Timothy D. Gagnon - Director, Investor Relations John P. Wiehoff - Chief Executive Officer and Chairman Andrew C. Clarke - Chief Financial Officer.

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson's Second Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, Tim Gagnon will facilitate a review of previously submitted questions. As a reminder, this conference is being recorded Wednesday, July 27, 2016.

I would now like to turn the conference over to Tim Gagnon, the Director of Investor Relations..

Thank you, Melissa, and good morning, everybody. On our call today will be John Wiehoff, Chief Executive Officer; and Andy Clark, Chief Financial Officer.

John and Andy will provide some prepared comments on the highlights of our second quarter, and we will follow that with a response to pre-submitted questions we received after earnings release yesterday. Please note that there are presentation slides that accompany our call to facilitate our discussion.

The slides can be accessed in the Investor Relations section of our website, which is located at chrobinson.com. John and Andy will be referring to these slides in their prepared comments. I'd like to remind you that comments made by John, Andy or others representing C.H.

Robinson may contain forward-looking statements, which are subject to risk and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations.

With that, I'll turn it over to John to begin his prepared comments on slide three with a review of our second quarter results..

Thank you, Tim, and good morning, everyone. Similar to past quarters, I'd like to start our prepared comments by highlighting some of the key financial metrics. Total revenues decreased 6.9% in the second quarter. The decrease in total revenues was primarily the result of lower pricing in the truckload air and ocean services.

Lower fuel prices on a year-over-year basis was again impactful to the reduced pricing. Net revenues increased 1.7% to $594 million in the second quarter. Net revenue growth slowed as the quarter progressed per business day. Net revenue growth in each of the months was 9%, 0% and negative 3% for April through June.

The primary reason for the sequential results was the fact that the change in truckload pricing and cost per mile crossed over in June and now into July as our price per mile for the customers is going down more than our costs on a year-over-year basis. Andy will talk more to this in a few slides.

Though net revenue slowed compared with the past several quarters, our network performed well, achieving a 4.3% net income growth and a 6.4% earnings per share increase. We had earnings per share of $1 in the quarter compared to $0.94 last year. EPS of $1.83 for the first six months of the year is a 9.6% increase over the first half of 2015.

In terms of some of the highlights for the second quarter, we were able to take market share as we grew volumes across nearly all of our services. Growing our volumes and taking market share in the various cycles continues to be an important part of our long-term strategy. Serving our customers while adjusting to market changes is a strength of ours.

We remain very confident in the strength of our model and the ability to react and succeed. We continue to invest in people, technology and our network. Our variable expense model is working well. Pay-for-performance programs and effective capital management help us to grow our EPS in challenging environments like this quarter.

Our global head count grew 4.8% when compared to the second quarter of 2015. We've often mentioned that head count will grow in alignment with our activity or volume, and this was the case in the second quarter. Our long-term strategy is working and we continue with our initiatives to drive long-term growth and shareholder value.

With that overview, I'm going to now turn it over to Andy to go through results by service offering..

intermodal net revenue decreased 21.8% in the quarter as volumes decreased 13%. Net revenue margins decreased in the quarter as a higher percent of our volume is in lower margin contractual business. The team has worked really hard to grow this service, but we are fighting a tough industry trend.

Our successes in the quarter came from our committed business as volumes in this area increased as we have been winning some large contractual bids over the past couple of quarters. Those wins, however, have not been enough to offset the losses in transactional volume on a year-over-year basis.

The low truckload pricing and available truckload capacity environment will be a headwind for the business into the third quarter. Transitioning to slide nine in our global forwarding services business. Second quarter net revenue in global forwarding services were $91.8 million, an increase of 2.4% from 2015's second quarter.

We are pleased with our cross-selling initiatives as they yielded many new customers and new net revenue. Further, we are proud of maintaining our status as the number one NVOCC from China to the U.S. Ocean net revenue was up 1.7%, air net revenues increased 2.7%, and customs grew 5.8%.

During the quarter, ocean shipments increased approximately 6%, and air shipments were up 20%, which is a clear indication of our team's strong performance and ability to take market share. Pricing continued to be down in the quarter with total revenue per shipment down over 20% in both ocean and air services.

Slide 10 covers our other logistics services. The services in this group include transportation management services, warehousing, parcel and small package. Net revenues increased 24% in the second quarter of 2016 compared to the same period in 2015.

TMC, which is our managed services business, represents approximately 60% of the net revenue in this area. TMC net revenue increased 30% in the second quarter and is currently on pace to service over $3 billion in freight under management in 2016. This business is another one of our fast-growing segments.

Customers continue to look for new and better ways to execute their supply chains, and TMC is a great example of how we are able to add services to meet the increased demand for outsourced solutions by combining our Navisphere TMS technology and 3PL outsourcing. Transitioning to our sourcing business on slide 11.

Sourcing net revenues increased 5.7% in the second quarter. Congratulations to the entire Robinson Fresh team. The net revenue growth was primarily the result of 3% case volume growth across a variety of commodities and services, and an increase in net revenue per case.

Net revenue margin increased 40 basis points in the quarter, which was primarily the result of a change in the mix of commodities and services sold. I will now transition to slide 11 (sic) [12] (16:50) and a review of our summarized income statement.

Personnel expenses increased 2.4%, primarily driven by an average head count growth of 5.2% in the quarter. Our head count growth is often closely correlated to the activity and volume growth, and this was again the case in the second quarter.

As I mentioned in a previous slide, our ability to combine electronic customer and carrier connectivity with talented professionals will continue to allow us to drive productivity improvements. SG&A expenses decreased 0.8% in the second quarter.

As John said earlier, the Robinson business model worked well, as a reduction in variable compensation and lower SG&A expenses on a year-over-year basis helped us to achieve higher net income growth than net revenue growth which is always our goal.

We were also able to convert revenues to profits at a higher rate of 39.3%, a 10 basis point improvement from the same period last year. Moving on to slide 13 and other financial information. We had another strong cash flow quarter, generating just over $143 million in the quarter.

Capital expenditures were $26.2 million in the second quarter and $44 million year-to-date. We continue to expect capital expenditures to finish the year between $70 million and $80 million. The increase on a year-over-year basis is the result of the costs associated with the building of our second data center.

We finished the quarter with $965 million in debt and $207 million in cash. And finally, before turning it back to John, slide 14 and our capital distribution to shareholders. We returned approximately $88 million to our shareholders in the quarter, with $63.6 million in dividends and $23.9 million in share repurchases.

Again, thank you very much to everyone at Robinson for a solid second quarter, and thank you all as well for listening in. With that, I will now turn it back to John to make some closing comments before we answer some of your questions..

Thank you, Andy. Before we move on to the pre-submitted questions, I'll take just a couple minutes to wrap up with some final comments. Coming into the year, we planned that we would continue to add to our team and be aggressive going after market share, and that's exactly what we're doing. We're growing our volume in nearly all of our services.

As Andy mentioned, our truckload volume growth has increased the past 2 months and is pacing at a 7% per day business increase in July. Europe's growth in both surface transportation and global forwarding is accelerating. The Freightquote team continues to perform well and deliver strong results.

Our outsourced services, including TMC, are delivering consistent double-digit growth. There are a lot of bright spots across our business, and we feel good about how we are executing and our long-term opportunities for growth. Our July to-date total company net revenue has decreased approximately 2% per business day.

This decrease is primarily the result of lower net revenue per shipment in the truckload service line. Andy's comments covered what we're seeing in truckload pricing. We also know that the truckload net revenue margins for the second half of 2015 were on the high side of our historic ranges, making for challenging comparisons.

As I shared in my opening comments, we pride ourselves on maintaining great execution while we adjust to the market cycles. However, net revenue growth in truckload services is more challenging in this environment.

If you look at our historical performance, we've been very consistent at delivering EPS growth that approximate or exceeds our net revenue growth. We achieved this through variable cost, productivity gains and efficient capital management.

We continue to focus on all of these components of our business model as we believe it's the right combination to motivate our team, serve customers and carriers more efficiently, and create shareholder value. With that, we'll now move to the Q&A part of our call..

Thank you. Mr. Gagnon, the floor is yours for the Q&A session..

Thanks, Melissa, and good morning, everybody again, and thank you for taking the time to the many analysts and investors who submitted questions for John and Andy to respond to. With that, I'm going to get right into the responses here. The first question is for Andy. The tax rate has been 37% to 38% for three quarters now.

Should it remain at these levels and not 38.5% for the rest of the year?.

Yeah, thanks, Tim. Approximately 15% of the net income we generate comes from subsidiaries and operations outside of the United States. Versus 10 years ago, that number has actually increased very nicely. And traditionally, we repatriate those earnings to the U.S. and pay the U.S. federal tax rate, which is one of the highest in the world.

As we discussed previously on our last call, in the first quarter of this year we elected APB 23 and asserted that we will indefinitely reinvest the earnings of those foreign subsidiaries to support the expansion of our international business where the opportunities are large and the tax rates are lower.

As a result, our effective tax rate is now lower. Our foreign operations in the aggregate continue to perform well, and therefore we expect the effective tax rate to remain in the low 37% range..

Thanks, Andy. The next question is for John. June was minus 3% total company net revenue and July was minus 2%.

Should we take this as a sign of stabilization and that we can see a better trajectory from here? Where were the comps a year ago by month for June, July, August and September?.

We tried in our prepared comments and by adding the chart to graph out some of the price changes that we've had over the last eight or nine years. We tried to do the best we could to be transparent about the trends within the quarter and kind of what we're seeing in the marketplace to address some of these trends.

In terms of third quarter comps and the June, July, August question, our growth and our margins during the third quarter a year ago were fairly consistent, I believe up 7%, up 5%, up 8%, so that from a comparable the standpoint, July is probably fairly typical of what we're going to see in the third quarter from a comparison standpoint.

In Andy and my prepared comments, we talked about that chart that we added and the fact that volumes have accelerated during the months of June and July, and that with that has come the margin compression and the turn in those costs and price comparisons that the graph showed.

So we don't really know where we go from here in terms of have we hit bottom. We know that the months of June and July felt different and that it's a normal part of the cycle when we start to see volume accelerating and margins starting to turn.

But we'll have to see what happens in the marketplace for the third and fourth quarter and how the market evolves from there..

Thanks, John. The next question for Andy.

How much of the 180 basis point year-over-year increase in transportation net revenue margins was attributable to lower purchased transportation versus fuel versus mix?.

The 180 basis point improvement on a year-over-year basis is pretty consistent to what we've experienced over the last several quarters with just over a third of that improvement, again cosmetically being from fuel.

A third of it was the price/cost spread, and just under a third of that was a mix shift to higher-margin business such as LTL and global forwarding..

Thanks, Andy. Next question for John.

Do you believe July represented an inflection point in the truckload supply/demand dynamic, or a mere seasonal uptick?.

So I touched on this at the end of the previous question that there are some elements of seasonality in the summer around June and July and we look at produce season. And produce season may have extended longer this year than last year, and there can be some seasonality in June and July that was probably contributing to some of the activity.

However, if you look at kind of the macro chart that Andy talked you through, when you look at a longer period of time with average costs going up 2% and you see a couple years in a row of kind of declining prices and that downward trend on the chart, it does feel like there's the potential for an inflection point is well.

And clearly, in the month of June and July we've seen those data points cross over..

Thanks, John. Next question for Andy. You've stated multiple times in the past that the goal to return 90% of net income to shareholders through dividends or share repurchases, yet in the second quarter you only returned 61%.

Can you provide some color on the variation from your target and how we should expect this to trend for the remainder of the year?.

Yeah, thanks. Year-to-date, we've returned $206 million or 80% of our net income to shareholders in terms of both the buyback and the dividends. In the first quarter, we actually returned 99% so there are clearly fluctuations and variations within the quarters.

But we remain committed to returning 90% of our net income to shareholders on an annual basis..

Thanks, Andy. Next question to John related to head count.

How should we be thinking about head count in 2016? Will CHRW need to increase head count faster in the second half given the recent acceleration in truckload volumes, or are there technology offsets that we should be thinking about?.

So maybe one reminder here is that we do continue to hire a significant percentage of our new employees right out of universities.

And our hiring patterns, while the long-term objective is to mirror them with our volume or activity, we are planning our hiring on more of a calendar or annual basis around the schools, the graduation rates and the hiring cycles.

So we look at that, we look at our market expectations, we look at our productivity expectations and we're making decisions about how we're going to add to the team.

In the prepared remarks, I commented that we did set out this year with a plan to add to the team and we do plan to continue to do that throughout the remainder of the year, probably at that low- to mid-single digit range that we experienced throughout the first half of the year.

The fact that our volumes are accelerating, we have been for several years now, and really it's a permanent part of our culture to be looking at our productivity, our business practices and our job families around being ready to handle that additional volume when the market makes it available to us.

So we will be adjusting our hiring thoughts and plans over time as we always do, but we'll be executing what we set out to do at the beginning of the year to keep building the team. And if we do have continued volume increases throughout the second half of 2016, we're confident that we'll be able to handle them..

Thanks, John. Next question for Andy about managed services.

Is the 30% growth rate in managed transportation sustainable in the near to midterm? How large of an opportunity do you think this is for CHRW on a long-term view?.

Great. Those are two distinct questions, and I'll tackle the second one and then come back to the first. We believe the space for outsourced managed services is both large and growing. More companies today understand that their supply chains are global, they're complex and they're ever-changing.

They further understand that in many ways, internally hiring people, buying technology and negotiating with and managing a carrier base isn't core to what they do. Also, it doesn't allow them to scale because they only have their business volumes to leverage. We discussed in our first quarter earnings call the success we're having with Microsoft.

I think us managing their global supply chain is a great example of the overall trend in the market today. They can leverage our people, our process and our technology. And as it relates to the growth rate segment, we're very happy with the growth of TMC and managed services overall.

Our ability to sustain double-digit growth rates is dependent on our ability to continue to execute, and we have a high degree of confidence in our team's ability to do so..

Thanks, Andy. And a follow up on managed services.

Of the $3 billion of freight spend under management at TMC, how much of that are you able to capture, presumably at arm's length, in your brokerage operations?.

Well, first let me say that transactions between TMC and Robinson are at arm's length. They have to be. It's a contractual requirement of the customers. And the folks at TMC are extremely strict on SOC (30:34), too, so no one on the Robinson side sees any information from TMC.

In fact, all of their offices are in separate buildings from traditional Robinson offices. Of that $3 billion that TMC manages, approximately 10% goes to Robinson on a competitive bid process..

Thanks, Andy. Next question for John.

Have you seen any impact of the SOLAS mandate through your freight forwarding, air, ocean, service lines of business?.

So real briefly, for those on the call who may not be familiar with it, SOLAS is an acronym that stands for Safety of Life at Seas. And it's an initiative in the maritime community to improve the data and the information around the weight of the containers on steam ship lines so that they can be more safely balanced.

Effective July 1, so at the beginning of Q3 here, there were some global rules that went in place. I think there's more than 150 countries involved and a lot of complexity in terms of how it's being implemented, but the basic idea is just to capture more accurate and better information about the weights in all of these containers.

We have done a fair amount of work leading up to July 1 to make that all of our global forwarding customers are prepared to be compliant. And we do feel good about the status of our compliance at this point.

Because it's a complex rule with a lot of implementation and a lot of different interpretation and enforcement practices around the world in all these various countries, we do think it's a topic that's going to continue to evolve and require some further conversation and some further modification and evolution of how that goes.

But it's been in place for several weeks now. It's very similar to some of the domestic regulation changes that we've seen over the last five years or six years that it is focused largely on safety and data gathering and the information around that.

So the impact on us becomes the data gathering and the process management to make sure that we and all of our customers are compliant with it. And so far, we feel very good about that..

Thanks, John. Next question for Andy. You've previously talked about growing your European road business and also expanding your freight forwarding presence in Europe.

Just wondering if anything has changed there given the Brexit vote? Also, can you help us size your potential exposure in the UK, which I imagine is pretty small from both a footprint and currency perspective?.

Thanks. Yeah, first let me start off by recognizing the great work of our European teams. We're really pleased with the efforts and results of both our road and global forwarding operations there. And regarding Brexit, nothing has changed since the vote took place. Trade is still occurring and we're executing for our customers.

While the UK has new leaders in place, trade in some form or fashion will continue regardless of the direction that new government takes, so we aren't really concerned from that perspective. But in total, our UK operations represent less than 1% of our overall net revenue..

Thanks, Andy. Next question for John. In your slides you referenced a 7% year-over-year increase in North America truckload volumes so far in July.

Can you provide some color on what is driving this growth? And is this in the spot market or on the contractual side?.

We've touched on this a little bit through the prepared comments, but as -- in our quarter-end process, as we look at the customer side of the activity for June and July and trying to really do the best that we can to understand what's changing, we have seen increases in both the committed and spot market activity of our North American truckload activity.

In the prepared comments, I mentioned that we approached this year and did approach the contractual opportunities and the committed relationships that we have throughout the first half of 2016 by being aggressive and trying to stay involved in that freight. So we are seeing growth with those long-term committed relationships.

I think it's also been fairly well publicized that the spot market activity in June and July has increased pretty meaningfully as well, too. And we certainly are seeing that and participating in it.

As the world has gotten more sophisticated and more participants have more data, there's a lot of opportunity for people to route their freight within contracts or go within spot markets.

So we're always trying to do the best that we can to understand our freight relationships and monitoring what is committed, what is spot market and making sure that we're adapting to the pricing properly. But through June and July, the short answer is that we did see increases in both of those categories..

Thank you, John. To Andy for the next question.

How should we be thinking about depreciation and amortization for the remainder of the year? Was there anything unique in Q2 2016?.

No. There was nothing unique in the quarter regarding depreciation and amortization. Going forward, that number should be between $17 million and $18 million on a quarterly basis, reflecting the higher capital expenditures..

Thanks, Andy. To John for the next question.

Again on the truckload business, what percentage of your business was committed versus spot in 2016? Is there a certain mix level that you are targeting on a go-forward basis?.

We've discussed this in the past. Our best estimates today and for the second quarter of 2016 would be that we're about 60% committed and about 40% spot market or more transactional in our North America truckload business. The longer-term trend on that is if you go back a couple of decades, we were in the 90%-plus spot market.

We were much more of a transactional truck broker in the marketplace. Over the last couple of decades, we've evolved into the scale and the capabilities to handle those larger committed relationships with, generally, the larger shippers that are out there in the marketplace.

As we've grown into that capability of being a core carrier and working on committed freight, that has become a larger and larger percentage of our business. Our best estimate, based on tracking the types of shipments that we do, like I said, is that 60/40 relationship with committed freight probably being a little bit more than half of it now.

We've said this in the past but as a reminder, one of the reasons why these are estimates, and it's hardest because there are unique customer contracts and there are thousands of them across our networks, and there are different definitions of commitment and what commitment means and what the pricing relationships are.

So what may seem like a fairly simple concept and able to quantify it, when you get into the weeds on this, there is quite a variation of contracts and what commitments mean. They don't all start and stop at the same date as well, too.

And with many of those customer relationships, we're interacting with them in different lanes on a variety of committed and spot market activities. So the actual execution and quantification of these is more complex than it might sound, but at a very high level it's about a 60/40 relationship..

Thanks, John. Next question to Andy.

What does the acquisition market look like right now? Are you comfortable with the idea of loaning assets?.

Again, two different questions, so I'm going to tackle the second one first. We've been very public with our go to market strategy of solving customers' complex global supply chain issues with people, process, technology.

We've also gone to market and been very public with our asset-based providers and partnered with them to help them better utilize and leverage their networks. We meet frequently with these providers, and they recognize the value they bring to us and we to them.

We just can't envision a scenario where owning assets on a significant scale helps us on either side of that equation. As it relates to M&A, the market really hasn't changed much in the last year or so. There are still good companies out there, as well as some not so good ones.

So, for us, it comes down to strategic fit, cultural alignment, a non-asset-based business model, and valuation..

Thanks, Andy. To John with the next question.

Is the forwarding business more likely to weigh on or add to your earnings in the second half of 2016?.

When we look at our global forwarding business, again, have to rewind a little bit here that going back three years or four years ago, we were not happy with the profitability of our global forwarding business, and through the Phoenix acquisition about three-and-a-half years ago, we've been successful at not only really increasing the size and substance of our global forwarding division, but over that period of time, integrating and improving the operations so that our combined global forwarding business over the last several quarters has reached the level of profitability that we think is sustainable and is contributing nicely to the value that we're creating.

So what that means is when we think shorter term about the question around second half of 2016 and kind of what's the outlook for our global forwarding business, today, it's sort of down to similar to North America where if the net revenue growth is there, we feel like there's a fairly predictable amount of operating income and results that will come from that.

So we have good momentum in growing our global forwarding activity right now, so we feel positive about the second half outlook, and the taking of market share and the continued growth of our global forwarding network.

As most of you probably know, the macro environment around pricing in the ocean area in particular is pretty challenging right now, and so similar to the truckload side of it, it'll probably be more about margins and margin fluctuation in the second half going forward, depending upon overall market conditions now that we have a more stable and mature global forwarding activity.

So just like the truckload side, we feel good about our execution, we feel good about market share and volume gains. Margin comparisons and margin activity in global forwarding in the second half of the year will likely be the challenge..

Thanks, John. To Andy for the next question. How was the decrease in doubtful accounts during this quarter – or how much was the decrease, excuse me..

The allowance for doubtful accounts decreased by $3 million in the quarter, so similar to what we experienced in the first quarter. The determination of this amount really is primarily formula driven, and it takes into consideration the quality, as well as the duration of the receivables.

The teams have done a great job of decreasing the amounts outstanding past 60 days, and we have a high-quality customer base..

Thanks, Andy. To John with this next question.

At today's depressed spot market pricing levels, are you finding that carriers are struggling financially? If so, are you seeing any reduction in available capacity? Or have the 4,400 new carriers you've added to your roster in the second quarter more than made up to handle any of the fallout?.

So there's a lot of good questions woven into there, and it kind of goes back to the data points and the chart that we've talked a fair amount about around the changes in the marketplace, around the supply side.

When prices are declining, as they have for the last couple of years, historically and what would logically end a cycle like that is when the capacity side finds the bottom, begins to say no to price reductions or further price decreases, and/or some of them fail or go out of business or make the decision that it's no longer economically viable to operate at those rates.

So there have been data points in the marketplace about increased bankruptcy or increased churn in the supply side. So the data points that we monitor around that is we're constantly looking for new sources of capacity, and as you saw, our new carrier sign ups in the quarter were very healthy.

That could be a byproduct of our efforts to reach out and find capacity. It can also be a byproduct of capacity that's looking for freight more aggressively, and checking for more sites or more shippers or more third parties to look for that capacity.

So similar to many of the other comments that we've made, there are some data points that would suggest that the churn and the capacity is ticking up a little bit or maybe starting to happen. We have not seen kind of widespread tightness or shortness of capacity that oftentimes comes at this part of the cycle.

While we have seen volume increases and margin compression, there has generally been available capacity. It's still more around the pricing metric at this time than just where you might see a complete absence of capacity, and have to wait a day or two days to ship freight that you would've otherwise preferred to ship on that date.

So that's the color that we can add about what we're seeing on the capacity side and the relationships with our carriers..

Thanks, John. To Andy for a question about compensation.

How should we be thinking about incentive comp in the second half of 2016 versus the $10.6 million accrued on stock-based comp in Q2? Were there also lower accruals for the cash incentive comp in Q2?.

As John mentioned in his remarks, our cash and equity compensation model is variable. And the way it works, it is if we grow the business profitably, we get paid more. It's pretty simple. So we have both time-based options and performance-based restricted shares.

There were lower cash and equity incentive accruals in the second quarter, which was, again, formulaic and based on our results..

Thanks, Andy. Next question to John. Despite a soft May and June, CHRW was able to grow EBIT, 2%; and net income, 6%, in the quarter. This came on net revenue of 2% growth.

With net revenue in July down 2%, what levers can the company pull to ensure that earnings do not go negative?.

I touched on this a little bit in the prepared comments, and it sort of tags onto what Andy just spoke to as well, too.

That the kind of core premise of the business model is that we're going to earn and grow as much net revenue as we can, and that net revenue gets shared variably to the team at Robinson, as well as profitability and shareholder value.

We're constantly looking at productivity gains to try to make sure that, hopefully, our operating income and our earnings grow as fast or faster than our net revenue, and our track record on that has been pretty positive.

We also focus on capital management and share repurchases to make sure that, hopefully, our EPS is growing faster than our net income.

So if you look at our historical results, I think that's one of the very positive attributes of our business model, is that constant productivity and efficiency, that constant high return on capital that allows us to repurchase shares and allows us to grow our EPS faster.

So those are the key kind of macro levers that we can pull in terms of how we're going to attempt to grow our earnings and continue to grow our EPS regardless of where the net revenue might shake out.

I also said on the call, though, that – in our prepared comments that when you get into that part of the cycle that we might be experiencing on the truckload side, as you've seen in our past, it does make for shorter periods of time in the cycle where growing that North American truckload net revenue is more challenging.

And when that happens, since it's such a material part of our business, it does create a challenge in growing the net revenue.

So, we've been doing this for many decades and we think we're pretty good at it, and I think the track record speaks for itself in terms of creating shareholder value, and we will continue to work on those pillars of our model to do that going forward..

Thank you, John. Taking Andy for a regulatory question.

Are you encouraging carriers to adopt ELD sooner rather than later? If so, what are you doing? If not, why?.

We've always stated that we expect – in fact, our contract with the carriers' states that they must comply with all local, state and federal laws. And let's remember that the actual Hours of Service law is not changing. It's just the method by which the carriers comply, which is their accountability. Our accountability is not in that aspect of it.

But what we have seen and what we would expect to continue to see is some of those carriers adopting early so that they can kind of get in and figure out the actual – how it works for them in terms of the ELDs versus the traditional paper logs.

But again, the hours of service themselves are not changing, and the accountability of complying with all those laws remains at the carrier..

Thanks, Andy. Next question for John.

Can you help us think about the factors that contributed to the sequential decline in net revenue per business day in the quarter? Was it a function of increasingly difficult comparisons, normal seasonality, contract re-pricing or some other factor?.

I think we've beat up these topics pretty well already in the prepared comments and some of the other Q&As, but again, it's all the above. And hopefully, what we've tried to do is share the fact that, yeah, there's cyclicality, so comparisons are changing.

There is some seasonality to the summertime, and there is re-pricing with some of that committed freight and changes in the spot market.

It's tough with all those moving parts to know exactly what contribution each of those made to the changes or where the market's going to go from here, but hopefully, we've been transparent in sharing the combination of things that are impacting all of that..

Thanks, John. To Andy for a little more clarity on the new slide five.

Not sure what the commentary will be by John, but is the gist of this chart to illustrate that the recent rise in gross margins has been more a function of structural things, like the addition of Freightquote, and fuel, thus not a symmetry between the rate of change in buy and sell rates? If this is the case, then is there any way to quantify what the structural uplift has been from Freightquote and how much fuel has impacted gross margins versus, say, 2014?.

Yeah, there are several themes that we hoped to get across in this slide, and again, the information itself is not new. We've been publishing it for years. We just wanted to put it in a graphical form to hopefully explain it and really show a couple of key themes, as well as the trends.

And what we hope that the chart shows is a couple of things; one, the cyclical and overall inflationary nature of pricing, right? It's – since 2008, as John mentioned, it's been up, on average, 2%, both the price to the customers, as well as the cost to the carriers. And you can see the fluctuations that have happened within that.

The second is the fact that pricing can change rapidly. There are periods in which it's gone up double digits and there are periods in which it's gone down double digits from a quarter-to-quarter basis. Third issue is, as the question referenced, there's a cosmetic impact of fuel. When fuel is lower, the margin is higher and vice versa.

But it's a purely cosmetic impact to the net revenue margin percentage. Another key theme is that those lines tend to converge. As information becomes more readily available, the lines converge between pricing to customers and the cost to the carriers. Our customers are smart, as well as our carriers are smart.

What we do is, as I mentioned earlier, we help them manage the rate of change and the pace of change on a quarter-to-quarter basis. And then I would say finally on that net revenue margin comment, that margin has trended up over time versus traditional truckload.

So we've added higher margin relative to truckload services, such as LTL, such as global forwarding, and you see the impact that it has going back to 2012 all the way now to 2016. There is a shift change with higher-margin business, higher-margin being relative to truckload..

Thanks, Andy. To John with the next question. Congrats on another quarter of impressive net revenue margin expansion. Just wondering how sustainable you think that is.

Given the aggressive pricing environment we've been hearing about and customers' option to renegotiate pricing, how much of your 2016 pricing has already been set with customers, and has there been any pressure to renegotiate those rates downward given the current loose market conditions? A similar question could relate to margins in forwarding as well..

So from an overall pricing standpoint, it probably references back to some of the previous questions starting with kind of the 60/40 mix that there is about 60% of the North America truckload business that is pre-priced or through a committed relationship, where there's generally a one-year price expectation.

Again, as we've talked in the past, there is not a set date or a certain pattern around how and when those contracts renew.

So even though there is a decent component of our freight that has more of a annual pricing expectation to it, there is a constant renewal or an annual process to that, that results with maybe more like an effective six-month duration around what type of committed pricing is out there.

Also, when you get into the relationship between committed pricing and spot market pricing, a lot of the relationships that we work with, we may have committed rates in place, but be accepting volumes above and beyond the committed volume activity that went with that committed pricing.

So as we've talked in the past, if we do continue to see more of a floor, and we do continue to see a shift in the marketplace around the supply and demand cycle in that, the same things that have always happened in the past will continue to happen. I mentioned the carrier churn in the previous question.

All parties will start to tighten their contractual monitoring in terms of making sure that only the committed volume is moving at committed pricing and making sure that spot market activity is better identified and better priced separately. And shippers will be reacting to those as well, too.

One of the many reasons why we charted out some of the information that we've been sharing over the last eight years or nine years was to show you and hopefully give you a sense that while the markets have become more volatile and that prices are probably moving up and down a little bit more aggressively over the last eight years, nine years than they did prior to that, that our relationship between price to customer and cost of capacity have stayed relatively tight, and maybe even arguably have stayed closer together over this period of time.

So in our comments around being proud about how we react to the market and how we are able to serve customers while balancing these various commitments into the marketplace, that is clearly one of the messages that we're trying to deliver on this call..

Thanks, John. To Andy, a technology question.

Have you looked at any of the companies endeavoring to disintermediate brokers with a mobile application? Do any of these companies have a chance of making a major breakthrough? Would you consider acquiring a company or making investment in one of these companies?.

It's a good question, and we get it quite often. The short answer is, yeah, we look at every company that comes out with a website and a mobile app. And there is aspects of it that they claim to be this or they claim to be that. And what we've seen is that for the most part, the models they're trying to emulate are like Uber.

But Uber, let's remember, took on a heavily regulated industry. Our industry, transportation and logistics, has been deregulated since 1980. And so, we're coming out. In fact, we've had what was traditionally called CHRTrucks (sic) [CHRWTrucks] (54:56), a mobile app for years.

We've rebranded that to Navisphere, and it's just been recently released, both on the Apple, as well as the Android stores, for our carriers to download. And it's a very rich and it's a very robust mobile application.

It allows those trucks and the partners that we have out there in the carrier space to connect, do things like paperwork, do things like submit billing, find loads, because we have a very rich and robust technology platform that they're able to plug into.

I guess what – when we think about it in terms of, I'm sure there are some really slick apps, and I'm sure there are some really slick websites that are out there, but I guess the question that we have and the question that I think is out there is, we connect over 150,000 customers and carriers.

As I mentioned in my prepared remarks, we have over 20 million electronic touches this quarter. We have 13,500 global employees, right? We have the knowledge and the relationships with the customers and the carriers.

And so it's one thing to go out and stand on the corner and get a cab or get a black car to the airport because five years ago, it's a regulated industry and there just weren't as many of them out there.

But it's an entirely another thing to connect a global supply chain with hundreds of thousands of participants, and hundreds of thousands of variables and variations that go along with that. So we feel very comfortable of our track record of disintermediating this space because, again, we've been doing it since 1980..

Okay. Thanks, Andy. The next question again for you, Andy, is – relates to customer relationships.

What's your sense for shippers' expectations during 2016's fall peak season shipping? In that vein, what is your sense of current retail inventory levels? Is there any risk of destocking during the second half of 2016 or in early 2017?.

We have daily conversations with our customers in terms of expectations for the second half of the year, and nothing that we've heard or nothing that we've discussed with them would present anything materially different than what we're seeing right now.

In terms of inventory levels and destocking, I think the verdict is still out there on what's going to happen in that particular space..

Okay. Thanks, Andy. And the last question here will be for John related to EPS.

Without asking for formal guidance, do you believe you can grow EPS in the second half of 2016 on a year-over-year basis?.

In the pros and cons of giving earnings guidance, the – I think we've talked a lot on this call about the primary reasons why we don't is because of the market volatility and the margin consequences that we have with that. It just becomes very difficult.

And in our planning and budgeting process, we know that it's very difficult to forecast the margin activity and what exactly is going to happen in the supply and demand in the marketplace. So that's the reason at the core of why we don't give guidance.

What we do feel good about is the things I discussed earlier around our variable cost model, and our ability to generate operating income and EPS growth that comes out of that net revenue.

So really, the key for the second half of the year is what happens with the net revenue, and pretty high confidence around our business model and the EPS that will follow from that.

So we're going to be focused on maintaining those disciplines, but also managing those buy rates, managing those margins, and seeing what kind of market activity happens in the second half of the year.

We have not given up on the concept of growing our EPS in the second half of the year, but again, it will have a lot to do with what happens in the cyclicality and the pricing of the margin on the net revenue side..

Thanks, John, and thanks, everybody, again for participating in our second quarter call. This call will be available for replay in the Investor Relations section of our website at www.chrobinson.com. That call should be available later this morning. If you have any additional questions, please call me or Adrienne Brausen or email us.

We'll be happy to follow up with you as quickly as we can. Thank you, everybody..

Thank you. This concludes today's teleconference. You may disconnect your lines, and have a wonderful day..