What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-11-04 · 135 added, 199 removed, 185 unchanged (64% of the section changed)

17 unchanged sentences

our ability to successfully integrate the operations of acquired companies with our historic operations;

risks related to our search for a permanent CEO and retention of key management personnel;

climate change related risks;

risks associated with our indebtedness;

interest rate related risks;

risks associated with litigation, including contingent auto liability and insurance coverage;

risks associated with the potential impact of changes in government regulations;

our ability to hire and retain a sufficient number of qualified personnel;

risks associated with the changes to income tax regulations;

9 unchanged sentences

Robinson,” “the company,” “we,” “us,” or “our”) is one of the world's largest logistics platforms.

Our mission is to improve the world's supply chains through our people, processes, and technology by delivering exceptional value to our customers and suppliers.

We provide freight transportation services and logistics solutions to companies of all sizes in a wide variety of industries.

We operate through a network of offices in North America, Europe, Asia, Oceania, and South America.

We offer a global suite of services using tailored, market-leading solutions built by and for supply chain experts.

Our global network of supply chain experts work with our customers to drive better supply chain outcomes by leveraging our experience, data, digital solutions, and scale.

Our adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures.

Adjusted gross profit is calculated as gross profit excluding amortization of internally developed software utilized to directly serve our customers and contracted carriers.

Adjusted gross profit margin is calculated as adjusted gross profit divided by total revenues.

We believe adjusted gross profit and adjusted gross profit margin are useful measures of our ability to source, add value, and sell services and products that are provided by third parties, and we consider adjusted gross profit to be a primary performance measurement.

Accordingly, the discussion of our results of operations often focuses on the changes in our adjusted gross profit and adjusted gross profit margin.

The reconciliation of gross profit to adjusted gross profit and gross profit margin to adjusted gross profit margin is presented below (dollars in thousands):

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

2022 2021 2022 2021

We bring together customers, carriers, and suppliers to connect and grow supply chains.

We are grounded in our customer promise to use our technology, which is built by and for supply chain experts and powered by our information advantage, to deliver smarter solutions.

These global solutions, combined with the expertise of our people, deliver value–from improved cost reductions and reliability to sustainability and visibility–that our customers and carriers can rely on.

Our adjusted gross profits and adjusted gross profit margin are non-GAAP financial measures.

Adjusted gross profits is calculated as gross profits excluding amortization of internally developed software utilized to directly serve our customers and contracted carriers.

Adjusted gross profit margin is calculated as adjusted gross profits divided by total revenues.

We believe adjusted gross profits and adjusted gross profit margin are useful measures of our ability to source, add value, and sell services and products that are provided by third parties, and we consider adjusted gross profits to be a primary performance measurement.

Accordingly, the discussion of our results of operations often focuses on the changes in our adjusted gross profits and adjusted gross profit margin.

The reconciliation of gross profits to adjusted gross profits and gross profit margin to adjusted gross profit margin is presented below (dollars in thousands):

Three Months Ended March 31,

Transportation $ 4,327,965 $ 6,528,351

6 unchanged sentences

Total direct costs 3,933,347 5,915,491

Gross profit / Gross profit margin 880,737 14.6% 839,040 13.4% 2,806,172 14.3% 2,281,147 13.7%

Gross profits / Gross profit margin 678,323 14.7% 900,462 13.2%

Direct internally developed software amortization 7,317 5,734

Adjusted gross profit / Adjusted gross profit margin $ 887,194 14.7% $ 844,192 13.5% $ 2,825,003 14.4% $ 2,295,748 13.8%

Our adjusted operating margin is a non-GAAP financial measure calculated as operating income divided by adjusted gross profit.

We believe adjusted operating margin is a useful measure of our profitability in comparison to our adjusted gross profit, which we consider a primary performance metric as discussed above.

Adjusted gross profits / Adjusted gross profit margin $ 685,640 14.9% $ 906,196 13.3%

Our adjusted operating margin is a non-GAAP financial measure calculated as operating income divided by adjusted gross profits.

We believe adjusted operating margin is a useful measure of our profitability in comparison to our adjusted gross profits, which we consider a primary performance metric as discussed above.

The reconciliation of operating margin to adjusted operating margin is presented below (dollars in thousands) :

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

2022 2021 2022 2021

Three Months Ended March 31,

Total revenues $ 4,611,670 $ 6,815,953

1 unchanged sentence

Operating margin 3.5% 5.1%

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

Adjusted gross profits $ 685,640 $ 906,196

Income from operations 161,033 345,474

1 unchanged sentence

MARKET TRENDS

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.

The balance of supply and demand in the North American surface transportation market continued to shift towards a market with excess carrier capacity in the first quarter of 2023.

As shippers continue to manage through elevated inventories amidst slowing economic growth, surface transportation rates have continued to decline.

As surface transportation spot rates approach the breakeven cost per mile to operate a truck the market is likely at, or nearing, the bottom of the industry cycle which typically results in capacity exiting the market.

Conversely, the first quarter of 2022 exhibited tight carrier capacity for much of the period until the signs of market softening began to appear which have continued into 2023.

Industry freight volumes, as measured by the Cass Freight Index, were approximately flat in the first quarter of 2023 compared to the first quarter of 2022.

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 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.

The average routing guide depth of tender in the first quarter of 2023 declined to 1.2, which is the lowest level we have seen since the pandemic impacted the second quarter of 2020, compared to 1.7 average routing guide depth in the first quarter of 2022.

The average routing guide depth in the first quarter of 2023 represents that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases.

The global forwarding market continues to be negatively impacted by elevated inventory levels and the weak consumer demand experienced in the second half of 2022.

This has resulted in ocean freight rates and volumes declining even further following the period of significant declines experienced in the second half of 2022.

Several consecutive quarters of weak consumer demand has nearly eliminated the challenges from port congestion and transportation equipment shortages that were impacting the global forwarding market in recent years.

In an effort to adapt to weak consumer demand, steamship lines continue rationalizing services by reducing capacity where possible with blank sailings and slow steaming.

The slowdown of global demand also continues to significantly impact the air freight market.

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

There continues to be more than sufficient air freight capacity to support the weak demand which continues to drive rates lower in many trade lanes.

BUSINESS TRENDS

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.

Our first quarter of 2023 surface transportation results were largely consistent with the trends discussed in the market trends section.

The excess carrier capacity in the market led to significant declines in transportation rates.

This resulted in declines in both our total revenues and adjusted gross profits in the first quarter of 2023 compared to the strong results achieved in the first quarter of 2022.

The weak consumer demand combined with excess carrier capacity in the first quarter of 2023 resulted in lower adjusted gross profits per transaction, most significantly in our transactional or spot market opportunities.

Industry freight volumes as measured by the Cass Freight Index were approximately flat in the first quarter of 2023 compared to the first quarter of 2022.

Our combined NAST truckload and less than truckload (“LTL”) volume decreased 4.5 percent during the first quarter of 2023.

Our average truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 28.5 percent during the first quarter of 2023.

Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, decreased approximately 27.5 percent during the first quarter of 2023.

Our first quarter of 2023 global forwarding results were largely consistent with the trends discussed 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 levels achieved in the first quarter of 2022.

These declines were driven by the elevated inventory levels and weak consumer demand that have resulted in significant declines in both ocean and air freight rates and volumes.

Our ocean volumes decreased 14.5 percent while our air freight tonnage decreased 18.5 percent.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

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.

The following summarizes select first quarter 2023 year-over-year operating comparisons to the first quarter 2022:

• Total revenues decreased 32.3 percent to $4.6 billion, driven primarily by lower ocean and truckload pricing.

• Gross profits decreased 24.7 percent to $678.3 million.

Adjusted gross profits decreased 24.3 percent to $685.6 million, primarily driven by lower adjusted gross profits per transaction in ocean and truckload.

• Personnel expenses decreased 7.3 percent to $383.1 million, primarily due to cost optimization efforts, including lower average employee headcount, which decreased 2.1 percent, and lower variable compensation.

• Other selling, general, and administrative (“SG&A”) expenses decreased 4.0 percent to $141.5 million, primarily driven by decreased credit losses.

• Income from operations decreased 53.4 percent to $161.0 million, driven by decreased adjusted gross profits, partially offset by the decline in operating expenses.

• Adjusted operating margin of 23.5 percent declined 1,460 basis points.

• Interest and other income/expenses, net totaled $28.3 million, consisting primarily of $23.5 million of interest expense, which increased $9.0 million versus last year due primarily to higher variable interest rates, and a $9.6 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses primarily related to foreign currency impacts on intercompany assets and liabilities.

• The effective tax rate in the quarter was 13.5 percent compared to 18.4 percent in the first quarter last year.

• Net income totaled $114.9 million, down 57.5 percent from a year ago.

• Diluted earnings per share (EPS) decreased 53.2 percent to $0.96.

• 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.

• Cash flow from operations improved $268.5 million in the three months ended March 31, 2023 driven by changes in operating working capital.

CONSOLIDATED RESULTS OF OPERATIONS

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

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

2022 2021 % change 2022 2021 % change

Three Months Ended March 31,

2023 2022 % change

Transportation $ 4,327,965 $ 6,528,351 (33.7) %

15 unchanged sentences

Adjusted gross profit margin percentage (1)

Transportation 15.1 % 13.7 % 140 bps 14.6 % 14.0 % 60 bps

Sourcing 8.7 % 9.4 % (70 bps) 9.5 % 9.5 % 0 bps

Total adjusted gross profit margin 14.7 % 13.5 % 120 bps 14.4 % 13.8 % 60 bps

Transportation 15.2 % 13.5 % 170 bps

Sourcing 10.1 % 9.8 % 30 bps

Total adjusted gross profit margin 14.9 % 13.3 % 160 bps

________________________________

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A reconciliation of our reportable segments to our consolidated results can be found in Note 8, Segment Reporting, in Part I, Financial Information of this Quarterly Report on Form 10-Q.

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

Consolidated Results of Operations—Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Total revenues and direct costs.

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.

Total transportation revenues and direct costs decreased significantly primarily due to lower pricing and purchased transportation costs in ocean and truckload services, in addition to volume declines in nearly all service lines compared to the strong results in the prior year.

The declines in pricing and purchased transportation costs were driven by the slowing global demand and excess carrier capacity discussed in the market trends and business trends sections above.

This compared to the historically elevated pricing and volumes in the prior year driven by the continued supply chain disruptions that impacted the global forwarding and surface transportation markets in the first quarter of 2022.

Our sourcing total revenue and direct costs decreased driven by declining pricing and cost per case with retail customers, partially offset by increased case volume with foodservice customers.

Gross profits and adjusted gross profits.

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.

Our transportation adjusted gross profits decreased driven by lower ocean and air freight adjusted gross profits in our global forwarding business driven by the slowing global demand discussed in the market trends and business trends sections above.

Lower adjusted gross profits per transaction in truckload and LTL services from decreased pricing and lower volume in nearly all service lines also contributed to the decline in adjusted gross profits.

Sourcing adjusted gross profits increased driven by integrated supply chain solutions within the foodservice and retail verticals.

Operating expenses.

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.

Personnel expenses decreased primarily due to lower variable compensation reflecting the decline in results relative to the prior year and lower average employee headcount.

SG&A expenses decreased due to lower credit losses and lower expenditures for purchased services including temporary labor.

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.

Interest and other income/expense, net primarily consisted of interest expense of $23.5 million and a $9.6 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses primarily related to foreign currency impacts on intercompany assets and liabilities.

Interest expense increased $9.0 million during the first quarter of 2023, driven by higher variable interest rates.

The first quarter of 2022 included a $1.5 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Provision for income taxes.

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.

Our effective income tax rate was 13.5 percent for the first quarter of 2023 compared to 18.4 percent for the first quarter of 2022.

The effective income tax rate for the first quarter of 2023 was lower than the statutory federal income tax rate primarily due to the tax benefits of share-based payment awards, which reduced the effective tax rate by 5.0 percentage points, and U.S.

tax credits and incentives, which decreased the effective income tax rate by 3.8 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 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 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, 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 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 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 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.

These impacts were partially offset by a higher tax rate on state income taxes, net of federal benefit, which increased the effective income tax rate by 2.3 percentage points during the first quarter of 2023.

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

tax credits and incentives, which reduced the effective tax rate by 1.9 percentage points, and the tax benefits of share-based payment awards, which reduced the effective tax rate by 1.3 percentage points.

These impacts were partially offset by a higher tax rate on state income taxes, net of federal benefit, which increased the effective income tax rate by 1.2 percentage points in the first quarter of 2022.

NAST Segment Results of Operations

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

(dollars in thousands) 2022 2021 % change 2022 2021 % change

Three Months Ended March 31,

(dollars in thousands) 2023 2022 % change

Total revenues $ 3,304,187 $ 4,114,889 (19.7) %

5 unchanged sentences

Income from operations $ 134,022 $ 182,354 (26.5) %

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

2022 2021 % change 2022 2021 % change

Three Months Ended March 31,

2023 2022 % change

Average employee headcount 6,870 7,348 (6.5) %

1 unchanged sentence

Truckload (3.5) %

LTL (1.5) % (2.5) %

Adjusted gross profits (1)

5 unchanged sentences

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

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

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Total revenues and direct costs.

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.

NAST total revenues and direct costs decreased primarily due to significantly lower pricing and purchased transportation costs in truckload services, reflecting the excess carrier capacity and slowing economic growth discussed above in the market trends section.

These conditions resulted in continued significant declines in surface transportation rates in the current quarter versus the historically elevated levels of truckload pricing in the first quarter of 2022.

The elevated pricing and purchased transportation cost environment in the prior year was due to the tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry in the first quarter of 2022.

Gross profits and 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.

NAST adjusted gross profits decreased due to lower pricing in truckload services, resulting in lower adjusted gross profits per shipment most notably on transactional volume.

A decline in truckload volumes also contributed to the decline in NAST adjusted gross profits.

Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, decreased approximately 27.5 percent in the first quarter of 2023 compared to the first quarter of 2022.

Our truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 28.5 percent.

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

NAST LTL adjusted gross profits decreased due to lower adjusted gross profits per transaction and a decline in LTL volumes.

NAST other adjusted gross profits increased primarily driven by increased warehousing services.

Operating expenses.

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.

NAST personnel expenses decreased primarily due to lower variable compensation and lower average employee headcount.

NAST SG&A expenses decreased primarily due to a decrease in credit losses and lower expenditures for purchased services including temporary labor.

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

Allocated personnel expenses consist primarily of stock-based compensation allocated based upon segment participation levels in our equity plans.

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.

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

Total revenues and direct costs.

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 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 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 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.

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

Global Forwarding Segment Results of Operations

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

(dollars in thousands) 2022 2021 % change 2022 2021 % change

Three Months Ended March 31,

(dollars in thousands) 2023 2022 % change

Total revenues $ 789,978 $ 2,194,397 (64.0) %

5 unchanged sentences

Income from operations $ 30,116 $ 167,638 (82.0) %

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

2022 2021 % change 2022 2021 % change

Three Months Ended March 31,

2023 2022 % change

Average employee headcount 5,471 5,610 (2.5) %

1 unchanged sentence

Ocean (14.5) %

Air (16.5) % (5.0) %

Customs (14.0) %

7 unchanged sentences

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

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

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Total revenues and direct costs.

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.

Global Forwarding total revenues and direct costs decreased driven by weak consumer demand resulting in significant declines in both ocean and air freight rates and volumes discussed in the market and business trends sections above.

The prior year included strong ocean freight volumes and air freight tonnage and was significantly impacted by supply chain disruptions caused by port congestion and transportation equipment shortages that resulted in elevated pricing and direct costs.

Gross profits and adjusted gross profits.

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 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 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 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.

Customs adjusted gross profits decreased driven by a decrease in transaction volume.

Operating 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.

Personnel expenses decreased primarily due to lower variable compensation and a decrease in average employee headcount.

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

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 September 30, Nine Months Ended September 30,

(dollars in thousands) 2022 2021 % change 2022 2021 % change

Three Months Ended March 31,

(dollars in thousands) 2023 2022 % change

Total revenues $ 517,505 $ 506,667 2.1 %

Income (loss) from operations (10,243) (3,421) N/M 10,848 (6,165) N/M

Income (loss) from operations (3,105) (4,518) (31.3) %

Adjusted gross profits (1)

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

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

Total revenues and direct costs.

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 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

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Total revenues and direct costs.

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.

Total revenues and direct costs increased driven by higher truckload volume in Europe within our Other Surface Transportation business.

Gross profits and adjusted gross profits.

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 higher adjusted gross profits per transaction, partially offset by a decline in Europe truckload volumes.

Robinson Fresh adjusted gross profits increased driven by integrated supply chain solutions for foodservice and retail customers.

Managed Services adjusted gross profits increased due to growth with existing and new customers.

Other Surface Transportation adjusted gross profits increased driven by higher Europe truckload adjusted gross profits.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

Description Carrying Value as of March 31, 2023 Borrowing Capacity Maturity

Revolving credit facility $ 4,000 $ 1,000,000 November 2027

364-day revolving credit facility 274,000 500,000 May 2023

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We expect to use our current debt facilities and potentially other indebtedness incurred in the future to assist us in continuing to fund working capital, capital expenditures, possible acquisitions, dividends, and share repurchases.

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.

Cash and cash equivalents totaled $239.2 million as of March 31, 2023 and $217.5 million as of December 31, 2022.

Cash and cash equivalents held outside the United States totaled $223.2 million as of March 31, 2023 and $204.7 million as of December 31, 2022.

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

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

Nine Months Ended September 30,

Three Months Ended March 31,

2023 2022 % change

Sources (uses) of cash:

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

Cash provided by (used for) operating activities $ 254,544 $ (13,928) N/M

Capital expenditures (26,950) (26,229)

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

Sale of property and equipment — 2,250

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Cash dividends (73,435) (72,855)

Net borrowings on debt 279,000 629,701

Net (payments) borrowings on debt (101,000) 247,000

Other financing activities (375) 8,904

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Cash flow from operating activities.

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 provided by (used for) operating activities improved in the first quarter of 2023 compared to the first quarter of 2022 due to a decrease in net operating working capital driven by declining freight rates, most notably in our ocean and truckload services as discussed in the market and business trends sections.

This impact was partially offset by a decline in net income in the first quarter of 2023.

The prior year was impacted by increasing net operating working capital due to increasing pricing and volumes in nearly all services, most notably in global forwarding, which resulted in a net use of cash for operating activities in the first quarter of 2022.

We continue to closely monitor credit and collections activities and the quality of our accounts receivable balance to minimize risk as well as work 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 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.

Capital expenditures consisted primarily of investments in software, which are intended to develop 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.

Cash used for financing activities.

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.

Net payments on debt in the first quarter of 2023 were to reduce the current portion of our debt outstanding.

Net borrowings in the first quarter of 2022 were primarily to fund share repurchases and working capital needs.

The decrease in cash used for share repurchases was primarily due to a decrease in the number of shares repurchased during the first quarter of 2023.

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.

Our 364-day revolving credit facility, Senior Notes, Series A, and Receivables Securitization Facility all have maturity dates in 2023.

To the extent we reduce our outstanding debt on these facilities or our other debt facilities, it may reduce the number of shares we repurchase in 2023.

Over the long term, we remain committed to our quarterly dividend and share repurchases to enhance shareholder value.

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

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.

As of March 31, 2023, we were in compliance with all of the covenants under our debt agreements.

Recently Issued Accounting Pronouncements

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Refer to the company's 2022 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates.

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

As of March 31, 2023, there were no material changes to our critical accounting policies and estimates.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to the company’s 2022 Annual Report on Form 10-K for a discussion on the company’s market risk.

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.

As of March 31, 2023, there were no material changes in market risk from those disclosed in the company’s 2022 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