What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-10-29 compared with 2021-07-30 · 130 added, 138 removed, 260 unchanged (51% of the section changed)

37 unchanged sentences

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,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

13 unchanged sentences

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,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

6 unchanged sentences

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.

The North American surface transportation market continues to be impacted by tight carrier capacity as strong demand combined with ongoing driver availability challenges and supply chain disruptions caused by port congestion and weather events continue to drive purchased transportation costs to new historic levels.

Industry freight volumes, as measured by the Cass Freight Index, increased approximately 9 percent during the third quarter of 2021 compared to the third quarter of 2020.

This compares to an 8 percent decline for the same index during the third quarter of 2020.

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.

The average routing guide depth of tender in the third 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.

Th is routing guide penetration compares to 1.6 in the third quarter of 2020 and is reflective of the tight carrier capacity in both the third quarter of 2021 and 2020.

The global forwarding market continues to be significantly impacted by supply chain disruptions caused by ongoing port congestion along with equipment and labor shortages.

These disruptions combined with strong demand have continued to drive purchased transportation costs for both ocean and air freight to historic levels.

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.

This has 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.

Our third quarter of 2021 surface transportation results continue to be impacted by the rising cost and price environment summarized in the market trends section.

We have not, however, experienced the significant year over year volume volatility seen in the industry as measured by the Cass Freight Index.

Industry freight volumes increased approximately 9 percent during the third quarter of 2021 compared to an 8 percent decline during the third quarter of 2020.

Our combined NAST truckload and less than truckload ("LTL") volume increased 2.5 percent during the third quarter of 2021 compared to an 8.0 percent increase during the third 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.

The strong demand and tight carrier capacity conditions resulted in our average truckload linehaul cost per mile, excluding fuel costs, increasing 26.0 percent during the third quarter of 2021.

Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, increased approximately 27.0 percent during the third 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 port congestion in addition to the equipment and labor 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.

Ocean volumes increased 12.0 percent with strong growth in nearly all regions we serve driven by higher award sizes from existing customers and new customer growth.

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.

1 unchanged sentence

Our consolidated results include the results of Combinex as of June 3, 2021.

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 NAST segment in our consolidated financial statements since March 1, 2020.

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.

During the three months ended September 30, 2021, our financial results and operations were impacted by the COVID-19 pandemic and supply chain disruptions impacting the global forwarding and surface transportation markets as 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 and supply chain disruptions impact 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 COVID-19 outbreak and the actions being taken to contain and treat it in addition to actions being taken to resolve issues facing supply chains around the globe.

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 have also adopted work-from-home arrangements, and as of September 30, 2021, approximately 80 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.

4 unchanged sentences

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select second quarter 2021 year-over-year operating comparisons to the second quarter 2020:

The following summarizes select third quarter 2021 year-over-year operating comparisons to the third quarter 2020:

• Total revenues increased 48.3 percent to $6.3 billion, driven primarily by higher pricing and higher volume across most of our services.

• Gross profits increased 43.5 percent to $839.0 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.

Adjusted gross profits increased 43.3 percent to $844.2 million, primarily driven by higher adjusted gross profit per transaction and higher volume across most of our services.

• Personnel expenses increased 32.0 percent to $399.9 million, primarily due to higher incentive compensation costs and also due to the benefit realized in the third quarter of 2020 from our short-term, pandemic-related cost reductions.

Average headcount increased 7.1 percent.

• Other selling, general, and administrative (“SG&A”) expenses increased 0.4 percent to $125.7 million.

• Other selling, general, and administrative (“SG&A”) expenses increased 13.0 percent to $133.5 million, primarily due to the benefit realized in the third quarter of 2020 from our short-term, pandemic-related cost reductions.

• Income from operations totaled $310.8 million, up 84.7 percent due to the increase in adjusted gross profits.

1 unchanged sentence

• Interest and other expenses totaled $16.7 million, consisting primarily of $13.1 million of interest expense, which increased $1.2 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.

The third quarter also included a $3.8 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses.

• The effective tax rate in the quarter was 16.0 percent compared to 15.1 percent in the third quarter last year.

The rate increase was due primarily to a lower tax benefit related to stock-based compensation.

• Diluted earnings per share (EPS) increased 85.0 percent to $1.85.

• Cash flow from operations decreased $413.0 million driven by a large increase in working capital during the six months ended June 30, 2021.

• Cash flow from operations decreased $317.9 million driven by a large increase in working capital as of September 30, 2021.

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,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 % change 2021 2020 % change

16 unchanged sentences

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

Transportation 13.7 % 14.4 % (70 bps) 14.0 % 15.6 % (160 bps)

Sourcing 9.4 % 8.2 % 120 bps 9.5 % 9.4 % 10 bps

Total adjusted gross profit margin 13.5 % 13.9 % (40 bps) 13.8 % 15.2 % (140 bps)

________________________________

1 unchanged sentence

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

Consolidated Results of Operations—Three Months Ended September 30, 2021 Compared to the Three Months Ended September 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.

Total transportation revenues and purchased transportation and related services increased significantly, primarily driven by higher pricing in ocean and truckload, in addition to increased volumes in nearly all services.

The higher pricing was driven by the continued supply chain disruptions impacting both the global forwarding and surface transportation market discussed above in the market and business trends sections.

Our sourcing total revenue and purchased products sourced for resale decreased as a result of a decrease in case volume with retail customers.

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.

Our transportation adjusted gross profit increased due to increased pricing in ocean and truckload services resulting in higher adjusted gross profits per transaction in addition to volume increases in nearly all services.

Our transportation adjusted gross profit margin decreased driven by the increased cost of purchased transportation in all of our service lines.

Sourcing adjusted gross profits increased driven by an increase in case volume from sourcing managed procurement customers in the food service industry as the prior year period experienced a significant decrease in demand resulting from the COVID-19 pandemic.

This increase was partially offset by a decrease in case volume with retail customers.

Operating expenses.

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.

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 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.

Stock-based compensation expense recognized on performance-based equity awards granted prior to 2021 totaled $22.7 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.

SG&A expenses increased due to increased purchased services primarily due to the impact of short-term pandemic-related cost reductions in the prior year 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.

Interest and other expense primarily consisted of interest expense of $13.1 million in the third quarter of 2021 and a $3.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Interest expense increased driven by a higher average debt balance in the third quarter of 2021 compared to the third quarter of 2020.

The third quarter of 2020 included a $3.3 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

Our effective income tax rate was 16.0 percent for the third quarter of 2021 compared to 15.1 percent for the third quarter of 2020.

The effective income tax rate for the third quarter of 2021 was lower than the statutory federal income tax rate primarily due to a lower tax rate on foreign earnings which decreased our effective tax rate by 4.2 percentage points in the third quarter of 2021.

The effective income tax rate for the third quarter of 2020 was lower than the statutory federal income tax rate primarily due to foreign tax credits and the tax impact of share-based payment awards, which reduced the effective tax rate by 5.2 percentage points and 3.8 percentage points, respectively.

Consolidated Results of Operations—Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 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.

Total transportation revenues and purchased transportation and related services increased driven by higher pricing in nearly all services, most notably in truckload and ocean services.

Volumes also increased in nearly all services, most notably in ocean, air freight and LTL services.

The increased pricing in truckload and ocean has been driven by strong demand in addition to tight truckload carrier capacity and unprecedented supply chain disruptions in the ocean freight industry.

Our sourcing total revenue and purchased products sourced for resale decreased as a result of a decrease in case volume with retail customers.

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.

Our transportation adjusted gross profits increased driven by increased pricing in ocean and truckload services resulting in higher adjusted gross profits per transaction in addition to volume increases in our ocean, LTL, and air freight services.

Our transportation adjusted gross profit margin decreased driven by the increased cost of purchased transportation in all of our service lines.

Sourcing adjusted gross profits decreased slightly driven by lower adjusted gross profits per case, partially offset by increased case volume from customers in the food service industry which experienced a significant decrease in demand resulting from the COVID-19 pandemic in the prior year.

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.

Personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current year, an increase in average headcount, 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 $42.4 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.

SG&A expenses increased primarily due to increased purchased services driven by the impact of short-term pandemic-related cost reductions in the prior year period, partially offset by lower credit losses in the current year.

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.

Interest and other expense primarily consisted of interest expense of $38.0 million and a $8.6 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the nine months ended September 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.

Interest expense increased driven by a higher average debt balance compared to the nine months ended September 30, 2020.

The nine months ended September 30, 2020 included a $2.2 million favorable 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,

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.

Our effective income tax rate was 18.5 percent for the nine months ended September 30, 2021 and 17.3 percent for the nine months ended September 30, 2020.

The effective income tax rate for the nine months ended September 30, 2021 was lower than the statutory federal income tax rate primarily due to a lower tax rate on foreign earnings which reduced the effective tax rate by 1.5 percentage points and the combined tax impact of Global Intangible Low-tax Income ("GILTI") and Foreign Derived Intangible Income ("FDII"), which reduced the effective tax rate by 1.3 percentage

These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income t ax rate.

The effective income tax rate for the nine months ended September 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 by 4.1 percentage points, in addition to foreign tax credits which reduced the rate by 3.1 percentage points.

NAST Segment Results of Operations

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

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2021 2020 % change 2021 2020 % change

6 unchanged sentences

Income from operations $ 149,035 $ 122,526 21.6 % $ 436,911 $ 357,898 22.1 %

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 % change 2021 2020 % change

10 unchanged sentences

(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

Three Months Ended September 30, 2021 compared to the Three Months Ended September 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.

NAST total revenues increased primarily driven by higher truckload and LTL pricing and an increase in truckload and LTL volumes.

Truckload pricing has remained at historic levels during the third quarter of 2021 driven by tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry 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, higher purchased transportation costs per transaction in LTL services and volume increases in both truckload and 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.

NAST truckload adjusted gross profits increased driven primarily by increased pricing resulting in higher adjusted gross profits per transaction in addition to an increase in volume.

The increased adjusted gross profit per transaction 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 27.0 percent in the third quarter of 2021 compared to the third quarter of 2020.

Our truckload transportation costs, excluding fuel surcharges, increased approximately 26.0 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.

NAST LTL adjusted gross profits increased due to higher adjusted gross profits per transaction resulting from higher pricing and an increase in volumes.

NAST other adjusted gross profits decreased driven by lower adjusted gross profits per transaction and volume in intermodal.

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.

NAST 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 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.

expenses increased driven by increased investments in technology.

NAST SG&A expenses increased driven by increased investments in technology and increased warehouse expenses and purchased services.

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

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 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.

NAST total revenues increased due to higher pricing in truckload and, to a lesser extent, higher pricing in LTL services in addition to volume increases in both LTL and truckload services.

The increased pricing in truckload has been driven by tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry as discussed above in the market and business trends section.

The prior year was adversely impacted by weakening demand during the early stages of the COVID-19 pandemic which resulted in industry volume decreases.

Total purchased transportation and related services increased, driven by higher average truckload linehaul costs per mile in addition to higher purchased transportation costs per transaction in LTL services and volume increases in both LTL and truckload services.

Gross profits and adjusted gross profits.

NAST truckload adjusted gross profits increased driven by improved pricing as discussed above.

NAST truckload adjusted gross profits increased driven by increased adjusted gross profits per transaction due to the higher pricing discussed above.

Our average truckload linehaul rate per mile charged to our customers increased approximately 34.0 percent.

Our truckload transportation costs, excluding fuel costs, increased approximately 35.5 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.

NAST LTL adjusted gross profits increased due to increased volumes.

NAST other adjusted gross profits decreased slightly as lower adjusted gross profits per transaction and lower volume in intermodal were mostly offset by incremental warehousing services related to the acquisition of Prime Distribution.

Operating expenses.

2 unchanged sentences

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.

NAST SG&A expenses increased driven by increased investments in technology and increased warehouse expenses partially offset by a reduction in credit loss.

Global Forwarding Segment Results of Operations

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

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2021 2020 % change 2021 2020 % change

6 unchanged sentences

Income from operations $ 165,155 $ 46,299 256.7 % $ 363,956 $ 117,033 211.0 %

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 % change 2021 2020 % change

14 unchanged sentences

(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

Three Months Ended September 30, 2021 compared to the Three Months Ended September 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.

Global Forwarding total revenues and direct costs increased driven by higher pricing in our ocean services and, to a lesser extent, higher pricing in air freight and increased volumes in both our ocean and air freight services.

The higher ocean and air freight pricing and costs were driven by the continued supply chain disruptions impacting the global forwarding market discussed above in the market and business trends section.

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.

Ocean and air freight transportation adjusted gross profits increased driven by higher pricing resulting in higher adjusted gross profits per transaction in addition to an increase in 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.

Personnel expenses increased primarily due to an increase in average headcount and incentive compensation increases reflecting the strong results in the current period.

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.

Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 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 increased ocean pricing was driven by the unprecedented supply chain 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.

Ocean and air freight transportation adjusted gross profits increased driven by higher pricing resulting in higher adjusted gross profits per transaction in addition 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.

Personnel expenses increased primarily due to an increase in average headcount and incentive compensation increases reflecting the strong results in the current period.

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 and increased purchased services, 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,

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2021 2020 % change 2021 2020 % change

8 unchanged sentences

(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.

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Total revenues were essentially flat driven by higher truckload pricing and volumes in Other Surface Transportation, including a 9.5 percentage point increase from the acquisition of Combinex, which was mostly offset by a decline in our Robinson Fresh business driven by a decrease in case volume with retail customers.

Robinson Fresh adjusted gross profits increased driven by an increase in case volume primarily from sourcing managed procurement customers in the food service industry as the prior year period experienced a significant decrease in demand resulting from the COVID-19 pandemic.

This increase was partially offset by a decrease in case volume with retail customers.

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.

Other Surface Transportation adjusted gross profits increased as a result of higher adjusted gross profits per transaction and a 13.5 percentage point increase from the acquisition of Combinex.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Total revenues increased driven by higher truckload pricing and volumes in Other Surface Transportation, including a 4.5 percentage point increase from the acquisition of Combinex partially offset by a decline in Robinson Fresh driven by lower pricing.

Robinson Fresh adjusted gross profits decreased slightly driven by lower adjusted gross profits per case, partially offset by increased case volume from customers in the food service industry which experienced a significant decrease in demand resulting from the COVID-19 pandemic in the prior year.

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.

Other Surface Transportation adjusted gross profits increased primarily due to a 5.5 percentage point increase from the acquisition of Combinex.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

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

Description Carrying Value as of September 30, 2021 Borrowing Capacity Maturity

Revolving credit facility $ 632,000 $ 1,000,000 October 2023

2 unchanged sentences

Senior Notes, Series C 175,000 175,000 August 2033

Combinex credit facility 2,280 3,565 January 2027

Senior Notes (1)

4 unchanged sentences

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.

Cash and cash equivalents totaled $202.6 million as of September 30, 2021 and $243.8 million as of December 31, 2020.

Cash and cash equivalents held outside the United States totaled $170.6 million as of September 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.

1 unchanged sentence

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

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 % change

9 unchanged sentences

Other financing activities 17,937 84,007

Cash used for financing activities (118,107) (343,338) (65.6) %

Cash provided by (used for) financing activities 9,911 (274,984) N/M

Effect of exchange rates on cash and cash equivalents (2,844) 612

1 unchanged sentence

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.

Cash flow from operating activities decreased significantly during the nine months ended September 30, 2021 compared to the nine months ended September 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.

Both increases were driven by a sequential increase in pricing and volumes in nearly all services, most notably in global forwarding, during the third quarter of 2021.

The increase in accounts receivable was driven by our global forwarding business where our days sales outstanding ratio is approximately double that of our NAST business.

Despite the increase in accounts receivable, we are not experiencing a deterioration in the quality of our accounts receivables balance, and the results of the nine months ended September 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.

1 unchanged sentence

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.

We used $14.7 million for the acquisition of Combinex during the nine months ended September 30, 2021.

We used $222.7 million for the acquisition of Prime Distribution during the nine months ended September 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.

Net borrowings on debt in the nine months ended September 30, 2021 were to fund working capital needs and share repurchases.

Net repayments on debt in the nine months ended September 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 nine months ended September 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.

4 unchanged sentences

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.

As of September 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

2 unchanged sentences

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.

As of September 30, 2021, there were no material changes to our critical accounting policies and estimates.

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.

As of September 30, 2021, there were no material changes in market risk from those disclosed in the company’s 2020 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