C.H. Robinson Worldwide, Inc.

Good morning, ladies and gentlemen, and welcome to the CH Robinson fourth quarter 2020 conference call. At this time, all participants are on a listen-only mode. Following today's presentation, Chuck Ives will facilitate a review of previously submitted questions. If anyone needs assistance at any time during the conference, please press star followed by the zero on your telephone keypad. As a reminder, this conference is being recorded Wednesday, January 27, 2021. I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.

Thank you, Donna, and good morning, everyone. On the call with me today is Bob Biesterfeld, our Chief Executive Officer, and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2020 fourth quarter results, and we will follow their comments with responses to the pre-submitted questions that we received after our earnings release yesterday. Before I turn it over to Bob, I want to update you on a couple of financial statement items that have been renamed. Beginning with our 2020 fourth quarter results, we have renamed the term net revenue to adjusted gross profit with no change to the composition of what is included in the metric. We believe the term adjusted gross profit is a better descriptor given that this non-GAAP metric includes the netting of significant expenses such as the cost of purchased transportation and the cost of products sourced for resale. A gap to non-gap reconciliation is included in both our earnings release and our earnings presentation. We also renamed the term operating margin to adjusted operating margin, again with no change to the composition of what is included in this metric. Adjusted operating margin is calculated by dividing income from operations by adjusted gross profit. Our earnings presentation slides are supplemental to our earnings release and today's comments and can be found in the investor relations section of our website at chrobbinson.com. 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 actual results to differ from management's expectations. And with that, I'll turn the call over to Bob.

Thank you, Chuck, and good morning, everyone. Our fourth quarter was marked by solid performance across our broad service portfolio, continued progress on repricing our truckload business to reflect the changing market conditions, and further advancements in our technology and transformation efforts that are providing meaningful improvements to our business results. Our global forwarding business sustained their strong execution in the fourth quarter. In our ocean business, the contracting number of carriers with meaningful size continue to value working with a global freight forwarder with our scale and reputation, and ocean shippers are increasingly coming to Robinson to meet their capacity needs as other providers fail to do so. The air market continues to be impacted by reduced cargo capacity. Air charters have evolved into a sustainable piece of our procurement strategy, and we again augmented our capacity in Q4 with charter flights to support demand from both existing and new customers. As a result, our shipment sizes have increased and our air tonnage is up year over year, despite the number of air shipments decreasing. Shippers continue to rely on Robinson's global supply chain expertise and our data and scale advantages to ensure critical goods are moved as quickly and as inexpensively as possible. We've bolstered our global forwarding procurement teams by hiring talent around the globe to focus on getting the capacity and competitive pricing needed regionally in a very volatile market. This, combined with our balanced portfolio of contractual and spot business, enabled us to optimize our adjusted gross profit per transaction, resulting in a 40% year-over-year growth in our Q4 global forwarding adjusted gross profit. There are several drivers of our recent growth in global forwarding that should continue to contribute to our long-term growth. While we continue to grow in our historical transatlantic and transpacific lanes, we've also added new customers in areas such as Europe, Oceania, Latin America, and South Asia. This geographical diversification is important in times of volatility across regional economies and trade policy uncertainty. Over the past five years, we've been building out our global leadership and commercial teams, bringing on new talent to strengthen our customer relationships and ensuring that we have the necessary training and development in place for that talent. We'll continue to build out our commercial and strategic sales teams across regions to support emerging vertical strategies and creating sustained high-value revenue streams. We've also created a more centralized global pricing framework that, combined with an increased use of data and analytics, is enabling us to deploy the right pricing strategies in a format that's more consistent and easily consumed by our customers. And lastly, our enterprise portfolio that allows us to offer end-to-end solutions for our customers is unique to the logistics industry. We believe these strategies and competitive advantages will enable us to create more value for our customers, win more business, and sustain the market share gains that we've achieved. Turning now to our NAS business. The global pandemic has had an outsized impact on our small business partners in 2020. A nearly 12% decline in our customer count during 2020 was driven almost exclusively by small and emerging market customers. Likewise, a greater than 6% decline in our active carrier count in 2020 occurred solely in the small carrier category, and we believe that this is reflecting carriers exiting the marketplace. Against this backdrop, we were very pleased to add 4,100 new carriers to our network during the fourth quarter, which represented an 11.5% increase year over year. As we entered fourth quarter, the North America surface transportation market was experiencing substantial capacity tightness. This was evidenced by a routing guide depth in our managed services business that rose to 1.8 by the end of third quarter, which was a level that we hadn't seen since mid-2018. This capacity tightness continued throughout the fourth quarter as well, with average routing guide depth remaining at 1.8 in each month of fourth quarter. and contractual routing guides continuing to operate with first tender acceptance levels that were well below normal. By reevaluating our contractual truckload portfolio throughout the quarter, we reduced our percentage of truckload volumes with negative margins. Our targeted and strategic approach included repricing some business to reflect the rising cost environment, exiting other business that did not show a clear path to acceptable profitability, and honoring contractual commitments while strengthening our long-term relationships to our customers. We captured more spot market opportunities in the fourth quarter, resulting in an approximate mix of 55% contractual and 45% transactional volume versus a 70-30 mix in the year-ago period. This shift is not atypical in a rising price and cost environment, and our efforts to automate how we tackle the spot market opportunities has had a positive impact as well. With double-digit growth in spot market shipments and very strong volume growth in our LTL business, NAST overall volume grew 8.5% year-over-year, excluding prime distributions volume. This outpaced industry volume growth in Q4 of approximately 4%, as measured by the CAATS Freight Index, and this represented our eighth consecutive quarter of market share gains in NAST. Due to continued tightness and capacity, the cost of purchased transportation continues to remain elevated. In the overall market, we observed third-party benchmarks indicating that fourth-quarter spot market costs were up approximately 44% compared to Q4 of last year. Our average truckload line haul cost per mile paid to contract carriers, excluding fuel surcharges, increased 32.5% compared to the fourth quarter of last year. And sequentially, our cost per mile increased 14% in Q4. Our average line haul rate increased billed to our customers, excluding fuel surcharge, increased 29% compared to the fourth quarter of last year. We made further progress in fourth quarter on repricing our contractual truckload business to reflect the rising cost environment, and the fourth quarter average line haul rate per mile billed to our customers, excluding fuel surcharges, increased 15% sequentially. Consequently, our fourth quarter truckload adjusted gross profit per load improved approximately 20% sequentially and also improved sequentially in each month of the fourth quarter. Having said this, we also saw instances of shippers implementing shorter bids or mini bids and some shippers delaying their annual truckload bids. In cases where annual bids have been delayed, we've either implemented short-term bridge pricing that was amenable to both parties in exchange for extending the contract, or we made decisions on how we managed acceptance of tendered volume. On last quarter's call, I commented that about 150 of our top 700 truckload accounts that represent $1.3 billion in revenues were scheduled to be repriced in the fourth quarter. However, about a third of those shippers that planned RFPs representing over $300 million in revenues have delayed their pricing events until the first quarter of 2021. This resulted in us repricing approximately $1 billion of our business during fourth quarter. We now estimate that we'll reprice around 145 of our top 700 truckload accounts that represents approximately $1.6 billion of revenues in the first quarter. Because of the efforts of our CH Robinson team members around the world, we were able to deliver solid performance across our broad service portfolio, including year-over-year growth and adjusted gross profit in our managed services, our Robinson Fresh, and our European surface transportation businesses. Our total company adjusted gross profit per business day improved sequentially in Q4 versus Q3 and grew year-over-year in each month of the quarter. Continued progress on our strategic technology initiatives and transformation efforts have resulted in meaningful productivity improvements within our business. A couple of these key metrics are displayed on slide four in our earnings presentation. Excluding volume and headcount from our 2020 acquisition of Prime Distribution Services, our productivity metrics continue to show a significant year-over-year improvement. as indicated by the 2090 basis point favorable spread between the year-over-year change in NAST volume and the change in full-time equivalence in our NAST business. As we've said in the past, this NAST Productivity Index is an important metric and a key output of our technology investments and our transformation efforts. Another way to view our productivity is by looking at shipments per person per day. And in the second half of 2020, we improved this metric by 26% over the second half of 2019. Our tech investments also continue to drive improvements in automation and the number of users on our platforms. One example of this is a 30% increase in fully automated truckload bookings compared to the fourth quarter of last year. During the fourth quarter, we had 35,000 unique carriers utilize our Navisphere carrier web portal. These carriers executed over 10 million load searches during the quarter, and 70% of the time, these carriers were presented with an option to automatically book a load related to their lane search. We continue to engage with our carriers to build technology that meets their evolving needs. And to that end, we've enabled 85% of our single-stop non-hazmat dry van freight in the U.S. to be booked by carriers automatically without any human intervention. The percent of our North American truckload freight available for automated booking will continue to increase during the first quarter as we add temperature-controlled freight and other sub-modes onto the platform. With engagement of nearly 200 customers since the launch of our ProcureIQ tool in September, we're experiencing positive early returns. We're yielding more volume growth with customers that have taken advantage of ProcureIQ's ability to provide them with tailored recommendations for optimal procurement and capacity strategies. And lastly, through our commercial connectivity efforts, we continue to add TMS and ERP connections to our platform, and we've enabled self-service access and direct digital connectivity to over 90,000 active customers with access to our truckload, less than truckload, and intermodal services. As a result of our ability to harness the benefits of our technology investment and our network transformation, we're on track to achieve our target of removing $100 million of long-term costs by the middle of 2021. And as we move into 2021, we continue to evaluate our global business operations to ensure that we're managing our business in the most efficient manner possible. investing in technology to unlock growth and efficiency, and creating better outcomes for our customers and our carriers by utilizing our unmatched combination of experience, our global suite of services, and our scale and information advantage. I'll now turn the call to Mike to review the specifics of our fourth quarter financial performance.