the call up for questions.
Speaker 3: Our earnings presentation slides are supplemental to our earnings release and can be found in the investor section of our website at investor.ca-robinson.com
Speaker 3: 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.
Speaker 3: I'd also like to remind you that our remarks today may contain forward-looking statements.
Speaker 3: Slide 2 in today's presentation, this factors that could cause our actual results to differ from management's expectations.
Speaker 3: And with that, I'll turn the call over to Scott.
Speaker 3: Thank you Chuck. Good afternoon everyone and thank you for joining us today.
Speaker 3: Our Q1 financial results reflect the softening market conditions that have transpired in the freight transportation market over the past 12 months.
Speaker 3: With shippers continuing to manage through elevated inventories and the slowing economic growth, the balance of supply and demand has shifted from a tight market a year ago to one that is now over-supplied.
Speaker 3: As spot rates approach the breakeven cost per mile to operate a truck, the market is likely at or near the bottom of the industry cycle, which typically results in capacity exiting the market.
Speaker 3: Contract rates are also declining as transportation providers adjust to the changing market.
Speaker 3: During this transition, we continue to increase our focus on delivering an improved customer and carrier experience and a more efficient business model and we're taking steps to foster profitable growth through cycles.
Speaker 3: In his prepare remarks, a room will provide an update on the progress we're making on increasing the digital execution within the life cycle of a load by streamlining certain processes that are core to our operating model.
Speaker 3: Mike will give you an update on our continuing restructuring effort. We are executing on the plan that was initiated in November and we're low in our $2,023 personal expense by $100 million at the midpoint of our guidance, reflecting actions that have already been taken and additional opportunities to further reduce our costs.
Speaker 3: As I've transitioned from our role of Board Chair to the interim CEO , I've met with many of our employees who remain highly engaged and motivated to win, as we strive to amplify their expertise with new tools. I've also met with several of our customers, and I'm confident in the power of our commercial engine.
Speaker 3: and our ability to deliver superior global services and capabilities and solve complex logistics challenges for our customers while continuing to execute on our sustainable growth strategy.
Speaker 4: You
Speaker 3: Jody Koselec, the chair of the Board and former Chief HR Officer at Target, is leading the Church Committee.
Speaker 3: With the assistance of Russell Reynolds, this role has attracted a strong pool of candidates.
Speaker 3: The committee is choosing a proven leader with broad operational experience who will accelerate our strategic initiatives and execute on the opportunities ahead for the company.
Speaker 3: The process is moving along as expected and the board anticipates naming the new CEO in the second quarter. I, along with the senior leadership team, am actively preparing for a smooth transition to a new leader.
Speaker 3: Now let me turn it over to Mike for review of our first quarter results.
Speaker 3: impacted by a soft freight market. Prices for surface transportation and global freight forwarding have been declining with the weakening demand in excess capacity.
Speaker 3: by a soft freight market. Prices for surface transportation and global freight forwarding have been declining with the weakening demand and excess capacity. With these macro forces as a backdrop.
Speaker 3: Our first quarter total revenues of $4.6 billion declined 32% compared to our record high of $6.8 billion in Q1 of last year.
Speaker 5: Our first quarter adjusted gross profit, or AGP, was down $221 million, or 24.3% compared to Q1 of last year, driven by a 45% decline in global forwarding and a 16% decline in Nast.
Speaker 5: On a sequential basis, total company AGP was down 11%, including a 15% decline in NAST and a 6% decline in global forwarding.
Speaker 5: On a monthly basis compared to Q1 of last year, our total company AGP per business day was down 23% in both January and February and down 27% in March as the typical seasonal acceleration in March did not materialize this year. So far in April we've experienced similar freight market conditions.
Speaker 5: to Q4 of last year.
Speaker 5: Our AGP for truck load shipment decreased 19%.
Speaker 5: versus Q1 last year, primarily due to a decrease in our transactional or spot market truckload AGP procurement. During Q1, we had an approximate mix of 70% contractual volume and 30% transactional volume.
Speaker 5: Routing guide depth of tender in our managed services business, which is a proxy for overall market, declined from 1.7 in the first quarter of last year to 1.2 for the first quarter of this year, which is the lowest level we've seen since the pandemic impacted second quarter of 2020.
Speaker 5: The sequential declines in truckload line haul cost and price per mile that we experienced in Q2 through Q4 of last year continued in Q1.
Speaker 5: However, the declines in Q1 were the largest that we've seen in over 10 years on a percentage basis.
Speaker 5: In Q1, we saw a 28.5% year-over-year decline in our average truckload line haul cost per mile paid to carriers excluding fuel surcharges.
Speaker 5: Our average line haul rate or price billed to our customers excluding fuel surcharges decreased year-over-year by approximately 27.5%. With the price decline coming off a higher base than cost, these changes resulted in a 20.5% year-over-year decrease in our NAST truckload AGP per mile.
Speaker 5: Market conditions in our global forwarding business were also soft behind weakened demand and plenty of capacity combined with the extended shutdowns around the Lunar New Year holiday.
Speaker 5: This contributed to significantly reduced import volumes and prices across the trade lanes for ocean and air freight.
Speaker 5: In Q1, global forwarding generated AGP of $177.9 million, representing a year-over-year decrease of 45% versus the record high for our first quarter last year, which was up 50%. For more information, visit our website at www.agp.com.
Speaker 5: Within these results, our ocean-forwarding AGP declined by $111 million or 50% year-over-year compared to 63.5% growth in Q1 of last year.
Speaker 5: The Q1 results were driven by a 41.5% decrease in AGP per shipment and a 14.5% decrease in shipments.
Speaker 5: Despite the soft market, our forwarding business continues to have success adding new customers and strengthening its geographic diversity behind many of the investments made in technology and talent over the past several years.
In addition to our strength in the Trans-Pacific trade lanes, our forwarding team generated over 50% of new business AGP from customers outside of the US in Q1.
Turning to expenses, Q1 personnel expenses were $383.1 million down $30 million or 7.3% compared to Q1 last year, primarily due to our cost, optimization efforts, and lower variable compensation.
Our Q1 average head count declined 2% versus Q1 of last year and 4% compared to our Q4 average.
As another point of reference, our Q1 ending head count declined approximately 6% compared to the end of Q4.
Our cost, optimization and restructuring efforts that began in Q4 of last year continued into Q1 as we found more opportunities to help ensure a more competitive and sustainable long-term cost structure.
As we indicated on our Q4 earnings call, we continue to expect our head count to decline throughout 2023 as we streamline processes and leverage technology to allow our industry leading talent to focus on more important work like growing the business.
As a result of the progress on these cost optimization efforts, we are now lowering our personal expense guidance for 2023 by an additional $100 million at the midpoint.
We now expect our 2023 personal expenses to be in the range of 1.45 to 1.55 billion dollars compared to our previous guidance of 1.55 to 1.65 billion dollars.
This updated guidance excludes the Q1 restructuring expense and additional restructuring costs that we expect to incur during the year. Excluding the restructuring charges in 2022 and 2023, the midpoint of our updated 2023 guidance for personnel expenses is now...
Moving on to SGNA.
Q1 expenses of $141.5 million were down $5.9 million compared to Q1 of last year primarily due to a decrease in credit losses and reduction of purchase services including temporary labor.
We continue to expect our 2023 SGNA expenses to be about $575 to $625 million. 2023 SGNA expenses are expected to include approximately $90 to $100 million of depreciation and amortization expense.
As you recall from our Q4 earnings call, we committed to $150 million of net cost savings by Q4 of this year compared to the annualized run rate of Q3 last year.
Our updated total operating expense guidance for 2023 now represents approximately $300 million of net cost savings compared to the annualized run rate in Q3 last year. As mentioned earlier, the majority of the expense reductions are expected to be long-term structural changes to our cost base.
Q1, interest in other expense total 28.3 million dollars up 14.1 million dollars versus Q1 last year.
Q1 of 2023 included 23 and a half million dollars of interest expense, up nine million dollars versus the prior year due to higher variable interest rates.
Q1 results also included a $9.6 million loss on foreign currency revaluation and realized foreign currency gains and losses, up $8.1 million compared to Q1 last year, driven by the translation impact of the various foreign currency denominated intercompany exposures Q2 results in a $9.6 million loss on foreign currency revaluation and realized foreign currency gains and losses, up $9.6 million compared to Q1 last year, driven by the translation
that we had in Q1.
As a reminder, our FX impacts are predominantly non-cash gains and losses, which is why we're not actively hedging them to reduce volatility.
Our Q1 tax rate came in at 13.5% compared to 18.4% and Q1 of 2022.
The lower tax rate was driven primarily by the incremental tax benefits that we typically see from stock-based compensation deliveries in Q1, as well as additional US tax credits and incentives in proportion to the lower-pretax income.
We continue to expect our 2023 full year effective tax rate to be 19 to 21% assuming no meaningful changes to federal state or international tax policy. Q1 net income was $114.9 million and diluted earnings per share was 96 cents.
The adjusted or non-gap earnings per share, excluding the $3.7 million of restructuring charges, was 98 cents down 52% compared to Q1 of 2022, which was up 60% versus the prior year.
adjusted or non-GAP earnings for share, excluding the $3.7 million of restructuring charges was 98 cents down 52% compared to Q1 of 2022, which was up 60% versus the prior year. Turning to cash flow.
Q1 cash flow generated by operations was $254.5 million compared to $13.9 million of cash used in Q1 of $222.
The 268.5 million dollar year-over-year improvement was driven by a $235 million sequential decrease in net operating working capital in Q1, driven by the declining cost and price of ocean and truckload in our model.
Conversely, Q1 of last year included a $289 million sequential increase in net operating work in capital, as costs and prices were rising.
Over the past three quarters, as the cost and price of purchase transportation has come down, we have realized a benefit to working capital and operating cash flow of more than $1.2 billion.
That benefit highlights some of the inherent resilience in our model.
In Q1, our capital expenditures were $27 million compared to $26.2 million in Q1 of last year, and we continue to expect our 2023 capital expenditures to be in the range of $90 to $100 million. We returned $125 million of cash to shareholders.
by the 101 million dollars of cash used to reduce our debt.
Now, onto the balance sheet highlights. As we have demonstrated through the ups and downs of the highly cyclical freight market, the strength of our balance sheet and business model makes us a reliable partner for our customers and allows us to invest through the cycle. Our customers value the stability and reliability that we provide.
million.
Our debt balance at the end of Q1 was $1.87 billion, down $293 million dollars versus Q1 last year.
Our net debt to EBITDA leverage at the end of Q1 was 1.39 times up from 1.29 times at the end of Q4. Our capital allocation strategy includes maintaining an investment grade credit rating to allow us to optimize our weighted average cost of capital.
With the anticipated earnings reduction in 2023, we have reduced our debt to deliver our leveraged targets.
As you would expect, the cash that we used to reduce debt generally reduces the amount of cash available for share repurchases.
Over the long term, we remain committed to growing our cash dividend in alignment with our long-term EBITDA growth. Our Dividends and Share Repurchase program are important levers to enhance shareholder value and enhance the quality of our business.
as is delivering quality customer service more efficiently than anyone in the marketplace. With that, I'll turn the call over to Arun to walk through our efforts to strengthen our customer and carrier experience and improve our efficiency and operating leverage.
Thanks, Mike, and good afternoon, everyone. As I mentioned on our last earnings call, we've increased our focus and opportunities to streamline processes that are core to scaling or operating model.
Streamlining these processes will enable us to decouple volume and head count grow and drive increased productivity while simultaneously improving the customer experience and service levels.
Shipments per person per day is a key metric that we use to measure our productivity improvements.
and we achieved a 4% sequential improvement in Q1 as we progress towards a goal of 15% year over year improvement by the end of Q4 of 2023.
In order to reach our 2023 goal, we have accelerated the digital execution of critical touch points in the lifecycle of a load.
In Q1, the progress we made was primarily driven by increasing the automation of in-transit tracking and appointment-related tasks. Increased digitization and automation are key elements of delivering a superior customer experience as well as operating leverage. These efforts include operationalizing our information advantage at scale.
by giving customers insights around price and coverage and providing features to carriers that improve their utilization and cash flow.
Streamlining processes and improving productivity creates operating leverage. Operating leverage gives us the pricing flexibility to unlock and accelerate market share growth while delivering on a long-term operating margin targets. With that, I'll turn the call back over to Scott now for his final comments. Thanks, everyone.
As inflationary pressures continue to weigh on global economic growth and freight markets present cyclical challenges, the competitive landscape has changed. With lower available demand, the competition for volume is intense, and shippers are looking for stable and innovative logistics partners.
We've shown the strength of our model through cycles, our balance sheet continues to be strong, and we plan to continue investing in initiatives that we expect to provide innovative solutions and generate long-term profitable growth.
At the same time, we're continuing to evolve our organization to bring greater focus to our highest strategic priorities.
including keeping the needs of our customers and carriers at the center of what we do while lowering our overall cost structure. We expect this initiative will continue to drive improvements in our customer and carrier experience and amplify the expertise of our people, all of which we expect to drive market share gains and growth and lead to improve returns for our shareholders.
people in the logistics industry and they're dedicated to solving challenges for our customers.
As a result of the exceptional service that our people provide to customers during the period of extended market disruption, our customer experience scores are very high. And we're having more strategic customer discussions about our ability to provide an integrated service solution.
So while the near-term freight environment presents some challenges, our differentiated value proposition and strength of our people, processes, and technology provide many opportunities.
This concludes our prepared comments, and with that, I'll turn it back to Donna for the Q&A portion of the call.
Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation 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 the handset before pressing the star keys.
Today's first question is coming from Jack Atkins of Stevens. Please go ahead. Okay, great. Good evening and thank you for taking my question. So I guess Arun, maybe this one's for you, but Scott or Mike, if you want to chime in, please do. But I guess I'd be curious to get your take on how you're looking at the market for the balance of the year. It sounds like April is.
any update to what your customers are telling you about sort of their business plans. I think that'd be really helpful. I'll stop there and hand it back. Thank you.
Thanks, Jack. This is Scott. Why don't we have Mike kick that off and then I'll give a little color on customer sentiment. Okay. Yeah, thanks for the question, Jack. And, you know, obviously the market here that we're experiencing is a pretty soft market. We're seeing pretty good competitiveness, particularly on the truckload side.
on the bids that we're involved with. We've been able to maintain our wind percentage. It's actually up this year. In Q1 over last year, it was up in Q4 over last year, so I think we're competing effectively. But what we're seeing inside those bids are reduced total demand, so the customers are just not...
seeing the volumes that they've had in the past. And that's reflective of this soft freight market environment. There's still a lot of customers still working through inventories. They're not running the plants as aggressively as they have in the past. So we're seeing a pretty soft market overall. When we look at our NAS business in Q1, I think there are a few themes that I'd point to there.
I think we feel like we grew share despite being down 3.5% on truck load. And that's really, you know,
with respect to the brokers, the three Pills out there. I think we did a pretty good job. We also got improved productivity, and we talked about that 4% improved productivity against that 15% shipments per person per day target for the year, and we did that in a soft market. It's generally a little bit easier.
to get productivity enhancements when the volume is really roaring. But we were able to do that in a soft market. And the last thing we talked about was our customer service. And we really felt like we had best in class customer service there. So the themes are overall soft market. You talked about.
How we described April relative to the quarter. When we look at enterprise AGP per shipment or enterprise AGP per day, we certainly had a better January and February than we did in March. OK, thanks for tuning in.
But, you know, again, if you kind of translate that over to the truckload business, we were, you know, our volume was down three and a half in the quarter. And April kind of…
has played out similar to where we were in March. So probably market share gaining within the brokerage universe, but certainly down versus our original expectations, driven primarily by the soft market that we're experiencing. You know, an insight, and I'll talk a little bit, I guess, too, about...
the contract environment. One of the changes that we've seen in the contract business versus Q4 was if you go back and look at Q4, customers were about half bids at 12 months and about half bids that were less than 12 months.
As we got into Q1, those RFPs were really leaning into 12 months. So we've gone all the way up to about three quarters of 12 months in those. You could say that that might be the customers seeing bottom here trying to lock in rates that are lower.
But that's another data point indication of where we're seeing the market. With that, I don't know, Scott, if you have any more you want to say. Yeah, Jack, maybe just a little customer feedback. I've been lucky to be in probably about 20 meetings in the last.
month and a half with our top customers. I would say sentiment's pretty consistent with what you're hearing with retailers and sort of higher levels of inventory. But it's really dependent by vertical. There are areas of strength, automotive, healthcare, or some. I would say common theme of these meetings too is just sort of the longer term partnership aspect.
of working with Robinson and us helping them solve their logistics challenges going forward with our full portfolio. So the one thing we're doing in a software market is we're really leaning into customer engagement and face-to-face meetings. Okay, guys. Thank you so much for the call. Thank you.
us helping them solve their logistics challenges going forward with our full portfolio. So the one thing we're doing in a software market is we're really leaning into customer engagement and face-to-face meetings. Okay guys thank you so much for the color. Thanks Jack.
Thank you. The next question is coming from Stephanie Moore of Jeffries. Please go ahead.
Hi, good afternoon. Thank you. You know, Scott, I wanted to maybe get a little bit more color around the ongoing CEO search. I do think that in general the market would like to see some certainty here. You know, now that it's been, you know, called it several months of this evaluation process, if you could just provide.
have experience outside of transportation entirely. You know, just maybe how the board is thinking about these factors. Thanks.
Sure, Stephanie, you know, as I mentioned in my prepared comments, the process is moving as expected and we expect to name the new CEO here in this quarter. The pool of candidates is diverse and strong. Bords looking for a proven leader, seasoned executive.
Really with an operational expertise and someone who can drive positive change inside Robinson. I would say the search committee and the board is also committee defining the right leader. And we believe we're coming to the conclusion of that process. And part of what I'm doing with the senior leadership team.
is really making decisions and not pausing on anything. So we set this up for success for the new leader and that leader can move quickly once announced.
Great. Thank you. And then lastly, you know, I appreciate the additional color that you gave in response to Jack's question about what's going on in the NAS business, but maybe you could give us some color about what's going on in the global forwarding cycle. I think it started to deteriorate a bit earlier. Is there an opportunity for that to also? So, um,
rebound a bit faster too. Any color there would be helpful. Thank you.
Yeah, I think there has been softness certainly in both ocean and air that we've seen. Most recently over the past few weeks there are some green shoots of more positive news and demand volume and shipments and the whatnot. But I think...
It's too early to call that a trend. I think the market has really been soft, and we've seen the pricing come down as a result of that softness pretty much across the board. I would add, Stephanie, we've been very active in the RFQ.
process with customers back to sort of that strategy of leaning in. And obviously, peak season coming will be prepared for that. And if it is soft, we'll also be in a position to adjust costs in that business as we see fit.
Great. Thank you so much. Thank you. The next question is coming from Jason Sidel of TD Cowan. Please go ahead.
Thank you, Robert. Afternoon, gentlemen. I wanted to talk a little bit about the cycle. You mentioned that you think we're sort of getting close to it in terms of the North American truckload bottom, if we will. What do you guys need to do to prepare for that in terms of your mix of business? I don't know if you can comment.
where you think we're at with the cycle with Air and Ocean? Yeah you know I mean you know one of the things that we do is we forecast pricing in the marketplace if you go to our website and we give you a look at what we think.
you know, when you think about the contract market, the contract pricing will follow the spot market, so there's still some downward pressure on pricing within the contract market as those contracts that, you know, where your old come to reprice and so there's still a little bit of that going on.
On the ocean air side, we're just nearing the end of the annual rebidding cycle on the PAL Peaceoles women's stinkSMAN
on pricing in that market. I think our team has been pretty encouraged. In that business, we've been able to grow share here over the past few years. And that market is one that we participated pretty effectively in both ocean and air.
We brought on some talent, we've had some technology advances, and we've had some geographic expansions and some verticals that we've gone into too. So I think we feel pretty good about the customer engagement there. We feel pretty good about the bid process. Coming out of this last round, I think we feel optimistic.
would be forecasting that up from current levels.
Yeah, down, we're kind of feeling like we're at the low now. We feel like that'll come up as we go through the year and probably in the year.
feeling like we're at the low now, we feel like that'll come up as we go through the year and probably in the year.
higher than where we're at. Fair enough. I appreciate the question. Obviously on that I'm talking to what we've got on the website is our spot market and like I said, price and contract follows the spot market so as those contracts reprice those will come along with it.
higher than we're at. Fair enough. Appreciate it. And obviously on that I'm talking to you. What we've got on the website is our spot market. And like I said, price and contract follows the spot market. So as those contracts reprice those will come along with it. Appreciate it, guests.
on the LTL market a little bit. Notice you had outperformed, at least some of the indices we tracked on volumes. What you're doing to drive share in that space and where you think LTL market will go heading forward?
On the LTL side, we reported Q1 volumes down 5%. That was lower than our expectations going in, but that market also faces a similar softness that we are seeing across the board. What we've talked about on our LTL business has been the impact of a couple of years ago.
standpoint, that business kind of runs a little bit with fuel prices. So that's the one part of our business where margins are improved when fuel is up and come down a little when fuel comes down. So as we comp last year from a fuel perspective, I think in Q1 we were down about $3.00.
Arun, quick. You mentioned some automation initiatives. Can you talk to the extent you have on any feedback you've gotten from customers that are resistant in what you're doing to maybe help customers along with the initiatives you're implementing?
Good question. Most of the automation that we are doing actually should have –
extreme customer benefit, much of what we're doing is automation on the carrier side or internally as it relates to appointment related tasks and where customers have, so on the customer side
What customers have systems or scheduling systems that we can integrate with to do appointments, that's great. And or they allow us to reach into their systems via automation and book and schedule appointments. Ultimately, it's a cost savings for them as well, they don't really push back at all.
As it relates to in-transit tracking and track and trace, most of that, the heavy lifting is about – it's not really heavy lifting. It's about self-serve for carriers ultimately. Carriers now have the ability with better and hardened technology to self-serve as it relates to giving us visibility to their locations, which then gives us greater confidence that we can relate back to the customers.
around service performance. So ultimately on both sides of the marketplace, we haven't really found significant pushback on the activities that we're currently working on.
performance. So ultimately on both sides of the marketplace we haven't really found significant pushback on the activities that we're currently working on. Thanks very much, I appreciate it.
Thank you. The next question is coming from Chris Weatherby of Citigroup. Please go ahead. Hey, thanks. Good afternoon. I wanted to maybe talk a little bit about some of the cost initiatives that you guys are working on. I know you upsized your cost out goals for the year. I'm wondering maybe particularly on the personnel side, we could maybe break that down between heads.
and then maybe incentive comp that is part of it or if incentive comp is excluded from the numbers is when you want to start there.
Yeah, sure Chris. So, you know, we talk about the $300 million cost savings relative to the commitment that we put out there on our last call. Just to recap that, you know, we had originally said we were going to do $150 million in net annualized costs.
the $300 million of overall savings. And then what you saw in the guidance that we put out there was $100 million reduction in 2023 on the midpoint of our personnel expense. When you get into the composition of that, we do have some tailwind from 2020.
normalized incentive for our folks. We also, going forward, our annual salary increases go into effect in March. They didn't impact Q1 fully, just the end of it. That will be a little bit of a headwind going forward for us on the expense side, but the primary trend in March is to increase a little bit of the gap in terms of consumer ratings, to increase employment of customers in the market, and then move forward going forward
Force behind the personnel expense guidance change was our staffing and so you know we've made Really nice progress on our staffing, you know in Q4 and in Q1 We ended If you look at ending headcount in Q1 We're about 16,400 which is down about a thousand from where we were at the end of Q4
And if you went back to Q3, we're down about 1,500 from where we were in Q3. And so, we talked about the fact that we needed to get out there and kind of fix our cost structure for the long term.
perspective. I think we've done a pretty decent job of both right-sizing for some of the expense escalation that we had when the market was hot and the volumes required.
more service frankly because times are tenuous. And so we had to correct for that a little bit and then just looking at the long term cost structure that we need to be competitive going forward, we really felt like we needed to do some things there and we did and all along we've had.
really good work on streamlining our processes and putting automation in to really allow our people to do more value-added tasks, things that they want to do more, getting rid of some of the work that is less desirable and building that toolbox for them so that they can focus on growing...
our business profitably with a great tool box to support them. Hey Chris, this is Scott, I'll just add on to that, you know, because one of the things we've really worked with the senior leadership team on the last.
90 days is taking complexity out of the organization and simplifying things. And as we all know, an important part of strategy is also deciding what you say no to and concentrating resources in areas of the highest impact. So, you know, simply put, we're really focused on reducing spend by focusing on the things that matter most.
And part of this is the right thing to do for the business for the decade ahead, but also, as I talked about before, to really give the new CEO a platform to move quickly. And I'm really proud of the work the senior team has done. And they're tough decisions, but I think we're going to see a benefit for all of our stakeholders going forward.
Okay, that's extremely helpful colors. I appreciate you guys running me through that. And maybe a quick follow up to sort of transitioning into the global forwarding business. You know, there has been some signs of life off of a very low bottom in terms of spot rates on the ocean side of course the last couple of weeks. I think some other players have had maybe...
better success with contracting relative to the beginnings of the contracting season for this year relative to what the spot market might suggest. I don't know if those are how you guys are thinking about that market as you move into the spring season as we're going through that annual shipping contracting season. Is that something that you've seen or is it continuing to follow the path of the spot market?
helped our connection with customers and helped us in terms of success. We rolled out Navisphere 2.0 in that space. That rollout was completed in January and the customers are reacting positively to that. We're exceeding our expectations on monthly average users, track and trace usage.
data quality, feature usage by customers. So what they're getting is they're getting more customized reporting capabilities, data insights, analytics to support decisions. And I think those are the kind of things that have helped us get closer to customers and get the attention of some new customers.
And so, that's despite the soft market, and like you say, there is some reason here in the last few weeks to think maybe there's some positive news there, but like I said, not enough to call it a trend, but I think our team's more excited about the engagement they have with the customers and the attention that they're getting.
in some of the new verticals and geographies as well to feel good about their continuation of the share gains that they've seen over the past few years. Okay, great. Well, thanks very much for the color. I appreciate it. Thank you. This is coming from Bruce Chan of Stiefel.
need to start seeing EBIT conversion or profit per head start to close the gap with some of your best-in-class peers. What's sort of the timeline for that process if you don't mind sharing some color there?
Yeah, let me take a cut at that and then we might have a couple of comments as well.
Yeah, let me take a cut at that and then we might have a couple of comments as well.
So, you know, Navisphere 2.0, while it helps with sufficiency, it's really more to help us engage with the customers in a more constructive way to help solve some of the problems that they have, make sure they're getting data the way they want it. We've had some other technology enhancements on the GF side.
around being able to quote more efficiently, which is important in the bidding process. And so, while some of that tech is rolling out, the GAIN plan on the Global Forwarding side is not unlike the GAIN plan on the NAS side. Click now for the full video.
a little further behind I would say in global forwarding with a lot more upside due to the complexities associated with that market when you think about languages, currencies, customs, and rules and laws as you get goods transported around the world. So I think really good upside there, with that technology investment.
has been going on and will continue to go on and the feature enhancements and benefits that we were talking about with NaviSphere 2.0 are really growth more than efficiency, but we do have efficiency investments around as well. Yeah, so to kind of elaborate, when we reference NaviSphere 2.0 or online 2.0, that's really more about customer self-service capabilities and so it's more about customer engagement and customer retention and growth to my experience.
is something along the lines of shipments per person per day, it's files per person per day, and we have various activities or underlying initiatives.
similar to NAST to unlock productivity there. So I'd say that's a little bit decoupled from the reference to NaviSphere 2.0.
Okay, that's fair commentary. If I could just push a little bit more on that. When I think back to call it 2016, 2017 after APC and a spate of other acquisitions that you did in global forwarding, I think the commentary there was that it was still a new and growing organization. There were still a lot of efficiency and productivity that was left.
We've been happy with the progress that they've been making, talked about new geographies. They're currently the top three ocean forwarder from China to the US, from India to the US, US to Oceania. They've made progress in the Europe to US trade lanes, achieved a number four ranking there in Q1. The terrible weather here at the USd has obviously not yet resonated in bookstores everywhere, especially over
We just expanded geographically into the Middle East, opened an office there in Dubai in mid-February, and picked up customers really all around the world, not just Trans-Pacific, but Europe , Southeast Asia, Oceania, Latin America, India, et cetera. The team has a colleague who we from Melbourne with
been doing a pretty good job and the journey to optimization there is a, there's a lot of runway there. It's a complex marketplace and there's a lot of ability to streamline processes and automate and you know get ourselves to an efficiency level that
that we want to. I think the performance has been good. I think the runway is pretty solid there too. To add to what Mike said, I think there are probably a couple other factors that are relevant. There was probably a lot of work around foundational technology investments that had to happen over time.
onboarding some of the acquisitions onto our platform. I will say that over the recent past, call it the past 12, 24 months, there's been heightened scrutiny around connecting technology investments to actual unlock of either productivity or revenue leakage or whatever else. And so I'd say...
The discipline or the data-driven discipline around investment priorities and linking it back to outcomes has probably gained heightened focus over the last year or two.
Okay, very good. Thank you. Thank you. The next question is coming from Jordan Olliger of Goldman Sachs. Please go ahead. Yeah, hi. You referenced, I think, the bottom of the cycle a few different ways. And one of the things I think you talked about was spot prices approach, operating breakeven costs.
you know, it'll start taking out capacity. I'm just curious your thoughts on how quick a process this could be, especially given demand, and then maybe what's been your experience from your carrier partners? Have you seen anything in that regard? Thanks.
Thanks Jordan, a couple of comments there. We do think that the pricing is getting to the point where capacity you would think would start coming out of the market. When we look at new carrier signups, they are down pretty significantly, down about 50% year over year in the quarter and sequentially.
down by a third as well. That's usually an indication of things slowing down, but the cost for carriers with labor rates, insurance rates, and fuel has become...
more expensive and if they purchased a truck here in the last few years that was probably more expensive too. I think it's probably fair to say that we're on the verge of some capacity coming out of truckload for sure. You know, I'll give you some...
interesting information around the cycle too. There are no guarantees in terms of forecasting when they will come and go from peak to trough, but if you look at the last three cycles in the US and you're looking at AGP per shipment, we've seen some similarity in the duration of those cycles. So if you looked at the time between the last three peak quarters, it was three to three and a half years.
And if you looked at the time between the troughs, it was also three to three and a half years. And so you're talking about six to seven quarters between the peak and trough, or vice versa. Now, no way to know if this freight cycle is going to follow suit, but our last peak in truckload AGP per shipment was seven quarters from Q4 of 2018 to Q3 of 2020.
And so again, history repeated itself, six to seven quarters from our last peak, which was Q2 of 2022. And then we'd be talking about Q4 this year or Q1 in next year as the trough on an EGP shipping kind of basis.
repeated itself six to seven quarters from our last peak, which was Q2 of 2022. Then we'd be talking about Q4 this year or Q1 in next year as the trough on an EGP per shipment basis. Thank you.
Thank you. The next question is coming from David Vernon of Bernstein. Please go ahead. Hey, good afternoon, guys. Thanks for fitting in here. The rate per mile on your truck load slide six there, you know, being about 28%, that's kind of well ahead of some of the benchmark indices that we follow from CAF and some of the other third-party stuff. Thank you for you time, Sam.
Can you give us a sense for how much of the book is getting repriced at this level right now and what does that mean kind of from a go-forward perspective? Are we going to be stabilizing at these levels or is there still some more maybe pain to take as this truck cycle reaches its trough?
Yeah, we reprice our contracts all throughout the year, tend to be a little bit heavier in Q4 and Q1, so call it 60% gets repriced in Q4 and Q1 and the other 40% in Q3.
Q2 and Q3, so you kind of think about it that way. I think what was interesting when we were looking at price per mile and cost per mile, this quarter in comparison to last year was just how much the decline was on a percentage basis. So we were, as we kind of pointed out, we were down 27.5% on a rate per mile and 28.5% on a cost per mile. So you know, we were down 27.5%.
When you look at year over year, those are the largest that we've seen in over a decade. Sequentially, it was the fifth straight quarter that price per mile came down and also the fifth straight quarter that cost per mile came down. That's after the run-up that we saw for seven, eight quarters prior to that. That's the way we're seeing it play out. Maybe just as a quick follow-up, you don't give us some of the same detail in terms of the buying and sell rates for the forwarding business and understand different moves.
more complicated. But I guess, you know, as you think about the rate at which, you know, your customer rates are coming down and correcting what the public availability is, you might be looking at, is that spread also widening a little bit? Or are we getting to the point where, you know, your forwarding business has caught up to where sort of market rates are today?
Yeah, like we said, that business gets rebid, repriced here, and we've been going through that. And hard to say where you've hit bottom. That... Especially in the ocean side, you have a capacity issue there that's just gotta play out in terms of there's certainly capacity coming into the market there.
There is a little bit coming out, but not as much as coming in. How that plays out is yet to be seen, particularly considering the macro environment and what is there in demand. The market is looking at the possibility of a recession here for the remainder of the year. Obviously that impacts demand. So that supply and demand kind of play in.
The ocean business is a little bit harder to call at this point in how pricing will get reflected there. There it is.
The capacity situation is obviously a little bit different, but it will key off the macro demand environment and that I think is yet to be seen.
situations, I was a little bit different, but it'll key off the macro, demand, environment, and that I think is yet to be seen.
Thank you. Thank you. We're showing time for one last question today. The final question is coming from Ken Hexter of Bank of America. Please go ahead.
Great, thanks for squeezing me in. Scott, how do you think about the core brokerage? I know you had some questions in the prepared marks on the timing of the CEO , but should CH be moving to more automation and less people intensive? I guess I want to understand your thoughts on the design for the company and where you think it's headed.
Yeah, Ken, great question. I think it's a combination of both. I think the technology amplifies the expertise of our people and our ability for our people to drive continued growth and drive operating leverage for the business.
and a win for our people when we do this the right way. But I guess to take it a step further, do we see a reshaping of it where we're seeing big layoffs to shift the dynamic of that balance in the near term?
No, I think one of the things that Robinson is so strong at is our commercial engine. I think one of the things we have to do is leverage a technology. We've seen that in terms of how we compete against our technology competitors. So, you know, this is an additive game, a 1 plus 1 equals 4 or 5.
And one of the things Arun is doing, and part of our cost reduction strategy here, is also to drive costs out of areas and take complexity out of the organization, to drive it towards the right things that grow the business and grow margin.
That's helpful to understand. And then just a follow up on the capacity exits. I guess there are a lot of peers that are focused on, you mentioned the digital peers, focused on positive and profitable volume growth in taking share. Maybe can you just spend a minute talking about the competitive dynamic in the market right now?
I will make a couple comments there, Ken. I mentioned that the competitiveness seems to have heated up, particularly on the brokerage side here. We could certainly go out and get more volume, but we are committed to getting profitable volume. We are committed to getting more volume, but we are committed to getting more volume, because
and not interested in getting into any kind of competitive situation that would lead us to issues with negative loads or chasing that kind of volume. So we've been pretty disciplined there. We've got really good pricing engines. We feel like we've got great understanding of the market. And so we feel like we can compete pretty effectively there with our data advantage and our... All the questions I have for you — as much as I can — I know we haven't gotten there if this was the end of it.
the floor back over to Mr. Ives for closing comments. Yeah, thank you everyone for joining us today. That concludes today's earnings call and we look forward to talking to you again. Have
Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
The that.