Timothy D. Gagnon - C.H. Robinson Worldwide, Inc. John P. Wiehoff - C.H. Robinson Worldwide, Inc. Andrew C. Clarke - C.H. Robinson Worldwide, Inc..

Ladies and gentlemen, and welcome to the C.H. Robinson First Quarter 2017 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, April 26, 2017.

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

Thank you, Donna, and good morning, everyone. On our call this morning will be John Wiehoff, Chief Executive Officer; and Andy Clarke, Chief Financial Officer. John and Andy will provide some prepared comments on the highlights of our first quarter results.

We'll follow that with a response to the pre-submitted questions we received after our 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 risks and uncertainties.

Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. Before turning it over to John, I wanted to remind investors that last quarter we started reporting our business in three reporting segments based on accumulation of changes that have occurred during recent years.

Our three reportable segments are the Surface Transportation business in North America, the Global Forwarding business, which now represents over 20% of enterprise net revenues and the Robinson Fresh business. With that, I'll turn it over to John to begin his prepared comments on slide three with a review of our first quarter results..

Thank you, Tim. Our total revenues increased 11% in the first quarter. The revenue increase was the result of volume growth across all of our transportation services. Net revenues increased 1% in the quarter. The addition of APC Logistics accounted for approximately 2% of our total net revenue in the quarter.

Net revenues were negatively impacted by margin compression across most of our transportation services, with the truckload margin compression as the largest factor. Income from operations was 188 million, a decrease of 5.5%, and net income was up 2.6%. We had diluted earnings per share of $0.86 compared to $0.83 last year.

As noted on the slide, we did have a couple of discrete items that impacted the first quarter results that I want to highlight here, and Andy will cover more about them in his comments. The first relates to our adoption of a new accounting rules for income taxes. That adoption resulted in a lower effective tax rate of 31.7% for the quarter.

The second item references a credit that reduced our SG&A by $8.75 million related to the positive settlement of a legal claim. Again, more a common both of those, but I wanted to highlight them as discrete of items impacting our first quarter results.

Our average head count was up 7.8%, with APC accounting for approximately 2.5 percentage points of the overall head count growth. We've discussed the past couple of quarters that we continue to be in a tough part of the margin cycle in the North American truckload business.

We felt that might be the case in the first half of 2017 and the first quarter results are indicative of a continuation of that environment. We've continued to take share across all of our services and we feel very good about our value proposition and how we're winning market share across all of our services and markets.

With that, I'll turn it over to Andy to review to review results from across the businesses..

Thank you, John. I will begin my comments on slide four with the enterprise financials before moving to the reportable segments. We acknowledge it was a challenging quarter for earnings. However, I'd like to recognize all of our people for their great efforts in delivering 13% volume growth across all of the services.

This growth is well ahead of the overall market and strong indication that the hard work of our people throughout the entire company is being recognized by our customers. Onto the summarized income statement. For the first quarter operating expenses increased 4.5% to $381 million. Personnel expenses increased 4.7% in the quarter.

The primary reason for the increase in personal expense was the addition of people in the three business segments and in technology as our average head count rose 7.8% in the quarter.

We invested in talent to support the double-digit volume growth in the business units and additionally, we are adding to the IT team to support the execution of our technology initiatives and the continued enhancement of them Navisphere platform.

Approximately 30% of the additional head count was a result of the APC acquisition, which is added nicely to our top line growth. The increase in head count cost were partially offset by our variable compensation plans where both cash and equity incentives were lower in the quarter.

SG&A expenses increased 3.7% in the first quarter and were impacted by a couple of items. We had previously reported the settlement of a legal claim, which reduced SG&A by 8.75 million in this line item.

That benefit was offset partially by a higher allowance for doubtful accounts of about $3.5 million, an increase in purchase services of about $4 million and approximately $3 million increase in acquisition amortization. For the quarter, our operating income as a percent of net revenue was 33.1%, a decrease of 220 basis points from last year.

The effective tax rate during the quarter was 31.7% versus 37 .4% last year. The tax rate was lower as a result of the tax benefit related to the adoption of ASU 2016-09 in the quarter. The effect of adoption of the accounting standards update was to lower our effective taxes paid by $9.3 million.

The first quarter will have the largest impact to the tax rate as a result of the way our compensation timing works. For the remaining quarters in 2017, we expect a tax rate between 36% and 37%. This rate will fluctuate based on the value of the shares, as well as a percentage of pre-tax profits generated outside the United States.

Moving on to slide five and other financial information, we generated nearly $93 million in cash in the quarter, and had just under $17 million in capital expenditures. The largest driver in the decrease in cash flow from operations during the quarter was the increase in accounts receivable.

This occurrence is normal during periods of accelerating top line growth as well as increases in the cost of fuel. We finished the quarter with $230 million in cash, and our debt balance remains $1.24 billion. For the year 2017, we expect total capital expenditures to be in the range of $60 million to $70 million.

On to slide six, and our capital distribution to shareholders. We returned approximately 113 million share shareholders in the quarter with just under $65 million in dividends and approximately $48 million in share repurchases. For the quarter, we returned 92% of our income to shareholders in line with our objectives.

On to slide seven, and net revenue by service. As a reminder, this slide represents the services revenue for all of our business units. I will not spend a lot of time on this slide, but rather will make comments about the various service revenues within the business segments. Moving to slide eight and our North American truckload price and cost chart.

The graph on slide eight represents a few key metrics for the North American truckload business. On this graph, the light and dark blue lines represent the percent change in North American truckload rate per mile to customers and carriers net of fuel costs since 2008. The gray line is the net revenue margin for all transportation services.

In this year's first quarter, the North American truckload rate per mile, net of fuel, fell 4% versus last year's first quarter while cost per mile fell 2%. The 4% decrease in customer pricing represented a step down versus the fourth quarter and this is reflective of both our contractual and transactional pricing.

The cost per mile reverted to negative year-over-year versus being flat in the fourth quarter. The North American truckload market remains fairly balanced as it has been for the past few quarters, and pricing is very competitive given the fact that capacity is available and demand is tepid.

From a shipment perspective, they are feeling the impact of a 25% increase in diesel prices in the first quarter, and that is certainly pressuring their freight budgets.

We do believe that the market conditions will improve later in the year as the ELD mandate draws closer and the remaining carriers implement ELDs and realize a productivity impact related to the transition. Moving to slide nine and our transportation results.

Total transportation revenues for all segments were up $14.3 billion to $3.1 billion in the first quarter. As I mentioned earlier, this is a result of our strong volume growth of 13% across all of our services in the quarter. Transportation net revenue margin decreased approximately 240 basis points from last year's first quarter to 17.3%.

This was primarily the result of lower margins, and most of the transportation services with North American truckload margin compression having the greatest impact. Margin compression had an approximate 170 basis-point negative impact on margins in the quarter. Fuel also had a negative impact of 60 basis points, with diesel pricing up 25%.

For the first time in four quarters, the net revenue margins, on overall transportation rose, albeit slightly, by 10 basis points as a result of mix shift and more LTL and global forwarding business. On to slide 10 and the reportable segments. We refer to North American Surface Transportation division as NAST.

The NAST business is comprised of offices in the United States, Mexico and Canada, providing primarily truckload, less than truckload and intermodal services to consumers. NAST total revenues were $2.3 billion in the first quarter, an increase of 10.5% over last year's first quarter. NAST net revenues decreased 3% to $372 million in the quarter.

Net revenue margin in NAST was 16.5% compared to last year's first quarter of 18. 8%. The lower margins were primarily the result of a lower customer pricing in the truckload business. NAST operating expenses decreased 2.2% in the first quarter of 2017.

This decrease was largely due to the collection of the previously discussed legal claim as well as decreases in variable personnel expenses. Income from operations was down 4% to $156 million. NAST operating margin was 41.9% in the quarter. Employee count was 6,844, up 2.7%.

We achieved solid productivity for person gains in the NAST business as volumes grew across the various services and combined 10%. The margin of compression meets the productivity gains in the quarter, but we feel really good about the fact that our initiatives around digitalization and leveraging our scale are yielding solid results.

Now on to slide 11 and the results by service within NAST. John and I have highlighted some of the factors impacting our truckload business in the quarter. NAST truckload net revenues were down $16 million or 5.7%. Volumes were up 11% in the quarter as a result of growth in both our contractual and transactional shipments.

We added 3,600 new carriers in the first quarter compared to approximately 2,600 in last year's first quarter. These new carriers moved over 18,000 shipments for us in the first quarter. The less than truckload business had another solid growth quarter with net revenues up 7.1% to $93.5 million.

Volumes increased 8.5% when compared to the first quarter of last year. Pricing was up slightly, and net revenue margins were down slightly as we purchased transportation costs increased during the quarter. Intermodal net revenues decreased 17.3% in the quarter. However, volumes were up 14%.

Over the past several quarters, we have been growing the contractual business at lower margins while transactional volumes are down quite a bit from last year's first quarter. On to Global Forwarding on slide 12. Total revenues for Global Forwarding segment in the first quarter were $469 million, up 33.5% versus last year.

First quarter net revenues were $106.5 million, a 14.7% increase from 2016. APC Logistics was a significant contributor to this success in Global Forwarding, adding approximately 14% of the net revenue in the quarter. Our teams continue to do a nice job with the integration. Net revenue margin was 22.8%, down 360 basis points year-over-year.

While we feel good about the progress in volume growth our teams are making, we did experience margin compression during the quarter primarily on the Ocean business. Income from operations was $16.2 million, down 3.9% in the first quarter. Operating margin was 15.2% in the quarter.

The lower operating margin versus last year's first quarter was primarily the result of a lower net revenue margins and the acquisition amortization related to the purchase of APC. Headcount increased 12.6% in the quarter, with APC representing just over 300 employees or approximately 9% of additional employees in the business.

Moving on to the Global Forwarding service lines on slide 13. Ocean net revenues were up 8.3% in the quarter, and APC contributed approximately 11.5% to the growth. Ocean's shipments increased approximately 27% in the quarter, and pricing was up in the ocean service line.

The margin compression in the ocean service line, however, was primarily in the – our contractual business. Approximately 25% of our organic ocean volume has fixed pricing with customers and the increases in our cost per shipment impacted our first quarter margins. Air net revenues increased 17.2%. APC contributed approximately 12% to the growth.

Air shipments increased approximately 38.6% in the quarter and pricing was again down. Our sales efforts are yielding good results and the team is excited about the momentum they are building, particularly in the global air consolidation centers. Customs net revenue increased 50%, with APC contributing approximately 37% to the growth.

Customs transactions increased approximately 37.8% in the first quarter. Transitioning to our Robinson Fresh business on slide 14. Robinson Fresh, which is our global logistics and product division, is focused on fresh, temperature controlled supply chain.

With our new reporting segment, we now share results inclusive of revenues from sourcing and transportation services whereas previously, we only reported sourcing revenue and rolled sourcing transportation up into the consolidated transportation reporting. Robinson Fresh total revenues were $550 million, a decrease of 2.4% in the first quarter.

Net revenues were $57 million, down 2.3% from last year. Robinson Fresh operating expenses increased 4.3% in the first quarter. The increase was primarily due to increased head count to serve the 29% truckload volume growth, and an increase in SG&A expenses. Income from operations was $14.6 million, a decrease of 17.4%.

And Robinson Fresh head count increased 4.2% in the quarter. Robinson Fresh sourcing total revenue declined 13.1%. The decrease in total revenue was a result of market pricing being down approximately 12% per case sold because of a supply surplus.

Even with the lower gross sales, our product team did a nice job managing through these conditions and grew product net revenue by 3.9% year-over-year. Net revenue margin increased a 160 basis points in the first quarter as a result of the lower product cost driving a higher net revenue per case in our strategic and market commodities.

I want to make a special callout to the sourcing team for the work they've done in Q1 by focusing on new and existing customer growth. Robinson Fresh transportation total revenues increased 16.4% in the first quarter of 2017, driven by impressive volume growth of 24%.

Robinson Fresh transportation net revenue decreased 8.6% in the first quarter of 2017, due primarily to truckload net revenue declining 10.7% in the quarter. Similar to our other transportation services, we believe we are gaining share and we continue to be optimistic about our growth in the long term. Moving to all other and corporate on slide 17.

The all other category includes our Managed Services business, as well as Surface Transportation outside of North America and other miscellaneous revenues, as well as unallocated corporate expenses. Headcount was up 17.1%, and this was primarily the result of increases in technology, other enterprise resources and managed services.

Net revenues for the other category increased 14.9% in the first quarter of 2017, compared to the same period in 2016, led by the continued strong performance in our Managed Services and our Surface Transportation business in Europe.

Managed Services net revenue increased 17.9% in the first quarter of 2017 to $17.2 million, compared to $14.6 million in the first quarter of 2016. This increase the result of growth from both new and existing customers.

Other surface transportation increased 11.8% in the first quarter of 2017 to $15.6 million, compared to $13.9 million in the first quarter of 2016. Again, primarily the result of growth in the European surface transportation business.

Both businesses continue to be very profitable, with the decrease in operating income during the quarter being the result of some unallocated overhead expenses. Before I turn it back to John, I'd like again to thank my colleagues for their continued hard work and dedication.

With that, John will make some closing comments before we answer your questions..

Thank you, Andy. Before going on to those questions, I'm going to share some thoughts on our final comments on slide 19. In April to-date, our total company net revenue has decreased approximately 4% per business day. This includes the additional revenue from the APC acquisition.

The timing of the Easter holiday has been a small headwind for us in April, and we also had a strong April last year as this was our strongest month in the second quarter a year ago. Our North America truckload volume growth remains consistent with the first quarter and thus far in April.

Overall, the market conditions remained fairly consistent with the past couple of quarters thus far in April. We typically close our prepared comments with some thoughts about our longer-term strategies and how we are planning to invest in our future growth.

As most of you know, we'll be hosting an Investor Day session next week that will be webcasted that will update our future plans for each of our businesses. I'll close my prepared comments by highlighting some of the topics that we'll be addressing next week for those want to hear more.

With regards to segment strategies, we have both enterprise and divisional strategies and growth initiatives. We'll be having our divisional leaders share updates on their respective strategies for each of the services as well as discussing how we work together as one team to share investments and leverage our network for better customer outcomes.

With regards to capital allocations, Andy shared the capital distribution update for the quarter in an earlier slide.

While we will remain committed to our target of distributing 90% of our net income, we'll also continue to explore ways to utilize our strong balance sheet as we have in the past by investing close to $1 billion in our Global Forwarding division over the past five years.

With regards to market share opportunities, market share gains driven by effective sales and account management remain at the core of how we grow and create value. Each of our leaders will be discussing their plans for continued growth and market share gains.

And lastly, both the competitive landscape and the investments in technology and our industry continue to grow and change very quickly. We are investing significantly more in our technology, and we're excited to share some perspective on our priorities and where we're investing to support our future growth.

So that concludes our prepared comments for the quarter. And with that, I will turn it back to Tim to lead the question-and-answer session of the call..

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

Thanks, Donna, and first I would like to thank all of the analysts and investors for taking the time to submit some really good questions late yesterday. I'll frame up those questions as they were submitted, and turn it over to John or Andy for their response. And we'll get right into that now. The first question is for Andy.

How much of the 19% year-over-year increase in operating cost is Global – came from Global Forwarding and from APC in the quarter? What were the main drivers of the Global Forwarding expenses?.

Yes, approximately 16% of the 19% increase in the operating cost in Global Forwarding were the results of APC. Included in that number is approximately $3 million of the amortization expense from the acquisition.

Our volume growth outside of APC was 18%, and I think the Global Forwarding team did a very nice job of managing their head count growth as well as their overall operating expenses with such high volume growth in that.

Remaining additional part, as John and I have talked about, is the increase in technology spend and the investments that we're making in that area to obviously help us with long-term productivity gains..

Thanks, Andy. Next question for John. Personnel expense increases up 4.7% year-over-year this quarter continue to outpace revenue growth resulting in a reduced net income per head count. While on-boarding has appeared to slow, it is still up by 655 people, or 5.9% for 1Q.

What levers are being utilized to support operating income per head count as it continues to decrease sequentially and year-over-year?.

So those are some of the very important metrics that we do look at in terms of managing the efficiency and the productivity of our business. I would say that the headline answer to that question is this net revenue margin compression that we talked about throughout our prepared comments.

If you look particularly within NAST, but all of the businesses, when we had an 11% transaction increase and a decrease in the net revenue that resulted from that, it does put a lot of productivity pressure on the network where our core productivity metric has been shipments per person and looking at the activity levels for – across our network.

So when we have this part of the cycle where we have net revenue margin compression like we experienced this quarter, it does put pressure on our operating income per person. One of the reasons why we implemented segment reporting is that as we've grown and diversified our business, it is very helpful to look at the pieces of that question.

We've talked quite a bit about Global Forwarding and the APC acquisition. If you look at that segment, that is where the most significant operating income relationship changed, in part because of the purchase accounting expenses that come in there, and part because of the additional head count. We like the Global Forwarding business.

The ROI on that investment has been very positive to-date, but it does change some of the internal metrics with people spread around the world in a different type of business relationship.

Similarly, in our corporate and other, where you see the largest head count growth around managed services and IT investments, we do have a different framework for looking at investment of talent in that area.

So while the metrics that were pointing out are accurate, that the operating income per head count goes down, part of it cyclical, part of it varies across the different businesses that we have, and we will continue to manage that metric as best as we can..

Thanks, John. The next question for Andy. Interest expense increase sequentially to $9.3 million in the first quarter.

Is that a good run rate going forward?.

There are three components to that figure. And the first one is, which is fixed, is our long-term debt. It's $500 million and it's a fixed rate. The second portion of that is our short-term debt, and there's two components that are impacting that. One, the number is bigger versus last year due to the acquisition of APC.

And secondarily, it's floating and it's tied to LIBOR, and LIBOR has been up over that same time period. And so as LIBOR goes, you would expect our interest rate that we pay to fluctuate with that.

The third function that's in there is foreign currency translations and the adjustments that are in there, and given that there is now nearly 20% of our business that's being generated outside of the United States, there is foreign currency fluctuations that roll through that line item. So, it's those three issues that are impacting it.

The $9.3 million is a relatively good number but there is variability to that subject to foreign currency as well as LIBOR..

Thanks, Andy. To John with the next question. NAST net revenue margin improved sequentially, but operating margin ex the legal claim declined.

What caused this divergence? Any color on the expected cadence for the remainder of the year would be appreciated as well?.

This is really the follow on question to the first topic I addressed, only directed specifically at NAST around their net revenue margin versus the operating margins. Within the NAST results for the quarter, the real headline is the net revenue margin compression that caused that deterioration. I'll repeat what I had stated earlier.

When you have that type of volume growth – and we are proud of the fact that we accommodated, and our network was able to manage that volume growth with a 3% head count within NAST. But when your net revenue margin compresses that much it is what drives the operating margin deterioration.

In terms of the cadence for the rest of the year, we've talked often about – it was kind of middle of 2016 where we saw a pretty significant change in the margins. So we do know that we have at least another quarter of more challenging margin comparisons for 2017.

As we mentioned, our run rate of volume growth continues in April, so we would expect the results in the short-term future to be consistent with the past couple of quarters..

Thanks, John. Next question for Andy.

How much business does Amazon do with Robinson on a gross revenue measure, and how aggressive have they been with pricing? Have they approached Robinson about becoming a larger intermodal partner?.

Yeah. It's been our longstanding policy to not comment on the specifics of any customer, and if you look at our overall customer dynamics, we don't have a single customer that accounts for more than 2% of our gross revenue, and Amazon is not our largest customer, although they're in our top 50 customer.

I would say that you would expect us and all of our account reps and all of our people across the 14,000 employees that we have worldwide to talk to every one of our customers about every one of the services that we provide..

Thanks, Andy. Next question to John.

What's driving total company net revenue per day down 4% April to date?.

We addressed some of the April activity in the final comments that we prepared. You know, I guess what I would repeat is that there is a timing of the Easter Holiday which can impact the beginning of the April.

The previous year, April was our strongest month in terms of second quarter growth last year so there could be some minor comparison challenge in that. So mostly it's a continuation of the same environment that we had in the first quarter, where there's high volume growth, and some net revenue margin compression.

I think whenever we share kind of these mid-month numbers, things can change quite a bit with month-end push and other activities, so we like to give it a just a general gauge of what's happening. But I would say it's safe to sort of state that we are seeing activity that's pretty comparable to what we experienced in the first quarter..

Thanks, John. Next question to Andy. Please review what accounts for the sharply higher volume growth of the last three quarters in NAST, specifically North America truck load. These last three quarters have a pattern of continued lower pricing, but where the pricing is actually now falling more than your lower purchased transportation cost.

Is this a function of re-contracting at prices lower than your falling cost, but in such a way that you were winning more volume?.

Yes, we'll start off by first addressing NAST in general. And as we talked about, I think we've done a great job in the entire NAST organization, both in the truck load growing volumes 11% in the quarter, LTL growing volumes 8.5%, and intermodal growing volumes at 14%.

And so if you think about, what I would call the sell, and how do we go out and attract volume, and it's primarily through a couple of key elements. One is our people.

We have great people out in the organization right now and account managers and sales reps and the carrier reps and everybody that works in that area of going out and aggressively pursuing market share.

So I think those type of volume growths that we've consistently seen over the last several quarters are really a recognition of the fact that our people are winning on a more frequent basis. And they're winning with the use of additional technology.

So when we go out on that commitment and contractual business, your customers, our customers are intelligent, they know where the market is, and we've got a be right there with them, and we're using data analytics, and we're using technology and we're using science to really win.

And if you think about the percentage increase on a year-over-year basis where we're winning, it's up 400 basis points on that contractual business. So we really focus on those key elements. And even in the transactional business, there's more technology, and there's more resources that we're bringing to bear for our people.

And our people are smart – and we're developing talent across the organization to help us win that business. So that's on the sell side. Now when you go out into the buy side, there's a lot of different factors that impact that. And as we talk about over the last three or four years, that committed and contractual business roughly bounces between 60%.

Some quarters it's up a little, some quarters it's down, and the remaining 40% is in the spot. But when we go out to actually buy the capacity is the vast majority, 90 plus percent, is in that spot market. And again, I think we have really talented people that are going out there and buying very well and very effectively every day in that marketplace.

And what you see is, over the long term, the trend lines of the routing guides. And that's really kind of important, and there's a nuance to it. When we go to set that pricing, as I mentioned earlier, you're setting committed and contractual prices for whether it's six months or a year in advance and you're predicting what will happen.

Ultimately, what does happen is where things fall out on the routing guide. And if you'd looked at this time last year the routing guide were in the low ones, which means, guess what? People are getting their freight covered rather effectively.

As we went through the year, that routing guide started to bounce up off of the low floor, low one floor, into the mid-ones, and it's kind of stayed in that range, and there's some variability month to month in that, but it's stayed in that range, and so our people are using all that information to go out and attract more business, and at the same time I think really do an effective job in this marketplace of pricing it accordingly..

Thanks, Andy. Next question for John.

With more business running under contractual arrangements, do you think there is a risk that margins compress more quickly than the market might expect in the event that truck market tightens?.

One of the reasons why we added slide eight to our deck, that Andy shared some prepared comments about, is it shows, over the last decade, how our pricing to our customers and our costs of hire has varied and stayed together.

And you can see on the chart from that last decade that there are periods of time where, you know, those two – the buy and sell rate will separate for a period of time, but what we like about the graph is it shows that over a decade, our business model and our teams are very disciplined at getting them back in line.

It's true that as more of the business has become committed or contractual, you do have a little bit more price risk in terms of a significant change in market conditions around tightening capacity, a lot of discussion about whether the ELD requirements in December will be an event like that.

If you look on that chart over the last decade, there were other CSA safety and hours of service type regulatory changes that had some impact on capacity that don't show up as all that significant.

Who knows if the ELD event will be as well, but overall I guess we're proud of the fact that our business model adjusts for those types of market events, and we feel pretty confident about our ability to adjust to the market conditions if capacity does tighten significantly..

Thanks, John. Next question to Andy.

Why was Coyote's aggressive pursuit of market share such a challenge for you when they were growing rapidly in 2012 and 2013? Why don't you expect Uber and Amazon to push into the freight brokerage markets to post a similar challenge for your business?.

Well, I'm glad you asked that question in the form that it was actually written, and I'll address the Coyote. But as it relates to – I don't think that's our perspective and opinion that Amazon and Uber won't have an impact to the marketplace. And I'll address that in a second.

If you think about over any historical period that dovetails with what John had mentioned, there's the cyclical trends and then the secular trends, and the cyclical trends our outsourcing is increasing, and we like that because it's what we do. And I think that we've been leading that industry for quite some period of time.

Other competitors have entered the marketplace at different points in the cycle, and it tends to really show itself on a more material basis when the marketplace is balanced.

So you go back to that time period that was mentioned, 2011, 2012, 2013, and the marketplace was balanced, which is kind of if you look at routing guides during that same time period is where they are today. So it feel like it's more balanced.

Routing guides are more effective and they are more efficient, and loads are getting covered efficiently and effectively. And as a result, we went and got volume during that time period as well, and we were growing high single-digits, low double-digits during that period. So we were as aggressive in that marketplace as any of our competitors.

If you look at today, and you look at the entrance of new competitors, and – by the way, all the ones that existed previously are still competing with us today. Whether they're independent or whether they were acquired, they're still competing in that marketplace.

What we like about the – just from a macro perspective, thinking about the entrance of competitors, we think it validates the marketplace. We have for the longest time talked about the 3PL marketplace and the penetration of the overall for-hire truckload marketplace.

And it started maybe a decade ago at the low-single digits and now it's 15%, 16%, 18% of the marketplace. We like the fact that when reputable competitors come in, it acknowledges the fact of what we do.

It acknowledges the fact of what our people do, and we believe it's going to continue to drive up the acceptance and therefore the penetration rate of this brokerage and of the 3PL marketplace. We like they are bringing technology to bear. We like they are bringing people to bear. We like they are bringing relationships to bear to compete.

And so we take seriously all of our competitors, regardless of the form that they take..

Thanks, Andy. Next question for John.

Have you noticed any significant changes in the ocean freight markets with the new alliances that launched this month? What kind of impact is that having on your business and how can you adjust?.

The short answer to the question is "no", that we have not seen any impact on our business in the month of April.

For those who may not be familiar with it, in the ocean industry there are vessel-sharing alliances, and the ocean carriers in those alliances made some changes and adjustments so that as of April 1st, there are new alliances that they're operating under.

The primary impact to us historically and kind of going forward is that when we work with a customer that has a diversified carrier strategy, we have to make certain that by utilizing different carriers you're not actually putting the freight on the same vessel, even though you're using a different carrier because they're sharing the vessels.

If you're worried about weather or different service disruptions, you want to make sure that you execute a diversified strategy by truly having alternative routes and different ways to ship your freight. The changes that were made April 1st over the long-term could have some meaningful impact. We have not seen any of that to date.

We do have a team that aligns closely with all of those carrier groups and makes certain that as they change their routing and alliance procedures that we're able to adapt with them, and we feel pretty confident about being able to do that as well.

So the short answer is no, no immediate impact thus far in April, and we've worked through the alliance transitions before, and we will work through these and feel good about how we'll be able to manage it..

Thanks, John. Next question for Andy.

How much over-supply of capacity is there in the current truckload market? How does that compare to where the year started?.

I wouldn't say that there's any material change from where the year started. It goes back to the routing guides, and routing guides are working very efficiently right now. We continue to add capacity, and we talk about the 3,600 carriers that we added during the quarter, which is up from Q1 of last year.

And again, the nets about the same, we're still losing carriers as well, or carriers that are not running for us, and they covered 18,000 loads. It's – if you think about the overall tepid demand environment, the CAS (42:47) figures I believe for March were only up 0 .9%, and that was trending down through the quarter.

It's not as much of a capacity story as it is demand..

Thanks, Andy. To John.

Should we expect CHRW to continue hiring at this rate for the remainder of the year?.

We do expect to continue to hire throughout 2017. If you kind of piece together the comments in our presentations and Q&A thus far, you know within the Global Forwarding division we had the APC acquisition that accelerated the increase in head count over the periods that we're talking about.

So their growth going forward would not be at the same pace as it's been for the past couple of quarters. In terms of managed services, corporate and other and the IT spending that we've mentioned a few times, we do expect to continue to invest in both of those areas.

We have a committed backlog of future contracts to implement, so we know that we'll be bringing talent on and there will be an investment that's more future oriented around implementation costs and automation initiatives that we expect to benefit for the longer-term future.

The other business units, we do expect them to continue to hire as well, particularly if the volume growth that we're experiencing continues, but that would be at a more modest pace like you saw during the quarter in the segment results as well..

Thanks, John. Next question for Andy. Net revenue growth in the first quarter was 0.9%. However, personnel expenses were up 4.7%.

How much of this is tied to bonus incentive comp accruals versus head count growth, and should we be thinking about personnel expenses growing faster than net revenue for the remainder of this year given your investment in head count and IT?.

Yes, and to dovetail with a number of questions that have been asked and the answers that we've given, the net revenue growth of 0.9% was masked by the fact that volumes were growing at 13%, and personnel expenses up 4.7% on a 13% growth, when you're in a very challenging margin compression environment, it just – it kind of masks, I think, a lot of the good work that's occurring.

The personnel expenses, that 4.7%, the dollar amounts were driven up by the fact that headcounts are up by nearly 8%, so the salaries associated with that are driving it up. The variable portion of compensation, be that our cash bonuses, as well as equity incentives, are down on a quarter-over-quarter basis..

Thanks, Andy. Next question for John.

Can you remind us of the net revenue growth per day comps for the second quarter of 2016 by month? Also, can you provide the monthly net revenue per day for the first quarter of 2017?.

So if you look at the first quarter that we just reported on with our overall 1% net revenue increase, the months January, February, March went plus 2%, minus 2%, plus 2%. So a little bit of fluctuation. Again, there's different number of business days and a number of things that can impact that.

So a little bit of fluctuation, but nothing too significant. Last year, second quarter of 2016, we had shared at that time that our daily net revenue growth for April, May, June was plus 9%, flat, and minus 3%.

So I believe I had made the comment earlier in one of the questions that as far as Q2 of this year is concerned, that April would be our most challenging comparison based upon the growth from the prior year, and looking at the daily activity in April, it's fairly consistent with the first quarter.

It's just that we have a little bit different comparison..

Thanks, John. Next question to Andy on ocean services. Ocean pricing increased for the first quarter in almost two years.

What did you see in the marketplace?.

Yeah. The ocean pricing has been, and is still at historical lows, and there's variability around that.

You think about coming in to the first quarter, you had a combination of the Chinese New Year, as well as the Hanjin bankruptcy, still the after effects of that bleeding in to 2017, but still very, very historical lows in terms of what the ocean costs are..

Thanks, Andy. Next question for John.

What impact, if any, do you expect Amazon.com to have on the brokerage market, specifically market share and net revenue margins once its brokerage platform goes live later this year?.

One of the things we'll be talking about next week in our Investor Day is just this escalation of activity in the competitive landscape.

Andy touched on the point earlier that while we've acknowledged, and everyone understands that our industry has become much more competitive over the last decade, that part of the positive trade-up on that is the expansion of the addressable market, and that particularly more recently a lot of these non-traditional competitors coming in to this space are coming in with the belief that the entire market is addressable, and not just the brokerage component of it.

So I'm not – Amazon hasn't been specific to kind of their go-to-market strategies or where in the big universe they are going to go after things. The only comment I'm aware of is with regards to whether it's final mile or ocean activities or longer-haul trucking.

They have stated that they expect significant growth in their own business to continue, and that a lot of these investments will initially be focused on accommodating some of their own growth and then expanding more into a broader market services after that.

I have no idea if that's what their brokerage platform intents are, but that would be consistent with kind of what they've said in other areas of the supply chain that they want to invest and grow in.

So as I'll repeat again what Andy said earlier that we do think that digital transformations and all of the changes that we're going through and that are happening in our industry will have a very material impact, especially over the next decade or so as they all get traction and continue to make a greater and greater impact.

And as far as what any one of them has in terms of the verticals or areas of the marketplace that they want to focus on initially, or what the short-term impact might be, it's difficult to assess at this point..

Thanks, John. To Andy, an ELD question.

Has there been ELD discussions between Robinson and shippers or carriers? Do you expect the mandate to impact your carrier base? If so, what steps are you taking to be prepared for potential truck capacity tightening?.

Yeah. This has been a topic that's not only top of mind for investors, but as you would imagine, top of mind for our customers and top of mind for our carriers. So we're having conversations every day with each of those respective parties. And it's difficult to categorize them in any one way, shape or form.

So on the one hand, we talk to our customers and say that ELDs will have an impact to the overall marketplace, whether it be the actual availability of capacity or the productivity of that capacity.

And yet, when we have those conversations, it seems like that the pricing environment continues to be challenged, because as I mentioned previously, routing guides are operating very effectively.

And the desire to say lock-in or do something in advance of December is – it's just been very challenging in those conversations with customers despite the fact that we, they and everybody else know that it's coming. We have conversations with the carriers as well.

And the good news, if you think about the bifurcation of the marketplace, whether it be small carriers, whom we contract with, or large carriers which we also contract with, we believe that it's a marketplace, and marketplaces ultimately adjust and adapt to what occurs. We believe that we are well positioned.

We talk to our smaller carriers, and we have smaller carriers. In fact, we have single owner/operators that we recently had a conversation with that are ELD compliant today, and believe that they can continue to be compliant and productive and profitable despite the fact that they are running an ELD.

And so, while there will be a disruption of some sort, that has yet to be (51:31), because we're still adding capacity in the marketplace right now, and we believe we will continue to do that. And when you have an effective and efficient marketplace, when there's dislocations and disruptions, people like C.H.

Robinson are very effective in helping our customers secure that capacity. Whether we continue to do it in the small marketplace, which we will, or also access and tap the larger truck marketplace..

Thanks, Andy. Technology question for John.

How do you more effectively use technology to leverage head count?.

We have initiatives across all of our business areas to drive productivity and to drive efficiency by using automation and digital transformation. There will be a lot more presented about that next week again by our various leaders.

You know, kind of using NAST, the biggest part of our business as probably the primary example, when you talk about the volume growth versus the more limited head count growth in the quarter.

NAST itself is, you know, in the midst of a multi-year transformation, or reinvention around how our President, Bob Biesterfeld and his leadership team, are really changing the job families and the approach within the network to make sure that we better utilize the new automation, the new tools that we're creating to drive that productivity.

Examples would be that we share data electronically far more aggressively than we did even five years ago. The number of EDI and API interactions that exchange data with both shippers and carriers have gone up significantly.

The track and trace information that check-call stuff that was done more manually in the past, a lot of effort around automating that. A lot of algorithms to help you find a truck more effectively. A lot of pricing tools that can help you move quicker.

So just across the business, there's a number of different initiatives of how we're structuring the network, how we're leveraging the automation tools, and we're already seeing some pretty positive results like we did in the first quarter with regards to the NAST business. So I could share analogies in each of the other areas.

I don't think there's any one silver bullet or one giant thing that is driving that digital transformation. It's the combination of a lot of initiatives spread across the entire business that, again, we'll be sharing more about in the future..

Thanks, John. Next question, again, for Andy on capacity.

Could you comment on what you're seeing from the small fleets, one to 20 trucks? Are you seeing some of your carriers exit the industry, or is capacity expanding?.

Go back to – we continue to add capacity in the marketplace at a greater rate than we've lost it. So adding 3,600 companies, and those 3,600, as you would imagine, all have less than 20 trucks. We continue to lose it, but not at a greater rate than what we've seen over the last three or four or five quarters.

So I wouldn't categorize it as expanding or contracting. I would say it's more a continuation of the status quo..

Thanks, Andy. To John again on competition. Technology impact on the competitive landscape.

Are you seeing the transactional business becoming more commodity-like versus the stickier, specialized, perhaps, contractual business?.

I would say that over the last decade or more, as we've evolved our business more in to committed or contracted type freight relationships, the technology has obviously had significant impact on both that business, as well as the traditional transaction or more spot market relationships. There is pretty significant differences between the two.

Like I mentioned earlier, around the exchange of information, the tendering of freight, the tendering of status updates, a lot of the automation that happens in that more committed business does make it stickier, and does benefit from a degree of technology and automation that is more long-term.

It requires more of an investment up front, but then has more of an investment relationship to it over time.

In the spot market, competition and automation are having a significant impact too, but it's probably more driven at pricing and kind of reacting quicker and making sure that you're interacting with both the shippers and the capacity side by whatever means their preference is. A lot of it is still telephone.

Some of it we have what we think is as good a mobile App as anyone.

There's a lot of different ways to interact in the marketplace, and in that spot market world it's less about customization and unique interfaces with somebody and more about making sure that you have a wide array of exposure and able to accommodate whatever variation of capacity is out there.

So we have seen kind of this divergent -- divergence in the competitive landscape around the types of automation and the types of things that it takes to be competitive in both transactional and committed business..

Thanks, John. Next question for Andy.

Can you talk about productivity or net revenue employee trends by segment, and address what impact recent forwarding acquisitions is having on this metric?.

Yeah. Good question.

And I'm going to take it maybe even a couple layers deeper, which is – and let's start with the evolution of the company over the last decade, and net revenues are up roughly 8%, 9% over that last decade, and we've been able to grow both organically within our North America Surface Trans and organically and via acquisition on the other parts of our business, and they each have different metrics that are associated with them.

Inside of NAST, as an example, truckload now represents 52%, 53% of our overall net revenue to the organization. So not only have we done a good job within our NAST organization with truckload, but doing things like adding LTL and intermodal have had an impact on those productivity metrics.

So it's hard to simply say, you know, the net revenue per person has done different things. And they have, because of the different investments that we've made. But we've also made I think really good investments in our people and the services that we offer.

So today, you think about LTL being nearly $100 million of net revenue, that adds an entirely different metric in terms of not only net revenue per transaction but also net revenue per person, because it's a much more highly automated function than, say, truckload.

Then when you get into Global Forwarding and you think about the investments that we made, not only in terms of the people and the technology, and – but it's a different margin, you know, it's 22% net revenue margins – pardon me, nearly 23% net revenue margins this quarter versus 16.5% net revenue margins in our North American Surface Trans, and within that you've got customs, which is highly automated.

You've got ocean, which we do a lot of less-than-container-load consolidations, as well as air consolidation shipments.

And the growth rate in that organization, and the fact that we now have employees throughout the globe, and they have different cost metrics associated with them, so we have nearly 1,500 people in Asia, and they're wonderful and they do great work, but as you would imagine, looking simply at a net revenue per person in that function, they have a much lower cost per person in that function as well.

So it did, if you just looked at the overall metric itself, the net revenue per person has come down when we did the Global Forwarding acquisitions, but it comes at a higher net revenue margin and it comes at a lower cost per person in those key geographies where we compete..

Thanks, Andy and, thank you, everyone, for taking the time to listen to the call today. Unfortunately, we are out of time and couldn't get to all the questions. This call will be available for replay in the Investor Relations section of our website at chrobinson.com.

It will also be available by dialing 1-877-660-6853, and entering the pass code 13657306#. The replay will be available approximately 11:30 Eastern Time this morning.

Before I close, I'd also like to remind you, and it's been referenced a couple times this morning, that we will be holding an Analyst and Investor Day next Wednesday, May 3rd, from 9:00 to 3:00 Central Time, 10:00 to 4:00 Eastern Time.

A live audio webcast and presentation slides will be available in the Investor Relations section of our website and there will also be a replay available following the conclusion of that event. As always, if you have any questions, please call or E-mail me. My phone number is 952-683-5007 and email at tim.gagnon@chrobinson.com. Thank you.

Have a great day..