Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson First Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, May 7, 2013. And I would now like to turn the conference over to Tim Gagnon, the Director of Investor Relations. Please go ahead, sir.

Thank you. Joining me on our call today will be John Wiehoff, our Chief Executive Officer; and Scott Hagen [ph], Corporate Controller. Chad Lindbloom, our Chief Financial Officer, is not on the call today as he is recovering from shoulder surgery after a biking accident. Chad will be fine and should be back to work soon. Scott, John and I will be filling in for Chad to cover today's content and questions. John and I will provide some prepared comments on the highlights of our first quarter and we'll follow that up with a question-and-answer session. Scott Hagen will join John and me to participate in the Q&A session. We have a few more prepared comments today and we'd like to get as many of your questions covered as possible. [Operator Instructions] Please note that there are presentation slides that accompany our call to facilitate our discussion. The slides can be accessed in the Investor Relations section of our website, which is located at chrobinson.com. John and I will be referring to these slides in our prepared comments. I'd like to remind you that comments made by John, Scott, myself or others representing C.H. Robinson may contain forward-looking statements, which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. Before I turn it over to John, I'd like to highlight a couple of changes in the earnings release and the slide deck. First, we have separated our truckload and less-than-truckload services to provide more detail to the area we formerly called truck. We've received a lot questions about the independent performance of each of these services, and this change will provide more detail than the combined view. We've also added a line for customs, which was formerly bundled in the other logistic services line. Also, with the impact of our purchase of Phoenix International and the divestiture of T-Chek similar to our year-end 2012 earnings release, we have provided pro forma financial measures for net revenue and income from operations to provide meaningful insight and an alternative perspective of our results of operations. We believe that these pro forma financial measures reflect an additional way of analyzing aspects of our ongoing operations that when viewed with our actual results provides a more complete understanding of the factors and trends affecting our business. A reconciliation of the actual results to pro forma numbers is provided in an appendix at the end of the slide deck. With that, I'll turn it over to John to begin his prepared comments on Slide 2 with a review of our Q1 2013 results.

Thank you, Tim, and thanks to everybody who has taken the time to listen to our first quarter earnings call. As Tim said, my comments are starting on Page 2 with our actual results. Our total revenues for the first quarter of 2013 were up 17.3% to just under $3 billion. Our total net revenues grew 9.9% to $455 million. Our income from operations was down 0.5% to $168.7 million. And our EPS was at $0.64, down $0.01 from 1 year ago of $0.65. Turning to Page 3. Tim commented on the notion that we're presenting the pro forma information, so I want to start by walking you through Page 3 and helping you understand how we think the most appropriate way to look at the numbers. For starters, one of the things that's important, we touched on this on the fourth quarter call, that on November 1, when we acquired Phoenix International, from day 1 and over the last 6 months, we have been managing our historical global forwarding business and the Phoenix International business as one combined global forwarding business. I'll touch on the more specifics around where we're at in the integration and how we're managing it together. But because of that, already, our operations and results are combined into one business. So we really can't provide very clear commentary on what things would be like this year with or without our acquisitions. So the best way to pro forma the information is to adjust the prior year 2012 activity, which we're doing on Slide 3 here. So as you see, we're taking, in the center of the slide, the 2012 actual results for Robinson, subtracting the T-Check business that was sold towards the end of last year and then adding in the historic operations of Phoenix…

Okay. Thanks, John. And as mentioned, I am starting on Slide 12, and there's a lot here. And John touched on it earlier, and I'm going to try to go through some of the important measures to call out on this page. And I'll start with just emphasizing some of the things John had already mentioned in terms of our net revenue growth in total, or the actual net revenue growth of 9.9% in quarter 1 and then the pro forma net revenue growth adjusted for T-Chek and Phoenix at 3.8%. To talk a little bit about our income from operations, as John had mentioned earlier, I want to take us into that a little bit, and I'll be reflecting both on the pro forma numbers, as well as some of the events that impacted the actual numbers for 2013. So the first thing to point out is, and John had touched on this earlier, that the pro forma 2012 operating income as a percent of net revenue was 38.3% in 2012 versus 37% in 2013. That 1.3% variance is largely attributable to an increase in our personnel expense. Our personnel expense did grow faster than net revenues in the first quarter. And I want to highlight one exceptional event that happened in January of 2013, where we had delivered the vested portion of the restricted stock awards from 2005. As of 2005, our executives, directors and general managers received awards once every 3 years. And as a result of that, the size of the awards was larger than for the participants who received awards annually. In most years, the payroll tax expense for the deliveries was about $1 million. But in quarter 1 this year, the payroll tax expense was $4 million in the quarter. So a difference of…

Okay. Thank you, Tim. Our last slide is Page 15 titled, A Look Ahead, just a handful of bullets to comment on here before we open it up for Q&A. The first is just a reminder that our T-Chek comparisons will remain a variance through the remainder of the year. All of the information is available in the pro forma filings. And just in case you weren't aware or hadn't focused it in, our pro forma information will be presented for the next several quarters similar to how we have this time. Moving back then to Phoenix International and kind of talking a little bit forward-focused about our global forwarding business and what our thoughts and expectations are around the Phoenix International acquisition and how we're thinking about things. When you look at 2012, the combined net revenue of Robinson and Phoenix for calendar 2012 is just shy of $300 million. So that earlier slide, that was comparing the historic base for 2012 and how we're doing forward, will aggregate to about $300 million of net revenue for the year in international air, ocean and customs. So that's our baseline and will be the primary measurement metric for this year as we focus on retaining current accounts and managing the combined businesses to serve the customers. So we believe that we can grow the global forwarding business over time at a double-digit net revenue rate. It's going to start out a little bit slower as we become more aggressive around cross-selling, consolidating and expanding our network. We do think that we can accelerate that growth rate. Net revenue growth will be a key metric for us, and accordingly, we've broken that out, including the customs brokerage piece so that we'll all have clean visibility to our baseline and understanding the…

[Operator Instructions] Our first question comes from the line of Justin Yagerman with Deutsche Bank.

It's Rob Salmon on for Justin. John, in your prepared remarks, it sounded like the -- obviously, the conversion rate on the Phoenix side of the acquisition is being constrained by the purchase price accounting. It sounds like that the net revenue margin conversion had been 30% beforehand and it's now kind of in the low double-digit range. When we look out over that 5-year plan, how quickly do you expect to ramp up back to that 30% net revenue margin on the global forwarding business? And can you give us a sense where the base is today from the 2 companies combined?

Yes, so a couple of other data points on that. We're still understanding and putting together the seasonality of it too. So one of the things that we'll learn this year, if you see in the historic numbers, both Phoenix and our net revenue is greater in the second and third quarters, and the level of variable operating expense is a little bit less than the global forwarding business. So when you look at operating income to net revenue, there probably will be more quarterly variance on the global forwarding than there will be on the rest of the business through the purchase accounting. So there's $4 million a quarter or about $16 million a year of amortization expense that will run for about 8 years. So today, that amortization expense is reducing the Phoenix reported income as a percent of net revenue by a pretty meaningful amount. If we achieve that $500 million to $600 million of net revenue, that $16 million a year of amortization out in year 5 would represent about 2% to 3% of net revenue. So our goal in 5 years is to get back to the high 20s, 27%, 27.5%, hopefully better than that if we can -- that's probably the high water standard now for some of the world-class forwarders, and we think Phoenix International was doing a pretty good job. So if we can get back to that level with amortization in there, the operating income would be kind of in the mid-20s. I mentioned in my prepared comments that our historic business was not nearly as profitable, and that probably that 10% to 15% range is probably a good baseline for both the Phoenix business because of the purchase accounting and integration costs, and for us due to less profitability in our history. I didn't talk a lot about the integration costs above and beyond that, but one of the things that we covered in the last call, and I think is important to understand as well, too, that our approach towards the integration of this is that while we're spending a significant amount of time and energy to put the offices together and put the systems together, it's really not possible for us to get a nice, clean, quantified determination of what that integration spending is right now. So while we know that our shared services like IT and finance and legal and HR, it's the #1 priority and probably the top resource allocation in all of those groups that we're spending north of $150 million a year on as combined companies. Every single person in those groups is probably touching this in one form or another, but it was really not possible for us to break out exactly how much additional integration spending is hitting us from that standpoint. And a lot of is re-prioritization of personnel cost that is really just an opportunity cost rather than an additional hard dollar.

I'm going to take this opportunity, this is Tim, just to mention that we do have to limit to 1 question per caller just to try to get as many folks as we can on today. And please feel free to follow up with me to get some time scheduled as a follow-up. So thank you, Rob, for that, and we'll move along to the next caller here.

Our next question comes from the line of Ken Hoexter with Bank of America.

Maybe if you can just kind of jump into on the core truckload business where you talk about your rates going up 1.5% and the costs going up 2.5%. Can you delve into -- it's been 6 quarters now where you've seen that underperform your cost. What do you have to do to get that at least to break even on a cost relative to your place basis?

I think there's a couple of relevant points there. One is if you look back, and part of the reason why I put that 10-year history in there that when you look over the last 3 or 4 years, part of our challenge is coming off of historic highs from a margin standpoint that we knew were unsustainable in 2009. We're very short on the buy side as we've talked about before. So our cost of capacity is moving pretty quickly. And those margins expanded quite a bit. So whatever changes in the marketplace and competitive factors there are, those are all being blurred in with coming off of unsustainably high margins that have put that together. When you think about, where do we go from here? Like I said, we've seen some leveling in the current periods, so hopefully, it will be less of a factor going forward. But the main thing is that you've got the supply side who's not adding a lot of capacity and pushing really hard on yield. And you've got shippers who are very focused on stability and grinding out rates. We just need some leverage in the marketplace around more capacity coming in or more growth on the demand side where you have more rate negotiation and leverage to make a change. So we hope we're seeing that soon, but it's the combination of all that stuff that I rambled on around that's impacting the market conditions.

Our next question comes from the line of Anthony Gallo with Wells Fargo Securities.

I want to make sure I understood you right, and then I have my question. So the net revenue of the forwarding business is expected to grow from a base of, say, $300 million today to $500 million to $600 million over the next 5 to 6 years, did I hear that correctly?

You did, so 15% growth would roughly have a double in 5 years, and so double-digit growth would put it between $500 million to $600 million.

Okay. So I guess I want to make sure I understand the components of that growth because I don't think the market's growing at that pace. It doesn't sound like the entire CH network of customers can be harvested for this business. And it also sounds like it's a little bit headcount-intensive at some point, so how do personnel costs not grow in line with that growth rate? So that's -- how do we get there, I guess, is the question.

So what I tried to lay out in my prepared thoughts is that our long-term hope or forecast in the market conditions is mid-single-digit growth. That was the analysis that we came up with versus the double-digit growth that was maybe happening over the decades where things were growing much faster. So I recognize that the market is not there today, but our hope is that we do, over the next year or so, return to more normal market conditions of single -- mid-single-digit growth. We do feel that there are significant opportunities to cross-sell both the international services to the Robinson customer base, as well as improve our margins through better rate negotiation, better consolidation opportunities, as well as expanding our network in Europe and other parts of Asia where we don't have a presence today. So it's the combination of all that, that says that we feel we can grow our net revenue at 10 -- or double digits for that 5-year target. When you look at the expense structure, what we've talked about is that rather than taking people out and trying to squeeze operating expenses out of the network today, we recognize that we are carrying costs through integration that we hope to be able to leverage in the future so that we can grow our business and not have to add the operating cost or the people to drive operating income growth greater than the net revenue growth once we get past the integration phase.

Our next question comes from the line of William Greene with Morgan Stanley.

John, I'm curious about your views on how long you think you sort of have patience for the kind of performance we're seeing in terms of -- really, I'm talking about the bottom line growth rate. Because for a while, we've heard, well, it's the market, and we've got a way for things to come back and we did an acquisition, but there are some onetime things here that are not leading to the growth. How much patience do you sort of have? Because it's been a while since we've seen growth rates that Robinson used to perform at. So I'm curious when the moment arrives when you finally say to the team, we've got to start taking actions internally here and not wait for the market.

I think that was 2 years ago. Well, implied in your question is that we're okay with this or that we're being patient about it, I don't think that's the case at all. There are a number of different sales and productivity initiatives across the North American network that I feel like we've been very aggressive on. I feel like the investment and divestiture that we made last year was directly related to repositioning ourselves to greater scale and adapting to a more competitive market. We've put a number of different initiatives in place. I mean, in these calls, we're trying to explain our thought process and what we're observing. But if you look at -- I mean, we do have this foundation of a variable business model and pay for performance that causes a certain amount of immediate reaction in the lesser performance where we're all feeling the pain in the last couple of years. Trust me, that's not gone unnoticed within the company. And there are a lot of different initiatives. And I would say, probably the most aggressive thing is really, the integrated logistics selling where in this more aggressive environment, we've push very hard with a lot of the customers around return on investment, selling and focusing more on integrated services, where it's a little bit more complex, but it ties us to the customer a little bit better and it feels like that's probably more what our future is about. I don't know if there are other examples or thoughts around your word patience, but I feel like we have been trying to react fairly aggressively.

It was just a comment on -- a lot of it relates to market and what's going -- we need this in the market to happen, that in the market to happen. And at some point, it's sort of like, okay, I get that, but what are you going to do now? And you've outlined some things and maybe I'm reacting to the Midwest mentality, and you sound so nice about it that maybe it's that. But I just sort of feel like the markets, sort of the investors are waiting to see a return to those growth rates and we haven't gotten there. And so it's kind of like, well, when? What's that date? And I guess that was the point of the question, but I appreciate your thoughts.

It's a fair point, so thank you for making it. And I do feel like if you look at our EPS growth over the last 5 years, it's been 8%, 8.5%, something like that, so it hasn't been to our long-term targets. Some of that is coming off of those high comparisons and some of it is because we believe we're in a little bit different market condition. So we're not sitting around waiting for the markets to change. Some inflation, some growth, some increase in demand would be a very good thing for us, but if we never see that, if we never see improvement and it just continues to contract, at some point, we have to hit bottom on margin comparisons and get to the point where our volume growth and our activity will equate more with our earnings growth. And in the meantime, we've got analyst initiatives around integrating the services, leveraging our scale and trying to make sure that we're enhancing our productivity so that if it is an environment of sustained margins, that we'll continue to have earnings growth more in line with our volume growth rather than the 8% that we've had the last 5 years.

Our next question comes from the line of Chris Wetherbee with Citi.

I guess when you think about the transport margin, I know you said it was difficult to kind of break out maybe what the core underlying C.H. Robinson transportation margin looked like x Phoenix, but I guess, maybe directionally, as I think longer-term or towards kind of obviously at the trough end of the long-term chart that you put up on Slide 4, I guess, when you think about the underlying business itself -- I mean this is a broad question, but how do you think about where this goes? I mean it seems with larger customers, there might be further pressure to the downside here. Is it possible that we could be seeing kind of a new normalization in this? I know the market has been different the last couple of years, but just kind of curious if that should change.

There's definitely, as we've suggested a number of times, there's certainly the possibility that it's a new era and a new environment where some of the margins never return to what the historic averages would be. However, when you look at it at an enterprise level like this, there's such a diverse mixture of stuff with ocean and air and LTL and consolidation services where margins can vary quite a bit depending upon your density and your success level from it. Included in those transportation margins are the 100% margin fee-based business for the integrated services and the technology fees and the stuff that's growing pretty significantly. So when we think about the future and the margins and what sort of productivity levels we need to be at to sustain our high levels of return on investment and where we're at, it's making sure that customer-by-customer, office-by-office, service-by-service, that we're taking the right approach of blending all that in to make sure that we keep our returns acceptable.

Our next question comes from the line of Tom Wadewitz with JPMorgan. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: I wanted to ask you along the lines of the competitive dynamic in truck brokerage. And I think one of the things we've seen from some of your competitors, and I think you've maybe experienced this as well, that in order to see the volume growth, you've had to take greater risk in the market. And so one way, I think, of maybe looking at more of the route guide business and making more contractual commitments, which gives you a bit more risk on filling the capacity side. You think that's a fair characterization? Is that still where the market's at? And do you think that would continue to be the case, that if you really want to grow volumes, that you just are forced by the competitive environment to take more risk on the gross margin side?

That is definitely a trend. I think it really goes back even way prior to the last 3 or 4 years. So really, over the last 20 years, we have evolved our business from more of a pure transactional broker to where we are, a core carrier in the route guide. And even up to 4, 5 years ago when we talked to upwards of half of our business being in that more committed or dedicated framework, where you do have a little bit more margin risk but you also have much more volume certainty that you can work with. Over the last 3 or 4 years, when we make statements like the world has become more committed and less transactional, and route guide compliance is very high, your choices around taking market share for all of us are more within that route guide, around the planned freight and the dedicated stuff that generally comes with a price commitment or as part of a bid. So it is absolutely true what you're saying, that as the market has shifted to more predictable dedicated freight, those of us who are trying to take market share, that's really the only logical place to go get it. But as I said earlier, I think that is part of the broader transformation of the percentage of the marketplace that third parties have been able to address in the last couple of decades by moving into aggregation of capacity and being that core carrier provider that we are with a lot of our large shippers. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: So I guess to be more specific on that though, so do you -- that's been the case, but do you think that continues in that percent that's contractual, would continue to increase going forward?

If the market stays the way it is, yes, it would. And then, as we've talked before, the goal around that would be with those higher volume shippers, you can do things to align more committed capacity. You can automate the process and make it more predictable so that your operating income per shipment can improve. So it's a slightly different business model around how we would think about efficiency and profitability, but if the market stays tighter with slower growth, more controlled, yes, there will be a greater and greater percentage of the freight that operates under that model.

Our next question comes from the line of Scott Group with Wolfe Research.

So just a couple of things I want to clarify and then I had a question. First, in terms of the new reporting on truckload versus LTL, that's pretty helpful. Maybe just for all of us, if you have any history on that, that you can give us, that'd be great. And on the call, do you have any sense on what that truckload net revenue growth was last quarter and maybe for the full year '12?

We haven't decided, Scott, that we're going to share that yet. It's something that we should talk more about here. We more prepared that information for this quarter, here in Q1, so...

And also understand that part of our reluctance to break it out in the past was that there are some definitional variances across our network around perishable freight and what's included in LTL and truckload. And part of what we've been working on the last few years is to make sure that we've had consistent definitions around how we categorize our freight so that we can break it out. So part of the decision tree on sharing history is whether or not it's actually consistent for you to compare to.

Got you, okay. And then, John, I'm not sure if I missed it. Did you give what truckload volumes and net revenue was tracking through April like you've done in past calls?

I did not. I just shared that we are continuing to see more consistent net revenue margin year-over-year, but that we're not seeing an acceleration in demand in the marketplace.

So we should be thinking about transport net revenue margins that are flatfish and -- flattish year-over-year in the second quarter?

I'm sorry, what exactly did you say?

So transportation margin percents that you're saying are pretty flat year-over-year compared with second quarter?

I was talking specifically about North American truckload, and that the net revenue margin percentage was consistent with the previous April.

Okay. That's helpful. And just in terms of my longer-term question, you've been talking on the past few calls about slow leasing, about using more leverage on the balance sheet. And I wanted to know if you can just give us an update on how you're thinking about the balance sheet and buybacks going forward.

The capital policy that we've been operating under for the last couple of quarters that we'll continue to review as we go forward is that we are maintaining our 90% to 100% capital distribution philosophy through both the dividend payout ratio that we have of around 40%, as well as the share purchase activity that for the last 5 years has brought us up to that 90% to 100%. So despite the fact that we have some debt and we have it approved up to $1 billion, we do expect to continue to execute that high return on capital model of dividend and share repurchases like we have in the past. From an overall financing standpoint, we're constantly looking at the amount of dry powder and the pipeline of M&A opportunities. And we've been approved to go up to $1 billion of debt within that framework, and we'll keep looking at the market conditions in our pipeline and figuring out whether we accelerate or pull back our buyback activity from there.

Thank you. Unfortunately, we're out of time. We appreciate everybody taking the time to be on the call today. And thank you very much for participating. The call will be available for replay, and the operator will step in here and give some of those details as we close out. Thank you, everybody, for your time today.

Thank you. Ladies and gentlemen, yes, today's conference will be available for replay. And if you would like to listen to the replay, you can dial (303) 590-3030 or 1 (800) 406-7325, and enter the access code of 4613551 followed by the pound sign. Ladies and gentlemen, that does conclude the C.H. Robinson First Quarter 2013 Conference Call. We thank you for your participation today, and you may now disconnect.