C.H. Robinson Worldwide, Inc.

Good afternoon, ladies and gentlemen, and welcome to the CH Robinson second quarter 2021 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 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, July 27th, 2021. I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.

Thank you, Stacey, and good afternoon, everyone. On the call with me today is Bob Biesterfeld, our President and Chief Executive Officer, and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2021 second quarter results, and then we will open up the call for live questions. Our earnings presentation slides are supplemental to our earnings release and can be found in the investor section of our website at investor.chrovinson.com. However, our prepared comments are not intended to follow the slides. If we do refer to specific information on any of the slides, we will first let you know which slide we're referencing. I'd also 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. Good afternoon, everyone, and thank you for joining us today. During the second quarter, we delivered record financial results by staying focused on serving the needs of our customers and keeping their global supply chains moving in a capacity-constrained environment. We're pleased that we returned to truckload volume growth. We delivered record volume in less-than-truckload ocean and air, and we believe that our Tech Plus strategy that combines industry-leading technology with great logistics experts and great processes is the right strategy. As part of our global suite of services, our largest services delivered both year-over-year and sequential growth in total volumes, revenue, and adjusted gross profit, or AGP, which resulted in quarterly highs for Robinson in total volumes, revenues, AGP, and operating income. Excluding the fourth quarter of 2012, when we sold our T-Check business, our earnings per share was also a record high. I'll talk about how we achieved these results as I walk through my prepared comments on our second quarter results. In our largest service of NAS truckload, we grew our adjusted gross profit by $34 million, or 4% year over year. This came through a 6% increase in volume and a 7% increase in adjusted gross profit per load. This included an increase in spot market volume of nearly 30% year over year, due in part to an 85% increase in quotes and a 160% increase in volume that was driven through our proprietary real-time dynamic pricing engine. 40% of our spot or transactional business was priced via integrations with our dynamic pricing engine in the second quarter, delivering real-time pricing with capacity assurance from the largest network capacity in North America. While our business in the spot market increased significantly, our volume in the contractual business declined approximately 10% during the quarter as we continued to reshape our portfolio and pursue profitable volume growth. This included a balance of two things. First, honoring our contractual commitments with strategic customers, which is still resulting in a higher than normal percentage of loads with negative adjusted gross profit margins due to ongoing increases in the cost of purchase transportation. And second, managing acceptance rates in order to limit negative loads and to manage our business for profitability. 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 this was consistent with our mix in the first quarter of this year. Our average truck haul line haul cost per mile paid to carriers excluding fuel surcharges increased 47.5% compared to the second quarter of last year. Our average line haul rates billed to our customers excluding fuel surcharges increased 42% year-over-year. This resulted in the highest cost and price per mile on record and a 12% year-over-year increase in our truckload adjusted gross profit per mile. This combined with a 4.5% decrease in average length of haul resulted in a 7% increase in adjusted gross profit per truckload. We continued to reprice our contractual business in second quarter, including some underperforming contractual positions. The bid process continues to be a dynamic one. and 40% of our awarded contracts in second quarter were for terms between three and six months. Having said this, greater than two-thirds of our bid volume awarded to us in second quarter was still on 12-month contracts. During the quarter, we saw routing guide deficit tender in our managed services business decline slightly from 1.8 in March to 1.6 in June. However, the average in second quarter, 1.7, was unchanged from the market conditions in first quarter. In the second quarter, we welcomed an additional 6,900 carriers to our network, which represented an 88% increase over the carriers added in the second quarter of last year. Leveraging the scale and the information advantage that comes from the size of our carrier network is just one of the ways that we help customers navigate this capacity-constrained marketplace. Given the current structural constraints around the expansion of truckload supply, coupled with the continued reopening of the economy, as well as other factors, we do expect the current market conditions will persist through 2021. And as I said last quarter, we expect to grow our truckload volume during the remaining quarters of this year. In our second largest service line of ocean forwarding, we grew our adjusted gross profit by $72 million, or 92% year-over-year, This came through a 29% increase in shipments and a 49% increase in adjusted gross profit per shipment. Strong demand continues to outpace supply, with container and equipment shortages and other market disruptions continuing to constrain capacity. Our team's done a great job of strengthening our carry relationships, procuring incremental capacity to better serve our customers. The forwarding team continues to add new commercial relationships with strategic, multinational customers that are leading to increased award sizes. while also ensuring that our existing customers have access to the capacity that they need to meet their needs. Our customers and our results are benefiting from the investments we've made in digitization, data and analytics, as well as our global network that is supporting our expanded geographical and vertical expertise. 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. There continues to be a robust pipeline of new business from both new and existing customers. And as we move towards the peak holiday shipping season and into next year, we do expect that ocean demand will remain strong into early 2022. As part of our growth strategy, Less than truckload or LTL business, which is our third largest service, continued its strong momentum by gross profit by $23 million or 22% year over year. This came through a 23% increase in volume and a slight decline in adjusted gross profit per order. We're seeing balanced growth across our LTL modes and across customer segments. Through our strategic focus on the LTL market, we built a $3 billion LTL business through a blend of organic growth, digital investments, and strategic acquisitions, such as freight quote and prime distribution, which has made us the largest and most comprehensive provider of retail consolidation services in the industry. This portfolio expansion has capitalized on e-commerce growth and combined a full suite of LTL technology and services, including common carrier, warehousing and retail consolidation, temperature control, parcel, home delivery, and reverse logistics. Our value proposition, which includes highly automated systems that are easily scaled for high volume growth, continues to resonate with shippers of all sizes and across industry verticals. This includes small businesses that utilize our freight quote by C.H. Robinson platform, as well as large enterprise shippers that look to us as a strategic partner to manage and optimize their LTL freight networks. In total, NAST overall second quarter volume grew approximately 16% year-over-year compared to a 30% increase in industry volume as measured by the CAATS Freight Index, due to a large pandemic-related decline in the index in second quarter of last year that we did not experience at the same level. While our growth for the quarter did not exceed the industry benchmark over a one-year time frame, we have outperformed the index for the two, three, four, and five-year time frames. Finally, our fourth largest service, International Air Freight, delivered strong results again behind a 43% increase in metric tons shipped. Adjusted gross profit was up 1% over second quarter of last year when we delivered 104% adjusted gross profit growth. Demand has been incredibly strong, partially driven by conversions of some ocean freight to air and a recovery of demand in Europe. Air freight capacity has continued to be strained, and we continue to position charter flight capacity to support demand from both new and existing customers. Our global forwarding customers that utilize our air, ocean, and customs and project logistics services continue to value working with and relying on Robinson's local experts in offices around the world that can deliver a full suite of global logistics services and customized solutions. We've built sustainable competitive advantages in our global forwarding business that will continue to deliver solid returns for our shareholders and benefits for our customers in the quarters and the years ahead. Because of the efforts of our Robinson team members across the globe and our advanced technology, our total company adjusted gross profit per business day improved by 5% sequentially in second quarter, 22% year over year, and 8% over the pre-pandemic second quarter of 2019. Bolstering our results were continued benefits of our digital investments, which continue to unlock productivity gains and deliver customer value in new and exciting ways. Our three primary areas of investment in digitization 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 bottom line results. Looking at the impacts of digitization through the lens of customer and carrier adoption, the number of daily and monthly average users across our customer and carrier-facing platforms continues to grow. with 27% year-over-year growth in daily average users of our customer platforms as just one example. As I mentioned earlier, the amount of customer quotes and volume that is being delivered through our real-time dynamic pricing tools has grown significantly. Enabling these digital connections improves efficiency for our customers, improves our response time for quote requests, and improves our win rates. We also continue to add digital connections with our customers at an accelerated pace during the quarter, with over 100 new customers connected via TMS and ERP connections in the second quarter of 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 quote by C.H. Robinson. In total, we've enabled these dynamic pricing capabilities for over 87,000 customers across these points of connection. 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 had over 290,000 fully automated bookings in our NAST truckload business. And finally, as it relates to productivity, we've again highlighted a couple of key metrics for NAST on page five of our earnings presentation. We continue to show year-over-year improvement in productivity as indicated by the 1,670-point favorable spread in our NASD productivity index, which represents the difference between our year-over-year change in NASD volume and the change in full-time equivalence in NASD. Another key metric that we review is shipments per person per day. This metric was up 17% in second quarter compared to the same quarter last year. Both of these charts show very clearly the relationship between the timing of our increased digital investments and the impact to these key operational metrics. We're encouraged with the progress that we're making on our digital and technology journey and the impact that these investments are delivering for our customers, for our carriers, and the impact to our overall results. Leading the industry with the most powerful supply chain technology and data platform has been a top strategic priority for Robinson and part of our competitive advantage in the marketplace. We've increased our investments and strengthened our technology and innovation capabilities with our customers' needs and experience in mind. We constantly listen to the voice of our customers and are focused on continually enhancing our customer and carrier experience. We've got bold ambitions to continue to evolve as a platform company, giving our employees, customers, and carriers the products and the information needed to succeed. Our customers rely on us to be an extension of their team, able to provide a global suite of services, create market-leading solutions that work, and drive smarter solutions through our information advantage. As we continue to create differentiated value for the nearly 200,000 carriers and customers of Robinson, I'm excited to have Arun Rajan join our executive team as Chief Product Officer on September 1st, reporting directly to me. Arun will lead our global product strategy, and his organization will sit at the intersection of our business strategy and technology platforms to provide a consistent, industry-leading customer experience and to drive our global digital capabilities across our suite of products. Arun is a seasoned and inspiring leader who brings decades of product and technology experience, developing and deploying products that enrich the customer experience and create value at industry-leading companies such as Whole Foods, Zappos, and Travelocity. Arun's deep product and leadership experience will be invaluable as we drive the next generation of innovation for our industry while creating sustainable, long-term value for our customers, our carriers, and our shareholders. I'll now turn the call to Mike to review the specifics of our second quarter financial performance.