C.H. Robinson Worldwide, Inc.

Good afternoon ladies and gentlemen and welcome to the CH Robinson second quarter 2022 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 Wednesday, July 27th, 2022. I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.

Thank you, Donna, and good afternoon, everyone. On the call with me today is Bob Biesterfeld, our President and Chief Executive Officer, Arun Rajan, our Chief Product Officer, and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide a summary of our 2022 second quarter results. and a room will provide an update on the innovation and development occurring across our platform. And then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found on the investor section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. I'd also like to remind you that our remarks today may contain forward-looking statements. Slide 2 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. Our second quarter was another quarter of record profits, as our business model performed as we would expect it to in this part of the cycle. Our investments in our customer relationships through the early part of the cycle, while the cost of purchased transportation was rapidly increasing, are paying dividends as we retain and gain share with these customers through the terms of our agreements. Our strong results were again driven by significant operating margin expansion in our North American surface transportation, or NAS, business as we further improved the profitability of our truckload and less than truckload businesses and grew truckload volume in a declining market. Our global forwarding team continued to deliver strong financial results while benefiting from the market share that they've gained over the past couple of years. Additionally, our Robinson Fresh, managed services, and European surface transportation businesses all increased their adjusted gross profit on a year-over-year basis. Now let me turn to a high-level overview of our NAST and global forwarding results. Our NAST adjusted operating margin in Q2 was 44.3%, up 970 basis points year-over-year and 830 basis points sequentially, due to improved profitability in both truckload and LTL. In our NAST truckload business, our volume grew 2% year-over-year compared to the cast freight index that reflected a 2% decline in shipments. Our adjusted gross profit, or AGP, per shipment increased 48% versus Q2 last year, and 26% sequentially, as the cost of purchase transportation declined during the quarter and the percent of truckload shipments with a negative margin returned to historical levels. Our truckload volume growth included increases in dry van, flatbed, and temp control services, and throughout the quarter we pursued volume in the spot market and collaborated with our customers to use the spot market as part of their procurement strategy. This included a 21% increase in volume that was driven through our real-time proprietary dynamic pricing engine. During the second quarter, we had an approximate mix of 60% contractual volume and 40% transactional volume, compared to a 55-45 mix in the same period last year. Routing guide depth of tender in our managed services business, which is a proxy for the overall market, declined to 1.4 in the second quarter from 1.7 in the first quarter. Broadly speaking, route guides are performing well as first tender acceptance rates are near pre-pandemic levels, and the first backup provider is accepting rejected tenders most of the time. Since the exceptional market tension in January caused by COVID-related absenteeism and winter storms, the truckload market has seen greater balance return to the spot market. With the exception of road check week, where many drivers seemingly temporarily leave the market, The national dry van load to truck ratio hovered around 4 to 1 throughout the second quarter. Between 3 to 1 and 4 to 1 for dry van is considered a reasonably balanced market versus the ratio closer to 5.75 to 1 that we saw in the extraordinarily tight year of 2021. The sequential declines in truck load line haul cost and price per mile that we saw in February and March continued throughout the second quarter. This resulted in approximately 5% year-over-year decline in our average truckload line haul cost paid to carriers, excluding fuel surcharges. Although pricing declined sequentially in Q2, our average line haul rate billed to our customers, excluding fuel surcharges, increased year-over-year by approximately 1.5%, which was supported by our contractual truckload portfolio that was negotiated in prior quarters. This resulted in year-over-year increase in our NAST truckload AGP per mile of 46.5%. Slide seven of our earnings presentation shows the historical trend of our truckload AGP dollars per shipment. The past three years have been volatile ones in the freight market and our truckload AGP per shipment reached a new low and a new high within the past eight quarters. Putting this quarterly volatility aside though, our average AGP per shipment on a trailing two, five and 10 year view continues to remain relatively constant, which demonstrates the resiliency of our business model and our ability to obtain adjusted gross profits through cycles. Through it all, we've worked tirelessly to help our customers optimize their freight networks and their costs. Carriers improve their equipment utilization and to provide strong returns to our shareholders. As we prepare for the second half of the year, We expect the truckload cost per mile will decline further, both sequentially and year over year, due to demand deceleration in the three biggest verticals for freight. Weakness in the retail market is expected to persist. Further slowing in the housing market is expected. And there are early signs of deceleration in the industrial or manufacturing space, although this vertical is holding up the best on a relative basis. Our truckload contracts continue to trend towards 12-month durations. and we are proactively repricing some contracts in order to remain competitive in a changing market and to grow our wallet share with customers. Although we're the largest provider of truckload capacity in North America, we only account for approximately 3% of the for hire market, which leaves us with significant market share opportunities to fuel our growth. In our NAST LTL business, we again generated record quarterly AGP of $166.9 million in second quarter, or up 30% year over year. through a 37% increase in AGP per order that was partially offset by a 5% decline in volume. As was the case in the last few quarters, the second quarter decrease in LTL volume was mainly driven by a normalization of business levels as our LTL volumes in the second quarter of 2021 were bolstered by a few large customers that benefited from the stay-at-home trend during COVID, which contributed to 23% LTL volume growth in the comparable quarter last year. In our global forwarding business, the team continues to provide solutions and excellent customer service in a market that's becoming more balanced. In this quarter, global forwarding generated another quarterly AGP record of $324.4 million, representing year-over-year AGP growth of 36%. Operating income also grew by 59 million, or 55%. Against increasingly tougher comparables, Q2 marks the ninth consecutive quarter of year-over-year growth in total revenues, AGP, and operating income for our global forwarding business. Within these results, our ocean forwarding business generated Q2 AGP growth of $77 million, or 51% year-over-year. This was driven by a 47.5% increase in adjusted gross profit per shipment and a 2.5% increase in shipments, which was on top of a 29% volume growth in the second quarter of last year. Global ocean demand is becoming more in line with the industry's overall capacity, and ocean rates, while still elevated, have started to come down. China ports appear to be back to normal operations, and while port congestion on the US West Coast improved in the second quarter, congestion is edging back up again. Congestion on the East Coast has risen due to a higher percentage of freight being routed to their ports as shippers attempted to mitigate risk from a potential labor dispute in the West Coast. With limited new vessel deliveries in 2022, We expect ocean rates will remain elevated compared to historical levels, but may taper a bit more in the second half of the year. Finally, our international air freight business delivered AGP growth of $4 million, or 7.5% year-over-year, driven by a 14% increase in AGP per metric ton shipped, which was partially offset by a 6% decrease in metric tons shipped. Air freight capacity has improved in certain trade lanes due to increased belly capacity, and we're seeing some conversion of air freight back to the ocean. Overall, the forwarding team has a great foundation to continue providing excellent service to our customers and to collaborate with them to leverage our flexible solutions for their shipping needs. Our win rates in our forwarding business are strong, and we continue to implement our pipeline of new customer business. For the enterprise, we continue to believe that through combining our digital products with our global network of logistics experts, and our full suite of multimodal services, along with our information advantage from our scale and data, we are uniquely positioned in the marketplace to deliver for our shippers and our carriers, regardless of the market conditions. We believe that our strategies and competitive advantages will enable us to create more value for customers and, in turn, win more business and increase our market share while delivering higher profitability and shareholder returns. With that, I'll now turn the call over to Arun to walk you through the product innovation and development that's occurring across our platforms.