Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read 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; fuel price increases or decreases, or fuel shortages; competition and growth rates within the global 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; cyber-security related risks; risks associated with operations outside of the United States; 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 related to the elimination of LIBOR; risks associated with the potential impact of changes in government regulations; risks associated with the produce industry, including food safety and contamination issues; the impact of war on the economy; changes to our capital structure; changes due to catastrophic events including pandemics such as COVID-19, 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, 2020, filed with the Securities and Exchange Commission on February 19, 2021 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.
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OVERVIEW
C.H. Robinson Worldwide, Inc. (“C.H. Robinson,” “the company,” “we,” “us,” or “our”) is one of the world's largest logistics platforms. Our mission is to improve the world's supply chains through our people, processes, and technology by delivering exceptional value to our customers and suppliers. 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 offer a global suite of services using tailored, market-leading solutions built by and for supply chain experts. Our global network of supply chain experts work with our customers to drive better supply chain outcomes by leveraging our experience, data, digital solutions, and scale.
Our adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit is calculated as gross profit excluding amortization of internally developed software utilized to directly serve our customers and contracted carriers. Adjusted gross profit margin is calculated as adjusted gross profit divided by total revenues. We believe adjusted gross profit and adjusted gross profit margin are useful measures of our ability to source, add value, and sell services and products that are provided by third parties, and we consider adjusted gross profit to be a primary performance measurement. Accordingly, the discussion of our results of operations often focuses on the changes in our adjusted gross profit and adjusted gross profit margin. The reconciliation of gross profit to adjusted gross profit and gross profit margin to adjusted gross profit margin is presented below (dollars in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenues:
Transportation $ 5,240,448 $ 3,348,611 $ 9,800,675 $ 6,890,729
Sourcing 292,278 279,235 535,920 542,125
Total revenues 5,532,726 3,627,846 10,336,595 7,432,854
Costs and expenses:
Purchased transportation and related services 4,519,305 2,762,590 8,400,590 5,762,703
Purchased products sourced for resale 264,245 250,803 484,449 487,745
Direct internally developed software amortization 4,802 3,991 9,449 7,736
Total direct costs 4,788,352 3,017,384 8,894,488 6,258,184
Gross profit / Gross profit margin 744,374 13.5 % 610,462 16.8 % 1,442,107 14.0 % 1,174,670 15.8 %
Plus: Direct internally developed software amortization 4,802 3,991 9,449 7,736
Adjusted gross profit / Adjusted gross profit margin $ 749,176 13.5 % $ 614,453 16.9 % $ 1,451,556 14.0 % $ 1,182,406 15.9 %
Our adjusted operating margin is a non-GAAP financial measure calculated as operating income divided by adjusted gross profit. We believe adjusted operating margin is a useful measure of our profitability in comparison to our adjusted gross profit, which we consider a primary performance metric as discussed above. The reconciliation of operating margin to adjusted operating margin is presented below (dollars in thousands) :
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Total revenues $ 5,532,726 $ 3,627,846 $ 10,336,595 $ 7,432,854
Operating income 260,604 188,787 483,933 298,227
Operating margin 4.7 % 5.2 % 4.7 % 4.0 %
Adjusted gross profit $ 749,176 $ 614,453 $ 1,451,556 $ 1,182,406
Operating income 260,604 188,787 483,933 298,227
Adjusted operating margin 34.8 % 30.7 % 33.3 % 25.2 %
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MARKET TRENDS
The North American surface transportation market continues to be impacted by tight carrier capacity due to driver availability challenges and strong demand resulting in historically high pricing for purchased transportation. Industry freight volumes, as measured by the Cass Freight Index, increased approximately 30 percent during the second quarter of 2021 compared to the second quarter of 2020. The second quarter of 2020 was significantly impacted by the COVID-19 pandemic and restrictions in place to control the outbreak which drove down industry freight volumes by approximately 21 percent in the prior year. 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 acceptance when procuring a transportation provider. The average routing guide depth of tender in the second quarter of 2021 was 1.7, representing that on average, the first or second carrier in a shipper's routing guide was executing the shipment in most cases. This routing guide penetration compares to 1.2 in the second quarter of 2020 and is reflective of the tight carrier capacity in the second quarter of 2021. As capacity continues to tighten and routing guides continue to degrade more loads move to the spot market driving sharp increases in purchased transportation costs.
The global forwarding market continues to experience strong demand which is outpacing supply in addition to unprecedented disruptions due to port congestion and shipping container shortages. These disruptions combined with strong demand across most industries, most notably retail, have resulted in significant increases in purchased transportation costs for both ocean and air freight. Due to the unprecedented challenges in the ocean freight market conversions to air freight have become increasingly common. This resulted in a continued increase in charter flights and larger than normal shipment sizes as traditional air freight capacity remains strained by a reduction of commercial flights since the beginning of the COVID-19 pandemic.
BUSINESS TRENDS
Our second quarter of 2021 surface transportation results are largely consistent with the overall market trends summarized above, although our volume changes did not experience the significant volatility seen in the industry as measured by the Cass Freight Index. Industry freight volumes increased approximately 30 percent compared to a 21 percent decline in the second quarter of 2020. Our combined NAST truckload and less than truckload ("LTL") volume increase of 16.0 percent compared to a 3.0 percent decrease in the second quarter of 2020. We have continued to work with our customers to meet our contractual commitments since the beginning of the COVID-19 pandemic which has resulted in a higher than normal percentage of shipments with negative adjusted gross profit margins and less volatility in our combined NAST truckload and LTL volumes as compared to the Cass Freight Index. We continue to reshape our portfolio by adapting our pricing to reflect the rising cost environment and participating to a greater extent in the spot market. The strong demand and tight carrier capacity conditions resulted in our average truckload linehaul cost per mile, excluding fuel costs, increasing 47.5 percent in the second quarter of 2021. Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, increased approximately 42.0 percent in the second quarter of 2021.
In our global forwarding business, we continued to experience significant increases in purchased transportation costs for both ocean and air freight due to the disruptions and capacity shortages impacting the global forwarding market. This along with increased volumes has resulted in strong growth in both total revenue and cost of transportation for our ocean and air freight services. Ocean volumes increased 29.0 percent with strong growth in all regions we serve driven by higher award sizes from existing customers, new customer growth, and the adverse impact of the COVID-19 pandemic on the second quarter of 2020 results. In addition, we experienced strong growth in our air freight services driven by ocean freight conversions resulting from the significant disruptions experienced in the industry.
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. On June 3, 2021, we acquired Combinex Holding B.V. (“Combinex”) to further expand our European road transportation presence. Our consolidated results include the results of Combinex as of June 3, 2021.
SIGNIFICANT DEVELOPMENTS
During the three months ended June 30, 2021, 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.” The extent to which the COVID-19 pandemic impacts our financial results and operations for the remainder of 2021 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.
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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 have also adopted work-from-home arrangements, and as of June 30, 2021, over 60 percent of our employees were working remotely executing their duties and responsibilities although many of our employees began returning to our physical offices under a more flexible work model in July 2021. We do not believe these policies and initiatives will adversely impact our operations.
Due to the ongoing uncertainty around the severity and duration of the outbreak, including the emergence of COVID-19 variants, 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 2021 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 have experienced and may continue to experience reduced production and output which has resulted and could continue to result in a decrease in freight volumes across a number of industries, reducing our contractual and spot-market opportunities. In addition, a significant number of our contracted carriers have reduced and may continue to reduce their capacity or charge higher prices in light of the volatile market conditions which has reduced and may continue to reduce our adjusted gross profit margins as we honor our contractual freight rates.
SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS
The following summarizes select second quarter 2021 year-over-year operating comparisons to the second quarter 2020:
• Total revenues increased 52.5 percent to $5.5 billion, driven primarily by higher pricing and higher volume across most of our services.
• Gross profits increased 21.9 percent to $744.4 million. Adjusted gross profits increased 21.9 percent to $749.2 million, primarily driven by higher volume in our ocean, truckload, LTL and air services and higher adjusted gross profit per shipment in our ocean and truckload services.
• Personnel expenses increased 20.8 percent to $362.9 million, primarily driven by higher incentive compensation costs and also due to the benefit realized in the second quarter of 2020 from our short-term cost reduction initiatives. Average headcount increased 0.7 percent.
• Other selling, general, and administrative (“SG&A”) expenses increased 0.4 percent to $125.7 million.
• Income from operations totaled $260.6 million, up 38.0 percent due to the increase in adjusted gross profits.
• Adjusted operating margin of 34.8 percent increased 410 basis points.
• Interest and other expenses totaled $13.5 million, consisting primarily of $12.7 million of interest expense, which increased $0.4 million versus last year due to a higher average debt balance. The second quarter also included a $1.9 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses.
• The effective tax rate in the quarter was 21.6 percent compared to 19.4 percent in the second quarter last year. The rate increase was due primarily to a tax benefit in the second quarter of 2020 from delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000.
• Diluted earnings per share (EPS) increased 35.8 percent to $1.44.
• Cash flow from operations decreased $413.0 million driven by a large increase in working capital during the six months ended June 30, 2021.
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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,
2021 2020 % change 2021 2020 % change
Revenues:
Transportation $ 5,240,448 $ 3,348,611 56.5 % $ 9,800,675 $ 6,890,729 42.2 %
Sourcing 292,278 279,235 4.7 % 535,920 542,125 (1.1) %
Total revenues 5,532,726 3,627,846 52.5 % 10,336,595 7,432,854 39.1 %
Costs and expenses:
Purchased transportation and related services 4,519,305 2,762,590 63.6 % 8,400,590 5,762,703 45.8 %
Purchased products sourced for resale 264,245 250,803 5.4 % 484,449 487,745 (0.7) %
Personnel expenses 362,901 300,483 20.8 % 723,736 630,703 14.8 %
Other selling, general, and administrative expenses 125,671 125,183 0.4 % 243,887 253,476 (3.8) %
Total costs and expenses 5,272,122 3,439,059 53.3 % 9,852,662 7,134,627 38.1 %
Income from operations 260,604 188,787 38.0 % 483,933 298,227 62.3 %
Interest and other expense (13,497) (10,211) 32.2 % (24,757) (25,439) (2.7) %
Income before provision for income taxes 247,107 178,576 38.4 % 459,176 272,788 68.3 %
Provision for income taxes 53,318 34,637 53.9 % 92,082 50,703 81.6 %
Net income $ 193,789 $ 143,939 34.6 % $ 367,094 $ 222,085 65.3 %
Diluted net income per share $ 1.44 $ 1.06 35.8 % $ 2.71 $ 1.64 65.2 %
Average headcount 15,405 15,294 0.7 % 15,233 15,338 (0.7) %
Adjusted gross profit margin percentage (1)
Transportation 13.8 % 17.5 % (3.7) pts 14.3 % 16.4 % (2.1) pts
Sourcing 9.6 % 10.2 % (0.6) pts 9.6 % 10.0 % (0.4) pts
Total adjusted gross profit margin 13.5 % 16.9 % (3.4) pts 14.0 % 15.9 % (1.9) pts
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(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.
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, 2021 Compared to the Three Months Ended June 30, 2020
Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased driven by higher pricing in truckload and ocean, in addition to increased volumes in all services. The higher pricing was driven by the tightening capacity and increased demand discussed above in the market trends section. Our sourcing total revenue and purchased products sourced for resale increased due to increased case volume in the food service industry as the prior period experienced a significant decrease in demand resulting from the COVID-19 pandemic.
Gross profits and adjusted gross profits. Our transportation adjusted gross profit increased due to improved pricing in truckload and ocean services in addition to volume increases in nearly all services. Our transportation adjusted gross profit margin decreased driven by declines across most services other than truckload. Sourcing adjusted gross profit decreased driven by lower adjusted gross profits per case, partially offset by an increase in case volumes.
Operating expenses. Personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current period, an increase in average headcount, and the impact of steps taken to reduce costs in response to the
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COVID-19 pandemic in the prior period, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees and increased health insurance costs. Stock-based compensation expense recognized on performance-based equity awards granted prior to 2021 totaled $7.7 million in the current period compared to none in the prior period. SG&A expenses increased slightly due to increased purchased services which was mostly offset by the impact of an $11.5 million loss on the sale-leaseback on a company owned data center in the prior period.
Interest and other expense. Interest and other expense primarily consisted of interest expense of $12.7 million in the second quarter of 2021 and a $1.9 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses. Interest expense increased $0.4 million driven by a higher average debt balance in the second quarter of 2021 compared to the second quarter of 2020. The second quarter of 2020 included a $1.8 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses.
Provision for income taxes. Our effective income tax rate was 21.6 percent for the second quarter of 2021 compared to 19.4 percent for the second quarter of 2020. The effective income tax rate for the second quarter of 2021 was higher than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit, which increased our effective tax rate in the second quarter by 2.0 percent. This impact on the tax rate was partially offset by foreign tax impacts. The effective income tax rate for the second quarter of 2020 was lower than the statutory federal income tax rate 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 2020.
Consolidated Results of Operations—Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020
Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased driven by higher pricing in truckload and ocean services and volume increases in our LTL, ocean and air freight service s. The increased pricing in truckload and ocean has been driven by strong demand in addition to tight truckload carrier capacity and unprecedented disruptions in the ocean freight industry. Our sourcing total revenue and purchased products sourced for resale decreased due to lower pricing and costs per case which was partially offset by higher case volume in the foodservice industry as the prior year experienced a significant decrease in demand resulting from the COVID-19 pandemic.
Gross profits and adjusted gross profits . Our transportation adjusted gross profits increased driven by increased pricing in ocean and truckload services in addition to volume increases in our LTL, ocean and air freight services. Our transportation adjusted gross profit margin decreased driven by declines across most services. Sourcing adjusted gross profit decreased driven by lower adjusted gross profits per case, partially offset by an increase in case volumes.
Operating expenses. Personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current year and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior year, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees in addition to increased health insurance costs. Stock-based compensation expense recognized on performance-based equity awards granted prior to 2021 totaled $19.7 million in the current year compared to none in the prior year. Partially offsetting these increases was a 0.7 percent decrease in average headcount. SG&A expenses decreased primarily due to lower credit losses and travel expenses. The prior year also included 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 $24.9 million and a $4.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the six months ended June 30, 2021. These expenses were partially offset by a $2.9 million local government subsidy in Asia for achieving specified performance criteria that was almost entirely offset by a reduction in foreign tax credits within the provision for income taxes. Interest expense was essentially flat compared to the six months ended June 30, 2020. The six months ended June 30, 2020 included a $1.1 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.
Provision for income taxes. Our effective income tax rate was 20.1 percent for the six months ended June 30, 2021 and 18.6 percent for the six months ended June 30, 2020. The effective income tax rate for the six months ended June 30, 2021 was lower than the statutory federal income tax rate primarily due to the tax impact of share-based payment awards, which reduced the rate by 1.5 percentage points, the combined tax impact of Global Intangible Low-tax Income ("GILTI") and Foreign Derived Intangible Income ("FDII"), which reduced the effective tax rate by 0.6 percentage points, and foreign tax impacts which reduced the effective tax rate by 0.5 percentage points. These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate. The effective income tax rate for the six months ended June 30, 2020 was lower the statutory federal income tax rate primarily due to the tax impact of share-based payment awards,
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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.
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NAST Segment Results of Operations
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2021 2020 % change 2021 2020 % change
Total revenues $ 3,585,481 $ 2,475,292 44.9 % $ 6,796,904 $ 5,299,037 28.3 %
Costs and expenses:
Purchased transportation and related services 3,148,885 2,095,736 50.3 % 5,939,200 4,546,703 30.6 %
Personnel expenses 185,253 153,209 20.9 % 369,182 326,041 13.2 %
Other selling, general, and administrative expenses 100,251 89,501 12.0 % 200,646 190,921 5.1 %
Total costs and expenses 3,434,389 2,338,446 46.9 % 6,509,028 5,063,665 28.5 %
Income from operations $ 151,092 $ 136,846 10.4 % $ 287,876 $ 235,372 22.3 %
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 % change 2021 2020 % change
Average headcount 6,580 6,960 (5.5) % 6,578 6,981 (5.8) %
Service line volume statistics
Truckload 6.0 % (0.5) %
LTL 23.5 % 19.0 %
Adjusted gross profits (1)
Truckload $ 286,574 $ 252,165 13.6 % $ 566,878 $ 495,851 14.3 %
LTL 128,155 105,428 21.6 % 248,272 217,758 14.0 %
Other 21,867 21,963 (0.4) % 42,554 38,725 9.9 %
Total adjusted gross profits $ 436,596 $ 379,556 15.0 % $ 857,704 $ 752,334 14.0 %
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(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.
Three Months Ended June 30, 2021 compared to the Three Months Ended June 30, 2020
Total revenues and direct costs. NAST total revenues increased primarily driven by higher truckload pricing and an increase in LTL and truckload volumes. Truckload pricing reached historic levels in the second quarter of 2021 driven by tight carrier capacity and strong demand as discussed above in the market trends section. Total purchased transportation and related services increased, driven by higher average truckload linehaul costs per mile and, to a lesser extent, truckload and LTL volume increases and higher purchased transportation costs per transaction in LTL services.
Gross profits and adjusted gross profits. NAST truckload adjusted gross profits increased driven primarily by increased volumes and improved pricing. NAST truckload adjusted gross profit per load increased 7 percent in the second quarter of 2021 compared to the second quarter of 2020. The improved pricing in truckload was the result of an increase in spot market opportunities and continued progress repricing our contractual truckload business to reflect the rising cost environment. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 42.0 percent in the second quarter of 2021 compared to the second quarter of 2020. Our truckload transportation costs, excluding fuel surcharges, increased approximately 47.5 percent.
NAST LTL adjusted gross profits increased due to increased volumes, partially offset by a slight decrease in adjusted gross profits per transaction.
NAST other adjusted gross profits decreased slightly as a small decrease in intermodal adjusted gross profits was mostly offset by an increase in warehousing services.
Operating expenses. NAST personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current period and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior period, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees. These increases were partially offset by a decrease in average headcount. NAST SG&A
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expenses increased driven by increased investments in technology. The operating expenses of NAST and all other segments include allocated corporate expenses.
Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020
Total revenues and direct costs. NAST total revenues increased due to increased pricing in truckload and, to a lesser extent, increased volumes in LTL services. These increases were partially offset by a slight decrease in truckload volumes. The increased pricing in truckload has been driven by tight carrier capacity and strong demand in the current year. The prior year was adversely impacted by weakening demand during the early stages of the COVID-19 pandemic which resulted in a declining cost environment as industry volumes decreased. Total purchased transportation and related services increased, driven by higher average truckload linehaul costs per mile in addition to higher volumes in LTL services.
Gross profits and adjusted gross profits. NAST truckload adjusted gross profits increased driven by improved pricing as discussed above. Our average truckload linehaul rate per mile charged to our customers increased approximately 37.5 percent. Our truckload transportation costs, excluding fuel costs, increased approximately 41.0 percent.
NAST LTL adjusted gross profits increased due to increased volumes partially offset by lower adjusted gross profit per transaction. The acquisition of Prime Distribution contributed 1.5 percentage points to LTL adjusted gross profit growth.
NAST other adjusted gross profits increased primarily due to incremental warehousing services related to the acquisition of Prime Distribution.
Operating expenses. NAST personnel expense increased primarily due to incentive compensation increases reflecting the strong results in the current year and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior year, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees. These increases were partially offset by a decrease in average headcount. NAST SG&A expenses increased driven by increased investments in technology, and the ongoing expenses of Prime Distribution, partially offset by a reduction in credit loss.
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Global Forwarding Segment Results of Operations
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2021 2020 % change 2021 2020 % change
Total revenues $ 1,450,794 $ 707,820 105.0 % $ 2,606,833 $ 1,238,204 110.5 %
Costs and expenses:
Purchased transportation and related services 1,212,040 544,860 122.4 % 2,153,779 946,930 127.4 %
Personnel expenses 82,936 63,322 31.0 % 163,945 134,215 22.2 %
Other selling, general, and administrative expenses 47,606 40,863 16.5 % 90,308 86,325 4.6 %
Total costs and expenses 1,342,582 649,045 106.9 % 2,408,032 1,167,470 106.3 %
Income from operations $ 108,212 $ 58,775 84.1 % $ 198,801 $ 70,734 181.1 %
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 % change 2021 2020 % change
Average headcount 4,909 4,726 3.9 % 4,832 4,763 1.4 %
Service line volume statistics
Ocean 29.0 % 28.0 %
Air (1)
42.5 % 44.0 %
Customs 34.0 % 23.0 %
Adjusted gross profits (2)
Ocean $ 150,916 $ 78,734 91.7 % $ 286,312 $ 148,544 92.7 %
Air 52,179 51,541 1.2 % 97,426 78,418 24.2 %
Customs 25,512 19,459 31.1 % 49,735 40,652 22.3 %
Other 10,147 13,226 (23.3) % 19,581 23,660 (17.2) %
Total adjusted gross profits $ 238,754 $ 162,960 46.5 % $ 453,054 $ 291,274 55.5 %
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(1) Beginning in the second quarter of 2021 reported air volumes represent metric tons shipped. Previously reported statistics were based on transactional volumes and have been restated to conform with the current period presentation.
(2) Adjusted gross profit margin is a non-GAAP financial measure explained above.
Three Months Ended June 30, 2021 compared to the Three Months Ended June 30, 2020
Total revenues and direct costs. Global Forwarding total revenues and direct costs increased driven by higher pricing in our ocean services and, to a lesser extent, higher volumes in both our ocean and air freight services. The increased ocean pricing was driven by the unprecedented disruptions impacting the industry combined with strong demand as discussed above in the market trends section. The second quarter of 2020 was also severely impacted by reduced demand and production due to the COVID-19 pandemic which led to significant volume declines all services in the prior year. Increased air freight volumes were driven by ocean freight conversions resulting from the significant disruptions experienced in the industry and the continued increase in charter flights and larger than normal shipment sizes as traditional air freight capacity remains strained by a reduction of commercial flights.
Gross profits and adjusted gross profits. Ocean transportation adjusted gross profits increased driven by higher pricing and an increase in volumes. Air transportation adjusted gross profits increased due to increased volumes. Customs adjusted gross profits increased driven by an increase in transaction volume.
Operating expenses. Personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current period and an increase in average headcount. The prior period included the impact of steps taken to reduce costs in response to the COVID-19 pandemic, including furloughs and reduced work hours. SG&A expenses increased driven by increased investments in technology, partially offset by a reduction of amortization expense due to the completion of amortization related to intangible assets from a prior acquisition.
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Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020
Total revenues and direct costs. Total revenues and direct costs increased driven by higher pricing and volumes in our ocean services and, to a lesser extent, higher pricing and volumes in our air freight services. The increased ocean pricing was driven by the unprecedented disruptions impacting the industry combined with strong demand. The first half of 2020 was also severely impacted by reduced demand and production due to the COVID-19 pandemic which led to significant volume declines in all services in the prior year.
Gross profits and adjusted gross profits. Ocean transportation adjusted gross profits increased driven by higher pricing and increased volumes. Air transportation adjusted gross profits increased due to increased volumes. Customs adjusted gross profits increased driven by an increase in transaction volumes.
Operating expenses. Personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current period and an increase in average headcount. The prior year included the impact of steps taken to reduce costs in response to the COVID-19 pandemic, including furloughs and reduced work hours. SG&A expenses increased driven by increased investments in technology, partially offset by a reduction of amortization expense due to the completion of amortization related to intangible assets from a prior acquisition.
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) 2021 2020 % change 2021 2020 % change
Total revenues $ 496,451 $ 444,734 11.6 % $ 932,858 $ 895,613 4.2 %
Income from operations 1,300 (6,834) N/M (2,744) (7,879) N/M
Adjusted gross profits (1)
Robinson Fresh 29,940 30,202 (0.9) % 54,888 57,660 (4.8) %
Managed Services 26,234 23,503 11.6 % 51,790 46,030 12.5 %
Other Surface Transportation 17,652 18,232 (3.2) % 34,120 35,108 (2.8) %
Total adjusted gross profits $ 73,826 $ 71,937 2.6 % $ 140,798 $ 138,798 1.4 %
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(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.
Three Months Ended June 30, 2021 compared to the Three Months Ended June 30, 2020
Total revenues increased driven by higher truckload pricing and volumes in Other Surface Transportation and increased case volume from customers in the food service industry in our Robinson Fresh business as the prior year period experienced a significant decrease in demand resulting from the COVID-19 pandemic.
Robinson Fresh adjusted gross profits declined slightly as lower adjusted gross profits per case were mostly offset by an increase in case volume primarily from customers in the food service industry. Managed Services adjusted gross profits increased driven by increased transaction volumes resulting from an increase in freight under management. Other Surface Transportation adjusted gross profits decreased as a result of a decrease in adjusted gross profits per transaction, partially offset by an increase in truckload volumes.
Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020
Total revenues increased driven by higher truckload pricing and volumes in Other Surface Transportation partially offset by a decline in Robinson Fresh driven by lower pricing.
Robinson Fresh adjusted gross profits decreased driven by lower adjusted gross profits per case, partially offset by an increase in case volumes. Managed Services adjusted gross profits increased driven by increased transaction volumes resulting from an increase in freight under management. Other Surface Transportation adjusted gross profits decreased as a result of a decrease in adjusted gross profits per transaction, partially offset by an increase in truckload volumes.
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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, 2021 Borrowing Capacity Maturity
Revolving credit facility $ 271,000 $ 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
Combinex credit facility 2,280 3,565 January 2027
Senior Notes (1)
593,733 600,000 April 2028
Total debt $ 1,367,013 $ 2,103,565
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(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.
Cash and cash equivalents totaled $172.8 million as of June 30, 2021 and $243.8 million as of December 31, 2020. Cash and cash equivalents held outside the United States totaled $160.1 million as of June 30, 2021 and $230.9 million as of December 31, 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,
2021 2020 % change
Sources (uses) of cash:
Cash provided by operating activities $ 92,598 $ 505,643 (81.7) %
Capital expenditures (29,837) (25,039)
Acquisitions, net of cash acquired (14,749) (223,230)
Other investing activities — 5,525
Cash used for investing activities (44,586) (242,744) (81.6) %
Repurchase of common stock (262,904) (68,563)
Cash dividends (139,756) (137,104)
Net borrowing (payments) on debt 270,962 (143,000)
Other financing activities 13,591 5,329
Cash used for financing activities (118,107) (343,338) (65.6) %
Effect of exchange rates on cash and cash equivalents (898) (5,183)
Net change in cash and cash equivalents $ (70,993) $ (85,622)
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Cash flow from operating activities. Cash flow from operating activities decreased significantly during the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to unfavorable changes in working capital. The unfavorable changes in working capital were primarily related to a sequential increase in accounts receivable and contract assets partially offset by a related increase in accounts payable and accrued transportation expense. Both increases were driven by a sequential increase in pricing and volumes in nearly all services in the second quarter of 2021. Despite the increase in accounts receivables, we are not experiencing a deterioration in the quality of our accounts receivables balance, and the results of the six months ended June 30, 2021 include sequential and year-over-year improvements in the percent of accounts receivable that are past due. Additionally, 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. Capital expenditures consisted primarily of investments in hardware and software, which are intended to increase employee productivity, automate interactions with our customers and contracted carriers, and improve our internal workflows to help expand our adjusted operating margins and grow the business. We used $14.7 million for the acquisition of Combinex during the six months ended June 30, 2021. We used $222.7 million for the acquisition of Prime Distribution during the six months ended June 30, 2020.
Cash used for financing activities. Net borrowings on debt in the six months ended June 30, 2021 were to fund share repurchases and working capital needs. Net repayments on debt in the six months ended June 30, 2020 were used to reduce the outstanding balance of the Receivables Securitization Facility. The increase in cash used for share repurchases was due to an increase in the number of shares repurchased during the six months ended June 30, 2021 as we temporarily suspended our share repurchase activity in 2020 as we continued to assess the impacts of the COVID-19 pandemic. 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. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We may seek to retire or purchase our outstanding Senior Notes through open market cash purchases, privately negotiated transactions or otherwise.
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.
As of June 30, 2021, we were in compliance with all of the covenants under the Credit Agreement, Note Purchase Agreement, and Senior Notes.
Recently Issued Accounting Pronouncements
Refer to Note 1, Basis of Presentation , contained in this quarterly report and in the company's 2020 Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to the company's 2020 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates. As of June 30, 2021, 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 2020 Annual Report on Form 10-K for a discussion on the company’s market risk. As of June 30, 2021 there were no material changes in market risk from those disclosed in the company’s 2020 Annual Report on Form 10-K.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.