What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-02-17 · 128 added, 136 removed, 279 unchanged (49% of the section changed)

6 unchanged sentences

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

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

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.

1 unchanged sentence

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

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

Twelve Months Ended December 31,

8 unchanged sentences

Total direct costs 15,025,455 21,128,935 19,970,257

Gross profit / Gross profit margin 3,567,690 14.4 % 3,131,881 13.6 % 2,395,623 14.8 %

Gross profits / Gross profit margin 2,570,988 14.6 % 3,567,690 14.4 % 3,131,881 13.6 %

Direct internally developed software amortization 33,620 25,487 20,208

12 unchanged sentences

MARKET TRENDS

The cost of purchased transportation in the North American surface transportation market declined significantly over the course of 2022 as excess carrier capacity combined with slowing demand led to softening market conditions.

This compared to extremely tight market conditions in 2021 as strong demand combined with challenges due to driver availability and supply chain disruptions drove purchased transportation costs to historic levels.

Many of these challenges improved over the course of 2022, allowing routing guides to perform more efficiently, which resulted in a comparatively soft market versus 2021.

Industry freight volumes, as measured by the Cass Freight Index, were flat in 2022, compared to a 13 percent increase in 2021.

The North America surface transportation market continues to experience weak freight demand combined with excess carrier capacity, which is resulting in an oversupplied and very competitive market.

These conditions are typically referred to as a soft market and have existed throughout most of 2023 with transportation rates at, or near, the estimated cost to operate a truck.

This compared to historically elevated transportation rates in the first half of 2022 before global demand began to slow and market conditions began to soften in the middle 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 at the end of 2022 declined to 1.2, 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 at the end of 2021.

The cost of purchased transportation fell significantly in the global forwarding market in the second half of 2022 as global demand slowed in most trade lanes.

The peak shipping season historically experienced in the second half of each year, which would typically drive elevated rates and volumes, remained uncharacteristically soft.

Shippers in the U.S.

and Europe continue to struggle with elevated inventory levels as consumer demand has been negatively impacted by inflation and macroeconomic uncertainty.

In an effort to adapt to this slowing demand, steamship lines continue to rationalize services by reducing capacity where possible with blank sailings and slow steaming.

All of these factors have allowed port congestion to ease in many parts of the world.

As with the North American surface transportation market, this compared to extremely tight market conditions in 2021 as strong demand combined with supply chain disruptions caused by port congestion along with equipment and labor shortages drove purchased transportation to historic levels in 2021 and the first half of 2022.

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 eliminating ocean freight to air freight conversions.

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.

Average routing guide depth has remained low throughout 2023 and finished the year at 1.2, representing that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases.

Average routing guide depth started at 1.7 in 2022 before the softening market conditions resulted in a decline to 1.2 at the end of 2022 and holding at those levels throughout 2023.

Similar to the North America surface transportation market, the global forwarding market was soft throughout 2023 as ocean vessel capacity has continued to expand relative to demand.

These softening market conditions began in the middle of 2022 and continued throughout 2023.

New vessel deliveries are expected to continue in the near term and further increase capacity in the industry and put downward pressure on ocean freight rates into the coming year.

Partially offsetting these factors are global disruptions, which are impacting the capacity market and resulting in transit interruptions and vessel reroutings.

These are expected to strain capacity in the coming year and result in elevated pricing, although the timeline to resolve these disruptions remains unclear.

There continues to be more than sufficient air freight capacity in the market, which has kept air freight rates suppressed throughout 2023.

BUSINESS TRENDS

Our 2022 surface transportation results benefited from the declining cost of purchased transportation over the course of the year, as periods where the cost of purchased transportation declines often result in improved adjusted gross profits per shipment in our portfolio.

Industry freight volumes as measured by the Cass Freight Index were flat in 2022 compared to the prior year.

Our combined NAST truckload and less than truckload (“LTL”) volume decreased 1.0 percent in 2022 compared to the prior year.

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 2023 surface transportation results were largely consistent with the trends discussed in the market trends section.

The weak freight demand and excess carrier capacity in the market has resulted in most shipments moving under committed pricing agreements and suppressed freight rates on the limited number of shipments reaching the spot market.

This resulted in declines in both our total revenues and adjusted gross profits in 2023.

This compared to the prior year where surface transportation rates were declining from historically elevated levels, which benefited our results in 2022 as periods where the cost of transportation declines often results in improved adjusted gross profits per shipment in our portfolio.

Our average truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 18.5 percent during 2023.

1 unchanged sentence

Our 2023 Global Forwarding results were largely consistent with the trends discussed above in the market trends section.

We experienced elevated purchased transportation costs and volume growth for ocean freight in the first half of 2022 and saw those purchased transportation costs and volumes rapidly decline in the second half of 2022.

Our total ocean freight volumes decreased 0.5 percent for the full year of 2022.

Air freight tonnage decreased 9.0 percent as we experienced more customers willing to accept longer transit times in the ocean freight market, which was also aided by the improved schedule reliability for ocean freight.

We experienced a decline in both total revenues and adjusted gross profits in our ocean and air freight businesses in 2023 compared to the prior year.

These declines were largely driven by the weak global demand and the excess ocean vessel capacity in the market during 2023.

The prior year benefited from elevated demand and higher transportation rates in the first half of 2022 before they began to rapidly decline in the second half of 2022 and into 2023.

Our total ocean freight volumes decreased 5.0 percent while our air freight tonnage decreased 6.5 percent in 2023.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

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

• Total revenues increased 6.9 percent to $24.7 billion, driven primarily by higher pricing in truckload, LTL, and ocean services.

• Gross profits increased 13.9 percent to $3.6 billion.

Adjusted gross profits increased 14.0 percent to $3.6 billion, primarily driven by higher adjusted gross profit per transaction in truckload and LTL services.

• Personnel expenses increased 11.6 percent to $1.7 billion, primarily due to 11.7 percent increase in average employee headcount.

• Selling, general, and administrative (“SG&A”) expenses increased 14.6 percent to $603.4 million, primarily due to increases in purchased and contracted services, legal settlements, travel expenses, and an impairment of internally developed software, partially offset by a $25.3 million gain on the sale-leaseback of our Kansas City regional center and a decrease in credit losses.

• Income from operations totaled $1.3 billion, up 17.1 percent from last year, primarily due to an increase in adjusted gross profits, partially offset by the increase in operating expenses.

Adjusted operating margin of 35.3 percent increased 100 basis points.

• Interest and other expenses, net totaled $100.0 million, which primarily consisted of $77.1 million of interest expense, which increased $25.0 million versus last year due to a higher average debt balance.

The current year also included a $23.5 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses, which increased $8.4 million versus last year primarily due to foreign currency revaluation on intercompany assets and liabilities denominated in U.S.

Dollars in countries where the U.S.

Dollar is not the functional currency.

• Total revenues decreased 28.7 percent to $17.6 billion, primarily driven by lower pricing in our ocean and truckload services.

• Gross profits decreased 27.9 percent to $2.6 billion.

Adjusted gross profits decreased 27.5 percent to $2.6 billion, primarily driven by lower adjusted gross profits per transaction in truckload and ocean services.

• Personnel expenses decreased 14.9 percent to $1.5 billion, primarily due to cost optimization efforts and lower variable compensation.

Average employee headcount decreased 8.9 percent.

• Other selling, general, and administrative (“SG&A”) expenses increased 3.5 percent to $624.3 million, primarily due to a $25.3 million gain on the sale-leaseback of our Kansas City regional center recorded in the prior year, partially offset by decreased purchased and contracted services in the current year.

• Income from operations totaled $514.6 million, down 59.4 percent from last year, due to a decline in adjusted gross profits, partially offset by the decline in operating expenses.

Adjusted operating margin of 19.8 percent decreased 1,550 basis points.

• Interest and other expenses, net totaled $105.4 million, which primarily consisted of $90.2 million of interest expense, which increased $13.1 million versus last year due to higher average variable interest rates.

The current year results also included a $24.4 million net loss from foreign currency revaluation and realized foreign currency gains and losses.

• The effective tax rate for 2023 was 20.5 percent compared to 19.4 percent in 2022.

The lower rate in the year-ago period was due primarily to a favorable mix of foreign earnings and an increased benefit related to U.S.

tax credits and incentives.

• Net income totaled $940.5 million, up 11.4 percent from a year ago.

Diluted earnings per share increased 17.3 percent to $7.40.

• Cash flow from operations increased significantly to $1.7 billion.

The higher rate in 2023 was due primarily due to the higher tax rate on foreign earnings and the impact of the Section 199 domestic production activities settlement, partially offset by the tax impact of foreign tax credits.

• Net income totaled $325.1 million, down 65.4 percent from a year ago.

Diluted earnings per share decreased 63.2 percent to $2.72.

CONSOLIDATED RESULTS OF OPERATIONS

35 unchanged sentences

Total revenues and direct costs.

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

These increases were partially offset by volume declines in most of our service lines.

The cost of purchased transportation remained historically elevated in the first half of 2022 as the industry continued to struggle with elevated inventory levels and supply chain disruptions due to port congestion and driver and equipment shortages.

As global demand began to slow in the middle of 2022, the cost of purchased transportation began to decline, allowing port congestion and challenges due to driver and equipment shortages to ease.

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

Total transportation revenues and direct costs decreased driven by lower pricing and freight costs in nearly all service lines, most notably ocean and truckload services.

In addition, volume declined in nearly all transportation services compared to the prior year.

Transportation rates have declined from the prior year driven by the weak freight demand combined with excess carrier capacity experienced throughout most of 2023 in both the surface transportation and global forwarding markets.

Transportation rates remained historically elevated for the first half of 2022 before global demand began to slow and market conditions began to soften in the middle of 2022 and continued throughout 2023.

Our sourcing total revenue and direct costs increased, driven by an increase in case volume with foodservice and retail customers.

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 lines, most notably in our truckload and LTL services resulting in higher adjusted gross profits per transaction.

Our surface transportation adjusted gross profit per transaction benefited from the declining cost of purchased transportation relative to our contractual rates negotiated in prior quarters.

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

Our transportation adjusted gross profits decreased due to lower adjusted gross profits per transaction in truckload and ocean services, in addition to decreased volumes in nearly all service lines.

The lower adjusted gross profits per transaction was driven by the weak freight demand and excess capacity in the surface transportation and global forwarding markets discussed in the market trends and business trends sections above, which have suppressed freight rates in the twelve months ended December 31, 2023.

Our prior year surface transportation adjusted gross profits per transaction benefited from market conditions beginning to soften, resulting in the declining cost of purchased transportation relative to our contractual rates negotiated in prior quarters.

Similarly, freight demand and transportation rates remained historically elevated in the first half of 2022 in the global forwarding market until they began to rapidly decline in the second half of 2022 and into 2023.

Sourcing adjusted gross profits increased, driven by integrated supply chain solutions for foodservice and wholesale customers as well as increased pricing and volume in the retail industry.

Operating expenses.

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

These increases were partially offset by a reduction in stock-based compensation expense as the prior year included significant stock-based compensation expense on performance-based equity awards granted prior to 2021.

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

These increases were partially offset by a $23.5 million gain on the sale-leaseback of a facility in Kansas City and lower credit losses.

Operating expenses in 2022 also included the impact of organizational changes made to support our enterprise strategy of accelerating our digital transformation and productivity initiatives.

In connection with these organizational changes, we recorded $21.5 million of personnel expense, primarily related to severance, and $15.2 million of other SG&A expenses, primarily due to the impairment of certain capitalized internally developed software projects as a result of these restructuring initiatives.

Personnel expenses decreased primarily due to cost optimization efforts including lower average employee headcount in addition to lower variable compensation decreased reflecting the decline in results relative to the prior year.

Other SG&A expenses increased primarily due to a $23.5 million gain on the sale-leaseback of a facility in Kansas City in the prior year.

This increase was partially offset by decreased purchased and contracted services, including temporary labor in 2023.

Operating expenses in 2023 also included $18.4 million of severance and related expenses primarily related to our 2022 Restructuring Program and $19.6 million of other SG&A expenses related to exit and disposal costs including asset impairments from our South American Restructuring Program.

Operating expenses in 2022 included $21.5 million of severance and related expenses and $15.2 million of other SG&A expenses, primarily due to the impairment of certain capitalized internally developed software from our 2022 Restructuring Program.

Refer to Note 15, Restructuring, in this report for further discussion related to our 2022 Restructuring and South American Restructuring Programs.

Interest and other income/expense, net.

Interest and other expense of $100.0 million primarily consisted of $77.1 million of interest expense, which increased $25.0 million compared to the prior year due to a higher average debt balance.

The current year also included a $23.5 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses driven primarily by balances denominated in U.S.

Interest and other expense of $105.4 million, primarily consisted of $90.2 million of interest expense, which increased $13.1 million compared to the prior year due to a higher average variable interest rates compared to the prior year.

The current year also included a $24.4 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses driven by a $16.4 million foreign currency loss related to the devaluation of the Argentine Peso.

The prior year included a $23.5 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses driven primarily by balances denominated in U.S.

Dollars, including intercompany balances, in regions where the U.S.

Dollar is not the functional currency.

The prior year included a $15.1 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.

These prior year expenses were partially offset by a $2.9 million local government subsidy in Asia for achieving specified performance criteria that was almost entirely offset by a reduction in foreign tax credits within the provision for income taxes.

Dollar is not the functional currency and a $9.3 million foreign currency loss related to the devaluation of the Argentine Peso.

Provision for income taxes.

Our effective income tax rate was 20.5 percent in 2023 and 19.4 percent in 2022.

The effective income tax rate for the twelve months ended December 31, 2022 was lower than the statutory federal income tax rate primarily due to the tax benefit from U.S.

tax credits and incentives, foreign tax credits, and the tax impact of share-based payment awards.

These impacts were partially offset by state income taxes, net of federal benefits.

The effective income tax rate for the twelve months ended December 31, 2023 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 9.5 percentage points, 3.4 percentage points, and 2.2 percentage points, respectively.

These impacts were partially offset by a higher tax rate on foreign earnings and the impact of the Section 199 domestic production activities settlement, which increased the effective tax rate by 6.7 percentage points and 4.7 percentage points, respectively.

The effective income tax rate for the twelve months ended December 31, 2022, was lower than the statutory federal income tax rate primarily due to the tax benefit from U.S.

tax credits and incentives, and a lower tax rate on foreign earnings.

These impacts were partially offset by state income taxes, net of federal benefits.

tax credits and incentives, foreign tax credits, and the tax impact of share-based payment awards, which reduced the effective tax rate by 2.0 percentage points, 1.2 percentage points, and 1.1 percentage points, respectively.

These impacts were partially offset by state income taxes, net of federal benefits, which increased the effective tax rate by 2.1 percentage points.

NAST Segment Results of Operations

25 unchanged sentences

Total revenues and direct costs.

NAST total revenues and direct costs increased driven by higher pricing and freight costs in truckload and LTL services in addition to an increase in volume in truckload services.

The cost of purchased transportation started at historic levels in 2022 driven by the continuation of the strong demand that impacted much of 2021 combined with challenges related to driver availability, supply chain disruption, and weather events.

Many of these challenges improved over the course of 2022 as demand slowed, which resulted in the cost of purchased transportation declining over the course of 2022.

NAST total revenues and direct costs decreased driven by lower pricing and freight costs in truckload and LTL services compared to the prior year in addition to volume declines in both services.

Transportation rates have declined from the prior year driven by weak freight demand resulting in declining volume combined with the excess carrier capacity experienced throughout most of 2023 in the surface transportation market.

Transportation rates remained historically elevated for the first half of 2022 before global demand began to slow and market conditions began to soften in the middle of 2022, which continued throughout 2023.

Gross profits and adjusted gross profits.

NAST adjusted gross profits increased due to higher adjusted gross profits per transaction.

Our truckload services adjusted gross profit per transaction benefited from the declining cost of purchased transportation relative to our contractual rates negotiated in prior quarters.

NAST adjusted gross profits decreased due to lower adjusted gross profits per transaction in truckload services and, to a lesser extent, LTL services.

Volumes also declined in both services.

The lower adjusted gross profits per transaction was driven by the weak freight demand and excess capacity in the surface transportation markets discussed in the market trends and business trends sections above, which have suppressed freight rates in the twelve months ended December 31, 2023.

NAST adjusted gross profits per transaction in the twelve months ended December 31, 2022, benefited from market conditions beginning to soften, resulting in the declining cost of purchased transportation relative to our previously negotiated contractual rates.

Our average truckload linehaul rate per mile charged to our customers decreased approximately 21.0 percent.

Our truckload transportation costs, excluding fuel surcharges, decreased approximately 18.5 percent.

NAST LTL adjusted gross profits increased due to increased adjusted gross profits per transaction.

NAST other adjusted gross profits increased driven by increased 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 driven by increased investments in technology, legal settlements, warehouse expenses, travel expenses, and increased expenditures for purchased and contracted services, including temporary labor.

NAST personnel expenses decreased primarily due to cost optimization efforts, including lower average employee headcount, in addition to decreased variable compensation, reflecting the decline in results relative to the prior year.

NAST SG&A expenses decreased primarily due to lower allocated corporate expenses and the impact of elevated legal settlements included in the prior year.

NAST operating expenses also included $1.1 million and $6.3 million of severance and related expenses from our 2022 Restructuring Program in the twelve months ended December 31, 2023 and 2022, respectively.

The twelve months ended December 31, 2022, also included $3.2 million of other SG&A expenses, primarily due to the impairment of certain capitalized

internal developed software from our 2022 Restructuring Program.

Refer to Note 15, Restructuring, for further discussion related to our 2022 Restructuring Program.

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 expenses and allocated based upon relevant segment operating metrics.

NAST operating expenses in 2022 also included the impact of organizational changes made to support our enterprise strategy of accelerating our digital transformation and productivity initiatives.

In connection with these organizational changes, we

recorded $6.3 million of personnel expense, primarily related to severance, and $3.2 million of other SG&A expenses, primarily due to the impairment of certain capitalized internally developed software projects as a result of these restructuring initiatives.

Global Forwarding Segment Results of Operations

27 unchanged sentences

Total revenues and direct costs.

Total revenues and direct costs increased due to higher pricing and purchased transportation costs in ocean services, partially offset by lower pricing in air freight services, in addition to volume decreases in both ocean and air freight services.

Similar to surface transportation, the cost of purchased transportation started at historic levels in 2022 driven by the continuation of the strong demand that impacted much of 2021.

This was combined with supply chain disruptions caused by port congestion as well as equipment and labor shortages.

As global demand slowed in most trade lanes in the second half of 2022, many of these challenges improved, which resulted in a rapid decline in purchased transportation costs and pricing.

Global Forwarding total revenues and direct costs decreased driven by lower pricing and purchased transportation costs in both ocean and air freight and, to a lesser extent, volume declines in both service lines.

Transportation rates have declined from the prior year driven by the weak freight demand resulting in declining volume combined with excess carrier capacity experienced throughout most of 2023.

In the prior year, freight demand and transportation rates in the global forwarding market remained historically elevated in the first half of 2022 until they began to rapidly decline in the second half of 2022 and into 2023.

Gross profits and adjusted gross profits.

Ocean freight adjusted gross profits increased, driven by higher pricing and resulting in higher adjusted gross profits per transaction in the first half of 2022.

These higher adjusted gross profits were largely offset by declining shipments in the second half of 2022, as discussed in the market trends and business trends sections above.

Air freight adjusted gross profits decreased, driven by pricing and volumes significantly declining over the course of 2022 as shippers struggled with elevated inventory levels, consumer demand declined, and improving ocean schedule reliability eliminated ocean freight to air freight conversions.

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

Global Forwarding adjusted gross profits decreased due to lower adjusted gross profits per transaction in ocean and air freight services in addition to volume declines in both services.

The lower adjusted gross profits per transaction was driven by the weak freight demand and excess carrier capacity in the global forwarding market discussed in the market trends and business trends sections above, which have suppressed freight rates in the twelve months ended December 31, 2023.

In the prior year, freight demand and transportation rates remained historically elevated in the first half of 2022, resulting in elevated adjusted gross profits per transaction before they began to decline in the second half of 2022 to the levels experienced for most of the twelve months ended December 31, 2023.

Customs adjusted gross profits decreased driven by a decline in transaction volumes.

Operating expenses.

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

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

Global Forwarding operating expenses in 2022 also included the impact of organizational changes made to support our enterprise strategy of accelerating our digital transformation and productivity initiatives.

In connection with these organizational changes, we recorded $3.8 million of personnel expense, primarily related to severance, and $3.2 million of other SG&A expenses, primarily due to the impairment of certain capitalized internally developed software projects as a result of these restructuring initiatives.

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

Other SG&A expenses increased driven by an increase in restructuring expenses in the current year discussed below, partially offset by lower expenditures for purchased and contracted services, including those for temporary labor.

Global Forwarding personnel expenses in the twelve months ended December 31, 2023, also included $3.8 million of severance and related expenses from our 2022 Restructuring and South American Restructuring Programs.

The twelve months ended December 31, 2023, included $18.2 million of other SG&A expenses primarily related to losses on disposal and exit activities, including asset impairments from our South American Restructuring Program.

The twelve months ended December 31, 2022, included $3.8 million of severance and related expenses and $3.2 million of other SG&A expenses, primarily due to the impairment of certain capitalized internally developed software projects related to our 2022 Restructuring Program.

Refer to Note 15, Restructuring, for further discussion related to our 2022 Restructuring and our South American Restructuring Programs.

All Other and Corporate Segment Results of Operations

13 unchanged sentences

Total revenues and direct costs.

Total revenues and direct costs increased driven by higher pricing and cost per case across all customer industries in Robinson Fresh.

Other Surface Transportation total revenues and direct costs also increased, driven by higher truckload pricing in Europe.

Total revenues and direct costs increased driven by an increase in case volume for foodservice and retail customers in Robinson Fresh.

Other Surface Transportation total revenues and direct costs also increased, driven by higher truckload volumes in Europe.

Gross profits and adjusted gross profits.

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

Managed Services adjusted gross profits increased, due to an increase in freight under management and growth in adjusted gross profit per transaction.

Other Surface Transportation adjusted gross profits increased primarily due to higher European truckload 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 wholesale customers as well as increased pricing and volume in the retail industry.

Managed Services adjusted gross profits increased due to growth in adjusted gross profits per transaction, partially offset by a reduction in freight under management, driven by the weak industry freight demand experienced in 2023.

Other Surface Transportation adjusted gross profits decreased, primarily due to lower European truckload adjusted gross profits per transaction, partially offset by an increase in Europe truckload volumes.

Operating expenses.

The operating expenses for All Other and Corporate included the impact of organizational changes made to support our enterprise strategy of accelerating our digital transformation and productivity initiatives.

In connection with these organizational changes, we recorded $11.4 million of personnel expense, primarily related to severance, and $8.8 million of other SG&A expenses, primarily due to the impairment of certain capitalized internally developed software projects as a result of these restructuring initiatives.

The operating expenses in the twelve months ended December 31, 2023, for All Other and Corporate included $13.5 million of severance and related expenses from our 2022 Restructuring Program.

The twelve months ended December 31, 2023, included $1.5 million of other SG&A expenses primarily from our 2022 Restructuring Program.

The twelve months ended December 31, 2022, included $11.4 million of severance and related expenses and $8.8 million of other SG&A expenses, primarily due to the impairment of certain capitalized internally developed software projects related to our 2022 Restructuring Program.

Refer to Note 15, Restructuring, for further discussion related to our 2022 Restructuring Program.

LIQUIDITY AND CAPITAL RESOURCES

3 unchanged sentences

Revolving Credit Facility $ 160,000 $ 1,000,000 November 2027

364-day revolving credit facility 379,000 500,000 May 2023

Senior Notes, Series A 175,000 175,000 August 2023

Senior Notes, Series B 150,000 150,000 August 2028

11 unchanged sentences

totaled $142.8 million as of December 31, 2023, and $204.7 million as of December 31, 2022.

Working capital decreased from $1.48 billion at December 31, 2021, to $266.4 million at December 31, 2022.

Working capital increased from $266.4 million at December 31, 2022, to $828.7 million at December 31, 2023.

We prioritize our investments to grow our market share and expand globally in key industries, trade lanes, and geographies, and to digitize our customer, carrier, and internal tools to support our organic growth.

10 unchanged sentences

Cash dividends (291,569) (285,317) (277,321)

Net borrowings (repayments) on debt 54,000 822,701 (143,000)

Net (repayments) borrowings on debt (394,000) 54,000 822,701

Other financing activities 31,620 71,671 43,949

Net cash (used for) provided by financing activities (1,619,546) 7,573 NM (440,667) NM

Net cash (used for) provided by financing activities (717,833) (1,619,546) (55.7) % 7,573 N/M

Effect of exchange rates on cash and cash equivalents (3,284) (5,638) (3,239)

1 unchanged sentence

Cash flow from operating activities.

The significant increase in cash flow from operating activities in 2022 from 2021 was due to a decrease in operating working capital.

The improvement in 2022 from 2021 was primarily due to a $650 million sequential decrease in operating working capital, which represents accounts receivable and contract assets less total accounts payable and accrued transportation expense.

The decrease in operating working capital was driven by the decline in the cost of purchased transportation and the related decline in freight rates near the end of 2022.

Conversely, 2021 included a $200 million sequential increase in operating working capital as the cost of purchased transportation and freight rates were rising near the end of 2021.

The increase in operating working capital near the end of 2021 was also impacted by a change in business mix from the significant growth of our Global Forwarding business where our days sales outstanding ratio is approximately double that of our NAST business.

We generated significant cash flow from operating activities in 2022 driven by our strong operating results.

Our net income in 2023 was adversely impacted by the weak freight demand and excess carrier capacity discussed in the market trends and business trends sections above.

This impact significantly reduced our net income and cash flow from operating activities in 2023.

Cash flow from operating activities in both 2023 and 2022 benefited from sequential declines in net operating working capital.

The declines in net operating working capital were driven by the declining transportation rates discussed in the market trends and business trends sections above.

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.

Our investing activities consist primarily of capital expenditures and cash paid for acquisitions.

Capital expenditures consisted primarily of investments in software, which are intended to deliver scalable solutions to improve our customer and carrier experience and increase our efficiency to help expand our adjusted operating margins and grow the business.

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

During 2022, we sold an office building in Kansas City, Missouri, for a sales price of $55.0 million and recognized a gain of $23.5 million on the sale in the twelve months ended December 31, 2022.

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

In 2021, we used $14.7 million for the acquisition of Combinex.

In 2020, we used $222.7 million for the acquisition of Prime.

We anticipate capital expenditures in 2024 to be approximately $85 million to $95 million.

Cash used for financing activities.

We had net borrowings on debt in 2022 and 2021 and net repayments in 2020 .

We had net repayments on debt in 2023 and net borrowings on debt in 2022.

Net repayments in 2023 were primarily to repay the Senior Notes Series A, which matured in August 2023, and the 364-Day Unsecured Revolving Credit Facility, which matured in May 2023.

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

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 2022 .

Net borrowings in 2021 were primarily to provide cash for operations, as our working capital needs increased throughout 2021 as mentioned above.

The net repayments in 2020 were primarily to reduce the outstanding balance on the Receivables Securitization Facility.

The decrease in cash used for share repurchases was due to a significant decrease in the number of shares repurchased in 2023 compared to 2022 as minimal shares were repurchased in the second half of 2023.

In December 2022 , the Board of Directors increased the number of shares authorized to be repurchased by 20,000,000 shares.

As of December 31, 2023, there were 6,763,445 shares remaining for future repurchases.

The number of shares we repurchase, if any, during future periods will vary based on our cash position, potential alternative uses of our cash, and market conditions.

The number of shares we repurchase, if any, during future periods will vary based on our cash position, other potential uses of our cash, and market conditions.

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

4 unchanged sentences

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the U.S.

12 unchanged sentences

As of December 31, 2023, we recorded revenue of $189.9 million for services we have provided while a shipment was still in-transit but for which we had not yet completed our performance obligation or had not yet invoiced our customer compared to $257.6 million at December 31, 2022.

The amount of revenue recognized for contracts where the transit period was partially complete declined significantly at December 31, 2022 compared to December 31, 2021 driven by the macroeconomic and industry factors impacting the cost of purchased transportation, in addition to the supply chain disruptions that caused increased transit times near the end of 2021.

The amount of revenue recognized for contracts where the transit period was partially complete declined significantly at December 31, 2023 compared to December 31, 2022, driven by the macroeconomic and industry factors impacting the cost of purchased transportation.

See Item 7 of Part II, Management’s Discussion and Analysis of Financial Condition and Results of Operations , for further information.

4 unchanged sentences

Substantially all of our revenue is attributable to contracts with our customers.

Most transactions in our transportation and sourcing businesses are recorded at the gross amount we charge our customers for the service we provide and goods we sell.

Most transactions in our transportation and sourcing businesses are recorded at the gross amount we charge our customers for the services we provide and goods we sell.

In these transactions, we are primarily responsible for fulfilling the promise to provide the specified good or service to our customer and we have discretion in establishing the price for the specified good or service.

4 unchanged sentences

Goodwill is tested for impairment annually on November 30, or more frequently if events or changes in circumstances indicate that the asset might be impaired.

We first perform a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units is less than their respective carrying value (“Step Zero Analysis”).

Typically, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting units is less than their respective carrying value (“Step Zero Analysis”).

If the Step Zero Analysis indicates it is more likely than not that the fair value of our reporting units is less than their respective carrying value, an additional impairment assessment is performed (“Step One Analysis”).

1 unchanged sentence

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

In the Step One Analysis, the fair value of each reporting unit is determined using a discounted cash flow analysis and market approach.

Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate.

In the Step One Analysis, the fair value of each reporting unit is determined using either a discounted cash flow analysis, the market approach, or a combination of both.

Projecting discounted future cash flows requires the use of significant judgement to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate.

Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry.

Actual results may differ from those used in our valuations when a Step One Analysis is performed.

As part of our annual Step Zero Analysis performed in 2022, we determined that due to certain qualitative factors and the recent performance of our Europe Surface Transportation reporting unit, the more likely than not criteria had been met, and therefore a Step One Analysis was completed for this reporting unit.

Our Step Zero Analysis did not indicate that the more likely than not

criteria was met for any other reporting units and therefore a Step One Analysis was not completed for those reporting units.

As a result of our Step One Analysis for Europe Surface Transportation we determined that the fair value was greater than the reporting unit's respective carrying value.

As such, the goodwill balance of Europe Surface Transportation was not impaired.

As part of our annual goodwill impairment testing performed in 2023, we elected to bypass the Step Zero Analysis and perform a Step One Analysis on all of our reporting units.

There were not factors present for any reporting units, other than Europe Surface Transportation, indicating it was more likely than not that the fair value of our reporting unit was less than its respective carrying value.

Consistent with our 2022 annual impairment test, certain qualitative factors were present and the performance of our Europe Surface Transportation unit indicated that the fair value may not exceed its carrying value, requiring a Step One Analysis.

The results of our Step One Analysis indicated the fair value of our NAST, Global Forwarding, Robinson Fresh, and Managed Services reporting units significantly exceeded their respective carrying values and the risk of goodwill impairment

The fair value of our Europe Surface Transportation reporting unit also exceeded its carrying value with greater than 30 percent cushion, and as such, the goodwill balance was not impaired.

No impairments have been recorded in any period presented in the financial statements.

1 unchanged sentence

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our global operations.

We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and that we may or may not prevail in full or in part.

GAAP, if we determine that a tax position, more likely than not, will be sustained upon audit based solely on the technical merits of the position, we recognize the benefit.

We establish reserves when, despite our belief that our tax return positions are fully supportable, we believe that certain positions are likely to be challenged and we may or may not prevail in full or in part.

GAAP, if we determine a tax position, more likely than not, will be sustained upon audit based solely on the technical merits of the position, we recognize the benefit.

We measure the benefit by determining the amount that is greater than 50 percent likely of being realized upon resolution.

We presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information.

We presume all tax positions will be examined by a taxing authority with full knowledge of all relevant information.

We regularly monitor our tax positions and tax liabilities.

We reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit, or derecognize a previously recorded tax benefit, when there is (i) a completion of a tax audit, (ii) effective settlement of an issue, (iii) litigation of the issue, including appeals, (iv) a change in applicable tax law including a tax case or legislative guidance, or (v) the expiration of the applicable statute of limitations.

Significant judgment is required in accounting for tax reserves.

Although we believe that we have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our effective tax rate, consolidated earnings, financial position and/or cash flows.

Uncertain income tax positions are included in “Accrued income taxes” or “Noncurrent income taxes payable” in the consolidated balance sheet.

Significant judgment is required in accounting for income tax reserves.

Although we believe we have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on our effective tax rate, consolidated earnings, financial position, and/or cash flows.

Uncertain income tax positions are included in “Accrued income taxes” or “Noncurrent income taxes payable” in the consolidated balance sheets.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL CONTINGENCIES

13 unchanged sentences

(1) Amounts payable relate to the semi-annual interest due on the senior and long-term notes and the principal amount at maturity.

(2) We maintain operating leases for office space, warehouses, office equipment, and a small number of intermodal containers.

(2) We maintain operating leases for office space, warehouses, office equipment, and trailers.

See Note 11, Leases , for further information.

7 unchanged sentences

See Note 5, Income Taxes , to the consolidated financial statements for a discussion on income taxes.

As of December 31, 2022, we do not have significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

As of December 31, 2023, we do not have significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-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-K

Item 7. Management’s Discussion and Analysis