C. H. ROBINSON WORLDWIDE, INC. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes. FORWARD-LOOKING INFORMATION Our quarterly report on Form 10-Q, including this discussion and analysis of our financial condition and results of operations and our disclosures about market risk, contains certain “forward-looking statements.” These statements represent our expectations, beliefs, intentions, or strategies concerning future events that, by their nature, involve risks and uncertainties. Forward-looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the effects of acquisitions or dispositions, the expected impact of recently issued accounting pronouncements, and the outcome or effects of litigation. Risks that could cause actual results to differ materially from our current expectations include, but are not limited to, changes in economic conditions, including uncertain consumer demand; 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; freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight; changes in relationships with existing contracted truck, rail, ocean, and air carriers; changes in our customer base due to possible consolidation among our customers; our ability to successfully integrate the operations of acquired companies with our historic operations; risks associated with litigation, including contingent auto liability and insurance coverage; risks associated with operations outside of the United States; risks associated with the potential impact of changes in government regulations; risks associated with the produce industry, including food safety and contamination issues; fuel price increases or decreases, or fuel shortages; cyber-security related risks; the impact of war on the economy; changes to our capital structure; risks related to the elimination of LIBOR; and other risks and uncertainties detailed in our Annual and Quarterly Reports. Therefore, actual results may differ materially from our expectations based on these and other risks and uncertainties, including those 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 as well as the updates to these risk factors included in Part II—“Item 1A, Risk Factors,” herein. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update such statement to reflect events or circumstances arising after such date. OVERVIEW C.H. Robinson Worldwide, Inc. (“C.H. Robinson,” “the company,” “we,” “us,” or “our”) is one of the largest third party logistics companies in the world. As a third party logistics provider, we enter into contractual relationships with a wide variety of transportation companies and utilize those relationships to efficiently and cost-effectively arrange the transport of our customers’ freight. We provide freight transportation services and logistics solutions to companies of all sizes, in a wide variety of industries. We operate through a network of offices in North America, Europe, Asia, Oceania, and South America. We have developed global transportation and distribution networks to provide transportation and supply chain services worldwide. As a result, we have the capability of facilitating most aspects of the supply chain on behalf of our customers. 20 Table of Contents Our net revenues are a non-GAAP financial measure calculated as total revenues less the cost of purchased transportation and related services and the cost of purchased products sourced for resale. We believe net revenues are a useful measure of our ability to source, add value, and sell services and products that are provided by third parties, and we consider net revenues to be our primary performance measurement. Accordingly, the discussion of our results of operations often focuses on the changes in our net revenues. The reconciliation of total revenues to net revenues is presented below (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues: Transportation $ 3,348,611 $ 3,638,612 $ 6,890,729 $ 7,143,544 Sourcing 279,235 270,228 542,125 516,506 Total revenues 3,627,846 3,908,840 7,432,854 7,660,050 Costs and expenses: Purchased transportation and related services 2,762,590 2,972,998 5,762,703 5,826,254 Purchased products sourced for resale 250,803 240,626 487,745 459,780 Total costs and expenses 3,013,393 3,213,624 6,250,448 6,286,034 Net revenues $ 614,453 $ 695,216 $ 1,182,406 $ 1,374,016 MARKET TRENDS 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 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. 21 Table of Contents BUSINESS TRENDS 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. This acquisition adds scale and value-added warehouse capabilities to our retail consolidation platform, adding to our global suite of services. The acquisition was effective as of February 29, 2020, and therefore the results of operations of Prime Distribution have been included as part of the North American Surface Transportation segment in our consolidated financial statements since March 1, 2020. SIGNIFICANT DEVELOPMENTS 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. 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 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. 22 Table of Contents SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS 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 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 increased 10.8 percent to $505.6 million during the six months ended June 30, 2020. 23 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS The following table summarizes our results of operations (dollars in thousands, except per share data): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 % change 2020 2019 % change Revenues: Transportation $ 3,348,611 $ 3,638,612 (8.0) % $ 6,890,729 $ 7,143,544 (3.5) % Sourcing 279,235 270,228 3.3 % 542,125 516,506 5.0 % Total revenues 3,627,846 3,908,840 (7.2) % 7,432,854 7,660,050 (3.0) % Costs and expenses: Purchased transportation and related services 2,762,590 2,972,998 (7.1) % 5,762,703 5,826,254 (1.1) % Purchased products sourced for resale 250,803 240,626 4.2 % 487,745 459,780 6.1 % Personnel expenses 300,483 338,886 (11.3) % 630,703 678,984 (7.1) % Other selling, general, and administrative expenses 125,183 128,795 (2.8) % 253,476 242,947 4.3 % Total costs and expenses 3,439,059 3,681,305 (6.6) % 7,134,627 7,207,965 (1.0) % Income from operations 188,787 227,535 (17.0) % 298,227 452,085 (34.0) % Interest and other expense (10,211) (6,615) 54.4 % (25,439) (23,755) 7.1 % Income before provision for income taxes 178,576 220,920 (19.2) % 272,788 428,330 (36.3) % Provision for income taxes 34,637 51,740 (33.1) % 50,703 97,362 (47.9) % Net income $ 143,939 $ 169,180 (14.9) % $ 222,085 $ 330,968 (32.9) % Diluted net income per share $ 1.06 $ 1.22 (13.1) % $ 1.64 $ 2.39 (31.4) % Net revenue margin percentage 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 June 30, 2020 Compared to Three Months Ended June 30, 2019 Total revenues and direct costs. 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. Lower case volume was driven by decreased demand in the food service industry which has been significantly impacted by the COVID-19 pandemic. 24 Table of Contents Net revenues. 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 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 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 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, 25 Table of Contents 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 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) % Purchased transportation and related services 2,095,736 2,385,635 (12.2) % 4,546,703 4,695,869 (3.2) % Net revenues Truckload 252,165 352,912 (28.5) % 495,851 711,943 (30.4) % LTL 105,428 121,526 (13.2) % 217,758 236,444 (7.9) % Intermodal 7,588 6,021 26.0 % 14,900 11,997 24.2 % Other 14,375 5,959 141.2 % 23,825 12,584 89.3 % Total net revenues 379,556 486,418 (22.0) % 752,334 972,968 (22.7) % Personnel expenses 153,209 187,738 (18.4) % 326,041 373,679 (12.7) % Other selling, general, and administrative expenses 89,501 93,948 (4.7) % 190,921 183,274 4.2 % Income from operations $ 136,846 $ 204,732 (33.2) % $ 235,372 $ 416,015 (43.4) % Average headcount 6,960 7,533 (7.6) % 6,981 7,486 (6.7) % Service line volume statistics Truckload (4.5) % 1.5 % LTL (2.0) % 2.5 % Intermodal — % 4.0 % 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 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 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. 26 Table of Contents 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 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. 27 Table of Contents Global Forwarding Segment Results of Operations 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 % Purchased transportation and related services 544,860 450,547 20.9 % 946,930 860,878 10.0 % Net revenues Ocean 78,734 85,389 (7.8) % 148,544 156,846 (5.3) % Air 51,541 25,212 104.4 % 78,418 51,348 52.7 % Customs 19,459 23,296 (16.5) % 40,652 45,173 (10.0) % Other 13,226 8,039 64.5 % 23,660 15,805 49.7 % Total net revenues 162,960 141,936 14.8 % 291,274 269,172 8.2 % Personnel expenses 63,322 71,045 (10.9) % 134,215 140,589 (4.5) % Other selling, general, and administrative expenses 40,863 44,273 (7.7) % 86,325 87,762 (1.6) % Income from operations $ 58,775 $ 26,618 120.8 % $ 70,734 $ 40,821 73.3 % Average headcount 4,726 4,770 (0.9) % 4,763 4,728 0.7 % Service line volume statistics Ocean (8.5) % (6.0) % Air (35.5) % (22.5) % Customs (17.0) % (10.0) % 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 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 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 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. 28 Table of Contents 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 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 % Net revenues Robinson Fresh 30,202 31,236 (3.3) % 57,660 59,894 (3.7) % Managed Services 23,503 20,099 16.9 % 46,030 40,411 13.9 % Other Surface Transportation 18,232 15,527 17.4 % 35,108 31,571 11.2 % Total net revenues $ 71,937 $ 66,862 7.6 % $ 138,798 $ 131,876 5.2 % 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. 29 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We have historically generated substantial cash from operations, which has enabled us to fund our organic growth while paying cash dividends and repurchasing stock. In addition, we maintain the following debt facilities as described in Note 4, Financing Arrangements (dollars in thousands): Description Carrying Value as of June 30, 2020 Borrowing Capacity Maturity Revolving credit facility $ — $ 1,000,000 October 2023 Senior Notes, Series A 175,000 175,000 August 2023 Senior Notes, Series B 150,000 150,000 August 2028 Senior Notes, Series C 175,000 175,000 August 2033 Receivables securitization facility (1) — 250,000 December 2020 Senior Notes (1) 592,873 600,000 April 2028 Total debt $ 1,092,873 $ 2,350,000 ______________________________________________ (1) Net of unamortized discounts and issuance costs. 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 $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. We are continually looking for acquisitions, but those acquisitions must fit our culture and enhance our growth opportunities. The following table summarizes our major sources and uses of cash and cash equivalents (dollars in thousands): Six Months Ended June 30, 2020 2019 % change Sources (uses) of cash: Cash provided by operating activities $ 505,643 $ 456,526 10.8 % Capital expenditures (25,039) (31,564) Acquisitions (223,230) (58,379) Other 5,525 8 Cash used for investing activities (242,744) (89,935) 169.9 % Repurchase of common stock (68,563) (173,622) Cash dividends (137,104) (139,010) Net payments on debt (143,000) (93,000) Other 5,329 15,272 Cash used for financing activities (343,338) (390,360) (12.0) % Effect of exchange rates on cash and cash equivalents (5,183) 461 Net change in cash and cash equivalents $ (85,622) $ (23,308) 30 Table of Contents Cash flow from operating activities. 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 $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 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. 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. Recently Issued Accounting Pronouncements Refer to Note 1, Basis of Presentation , contained in this quarterly report and in the company's 2019 Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements. CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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 June 30, 2020, there were no material changes to our critical accounting policies and estimates. ITEM 3. 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 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. 31 Table of Contents