Q2 2023 CH Robinson Worldwide Inc Earnings Call
Yeah.
Good afternoon, ladies and gentlemen, and welcome to the Th Robinson second quarter of 2023, a 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 lot of question and answer session.
To ask a question. Please press star one on your telephone keypad.
If anyone requires assistance at any time during the conference. Please press Star Wars zero.
As a reminder, this conference is being recorded Wednesday August 2nd 2023.
Now like to turn the conference over to Chuck I've director of Investor Relations.
Thank you Donna and good afternoon, everyone on the call with me today is Dave Bozeman, Our President and Chief Executive Officer, My exact Meister.
Officer, and a marine Raj and our Chief operating officer they.
They will provide some introductory comments, Mike will provide a summary of 2023 second quarter results and our outlook for 2000 twenty-three arena will provide an update on our efforts to improve our customer and carrier experience at our operating leverage and then we will open the call up for questions.
Our earnings presentation slides are supplemental to our earnings release and can be found in the investors section of our web site 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'll let you know which side we're referencing.
I'd also like to remind you that Ah remarks today may contain forward looking statements slide two in today's presentation risk factors that could cause our actual results to differ from management's expectations and with that I'll turn the call over to Dave.
Thank you Chuck.
Good afternoon, everyone and thank you for joining us today.
Let me start by saying it is an absolute privilege to be leading CH Robinson, a market leader with enormous scale, a strong base of loyal customers and a resilient business model generates profits and free cash flow through the entirety of the freight cycle.
I know for my time in the transportation market that other freight providers and new entrants looked a robinson as an example of a commercial agent with the breath skill expertise in financial strength that they aspire to achieve however.
However, there is always room for improvement and I recognize the tremendous opportunity in front of us to accelerate growth and a very fragmented market.
Yeah, My first month.
I've been spending time meeting with and talking to customers employees and shareholders as I analyze the business.
A customer centric focus is it might be an a and I have successfully implemented customer focused strategies over my 30 year career at leading brands such as Harley Davidson Caterpillar Amazon at Ford Motor Company.
I look forward to apply that experience towards our goal of providing such a compelling offering the customer is still like C. H Robinson is essential to the success of their supply chain.
As a link practitioner I'm in a discovery and diagnosis space and I've been learning more is shaping my vision for the company each day.
I'm digging in quickly with the leadership team I'm.
I'm looking at the portfolio of businesses with an open mind and.
My intentions are to drive focus so do we position ourselves for growth and our core business.
As I aim to reinvigorate the winning culture my focus will be on people products processes technology collaboration and excellence.
My style is to one be accountable for driving improvement and be passionate about making people better.
To look around corners, and anticipate in order to minimize surprises and three wake up every day like you're working for a startup by being greedy scrappy innovative and change oriented with a focus on improving clock speed and acknowledging every day that you can be bad.
Matter.
These practices have enabled success for the companies I've worked at and the people I've worked with.
People are at the heart of Robinson, and I'm confident that together, we will win for our customers carriers and shareholders.
I'm passionate about continuously improving how organizations operate.
Lean principles work and are applicable Robinson to further improve efficiency.
Robinson is a strong company for all companies have ways that can be removed to make our company quicker more flexible and more agile and solving problems for their customers improve workflows, and providing better customer service and experiences.
I have helped build out in scale transportation businesses, most notably at Amazon, where technology is the starting point.
I am certain we can leverage technology as a force multiplier here Robinson and I've been discussing it with the room and the team.
As an example, when I look at <unk> I'm excited about the potential benefits from generative AI in conjunction with the machine learning and artificial intelligence that the company has already been utilizing.
With more data and history to leverage that any of <unk>, we have opportunities to harness the power that these advanced technologies now offer to further capitalize on our information advantage and we will continue to look for and pursue those opportunities.
Room will touch more on this and is prepared comments.
In summary, I'll look forward to leading this great company to new Heights, and sharing our progress with all of you a long our journey with that I'll turn it over to Mike for review of our second quarter results.
Thanks, Dave and good afternoon, everyone.
Global freight markets and Q2 continued to be impacted by weak demand high inventories and excess capacity, which resulted in a more competitive marketplace with suppressed transportation rates.
North American freight volumes and load the truck ratios remain near the low levels of 2019.
In the freight 40 market Ocean vessel and airfreight capacity continues to exceed demand, which is kept ocean and air freight rates low during the period of significant declines that extends back to the second half of 2022.
Despite the weak demand new vessel deliveries are expected to continue to add capacity to the ocean market.
This suggests that the influence of excess capacity may persist for several periods. Despite the steamship lines efforts to manage capacity through blank sailings slow steaming and redeploying capacity.
Two other lanes.
We are staying focused on what we can control, providing superior service to our customers and carriers and streamlining our processes by removing waste and manual touches the.
The result has been meaningful cost reduction in productivity gains across our business.
With our record quarterly financial results in Q2 of last year as a comparable and the macro forces that I outlined as the backdrop, our second quarter total revenues of $4.4 billion declined 35% compared to Q2 last year.
Our second quarter adjusted gross profit or AGP was also down 35% year over year or $366 million driven by a 45% decline in our global forwarding and a 36% decline in nest.
On a sequential basis total company AGP was down 3% driven by a 6% decline in nest that was partially offset by a 1% increase in global forwarding and a 6% increase in the total of our other segments.
On a monthly basis compared to Q2 of last year are total company AGP per business day was down 30% in April down, 39% in may and down 37% in June .
In our NASS truckload business R Q2 volume declined by approximately 6.5% on a year over year basis.
Within Q2 average daily volume in April was stronger than March but weakened in bay and held in June which resulted in a 0.5% sequential decline in Q2.
During Q2, we had an approximate mix of 70% contractual volume and 30% transactional volume and our truckload business.
Routing guide depth of tender and are managed services business, which isn't a proxy for the overall market declined from one four in Q2 of last year to one one in the second quarter of this year, which is the lowest level, we've seen for a full quarter since the recession of 2009.
The sequential declines in our truckload line-haul cost per mile. Since Q2 of last year began to level off and increase sequentially in may and June , causing the June cost per mile to be only two cents below the march cost per mile.
On a year over year basis, we saw a decline of approximately 19% and our average truckload meinhold cost per mile.
Carriers, excluding fuel surcharges.
Due to the time lag for contract pricing to follow spot market costs Q2, truckload line-haul pricing continued to decline in a sequential basis, resulting in a 23% year over year decline in our average line-haul rate or price billed to our customers excluding fuel surcharges.
These changes resulted in a 41.5% year over year decrease in our truckload AGP per mile and AGP per shipment with declines in both contractual and transactional AGP per shipment.
This is the largest year over year decline an AGP per mile that we've experienced in the last 10 years and is in contrast to the 46.5% increase in Q2 last year.
In R. L. T L business shipments were flat on a year over year basis and up 5% sequentially.
By leveraging our broad access to capacity in all modes of L. T L and our high level of service or L. T. L team continues to onboard a pipeline of new business that is offsetting the softness in the market.
A G P for order, however declined 19% compared to Q2 last year, driven primarily by the market conditions and lower fuel prices.
As I mentioned market conditions in our global forwarding business, we're also soft behind weak demand and plenty of capacity.
Despite that our ocean and air volume each grew sequentially exhibiting the progress our global forwarding team is made through adding new customers diversifying trade lanes and verticals and leveraging investments in technology and talent over the past several years.
In queue to global forwarding generated revenue of $780 million, an AGP of approximately $179 million, which declined 45% year over year compared to the record high from Q2 last year.
Within these results are ocean forwarding AGP declined by 53% year over year compared to 51% growth in Q2 of 2022 Q.
Q2 results were driven by a 49.5% decrease in AGP per shipment and a 7% decrease in shipments.
Turning to expenses, we delivered on our expense reduction in productivity expectations for the quarter.
Q too personal expenses were $377.3 million, including $13.1 million of restructuring charges down 15.2% compared to Q2 of last year.
Excluding the restructuring charges are Q2 personnel expenses were down 18.1% year over year, primarily due to the cost optimization efforts and lower variable compensation.
Our headcount was also down significantly in Q2 with ending headcount at 15763 down 13.1% year over year.
In Q2, we elevated our cost optimization efforts, which began in Q4 of last year as we streamlined our workflows and removed waist to help ensure a more competitive and sustainable longterm cost structure.
As a result, our shipments per person per day in nest has increased by 12% year to date through Q too and we remain on track to deliver on our target of 15% year over year improvement by Q4 of this year.
I'd also note that we were able to achieve the productivity gains in a soft volume market, which sets us up well for when the market demand returns.
Going forward, we expect continued improvements in shipments per person per day and the associated cost benefits through the remainder of 2023, as we streamline processes and improved customer outcomes with technology that supports our people and processes.
As a result of the progress on her cost optimization efforts. We now expect 2023 personnel expenses to be toward the lower end of the 1.45 to 1.55 billion dollar range that we previously provided as.
As a reminder, or expense guidance excludes restructuring expenses.
Moving to SG&A Q2 expenses were $155 $6 million and included 1 million dollar of restructuring charges.
Excluding the queue to restructuring charges and last year's 25.3 million dollar gain on the sale leaseback of our Kansas City Regional Center in Q2, SG&A expenses expenses were up approximately 8.5% compared to Q2 of last year, primarily due to increases in claims.
[noise] warehouse expenses.
We continue to expect our 2023, SG&A expenses to be $575 million to $625 million, including $90 million to $100 million of depreciation and amortization expense.
As you may recall from our queue. One earnings call, we raised our cost savings commitment to $300 million of net annualised cost savings by Q4 of this year compared to the annualized run rate of the Q3 expenses from last year.
We continue to be on track to deliver those expense reductions and the majority are expected to be longer term structural changes to our cost base that will help us improve operating margins once demand returns.
Q2 interest and other expense totaled $18.3 million down $9.1 million versus Q2 last year.
Q2 included $23.2 million of interest expense up $6.3 million versus Q2 of last year due to higher variable interest rates against to reduce debt load.
Q2 also included a 3.5 million dollar gain on foreign currency revaluation and realized foreign currency gains and losses compared to a 10.3 million dollar loss and Q2 last year with both driven by various foreign currency impacts on intercompany assets and liabilities as a reminder, R F.
X impacts are predominantly non-cash gains and losses.
R Q2 tax rate came in at 14.9% compared to 21.3% in Q2 of 22.
The lower tax rate was driven by lower pretax income and incremental benefits from tax credits and incentives.
We now expect our 2023 full your effective tax rate to be in the range of 16% to 18% assuming no meaningful changes to federal state or international tax policy.
A justice or non-GAAP earnings per share, excluding the $14.1 million a restructuring charges was 90 cents.
Excluding the $25.3 million gain from Q2 last year non-GAAP earnings per share was down 64% compared to the 75% increase in Q2 last year.
Turning to cash flow Q.
Q to cash flow generated generated by operations was approximately $225 million compared to the $265 million in Q2 of 2022, demonstrating our ability to generate cash and make investments in the business through the French cycle.
The year over year decline in our cash flow was driven by a $251 million decrease in net income partially offset by 144 million dollar sequential decrease in net operating working capital and cute too, resulting from the declining cost and price of ocean and truckload.
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Over the last four quarters as the cost and price of purchase transportation have come down we have realized a benefit to working capital and operating cash flow of more than $1.4 billion in.
In queue to our capital expenditures were $24.4 million compared to $43.2 million in Q2 of last year and we continue to expect our 2000 twenty-three capital expenditures to be in the range of $90 million to $100 million.
We returned $106 million of cash to shareholders and Q2 through $73 million of cash dividends and $33 million a share repurchases.
The cash returned to shareholders exceeded net income, but was down 74% versus Q2 last year, driven by the $137 million of cash used to reduce debt.
Now onto the balance sheet highlights. We ended two two with approximately $1.1 billion of liquidity comprised of $859 million of committed funding under our credit facilities and a cash balance of $210 million.
Or that balance at the end of Q2 was $1.74 billion, which includes debt paydown of $532 million versus Q2 last year.
Our net debt to EBITDA leverage at the end of Q2 was 1.81 times up from 1.39 times at the end of Q1.
R capital allocation strategy is grounded in maintaining an investment grade credit rating, which allows us to optimize our weighted average cost of capital.
With a year over year earnings reduction and half a billion dollars of debt Paydown will continue to manage our capital structure to maintain our investment grade credit rating.
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 quarterly cash dividend in alignment with longterm EBITDA growth.
Our dividends and share repurchase program are important levers to enhance shareholder value as we are delivering quality customer service more efficiently than anyone in the marketplace.
As we have demonstrated through the ups and downs of our highly cyclical freight market. The strength of our business model makes us a reliable partner for our customers and allows us to invest through the cycle our.
Our customers value of the stability and reliability that we provide as we work to optimize their transportation needs.
I'd like to close by adding that I am incredibly excited about the direction, we are headed and our ability to build on the productivity and cost control progress that we've made.
By leveraging lean principles to reduce waste and the emerging benefits of our combination of machine learning and generative AI across are scaled model, we our position well to deliver greater efficiency and improve competitiveness in the marketplace to generate greater value for Robinson shareholders with.
That I'll turn the call over to a room to provide more details on our efforts to strengthen our customer and carrier experience and improve our efficiency and operating leverage.
Thanks, Mike and good afternoon, everyone.
In the second quarter are single threaded cross functional teams make glink progress on improving customer outcomes with technology that supports our people and processes.
Our enhanced caviar advantage program has significantly improved our automated tracking and advanced visibility capabilities and those and those efforts are being recognized by our customers and multiple third parties.
<unk> business our team is leading the way as an early adopter of electronic Bill of Lading, which is enhanced our digital connectivity with our <unk> carriers and enabled us to eliminate unnecessary work achieved gains in efficiency and accuracy.
All the initiatives and work streams of our teams are targeted at improving productivity and accelerating growth with discipline product and change management.
Over the last six months, we would increase our focus on opportunities to streamline processes that are core to improving the customer and carry a experience and enabling us to decouple volume in headcount growth and drive increased productivity.
Shipments per person per day is a key metrics that we use to measure our productivity improvements and as Mike mentioned earlier, we've achieved a 12% you know the date improvement co Q too as we progressed towards that goal of 15% year over year improvement by Q4 of this year.
In order to reach our 2023 goal, we have accelerated the digital execution of critical touch points and the lifecycle of a load.
Thereby reducing the number of <unk> task for shipment and the time for task.
A few areas where you have seen this progress include increasing the automation of in transit tracking case management tasks and appointment related tasks.
As Dave mentioned earlier, we've also been using machine learning artificial intelligence and our large data state to improve outcomes for our customers and carriers.
Like machine learning alone has limitations you to a need for standardization.
Generative AI and Lodge language models have the ability to work with unstructured and incomplete data and unstructured task close to create an automation unlock.
One example, witness can be used as an order management over the years manual processes of work rounds have been put in place to serve our customers and carriers and customized and therefore unstructured ways.
Such as receiving orders and providing quotes to email.
As you can imagine these have highly variable levels of information completeness and a fragmented mix of formats.
Generative AI can be used to fill in the blanks, whether it's incomplete unstructured information and a highly automated and efficient process.
Our early testing results from January to the I, a promising and we're excited about the potential for this technology to be an accelerant automation and productivity improvements and to magnify our information advantage with that I'll turn the call back over to Dave.
Final comments.
Thanks, a room finished.
Finished Robinson is a great company with the largest market share, but most develop free brokers network longstanding relationships with global Muzzio customers deep carrier relations stroller technology, and a larger dataset that any other market participants.
While the near term frayed environment presents some challenges the strength of our people scale network financial model and investments and improving efficiency position as well for the eventual rebound.
I see an opportunity for the company to reach his full potential it created more shareholder value by improving our value proposition, increasing our market share accelerating growth, improving our efficiency and operating margins and increasing overall profitability.
Robinson has great people with a passion for winning the grit, Bryan and hustle needed to innovate and soft challenges for our customers and carriers.
To enable greater agility and flexibility and to accelerate our clock speed I'm empowering our people to uncover new ways to challenge the status quo.
Move faster and act boldly to better anticipate our customers needs exceed their expectations and make us indispensable.
Shippers are looking for stable and innovative logistics partners.
Robinson has shown the strength of this model from cycles, our balance sheet continues to be strong and we plan to invest in initiatives that we expect to amplify the expertise of our people and generate higher returns on investment.
I'm excited about our opportunities and our future.
This concludes our prepared remarks.
Alternative back to Donna now 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 <unk>.
Confirmation combo indicate your Linus and the question queue. You May press start to 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. Once again that is star one to register a question at this time today.
Today's first question is coming from Jack Atkins S. Stevens. Please go ahead.
Okay, great good evening and day, congratulations on your new role and feed Robinson.
Thanks, Jack So I guess I'd I'd love to start going back to something that you mentioned in both your prepared remarks and also in the press release, it's making CH Robinson essential I guess.
My first question is which is probably like what is what about th Robinson right now isn't the essential because I look at a company with unparalleled scale in the marketplace, a leading technology platform. What do you think you need to do differently as a company to to really make yourself essential and what is ultimately Ah ha.
Highly commoditized part of the transportation supply chain, which is brokerage.
Yeah, Thanks, Jack and pleasure to virtually mid shoe I look forward to meeting you in person here over the coming weeks.
When I think about that question jackets, a couple of things.
Right and I agree with U C. H Robinson is essential and it's gonna continue as I look at it it's going to continue to.
To to have a situation, where we can pick up customers.
Organically so everyone sees the value the advantage of doing business would Robinson and some of the ways to doing that.
I consider myself a link practitioner as I said in my comments driving the company too.
Think faster act faster reduce waste.
These are things that are going to take a strong company and make it stronger right and and we're gonna be laser focused on that speed is is imperative, but speed is powerful Jack as you know in this market with this scale as this company continues to increase this clock speed.
Is it continues to use technology as an enabler what its people I think that is going to just enhance us to allow us to drive profitable growth.
And continued to along with our strong balance sheet.
It just makes me excited invalidates why I chose to come here. So that's what I, that's what I would say to that.
Okay. Thank you.
Thank you. The next question is coming from Scott Group Health Research. Please go ahead.
Hey, Thanks, and congrats Dave look forward to meeting next week you got it so I guess, our near term near term question in a longer term question just how.
Help us think about the puts and takes you know <unk>.
<unk> sequential net revenue and earnings trends from second quarter to third quarter do you think we should be higher or lower and then just gave maybe shortly to ask but just as I think about the margin opportunity longer term that you talked about this.
It used to be a 40 per cent net operating margin business. This year, probably closer to 20, what what do you think is the right.
Margin range to think about for C. H over time can we get back to to where we were.
Yeah. Thanks, a lot I've got Hey, I look forward to meeting you as well Mike wanted to jump as good a good question and I'll, let you jump in on this yeah. Scott first of all on the first part of your question just.
Thinking about the outlook.
And as you said net revenue margin or a G. P Q2 Q3 I.
My point to a few things so first of all obviously, we're in a market that has been weak and you know no matter how you look at it.
We've come a long way since Q2 of last year, when we were sitting on record highs across the board and.
Particularly in our biggest service lines truckload notion and so as we sit here today.
You got the demand factor and you've got the capacity factor in on the demand side that's a.
Amyx trends trends thing you know as we look at our shippers and what the way they've been seeing the market and acting they've been working on inventories here for Jesus seems like almost.
A year now they've been trying to work them down and optimize them and so have they got there are they there yet can we expect demand to come back there.
Well, we'll see where that heads on the capacity side, we've been bouncing on the bottom in terms of the cost per mile for carriers in terms of where their breakeven is is at and so qualitatively I think capacity probably coming out of the market I think it's tough for some of the carriers there probably more like.
Lee now to be parking the truck in finding employment elsewhere, given the good economy, and so I think on the capacity side, we probably are close to the bottom and so.
As you go forward you know one of the things that we provide for you in terms of forecasting is on our website CH Robinson dotcom under resources. We we've got a section called North American freight market insights and we provide a forecast of D E T line-haul cause.
Per mile for van.
Not only the remainder of 2023, but also we've we've added another year to it now and we're giving you 2024 and if you look at that I think it's really important and the reason we give you cost is.
Is because as you know in this market and truckload price follows cost and you know that gets right to the root of the issue for US here in Q2, and probably in Q3, which is b.
Because we have a significant portion of our business that his contract where the prices are established and set for most frequently one year when the cost side of the equation has been coming down like it has and it takes a while there's a lag there between.
When we are renegotiating those contracts with shippers and so there's a lag on pricing and that's been coming down and so you know one of the key things from a margin standpoint for us in the quarter was the fact that price came down 23%, but costs came down 19% and that's that.
Price catching up with cost that's margin compression for us. So it's it's not what we would expect going forward. It's you see that through the cycle. That's the point in the cycle that we're at right now and so there's a little bit of extra margin compression. There that will work itself out over time is costly price and so when you're back on that website looking at our forecasts, you'll see that we've got.
That costs.
Going up for the remainder of this year, we're kind of.
At the bottom in terms of our forecasts now and then as you get to.
The holidays do you see a little spike up.
And then it comes down a little bit and then we see it really getting back to normal as you get through 2024, and so a pretty dramatic increase in costs, there and of course price will follow as we get into new contracts with our shippers.
40, 40% operating margin.
Yeah. So on the 40% operating margin that's the target that we've got out there for Nash that's been out there for quite a while there are different dynamics going on there that that impact that but I'll tell you what we feel really good about the progress that we've made on productivity, we reported the shipments per person per day or night.
Where we put a target out there to improve that by 15% on the year, where six months into the year and we're at 12% already and that's on the back of some really quality work from the teams looking at where we're spending our dollars, where where where we're spending our time and taking that waste out of our system and transfer.
Lighting that into productivity. So you saw that on those numbers you know those efforts will continue.
Where we've got plenty to do there in that front really excited about Dave's leadership and <unk> is a lean practitioner I believe in those principles and worked in that environment in the past.
It's a really methodical way to find ways to eliminate waste.
Analytical data driven kind of way and so so we will continue to be able to take costs out there we talked about machine learning and janitor, they I and I really believe that Robinson is in a unique position in that regard and unique because we have a scale business with.
An enormous amount of data and because of our history. It's to some extent unstructured and so from a machine learning standpoint, the key for US has been too.
Standardized and automated but one of the great compliments from generative AI is the ability to go in and find inconsistency is missing data and actually take it through to to getting that data and reinserted and plugging it back into our machine learning.
So there's really some great complimentary things there that can help us with our productivity and allow our folks really to focus on quality and more strategic work with our customers. So I think the.
Side of that you'd get growth inside of that you'll get efficiency and the growth and efficiency continue.
Continue.
To keep us on our 40% operating income margin for nest.
I don't know if we're Rooney, Doug D right.
Yeah.
Thank you guys.
Thank you. The next question is coming from David Vernon Bernstein. Please go ahead.
Hey, good afternoon. Thanks for taking my question. So Dave first question for you is is really kind of your background in some of the other may be more disruptive parts of the brokerage industry that have shown an ability to take quite a bit of share in very short periods of time.
What's different about them versus what Robinson's been doing recently and then how do you think about the modem CH Robinson, having been kind of on the other side of the barricades thrown barrels of burning oil at the company. How do you think about the mode of CH Robinson.
Yeah. Good question pleasure to virtually meet you as well.
You're right I have been on a couple of sides of this and number one I'd say what the the the players coming in I feel good about that because.
Of the work we did at Amazon when I was there and.
Building.
Some of this new entrant.
Work here, so I understand it I understand the the importance of of technology and the power that it can play in the in the digital transferred transformation here.
The the key here from a Robinson perspective is I think you have both and I know the importance of that of that scale and I know having scale plus the plus technology.
We'll drive back competitive advantage.
And as we continue to.
Someone asked me, so hey, Dave what's what's something that surprised you right. As you came to Robinson I I'll tell you wanted a fixed it surprises me as you come in and people will say hey, that's.
That's a fax machine company right there older when actually coming in some of the technology.
State of the art things that a rule has put in and continues to grow was surprising because this is a company that is really on the leading edge wood wood technology, and then adding scale to it. It just says and I know this won't be in on both sides, but this is a <unk>.
Edited advantage and it really allows company.
222 set the tone and in the marketplace. So.
That's why I'm answering that from from both sides of it and you know and when you talk about the <unk>, it's about just making sure we stay focused.
Driving waste out I just spent a lot of time over the last several weeks.
Doing what I call again, but that's a go see actually go see the work and it taught me a couple of things one.
The strength of our employees that are out there, but two would allow me to see the waist and a potential aerospace and the work. So that you can fix him and fix them fast and as we take this waste out.
Clearly see the speed of improvement on an already scaled strong business. That's why I feel so so I'm happy about where we are and eventually when this this upturn comes where we will be from a from a positioning perspective.
Alright, thanks for that and maybe just as a quick follow up we're talking a lot about lean we're talking a lot about process improvement.
I'm from Ah can you talk to the mandate you have on the board are we really just kind of focused on improving what Robinson does the how of what it does or are we still also looking at the what is.
What is it made in terms of maybe some structural change to the business I think there was some discussion with with one of the activist shareholders Awhile back about a strategic committee can you give us a sense for kind of what the marching orders are from the board.
From your perspective.
Yeah, I will tell you I'm from the from the board I am locked in with the with the board I have a a clear connection with the board and and that is.
Driving profitable growth.
For for our shareholders and and for this company and it's.
Pretty clear on what are we going to do that I'm, taking my time to diagnose.
Analyze I will I will speak to the board on when I get through my diagnosis face.
Face but.
The true North is continuing to improve this company with a wood profitable growth and I'm locked in on that and the principles that I have found successful in other company.
I'm just gonna bring the forward and Robinson and I know those are successful to do that.
Alright, thanks, very much at the time and look forward to meeting you.
You got it I look forward as well.
Thank you. The next question is coming from Christopher kind enough to benchmark company. Please go ahead.
Yeah, Hi, good afternoon, and good to meet you virtually Dave I wanted to just go back to your comments when you first started your.
Conversation about taking a look at the portfolio when you're on your on your thoughts there and what <unk>, what you're going to be looking for going forward.
Yeah nice to meet you as well the from a portfolio perspective same thing it's.
It's early days right on this and and and I'm driving in but my my point is clear as I'm looking at the entire business and as I said with an open mind on the on the portfolio make no doubt about it right. There is there is a clear folk.
Because so on driving focus within the organization on some of these are the core business and we all know truckload and making sure we drive truckload.
LCL Ocean are really driving that that kind of focus on portfolio spot and then with all the other businesses continuing to evaluate.
How we best unlock that additional value.
For our shareholders. So it's an open mind approach is early days I'm, diagnosing diagnose and heart and certainly will come back to that but just wanted to give a little bit of a color to that.
Okay, Okay, great. Thanks.
Thank you. The next question is coming from Jason side, all of T. T. Cowan. Please go ahead.
Yeah. Thank you I put her in a day or <unk>. Good to meet you and welcome aboard you know it it sounds like Everything's still on the table is your and your diagnosis mode. So I'm gonna I'm Gonna sort of laser went on a few things you talked a lot about some exciting opportunities in generative AI and <unk>.
And I look at the electronic opportunities and brokerage I think sort of a one sticking point has always been sort of getting the drivers over to sort of embrace technology. What are some things that you think C. H can do better just sort of grow that president's in the driver's side.
Yeah, it's a pleasure to meet you in great question.
Because there's a lot of ways to go into this <unk> startup yeah I'll finish on a couple of things here, Yeah, and I think I know for those of you who've been it will be listening in for Awhile. You know that's when I came on board you know we made it we made a sustained investment in our carrier facing App and web site.
And you'll be seeing huge huge I've taken usage in terms of digital bookings and from a from a carrier facing technology perspective, there's two things that carriers care about right. They care about instead of access to volume and loads, which we have and they care about a better experience.
So things like load recommendations.
Getting paid fast if they choose to so it says a better experience and they've invested a lot in those in those areas and like I said digital bookings are up significantly and more recently, you probably sauce release or go live with her with our refreshed carrier advantage.
[noise] program that to that loyalty program and with that program. We had we had certain new requirements of our carriers in terms of providing track and trace automated tracking traced to the App Anthony E. L D and what I can say is <unk>.
Carriers ask us when we ask them for things, they say well, okay, well tell us what you need and when we make that easy to use in the app. They do it and likewise, we listen to them about what they want and we invest in the carrier experience. So I would say compared to some of our.
Competition I I'd say, we have all the features different carriers and ask for and we have the volume of loads uhm that no. One no one can bring to the table.
Yeah.
Plus one on that I I agree with with a room there in previous experience and seeing the teams build these things that.
It's about ease of use.
It's really about allowing those those curious to get the things that they want such as such as pay and access to to low. So I think he hit on all the key points that when you do that.
You really and that spreads right.
When you when you hear about the the ease of use so it's a good question I'm glad you said it because it it highlights kind of where we're where we are in this space and and where we're going to continue to go. So thanks for asking that pump Sean I appreciate the color in a as a quick follow up when I look at forwarding. It on on the EBIT margin is if I sort of throw away.
Inflated numbers on the Pandemics out it looks like you guys have been in the sort of 15% to 20% range, we're sort of off probably gonna be at the lower end this year at that.
What's it gonna take to sort of get us towards the heartland and out of the way from the lower end does it just gonna be unimproved meant in the overall macro or are there other things that you think you're gonna be low hanging fruit that can get you there.
Yeah. Thanks for the question Jason.
You're right you have to look through the markets that we've experienced here over the past couple of years, obviously the comp this quarter is against all time record highs on record highs from.
Q2 last year, but our long term operating income margin goal for global <unk>, 30%, we feel like that's achievable the playbook there is.
And a lot of respect similar to the playbook that we've got on the NASS side in other words.
Team has done a really nice job.
Developing their capability from a technology standpoint, there's plenty.
Plenty of.
Excitement out there around <unk> 2.0, and that was launched in.
Customers are having a better experience there were seeing monthly average users go up track and trace better data quality better feature usage by customers better soon on the Tech site. That's great operational uniformity is an important element for them, they're the standardization and a very complex business to create efficient.
C. Generative me I can help as well there scale something that the team has been working on it as they have done a really nice job here through the ups and downs of the market gained market share and increase the scale in that business, which will be important to getting the returns where we need them to be going forward. They <unk>.
<unk> the biggest highlight over the past year has been their expense management, so they've taken head count down by about 12% year over year and at the same time, they have been able to handle handle the loads and handle the volume that that they've been working on so.
You know that's been a really nice and.
Enhancement that should really serve.
Serve them well once we get back to some more normalization there and then the last thing I'd say is the development of their business you know they've done a nice job of bringing some some talent in and some new geographies, they're looking at new verticals and they've had a fair amount of success in new trade lines and opening up to.
To some places that they haven't had a developed business in the past and they're they're getting excellent results. Soon <unk> number three in the transpacific to U S. A number two and ended the U S. A number one and you associate <unk>. So a lot of great progress from the team there and I think all those factors are important.
In coming together to get back to a more normalized 30% operating margin.
No. We're looking forward to see more progress I appreciate the thoughts and Dave looking forward to seeing you in Boston next month.
Absolutely so I'm looking forward to it.
Thank you. The next question is coming from Matthew span P. C. W. Please go ahead.
Thank you operator, and congratulations and welcome to C H Robinson.
I have a question about engagement.
When a company is highly engaged employees quality and delivery improve.
Drawing on your prior experiences leading Lee transformations can you share one or two learnings that you can apply to foster a culture of deeper employee engagement CH Robinson.
Yeah, Great question, Matthew and pleasure to meet you. This is the coal face for me right I'm meeting everyone.
For the first time here in some cases.
The.
Good question, let me, let me break that down for me that'd be pretty pointed here.
The the one engagement that I see is number one.
You really do need to be vocally self critical about where you are one of the things you do well in the things you don't.
And having the ability to see employees actually see waste in their processes.
And and be able to understand that understand what their process flow should be versus what it is.
They actually get engaged on that improvement trying to improve when you're blind is one thing but.
Improving when it's clear to you makes for engagement.
So that's that's one thing as I as I've gone through various companies. It's it's the Enlightenment and the education around where you are and then the Humbleness to show how you can be better and once that's laid out employees latch onto that and I've seen it.
Over four different companies.
Thank you I really appreciate that I mean, it's.
I appreciate that I mean, the culture matters. The most right now you're being I feel like the champion of lean.
It's a powerful cultural unable you're so welcome and good luck.
Thank you Sir.
Thank you. The next question is coming from Stephanie more of Geoffrey's. Please go ahead.
Hi, good afternoon, and Dave Congrats on your first call.
Thanks, Stephanie appreciate it.
So I think a lot with called out in your prepared remarks, you know I think a number of exciting opportunities going forward, but you know what do you think it's probably the single one most important area you'll place your focus on over the next 12 months and you know what is your early read on on how to achieve it. Thanks.
Yeah, you know that's a good question Stephanie is one that can can take us well past the call. So I won't do that but I will I will give you some some color on it.
The focus is around driving.
Waste out with the endgame of profitable growth.
And and really giving the organization to latch on to faster.
Speed of decisions.
Speed of innovation.
And ultimately looking around corners to set itself up.
For what it's gonna be an eventual turnaround and that'll put us in a very strong position.
With our scale and our balance sheet.
And so you know just focusing on that and then also technology, we talked a bit about it rules talked a bit about it.
These large language models.
Again don't underestimate just the scale of Robinson, and then attaching that level of technology.
On top of that I think can be a strong competitive advantage for Russell <unk>.
<unk> focus in on driving that adoption of that type of technology driving waste out of the system.
This all adds up to a profitable growth setup for this company and really puts it in a strong position.
I feel I feel really really strong around where we are and that's why I decided to take this move.
Great I appreciate the color. Thanks.
Thank you. The next question is coming from a <unk> a Stifel. Please go ahead.
And good afternoon, everyone. Dave Congrats it's it's good to have you with US I know, it's still pretty early in your tenure here, but I know you've hit the ground running so maybe I could just coagulate some of the responses and get your perspective on where you see the biggest incremental costs buckets over the intermediate term we talked.
A lot about lean and waste, but where specifically do you see the biggest addressable opportunities there.
Yeah Bruce.
I'm Gonna I'm Gonna double team you here a bit because you know I'm four and a half five weeks here on my my diagnosis, there so I am going to call a common not a period on this on this question because I do want to continue to diagnose, but I will tell you this and as I'm talking with a <unk>.
<unk> it's.
It's breaking down this kind of a life of an order and and really going through the origination of this order all the way to be in.
And then and then understanding those are states and pinch points, along the way that's going to generate.
Where the cost opportunities are along that along that line alone inside and I'm in the middle of doing that I have some some points that I see.
But it's not complete and I think a room see some of that as well. So I will come back to you on that cause it's a fair question, but I'm in the middle of the room would you add any other color to it yeah. I think you know the Colorado that is similar things that we'd be insane over the past call at 12 to 18 months when asked about.
Sort of our path to operating leverage and you know our our focus on digital.
Our focus has been looking at the end to end order lifecycle from quoting to order tender to order entry to booking tend to appointments track and trace invoice, saying the whole life cycle right in the focus of our digital efforts has been looking at those points in a lifecycle.
There are disproportionately manually intensive in going after either automation or making self serve our customers are carriers or in some cases, the processes don't even make sense that legacy processes and the and the eliminate them. So the so the that's been the focus.
So now you come in and they all kind of later so in a way it's about taking out waste I think it's just that we've come out more from a technology perspective, I think Dave is gonna come in here and I think he's going to inject <unk>.
Lean principles and as we get the tailwind of January I I believe the things we've been talking about for the past 12 or 18 months just will accelerate.
Okay, that's super helpful and Dave Fair point about the brevity of your tenure. So you know maybe just a follow up a little bit on that a direct question Morgan. It you were rude you know we've had some nice reductions here in personnel costs is the tech and the platform at a place now where we can grow in the next cycle without adding additional resources or do we have a little bit more work.
To do.
Yeah. So that's a great question, we obviously have more work to do but the but you know we've talked to me, it's not about 15 per cent productivity improvements this year.
The work we've done.
To enable that productivity is structural we can actually measure fewer touches in our system as a result of that work because it got more automated tracking traced information from our carriers life, which means we don't have to call carriers for status. Similarly, we've reduce the number of automation does that reduce the number of appointment.
Tasks by automating the greater proportion of them. So we actually see touches go down touches per load go down in.
In a way that we know it's structural that'd be go into the cycle a positive cycle here.
Very helpful. Thank you well.
Yeah. Thank you.
Thank you we're showing time for one final question here today. Our final question will be coming from Chris by There'd be a city. Please go ahead.
Okay. Thanks. Good afternoon. Thanks for squeezing me in Uhm, Congrats Dave I guess, one of the things I guess I've been sitting and listening to the call in and there's been discussion sort of big picture and degenerative AI opportunity those kinds of things maybe a two parter here short term what do we think head count looks like through the rest of the year are there for.
Other opportunities as we move through the rest of the year on the cough. It sounds like you guys are making maybe better progress tortures full year goal. So so that would be interesting and then.
One kind of comes we've talked about this segment level operating margin targets relatively similar what they'd been historically, but in big picture opportunity if it maybe would generate greater productivity.
Potentially cost savings down the road. So just trying to square those two the nasty and the global forwarding margin targets relative to the opportunity you guys are talking about with some of these productivity tools should there be upside or is it the same I just wanna make sure I understand that.
Yeah, let me take that so so first of all you're right we've had great.
Progress on her head count down 13% year over year, and because of the efforts and initiatives that we have ongoing in place that will continue and really I think we've got a great pipeline of things to work on Ah will continue to draw that head count down as we go forward and get two.
Some of these things, although I would say the back half of twenty-three won't be nearly as dramatic reductions as we saw in the first half now.
When you talk about those operating targets in the macro things you know we're trying to help you understand that we feel like we've got some accelerants here in terms of our ability to improve our performance are efficiency and get us to growth in the.
The headlines those are the lean principles the.
Diagnosing of our issues finding waste getting eliminating the waste, whether that's with technology with process with adoption with.
You know make it giving self serve to customers carriers these kinds of things and so.
That's one accelerant the other accelerated as we talked about is really the combination of the machine learning work that we've been doing but then enabled by generative AI, where it can go in and it can find the exceptions in the work that really are people have been handling here historically, where.
You build a model that handles things if everything's been input properly and then R. As in many cases, our staff was going after the exceptions and so now which entered of AI. We've got the ability to do that no more automated way and really enable our folks.
In some cases yeah.
So those are the key headlines.
Oh, okay, but they don't necessarily change the curve of those targets.
Sort of attitude to the improvement off of the sort of where we are in the macro what's the right way to think about them.
<unk> the progress we've made so far yeah.
Okay.
Thanks, again and congrats Dave.
Thank you Sir appreciate it.
Thank you at this time I'd like to tend to flirt back over to Mister Ives for closing comments.
That concludes today as earnings call. Thank you everyone for joining us today, and we look forward to talking to you again have a great evening.
Ladies and gentlemen, thank you for your participation and interest in <unk>. This concludes today's event you may disconnect your lines or block after webcast at this time and enjoy the rest of your day.
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