What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-07-29 · 160 added, 166 removed, 224 unchanged (59% of the section changed)

24 unchanged sentences

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.

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.

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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,

2022 2021 2022 2021

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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,

2022 2021 2022 2021

Total revenues $ 6,015,376 $ 6,263,695 $ 19,629,804 $ 16,600,290

Operating income 469,665 260,604 815,139 483,933

Income from operations 287,609 310,769 1,102,748 794,702

Operating margin 4.8% 5.0% 5.6% 4.8%

Adjusted gross profit $ 887,194 $ 844,192 $ 2,825,003 $ 2,295,748

Operating income 469,665 260,604 815,139 483,933

Income from operations 287,609 310,769 1,102,748 794,702

Adjusted operating margin 32.4% 36.8% 39.0% 34.6%

MARKET TRENDS

The cost of purchased transportation in the North American surface transportation market remains elevated compared to pre-pandemic levels and compared to the prior year but it began to decline within the second quarter of 2022.

The decline of purchased transportation is the result of an increasingly balanced freight market compared to the tight capacity market conditions seen in recent periods.

In the second quarter of 2022, moderating consumer demand and carrier capacity entering the market has better aligned the overall demand with available carrier capacity.

Industry freight volumes, as measured by the Cass Freight Index, decreased 2 percent during the second quarter of 2022 compared to the second quarter of 2021.

The North American surface transportation market performed in a more balanced manner in the third quarter of 2022 compared to the third quarter of 2021.

Declining demand within the third quarter of 2022 has resulted in a softening market as demand better aligns with capacity available in the market and reduces freight rates.

Market conditions in the third quarter of 2021 were historically tight due to driver availability challenges and supply chain disruptions caused by port congestion and weather events.

Industry freight volumes, as measured by the Cass Freight Index, increased 3 percent in the third quarter of 2022 compared to the third quarter of 2021.

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 2022 declined to 1.4, representing that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases.

This average routing guide penetration is reflective of a more balanced freight market compared to the 1.7 average routing guide depth in both the first quarter of 2022 and the second quarter of 2021.

The global forwarding market also began to show signs of softening as shippers continue to work through elevated inventory levels and cautiously approach the upcoming peak season due to macroeconomic uncertainty and declining import demand in the United States.

The cost of purchased transportation remains elevated compared to pre-pandemic levels and compared to the prior year but it began to decline within the second quarter of 2022 as global demand declined to better align with the industry’s overall capacity.

Despite increasing activity from the ports in China reopening from their pandemic related shutdowns, the port congestion on the United States West Coast has improved due to moderating demand and the continued diversion of freight to ports in the Southern and Eastern United States.

Shippers continue to divert freight away from the United States West Coast to mitigate risk from a potential dockworker labor dispute.

Despite port congestion improving during the second quarter of 2022 on the United States West Coast there is evidence of it edging back up again in addition to increased congestion on the United States East Coast due to a higher percentage of freight being routed to their ports.

Air freight conversions back to ocean freight have continued with more shippers seeking lower supply chain costs by tolerating the longer duration of ocean freight transit.

Air freight capacity has improved in certain trade lanes due to increased belly capacity as commercial flights become more frequent after being significantly reduced during the COVID-19 pandemic.

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

The average routing guide depth of tender in the third quarter of 2022 declined to 1.3, representing that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases.

This average routing guide penetration is reflective of a softening freight market compared to the 1.7 average routing guide depth in the third quarter of 2021.

Ocean freight rates fell significantly in the third quarter of 2022 as global demand slowed.

The peak shipping season historically experienced in the third quarter of each year largely failed to materialize as shippers continued to work through elevated inventory levels and the global economy struggled with soaring inflation resulting in reduced consumer spending and macroeconomic uncertainty.

The slowdown of global demand was most evident on the United States West Coast, as ocean freight rates and volumes declined rapidly compared to other trade lanes allowing port congestion to ease.

Activity on the United States East Coast remained strong as shippers continued to divert freight to the East Coast and demand from Europe remained healthy resulting in a more gradual decline in the cost of purchased transportation relative to the United States West Coast.

The slowdown of global demand has also had a significant impact on the air freight market.

Air freight pricing and volumes have significantly declined driven by shippers maintaining higher inventory levels, declining consumer demand, and improving ocean schedule reliability resulting in less ocean freight converting into air freight.

Air freight capacity continues to improve and drive rates lower in many trade lanes due to increased belly capacity as commercial flights become more frequent after being significantly reduced during the COVID-19 pandemic.

BUSINESS TRENDS

Our second quarter of 2022 surface transportation results benefited from the softening market conditions, as periods where the cost of purchased transportation begins to decline often result in improved adjusted gross profits per transaction in our portfolio.

Industry freight volumes as measured by the Cass Freight Index decreased 2 percent in the second quarter of 2022 compared to the second quarter of 2021.

Our combined NAST truckload and less than truckload (“LTL”) volume decreased 2.5 percent during the second quarter of 2022.

As a result of the softening market conditions, our contractual rates negotiated in prior quarters contributed to an increase in our adjusted gross profit per shipment and significantly reduced the percentage of shipments with negative adjusted gross profit margins.

Our average truckload linehaul cost per mile, excluding fuel costs, decreased 5.0 percent during the second quarter of 2022.

Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, increased approximately 1.5 percent during the second quarter of 2022 due to our contractual rates negotiated in prior quarters.

In our global forwarding business, we continued to experience elevated purchased transportation costs for ocean freight, which resulted in growth in both total revenue and cost of purchased transportation compared to the second quarter of 2021.

The cost of purchased transportation began to moderate within the second quarter of 2022 as softening demand better aligned with the industry’s overall capacity.

This change in market dynamics was most evident on the Transpacific trade lane where we experienced a decline in Asia Pacific ocean volumes in the second quarter of 2022 compared to the second quarter of 2021.

Despite this decline, our total ocean volumes increased 2.5 percent due to strong growth in other regions where we operate.

Air freight tonnage decreased 6.0 percent as we experienced more customers willing to accept longer transit times by converting their freight to the increasingly balanced ocean freight market.

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.

Our surface transportation results benefited from the declining cost of purchased transportation within the third quarter of 2022, as periods where the cost of purchased transportation declines often result in improved adjusted gross profits per transaction in our portfolio.

Industry freight volumes as measured by the Cass Freight Index increased 3 percent in the third quarter of 2022 compared to the third quarter of 2021.

Our combined NAST truckload and less than truckload (“LTL”) volume decreased 0.5 percent during the third quarter of 2022.

As a result of the softening market conditions, our contractual rates negotiated in prior quarters contributed to an increase in our adjusted gross profit per shipment and reduced the percentage of shipments with negative adjusted gross profit margins.

Our average truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 17.0 percent during the third quarter of 2022.

Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, decreased approximately 13.0 percent during the third quarter of 2022.

Our third quarter of 2022 global forwarding results were largely consistent with the trends discussed above in the market trends section.

We experienced a significant decline in both total revenues and adjusted gross profits in our ocean and air freight businesses compared to the historically elevated levels achieved in the third quarter of 2021.

The third quarter of 2021 was significantly impacted by port congestion in addition to the equipment and labor shortages that resulted in elevated purchased transportation costs.

Our total ocean volumes decreased 2.5 percent driven by a decline in the Transpacific trade lane partially offset by an increase in Transatlantic shipments.

Air freight tonnage decreased 16.5 percent as we experienced more customers willing to accept longer transit times by converting their freight to the ocean freight market.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select second quarter 2022 year-over-year operating comparisons to the second quarter 2021:

• Total revenues increased 22.9 percent to $6.8 billion, driven primarily by higher pricing across most of our services and higher truckload and ocean volume.

• Gross profits and adjusted gross profits increased 37.7 percent to $1.0 billion, primarily driven by higher adjusted gross profit per transaction across most of our services and higher truckload and ocean volume.

• Personnel expenses increased 22.6 percent to $444.8 million, primarily due to higher headcount and higher incentive compensation costs.

Average headcount increased 16.2 percent.

• Other selling, general, and administrative (“SG&A”) expenses decreased 6.8 percent to $117.2 million, and included a $25.3 million gain on the sale-leaseback of a facility in Kansas City.

This was partially offset by higher purchased and contracted services and increased travel expenses.

• Income from operations totaled $469.7 million, up 80.2 percent due to the increase in adjusted gross profits, partially offset by the increase in operating expenses.

• Adjusted operating margin of 45.5 percent increased 1,070 basis points.

• Interest and other income/expenses totaled $27.4 million, consisting primarily of $17.0 million of interest expense, which increased $4.3 million versus last year due to a higher average debt balance, and $10.3 million of foreign currency revaluation and realized foreign currency gains and losses, which increased $8.4 million versus last year due primarily to a strengthening of the U.S.

Dollar versus the Euro and Yuan.

• The effective tax rate in the quarter was 21.3 percent compared to 21.6 percent in the second quarter last year.

• Net income totaled $348.2 million, up 79.7% from a year ago.

• Diluted earnings per share (EPS) increased 85.4 percent to $2.67.

• Cash flow from operations improved $158.7 million in the six months ended June 30, 2022 driven by the increase in net income, partially offset by a small unfavorable change in working capital.

The following summarizes select third quarter 2022 year-over-year operating comparisons to the third quarter 2021:

• Total revenues decreased 4.0 percent to $6.0 billion, driven primarily by lower ocean and air pricing, partially offset by higher pricing in LTL and truckload.

• Gross profits increased 5.0 percent to $880.7 million.

Adjusted gross profits increased 5.1 percent to $887.2 million, primarily driven by higher adjusted gross profit per transaction in truckload, partially offset by the lower adjusted gross profit per transaction in ocean.

• Personnel expenses increased 9.4 percent to $437.5 million, primarily due to higher average employee headcount, which increased 13.0 percent.

• Other selling, general, and administrative (“SG&A”) expenses increased 21.3 percent to $162.0 million, primarily driven by higher legal settlements, higher purchased and contracted services, and increased travel expenses.

• Income from operations decreased 7.5 percent to $287.6 million, driven by increased operating expenses partially offset by increased adjusted gross profits.

• Adjusted operating margin of 32.4 percent decreased 440 basis points.

• Interest and other income/expenses, net totaled $16.0 million, consisting primarily of $20.8 million of interest expense, which increased $7.7 million versus last year due primarily to a higher average debt balance, partially offset by a $5.2 million favorable impact from foreign currency revaluation and realized foreign currency gains and losses primarily due to a strengthening of the U.S.

Dollar versus the Yuan.

• The effective tax rate in the quarter was 16.9 percent compared to 16.0 percent in the third quarter last year.

• Net income totaled $225.8 million, down 8.6 percent from a year ago.

• Diluted earnings per share (EPS) decreased 3.8 percent to $1.78.

• Cash flow from operations improved $857.7 million in the nine months ended September 30, 2022 driven by favorable changes in operating working capital and increased net income.

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,

2022 2021 % change 2022 2021 % change

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Diluted net income per share $ 1.78 $ 1.85 (3.8) % $ 6.50 $ 4.56 42.5 %

Average headcount 17,893 15,405 16.2 % 17,554 15,233 15.2 %

Average employee headcount 18,045 15,968 13.0 % 17,652 15,482 14.0 %

Adjusted gross profit margin percentage (1)

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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, 2022 Compared to the Three Months Ended June 30, 2021

Consolidated Results of Operations—Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Total revenues and direct costs.

Total transportation revenues and purchased transportation and related services increased primarily due to higher pricing across most of our services, most notably in ocean, truckload, and LTL services, in addition to increased volumes in truckload and ocean services.

While prices remain elevated compared to pre-pandemic levels and compared to the prior year due to driver availability challenges and supply chain disruptions, including port congestion and equipment shortages, prices began to decline within the second quarter of 2022.

The decline in pricing within the second quarter of 2022 is the result of softening market conditions as demand has better aligned with capacity available in the market as shippers work through elevated inventory levels, and cautiously approach macroeconomic uncertainty and moderating consumer demand.

Our sourcing total revenue and purchased products sourced for resale increased as a result of higher cost and pricing per case and increased case volume across all customer verticals.

Total transportation revenues and direct costs decreased primarily due to significant declines in our global forwarding business driven by the slowing global demand discussed in the market trends and business trends sections above compared to the historically elevated levels achieved in the prior year.

The decrease was partially offset by an increase in total transportation revenues and direct costs in LTL and truckload services due to higher pricing and purchased transportation costs compared to the prior year.

While LTL and truckload rates remain elevated compared to the prior year, they began to decline within the third quarter of 2022.

The decline in LTL and truckload rates within the third quarter of 2022 is the result of softening market conditions as declining demand better aligns with capacity available in the market.

Our sourcing total revenue and direct costs increased driven by higher pricing and cost per case and increased case volume across the retail and foodservice customer verticals.

Gross profits and adjusted gross profits.

Our transportation adjusted gross profits increased due to elevated pricing compared to the prior year across most of our services, most notably in truckload, ocean, and LTL services, resulting in higher adjusted gross profits per transaction.

Our surface transportation adjusted gross profit per transaction increased significantly driven by the declining cost of purchased transportation within the second quarter of 2022 relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins.

Sourcing adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals.

Our transportation adjusted gross profits increased due to elevated pricing in truckload and LTL services compared to the prior year, resulting in higher adjusted gross profits per transaction.

These increases were partially offset by decreased adjusted gross profits in our global forwarding business driven by the slowing global demand discussed in the markets and business trends section above.

Our surface transportation adjusted gross profit per transaction increased driven by the declining cost of purchased transportation within the third quarter of 2022 relative to our contractual rates negotiated in prior quarters which reduced the percentage of shipments with negative adjusted gross profit margins.

Sourcing adjusted gross profits increased driven by higher adjusted gross profits per case, which is primarily related to integrated supply chain and technology services.

Operating expenses.

Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount.

SG&A expenses decreased due to a $23.5 million gain on the sale-leaseback of a facility in Kansas City and lower credit losses.

This was partially offset by higher purchased and contracted services and increased travel expenses.

Interest and other income/expense.

Interest and other income/expense primarily consisted of interest expense of $17.0 million in the second quarter of 2022 and a $10.3 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses primarily due to a strengthening of the U.S.

Dollar versus the Euro and Yuan.

Interest expense increased driven by a higher average debt balance in the second quarter of 2022 compared to the second quarter of 2021.

The second quarter of 2021 included a $1.9 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Personnel expenses increased primarily due to an increase in salaries driven by an increase in average employee headcount.

SG&A expenses increased due to increases in legal settlements, purchased and contracted services and travel expenses.

This was partially offset by lower credit losses.

Interest and other income/expense, net.

Interest and other income/expense, net primarily consisted of interest expense of $20.8 million and was partially offset by a $5.2 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses primarily due to a strengthening of the U.S.

Dollar versus the Yuan.

Interest expense increased $7.7 million during the third quarter of 2022, driven by a higher average debt balance compared to the prior year.

The third quarter of 2021 included a $3.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Provision for income taxes.

Our effective income tax rate was 21.3 percent for the second quarter of 2022 compared to 21.6 percent for the second quarter of 2021.

The effective income tax rate for the second quarter of 2022 was higher than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit, which increased the effective income tax rate by 2.0 percentage points.

This impact was partially offset by the tax impact of foreign tax credits, which reduced the effective tax rate by 1.4 percentage points.

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, and foreign income taxes which both increased our effective tax rate by 2.0 percentage points.

These impacts on the effective income tax rate were partially offset by the tax impact of foreign tax credits, which reduced the effective tax rate by 1.2 percentage points.

Consolidated Results of Operations—Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Our effective income tax rate was 16.9 percent for the third quarter of 2022 compared to 16.0 percent for the third quarter of 2021.

The effective income tax rate for the third quarter of 2022 was lower than the statutory federal income tax rate primarily due to U.S.

tax credits and incentives, which decreased the effective income tax rate by 6.2 percentage points.

This impact was partially offset by a higher tax rate on foreign earnings and state income taxes, net of federal benefit, which increased the effective income tax rate by 2.8 percentage points and 2.4 percentage points, respectively.

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.

Consolidated Results of Operations—Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Total revenues and direct costs.

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

Total transportation revenues and direct costs increased driven by higher pricing in nearly all of our service lines, most notably in ocean and truckload services.

Volumes also increased in ocean and truckload services.

Purchased transportation and related service costs remain elevated compared to pre-pandemic levels and compared to the prior year as supply chain disruptions continue to impact both the surface transportation and global forwarding markets.

While supply chain disruptions continue to drive higher costs and pricing in the period we did see evidence that the market may be softening as demand has better aligned with available capacity within the second quarter of 2022.

Our sourcing total revenue and purchased products sourced for resale increased as a result of higher cost and pricing per case and increased case volume across all customer verticals.

Purchased transportation and related service costs remain elevated compared to the prior year but did start to decline during the third quarter of 2022, most notably in ocean and air freight services.

Our sourcing total revenue and direct costs increased driven by higher pricing and cost per case across all customer verticals.

Gross profits and adjusted gross profits.

Our transportation adjusted gross profits increased due to increased pricing compared to the prior year across most of our services, most notably in truckload, ocean and LTL services resulting in higher adjusted gross profits per transaction.

Our surface transportation adjusted gross profit per transaction also benefited from the declining cost of purchased transportation within the second quarter of 2022 relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins.

Sourcing adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals.

Our transportation adjusted gross profits increased due to increased pricing compared to the prior year across most of our services, most notably in truckload, LTL, and ocean services resulting in higher adjusted gross profits per transaction.

Our surface transportation adjusted gross profit per transaction also benefited from the declining cost of purchased transportation relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins.

Sourcing adjusted gross profits increased driven by an increase in case volume across the retail and foodservice verticals and higher adjusted gross profits per case across all customer verticals.

Operating expenses.

Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount.

SG&A expenses increased primarily due to increases in purchased and contracted services, travel, and warehouse expenses, partially offset by a $23.5 million gain on the sale-leaseback of a facility in Kansas City.

Interest and other income/expense.

Interest and other income/expense primarily consisted of interest expense of $31.5 million and an $11.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the six months ended June 30, 2022 primarily due to a strengthening of the U.S.

Dollar versus the Euro and Yuan.

Interest expense increased driven by a higher average debt balance compared to the six months ended June 30, 2021.

The six months ended June 30, 2021 included a $4.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses that was 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.

Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average employee headcount.

SG&A expenses increased primarily due to increases in purchased and contracted services, legal settlements, travel, and warehouse expenses, partially offset by a $23.5 million gain on the sale-leaseback of a facility in Kansas City.

Interest and other income/expense, net.

Interest and other income/expense, net primarily consisted of interest expense of $52.3 million and a $6.6 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the nine months ended September 30, 2022 primarily due to the impact of the strengthening U.S.

Dollar versus the Euro and Australian Dollar, partially offset by a favorable impact of the strengthening U.S.

Dollar versus the Yuan.

Interest expense increased $14.3 million driven by a higher average debt balance compared to the prior year.

The prior year included an $8.6 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses that was 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.

Provision for income taxes.

Our effective income tax rate was 20.0 percent for the six months ended June 30, 2022 and 20.1 percent for the six months ended June 30, 2021.

The effective income tax rate for the six months ended June 30, 2022 was lower than the statutory federal income tax rate primarily due to the tax impact of foreign tax credits, U.S.

tax credits and incentives, and the tax impact of share-based payment awards, which reduced the effective tax rate by 1.1 percentage points, 1.0 percentage points, and 0.9 percentage points, respectively.

Our effective income tax rate was 19.2 percent for the nine months ended September 30, 2022 and 18.5 percent for the nine months ended September 30, 2021.

The effective income tax rate for the nine months ended September 30, 2022 was lower than the statutory federal income tax rate primarily due to U.S.

tax credits and incentives, the tax impact of share-based payment awards, and the tax impact of foreign tax credits, which reduced the effective tax rate by 2.3 percentage points, 1.1 percentage points, and 0.8 percentage points, respectively.

These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate by 1.9 percentage points.

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, U.S.

tax credits and incentives, and the tax impact of foreign tax credits, which reduced the effective tax rate by 1.5 percentage points, 0.9 percentage points, and 0.5 percentage points, respectively.

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 U.S.

tax credits and incentives and a lower tax rate on foreign earnings, which reduced the effective tax rate by 1.7 percentage points and 1.5 percentage points, respectively.

These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate by 1.5 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) 2022 2021 % change 2022 2021 % change

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Income from operations $ 211,899 $ 149,035 42.2 % $ 670,752 $ 436,911 53.5 %

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

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

2022 2021 % change 2022 2021 % change

Average headcount 7,552 6,580 14.8 % 7,442 6,578 13.1 %

Average employee headcount 7,493 6,764 10.8 % 7,420 6,650 11.6 %

Service line volume statistics

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(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Total revenues and direct costs.

NAST total revenues and purchased transportation and related services increased primarily due to higher pricing in truckload and LTL services, in addition to higher truckload volumes.

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

While prices remain elevated compared to pre-pandemic levels and compared to the prior year due to driver availability challenges and supply chain disruptions, including port congestion and equipment shortages, they began to decline within the second quarter of 2022.

The decline in pricing within the second quarter of 2022 is the result of softening market conditions as demand has better aligned with capacity available in the market.

NAST total revenues and direct costs increased primarily due to higher pricing and purchased transportation costs in LTL and truckload services.

While prices remain elevated compared to the prior year, they began to decline within the third quarter of 2022.

The decline in freight rates within the third quarter of 2022 is the result of softening market conditions as declining demand better aligns with capacity available in the market.

Gross profits and adjusted gross profits.

NAST adjusted gross profits increased due to increased pricing compared to the prior year in truckload and LTL services resulting in higher adjusted gross profits per transaction in addition to higher truckload volumes.

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

Our NAST adjusted gross profit per transaction increased significantly driven by the declining costs of purchased transportation within the second quarter of 2022 relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins.

Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 1.5 percent in the second quarter of 2022 compared to the second quarter of 2021.

Our truckload transportation costs, excluding fuel surcharges, decreased approximately 5.0 percent.

NAST other adjusted gross profits increased primarily driven by an increase in warehousing services and an increase in intermodal adjusted gross profits.

NAST adjusted gross profits increased due to elevated pricing in truckload and LTL services compared to the prior year, resulting in higher adjusted gross profits per transaction.

Our NAST adjusted gross profit per transaction increased driven by the declining cost of purchased transportation within the third quarter of 2022 relative to our contractual rates negotiated in prior quarters which reduced the percentage of shipments with negative adjusted gross profit margins.

Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, decreased approximately 13.0 percent in the third quarter of 2022 compared to the third quarter of 2021.

Our truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 17.0 percent.

NAST other adjusted gross profits increased primarily driven by an increase in intermodal adjusted gross profits and increased warehousing services.

Operating expenses.

NAST personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount.

NAST SG&A expenses increased due to increased investments in technology, increased expenditures for purchased services including temporary labor, and increased warehouse expense.

NAST personnel expenses increased primarily due to an increase in salaries driven by an increase in average employee headcount.

NAST SG&A expenses increased primarily due to increased legal settlements, increased investments in technology, and increased warehouse expenses.

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

1 unchanged sentence

Remaining corporate allocations, including corporate functions and technology related expenses, are primarily included within each segment’s other SG&A and allocated based upon relevant segment operating metrics.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Total revenues and direct costs.

NAST total revenues and purchased transportation and related services increased due to higher pricing in truckload and in LTL services, in addition to volume increases in truckload services.

Truckload pricing reached historic levels during the first quarter of 2022 due to tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry, however, prices started to decline within the second quarter of 2022.

The costs of purchased transportation also started to decline driven by moderating demand and capacity entering the market but remain elevated compared to the prior year.

NAST total revenues and direct costs increased due to higher pricing in truckload and LTL services, in addition to volume increases in truckload services.

Purchased transportation and related service costs remain elevated compared to the prior year but have started to decline as a result of softening market conditions as declining demand better aligns with capacity available in the market.

Gross profits and adjusted gross profits.

NAST adjusted gross profits increased due primarily to increased pricing resulting in higher adjusted gross profits per transaction, in addition to an increase in volume.

The increased adjusted gross profit per transaction was the result of the softening market conditions resulting in moderating costs for purchased transportation relative to our contractual rates negotiated in prior quarters.

This significant reduced the percentage of shipments with negative adjusted gross profit margins.

NAST adjusted gross profits increased primarily due to increased pricing in truckload and LTL services resulting in higher adjusted gross profits per transaction, in addition to an increase in volume in truckload services.

Our NAST adjusted gross profit per transaction benefited from the declining cost of purchased transportation relative to our contractual rates negotiated in prior quarters, which significantly reduced the percentage of shipments with negative adjusted gross profit margins.

Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 2.0 percent.

Our truckload transportation costs, excluding fuel surcharges, increased approximately 7.5 percent.

NAST other adjusted gross profits increased driven by an increase in warehousing services.

Our truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 1.5 percent.

NAST other adjusted gross profits increased driven by an increase in warehousing services and an increase in intermodal adjusted gross profits.

Operating expenses.

NAST personnel expense increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount.

NAST SG&A expenses increased due to increased investments in technology, increased expenditures for purchased services including temporary labor, increased warehouse expense, and a non-recurring legal expense.

NAST personnel expense increased primarily due to an increase in salaries and incentive compensation driven by an increase in average employee headcount.

NAST SG&A expenses increased due to increased investments in technology, increased legal settlements, increased expenditures for purchased and contracted services, including temporary labor, and increased warehouse expenses.

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) 2022 2021 % change 2022 2021 % change

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Income from operations $ 85,953 $ 165,155 (48.0) % $ 421,148 $ 363,956 15.7 %

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

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

2022 2021 % change 2022 2021 % change

Average headcount 5,759 4,909 17.3 % 5,690 4,832 17.8 %

Average employee headcount 5,861 5,167 13.4 % 5,735 4,951 15.8 %

Service line volume statistics

10 unchanged sentences

(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Total revenues and direct costs.

Global forwarding total revenues and purchased transportation and related services increased due to higher pricing and higher volumes in our ocean services.

The cost of purchased transportation and pricing continues to be elevated compared to pre-pandemic levels and compared to the prior year driven by the continued supply chain disruptions impacting the global forwarding market.

The market did begin to show signs of softening which resulted in prices beginning to moderate within the second quarter of 2022, most notably on the Transpacific trade lane as we experienced a decline in Asia Pacific ocean volumes.

Despite this decline, our total ocean volumes increased due to strong growth in other regions where we operate.

Air freight total revenues and purchased transportation and related services decreased driven by conversions back to ocean freight and the impact of increased air freight capacity on purchased transportation costs in certain trade lanes due to the increased frequency of commercial flights which were significantly reduced at the onset of the COVID-19 pandemic.

Global forwarding total revenues and direct costs decreased due to lower pricing and volumes in ocean and air freight services, reflecting the impact of slowing global demand discussed in the market and business trends sections above.

The prior year was significantly impacted by port congestion in addition to equipment and labor shortages that resulted in pricing and costs reaching historically elevated levels.

Decreased air freight volumes also reflected fewer ocean freight conversions than occurred in the prior year driven by shippers maintaining higher inventory levels, declining consumer demand, and improving ocean schedule reliability as port congestion improves in the current year.

Gross profits and adjusted gross profits.

Ocean freight transportation adjusted gross profits increased due to higher pricing resulting in increased adjusted gross profits per transaction, in addition to an increase in total volumes.

Air freight adjusted gross profits increased due to an increase in adjusted gross profits per transaction driven by the declining cost of purchased transportation, partially offset by a decrease in volume.

Customs adjusted gross profits increased due to an increase in transaction volume.

Ocean and air freight transportation adjusted gross profits decreased due to lower adjusted gross profits per transaction, in addition to a decrease in volume for both services.

Customs adjusted gross profits increased driven by an increase in transaction volume.

Operating expenses.

Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount.

SG&A expenses increased due to increased investments in technology and travel expenses, partially offset by favorable credit losses.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

Personnel expenses increased primarily due to an increase in salaries driven by an increase in average employee headcount.

SG&A expenses increased due to increased investments in technology.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Total revenues and direct costs.

Total revenues and purchased transportation and related services 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.

Total revenues and direct costs increased driven by higher pricing and, to a lesser extent, increased volumes in ocean services.

These increases were partially offset by lower pricing and volumes in air freight services.

The cost of purchased transportation and pricing has been elevated compared to pre-pandemic levels and compared to the prior year for much of 2022;

however, the market did soften resulting in declining purchased transportation costs and pricing in the third quarter of 2022.

Gross profits and adjusted gross profits.

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

Customs adjusted gross profits increased driven by an increase in transaction volumes.

Ocean transportation adjusted gross profits increased due to higher adjusted gross profits per transaction and increased volumes.

Air freight transportation adjusted gross profits increased due to higher adjusted gross profits per transaction, partially offset by a decrease in volumes.

Customs adjusted gross profits increased driven by an increase in transaction volume.

Operating expenses.

Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount.

SG&A expenses increased due to increased investments in technology, increased purchased services including temporary labor, and travel expenses.

Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average employee headcount.

SG&A expenses increased due to increased investments in technology, increased purchased services including temporary labor, and increased travel expenses.

These increases were partially offset by favorable credit losses.

1 unchanged sentence

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) 2022 2021 % change 2022 2021 % change

8 unchanged sentences

(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Total revenues and direct costs.

Robinson Fresh total revenues increased due to higher pricing per case and increased case volume across all customer verticals.

In addition, total revenues in Other Surface Transportation increased due to higher Europe truckload pricing.

Total revenues and direct costs increased driven by higher pricing and cost per case and increased case volume across the retail and foodservice customer verticals within our Robinson Fresh business.

Gross profits and adjusted gross profits.

Robinson Fresh adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals.

Managed Services adjusted gross profits increased due to an increase in freight under management, which was driven by growth in business with both new and existing customers.

Other Surface Transportation adjusted gross profits increased due to increased Europe truckload adjusted gross profits per transaction.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

Robinson Fresh adjusted gross profits increased driven by higher adjusted gross profits per case, which is primarily related to integrated supply chain and technology services.

Managed Services adjusted gross profits increased due to growth in adjusted gross profit per transaction.

Other Surface Transportation adjusted gross profits decreased driven by a decrease in Europe truckload adjusted gross profits.

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Total revenues and direct costs.

Robinson Fresh total revenues increased driven by higher pricing per case and increased case volume across all customer verticals.

In addition, total revenues in Other Surface Transportation increased due to higher to higher Europe truckload pricing and an increase in Europe truckload volumes.

Total revenues and direct costs increased driven by higher pricing and cost per case across all customer verticals.

In addition, total revenues and direct costs in Other Surface Transportation increased due to higher truckload pricing and purchased transportation costs in Europe, partially offset by a decline in Europe truckload volumes.

Gross profits and adjusted gross profits.

Robinson Fresh adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals.

Robinson Fresh adjusted gross profits increased driven by an increase in case volume across the retail and foodservice verticals and higher adjusted gross profits per case across all customer verticals.

Managed Services adjusted gross profits increased due to an increase in freight under management, which was driven by growth in business with both new and existing customers.

Other Surface Transportation adjusted gross profits increased due to increased Europe truckload adjusted gross profits per transaction and an increase in Europe truckload volumes.

Other Surface Transportation adjusted gross profits increased due to higher adjusted gross profits per transaction, partially offset by a decline in Europe truckload volumes.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

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

Description Carrying Value as of June 30, 2022 Borrowing Capacity Maturity

Description Carrying Value as of September 30, 2022 Borrowing Capacity Maturity

Revolving credit facility $ 104,000 $ 1,000,000 October 2023

11 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 $238.9 million as of June 30, 2022 and $257.4 million as of December 31, 2021.

Cash and cash equivalents held outside the United States totaled $204.4 million as of June 30, 2022 and $217.1 million as of December 31, 2021.

Cash and cash equivalents totaled $187.5 million as of September 30, 2022 and $257.4 million as of December 31, 2021.

Cash and cash equivalents held outside the United States totaled $172.7 million as of September 30, 2022 and $217.1 million as of December 31, 2021.

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,

2022 2021 % change

Sources (uses) of cash:

Cash provided by operating activities $ 251,329 $ 92,598 171.4 %

Cash provided by operating activities $ 876,789 $ 19,100 N/M

Capital expenditures (100,654) (52,565)

Acquisitions, net of cash acquired — (14,749)

Other investing activities 63,208 —

Sale of property and equipment 63,208 —

Cash used for investing activities (37,446) (67,314) (44.4) %

3 unchanged sentences

Other financing activities 66,818 17,937

Cash used for financing activities (257,177) (118,107) 117.7 %

Cash (used for) provided by financing activities (894,018) 9,911 N/M

Effect of exchange rates on cash and cash equivalents (15,206) (2,844)

1 unchanged sentence

Cash flow from operating activities.

Cash provided by operating activities improved in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due to increased net income, partially offset by a small unfavorable change in working capital.

Cash provided by operating activities improved in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 due to favorable changes in operating working capital due to volatility in freight costs and prices and increased net income.

We continue to closely monitor credit and collections activities and the quality of our accounts receivable balance 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 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.

During the second quarter, we sold an office building in Kansas City, Missouri, for a sales price of $55 million and recognized a gain of $23.5 million on the sale of the building in the three months ended June 30, 2022.

Capital expenditures consisted primarily of investments in software, which are intended to design and deliver scalable solutions by transforming our processes, accelerate the pace of development and prioritizing data integrity, improve our customer and carrier experience, and increase efficiency to help expand our adjusted operating margins and grow the business.

During the second quarter of 2022, we sold an office building in Kansas City, Missouri, for a sales price of $55 million and recognized a gain of $23.5 million on the sale of the building in the nine months ended September 30, 2022.

We simultaneously entered into an agreement to lease the office building for 10 years.

Cash used for financing activities.

Net borrowings on debt in the six months ended June 30, 2022 and June 30, 2021 were to fund working capital needs and share repurchases.

The increase in cash used for share repurchases was due to an increase in the number of shares repurchased and a higher average price per share during the six months ended June 30, 2022.

Net borrowings on debt in the nine months ended September 30, 2022 and September 30, 2021 were to fund working capital needs and share repurchases.

The increase in cash used for share repurchases was due to an increase in the number of shares repurchased and a higher average price per share during the nine months ended September 30, 2022.

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, 2022, we were in compliance with all of the covenants under the Credit Agreement, 364-day Credit Agreement, Note Purchase Agreement, Senior Notes, and Receivables Securitization.

As of September 30, 2022, we were in compliance with all of the covenants under the Credit Agreement, 364-day Credit Agreement, Note Purchase Agreement, Senior Notes, and Receivables Securitization Facility.

Recently Issued Accounting Pronouncements

2 unchanged sentences

Refer to the company's 2021 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates.

As of June 30, 2022, there were no material changes to our critical accounting policies and estimates.

As of September 30, 2022, there were no material changes to our critical accounting policies and estimates.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to the company’s 2021 Annual Report on Form 10-K for a discussion on the company’s market risk.

As of June 30, 2022, there were no material changes in market risk from those disclosed in the company’s 2021 Annual Report on Form 10-K.

As of September 30, 2022, there were no material changes in market risk from those disclosed in the company’s 2021 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