Q1 2024 CH Robinson Worldwide Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the C. H Robinson first quarter 2020 for 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 live question and answer session to ask a question. Please press star one on your <unk>.
Telephone keypad, if anyone needs assistance at any time during the conference. Please press Star Zero as a reminder, this conference is being recorded Wednesday may 1st 2024, I would now like to turn the conference over to Chuck <unk> Director of Investor Relations. Please go ahead.
Chuck: Thank you Donna and good afternoon, everyone on the call with me today is Dave Bozeman, Our President and Chief Executive Officer, <unk>, <unk>, our Chief operating officer, and Mike <unk>, Our Chief Financial Officer, I'd like to remind you that our remarks today may contain forward looking statements slide two in today's presentation lists factors that could cause our app.
Chuck: Actual results to differ from management's expectations. Our earnings presentation slides are supplemental to our earnings release and can be found in the investors section of our website at Investor Dot C. H Robinson Dot com. Our prepared comments are not intended to follow the slides if we do refer to specific information on the slides we will let you.
Chuck: Which slide we're referencing.
Chuck: Today's remarks also contains certain non-GAAP measures and reconciliations of those measures to GAAP measures are included in the presentation and with that I'll turn the call over to Dave.
David P. Bozeman: Thank you Chuck good afternoon, everyone and thank you for joining US today, our first quarter results and adjusted EPS of <unk> 86.
David P. Bozeman: Flex a change in our execution and discipline as we began implementing a new lean based operating model.
David P. Bozeman: And although we continue to battle through an elongated freight recession with an oversupply of capacity I am optimistic about our ability to continue improving our execution, regardless of the market environment as.
David P. Bozeman: As part of my initial diagnosis other company.
David P. Bozeman: <unk> identified an opportunity to refocus our mindset on route, causing and definitively solving problems, including making decisions amid uncertainty and acting with greater clock speed.
David P. Bozeman: Following my diagnosis are brought in additional talent to assist the senior leadership team and me on improving operational execution across the business and to deploy our new operating model that is rooted in lean methodologies in.
David P. Bozeman: In Q1, we began deploying the new model at the enterprise divisional share service levels, which has evolved in our execution and accountability by bringing them more structure to our continuous improvement cadence and culture.
David P. Bozeman: This new way of operating is starting to enable greater discipline transparency urgency and consistency in our decision, making based on data and input metrics that can reliably lead to better outputs. It's also setting the tone of how we operate and hold ourselves accountable, helping us make.
David P. Bozeman: Systemic improvements build operational muscle and drive value at speed.
David P. Bozeman: We began to see the benefits of our new operating model and our Q1 execution.
David P. Bozeman: As a result of disciplined pricing and capacity procurement efforts, we executed better across our contractual and transactional portfolios in our Nast business in Q1 and in particular in our truckload business.
David P. Bozeman: This resulted in improved optimization of volume and adjusted gross profit per truckload, which improved sequentially. Despite an increase in our line haul cost per MAU for the full quarter versus Q4.
David P. Bozeman: Additionally, our truckload volume reflects growing market share and we outpaced the market indices for the third quarter in a row.
David P. Bozeman: And what continues to be a difficult environment, our resilient team afraid experts is responding to the challenge and embracing the new operating model and the innovative tools that we continue to arm them with.
David P. Bozeman: Our people have a powerful desire to win and I. Thank them for their tireless efforts. They continue to be a differentiator for us and for our customers and carriers and I'm confident in the team's willingness and ability to drive a higher level of discipline and our operational execution.
David P. Bozeman: We're moving into right direction and at the same time, everyone understands that we have more work to do.
David P. Bozeman: Now I'll provide some details on our Q1 results and our Nast and global forwarding businesses.
David P. Bozeman: And our Nast truckload business, our Q1 volume declined approximately 0.5% year over year, which outpaced the market indices.
David P. Bozeman: <unk> improved our cost of hire more than the market average.
David P. Bozeman: We had an approximate mix of 65% contractual volume and 35% transactional volume in our truckload business compared to the same mix in Q4, and a 70 30 mix in Q1 last year.
David P. Bozeman: And our <unk> business Q1 shipments were up 3% on a year over year basis, and 1% sequentially on a per business day basis.
David P. Bozeman: <unk> per order declined 1% on a year over year basis, driven primarily by lower fuel prices.
David P. Bozeman: Our L T O AGP per order improved within the quarter and also benefited from our pricing discipline and the new operating model that I mentioned earlier.
David P. Bozeman: In our global forwarding business, we've been highly engaged with our customers to help them navigate the ongoing conflict in the red sea and to ensure flexibility and resilience in their supply chain.
David P. Bozeman: The transit interruptions in the Red Sea, and resulting vessel rerouting have extended transit times, which has reduced global ocean capacity.
David P. Bozeman: While the Asia to Europe trade Lane has been most affected the impact has also extended to other lanes as carriers adjust routes based on shipping demand.
David P. Bozeman: As a result ocean rates increased sharply in Q1 or several trade lanes, including Asia to Europe, and Asia and North America.
David P. Bozeman: While the Red Sea disruption continues without any clear timeline of when it will be resolved ocean rates have come down from the February peak as capacity has been repositioned and new vessel capacity into the market.
David P. Bozeman: While rates remain elevated compared to 2023.
David P. Bozeman: As a global logistics provider with the scale and expertise to strategize and implement contingency plans, we have grown our ocean market share by providing differentiated solutions and customer service and by leveraging investments in technology and talent, leading to the addition of new customers and diversification of the verticals.
David P. Bozeman: And trade lanes that we serve.
David P. Bozeman: In Q1, our ocean forwarding AGP increased by two 5% year over year, driven by a 7% increase in shipments and partially offset by a 4% decrease in AGP per shipment sequentially.
David P. Bozeman: Sequentially AGP per shipment increased 13, 5%.
David P. Bozeman: As the global and North American freight markets fluctuate due to seasonal cyclical and geopolitical factors. We remain focused on what we can control, including deploying our new operating model, providing best in class service to our customers and carriers gaining profitable share in targeted market segments, reducing <unk>.
David P. Bozeman: <unk> in the organization and optimizing our structural costs streamlining our processes by removing waste and manual touches and delivering tools that enable our customer and carrier facing employees to allocate their time to relationship building value added solutions and exception management.
David P. Bozeman: Our continued focus on productivity improvements as one part of our plan to address and optimize our enterprise wide structural cost after exceeding our productivity targets in 2023 with 17% improvement in Nash and 20% improvement in global forwarding, we have carried our productivity momentum into.
David P. Bozeman: 2024.
David P. Bozeman: We are on track to hit our 2024 targets of an additional 15% improvement in Nash shipments per person per day, and additional 10% improvement in global 40 shipments per person per month, both of which will result in compounded productivity improvements of 32% or better over 20.
David P. Bozeman: Three and 'twenty four combined.
David P. Bozeman: Our commitment to deliver quality value and continuous improvements to our customers continues to be validated by high net promoter scores.
David P. Bozeman: Over the past four quarters. These scores have been higher than any point over the past few years and higher than the last similar point in the cycle, which we believe has contributed to our market share gains and puts us in good position with customers ahead of the eventual rebound in the freight market.
David P. Bozeman: Our customers continue to value the quality innovation and reliability that we provide.
David P. Bozeman: As they work to optimize their transportation needs they.
David P. Bozeman: I want a partner, who has financial strength and the ability to consistently invest through cycles and the customer experience.
David P. Bozeman: They also want a customer centric partner, who can meet their increasingly complex logistics needs by providing expertise and a breadth of innovative solutions enabled by technology and people that they can rely on to serve as an extension of their team.
David P. Bozeman: C. H Robinson is that partner with a combination of people technology and scale to deliver an exceptional customer experience and with our breadth of capabilities to meet all of their logistics needs, including value added solutions for cross border freight drop trailer capacity and retail consolidation.
David P. Bozeman: We deliver integrated global solutions with no equal as evidenced in how we are helping our customers navigate disruptions in the Red Sea and restrictions on transit via the Panama Canal as well as supporting their growth and cross border trade between the U S and Mexico.
David P. Bozeman: As we continue to improve the customer experience and our cost to serve I'm focused on assuring that we will be ready for the eventual freight market rebound with a disciplined operating model the decoupled volume growth from head count growth and drive operating leverage.
David P. Bozeman: Our commitment to continuously improving the experience of our customers and carriers and eliminating inefficiencies from our processes will make us a company that is faster more flexible and more effective in solving problems for our customers delivering better customer service and creating operating leverage and profitable growth.
Room: I'll turn it over to a room now to provide more details on our efforts to strengthen our customer and carrier experience increased AGP yield and improve operating leverage.
Room: Thanks, Dave and good afternoon, everyone.
Speaker Change: As Dave mentioned, we increased the rigor and discipline in our pricing and procurement efforts in Q1 <unk>.
Speaker Change: Resulting in improved AGP yield across our contractual and transactional portfolios in our Nast business.
Speaker Change: With continued investment in our pricing science contract management, and digital brokerage technology and deployment of our new operating model, we are responding faster than ever to dynamic market conditions with the tools and capabilities we've developed.
Speaker Change: These tools and operating routines together with our scale data and customer and carrier relationships underpin our revenue management function to which we can be more surgical in how we implement a disciplined pricing and profitable growth strategy based on individual customer value propositions.
Speaker Change: We also continue to make progress in Q1 and concurrent work streams that are improving the customer and carrier experience and delivering process optimization by eliminating productivity bottlenecks.
Speaker Change: One of those work streams is aimed at using generative AI to automatically respond to transactional truckload pulse E mails to drive faster speed to market increase our addressable demand and reduced manual touches.
Speaker Change: Okay.
Speaker Change: Responding to transaction with truckload quote requests as time consuming for account teams and we must respond quickly to be competitive.
Speaker Change: Two our automated process and utilizing our gen AI technology more than 2000 truckload customers are getting the benefit of faster response time, but our automated E mail quotes and we will continue to scale. This technology to cover more customers and other modes.
Speaker Change: Ginny I put the power of large language models into the hands of our frontline teams with more data and history to leverage than any other three P. L. We have opportunities to harness the power of that generative AI now offer is to further capitalize on our information advantage and we'll continue to look for and pursue those opportunities.
Speaker Change: As we deliver further process optimization and an improved customer experience, we plan to deliver the compounded cost structure benefits of additional 2020 for productivity improvements of 15% masked and 10% in global forwarding with technology that supports our people and processes.
Speaker Change: With that I'll turn the call over to Mike for a review of our first quarter results.
Mike: Thanks, Rune and good afternoon, everyone. The continued soft freight market conditions outlined by Dave resulted in first quarter total revenues of $4 $4 billion in adjusted gross profit or AGP of $658 million, which was down 4% year over year driven by a 7%.
Mike: Decline in Nast, and partially offset by a 1% increase in global forwarding.
Speaker Change: On a monthly basis compared to Q1 of last year, our total AGP per business day was down 16% in January down 3% in February and up 7% in March reflecting market conditions and improved execution driven by the rollout of our new operating model.
Speaker Change: The new operating model will help simplify decision, making for our teams by focusing on what matters, most and helping to ensure clear accountability around delivering results.
Speaker Change: Turning to expenses Q1 personnel expenses were $379 $1 million, including $7 9 million of restructuring charges related to workforce reductions excluding.
Speaker Change: Restructuring charges this year and last year, our Q1 personnel expenses were $371 $1 million down $8 $4 million or two 2% year over year, driven by our cost optimization efforts and partially offset by expected higher incentive compensation.
Speaker Change: Our average Q1 head count was down 11, 3% compared to Q1 last year and our ending head count was down 10, 2% to 14734.
Speaker Change: We continue to expect our 2020 for personnel expenses to be in the range of one four to $1 5 billion, excluding restructuring charges with productivity initiatives to lower head count offsetting increases driven by the restoration of target incentive compensation related to the expected improvement in our.
Speaker Change: <unk> financial performance.
Speaker Change: We continued to eliminate non value added tasks to enable our teams to handle more volume. We expect these initiatives will help drive a 15% increase in shipments per person per day in Nast and a 10% increase in global forwarding, which comes on top of improvements last year of 17% Neste in 'twenty.
Speaker Change: <unk> and global forwarding that Dave and a room referenced earlier.
Speaker Change: Moving to SG&A, Q1 expenses were $151.5 million, including $5 million of restructuring charges driven by the impairment of certain internally developed software as we focus the efforts of our product and technology teams on the strategic initiatives that best accelerate.
Speaker Change: The capabilities of our teams.
Speaker Change: Excluding restructuring charges this year than last year, SG&A expenses were $146 5 million up $5 1 million or three 6% year over year, primarily due to a nonrecurring benefit in Q1 last year related to our credit loss reserve.
Speaker Change: We continue to expect SG&A expenses for the full year to be in the range of $575 million to $625 million, excluding restructuring charges with cost reduction efforts offsetting expected inflation.
Speaker Change: SG&A includes depreciation and amortization expense, where we continue to expect $90 million to $100 million in.
Speaker Change: In 2024.
Speaker Change: Shifting to expenses below operating income, our Q1 interest and other expense totaled $16 $8 million, which was down $11 $5 million year over year. This included $22 1 million of interest expense, which was down $1 $5 million versus Q1 last year.
Speaker Change: Driven by the $307 million year over year reduction in our average debt balance.
Speaker Change: Another factor that drove Q1 results and other was a $3 $9 million gain on foreign currency revaluation and realized foreign currency gains and losses, which compared to the $9 $6 million loss in Q1 of last year.
Speaker Change: As a reminder, our FX impacts are predominantly noncash gains and losses related to intercompany assets and liabilities.
Speaker Change: Our effective tax rate in Q1 was 15, 8% compared to 13, 5% in Q1 last year.
Speaker Change: As a reminder, our tax rate is typically lower in the first quarter of the year due to the incremental tax benefits from stock based compensation deliveries in Q1.
Speaker Change: We continue to expect our 2020 for full year effective tax rate to be in the range of 17% to 19%.
Speaker Change: Our Q1, adjusted or non-GAAP earnings per share of <unk> 86 excluded $12 9 million.
Speaker Change: Our restructuring charges and the $3 1 million tax provision benefit related to those restructuring charges.
Speaker Change: Turning to cash flow Q1 cash flow used by operations was $33 million compared to $255 million generated in Q1 of last year the year over year decline in cash flow was primarily driven by changes in net operating working capital.
Speaker Change: In Q1 of last year, we had a cash inflow of $235 million from a sequential decrease in net operating working capital driven by the declining cost and price of purchase transportation in the market at that time.
Speaker Change: In Q1 of this year, we had a cash outflow of $135 million from a sequential increase in net operating working capital driven primarily by higher ocean rates and global forwarding.
Speaker Change: In Q1, our capital expenditures were $22 $5 million down 16, 6% on.
Speaker Change: More focused technology spending we continue.
Speaker Change: To expect 2020 for capital expenditures to be $85 million to $95 million.
Speaker Change: We also returned $91 million of cash to shareholders in Q1, primarily through dividends now onto the balance sheet.
Speaker Change: We ended Q1 with approximately $842 million of liquidity comprised of $720 million of committed funding under our credit facilities and a cash balance of $122 million.
Speaker Change: Our debt balance at the end of Q1 was $1 $7 billion, which was down $172 million from Q1 last year, but up 100 $120 million from the end of Q4 due to the increase in net operating working capital that I mentioned earlier.
Speaker Change: Our net debt to EBITDA leverage at the end of Q1 was $2 seven three times up from 234 times at the end of Q4, primarily driven by the sequential increase in our net debt balance.
Speaker Change: Our capital allocation strategy remains grounded in maintaining an investment grade credit rating, which allows us to optimize our weighted average cost of capital.
Speaker Change: Overall I'm encouraged by our improved execution the deployment of the new operating model opportunities for continued market share gains and the plans in place to deliver the comp pounded benefits of continued productivity improvements in 2024.
Speaker Change: Improved growth and cost savings are expected to continue from the robust pipeline of process simplification technology enablers and waste elimination initiatives.
Speaker Change: Continuing to leverage AI to take the capability of our people to an even higher level positions Robinson well to further reduce waste and drive structural cost changes that improve our operating leverage and help deliver on the long term operating income margin expectations that are imperative to the success of the business with that I'll turn the.
Speaker Change: Back over to Dave for his final comments.
David P. Bozeman: I commend our people for their performance and what continues to be a challenging market I believe our team of logistics experts are the best in the business and they continue to embrace the innovative technology that is acting as a force multiplier and making the industry's best people even better.
David P. Bozeman: I am excited about the work that we're doing to reinvigorate Robinson is winning culture and instill discipline with our new operating model.
David P. Bozeman: If what youre hearing about our execution it sounds different.
Speaker Change: It's because it is.
Speaker Change: As we continue to deploy our new operating model, we're now monitoring key input metrics and responding faster to aerospace and changing market conditions with counter measures that improve our execution.
Speaker Change: As we continue to chart our path forward, we're on a mission to be fit fast and focused in order to win now and to be ready for the eventual freight market rebound.
Speaker Change: We will get fit by embedding lean practices, removing waste and expanding our digital capabilities.
Speaker Change: This will enable us to strengthen our productivity and optimize our organization structure in order to be the most efficient operator in addition to the highest value provider and achieve our profitable growth objectives.
Speaker Change: As our customers' logistics needs continue to become increasingly complex will leverage our robust capabilities to power vertical centric and value added solutions.
David P. Bozeman: We will move fast with greater clock speed and urgency to seize opportunities and solve problems for our customers and carriers, we will arm our team of experts with the right capabilities to bring us into the future enabled by our innovative and cutting edge technology.
David P. Bozeman: And we will be focused on profitable growth in our four core modes, North American truckload and L. T L and global Ocean and air as the engines to ignite growth by continuing to reclaim share and expand our addressable market through value added services and solutions that drive new Vos.
David P. Bozeman: To the core modes as.
David P. Bozeman: As we take action on all of these fronts, our journey to unlock the power of our portfolio is moving forward I continue to see an opportunity for the company to reach its full potential and create more shareholder value by improving our value proposition, increasing our market share and accelerating growth.
David P. Bozeman: Further reducing our structural cost.
David P. Bozeman: And improving our efficiency operating margins and profitability.
David P. Bozeman: I'm confident that together, we will win for our customers carriers employees and shareholders.
David P. Bozeman: This concludes our prepared remarks, I'll turn it back to Don and now for the Q&A portion of the call.
Don: Thank you as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad. At this time. Today's first question is coming from Scott Group with Wolfe Research. Please go ahead.
Scott H. Group: Hey, Thanks afternoon, guys. So.
Scott H. Group: You mentioned this new operating model a lot I just don't know that we got any color on what it actually is so.
Scott H. Group: Maybe just some some details of what's actually changing here.
Scott H. Group: And then just.
Scott H. Group: As I think about this net revenue inflection in March is this just.
Scott H. Group: Truckload spot rates that moderated throughout the quarter.
Scott H. Group: How sustainable is this does this do we get positive net revenue in Q2, and I guess, what what about this new model what happens when we see the eventual spike in spot rates does this gross profit per load gets squeezed again, so I know theres a lot, but you know.
Scott H. Group: Yeah, Hey, Scott This is Dave Hey, thanks.
David P. Bozeman: Big question, there and let's let's unpack that a bit.
David P. Bozeman: First one on the operating model.
David P. Bozeman: I just want to start by saying, Hey, I'm pretty serious about this model and you have got the experience with this model I've done it in other places and I know it works and.
Speaker Change: Scott I told you before we want to take time to diagnose the company for a few months and after coming out of that.
David P. Bozeman: One of the things that we looked at was really the need to drive better discipline.
David P. Bozeman: Accountability responsibility.
David P. Bozeman: And as we went to implement that bringing in the right talent to help do that.
David P. Bozeman: It's really embedded in lean principles and driving.
David P. Bozeman: Inputs versus output. So we took the time to put all of the critical inputs and instead of being an output based company.
David P. Bozeman: Just looking at the outputs and gone backwards now.
David P. Bozeman: Now we have the discipline that we're starting to drive and again, it's early innings a lot more work to do but as we're driving our enterprise strategy maps in our scorecards.
David P. Bozeman: We're looking at ourselves from inputs and what that allows you to do is really binary it's red or green and we drive countermeasures to when we're off plan.
David P. Bozeman: What are the things we are able to do to get back on plan, but.
David P. Bozeman: But it also brings up aerospace it allows us to solve problems faster.
David P. Bozeman: It allows us to really attack the things we need to attack.
David P. Bozeman: Just be aggressive and focused and so I would say it really comes down to discipline. This is embedding discipline.
David P. Bozeman: Into a company that was already a great company, but a company with scale and now you've kind of supercharge it by putting that discipline and accountability and responsibility and that's what you're really kind of seeing in the first quarter now again.
David P. Bozeman: A lot more work to do but I feel really good about where we're going and I feel good about the momentum and that really is going to attack. The other parts of your questions I'm going to have.
David P. Bozeman: Like in a real jump in on that but this is why the base of that operating model was so important about us going forward when it comes to the <unk>.
David P. Bozeman: Some parts of your question.
David P. Bozeman: Yeah. So Scott you asked about the inflection that we saw in March and you're referring back to the <unk>.
David P. Bozeman: The comments I made about our enterprise AGP per day, and we went from down 3% and <unk> up 7% year over year in March.
David P. Bozeman: Hum.
David P. Bozeman: Dave talked about the implementation of the operating model, which is part of the success there you've heard enough from the industry about how difficult January was related to snow storms across the U S and things like that and so.
David P. Bozeman: While that was happening we were putting our operating model in and we're beginning to execute better. So we feel pretty good about how we progressed through the quarter we're not.
Speaker Change: Accustomed to giving monthly results, obviously, we do give you that total enterprise AGP per shipment.
David P. Bozeman: Per day to help you understand but you know we feel good about the progress. We made we've got a lot more work to do and we've got to keep moving in that direction and so you know as we go into Q2 Q2 is typically been a quarter with volumes that sequentially are up versus Q1.
David P. Bozeman: And that's historical and you know you've got to pull out.
David P. Bozeman: The impact of the pandemic in there, but generally speaking that's what we see and it's really because the produce market comes back in Q2, you've got beverages that come back in Q2. So there are some <unk>.
David P. Bozeman: Our move into Q2 and.
David P. Bozeman: And we will keep going from there.
David P. Bozeman: Got just a little more little bit more on that in terms of how.
David P. Bozeman: How we actually achieve some of these that results in an input to the operating model as our revenue management practice that we discussed on the last call and.
David P. Bozeman: While we're not we're not immune to market inflections, but the point is we've invested.
David P. Bozeman: And pricing science costing science.
David P. Bozeman: And adding technology that allows us to respond quickly.
David P. Bozeman: To whatever event.
David P. Bozeman: Causes an inflection whether that'd be short term.
David P. Bozeman: Our long term and January saw a short term inflection due to weather.
David P. Bozeman: But we had signals that we could respond to quickly.
David P. Bozeman: Just based on our revenue management principles.
Speaker Change: And just to finish up here.
Speaker Change: Got it I mean, it comes down to this company. The behaviors are changing I mean, if you look on the fidelity of our conversations to speed of it the ability to fail fast and really get after what we see could be broken that's really starting to change I am trying to.
David P. Bozeman: I'll put on the table what the from to like Whats the difference here and the difference is really about the fidelity of the conversations and how we're how we're actually attacking.
David P. Bozeman: Our problems identifying those problems and they're driving it and in this particular model is really kind of linked it ladders up from the divisional.
David P. Bozeman: Scorecards, all the way up to the enterprise scorecards and when you get that linkage.
David P. Bozeman: You really start connected the entire company and I would say the scaffolding is up and we're starting our sustainable journey here, but really feel good about it.
Speaker Change: Thank you guys.
Speaker Change: Thank you. The next question is coming from Jeff Kauffman of vertical Research partners. Please go ahead.
Jeffrey Asher Kauffman: Thank you very much and congratulations.
Jeffrey Asher Kauffman: To see numbers like this.
Jeffrey Asher Kauffman: Mike a question on the working capital because I want to come back to this thank you for explaining that the ocean rates were driving the use of working capital, but I guess.
Jeffrey Asher Kauffman: Given what's going on in the world that's going to continue to be a drain and could we be looking at negative free cash flow for the first half or two thirds of the year.
Mike: Yeah. Thanks for the comments, Jeff and in the question and as you've seen how.
Speaker Change: The cost of purchased transportation impacts our working capital through the cycle <unk> seen that when costs and therefore prices start to go up because our DSO is greater than our GPO, we tend to absorb cash as we ride that.
Mike: Inflection up in so that.
Mike: May very well be in our future. However, the converse is also true and you saw that as cost of purchase transportation came down.
Mike: We received a net of about 1 billion and a half dollars back into our cash flow at the end of the last cycle is that came down. So you really can think about it as you know where your view is on.
Jeffrey Asher Kauffman: Where the cost and price are going on truckload, <unk> Ocean and air and that and our working capital trends will tend to follow it now having said that we're we expect obviously to have positive cash flows.
Jeffrey Asher Kauffman: Through the cycle and have demonstrated that in the past.
Speaker Change: Okay, and if we weren't having this unusual increase in some of these ocean rates and things going on around the world just seasonally should we be seeing better free cash flow as the year moves forward.
Jeffrey Asher Kauffman: Yes.
Speaker Change: Okay. That's my question Thanks, guys.
Speaker Change: Thanks, Jeff Thanks, Jeff.
Speaker Change: Thank you. The next question is coming from Christopher Combe of Benchmark Company. Please go ahead.
Christopher Combe: Yeah, Hi, good evening guys. Thanks for taking the question Dave can you, maybe just talk about any changes to the compensation structure.
Christopher Combe: As part of this new model and if some of those changes impact maybe some of your some of your better in <unk> and how are people reacting to some of the changes that you've implemented.
David P. Bozeman: Yeah. Thanks, a lot Christopher on its a good question.
David P. Bozeman: I like it because part of our operating model, we've talked about discipline and it also connecting the.
David P. Bozeman: The company throughout and part of that would.
David P. Bozeman: It would be our compensation structure and we feel good about that in two forms here one.
David P. Bozeman: It's about balance right. We you heard us talk about being fit fast focus.
David P. Bozeman: When I look at the balance and this is very very important for the company and our culture.
David P. Bozeman: We're unapologetic for driving two things, it's going to be.
David P. Bozeman: Productivity plus.
David P. Bozeman: So as volume, but it's but it's profitable growth, it's balance of getting our AGP and also getting our volume and if you look at our essentially our based compensation.
David P. Bozeman: It's really about that 50 50 split.
David P. Bozeman: For for our people.
David P. Bozeman: And in our people our incentive.
David P. Bozeman: To do that and that's super important for us and Thats, what youre kind of seeing in that.
David P. Bozeman: Now using the model to actually bring that forward I mean, we do that we do that on a a good timely basis that would allow us to see kind of some of those inflections of inputs and then that allows us to inspect go deeper.
David P. Bozeman: And really try to see if we're off on certain.
David P. Bozeman: Some of those metrics here, but it's really about that balance of <unk>.
David P. Bozeman: Profitable growth and volume and that's what we're going to continue to drive here.
Speaker Change: Okay, and just maybe any thoughts on.
Speaker Change: Been there now for over a year the portfolio review some of the noncore businesses I don't know if you.
Speaker Change: Have any thoughts on that.
David P. Bozeman: Where those would be in the future.
David P. Bozeman: Yes, as I've said before <unk> people product process portfolio.
Speaker Change: Yeah, that's that's quota.
Speaker Change: Not just.
Speaker Change: Static.
Speaker Change: <unk> I'm going to continue to look at the company under those four piece.
Speaker Change: But I've also said, we're going to drive we're going to drive focus right.
Speaker Change: And focus within our company.
David P. Bozeman: North America, truckload, <unk> Ocean and air.
David P. Bozeman: That's really just getting the company back to.
David P. Bozeman: Two to have that focus in driving that very well.
David P. Bozeman: And implementing and performing very well within those those kind of core focus stacks.
David P. Bozeman: That's what my near term focus is and I will always examine the company.
David P. Bozeman: <unk> <unk> and make the necessary.
David P. Bozeman: Decisions that drive us back to that focus because ultimately.
David P. Bozeman: That will drive.
David P. Bozeman: Better results for customers better results for employees and ultimately our investors and shareholders.
Speaker Change: Okay. Thank you. Thank you.
Speaker Change: Thank you. The next question is coming from Stephanie more of Jefferies. Please go ahead.
Stephanie: Hi, good afternoon. Thank you.
Stephanie: You know David I. Appreciate I think you I think he did a great job of kind of outlining kind of your your future and your vision for the company and I think I, we clearly understand where you're trying to go with that certainly made some progress here you know a year in the first quarter, but could you maybe give us a little bit of insight in terms of what has been implemented.
Stephanie: Across the organization to allow you to either move faster or follow the inputs I mean things like going from being more centralized to more centralized I don't know if it's installing system that now give you some daily kpis cop comp structure changes any kind of more tangible examples that's been driving some of the history.
Stephanie: Thanks.
Speaker Change: Yeah, It's definitely how are you doing thanks for the question.
Speaker Change: Yeah, Theres been a number of things and these are the first 10 months EMEA as we've talked and we've talked in person and on the calls.
Speaker Change: The first thing is to really diagnosed I mean, you can't you can't start any type of a fix or treatment. If you don't really understand or as I've said before.
Stephanie: I needed to go to gamba right, that's going to work and really understand the company so took.
Stephanie: Took a good amount of time to just go down to the desk visit various offices.
Stephanie: Make sure just kind of understand the life of an order just understand the company itself I was super pleased when I did that because our people are really are awesome I mean everywhere I go they have awesome stories. They they loved this company and they really put it in so I was really pleased for that.
Stephanie: What I would also came back and looked and I said, hey, there's opportunities here theres opportunities to for simplification there is opportunity to reduce complexity.
Stephanie: Drive discipline.
Stephanie: The ability to fail fast, it's just things that I thought at our scale, we could do better.
Stephanie: So I did bring as I said before some outside talent and Jim brought linger into two stand up the project management office and really to help kind of this lean deployment.
Stephanie: After a couple of months of really understanding the company.
Stephanie: And really getting going with implementation in first quarter.
Stephanie: Jim and I, along with the senior leadership team started to drive this operating model, which now takes a lot of our key inputs and there are a number of different things that we look at Stephanie only inputs.
Stephanie: From head count shipments per person per day cost per shipment cost to serve our customer service impacts our AGP dollars per shipment a number of different things that are linked to the various divisions.
Stephanie: And that and now put that on a schedule.
Stephanie: Kind of cadence that we have that drives our operating model starting with the senior leadership team and then it breaks out into the various divisions and then continued down within the organization.
Stephanie: That took time to kind of build that link it up and then drive that inflammation start the implementation in.
Stephanie: In the first quarter that's different for this company.
Stephanie: It's different in that.
Stephanie: In this operating model you have to address those things our new president of North American surface Trans Microcap Sainato has done a great job at really starting in driving that execution and that discipline into Nash.
Stephanie: He has to drive his particular meetings that linked to the enterprise.
Stephanie: Meetings on our inputs and where we don't talk about just outputs now is driving those inputs and why.
Stephanie: You do that because we can move the timescale.
Stephanie: So when we're driving something and Michael Zona Red for a particular <unk>.
Stephanie: Input metrics that we're looking at we attack. It then we attack it right away what resources do we need in the company to go attack it.
Stephanie: What help do you need it's visual management and driving that.
Stephanie: That has moved us into solving things much faster and deliberate but it's also given us learning about other things that are happening in the company that we can solve so thats something thats been different.
Stephanie: We've moved and I've I've, combined marketing and communication and just making sure we drive synergies.
Stephanie: For that and Theres a number of other things that are internal in the company that we're moving for but you do that off of learnings and making sure that whatever moves we're doing it ultimately supports our strategy for more profitable growth.
Stephanie: And better returns to shareholders.
Stephanie: Better environment for for employees, but better value and execution for customers as well. So that's how we're going about this stephanie it's anyone that's been in Robinson it feels different because it is different.
Stephanie: And we're not going to stop it and we're on.
Stephanie: Early innings here as I said before and where you guys are going to keep seeing that as we go through the year.
Speaker Change: Got it. Thank you and then just.
Stephanie: Follow up to a question that was asked earlier in terms of the EG AGP per day, an inflection that we saw kind of calling from January to the positive in March.
Stephanie: You know, we kind of all hear the same trends that we've been hearing the trends for the last week or so, but still being a pretty weak freight environment and rates from what we track haven't changed too much. So you can't really talk a little bit about what you were able to do to execute at a kind of such that next inflection and resolve.
Stephanie: Yes, Stephanie I'll take that one and so.
Stephanie: You heard from Dave.
Stephanie: Heard about our operating model, there's execution inside that we can pile on in terms of some of the examples Dave talked about incentive changes coming into this year to balance volume and margin expectations on the business.
Stephanie: And.
Stephanie: I think when you compare our results to the results of maybe some others. What you see is that we did have.
Stephanie: The differential improvement as we went through the quarter and one thing I would emphasize is for example on truckload our truckload.
Stephanie: Cost per mile went up in Q1 versus Q4, So we had a sequential increase there, but we were still able to deliver margin expansion both at the AGP level and at the operating income level and so the yield management the science the data behind price.
Stephanie: Missing the work that's been going on.
Stephanie: And on that front.
Stephanie: <unk>.
Stephanie: You want to see results right and so one indication one metric that we tried to show you guys to help understand that we're getting traction here and delivering results is in our shipments per person per day, because that's really the measure of how productive our folks have been and one of the pivot.
Stephanie: We've made on that front as I think we've done a better job of balancing how technology can support the talent of our people and one of the things. We're most proud of is the expertise the deep knowledge the talent the relationships with customers that our folks have and what we've tried to do with our <unk>.
Stephanie: Technology is figure out how to reduce manual tasks manual touches and really target those areas. So that our people can focus on what they do best and our relationships and solving problems for our customers and so you see some of that starting to get traction. The other thing I would point to is.
Stephanie: Generally it of AI and <unk>.
Stephanie: One of the hallmarks of the freight industry is the amount of variation that exists and that variation exists across all of the modes and across all the lanes.
Stephanie: And it's rooted in the fact that our customers have very specific demands about picks and drops in size and configurations and the better you understand exactly what they need the better you can solve their freight issues, but that variation runs counter to some of the productivity that is historically.
Stephanie: Ben machine learning, which requires a lot of programming inside of our proprietary software, but the the high variation is actually something that generative AI can handle much more effectively and so a lot of the efforts. There have also been beneficial to helping us deliver those productivity numbers they'll ship.
Stephanie: <unk> per person per day numbers in the 17% Nast last year, the 20% and she often and of course, we've got targets of 15% in Nast and Tim and Jeff.
Stephanie: This year, yes.
Stephanie: I'll just add that in terms of optimizing yield this goes back to.
Stephanie: Revenue management, and I'd say I would describe it as Dave has the operating model installs.
Stephanie: I would describe it as active management of optimizing volume and <unk>.
Stephanie: That happens every day.
Stephanie: And it's a marriage of our science and our people.
Stephanie: I think we just we.
Stephanie: We just manage it much more actively than we ever had both on the cost side as well as the pricing side, that's what that's what yields.
Stephanie: <unk>.
Stephanie: Okay.
Stephanie: Thank you. The next question is coming from Elliot Alper TD Cowen. Please go ahead.
Stephanie: Great. Thanks for the question. This is Elliot alper on for Jason Seidl.
Elliot Alper: Wanted to ask about ocean capacity.
Elliot Alper: And we've heard some other ocean. Some other ocean players that shippers have already adapted to a lot of the concerns whether it be the red sea or Panama Canal.
Elliot Alper: <unk> appears to have been easing a bit I guess, we've seen spot rates come down.
Elliot Alper: Notably from mid February levels, I guess, how should we think about pricing sequentially, maybe the puts and takes on growing the ocean business in the second quarter.
Elliot Alper: Yeah Elliot this is Mike I'll take that question. So I think our view is consistent with what was implied in your question.
Mike: Issues kind of came in have now haven't completely been solved but or but are more solved that.
Mike: Repositioning of capacity really puts a pitch.
Mike: On the market and what drove prices up but once that capacity has been repositioned and it largely has then those prices have come back down and you're now back to the basic principles of supply and demand and on the supply side the capacity side.
Mike: The observation for the remainder of the year as there's more capacity coming into the ocean market than us.
Mike: Coming out and so there should be a fair amount of capacity. There now there may be some repositioning to accompany some of the changing dynamics in trade lanes, where we're where theres more density there but.
Elliot Alper: Net net more capacity coming in so then you're back to the demand side and we've seen.
Elliot Alper: A little bit.
Elliot Alper: Of <unk>.
Elliot Alper: Demand there, but no no green shoots yet to suggest that.
Elliot Alper: We've got Oh.
Elliot Alper: A.
Elliot Alper: A trend moving for the remainder of the year so.
Elliot Alper: Your prediction of where it goes really depends on your view about the world economy, and the U S economy, and we'll see how that plays out.
Speaker Change: Yes, Elliot and just to pin a couple of things on that.
Elliot Alper: Well I mean, we've said this in the past.
Elliot Alper: Our on average our contract business for global forwarding is.
Elliot Alper: 30% to 40% and in contract so.
Speaker Change: The remaining 60, 70% of spot obviously.
Elliot Alper: We have an opportunity to do.
Elliot Alper: To do business in but also as Mike said on the Panama Canal into the essence of your question.
Elliot Alper: Improved as far as water levels, but the crossings and we track that.
Elliot Alper: Now are <unk>.
Elliot Alper: <unk> 27, a day, but that's that's normally 36.
Elliot Alper: So it's.
Elliot Alper: Somewhat muted as Mike said, we haven't seen any major green shoots there, but we.
Elliot Alper: We watch that business with internally.
Speaker Change: Thank you both.
Speaker Change: Thank you. The next question is coming from Tom <unk> of UBS. Please go ahead.
Tom: Yes. Thank you.
Tom: Wanted to see if you could give some thoughts on.
Tom: I know you talked about the progression.
Tom: Within April are.
Tom: <unk> seen kind of a similar dynamic to what you said in March and that improvement.
Tom: And is.
Tom: Is that kind of more of a volume improvement or is that a gross margin percent improvement if you think about nast.
Tom: And then I guess I also wanted to just think about <unk>.
Tom: <unk> drivers Youre doing a great job on that productivity number that 15% in NAFTA, but do you think you'll get there more by volume growth picking up or is it you get some more sequential head count reduction or is that just kind of depends.
Speaker Change: It depends on the market. So thank you for the time.
Speaker Change: Yes, I'll take your productivity side, and then maybe pass it off to take another shot at the <unk>.
Speaker Change: <unk> trends going forward in the market, but on the productivity front the shipments per person per day front, we really have to be flexible to adapt our productivity delivery based on what kind of market. We're in so what we're really.
Speaker Change: Doing I think now a different differentially from the past is thinking about installed capacity thinking about how to handle demand with the without the need to bring on people when the demand comes back, but if the demand because it does not come back we still got to deliver that productivity number and so we.
Speaker Change: We really are trying to build the flexibility into our model to handle both demand based.
Speaker Change: A year or a soft market like we're in right now.
Speaker Change: Yeah, I think hey, Tom This is Dave <unk>.
David P. Bozeman: Adding on to that.
David P. Bozeman: Where the team is doing a really nice job is at the end of the day you have to look at work differently.
David P. Bozeman: And <unk>.
Speaker Change: <unk> taken away the the manual work that in a sense is capacity right I mean when you.
David P. Bozeman: At our scale when we have our people do.
David P. Bozeman: <unk> nominal task.
David P. Bozeman: That eats up capacity.
David P. Bozeman: A person.
Speaker Change: Yeah, I think Arun and team have done a really nice job at this is where you do use technology and large language models in a number of other things to now remove a lot of those kind of menial tasks.
Speaker Change: And allowing our people to just kind of focus on the things they need to focus on and in a sense gaining capacity right in and doing that so that's really important on on achieving this productivity part of shipments per person per day, it's getting smarter.
Speaker Change: About the work and implementing that work. So I just want to I want to add on to that I think on trends and Mike you can jump in here.
Speaker Change: We feel good about where we're at and we're concentrating on what we can control I mean, this is a soft market and everyone's dealing with that this is why we're staying disciplined.
Speaker Change: Driving our model to execute and what we're saying is no matter what the marketplace is going into Q2.
Speaker Change: We want to execute within that market I mean doing what the lows of the markets and.
Speaker Change: And excel in at the highs of the market is something that we're laser focused on.
Speaker Change: To do that what our operating model, what our science and pricing in a number of things we talked about today.
Speaker Change: Great. Thank you does anybody else want to add.
Speaker Change: Any comments on kind of April and.
Speaker Change: But it looks like and what might be driving it.
Speaker Change: Volume or gross margin.
Speaker Change: Yes.
Speaker Change: Yeah, I think we've covered that.
Speaker Change: Okay.
Speaker Change: [laughter].
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: For April or sorry, I might have just missed that earlier.
Speaker Change: Yeah, we made comment earlier about Q1, and the progression that we've made Q1 and our confidence in some of the progress we've made in the various elements inside the operating model and as we move into Q2, just the way that a typical.
Speaker Change: Q2.
Speaker Change: Unfolds is that we get the produce business, we get the beverage business and that strength is usually in the back half of Q2 for our business model.
Speaker Change: Okay, alright, so the okay. So the year over year is still looking good okay. Thanks for the time.
Speaker Change: Thank you. The next question is coming from Jonathan Chapelle of Evercore ISI. Please go ahead.
Jonathan B. Chappell: Thank you and good afternoon.
Jonathan B. Chappell: Just a quick one on the competitive landscape you, you're winning share you've done better than the market for three straight quarters, but at the same time, you're being disciplined on price. So.
Jonathan B. Chappell: Is this a function of maybe smaller players exiting the market Theres been an interesting chart. That's been circulating on the exit of brokers do you feel like the capacity and the broker industry is closer to balance and maybe it is in the asset heavy side of the equation and is that helping you win share or is it more.
Jonathan B. Chappell: Kind of company specific and the things that you've been talking about for the last half an hour or so that that's driving those share gains.
Jonathan B. Chappell: Yeah.
Speaker Change: Thanks for the question I think it's both.
Speaker Change: This disciplined execution on our side and we've talked about that.
Jonathan B. Chappell: What but clearly there is there is pressure in.
Jonathan B. Chappell: In the brokerage industry and I think you've seen some of the exits.
Jonathan B. Chappell: As our convoy last year.
Jonathan B. Chappell: And I think we continue to get reports of smaller brokers.
Jonathan B. Chappell: Who are unable to sustain in this market. So I think it's both.
Jonathan B. Chappell: I will say that.
Jonathan B. Chappell: While there might be some.
Jonathan B. Chappell: Some benefit from from the market and smaller brokers or other brokers not doing well I would.
Jonathan B. Chappell: I would over index to the success being.
Jonathan B. Chappell: As a result of our operating model and the <unk>.
Jonathan B. Chappell: Inputs and the discipline in that context.
Speaker Change: That makes sense do you get a sense just as a quick follow up that the broker business at large is closer to balance maybe closer to let's call. It 2019 levels than the truckload market from an asset heavy perspective is.
Speaker Change: No Jonathan this is Dave.
David P. Bozeman: I would say it's not at the levels of 2019, we don't we don't see that.
David P. Bozeman: Just as we see the influx on capacity and carrier capacity.
David P. Bozeman: While that's coming down we don't that's not at levels that.
David P. Bozeman: We think it should be at this period in the cycle, but as far as broker specifically no I would say that we're not we're not at those levels of 2019.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Youre welcome.
Speaker Change: Thank you at this time I would like to turn the floor back over to Mr. <unk> for closing comments.
Speaker Change: Thanks, everyone for joining us today that concludes todays earnings call and we look forward to talking to you again have a great evening.
Speaker Change: Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines are back off the webcast at this time and enjoy the rest of your day.
Speaker Change: Okay.
Speaker Change: [music].
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