Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. Following the company’s prepared remarks, we will open the line for a live question-and-answer session.

[Operator Instructions] As a reminder, the conference call is being recorded, Wednesday, April 26, 2023. I would now like to turn the conference over to Chuck Ives, Director of Investor Relations..

Thank you, Donna, and good afternoon, everyone. On the call with me today is Scott Anderson, our interim Chief Executive Officer; Mike Zechmeister, our Chief Financial Officer; and Arun Rajan, our Chief Operating Officer. Scott and Mike will provide a summary of our 2023 first quarter results and our outlook for 2023.

Arun will provide an update on our efforts to improve our efficiency and operating leverage, and then we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com.

Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. I'd also like to remind you that our remarks today may contain forward-looking statements.

Slide 2 in today's presentation lists factors that could cause our actual results to differ from management's expectations. And with that, I'll turn the call over to Scott..

Thank you, Chuck. Good afternoon, everyone, and thank you for joining us today. Our Q1 financial results reflect the softening market conditions that have transpired in the freight transportation market over the past 12 months.

With shippers continuing to manage through elevated inventories amid slowing economic growth, the balance of supply and demand has shifted from a tight market a year ago to one that is now oversupplied.

As spot rates approach the breakeven cost per mile to operate a truck, the market is likely at or near the bottom of the industry cycle, which typically results in capacity exiting the market. Contract rates are also declining as transportation providers adjust to the changing market.

During this transition, we've continued to increase our focus on delivering an improved customer and carrier experience and a more efficient business model, and we're taking steps to foster profitable growth through cycles.

In his prepared remarks, Arun will provide an update on the progress we're making on increasing the digital execution within the life cycle of a load by streamlining certain processes that are core to our operating model. Mike will give you an update on our continuing restructuring effort.

We are executing on the plan that was initiated in November and we're lowering our 2023 personnel expense by $100 million at the midpoint of our guidance, reflecting actions that have already been taken and additional opportunities to further reduce our costs.

As I've transitioned from my role of Board Chair to the interim CEO, I've met with many of our employees who remain highly engaged and motivated to win as we strive to amplify their expertise with new tools.

I've also met with several of our customers, and I'm confident in the power of our commercial engine and our ability to deliver superior global services and capabilities and solve complex logistics challenges for our customers while continuing to execute on our sustainable growth strategy.

I'll wrap up my opening remarks by providing an update on the search for the new permanent CEO. Jodee Kozlak, the Chair of the Board and former Chief HR Officer at Target is leading the search committee. With the assistance of Russell Reynolds, this role has attracted a strong pool of candidates.

The committee is choosing a proven leader with broad operational experience who will accelerate our strategic initiatives and execute on the opportunities ahead for the company. The process is moving along as expected, and the Board anticipates naming the new CEO in the second quarter.

I, along with the senior leadership team, am actively preparing for a smooth transition to a new leader. Now let me turn it over to Mike for a review of our first quarter results..

Thanks, Scott, and good afternoon, everyone. As Scott mentioned, our Q1 results were impacted by a soft freight market. Prices for surface transportation and global freight forwarding have been declining with the weakening demand and excess capacity.

With these macro forces as a backdrop, our first quarter total revenues of $4.6 billion declined 32% compared to our record high of $6.8 billion in Q1 of last year. Our first quarter adjusted gross profit or AGP, was down $221 million or 24.3% compared to Q1 of last year, driven by a 45% decline in Global Forwarding and a 16% decline in NAST.

On a sequential basis, total company AGP was down 11%, including a 15% decline in NAST and a 6% decline in Global Forwarding.

On a monthly basis compared to Q1 of last year, our total company AGP per business day was down 23% in both January and February and down 27% in March as the typical seasonal acceleration in March did not materialize this year. So far in April, we've experienced similar freight market conditions to those we saw in March.

In our NAST truckload business, our Q1 volume declined 3.5% on a year-over-year basis. Within Q1, average daily volume in March was weaker than January and February, resulting in a 1% sequential decline in Q1 compared to Q4 of last year.

Our AGP per truckload shipment decreased 19% versus Q1 last year, primarily due to a decrease in our transactional or spot market truckload AGP per shipment. During Q1, we had an approximate mix of 70% contractual volume and 30% transactional volume.

Routing guide depth of tender in our managed services business, which is a proxy for overall market, declined from 1.7 in the first quarter of last year to 1.2 for the first quarter of this year, which is the lowest level we've seen since the pandemic impacted second quarter of 2020.

The sequential declines in truckload linehaul cost and price per mile that we experienced in Q2 through Q4 of last year continued in Q1. However, the declines in Q1 were the largest that we've seen in over 10 years on a percentage basis.

In Q1, we saw a 28.5% year-over-year decline in our average truckload linehaul cost per mile paid to carriers, excluding fuel surcharges. Our average line haul rate or price billed to our customers, excluding fuel surcharges, decreased year-over-year by approximately 27.5%.

With the price decline coming off a higher base than cost, these changes resulted in a 20.5% year-over-year decrease in our NAST truckload AGP per mile. Market conditions in our Global Forwarding business were also soft behind weakened demand and plenty of capacity, combined with the extended shutdowns around the Lunar New Year holiday.

This contributed to significantly reduced import volumes and prices across the trade lanes for ocean and air freight. In Q1, Global Forwarding generated AGP of $177.9 million, representing a year-over-year decrease of 45% versus the record high for our first quarter last year, which was up 50%.

Within these results, our ocean forwarding AGP declined by $111 million or 50% year-over-year compared to 63.5% growth in Q1 of last year. The Q1 results were driven by a 41.5% decrease in AGP per shipment and a 14.5% decrease in shipments.

Despite the soft market, our forwarding business continues to have success adding new customers and strengthening its geographic diversity behind many of the investments made technology and talent over the past several years.

In addition to our strength in the Trans-Pacific trade lanes, our forwarding team generated over 50% of new business AGP from customers outside of the US in Q1. Turning to expenses.

Q1 personnel expenses were $383.1 million, down $30 million or 7.3% compared to Q1 of last year, primarily due to our cost optimization efforts and lower variable compensation. Our Q1 average head count declined 2% versus Q1 of last year and 4% compared to our Q4 average.

As another point of reference, our Q1 ending head count declined approximately 6% compared to the end of Q4. Our cost optimization and restructuring efforts that began in Q4 of last year continued into Q1 as we found more opportunities to help ensure a more competitive and sustainable long-term cost structure.

As we indicated on our Q4 earnings call, we continue to expect our head count to decline throughout 2023, as we streamline processes and leverage technology to allow our industry-leading talent to focus on more important work like growing the business.

As a result of the progress on these cost optimization efforts, we are now lowering our personnel expense guidance for 2023 by an additional $100 million at the midpoint. We now expect our 2023 personnel expenses to be in the range of $1.45 billion to $1.55 billion, compared to our previous guidance of $1.55 billion to $1.65 billion.

This updated guidance excludes the Q1 restructuring expense and additional restructuring costs that we expect to incur during the year. Excluding the restructuring charges in 2022 and 2023, the midpoint of our updated 2023 guidance for personnel expenses is now down approximately 12% year-over-year.

These expense reductions are primarily long-term structural cost reductions with a lesser amount attributable to softer market conditions that we referred to earlier. Moving on to SG&A.

Q1 expenses of $141.5 million were down $5.9 million compared to Q1 of last year primarily due to a decrease in credit losses and a reduction of purchased services, including temporary labor. We continue to expect our 2023 SG&A expenses to be about $575 million to $625 million.

2023 SG&A expenses are expected to include approximately $90 million to $100 million of depreciation and amortization expense. As you recall from our Q4 earnings call, we committed to $150 million of net cost savings by Q4 of this year, compared to the annualized run rate of Q3 last year.

Our updated total operating expense guidance for 2023 now represents approximately $300 million of net cost savings compared to the annualized run rate in Q3 last year. As mentioned earlier, the majority of the expense reductions are expected to be long-term structural changes to our cost base.

Q1 interest and other expense totaled $28.3 million, up $14.1 million versus Q1 last year. Q1 of 2023 included $23.5 million of interest expense, up $9 million versus the prior year due to higher variable interest rates.

Q1 results also included a $9.6 million loss on foreign currency revaluation and realized foreign currency gains and losses, up $8.1 million compared to Q1 last year, driven by the translation impact of the various foreign currency-denominated intercompany exposures that we had in Q1.

As a reminder, our FX impacts are predominantly non-cash gains and losses, which is why we're not actively hedging them to reduce volatility. Our Q1 tax rate came in at 13.5% compared to 18.4% in Q1 of 2022.

The lower tax rate was driven primarily by the incremental tax benefits that we typically see from stock-based compensation deliveries in Q1 as well as additional U.S. tax credits and incentives in proportion to the lower pre-tax income.

We continue to expect our 2023 full year effective tax rate to be 19% to 21%, assuming no meaningful changes to federal state or international tax policy. Q1 net income was $114.9 million and diluted earnings per share was $0.96.

Adjusted or non-GAAP earnings per share, excluding the $3.7 million of restructuring charges, was $0.98, down 52% compared to Q1 of 2022, which was up 60% versus the prior year. Turning to cash flow, Q1 cash flow generated by operations was $254.5 million, compared to $13.9 million of cash used in Q1 of 2022.

The $268.5 million year-over-year improvement was driven by a $235 million sequential decrease in net operating working capital in Q1 and driven by the declining cost and price of ocean and truckload in our model. Conversely, Q1 of last year included a $289 million sequential increase in net operating working capital as costs and prices were rising.

Over the past three quarters, as the cost and price of purchased transportation has come down, we have realized a benefit to working capital and operating cash flow of more than $1.2 billion. That benefit highlights some of the inherent resilience in our model.

In Q1, our capital expenditures were $27 million compared to $26.2 million in Q1 of last year, and we continue to expect our 2023 capital expenditures to be in the range of $90 million to $100 million. We returned $125 million of cash to shareholders in Q1, through $73.4 million of cash dividends and $51.2 million of share repurchases.

The cash returned to shareholders exceeded net income but was down 50% versus Q1 last year driven by the $101 million of cash used to reduce our debt. Now on to the balance sheet highlights.

As we have demonstrated through the ups and downs of the highly cyclical freight market, the strength of our balance sheet and business model makes us a reliable partner for our customers and allows us to invest through the cycle. Our customers value the stability and reliability that we provide as they work to optimize their transportation needs.

We ended Q1 with approximately $1.5 billion of liquidity comprised of $1.22 billion of committed funding under our credit facilities and a cash balance of $239 million. Our debt balance at the end of Q1 was $1.87 billion, down $293 million versus Q1 last year.

Our net debt-to-EBITDA leverage at the end of Q1 was 1.39 times, up from 1.29 times at the end of Q4. Our capital allocation strategy includes maintaining an investment-grade credit rating to allow us to cost of capital. With the anticipated earnings reduction in 2023, we have reduced our debt to deliver our leverage targets.

As you would expect, the cash that we used to reduce debt generally reduces the amount of cash available for share repurchases. Over the long-term, we remain committed to growing our cash dividend in alignment with alignment with our long-term EBITDA growth.

Our dividends and share repurchase program are important leverage to enhance shareholder value, as is delivering quality customer service more efficiently than anyone in the marketplace.

With that, I'll turn the call the call over to Arun to walk through our efforts to strengthen our customer and carrier experience and improve our efficiency and operating leverage..

Thanks, Mike. And good afternoon, everyone. As I mentioned on our last earnings call, we've increased our focus on opportunities to streamline processes that are core to scaling our operating model.

Streamlining these processes will enable us to decouple of volume and headcount growth and drive increased productivity, while simultaneously improving the customer experience and service levels. Shipments per person per day is a key metric that we used to measure our productivity improvements.

And we achieved a 4% sequential improvement in Q1 as we progress towards our goal of 15% year-over-year improvement by the end of Q4 of 2023. In order to reach our 2023 goal, we have accelerated the digital execution of critical touch points in the lifecycle of a load.

In Q1 the progress we made was primarily driven by increasing the automation of in-transit tracking, and appointment related tasks. Increased digitization and automation are key elements of delivering superior customer service as well as operating leverage.

These efforts include operationalizing our information advantage at scale by giving customers insights on price and coverage and providing features to carriers that improve their utilization and cashflow.

Streamlining processes, improving productivity creates operating leverage, operating leverage gives us the pricing flexibility to unlock and accelerate market share growth, while delivering on our long-term operating margin targets. With that, I'll turn the call back over to Scott now for his final comments..

Thanks Arun, as inflationary pressures continue to weigh on global economic growth and freight markets present cyclical challenges, the competitive landscape has changed. With lower available demand the competition for volume is intense, and shippers are looking for stable and innovative logistics partners.

We've shown the strength of our model through cycles; our balance sheet continues to be strong and we plan to continue investing in initiatives that we expect to provide innovative solutions and generate long-term profitable growth.

At the same time, we're continuing to evolve our organization to bring greater focus to our highest strategic priorities, including keeping the needs of our customers and carriers at the center of what we do, while lowering our overall cost structure.

We expect this initiative will continue to drive improvements in our customer and carrier experience and amplify the expertise of our people, all of which we expect to drive market share gains and growth and lead to improve returns for our shareholders. After my first 100 days in this role, I'm even more excited about C.H.

Robinson's opportunities in future. We have some of the best people in the logistics industry, and they're dedicated to solving challenges for our customers.

As a result of the exceptional service that our people provide to customers during the period of extended market disruption, our customer experience scores are very high, and we're having more strategic customer discussions about our ability to provide an integrated service solution.

So while the near term freight environment presents some challenges, our differentiated value proposition and strength of our people, processes and technology provide many opportunities. This concludes our prepared comments. And with that, I'll turn it back to Donna for the Q&A portion of the call..

Thank you. The floor is now open for questions. [Operator Instructions] Today's first question is coming from Jack Atkins of Stephens. Please go ahead..

Okay, great. Good evening, and thank you for taking my question. So I guess, Arun, maybe this one is for you, but Scott or Mike, if you want to chime in, please do. But I guess I'd be curious to get your take on how you're looking at the market for the balance of the year.

It sounds like April is trending kind of in the same ballpark as March, if I understood your comment correctly. But if I think back to the last time you guys updated this, the thought was maybe the market would be troughing sometime in the second quarter and then beginning to see some improvement in the back of the year.

Any sort of update to that view? Any update to what your customers are telling you about sort of their business plans? I think that would be really helpful. I'll stop there and hand it back. Thank you..

Yes. Thanks, Jack. This is Scott. Why don't we have Mike kick that off, and then I'll give a little color on customer sentiment..

Okay..

Yes. Thanks for the question, Jack. And obviously, the market here that we're experiencing is a pretty soft market. We're seeing pretty good competitiveness, particularly on the truckload side on the bids that we're involved with. We've been able to maintain our win percentage actually up this year in Q1 over last year. It was up in Q4 over last year.

So I think we're competing effectively. But what we're seeing inside those bids, are reduced total demand. So the customers are just not seeing the volumes that they've had in the past, and that's reflective of this soft freight market environment. There's still -- a lot of customers are still working through inventories.

They're not running the plants as aggressively as they have in the past. So we're seeing a pretty soft market overall. When we look at our NAST business in Q1, I think there are a few themes that I'd point to there, I think we feel like we grew share despite being down 3.5% on truckload.

And that's really with respect to the brokers, the 3PLs out there. I think we did a pretty good job. We also got improved productivity, and we talked about that 4% improved productivity against that 15%, shipments per person, per day target for the year. And we did that in a soft market.

It's generally a little bit easier to get productivity enhancements when the volume is really roaring, but we're able to do that in a soft market. And the last thing, we talked about was our customer service, and we really felt like we had best-in-class customer service there. So, the theme is our overall soft market.

You talked about how we described April relative to the quarter. When we look at enterprise AGP per shipment or enterprise AGP per day, we certainly had a better January and February than we did in March. But again, if you kind of translate that over to the truckload business, we were -- our volume is down 3.5 in the quarter.

And April kind of has played out similar to where we were in March. So probably market share gaining within the brokerage universe, but certainly down versus our original expectations driven primarily by the soft market that we're experiencing. And inside, I'll talk a little bit, I guess, too, about the contract environment.

One of the, I think, changes that we've seen in the contract business versus Q4 was, if you go back and look at Q4, customers were about half bids at 12 months and about half bids that were less than 12 months. As we got into Q1, those RFPs were really more leaning into 12 months.

And so we've gone all the way up to about three quarters of 12 months in those. And you could say that, that might be the customers seeing bottom here trying to lock in rates that are lower, but that's another kind of data point indication of where we're seeing the market. So, with that, I don't know, Scott, if you have any more you want to say..

Yes, Jack, maybe just a little customer feedback. I've been lucky to be in probably about 20 meetings in the last 1.5 month with our top customers. I would say sentiment is pretty consistent with what you're hearing with retailers and sort of higher levels of inventory. But it's really dependent by vertical. There are areas of strength.

Automotive, health care, are some. I would say a common theme of these meetings, too, is just sort of the longer-term partnership aspect of working with Robinson and us helping them solve their logistics challenges going forward with our full portfolio.

So, the one thing we're doing in a softer market is we're really leaning into customer engagement and face-to-face meetings..

Okay, guys. Thank you so much for the color..

Thanks, Jack..

Thank you. The next question is coming from Stephanie Moore of Jefferies. Please go ahead..

Hey. Good afternoon. Thank you. Scott, I wanted to maybe get a little bit more color around the ongoing CEO search. I do think that in general, the market would like to see some certainty here.

Now that it's been, call it, several months of this evaluation process, if you could just provide any update of what expertise you, the Board are looking for in the new CEO in the evaluation of candidates, maybe some that might have specific brokerage experience or just transportation experience as well as the view of someone who might have experience outside of transportation entirely, just maybe how the Board is thinking about these factors? Thanks..

Sure. Stephanie. As I've mentioned in my prepared comments, the process is moving as expected and we expect to name the new CEO here in this quarter. The pool of candidates is diverse and strong. Board is looking for a proven leader, seasoned executive, really with an operational expertise and someone who can drive positive change inside Robinson.

I would say the search committee and the Board is also committed to finding the right leader and we believe we're coming to the conclusion of that process. And part of what I'm doing with the senior leadership team is really making decisions and not pausing on anything.

So we set this up for success for the new leader and that leader can move quickly once announced..

Great. Thank you. And then lastly, I appreciate the additional color that you gave in response to Jack's question about what's going on in the NAST business. But maybe you could give us some color about what's going on in the Global Forwarding cycle. I think it started to deteriorate a bit earlier.

Is there an opportunity for that to also rebound a bit faster, too? Any color there would be helpful? Thank you..

Yes, I think there has been softness certainly in both ocean and air that we've seen. Most recently, over the past few weeks, there are some green shoots of more positive news and demand volume and shipments and whatnot. But I think it's too early to call that a trend.

I think the market has really been soft, and you've seen the pricing come down as a result of that softness pretty much across the board..

I would add, Stephanie, we've been very active in the RFQ process with customers back to sort of that strategy of leaning in. And obviously, peak season coming, we'll be prepared for that. And if it is soft, we'll also be in a position to adjust cost in that business as we see fit..

Great. Thank you so much..

Thank you. The next question is coming from Jason Seidl of TD Cowen. Please go ahead. .

Thank you, operator. Good afternoon, gentlemen. I wanted to talk a little bit about the cycle. I know you mentioned that you think we're sort of getting close with in terms of the North American truckload bottom, if we will.

What do you guys need to do to prepare for that in terms of your mix of business? And then if you can comment on where you think we're at with the cycle there in ocean?.

Yes, I mean one of the things that we do is we forecast pricing in the marketplace. If you go to our website, and we give you a look at what we think the market is going to be, and right now, from a pricing standpoint, we kind of feel like we're probably at the bottom or very near the bottom of the spot market.

When you think about the contract market, the contract pricing will follow the spot market. So there's still some downward pressure on pricing within the contract market as those -- the contracts that were a year old come to reprice. And so there's still a little bit of that going on.

I think on the ocean air side, we're just getting to the end or nearing the end of the annual rebidding cycle on pricing in that market. I think our team has been pretty encouraged. In that business, we've been able to grow share here over the past few years. And that market is one that we participated pretty effectively in both ocean and air.

We brought on some talent. We've had some technology advances, and we've had some geographic expansions and some in some verticals that we've gone into, too. So, I think we feel pretty good about the customer engagement there. We feel pretty good about the bid process.

And coming out of this last round, I think we feel optimistic that we'll be able to continue to grow share in the market on both ocean and air..

That's good color. Just a quick follow-up. And so you mentioned if I were a customer that go online, if I'm looking at sort of base pricing for truckload in the back half of the year, you guys would be forecasting that up from current levels then..

Yes. Down -- we're kind of feeling like we're at the low now. We feel like that will come up as we go through the year and probably end the year higher than where we're at..

Fair enough..

Obviously, on that, I'm talking -- what we've got on the website is our spot market. And like I said, price and contract follows the spot market. So, as those contracts reprice, those will come along with it..

Got you. Appreciate it, guys..

Thank you. The next question is coming from David Zazula of Barclays. Please go ahead. .

Thanks for taking my question. Could you comment on the LTL market a little bit? I noticed you had outperformed at least some of the indices we've tracked on volumes. What you're doing to drive share in that space and where you think the LTL market will go heading forward..

Yes. On the LTL side, we've reported Q1 volumes down 5%. That was lower than our expectations going in, but that market also faces a similar softness that we're seeing across the board. What we've talked about on our LTL business has been the impact of a couple of large customers that we lost during the pandemic that we've had to lap.

But we feel good about the automation that we've been able to bring to that business and our effectiveness at getting out there and competing from a margin standpoint, that business kind of runs a little bit with fuel prices.

So, that's the one part of our business where margins are improved when fuel is up and come down a little when fuel comes down. And so as we comp last year, from a fuel perspective, I think in Q1, we were down about $3 on impact on fuel, and so there's a little bit of that margin going on there.

But overall, we feel like we've been able to compete there despite the results coming in softer than we originally expected..

Is that -- Arun, quick, you mentioned some automation initiatives. I guess can you talk to the extent you have on any feedback you've gotten from customers that are resistant in what you do and to maybe help customers along with the initiatives you're implementing..

Yes. Good question. So most of the automation that we're doing actually should have extreme customer benefit. Much of what we're doing is automation on the carrier side or internally as it relates to appointment-related tasks.

And where customers have -- so on the customer side, will customers have systems or scheduling systems that we can integrate with to do appointments, that's great, and/or they allow us to reach into their systems via automation and book and scheduled appointments.

Ultimately, it's a cost savings for them as well, so they don't really push back at all. And as it relates to in-transit tracking and track and trace, most of that -- the heavy lifting is about -- it's not really heavy lifting.

It's about like self-server carriers, ultimately, right? Carriers now have the ability with better and hardened technology to self-serve as it relates to giving us visibility to their locations, which then gives us greater confidence that we can relay back to our customers around service performance.

So, ultimately, on both sides of the marketplace, we haven't really found significant pushback on the activities that we're currently working on..

Thanks very much. I appreciate it..

Thank you. The next question is coming from Chris Wetherbee of Citigroup. Please go ahead..

Thanks. Good afternoon. Wanted to maybe talk a little bit about some of the cost initiatives that you guys are working on, I know you've upsized your cost-out goals for the year.

I'm wondering, maybe particularly on the personnel side, we could maybe break that down between heads and then maybe incentive comp if that is part of it or if extensive comp is excluded from the numbers. Just wondering if you want to start there..

Yes. Sure, Chris. So we talk about the $300 million cost savings relative to the commitment that we have put out there on our last call. And just to recap that, we had originally said we were going to do $150 million in net annualized cost savings, and we use the base on that as Q3 expenses from last year, which were about $600 million.

So, you annualize that $600 million, that's the $2.4 billion. Midpoint of our new guidance is $2.1 billion. That's how you get the $300 million of overall savings. And then what you saw in the guidance that we put out there was $100 million reduction in 2023 on the midpoint of our personnel expense.

When you get into the composition of that, we do have some tailwind from normalized incentive for our folks. And then we also -- going forward, our annual salary increases go into effect in March. And so they didn't impact Q1 fully, just the end of it. And so that will be a little bit of a headwind going forward for us on the expense side.

But the primary force behind the personnel expense guidance change was our staffing. And so we've made really nice progress on our staffing in Q4 and in Q1. We ended -- if you look at ending head count in Q1, we were about 16,400, which is down about 1,000 from where we were at the end of Q4.

And if you went back to Q3, we're down about 1,500 from where we were in Q3. And so we talked about the fact that we needed to get out there and kind of fix our cost structure from a long-term perspective.

And I think we've done a pretty decent job of both rightsizing for some of the expense escalation that we had when the market was hot and the volumes required more service, frankly, because times are tenuous. And so we had to correct for that a little bit.

And then just looking at the long-term cost structure that we need to be competitive going forward, we really felt like we needed to do some things there, and we did.

And all along, we've had really good work on streamlining our processes and putting automation in to really allow our people to do more value-added tasks, things that they want to do more, getting rid of some of the work that is less desirable and building that toolbox for them so that they can focus on growing our business profitably with the great tool box to support them..

Chris, this is Scott.

I'll just add on to that because one of the things we've really worked with the senior leadership team on the last 90 days is taking complexity out of the organization and simplifying things and as we all know; an important part of our strategy is also deciding what you say no to and concentrating resources in areas of the highest impact.

So, simply put, we're really focused on reducing spend by focusing on the things that matter most. And part of this is the right thing to do for the business for the decade ahead but also, as I talked about before, to really give the new CEO of platform to move quickly.

And I'm really proud of the work the senior team has done, and they're tough decisions. But I think we're going to see a benefit for all of our stakeholders going forward..

Okay, that's extremely helpful color, so I appreciate you guys running me through that. And maybe a quick follow-up to sort of transitioning a bit to the Global Forwarding business. There has been some signs of life off of a very low bottom in terms of spot rates on the ocean side over the course of the last couple of weeks.

I think some other players have had maybe better success with contracting relative to the beginning of the contracting season for this year relative to what the spot market might suggest.

I don't know if those are that's sort of how you guys are thinking about that market as you move into the spring season as we're going through that annual shipping contracting season.

Is that something that you've seen? Or is it continuing to sort of follow the path of the spot market?.

Yes. We're getting to the end of that process to reestablish contracts for the year, and I think the team feels pretty good about it for a variety of reasons. And the upgrade and technology that we've had in Global Forwarding has really helped our connection with customers and helped us in terms of success. We rolled out Navisphere 2.0 in that space.

That rollout was completed in January, and the customers are reacting positively to that. We're exceeding our expectations on monthly average users, track of trace usage, data quality, feature usage by customers.

So, what they're getting is they're more -- they're getting more customized reporting capabilities, data insights, analytics to support decisions. And I think those are the kind of things that have helped us get closer to customers and get the attention of some new customers. And so that's despite the soft market.

Like you say, there is some reason here in the last few weeks to think maybe there's some positive news there.

But like I said, not enough to call it a trend, but I think our team is more excited about the engagement they have with the customers and the attention that they're getting in some of the new verticals and geographies as well to feel good about their continuation of the share gains that they've seen over the past few years..

Okay. Very good. Thanks very much for the color. I appreciate it..

Thank you. The next question is coming from Bruce Chan of Stifel. Please go ahead..

Yes. Thanks everyone, and good afternoon. Maybe if I could just follow-up here on the commentary around Navisphere 2.0. I mean, I know it's still very early in the deployment.

But when you think about it, is this a tool that we need to start seeing EBIT conversion or profit per head start to close the gap with some of your best-in-class peers? What's sort of the time line for that process, if you don't mind sharing some color there?.

Yes. Let me take a cut at that, and Arun might have a couple of comments as well. So the Navisphere 2.0, while it helps with efficiency, it's really more to help us engage with the customers in a more constructive way to help solve some of the problems that they have, make sure they're getting data the way they want it.

We've had some other technology enhancements on the GF side around being able to quote more efficiently, which is important in the bidding process.

And so while that -- some of that tech is rolling out, the game plan on the Global Forwarding side is not unlike the game plan on the NAST side, but just a little further behind, I would say, in Global Forwarding with a lot more upside due to the complexities associated with that market when you think about languages, currencies, customs and rules and laws as you get goods transported around the world.

So, I think really good upside there. But that technology investment has been going on and will continue to go on in the feature enhancements and benefits that we were talking about with Navisphere 2.0 really growth more than efficiency, but we do have efficiency investments around as well..

Yes. So, to kind of elaborate when you reference Navisphere 2.0 or online 2.0, that's really more about customer self-service capabilities. And so it's more about customer engagement, customer retention and growth, to Mike's point.

As it relates to productivity, there are a whole set of activities similar to how we're doing in transit tracking, automation and self-serve and we're doing appointment-related task automation and NAST to drive up productivity.

Global Forwarding has similar activities as it relates to how a given file, we call it the metric we track internally, is something along the lines of shipments per person per day. It's files per person per day, and we have various activities or underlying initiatives similar to NAST to unlock productivity there.

So, I'd say that's a little bit decoupled from the reference to Navisphere 2.0..

Okay, that's fair commentary. And if I could just push a little bit more on that. When I think back to, call it, 2016, 2017, after APC and a spate of other acquisitions that you did in Global Forwarding.

I think the commentary there was that still a new and growing organization, there were still a lot of efficiency and productivity that was left to extract. And here we are in 2023, and we're kind of back to the same sort of EBIT conversion ratios. So, what makes you confident that this time around, you've got the right…..

Yes. Let me start, and again, I'll let Arun make some comments as well. The team has been growing share. We've been happy with the progress that they've been making talked about, new geographies. Currently, top three Ocean forward China to the US, from India to the US, US to Oceania. They've made progress in the Europe to US trade lanes.

They achieved the number four ranking there in Q1, just expand it geographically into the Middle East, opened an office there in Dubai in mid-February and picked up customers really all around the world, not just Trans-Pacific, but Europe, Southeast Asia, Oceana, Latin America, India, et cetera. So, the team has been doing a pretty good job.

And the journey to optimization there is -- it's -- there's a lot of runway there. It's a complex marketplace, and there's a lot of ability to streamline processes and automate and get ourselves to an efficiency level that we want to. So I think the performance has been good. I think the runway is pretty solid there, too..

Yes. To add to what Mike said, I think there are probably a couple of other factors that are relevant. There was probably a lot of work around foundational technology investments that had to happen over time, onboarding some of the acquisitions onto our platform.

I will say that over the recent past, call it the past 12, 24 months, there's been heightened scrutiny around connecting technology investments to actual unlock of either productivity or revenue leakage or whatever else.

And so I'd say the discipline or the data-driven discipline around investment priorities and linking it back to outcomes has probably gained heightened focus over the last year or two..

Okay. Very good. Thank you.

Thank you. The next question is coming from Jordan Alliger of Goldman Sachs. Please go ahead. .

Yes. Hi. You referenced, I think, the bottom of the cycle in a few different ways. And one of the things I think you talked about was spot prices approach operating breakeven costs. It will start taking out capacity. I'm just curious your thoughts on how quick the processes could be, especially given demand.

And then maybe what's been your experience from your carrier partners? Have you seen anything in that regard? Thanks..

Yes. Thanks Jordan. A couple of comments there. We do think that the pricing is getting to the point where capacity you would think would start coming out of the market. When we look at new carrier sign-ups, they're down pretty significantly down about 50% year-over-year in the quarter and sequentially down by one-third as well.

So, that's usually an indication of things slowing down, but the cost for carriers with labor rates, insurance rates and fuel has become more expensive than if they purchased a truck here in the last few years, that was probably more expensive, too.

So, I think it's probably fair to say that we're on the verge of some capacity coming out truckload for sure. I'll give you some interesting maybe information around the cycle, too. So there are no guarantees in terms of forecasting when the cycle is when they will come and go from peak to trough.

But if you look at the last three cycles in the US and you're looking at AGP per shipment, we've seen some similarity in the duration of those cycles. So, if you looked at the time between the last three peak quarters, it was 3 to 3.5 years. And if you looked at the time between the troughs, it was also 3 to 3.5 years.

And so you're talking about six to seven quarters between the peak and trough or vice versa. Now no way to know if this freight cycle is going to follow suit. But our last peak in truckload AGP per shipment was seven quarters from Q4 of 2018 to Q3 2020.

And so again, history repeated itself six to seven quarters from our last peak, which was Q2 of 2022. And then we'd be talking about Q4 this year or Q1 of next year as the trough on an AGP per shipment kind of basis..

Thank you..

Thank you. The next question is coming from David Vernon of Bernstein. Please go ahead..

Hey. Good afternoon. Thanks for fitting me in here. The rate or month per mile on your truckload slide six there, being down 28%, that's kind of well ahead of some of the benchmark indices that you follow from CAS and some of the other third-party stuff.

Can you give us a sense for how much of the book is getting repriced at this level right now? And what does that mean kind of from a go-forward perspective? Are we going to be stabilizing at these levels? Or is there still some more maybe pain to take as this truck cycle reaches its trough?.

Yes, we re-price our contracts all throughout the year; tend to be a little bit heavier in Q4 and Q1. So call it, 60% gets repriced in Q4 and Q1 and the other 40% in Q3 -- in Q2 and Q3. So you kind of think about it that way.

I think what was interesting when we're looking at price per mile and cost per mile this quarter in comparison to last year was just how much the decline was on a percentage basis. So, we were -- as we kind of pointed out, we're down 27.5% on a rate per mile and 28.5% on a cost per mile.

And so when you look at year-over-year, those are the largest that we've seen in over a decade. Sequentially, it was the fifth straight quarter that price per mile came down and also the fifth straight quarter that cost per mile came down, and that's after the run-up that we saw for seven, eight quarters prior to that.

So that's the way we're seeing it play out..

Okay. And then maybe just as a quick follow-up. You don't give us some of the same detail in terms of the buy and sell rates for the business and understand different modes, more complicated.

But I guess as you think about the rate at which your customer rates are coming down and correcting with the -- available indices we will be looking at, is that spreads, also widening a little bit, or are we getting to the point where your Forwarding business has caught up to where sort of market rates are today..

Yes. Like we kind of said that business gets re-bid, repriced here, and we've been going through that. And hard to say where you've hit bottom, that -- especially on the ocean side, you have a capacity issue there that's got to play out in terms of there's certainly, capacity coming into the market there.

And there's a little bit coming out, but not as much as coming in. And so how that plays out is yet to be seen, particularly considering the macro environment and what's there in demand. The market is looking at the possibility of a recession here for the remainder of the year. Obviously, that impacts demand.

And so, that supply/demand kind of play in the ocean business is a little bit harder to call at this point in how pricing will get reflected there..

And on the air side?.

Yes, similar dynamics on the air side. I wouldn't say much different there except for the capacity situation is obviously a little bit different. But it will key off the macro demand environment, and that, I think, is yet to be seen--.

All right. Thanks for the time guys..

Thank you..

Thank you. We're showing time for one last question today. The final question is coming from Ken Hoexter of Bank of America. Please go ahead..

Great. Thanks for squeezing me in. Scott, maybe just -- how do you think about the core brokerage? I know you had some questions in the prepared remarks on the timing of the CEO. But should C.H.

be moving to more automation and less people intensive? I guess I want to understand your thoughts on the design for the company and where you think it's headed..

Yes, Ken, great question. I think it's a combination of both. I think the technology amplifies the expertise of our people and our ability for our people to drive continued growth and drive operating leverage for the business and grow without adding headcount is one of the key things to what we're doing.

So, to me, we're on a path to have multiple wins win for our customers, win for our carriers and a win for our people when we do this the right way..

But I guess to take it a step further, do we see a reshaping of it, where we're seeing big layoffs to shift the dynamic of that balance in the near-term?.

No, I think one of the things that Robinson is so strong at is our commercial engine. And I think one of the things we have to do is leverage the technology. We've seen that in terms of how we compete against our technology competitors. So, this is an additive game, a one plus one equals four or five.

And one of the things Arun is doing and part of our cost reduction strategy here is also to drive costs out of areas and take complexity out of the organization to drive it towards the right things that grow the business and grow margin..

That's helpful to understand. And then just a follow-up, on the capacity exits, I guess there are a lot of peers that are focused on -- you mentioned the digital peers focused on positive and profitable volume growth in taking share.

Maybe can you just spend a minute talking about the competitive dynamic in the market right now?.

Yes, I'll make a couple of comments there, Ken. So I mentioned that the competitiveness seems to have heated up, particularly on the brokerage side here. And we could certainly go out and get more volume, but we're committed to getting profitable volume.

And so we are not interested in getting into any kind of competitive situation that would lead us to issues with negative loads or chasing that kind of volume. So, we've been pretty disciplined there. We've got really good pricing engines. We feel like we've got great understanding in the market.

And so we feel like we can compete pretty effectively there with our data advantage and our people and connectivity to the customers in a way that will continue to be able to make strides both on a market share gain standpoint and against our margin targets..

Great. Scott, Mike thanks for the time. Appreciate it..

Thank you..

Thank you. At this time, I'd like to turn the floor back over to Mr. Ives for closing comments..

Yes. Thank you, everyone, for joining us today. That concludes today's earnings call, and we look forward to talking to you again. Have a great evening..

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