What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-07-31 compared with 2020-05-01 · 183 added, 109 removed, 172 unchanged (63% of the section changed)

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changes in market demand and pressures on the pricing for our services;

changes due to catastrophic events including pandemics such as COVID-19, competition and growth rates within the third party logistics industry;

changes due to catastrophic events including pandemics such as COVID-19;

competition and growth rates within the third party logistics industry;

freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight;

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The reconciliation of total revenues to net revenues is presented below (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Transportation $ 3,348,611 $ 3,638,612 $ 6,890,729 $ 7,143,544

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MARKET TRENDS

The North American surface transportation market was impacted by the COVID-19 outbreak during the first quarter of 2020, although the impact varied significantly depending on industry vertical, customer size, and the severity of the outbreak in the regions in which we operate.

Certain industry verticals, such as retail, saw a surge of demand near the end of the first quarter of 2020, while other industry verticals experienced a slowdown of demand and production.

Many small businesses, in particular, experienced significant slowdowns.

These market conditions resulted in continued industry pricing and volume declines.

Industry freight volumes, as measured by the Cass Freight Index, declined at a high-single digit rate during the first quarter of 2020 compared to the first quarter of 2019.

The COVID-19 pandemic continued to impact the North American surface transportation market, resulting in significant volatility to freight volumes and carrier costs during the second quarter of 2020.

Similar to the first quarter of 2020, the impact on the market varied significantly depending on industry vertical, customer size, and the severity of restrictions in place to control the outbreak in the regions in which we operate.

Certain industry verticals, such as retail, continued to see the elevated demands similar to those experienced near the end of the first quarter of 2020, while many other industry verticals continued to experience demand and production well below historical levels.

The impact of reduced consumer demand and production resulted in reduced carrier capacity, most notably in truckload, as many carriers either reduced lanes or exited the market entirely, which caused significant volatility in purchased transportation pricing.

Industry freight volumes, as measured by the Cass Freight Index, declined approximately 21 percent during the second quarter of 2020 compared to the second quarter of 2019.

One of the metrics we use to measure market conditions is the truckload routing guide depth from our Managed Services business.

Routing guide depth represents the number of carriers contacted prior to an acceptance when procuring a transportation provider.

The average routing guide depth of tender in the first quarter of 2020 was 1.2, representing that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases.

This route guide penetration continues to be among the lowest levels we have experienced in the last decade and is a reflection of both softening demand and the reduced pricing and costs experienced during the first quarter of 2020.

The global forwarding market was also impacted by COVID-19.

Similar to the North American surface transportation market, the impact varied significantly depending on industry vertical and the severity of the outbreak in the regions in which we operate.

Many industries in North Asia and North America experienced volume reductions as factories closed and local transportation was limited in an effort to contain the spread of the virus while regions such as Southeast Asia experienced an increase in volume to offset the reduced production elsewhere in the world.

The ocean carrier market was impacted as decreased demand resulted in excess capacity and decreased pricing.

The airfreight market experienced significant volatility due to the COVID-19 outbreak which, in some cases, has led to a shift from ocean freight to airfreight due to unexpected government shutdowns impacting the global supply chain and expedited demand for certain commodities and essential products.

In addition, as a large percentage of airfreight is transported on commercial flights, the reduction of commercial flights due to the COVID-19 outbreak has resulted in significant airfreight pricing volatility.

The average routing guide depth of tender in the second quarter of 2020 was 1.2, representing that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases.

This route guide penetration continues to be among the lowest levels we have experienced in the last decade.

The global forwarding market was also impacted by COVID-19 as reduced demand and production resulted in decreased volumes in many of the regions in which we operate.

The airfreight market experienced significant pricing increases in the second quarter of 2020 resulting from decline in capacity due to a reduction in commercial flights, increased charter flights, and larger than normal shipment sizes due to the COVID-19 pandemic.

In addition, the ocean freight market continued to be impacted by reduced demand and production similar to the end of the first quarter of 2020 due to the ongoing COVID-19 pandemic.

In response to reduced demand and production many ocean carriers idled capacity to better align with demand resulting in higher pricing and cost of transportation in the second quarter of 2020.

BUSINESS TRENDS

Our first quarter of 2020 results are largely consistent with the overall market trends summarized above.

We saw significant changes in demand over the course of the first quarter of 2020 in nearly all of our service lines depending on industry vertical, customer size, and the regional severity of the COVID-19 outbreak.

Despite industry freight volumes declining at a high-single digit rate, we achieved strong volume growth in both NAST truckload and LTL services.

Our volume growth is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides.

We continued to see a shift from spot-market business towards contractual business, which resulted in margin compression, as spot-market driven carrier pricing declines continued to moderate compared to our contractual pricing declines.

We continued to meet our customer commitments despite the carrier pricing declines moderating, and in some instances, carrier prices increasing in certain regions and industries.

In our global forwarding business, we saw ocean freight pricing and volume declines, most notably in North Asia and North America driven by the market trends discussed above which were partially offset by ocean freight volume growth in Southeast Asia.

As a result of the COVID-19 outbreak, we experienced a significant increase in airfreight pricing near the end of the first quarter of 2020 resulting from the disruption to the global supply chain and the urgency around transporting certain commodities and essential products.

Our second quarter of 2020 results are largely consistent with the overall market trends summarized above.

We saw significant changes in pricing from our truckload contracted carriers and reduced demand in nearly all of our service lines within the second quarter of 2020.

The impact on demand continued to be impacted by industry vertical, customer size, and the regulations in place to limit the spread of the COVID-19 pandemic.

Despite industry freight volumes declining approximately 21 percent, our NAST truckload and LTL volumes only decreased 4.5 percent and 2.0 percent, respectively, which is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides.

We continued to meet our customer commitments despite significant cost of transportation pricing volatility, which resulted in margin compression during the second quarter of 2020.

In our global forwarding business, we saw significant increases to the price of airfreight which resulted in margin expansion as we were able to leverage our contractual airfreight capacity despite significant shortages in the airfreight market.

The increase in airfreight pricing more than offset a 35.5 percent decline in airfreight volumes.

The COVID-19 pandemic also contributed to an 8.5 percent decrease in ocean volumes as many industries continued to experience demand and production well below historical levels.

On March 2, 2020, we acquired all of the outstanding shares of Prime Distribution Services (“Prime Distribution”), a leading provider of retail consolidation services in North America for $222.7 million in cash.

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SIGNIFICANT DEVELOPMENTS

During the first quarter of 2020, our financial results and operations were impacted by the COVID-19 outbreak that occurred in many countries beginning in early 2020.

The impacts to our business are discussed throughout Item 2, “ Management's Discussion and Analysis of Financial Condition and results of Operations.

” In addition, see Part II—“Item 1A, Risk Factors,” included herein for an update to the risk factors described in “ Item 1A, Risk Factors, ” of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 19, 2020.

The extent to which the COVID-19 outbreak impacts our financial results and operations for the remainder of 2020 and going forward, for all of our business segments will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak and the international actions being taken to contain and treat it.

We have taken a variety of measures to ensure the availability, continuity and security of our critical infrastructure, to ensure the health and safety of our employees around the globe, and to provide service and supply chain continuity to our customers and contracted carriers in order to deliver critical and essential goods and services.

We are following public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the promotion of social distancing, and the adoption of work-from-home arrangements.

During the three and six months ended June 30, 2020, our financial results and operations were impacted by the COVID-19 pandemic described above and discussed throughout Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” In addition, see Part II—“Item 1A, Risk Factors,” included herein for an update to the risk factors described in “Item 1A, Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 19, 2020.

The extent to which the COVID-19 pandemic impacts our financial results and operations for the remainder of 2020 and going forward will depend on future developments which are highly uncertain and cannot be predicted, including fluctuations in the severity of the outbreak and the actions being taken to contain and treat it.

We have taken a variety of measures to ensure the availability, continuity, and security of our critical infrastructure, ensure the health and safety of our employees around the globe, and provide service and supply chain continuity to our customers and contracted carriers in order to deliver critical and essential goods and services.

We continue to follow public and private sector policies and initiatives to reduce the transmission of COVID-19, such as requiring social distancing, wearing a mask, and limiting the number of employees to less than 50 percent capacity when in the office, in addition to the elimination of all non-essential travel.

We have also adopted work-from-home arrangements, and as of June 30, 2020, nearly 90 percent of our employees were working remotely executing their duties and responsibilities.

We do not believe these policies and initiatives will adversely impact our operations.

As of March 31, 2020, over 90 percent of our employees were working remotely executing their duties and responsibilities .

In addition, subsequent to March 31, 2020 we have taken steps across the organization to reduce costs, including the elimination of all non-essential travel, temporary salary reductions for company executive officers, temporary reductions in cash retainers for board members, temporary suspension of the company match to retirement plans for U.S.

and Canadian employees, accelerating the use of paid time off, and temporarily furloughing approximately seven percent of our U.S and Canadian employees.

Due to the speed with which the situation is developing, we are not able at this time to estimate the impact COVID-19 may have on our financial results and operations for the remainder of 2020 and going forward.

In addition, we have taken steps across the organization to reduce costs, including the elimination of all non-essential travel, temporary salary reductions for company executive officers, temporary reductions in cash retainers for board members, temporary suspension of the company match to retirement plans for U.S.

and Canadian employees, accelerating the use of paid time off, and furloughing approximately seven percent of our U.S and Canadian employees in the second quarter of 2020.

As we continue to harness the benefits of our technology investment and network transformation, we have eliminated certain positions subsequent to June 30, 2020, and therefore, a portion of employees did not return from furlough.

We expect to recognize approximately $4.5 million in severance during the third quarter of 2020 as a result of these reductions.

Due to the ongoing uncertainty around the severity and duration of the outbreak, we are not able at this time to estimate the impact COVID-19 may have on our financial results and operations for the remainder of 2020 and going forward.

However, the impact could be material in all business segments and could be material during any future period affected either directly or indirectly by this pandemic.

Many businesses are slowing their production and output which is expected to result in a decrease in freight volumes across a number of industries which may reduce our contractual and spot-market opportunities.

Many businesses continue to experience reduced production and output which could result in a decrease in freight volumes across a number of industries which may reduce our contractual and spot-market opportunities.

In addition, a significant number of our contracted carriers may reduce their capacity or charge higher prices in light of the volatile market conditions which may reduce our net revenue margins as we honor our contractual freight rates.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select first quarter 2020 year-over-year operating comparisons to first quarter 2019:

• Total revenues increased 1.4 percent to $3.8 billion, driven by increased volume in truckload and less than truckload, mostly offset by lower pricing in truckload.

The following summarizes select second quarter 2020 year-over-year operating comparisons to second quarter 2019:

• Total revenues decreased 7.2 percent to $3.6 billion, driven primarily by lower pricing in truckload and less than truckload (“LTL”) services.

• Net revenues decreased 11.6 percent to $614.5 million, primarily driven by lower margin in truckload services.

• Personnel expenses decreased 2.9 percent to $330.2 million, driven primarily by declines in performance-based compensation, partially offset by a 0.4 percent increase in average headcount.

• Selling, general, and administrative (“SG&A”) expenses increased 12.4 percent to $128.3 million, due primarily to increased technology spending and purchased services related to accelerating our growth and cost savings initiatives.

• Income from operations totaled $109.4 million, down 51.3 percent from last year due to declining net revenues and increased SG&A expenses.

• Personnel expenses decreased 11.3 percent to $300.5 million, driven primarily by short-term cost reductions and declines in variable compensation.

Average headcount decreased 2.7 percent, with acquisitions contributing approximately one percentage point of growth.

• Other selling, general, and administrative (“SG&A”) expenses decreased 2.8 percent to $125.2 million.

The largest contributor to the decrease was the elimination of non-essential travel, partially offset by an $11.5 million loss on the sale-leaseback of a company-owned data center.

• Income from operations totaled $188.8 million, down 17.0 percent from last year due to declining net revenues.

• Operating margin of 30.7 percent decreased 200 basis points.

• Diluted earnings per share (EPS) decreased 13.1 percent to $1.06.

• Cash flow from operations decreased 77.2 percent to $58.5 million.

• Cash flow from operations increased 10.8 percent to $505.6 million during the six months ended June 30, 2020.

CONSOLIDATED RESULTS OF OPERATIONS

The following table summarizes our results of operations (dollars in thousands, except per share data):

Three Months Ended March 31,

2020 2019 % change

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 % change 2020 2019 % change

Transportation $ 3,348,611 $ 3,638,612 (8.0) % $ 6,890,729 $ 7,143,544 (3.5) %

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Net revenue margin percentage

Transportation 15.3 % 18.6 % (3.3) pts

Sourcing 9.9 % 11.0 % (1.1) pts

Total net revenue margin 14.9 % 18.1 % (3.2) pts

Transportation 17.5 % 18.3 % (0.8) pts 16.4 % 18.4 % (2.0) pts

Sourcing 10.2 % 11.0 % (0.8) pts 10.0 % 11.0 % (1.0) pts

Total net revenue margin 16.9 % 17.8 % (0.9) pts 15.9 % 17.9 % (2.0) pts

Average headcount 15,294 15,712 (2.7) % 15,338 15,557 (1.4) %

A reconciliation of our reportable segments to our consolidated results can be found in Note 9, Segment Reporting, in Part I, Financial Information of this Quarterly Report on Form 10-Q.

Consolidated Results of Operations—Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Consolidated Results of Operations—Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Total revenues and direct costs.

Total transportation revenues increased driven by increased volumes in truckload and less than truckload ("LTL") partially offset by lower truckload pricing.

Total purchased transportation and related services increased primarily due to increased truckload and LTL volumes.

Total transportation revenues decreased, driven by the impact of the COVID-19 pandemic as discussed above.

This resulted in decreased pricing in truckload and LTL services in addition to lower volumes in most service lines, most notably truckload, ocean and airfreight.

These decreases were partially offset by a significant increase in airfreight pricing.

Total purchased transportation and related services experienced significant intraperiod volatility and ultimately decreased primarily due to decreased cost of capacity in truckload and LTL in addition to lower volumes.

Our sourcing total revenue and purchased products sourced for resale increased due to higher pricing and costs per case, partially offset by lower case volume.

We experienced an increase in sourcing revenues near the end of the first quarter of 2020 resulting from increased demand at large grocers and retailers but these increases were partially offset by a decrease in demand in the food service industry.

Lower case volume was driven by decreased demand in the food service industry which has been significantly impacted by the COVID-19 pandemic.

Net revenues.

Our transportation net revenue margin decreased primarily driven by lower margins in truckload, and to a lesser extent LTL services, partially offset by an increase in truckload and LTL volumes.

Our transportation net revenue margin decreased due to lower margins in truckload, and to a lesser extent LTL services, partially offset by a significant increase in airfreight margins.

Truckload and LTL margins declined in the second quarter of 2020 due to the significant transportation cost volatility experienced relative to our contractual customer pricing as we continued to meet our customer commitments despite moderating declines or, in some instances, increases for the cost of capacity.

Airfreight margins expanded driven by increased pricing as we were able to leverage our contractual airfreight capacity despite significant shortages in the airfreight market.

Sourcing net revenue margin declined due to a decrease in net revenue per case.

Operating expenses.

Personnel expenses decreased primarily due to declines in performance-based compensation, partially offset by a modest increase in average headcount, including the impact of acquisitions.

Other SG&A expenses increased driven primarily by higher purchased services related to accelerating our growth and cost savings initiatives.

Personnel expenses decreased primarily due to short-term cost reductions, including furloughs and reduced work hours, in addition to declines in healthcare costs, and performance-based compensation.

Average headcount decreased 2.7 percent, despite acquisitions contributing approximately one percentage point of growth.

SG&A expenses decreased due to the elimination of non-essential travel, partially offset by an $11.5 million loss on the sale-leaseback of a company-owned data center.

Interest and other expense.

Interest and other expense decreased driven by a $2.9 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the first quarter of 2020 compared to a $5.0 million unfavorable impact in the first quarter of 2019.

Interest expense decreased modestly driven by a lower average debt balance in the first quarter of 2020 compared to the first quarter of 2019.

Interest and other expense primarily consisted of interest expense of $12.4 million in the second quarter of 2020, partially offset by a $1.8 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Interest expense decreased modestly driven by lower average interest rates in the second quarter of 2020 compared to the second quarter of 2019.

The second quarter of 2019 included a $2.9 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Provision for income taxes.

Our effective income tax rate was 17.1 percent for the first quarter of 2020 compared to 22.0 percent for the first quarter of 2019.

The effective income tax rate for the three months ended March 31, 2020, was lower than the statutory federal income tax rate due to the tax impact of share-based payment awards, which reduced the effective tax rate by 3.6 percentage points, and foreign tax benefits recorded in the three months ended March 31, 2020 but were partially offset by state income taxes, net of federal benefit and foreign income taxes.

The effective income tax rate for the three months ended March 31, 2019 was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit, and foreign income taxes, but was partially offset by the tax impact of share-based payment awards.

Our effective income tax rate was 19.4 percent for the second quarter of 2020 compared to 23.4 percent for the second quarter of 2019.

The effective income tax rate for the second quarter of June 30, 2020, was lower than the statutory federal income tax rate primarily due to the tax impact of share-based payment awards, including the tax benefit from the delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000, which reduced the effective tax rate by 4.5 percentage points, and foreign tax impacts recorded in the second quarter of June 30, 2020.

The effective income tax rate for the second quarter of 2019 was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit, and foreign income taxes, but was partially offset by the tax impact of share-based payment awards.

Consolidated Results of Operations—Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Total revenues and direct costs.

Total transportation revenues decreased driven by the impact of the COVID-19 pandemic which resulted in slowdowns of demand and production in many industry verticals and resulted in lower pricing in truckload and, to a lesser extent, LTL services.

These decreases more than offset increases in airfreight pricing and truckload and LTL volumes.

Despite industry freight volume declines, we achieved volume growth in both NAST truckload and LTL services which is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides.

Total purchased transportation and related services decreased due to decreased cost of transportation in our surface transportation service lines resulting from softening market demand and excess carrier capacity.

These decreases were partially offset by a significant increase in airfreight pricing.

Our sourcing total revenue and purchased products sourced for resale increased due to higher pricing and costs per case which were partially offset by lower case volume most notably in the food service industry which has been significantly impacted by the COVID-19 pandemic.

Net revenues.

Our transportation net revenue margin decreased driven by margin compression in truckload services due to the significant transportation cost volatility relative to our contractual customer pricing resulting from the impact of the COVID-19 pandemic as we continued to meet our customer commitments despite moderating declines or, in some instances, increases for the cost of capacity.

Partially offsetting these declines was an increase in airfreight pricing resulting in margin expansion as we were able to leverage our contractual airfreight capacity despite significant shortages in the airfreight market.

Sourcing net revenue margin declined due to a decrease in net revenue per case.

Operating expenses.

Personnel expenses decreased primarily due to declines in performance-based compensation and short-term cost reductions, including furloughs and reduced work hours, that were implemented in the second quarter of 2020.

Average headcount decreased 1.4 percent.

SG&A expenses increased driven primarily by an $11.5 million loss on the sale-leaseback of a company-owned data center and elevated purchased services related to accelerating our growth and cost savings initiatives, partially offset by elimination of non-essential travel.

Interest and other expense.

Interest and other expense primarily consisted of interest expense of $25.0 million in addition to a $1.1 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the six months ended June 30, 2020.

Interest expense decreased driven by a lower average debt balance and lower interest rates in the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

The six months ended June 30, 2019,

included a $2.2 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in addition to approximately $5 million of miscellaneous other income.

Provision for income taxes.

Our effective income tax rate was 18.6 percent for the six months ended June 30, 2020 and 22.7 percent for the six months ended June 30, 2019.

The effective income tax rate for the six months ended June 30, 2020 was lower than the statutory federal income tax rate primarily due to the tax impact of share-based payment awards, including the tax benefit from the delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000, which reduced the rate lower than the statutory rate by 4.2 percentage points and foreign tax impacts in the six months ended June 30, 2020.

The effective income tax rate for the six months ended June 30, 2019 was higher than the statutory federal income tax rate due to state income taxes, net of federal benefit, and foreign income taxes, but was partially offset by the tax impact of share-based payment awards.

NAST Segment Results of Operations

Three Months Ended March 31,

(dollars in thousands) 2020 2019 % change

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2020 2019 % change 2020 2019 % change

Total revenues $ 2,475,292 $ 2,872,053 (13.8) % $ 5,299,037 $ 5,668,837 (6.5) %

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Truckload (4.5) % 1.5 %

LTL (2.0) % 2.5 %

Intermodal — % 4.0 %

Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019

Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019

Total revenues and direct costs.

The results of NAST were impacted by the COVID-19 outbreak during the three months ended March 31, 2020 as discussed in the market and business trends section above.

NAST total revenues increased due to increased volume growth in truckload and LTL services, mostly offset by lower pricing in truckload.

The truckload and LTL volume growth is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides.

NAST cost of transportation and related services increased driven by increased volumes, partially offset by decreased cost per mile.

The results of NAST were impacted by the COVID-19 pandemic during the three months ended June 30, 2020 as discussed in the market and business trends sections above.

NAST total revenues decreased due to decreased pricing and volumes in truckload and LTL services.

NAST cost of transportation and related services experienced significant intraperiod volatility and ultimately decreased driven by decreased cost of capacity in truckload and LTL in addition to lower volumes.

Net revenues.

NAST net revenues decreased driven primarily by margin compression in truckload services as discussed in the business trends section above.

Excluding the estimated impacts of the decrease in fuel costs, our average truckload rate per mile charged to our customers decreased approximately 8.5 percent in the first quarter of 2020 compared to the first quarter of 2019.

NAST net revenues decreased driven primarily by margin compression in truckload services due to the significant transportation cost volatility experienced relative to our contractual customer pricing as we continued to meet our customer commitments despite moderating declines or, in some instances, increases for the cost of capacity.

Excluding the estimated impacts of the decrease in fuel costs, our average truckload rate per mile charged to our customers decreased approximately 5.5 percent in the second quarter of 2020 compared to the second quarter of 2019.

Our truckload transportation costs decreased approximately 2 percent, excluding the estimated decrease in fuel costs.

NAST LTL net revenues decreased primarily due to reduced margins, partially offset by increased volume.

The acquisition of Prime Distribution contributed two percentage points to LTL net revenue growth in the first quarter of 2020.

NAST intermodal net revenues increased primarily due to increased volume and improved net revenue margin.

NAST LTL net revenues decreased primarily due to reduced margins and decreased volume most notably with small- to mid-sized customers who were disproportionately impacted by the COVID-19 pandemic.

The acquisition of Prime Distribution contributed 4.0 percentage points to LTL net revenue growth in the second quarter of 2020.

NAST intermodal net revenues increased primarily due to improved net revenue margin.

NAST other net revenues increased primarily due to incremental warehousing services related to the acquisition of Prime Distribution.

Operating expenses.

NAST personnel expense decreased primarily related to reduced performance-based compensation and a decline in average headcount.

NAST SG&A expenses increased primarily due to continued investments in technology, an increase in credit loss expense, and higher occupancy costs.

NAST personnel expense decreased primarily due to short-term cost reductions, including furloughs and reduced work hours, in addition to declines in performance-based compensation and a decrease in average headcount.

The acquisition of Prime Distribution contributed 4.5 percentage points of growth to NAST average headcount.

NAST SG&A expenses decreased primarily due to elimination of non-essential travel and decreased claims.

The operating expenses of NAST and all other segments include allocated corporate expenses.

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

Total revenues and direct costs.

NAST revenues decreased due to lower pricing in truckload and, to a lesser extent, LTL services which were partially offset by increases in truckload and LTL volumes.

Despite industry freight volume declines, we achieved volume growth in both truckload and LTL services which is reflective of our pricing strategies to ensure we are near the top of our customers' routing guides.

NAST cost of transportation and related services decreased driven by lower cost per mile in truckload services.

Net revenues.

NAST net revenues decreased driven primarily by margin compression in truckload services due to the significant transportation cost pricing volatility experienced relative to our contractual customer pricing as we continued to meet our customer commitments despite moderating declines or, in some instances, increases for the cost of capacity.

These decreases were partially offset by increased volumes in truckload and LTL.

Excluding the estimated impacts of the decrease in fuel costs, our average truckload rate per mile charged to our customers decreased approximately 7 percent reflecting pricing changes related to the marketplace conditions discussed above.

Our truckload transportation costs decreased approximately 2 percent, excluding the estimated decrease in fuel costs.

NAST LTL net revenues decreased primarily due to reduced margins, partially offset by an increase in volumes.

NAST intermodal net revenues increased primarily due to increased volume and improved net revenue margin.

NAST other net revenues increased primarily due to incremental warehousing services related to the acquisition of Prime Distribution.

Operating expenses.

NAST personnel expense decreased primarily due to declines in performance-based compensation, a decrease in average headcount, and short-term cost reductions, including furloughs and reduced work hours.

The acquisition of Prime contributed 3.0 percentage points of growth to NAST average headcount.

NAST SG&A expenses increased primarily due to continued investments in technology, higher occupancy costs, and an increase in credit loss expense.

These increases were partially offset by decreased claims and the elimination of non-essential travel.

Global Forwarding Segment Results of Operations

Three Months Ended March 31,

(dollars in thousands) 2020 2019 % change

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2020 2019 % change 2020 2019 % change

Total revenues $ 707,820 $ 592,483 19.5 % $ 1,238,204 $ 1,130,050 9.6 %

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Ocean (8.5) % (6.0) %

Air (35.5) % (22.5) %

Customs (17.0) % (10.0) %

Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019

Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019

Total revenues and direct costs.

The results of Global Forwarding were impacted by the COVID-19 outbreak during the three months ended March 31, 2020 as discussed in the market and business trends section above.

Global Forwarding total revenues and direct costs decreased driven by volume declines in all service lines and pricing declines in ocean transportation, partially offset by pricing increases in air transportation.

The results of Global Forwarding were impacted by the COVID-19 pandemic during the three months ended June 30, 2020 as discussed in the market and business trends sections above.

Global Forwarding total revenues and direct costs increased driven by a significant increase in airfreight pricing due to reduced cargo capacity, an increase in charter flights, and larger than normal shipment sizes creating an environment with unusually high pricing, which was partially offset by volume declines in all service lines.

Net revenues.

Ocean transportation net revenues decreased driven by lower volumes most notably in North Asia and North America due to the impact of COVID-19, partially offset by margin expansion.

The acquisition of Space Cargo contributed two percentage points of ocean net revenue growth for the first quarter of 2020.

Air transportation net revenues increased driven by increased pricing and by the acquisition of Space Cargo which contributed three percentage points of net revenue growth in air transportation.

These increases were partially offset by a decline in shipment volumes.

Customs net revenues decreased modestly driven primarily by lower volumes.

Ocean transportation net revenues decreased driven by lower volumes due to the impact of COVID-19.

Air transportation net revenues increased significantly due to higher pricing which more than offset a decline in volumes as we were able to leverage our contractual airfreight capacity despite significant shortages in the airfreight market.

Customs net revenues decreased driven primarily by lower volumes.

Operating expenses.

Personnel expenses increased driven by increased salary expenses due to an increase in average headcount.

SG&A expenses increased driven by increased investments in technology.

Personnel expenses decreased driven by short-term cost reductions, including furloughs and reduced work hours, in addition to declines in performance-based compensation and a decrease in average headcount.

SG&A expenses decreased driven by the elimination of non-essential travel.

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

Total revenues and direct costs.

Total revenues and direct costs increased driven by the significant increase in airfreight pricing near the end of the first quarter and throughout the second quarter of 2020 due to the impact of COVID-19.

This increase was partially offset by volume declines in all service lines.

Net revenues.

Ocean transportation net revenues decreased driven by a decline in volumes but were partially offset by increased pricing.

The acquisition of Space Cargo contributed 1.5 percentage points of ocean net revenue growth for the first sixth months of 2020.

Air transportation net revenues increased significantly due to higher pricing, which more than offset a decline in volumes as we were able to leverage our contractual airfreight capacity despite significant shortages in the airfreight market.

In addition, the acquisition of Space Cargo contributed 2.7 percentage points of net revenue growth in air transportation.

Customs net revenues decreased driven by decreased volumes.

Operating expenses.

Personnel expenses decreased driven by short-term cost reductions, including furloughs and reduced work hours, in addition to declines in performance-based compensation, partially offset by an increase in average headcount.

SG&A expenses decreased driven by the elimination of non-essential travel.

All Other and Corporate Segment Results of Operations

All Other and Corporate includes our Robinson Fresh and Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses.

Three Months Ended March 31,

(dollars in thousands) 2020 2019 % change

Three Months Ended June 30, Six Months Ended June 30,

(dollars in thousands) 2019 2018 % change 2020 2019 % change

Total revenues $ 444,734 $ 444,304 0.1 % $ 895,613 $ 861,163 4.0 %

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Total net revenues $ 71,937 $ 66,862 7.6 % $ 138,798 $ 131,876 5.2 %

Three Months Ended March 31, 2020 compared to Three Months Ended March 31, 2019

Total revenues increased driven by elevated demand at large grocers and retailers near the end of the first quarter of 2020 in our Robinson Fresh business driven by the COVID-19 outbreak.

These increases were partially offset by a decrease in demand for customers in the food service industry also resulting from the COVID-19 outbreak.

Robinson Fresh net revenues declined due to decreases in both case volumes and net revenue per case.

Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019

Total revenues increased modestly driven by increased pricing in our Robinson Fresh business as elevated demand at large grocers and retailers was partially offset with decreased demand from customers in the food service industry resulting from the COVID-19 pandemic.

The increase in Robinson Fresh was mostly offset by lower pricing in our Other Surface Transportation business.

Robinson Fresh net revenues declined due to a decrease in case volumes, partially offset by increased net revenue per case.

Managed Services net revenues increased driven by a combination of new customer wins and selling additional services to existing customers.

Other Surface Transportation net revenues increased driven by increased margin and the acquisition of Dema Service, which contributed 4.7 percentage points of growth.

Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019

Total revenues increased due to elevated demand at large grocers and retailers especially near the end of the first quarter of 2020 resulting in increased pricing in our Robinson Fresh business.

In addition, total revenues increased in Other Surface Transportation driven by increased volume and pricing including the impact of the Dema Service acquisition.

Robinson Fresh net revenues decreased driven by reduced case volumes partially offset by increased net revenue per case.

Managed Services net revenues increased driven by a combination of new customer wins and selling additional services to existing customers.

Other Surface Transportation net revenues increased primarily driven by the acquisition of Dema Service, which contributed 6.5 percentage points of growth.

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In addition, we maintain the following debt facilities as described in Note 4, Financing Arrangements (dollars in thousands):

Description Carrying Value as of March 31, 2020 Borrowing Capacity Maturity

Description Carrying Value as of June 30, 2020 Borrowing Capacity Maturity

Revolving credit facility $ — $ 1,000,000 October 2023

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We expect to use our current debt facilities and potentially other indebtedness incurred in the future to assist us in continuing to fund working capital, capital expenditures, possible acquisitions, dividends, and share repurchases, although we have temporarily suspended share repurchase activity as described below.

Cash and cash equivalents totaled $294.6 million as of March 31, 2020, and $447.9 million as of December 31, 2019.

Cash and cash equivalents held outside the United States totaled $260.0 million as of March 31, 2020, and $405.1 million as of December 31, 2019.

Working capital decreased from $1.1 billion at December 31, 2019, to $801.9 million at March 31, 2020.

Cash and cash equivalents totaled $362.2 million as of June 30, 2020 and $447.9 million as of December 31, 2019.

Cash and cash equivalents held outside the United States totaled $296.7 million as of June 30, 2020 and $405.1 million as of December 31, 2019.

Working capital decreased from $1.1 billion at December 31, 2019, to $930.5 million at June 30, 2020.

We prioritize our investments to grow the business, as we require some working capital and a relatively small amount of capital expenditures to grow.

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The following table summarizes our major sources and uses of cash and cash equivalents (dollars in thousands):

Three Months Ended March 31,

Six Months Ended June 30,

2020 2019 % change

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Acquisitions (223,230) (58,379)

Other 5,525 8

Cash used for investing activities (242,744) (89,935) 169.9 %

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Cash dividends (137,104) (139,010)

Net borrowing (payments) on debt 178,000 (5,000)

Net payments on debt (143,000) (93,000)

Other 5,329 15,272

Cash provided by (used for) financing activities 37,040 (134,793) N/M

Cash used for financing activities (343,338) (390,360) (12.0) %

Effect of exchange rates on cash and cash equivalents (5,183) 461

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Cash flow from operating activities.

Cash flow from operating activities decreased during the three months ended March 31, 2020 compared to the three months ended March 31, 2019 due to unfavorable changes in working capital and decreased earnings.

The unfavorable changes in working capital were primarily related to a sequential increase in accounts receivables associated with higher sequential gross revenues, whereas in the first quarter of 2019, accounts receivables and gross revenues declined sequentially.

Given the COVID-19 outbreak we are closely monitoring credit and collections activities to minimize risk and we are working with our customers to facilitate the movement of goods across their supply chains while also ensuring timely payment.

Cash flow from operating activities increased during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to favorable changes in working capital.

The favorable changes in working capital were primarily related to a sequential increase in accounts payable associated with increasing cost of capacity late in the second quarter of 2020.

This impact was partially offset by a sequential increase in accounts receivable.

Given the COVID-19 pandemic, we are closely monitoring credit and collections activities to minimize risk as well as working with our customers to facilitate the movement of goods across their supply chains while also ensuring timely payment.

Cash used for investing activities.

We used $223.1 million for the acquisition of Prime Distribution during the three months ended March 31, 2020.

We used $44.1 million for the acquisition of Space Cargo during the three months ended March 31, 2019.

We used $222.7 million for the acquisition of Prime Distribution during the six months ended June 30, 2020.

We used $44.1 million for the acquisition of Space Cargo and $14.2 million for the acquisition of Dema Service during the six months ended June 30, 2019.

Capital expenditures consisted primarily of investments in information technology, which are intended to increase employee productivity, automate interactions with our customers and contracted carriers, and improve our internal workflows to help expand our operating margins and grow the business.

Cash used for financing activities.

Net borrowings on debt in the three months ended March 31, 2020, were to fund operations and to fund the acquisition of Prime Distribution.

The slight increase in cash dividends was due to a $0.01 dividend increase in 2020 compared to 2019, mostly offset by a decrease in shares outstanding during the three months ended March 31, 2020, compared to the three months ended March 31, 2019.

The increase in cash used for share repurchases was due to an increase in the number of shares repurchased during the three months ended March 31, 2020, partially offset by a decrease in the average price paid per share compared to the same period of 2019.

Cash used for financing acti vities.

Net repayments on debt in the six months ended June 30, 2020 were to reduce the outstanding balance of the Receivables Securitization Facility.

The decrease in cash dividends was due to a decrease in shares outstanding during the six months ended June 30, 2020 and timing of dividends processed related to employee benefit plans, partially offset by a $0.01 per share dividend increase in 2020 compared to 2019.

The decrease in cash used for share repurchases was due to a decrease in the number of shares repurchased during the six months ended June 30, 2020 as we have temporarily suspended our share repurchase activity near the end of the first quarter of 2020 as we continue to assess the impacts of COVID-19.

In addition, the average price paid per share decreased compared to the same period of 2019.

The number of shares we repurchase, if any, during future periods will vary based on our cash position, other potential uses of our cash, and market conditions.

We have temporarily suspended our share repurchase activity as we continue to assess the impacts of COVID-19.

Although there is uncertainty related to the anticipated impact of the COVID-19 outbreak on the Company’s future results, we believe that, assuming no change in our current business plan, our available cash, together with expected future cash generated from operations, the amount available under our credit facilities, and credit available in the market, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures, and cash dividends for at least the next 12 months.

Over the long term, we remain committed to our quarterly dividend and share repurchases to enhance shareholder value, and we expect to resume our opportunistic share repurchase program in the fourth quarter of this year.

Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we believe that, assuming no change in our current business plan, our available cash, together with expected future cash generated from operations, the amount available under our credit facilities, and credit available in the market, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures, and cash dividends for at least the next 12 months.

We also believe we could obtain funds under lines of credit or other forms of indebtedness on short notice, if needed.

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Refer to the company's 2019 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates.

As of March 31, 2020, there were no material changes to our critical accounting policies and estimates.

As of June 30, 2020, there were no material changes to our critical accounting policies and estimates.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to the company’s 2019 Annual Report on Form 10-K for a complete discussion on the company’s market risk.

As of March 31, 2020, there were no material changes in market risk from those disclosed in the Company’s 2019 Annual Report on Form 10-K.

As of June 30, 2020 there were no material changes in market risk from those disclosed in the company’s 2019 Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis