The C.H. Robinson Second Quarter 2023 Conference Call has begun and Chuck Ives, Director of Investor Relations, has introduced the participants: Dave Bozeman, President and Chief Executive Officer; Mike Zechmeister, Chief Financial Officer; and Arun Rajan, Chief Operating Officer. Dave Bozeman will provide introductory comments, Mike will provide a summary of the quarter's results and outlook, and Arun will provide an update on the company's customer and carrier experience and operating leverage. The earnings presentation slides can be found on the company's website.

The new CEO of C.H. Robinson is looking to improve the company's offerings and services to customers, and is focusing on people, products, processes, technology, collaboration and excellence to do so. He has a customer-centric focus and has implemented successful strategies in the past during his 30-year career with leading brands such as Harley Davidson, Caterpillar, Amazon and Ford Motor Company. He is looking to reinvigorate the company's culture and drive focus to position the company for growth. He plans to be accountable for driving improvement, anticipate to minimize surprises, and be gritty, scrappy, innovative and change oriented.

Dave Robinson is passionate about improving the efficiency of Robinson and is confident that the company can leverage technology to further capitalize on their information advantage. He believes that Generative AI, machine learning, and artificial intelligence can help the company succeed and discussed this with the team. Mike Zechmeister will then review the second quarter results, which were impacted by weak demand, high inventories, and excess capacity, resulting in a competitive marketplace with suppressed transportation rates.

In the freight forwarding market, ocean and air freight rates remain low due to excess capacity, despite efforts by steamship lines to manage capacity. In Q2 of last year, total company AGP was down 35% year-over-year, and on a monthly basis, total company AGP per business day was down 30% in April, 39% in May, and 37% in June. In the NAST truckload business, volume declined by 6.5% year-over-year, with an approximate mix of 70% contractual and 30% transactional volume.

In Q2 of this year, truckload line haul cost per mile and AGP per mile saw a decrease of 19% and 41.5% respectively compared to the same time last year. In the LTL business, shipments were flat on a year-over-year basis and AGP per order declined 19%. Global forwarding business saw weak demand and plenty of capacity, resulting in soft market conditions.

In Q2 of this year, global forwarding generated revenue of $780 million and AGP of approximately $179 million, which declined 45% year-over-year. This was due to a 49.5% decrease in AGP per shipment and a 7% decrease in shipments. In order to ensure a more competitive and sustainable long term cost structure, the company elevated its cost optimization efforts, resulting in a 12% year-to-date increase in shipments per person per day. The company is on track to achieve a 15% year-over-year improvement by Q4 of this year.

In Q2, personnel expenses were toward the lower end of the previously provided range while SG&A expenses were up 8.5% compared to the same period last year. Interest and other expenses were down $9.1 million compared to Q2 of last year, with interest expense up $6.3 million due to higher variable interest rates. The company is on track to meet its cost savings commitment of $300 million of net annualized cost savings by Q4 of this year.

In Q2, the company saw a $3.5 million gain on foreign currency revaluation and realized foreign currency gains and losses, and a lower tax rate of 14.9%, compared to 21.3% in Q2 of 2022. Adjusted or non-GAAP earnings per share was $0.90, while cash flow generated by operations was approximately $225 million. Capital expenditures were $24.4 million, while the company returned $106 million of cash to shareholders through dividends and share repurchases. The company expects their 2023 full-year effective tax rate to be in the range of 16% to 18%, and their 2023 capital expenditures to be in the range of $90 million to $100 million.

In Q2, shareholders received cash returns that exceeded net income, but was down 74% from the same quarter last year due to debt reduction. At the end of Q2, the company had a liquidity of $1.1 billion and a debt balance of $1.74 billion, resulting in a net debt to EBITDA leverage of 1.81x. The company is committed to maintaining an investment grade credit rating and to growing their quarterly cash dividend in alignment with long-term EBITDA growth. They are also committed to enhancing shareholder value through their dividend and share repurchase program, while providing reliable customer service.

Robinson has implemented various initiatives and processes to improve customer and carrier experiences, increase efficiency, and reduce waste. This includes the Carrier Advantage Program, Electronic Bill of Lading, and a focus on streamlining processes. The company is aiming to achieve a 15% year-over-year improvement in their productivity metric, Shipments per Person per Day, by the fourth quarter of the year.

C.H. Robinson has accelerated digital execution of critical touch points in the lifecycle of a load to reduce manual tasks and time per task. Machine learning and AI have been used to improve customer and carrier outcomes, but generative AI has the potential to fill in the blanks of incomplete and unstructured information in a highly automated and efficient process. C.H. Robinson has the largest market share, a freight-brokers network, strong technology, and a large data set.

Dave Bozeman, the new CEO of C.H. Robinson, is focusing on making the company essential to shippers. He plans to do this by improving the value proposition, increasing market share, accelerating growth, improving efficiency and operating margins, and increasing overall profitability. He is also empowering the people to challenge the status quo, move faster, and act boldly to better anticipate customer needs and exceed expectations. Bozeman believes that the company's strength and financial model will position them well for the eventual rebound.

Dave Bozeman, the new CEO of C.H. Robinson, is looking to make the company essential in the highly commoditized part of the transportation supply chain. He plans to do this by driving the company to think and act faster and reduce waste, as well as using technology as an enabler. Scott Group then asked Bozeman to provide insight into the puts and takes on sequential net revenue and earnings trends from the second quarter and third quarter.

In the second quarter of last year, the market was at record highs, but now demand and capacity are both weak. Shippers have been working to optimize their inventories for almost a year, and it is likely that capacity is coming out of the market as carriers are more likely to park their trucks and find other employment due to the good economy.

Chrobinson.com provides a forecast of DAT line haul costs and van costs for 2023 and 2024. In the current quarter, the cost side of the equation has been decreasing faster than the price, leading to margin compression. This is normal for this part of the cycle, and the cost will eventually lead the price. The forecast predicts a dramatic increase in costs for the remainder of 2023, followed by a spike during the holidays and then a return to normal levels in 2024.

Mike Zechmeister reports that the company is making progress on productivity, with shipments per person per day improving by 12% in six months. Dave's leadership as a lean practitioner is helping to identify and eliminate waste in an analytical and data-driven way. Additionally, machine learning and generative AI are being used to standardize and automate processes, as well as identify inconsistencies and missing data. This will allow the company to focus on quality and more strategic work with customers.

Dave Bozeman, who has been on both sides of the disruptive brokerage industry, believes that C.H. Robinson has an advantage due to their combination of scale and technology. He was surprised to find that despite the company's older technology, they are still competitive.

Dave Bozeman is on the Board of Robinson, and is focused on improving the company's processes and eliminating waste. He has been doing what he calls a "gimbal" or a "go see" to observe the work and the employees, and to identify potential errors and waste. The Board has mandated that Bozeman focus on improving how Robinson does business, as well as potentially making structural changes to the business. There was also a discussion with an activist shareholder about forming a strategic committee.

Dave Bozeman, the new CEO of Robinson, is focused on driving profitable growth for the company's shareholders. He is taking his time to analyze the portfolio and will speak to the Board when he has completed his diagnosis. He is looking at the entire business with an open mind and is focused on unlocking additional value for the shareholders.

Dave Bozeman and Arun Rajan discussed ways to increase the presence of technology in the driver's side of the electronic opportunities in brokerage. They have invested in their carrier-facing app and website, and have seen an increase in digital bookings. They have also released their refreshed Carrier Advantage program, which includes new requirements for carriers such as providing track and trace and automated track and trace through the app and ELD.

Arun, Dave, and Mike agree that the key to success in the freight forwarding business is ease of use for carriers. They also believe that they have all the features that carriers need and the volume of loads that other companies cannot match. Mike believes that the long-term operating income margin goal for global forwarding is 30%, which is achievable.

Navisphere 2.0 has been launched, leading to better customer experience, and the team has achieved scale and expense management. They have also brought in new talent and developed new trade lanes, leading to success in the Trans-Pacific, India, and U.S. Oceana areas. All of these factors will help the team achieve a more normalized 30% operating income margin.

Dave Bozeman was asked about how to foster a culture of deeper employee engagement at C.H. Robinson. He suggested that employees need to be self-critical and understand their processes and what waste there is in their processes. He also emphasized the importance of enlightenment and education about where they are and humbleness to show how they can be better. Matthew Spahn welcomed Bozeman and wished him luck in his role as a champion of lean.

Dave Bozeman is being asked by Stephanie Moore of Jefferies what the single most important area he will focus on over the next 12 months is. Dave Bozeman responds that the focus will be on driving waste out of the organization, making faster decisions and innovations, and using technology such as large language models to create a competitive advantage. He believes that this will lead to profitable growth and ultimately a turnaround for the company.

Dave Bozeman and Arun Rajan are discussing the opportunities to reduce costs in the order lifecycle, from quoting to order tender, to order entry, to booking, then to appointments, track and trace, invoicing, etc. Bozeman is still in the middle of his diagnosis, but they have identified some points already. The focus is on understanding the error states and pinch points along the way.

Arun, Mike, and Dave have implemented digital efforts to reduce manual labor and eliminate legacy processes. This has resulted in a 15% productivity improvement and fewer touches per load. Dave is now injecting lean principles and the team is expecting more improvement as they get the tailwind of Gen-AI. Bruce Chan asked if the platform is in a place to grow without adding additional resources, to which Mike answered that they have more work to do, but the work they have done has enabled structural productivity.

Mike Zechmeister responds to Chris Wetherbee's two-part question on headcount and operating margin targets. He states that the headcount has already been reduced by 13% year-over-year and that there is a pipeline of initiatives in place to continue reducing it, although not as dramatically as in the first half of '23. He also states that the segment level operating margin targets remain relatively similar to what they have been historically, with potential for upside in productivity and cost savings.

C.H. Robinson has identified two accelerants to improve their performance and efficiency and reach growth targets. The first is lean principles, diagnosing issues, and eliminating waste through technology, process, and adoption. The second is machine learning and Generative AI to handle exceptions and automate tasks. These accelerants will help them reach their progress targets.

The speaker invites the audience to end their participation in the webcast and enjoy the rest of their day.

This summary was generated with AI and may contain some inaccuracies.