This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Good afternoon, ladies and gentlemen, and welcome to the CH Robinson first quarter 2021 conference call. At this time, all participants are on 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 1 on your telephone keypad. If anyone needs assistance at any time during the conference, please press star 0. As a reminder, this conference is being recorded Tuesday, April 27th, 2021. I would now like to turn the conference over to Chuck Ives, Director of Investor Relations. Please go ahead.
spk07: Thank you, Donna, and good afternoon, everyone. On the call with me today is Bob Biesterfeld, our Chief Executive Officer, and Mike Zuckmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2021 first quarter results, and we will then open the call up for questions. This change to live Q&A from our previous practice of responding to pre-submitted questions is in response to valued input from our analysts and shareholders. 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 is factors that could cause our actual results to differ from management's expectations. And with that, I'll turn the call over to Bob.
spk08: Thank you, Chuck, and good afternoon, everyone. We're proud of our first quarter results. As global shipping markets remain disrupted, our team around the globe stayed focused on serving the needs of our customers and delivering innovative solutions to keep global supply chains moving. During the quarter, we delivered strong financial results while continuing to deliver against many of our initiatives related to growth, productivity, and the advancement of our digital strategy. I'll highlight some of these areas of progress as I walk through my prepared comments surrounding our Q1 results. In the first quarter of 2021, we generated 125% growth in earnings per share due to profit growth in our two largest business segments, North American Surface Transportation and Global Forwarding. Our NASC business generated double-digit growth in both adjusted gross profits, or AGP, and operating income in the quarter. NASC's AGP per business day increased 15%, and operating income was up 39% compared to the first quarter of last year. These results were driven by a 23% improvement in AGP per truckload in our truckload business, coupled with continued strong market share gains in our less-than-truckload business, where volume per business day increased 17% year-over-year. Bolstering these results were continued benefits of our technology investments, which continue to unlock productivity gains and deliver customer value in new and exciting ways. The macro environment in the first quarter continued to be one of tight capacity and increased pricing in the marketplace driven by several supply-side constraints, including the ongoing challenges of driver availability coupled with robust demand. The weather events in February demonstrated how quickly supply chains can get disrupted in this capacity-constrained environment. For the quarter, our NAST truckload volume was down approximately 6.5% or 5% per business day compared to first quarter of last year. While our business in the spot market increased significantly, our volume in the contractual business declined as we continued to pursue profitable volume growth by reshaping our portfolio through repricing the book of business with new and existing customers. It's our belief that given the current structural constraints around expansion of truckload supply, coupled with additional government stimulus, a back half reopening of the economy, and potential infrastructure spending, the market conditions that were existing today have the potential to remain out of balance for the next several quarters. For first quarter, we saw routing guide depth of tender in our managed services business maintain between 1.7 and 1.8, which is consistent with fourth quarter of last year. As one of the world's largest logistics platform and the largest provider of truckload capacity in North America, we are uniquely positioned to help both customers and carriers navigate these market conditions. One of the ways that we do this is by leveraging our scale and the size of our carrier network. In the first quarter, we welcomed 6,900 new carriers to our network, which represented a 72% increase year over year and represents the most carriers added in a quarter in our history. Coupled with these new carrier ads, we also saw record use and adoption of our carrier-facing digital products, Navisphere Carrier and Navisphere Driver, further advancing our digital initiatives. Our average truckload line haul cost per mile paid to carriers excluding fuel surcharges increased 33.5% compared to the first quarter of last year. Our average line haul rate billed to our customers, excluding fuel surcharges, increased 33% year over year. And for the second quarter in a row, we saw a sequential change in price per mile that exceeded the change in cost per mile as we continue to reprice our contractual truckload business to reflect the current environment. Our first quarter rate per mile billed to customers increased 2%, while our cost per mile to carriers increased 1% sequentially. We closed the quarter with an approximate mix of 55% contractual volume and 45% transactional volume, versus a 65-35 mix in the year-ago period, and consistent with our mix in the fourth quarter of 2020. NAST's less-than-truckload service continues to grow volume faster than the market, with 17% year-over-year growth in volume per business day in Q1. Our value proposition that combines a full suite of LPL services, including common carrier, warehousing and retail consolidation, temperature control, parcel, home delivery, and reverse logistics continues to resonate with customers across industries, and we continue to benefit from the tailwinds in some of the fastest-growing customer segments, including retail, e-commerce, and manufacturing. Within LTL, we're winning new business and growing our existing business with customers of all sizes, from small businesses that utilize our freight quote by C.H. Robinson platform to large enterprise shippers that look to us as a strategic partner to manage and optimize their LTL freight networks. The March 2020 acquisition of Prime Distribution Services, coupled with our existing retail consolidation network, has made us the largest and most comprehensive provider of retail consolidation services in the industry. In total, NASP's overall volume per day grew 7% year over year. This was slightly below industry volume growth during the quarter of approximately 7.5% as measured by the CAASPP rate index. Turning the page to global forwarding. Our global forwarding business once again delivered excellent results in first quarter. We delivered a 118% increase in total revenues within the forwarding segment, a 67% increase in adjusted gross profits, and a 658% increase in operating income. The forwarding team at Robinson successfully worked with customers across the globe to navigate a difficult and a disrupted market, leading to increased award sizes from customers and thousands of new commercial relationships. The air freight market continues to be impacted by reduced cargo capacity and we continue to position charter flight capacity to support demand from both existing and new customers. Our customers continue to value working with Robinson's local experts in offices around the world that can deliver a full suite of global logistics services and technology solutions. resulting market share gains combined with the strength of the market produced a 27 percent increase in ocean volumes during the quarter and a seven percent increase in air shipments candidly three to five years ago we wouldn't have been able to deliver these types of results in our forwarding business but we've made substantial structural and strategic changes and have increased our investments over that time we've invested in technology data and analytics, as well as our global network and leadership team. And we've bolstered our commercial and strategic sales teams in forwarding to strengthen our customer relationships and to support emerging vertical strategies while creating sustainable high-value revenue streams. Additionally, we've expanded our geographical strength in areas such as Europe, Oceania, Latin America, and South Asia, while we continue to grow our core trans-Pacific and trans-Atlantic business. Within forwarding, we've implemented a more centralized global pricing framework that combined with an increased use of data and analytics is enabling us to employ improved and agile pricing strategy leading to growth in market share. We believe that these strategies and competitive advantages will enable us to create more value for customers and in turn win more business and sustain the market share gains that we've achieved and will continue to have forwarding contribute and drive parts of our long-term growth. Because of the efforts of our CH Robinson team members around the world, our total company adjusted gross profit per business day improved by 11% sequentially in first quarter and 26% year over year. Related to technology, we continue to make progress on our strategic initiatives and transformation efforts. As I've stated in the past, the three primary areas of investment in technology are focused on creating value for customers, value for carriers, and driving productivity improvement for our teams, which in turn drives improvements to both our top and our bottom line results. Looking at the impacts of technology through the lens of customers and carriers, the number of daily and monthly average users across our customer and carrier facing platforms continues to grow. An area that we've invested heavily in is the ability to deliver real-time pricing for truckload shippers through digital channels that are most convenient for our customers to use. Enabling these digital connections improves efficiency for our customers, it improves our response time to requests, and improves our win rates. Today, more than 30% of our transactional business is being priced via our proprietary transactional pricing engine, which we call TPE. Today, we're delivering real-time pricing with capacity assurance from the largest network of truckload capacity. Volume driven through our transactional pricing engine has more than doubled when compared to last year's first quarter. And the volume executed through digital connections via API and EDI has grown four times over that same time. we continue to add customers at an accelerated pace with over 100 new customers connected via TMS and ERP connections in the first quarter of 2021 alone. The pipeline for adding both direct customer connectivity and TMS connections is robust, and we expect to achieve strong growth in our platform connections and tenders throughout 2021. Our customers now have access to real-time pricing via our Navisphere customer web portal, direct through their TMS or ERP integrations, as well as via freight boat by C.H. Robinson. In total, we've enabled these dynamic pricing capabilities for over 85,000 customers across these points of connection. Small businesses continue to see the value in our FreightQuote by C.H. Robinson platform, as the number of customers utilizing this has grown 30% year over year, and the adjusted gross profit generated through FreightQuote is up 137%. We've had over 1 million unique visitors to the FreightQuote platform just since the product launched. And we continue to be excited about the total addressable market of small businesses and our ability to serve them in a fully digital and frictionless manner. Earlier this quarter, I hope that you saw that we launched Emissions IQ, the first free self-serve tool for customers that will instantly allow a customer to view their carbon emissions across all modes of transportation globally. This product was created in our innovation incubator, Robinson Labs, and built in response to the growing priority around sustainability. Emissions IQ includes partial truckload emissions methodology that was created in collaboration with MIT's Center for Transportation and Logistics and the US EPA. This collaboration focused on developing a standardized way to measure the emissions of LTL for the first time. By putting useful technology and data at our customers' fingertips, we're not only increasing the transparency of emissions in our industry, but we're surfacing the best strategies for customers to make meaningful carbon reductions. On the carrier side, we continue to deliver new capabilities and benefits to our carriers through our web and mobile versions of Navisphere Carrier and Navisphere Driver. During the quarter, we saw significant increases in the occurrence of fully automated bookings in our NAS truckload business via the web and the app. Approximately 90% of our North American truckload freight is now available to be booked via web or app in a fully digital and frictionless manner. The number of carriers that adopted this capability was up 50% sequentially from fourth quarter of last year to the first quarter of this year. And finally, as it relates to productivity, we've highlighted a couple of key metrics for NAST on page four of our earnings presentation. We continue to show year-over-year improvement in productivity, as indicated by the 1,270-point favorable spread in our NAST productivity index, which represents the difference between the year-over-year change in NAST volume and the change in full-time equivalents in NAST. Another key metric that we review is shipments per person per day, and this metric is up 13% in first quarter compared to the same quarter last year. Both charts show very clearly the relationship between the timing of our increased technology investments and the impact to these key business metrics. We are encouraged with the progress that we're making on our technology journey and the impact that these investments are delivering for our customers, for our carriers, and the impact to our overall results. I'll now turn the call to Mike to review the specifics of our first quarter financial performance.
spk07: Thanks, Bob, and good afternoon, everyone. As Bob mentioned, we delivered solid financial results during the quarter due to strong profit growth in NAST and global forwarding, despite lower truckload volume in NAST, where we worked to improve AGP per load by addressing unprofitable loads in the tight freight market. Our total company AGP per business day was up 26% compared to Q1 of 2020, driven by performance from our ocean and truckload service teams. As a reminder, our first quarter had one less business day compared to Q1 of last year. On a sequential basis, all of our business segments and service lines delivered increased AGP per business day compared to Q4. Our truckload service line delivered the largest absolute increase on a sequential basis with a 6% increase in AGP per load and a 4% increase in truckload volume per business day. This sequential volume growth was achieved despite the negative impact of winter storm URI in the US, which we estimate had a net decline of a half a day of truckload volume and a full day of LTL volume. On a monthly basis compared to 2020, our total company AGP per business day was up 34% in January, up 17% in February, and up 26% in March. Q1 personnel expenses were $360.8 million, up 9.3% versus Q1 of 2020, primarily due to higher incentive compensation costs that are aligned with our expected 2021 results. Q1 average headcount declined 2.9% compared to Q1 last year, including the prime acquisition, which added one percentage point. The Q1 growth in our business with reduced headcount shows how our technology and process improvement investments are delivering efficiency to our business model. We continue to expect our full year 2021 personnel expenses to be approximately $1.4 billion, including the higher incentive compensation, the impact of our ongoing long-term cost savings efforts, and the reinstatement of our company match on retirement contributions in the U.S. and Canada, which started on January 1st. Q1 SG&A expenses of $118.2 million were down 7.9% compared to Q1 of 2020, driven by reduced travel and improved credit losses. We continue to forecast 2021 total SG&A expenses to be approximately a half a billion dollars, including the expectation that travel expenses will build in the back half of 2021 as the impact of the pandemic subsides. 2021 SG&A is expected to include approximately $85 to $90 million of depreciation and amortization, which is down from $102 million in 2020, primarily due to the completion of amortization related to a prior acquisition. Regarding our long-term cost reduction efforts, through Q1, we delivered approximately 90% of the $100 million per year of long-term or permanent cost savings. we expect to deliver the remaining $10 million of long-term savings by the end of Q2. In the back half of 2021 and beyond, we will continue our long-term cost savings efforts, primarily through process redesign and automation across the enterprise. Our first quarter adjusted operating margin was 31.8%, an increase of 1,250 basis points compared to Q1 last year, primarily due to the increase in adjusted gross profit and success of our cost savings efforts. The Q1 adjusted operating margin delivered on are 30% long-term enterprise margin expectation. Our first quarter effective tax rate was 18.3%, up from 17.1% in Q1 last year, due primarily to the higher income this quarter. Recall that our first quarter typically has a lower effective tax rate due to the tax benefits related to the delivery of our annual stock-based compensation in the quarter. We continue to expect our 2021 effective tax rate to be 20% to 22%, assuming no 2021 impact from changes to U.S., state, or international tax laws. Q1 net income was $173.3 million, up 122% compared to Q1 last year, and as Bob highlighted, Diluted earnings per share finished at $1.28, up 125% versus Q1 last year. Turning to cash flow, Q1 cash used by operations was approximately $56.7 million, compared to $58.5 million provided by operations in Q1 of 2020. The $115 million decrease in operational cash flow versus Q1 last year was driven by a $468 million sequential increase in accounts receivable and contract assets compared to Q4, which was partially offset by a $216 million increase in total accounts payable and the $95 million year-over-year increase in net income. The 17.7% sequential increase in accounts receivable and contract assets was driven primarily by a sequential increase in total revenue that was more concentrated in the last two months of Q1 compared to Q4, as well as the mix shift associated with higher total revenue growth in global forwarding, where our DSO runs almost double that of our NASP business. It's important to note that we are not seeing a deterioration in the quality of our receivables. Q1 results included sequential and year-over-year improvements in credit losses and percent of accounts receivable that are past due. Over the long term, we expect working capital to grow at a slower rate than our adjusted gross profit. Q1 capital expenditures totaled $13.5 million, compared to $14.7 million in Q1 last year. We continue to expect our 2021 capital expenditures to be $55 to $65 million, We're seeing solid results from our investments and will continue to prioritize the highest returning technology initiatives on a risk-adjusted basis. We remain committed to our $1 billion investment in technology from 2019 to 2023. We returned approximately $221 million of cash to shareholders in Q1 through a combination of $151 million of share repurchases and $70 million of dividends. That level of cash return to shareholders represents a 45% increase versus Q1 last year when we paused our share repurchase late in the quarter to assess the impact of the pandemic. During Q1 this year, we repurchased approximately 1.6 million shares at an average price of $92.84 per share. At the end of Q1, we had approximately 6.4 million shares of capacity remaining on our $15 million share repurchase authorization for May of 2018. We continue to be committed to disciplined capital stewardship, maintaining an investment-grade credit rating, and returning excess cash to shareholders through dividends and opportunistic sharing purchases. Now on to highlights from the balance sheet. We finished Q1 with $218 million of cash and cash equivalents, down $77 million compared to Q1 of 2020. Over the long term, we intend to carry only the cash needed to fund operations and efficiently repatriate excess cash from foreign entities. We ended Q1 with $968 million of liquidity comprised of $750 million of committed funding under our credit facility, which matures in October of 2023, and our Q1 cash balance. Our debt balance at quarter end was $1.34 billion, up $250 million versus Q1 last year. our net debt to EBITDA leverage at the end of Q1 was 1.3 times. I'll close by saying that I have great confidence in our team and their ability to build on the solid results from Q1 by continuing to execute our plans that generate sustainable long-term growth in our total shareholder returns. Thank you for listening this afternoon, and I'll turn the call back over to Bob now for his final comments.
spk08: Great. Thank you, Mike. So as I said, my opening comments, we're proud of the results that we delivered in the first quarter. We delivered record revenues, adjusted gross profits, net income, and EPS relative to all past first quarters. We grew adjusted gross profit in the quarter by 24% while operating expenses increased by less than five. This demonstrated the strength and the earnings power of our non-asset based business model. Looking forward, we'll stay the course with our strategy of pursuing market share gains that align with our profitability expectations, and we'll continue to invest back into the business in order to drive innovation and improve service to our customers and to our carriers. Within our NASP business, based on what we know today, we expect tight market conditions to continue through the balance of the year. But regardless of how cyclical market conditions change and evolve, we'll stay focused on driving growth and expanding our business with customers across our global suite of modes and services. We're very pleased with the results from global forwarding, where we've built sustainable competitive advantages due to the structural changes that we've made over the last few years. Across the board, as one of the world's largest aggregators of this highly fragmented and diverse carrier base on multiple continents, we're committed to creating better outcomes for our customers and carriers by delivering industry-leading technology that's built by and for supply chain experts. As shippers and carriers continue to increase their adoption of our new digital capabilities, we expect to see continued productivity benefits and to grow market share across our service lines as we create value for customers in new ways. As an organization, we're committed to continuous improvement. driving further efficiencies into the model and leveraging our unmatched combination of experience, scale, technology, and information advantage to create better outcomes and to unlock growth. We're also firmly committed to being a responsible corporate citizen, and we're proud of the tools that we can now offer to advance sustainability across the logistics industry. over the past year all of our lives have been challenged in unforeseen ways and the priority to build more flexible and adaptable supply chains is a top priority for shippers and receivers globally we are uniquely positioned as an organization to offer solutions and to innovate by leveraging our non-asset based business model our global suite of services and the most capable team of supply chain experts in the world the team at robinson is excited by the opportunities in front of us and committed to providing solutions to the most difficult challenges facing our industry. Lastly, I'd like to thank the team at Robinson around the world for continuing to drive our company forward and to help us emerge stronger. This concludes our prepared comments. And with that, I'll turn it back to Donna for the live Q&A portion of the call.
spk02: Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we do ask that you limit yourself to one question and one follow-up before re-queuing for any additional questions. Once again, that is star 1 if you'd like to register a question at this time. Our first question is coming from Jack Atkins of Stevens. Please go ahead.
spk06: Great. Good evening. Thanks so much for taking my questions. So, you know, I guess, Bob, first question's for you. You know, when I think about the volume decline of 6.5%, I guess it's more like 5, 5.5% on a per-business day within the truckload operations in the quarter. You know, and I understand it's, again, a more challenging year-over-year comparison in the first quarter. How do you think about when we're going to see an inflection in volume growth? I mean, the productivity gains are there and they're real. We can see them in the slides that you're presenting. You know, is it a headcount issue? Do you need more folks to be able to attack the volume? I guess... One of the biggest pushbacks I get from investors is they're just struggling to understand why such a strong transactional market isn't translating into more robust volume growth for C.H. Robinson. Can you help explain what's sort of limiting that for you guys over the last several quarters?
spk08: Yeah, thanks, Jack. It's a great question, and your assessment is right. The volume per day was down about 5%. I guess a relatively, frankly, a really difficult comp. Q1 of 20 was our third highest truckload volume on record. But let's peel it back a level, because if you look at just the spot market business, we had robust growth in the spot market, double-digit growth in that space. But the shift between contractual and spot is an important one that we feel back. And so I want to talk a little bit about the efforts that we took to reprice our contractual business in the fourth quarter and in the first quarter, and frankly, ongoing into the second quarter. I'll start with pricing. And if we look back to where we were in the back half of 2020, we had negative files at a record level, right? Some 15% of our loads were resulting in a negative outcome. And that cost us somewhere north of $100 million in the back half of 2020. of last year and negative adjusted gross profit. So we had to stare that down first and foremost and target a yield and an adjusted gross profit for our contractual business that was more sustainable. The second piece of that is that as we thought about where the markets were going to unfold in 2021, we had to take a position. We had to take a position because by nature, we sell long largely and buy short. And as I stated in some of my prepared comments, we believe that there's some sustainability to the market that we're in right now, given the driver shortage, given some of the delays on the order to build and delivery cycle on Class 8s, given the continued inventory restocking, given the upcoming produce season, etc., And so what we saw through our bidding activities in Q4 and into Q1 in the contractual was we took that position, believing that to be correct, and that impacted us somewhat negatively in terms of our awards on a year-over-year basis with some of those customers. So we improved our adjusted gross profit per shipment in Q1, as I think I said in the earlier remarks, about 23%. certainly significantly off the trough of Q3 of last year. And we're back into a more normal range of that adjusted gross profit per load. What we've seen as the quarter has progressed, Jack, is that the market seems to be coming back a bit to our thesis. And so it now does appear, at least based on where we sit today, that this market does have some legs on it. We're seeing opportunities come back to us either through the spot market or kind of this gap between what is spot and contractual where we're able to provide dynamic pricing. And additionally, seeing contractual opportunities come back to us with a more favorable AGP profile that's sustainable for us to help those customers through the course of the next year. I was involved in a lot of customer conversations. And, you know, the point is that we wanted to put pricing in front of our customers that we could stand behind that were good for us and good for the customer without transferring the risk at the level that we did in 2020 because that number of negative files and those negative outcomes just simply wasn't sustainable.
spk06: Okay. That definitely helps clarify that. And just, I guess, for the follow-up, I mean, do you feel like now the market's coming back to you Do you feel like you're at a point now where volume growth can turn positive and, you know, you've eliminated a lot of the issues around these negative files? And, you know, as we sort of look prospectively here with the strong freight market at our back, we should be expecting truckload volume growth, you know, beginning of the second quarter.
spk08: We absolutely expect truckload volume growth through the balance of this year, Jack. As you know, you know, the comparisons are a little bit, you know, wonky, for lack of a better term, you know, as we go through the next few months. given the impact of the pandemic last year and the ups and downs associated with the freight market there. But we do expect to deliver truckload volume growth through the balance of the year.
spk06: Okay, that's great. I'll turn it over from there. Thanks so much, guys. Thanks, Jack.
spk02: Thank you. Our next question is coming from Todd Fowler of KeyBank Capital Markets. Please go ahead.
spk07: Great, thanks, and thanks for going back to the live format. You know, Bob, just piggybacking on Jack's question, I think coming into the first quarter, you talked about about $1.6 billion of the book being up to reprice. Can you talk about how much of that progress you had made in one queue and also where you're seeing contract pricing come in at, and is it at a level right now where it's exceeding where the spot market is?
spk08: Yeah, thanks, Todd. It's good to be back in the live Q&A format.
spk06: Yeah, I agree.
spk08: If I think about... whether it's the billion six or whatnot, maybe I'll phrase it a little bit differently. And we think about the contractual market that we have or our book of business. We believe that we have priced and implemented about a half of our contractual business in what I'll call current pricing or pricing that was delivered in either fourth quarter or first quarter of this year. We've priced more that hasn't quite gone live yet and we'll continue to price more in the second quarter. Based on our forecast run rate right now, by the end of the second quarter, we'll have about 75% to 80% of our contractual book repriced in either the fourth, first, or second quarter. So for all practical purposes, we'll call that current truckload market pricing.
spk07: Okay, got it. That helps. And then that's at a level that's exceeding where the spot market is right now, or at least it's more current with where kind of industry pricing is.
spk08: I would call it more current with our thesis of where we see the market going and where we see the market today. The spot market does continue to pull the contractual market up and not necessarily down. It's our expectation that over time, as routing guides continue to perform a bit better, given the increase in pricing, that perhaps that spot market does drop below the contractual market, but that's yet to be seen.
spk07: Okay, understood. And then just for my follow-up, you know, the slides are helpful on the productivity gains. Do you think that NAST is at the point where volume growth can permanently outgrow headcount growth? And what are your expectations for NAST headcount for the remainder of the year? Thanks for the time.
spk08: Yep. Thanks, Todd. And I'm going to tie back to your question and to Jack's. We do think that over time that, you know, NASP volume in aggregate will grow at a pace above headcount growth. I do think, though, there may be times where we need to add some headcount to fuel the fire, perhaps, just in certain pockets of the business to unlock opportunity. And that's not a forecast that there's going to be a significant headcount at. But there could be quarters or periods where those two things come closer together or move further apart. But over time, that long-range goal of growing volume out ahead of headcount is applicable for NASDAQ as well as forwarding.
spk07: Great. And then just any thoughts on the remainder of the year at this point for NASDAQ? We would anticipate headcount being relatively flat in NAS for the balance of this year.
spk08: Okay. Thanks so much for the time.
spk02: Thank you. Our next question is coming from Thomas Wadowitz of UBS. Please go ahead.
spk07: Yeah, good afternoon. I wanted to, I guess, get your thoughts on kind of the progression in NAS. I guess if I go back to 2018, and I know that's not a perfect analogy, but I think it's kind of the you know, best prior cycle year I think of. You know, I think, you know, you tended to build stronger net revenue growth as you priced up more of the contract business. I think, you know, since the challenges of third quarter last year, you have been building momentum in terms of, I think, you know, of its gross profit per load you're talking about. But how do we think about that in, say, second quarter or third quarter? Would you expect, you know, further momentum in terms of net revenue growth in NASP driven by higher contract rates or other factors? How would you look at that the next couple of quarters?
spk08: Well, I think the comparison to, you know, call it late 17 and the 18 is an important one. And I agree with you. It's kind of the two cycles that we can refer to. If I think about kind of the, I'm not going to call it peak to peak, but let's go back to Q1 of 18 compared to Q1 of 21. And in aggregate, what we've seen over that time period for us is customer pricing is up about 12%. Carrier cost is up about 15%. So let's call it on average 5% a year on the cost side and 4% a year on the customer side. So while that's a bit higher than the trailing 5- or 10-year run rate on change in rate and cost, it doesn't necessarily feel to us, Tom, that that's necessarily like a bubble in terms of where the pricing is. If you go back to our results in 18, where our adjusted gross profit per load is today is probably much more reflective of the back half of 17. And you did see that build through that cycle as we saw pricing of the cost of purchase transportation start to drop in the back half of 18 and the first half of 19. I'm nervous about trying to draw too many parallels between 18 and today because it does feel like there are some things today that are structurally very different than what was happening in 18. It felt like in 2017 and 18. A lot of that was built on buying the news around electronic logging devices and the potential disruption in the marketplace and how that was going to have some artificial constraints around capacity. Today, this does feel much more driven by supply chain dislocation, driven by inventory restocking, driven by a real sustained pressure on hiring and maintaining drivers. I'm not in a position where I feel comfortable kind of calling the ball on how long the cycle is going to go or in what direction, but those would be maybe the parallels I'd draw between the two periods.
spk07: Okay. So it's a reasonable parallel, but, you know, maybe not perfect tracking. My second question would just be how you think about sustainability and the really high level of performance in forwarding. Obviously, you're just doing, you know, executing well, and the market's giving you a lot of opportunity in forwarding. Do you think we can stay at the kind of level of gross profit and operating income you produced in first quarter? Can you stay at that level throughout 2021? Or, you know, you think that that's unrealistic? And, you know, I mean, I wouldn't think you'd have much visibility on 22. But just how do you think about the forward-looking market? in forwarding given how strong your results are?
spk08: Tom, part of why we don't give guidance is because of the challenges of forecasting, just those exact things that you're asking. We're committed to delivering industry-leading operating margins in our forwarding business. We've been on record several times saying that we think a sustainable 30% operating margin is really within our reach in forwarding and that we can get there over time. Clearly, the market has been a tailwind for us on a lot of these parts of forwarding, but I do really want to hammer home the fact that Mike Short and his forwarding leadership team has just done amazing work over the course of the last few years around process standardization, about leveraging technology, around the centralization of pricing, strengthening the relationships with the steamship lines and the airlines, that we really do think that we've unlocked something pretty special here ahead of where we probably thought that we could.
spk06: Okay, great. Thanks for the time. Thanks, Tom.
spk02: Thank you. Our next question is coming from Scott, Group of Wolf Research. Please go ahead.
spk03: Hey, thanks. Afternoon, guys. So can you give us the monthly net revenue trends for NAST? And then when I look at NAST gross revenue, it's up 14%. But truckload pricing's up 33, LTL volume's up 17. I know truckload volume's down six, but I guess I'm struggling with why the gross revenue's not up more.
spk08: Sorry, Scott. I'm looking for the monthly here real quick, so let me see if I can get that.
spk03: I can ask my second one if you want to come back to that.
spk08: Yeah, why don't you go ahead and get on that, Mike. If you could find that monthly, that would be great.
spk03: Okay. And just on the productivity slide, it's helpful. Is there any way to think about shipment per person at LTL versus truckload? Is there a big difference there? Because clearly we're seeing a lot more LTL growth than truckload growth. I'm just trying to understand if that's having an impact on some of the overall productivity metrics.
spk08: Yeah, so clearly the outsized growth in LTL is having an impact on that blended metric of shipments per person per day. But I think it's also just net of the LTL. We've removed about 900 to 1,000 heads from NAST over the course of the last couple of years. And so that in itself, I mean, taking headcount down by about 12% has had an impact there against both the truckload and the LTL. But no question, the growth in LTL has helped to improve that metric.
spk07: You know, and what we provide is our company HEP per business day, and there we're up 34% in January, up 17% in February, and up 26%. in March year over year.
spk03: Okay. Thank you, guys.
spk07: Great. Thank you.
spk02: Thank you. Our next question is coming from Jason Seidel of Cowen. Please go ahead.
spk07: Thanks, operator. Hey, guys. Afternoon. It is nice to be back live. A couple quick questions. One, on the NAS side, how should we think about your 3Q comparison in terms of your gross margins? You know, if I recall last third quarter, just the pace that spot moved up was just something that I had never seen before. And so, you know, I would imagine that would have impacted your ability to adapt in the marketplace. So if we just assume spot continues to remain strong but doesn't move up as much as it did last year, should we expect more improvement in your gross margins and 3Q on a year-over-year basis?
spk08: Yeah, I mean, 3Q for us last year was the trough in terms of our truckload earnings from an adjusted gross profit per load. I mean, that was the absolute low point in, frankly, the last decade. And so it would be likely that we would expect improved operating margins relative to that. Okay.
spk07: I want to switch over a little bit now on your forwarding side and talk a little bit about any ocean business you may have. It seems like some of the The ocean shipping lines are actually changing the length of some of the contracts that they're giving to some of their customers. How does that impact the business, if at all, going forward?
spk08: Our ocean procurement strategy is really a blend of long-term and shorter-term commitments. And so we haven't seen any noticeable impact from some of the stated changes around length and terms of contracts. One of the things that I think we've seen as a byproduct of the way that some of the carriers have been managing pricing is a greater demand for the need for NBOs like us because of the complexity, because of the changes in the environment. We're seeing larger shippers, larger BCOs come to us to help them navigate the ever-changing global ocean landscape, which we've seen that's driven up our average award sizes, that's driven up the average size of our customers. So that's been a nice win for us there.
spk07: That's good color. So in terms of your overall length of your contracts and the blend, you haven't really seen a change in that? We really have not. Okay, perfect. Those are my two. I appreciate the time as always, gentlemen. Be safe out there. Great, Jason. Thanks.
spk02: Thank you. Our next question is coming from Chris Weatherby of Citi. Please go ahead.
spk07: Hey, thanks. Good afternoon, guys. I guess I wanted to come back to NASP and maybe ask a sort of market dynamic question. You know, volume was down. You know, margins were impacted presumably by sort of the move in spot rates that we saw inter-quarter. know i guess you guys obviously talking about sort of reducing some of the negative loads but but it feels like the combination of loads and margins doesn't necessarily square as well as maybe you would have thought if you were sort of preserving price and not necessarily feeding share um so i guess i just wanted to maybe understand what you see as the competitive market dynamic in the brokerage market right now, specifically as it pertains to truckload, because we are seeing some management of margins and some volume gains coming from, admittedly, your smaller carrier competitors. But I guess I just wanted to make sure I understood sort of where you see yourself in the market and maybe how you think you can kind of grow into this market.
spk08: Yeah, so, you know, again, I'll start with the comparison as a point here. You know, in first quarter last year, I think our truckload volume was up about 7.5%. Again, we've used the industry dynamic of CAS being down about 9%, and we were very counter to the rest of the industry or to much of the industry in first quarter last year in terms of that metric, and so we've got a little bit of a different starting place. Our primary focus has been on profitable market share gains. And again, evaluating that portfolio, getting the adjusted gross profit back into a normal range. Through the quarter here in Q1, we saw positive volume growth in January. And then as we implemented some of these newer bids, that started to turn negative in February and March, which landed us at that 5% down. per business day. But like I said earlier, we do expect to be able to drive volume growth throughout the balance of this year at much more appropriate adjusted gross profit per shipment, which we think is the right decision to make for our customers because it allows us to be more sustainable for them where and when they need us. And we also think it's the right decision for our shareholders. You know, eliminating, you know, taking swings at that $100 million of negative files that occurred in the second half of last year, we think is in the best interest of everybody because it's just not sustainable.
spk07: Okay. Okay. That's helpful. And when you think about that sort of approach, particularly as you think about the book of business that maybe wasn't profitable, how much do you think that actually can come back onto your network? Or does that mostly get seeded out to other people who are willing to maybe take a little bit of a lower margin for the kind of business that can ultimately come back to Robinson to drive volume growth in the future for you?
spk08: Yeah, there's not an easy answer to that, just given the number of customers that we work with and the different customers, the way that they approach the market. I would tell you that there are a number. I've had some really good conversations with customers where the conversation has simply been, look, we may just disagree at this point in time about the direction that the market is moving. And if our award has to be cut back because of that, that's fine. We'll figure out the way to best serve that customer. And that may not end up being primarily in the contractual marketplace. That's where we've got the benefit of pivoting and saying, you know, if you've got somebody that you believe can move that freight for less at the same service level for some period of time, that's the customer's prerogative to certainly make that choice. But if that doesn't work out, then we're there to step in on the backside. And that's what's driven a lot of the spot market growth.
spk04: um over the course of the first quarter here as well and we would expect that to continue okay okay that's helpful thanks so much for the time and thanks for doing a lot q a yeah absolutely thank you our next question is coming from vasco majors of susquehanna please go ahead thanks for taking my questions here um earlier you talked about the gross profit per load and truckload today looking more like the second half of 2017 than 2018 in a cyclical context. Can you let us know how far below sort of the peak profit period and second half 2018, one half 2019 we're tracking now? And is there a potential path back to that level if the cycle and the execution conspire in your favor over the next few quarters?
spk08: We're kind of within mid-to-high single digits of what I call that trailing average right now, Bascom. If you throw out Q3 2018, Q4 2018, Q1, Q2 2019, kind of that four-quarter period, those are really the outliers. I mean, if you look at our business over the course of the last, 15 years, those four quarters were absolute outliers in terms of the adjusted gross profit per shipment. And I don't know that there's a path back to those numbers in the immediate future. And, you know, I think we've found that, you know, the market conditions were very unique there. I mean, literally, the costs absolutely fell out of the market for whatever reason, and that we've seen now this incredibly violent whip back over the course of the last four quarters. And so I don't know that we get back to those numbers, but we want to get back closer to that average and kind of play in what is typically a much more tightly bound range of of our margins our net revenue dollars or sorry adjusted gross profit dollars you know kind of flexing up 10 one direction or down 10 the other direction and trying to eliminate some of those some of those peaks and valleys thank you for that and into an earlier comment as a follow-up on the the contractual business and some of your comments that you've made previously in today about
spk04: Contract duration may be getting a little shorter in some cases to clear those discussions. Can you talk about how much of your contractual business is on a two-, three-, six-month, whatever that number is, contract versus your traditional one-year, and how that could impact some of the cyclical volatility in your margins?
spk08: I don't have an exact percent right now, Bascom, but I would tell you that it's a much higher percent than we've had at any point in the past. I mean, the proliferation of mini-bids, and short-term two- and three-month kind of bridge pricing commitments. You know, we've seen that more frequently here as of late than at any point that I can recall. And I think that's been a good thing for both shippers and transportation service providers such as us to try to de-risk in the short term in order to get to a better long-term commitment that, you know, that works for both parties. I'd be guessing to give you a number there, and I just don't want to go on record with that.
spk04: Thank you.
spk08: Thanks, Beth.
spk02: Thank you. Our next question is coming from Bruce Chan of Stiefel. Please go ahead.
spk07: Good afternoon, Jens, and thank you for taking my question. Bob, maybe the first one here for you. You talked a little bit earlier about fully digital bookings in NASP and uptake on the TPE engine, and I'm wondering how you think about freight forwarding in that context. Is there a goal or even the ability to digitize Ocean, for example, to that same extent? And if so, how far behind is forwarding from that?
spk08: It's a really good question, and my short answer is yes. We believe that there is an opportunity there to introduce more digital capabilities between the customer and Robinson on the forwarding side. We have not invested significantly in that space up to this point, and it's an area where we continue to discuss how and where to prioritize that, given kind of the process that we go through in terms of, you know, prioritizing our technology investments where they can have the greatest impact. We think that there's a there there. We haven't gotten too far down that path as of yet would be the best way that I'd characterize that.
spk07: Okay, that's fair. And then maybe my related follow-up here, you gave a headcount outlook for NASDAQ that's roughly flat for the balance of the year. What is that for global forwarding this year? And then, you know, maybe just in general, you know, where does that number go long-term in global forwarding versus NASDAQ?
spk08: Yes, if you look at our forwarding business, As it relates to headcount, we tend to spend most of our time talking about headcount and NAS, where NAS headcount's been down, I think, seven quarters in a row. But looking at forwarding, they've been down slightly in each of the past five quarters as well. And against that, we're delivering double-digit growth in ocean over the past couple of quarters and now strong ocean air growth this quarter. Enterprise-wide, really, Bruce, we're pretty focused on trying to keep that headcount level kind of flattish. this year. I think that that's in the playbook for forwarding as well. You know, you've seen forwarding even, you know, through their acquisitions, they've still been able to keep relatively flat headcounts. So I think that speaks to some of the progress that they're making around operational uniformity and using technology internally to deliver better outcomes. But flat is kind of the general tone.
spk07: Okay. So, you know, maybe if I could just sneak in one more follow-up there, I guess the expectation would be you know, that you'd be keeping, you know, revenues at an elevated level on top of that flattish base of headcount in order to kind of maintain these target margin levels. Is that fair?
spk08: Yeah, I certainly think that, you know, the revenue run rate will kind of play out over the course of the if we call it guidance around our personnel expense and our SG&A that we've provided in past quarters of personnel around 1.4 billion and SG&A around 500 million, we still think that holds together as we look at our forecast through the balance of the year. And that's obviously an enterprise number.
spk07: Okay, terrific. Very helpful. Thank you for the time.
spk08: Yeah, and maybe just one other point that I'd make. You know, we've talked a lot about flat headcount, but I really want to go back again to the thesis that it's about, you know, growing volume ahead of headcount. We're not afraid to add headcount. We're not holding back on adding headcount. It's just a matter of, you know, making that commitment that we believe that we can deliver volume growth in excess of whatever that headcount add is.
spk02: Thank you. Our next question is coming from Ken Hexter of Bank of America. Please go ahead.
spk05: Hey, good afternoon, Bob, Mike, Chuck. And again, I agree. Thanks for returning to the live Q&A and congrats on solid results. Just to clarify, Bob, your comments on pricing and spot, are you suggesting that we're at or near a peak or I just want to, because it sounded like you were going back and forth that this may be as good as it gets or, but then you also threw in, it's going to hold out, you know, a couple more quarters. So just maybe thoughts on that. And then the question I want to ask was your percent of transactions that are now fully digital. on the NAS side. Can you maybe give us a little more detail on that?
spk08: Yep. I'm not forecasting whether we're at a peak or not at a peak. I mean, everything that we see today in our model is that spot market pricing is still elevated relative to contractual pricing. And in my experience, spot always tends to lead contract. And so that would tell me that there's potentially still some room to run on the upside on the contractual pricing. So to me, peak is maybe defined when that spot starts falling beneath the contract. But anyway, that's kind of my opinion on where we're at there and realizing I'm not a very good prognosticator at where these markets go. In terms of the fully automated or fully digital, you know, that's It's a difficult question to answer, and I'm not trying to be elusive, just because there is no universal definition of what a fully automated shipment looks like. And I could give you statistics on the customer side that say everything on the customer side is fully automated, and on the carrier side, things are fully automated. And those two lines may not cross perfectly. We've made significant increases if I just talk about the carrier side and the fully digital bookings. I think the run rate was we had 50% more carriers participate in kind of the auto booking functionality on Navisphere Driver and Navisphere Carrier this quarter than we did last quarter. Every week, it seems as though we're making a step change in terms of the amount of our business that is moving in a fully digital manner. If I were to put an estimate against it, I'd say we're still probably sub-20% of our total truckload volume that's moving in a fully automated manner with our carriers, and that could be the automated booking, auto tenders. There's multiple ways in which we automate that with carriers, but that would be my estimate of where we sit today.
spk05: That's great. And then just to follow up then on your thoughts on the progress, if we're going to stay tight for a couple more quarters in this market, it doesn't seem to be letting up in the near term. How do you think about NASP margins as you progress through that?
spk08: Yeah. You know, we've repriced 50% of our contractual business by the end of second quarter and implemented that pricing. We'll be at 75% to 80% by the end of third quarter, you know, or second quarter, rather. And that's aged old pricing, right, that we're replacing with that was quoted, you know, middle of last year in very different market conditions. So as we reprice that, that should deliver an uplift in HEP per load. I think, you know, one of the things that we saw in February, Ken, was the impact of the winter storm URI and how dislocating that was for the marketplace. I think as we look through the second quarter and we think about the CVSA road check and the impact of that on carrier costs, as we think about Mother's Day rush, as we think about the produce season and how that unwraps, I think we'll all learn a lot about the fragility or the stability of this market as some of these things roll in and we'll see how able the capacity network is to respond to those in kind. So I think that'll set the tone for the balance of the year.
spk05: Great. Thanks a lot. Thank you.
spk02: Thank you. We're showing time for one last question today. Our final question will be coming from Amit Mahatra of Deutsche Bank. Please go ahead.
spk07: Hey, thanks, guys. Bob, just a quick question about the weather in the quarter. Just wondering if the weather, particularly in Texas, allowed you guys to maybe, excuse me, pull forward some contract repricing. It seemed like a pretty real force majeure events i'm just not sure if that gave you guys the opportunity to revisit contracts earlier and you know if i if i think about shipper behavior during a kind of a crazy period like this are you seeing shippers kind of move more towards or gravitate towards um you know carriers with actual assets uh given kind of the the deeper you know the depth of the routing guide and maybe that may explain some of the market share shifts if you can just talk a little bit about that
spk08: Yep. So the related to the storm in February, I think what that really did was it took a period of time that was normally kind of a cooling off period in the market. And it just it just drove it right out of town. Right. And it eliminated that time when when rates typically come back a bit in the in the spot. It didn't cause us to call force majeure with any contracts. It certainly influenced some of the conversations on the other side of that. If there was wide gaps between when pricing was submitted, say, in late fourth quarter, early first quarter, and wasn't being implemented until later in the quarter, it brought to life some conversations there about where we saw the market going, and it certainly influenced that. some of our thoughts of where we saw the market going. The impact to the business, though, we believe we lost about a day of revenue in LTL and about half a day of revenue in truckload, net-net, once we figured out one day of LTL, a half day of truckload. Net-net, once we kind of figured out the pull forward and the lost shipping. That's kind of what I comment about that. In terms of this thesis that the market is shifting more towards asset-based players, we've certainly not seen that in any way. I mean, the demand for our services has been robust. I can't think of any instances where we've been excluded from a large bid. It's quite the opposite of that, I would say.
spk07: Okay. That's helpful. And just as a follow-up, We talk a lot about technology and digital freight matching. You guys obviously have a platform that can match demand and supply, a digital platform. But I'm just wondering how you guys measure how well you're buying capacity programmatically, if you can help us think about that in terms of maybe identifying backhaul capacity or just however you look at it that maybe can programmatically drive down the buy rates and improve the margins.
spk08: Yeah, we continue to monitor the buy rates that we achieve in the marketplace against a couple of different publicly available indices, and we look at how that moves, both on our digital bookings, our manual bookings, and we continue to tune our engines to try to keep those things in line. We know that given our size, given the density of our freight network, that we We historically do purchase transportation at less than those publicly available benchmarks are, mostly because we're eliminating so many empty miles for these carriers that, you know, net-to-net, it's better for the carrier and better for our customers as well.
spk07: And last follow-up here, if I could. Do you think that this volatility over the last six months or so, really over the last year, has made shippers embrace digital products? digital marketplaces a little bit more wholeheartedly. And just related to that, what is your assessment of where you think take rates or gross margins are going to evolve? kind of five years from now, as some of the digital-only platforms kind of continue to grow and scale. I mean, that would be really helpful because I think we're all trying to figure out where the terminal value of this is, and it would be helpful if you had a sense or if you could offer a sense of where you think this – where net revenue margins kind of play out over time.
spk08: Yeah, so like I've stated a couple times, I talk to a lot of our customers, and I don't know that any of the customers that I talk to think that the future of surface-based transportation is a 100% digital-only play. I think quite the opposite, the volatility of the course of the last year has shown the importance of having really, really good people coupled with really, really good technology and a really, really big base of carriers that allows you to converge those things together. Because ultimately, our customers, first and foremost, we're an execution company, right? Our customers come to us to execute really difficult, challenging things for them in their supply chain where nobody else can. or is either willing or able to do those things. And we do that through digital, but we also do that through, you know, old school rolling up the sleeves and making sure that the promises that we make are promises delivered for our customers. So, you know, there's a value to that. And I don't think the terminal value of that is 5% margins five years from now. I think that The value that we create is very unique, and we'll continue to make that more digital, but digital is just part of the story, right? Our rush is to provide the best service we can for customers at a fair value that helps them to de-risk their supply chain without us taking all that risk on ourselves and doing that in a more efficient and more effective way through great people, great technology, and an evolving digital experience, but not a digital-only experience.
spk03: Sure. Yeah, it makes sense. Okay, thank you for taking the questions. Appreciate it.
spk08: You bet. Thank you.
spk01: Thank you. At this time, I'd like to turn the floor back over to Mr. Ives for closing comments.
spk07: Yeah, thanks, everybody. That concludes today's earnings call. Thank you, everyone, for joining us today, and we look forward to talking to you again. Have a good evening.
spk02: Ladies and gentlemen, thank you for your participation.
spk01: You may disconnect your lines or log off the webcast at this time.
Disclaimer