Timothy D. Gagnon - C.H. Robinson Worldwide, Inc. John P. Wiehoff - C.H. Robinson Worldwide, Inc. Andrew C. Clarke - C.H. Robinson Worldwide, Inc.

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson Third Quarter 2016 Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, Tim Gagnon will facilitate a review of previously-submitted questions. As a reminder, this conference is being recorded Wednesday, October 26, 2016. I will now turn the conference over to Tim Gagnon, the Director of Investor Relations.

Thank you, Donna, and good morning, everybody. On our call today will be John Wiehoff, Chief Executive Officer; and Andy Clarke, our Chief Financial Officer. John and Andy will provide some prepared comments on the highlights of our third quarter and we will follow that with a response to the pre-submitted questions we received after our earnings release yesterday. Please note that there are presentation slides that accompany our call to facilitate the discussion. The slides can be accessed in the Investor Relations section of our website which is located at chrobinson.com. John and Andy will be referring to these slides in their prepared comments. I'd like to remind you that comments made by John, Andy or others representing C.H. Robinson may contain forward-looking statements which are subject to risk and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. With that, I'll turn it over to John to begin his prepared comments on slide 3 with a review of our third quarter results.

Thank you, Tim. I'm going to start by referencing a few of our key financial metrics on that slide 3. Total revenues of $3.3 billion for the quarter were down 1.9% compared to last year. Total net revenues of $558 million were down 5% from a year ago. Income from operations of $211 million was down 9% from a year ago and our earnings per share of $0.90 compares to $0.96 a year ago or a 6% decline. Year-to-date earnings per share of $2.73 is up 4% from $2.63 a year ago. Despite some quarterly decreases in some of our key financial metrics, we do believe that we're making good progress towards achieving our long-term goals. I want to start my prepared comments by discussing a few of the themes that impacted both our third quarter results, but also reflect the progress that we're making on those long-term goals. First topic I want to start with is margin compression. On our second quarter call we discussed the fact that in the months of June and July our net revenue had begun to decline due to margin compression. Unfortunately, that margin compression carried on through the third quarter and impacted our results for the third quarter of 2016. Most all of our services had margin decreases versus a year ago during the third quarter, but the point that we want to emphasize is that our margins are within the ranges of what we expect in our long-term planning and we do accept the cyclicality of our markets as one of the things that we have to manage. A big part of the 3PL value, particularly with our committed relationships, is managing the cycles and managing the price variations and margin compression that can occur in the marketplace, and we do feel…

Thank you, John, and now on to slide four and our Transportation results. As John mentioned, we anticipated a challenging pricing and execution environment coming into the second half of this year, and knew last year's comparables would be difficult. Our people and our network did a great job managing through the environment by being proactive and serving customers in order to be the provider of choice at a time when routing guides are performing largely as planned. Total Transportation revenues were down slightly in the quarter to just under $3 billion. However, total revenues were up on a year-over-year basis in both August and September and that positive trend has continued into October. The growth month-to-date in October is a result of our significant volume improvements as well as the fact that fuel is normalizing on a year-over-year basis. In October our truckload volumes are up over 12%, clearly outperforming the market. Transportation net revenue margin decreased approximately 80 basis points from last year's third quarter. Though below last year, this margin is on the upper end of our historical third quarter margins over the last five years to six years. The decreased net revenue margin was primarily the result of truckload pricing falling more than purchased transportation costs, impacting margins by approximately 140 basis points. That decrease was partially offset by the positive impact of fuel of approximately 20 basis points and in a change of our mix of services of approximately 40 basis points. As we did in last quarter's presentation, we have included slide five which provides a longer historical perspective of pricing and cost, and the respective impact on our margins and results. On this graph, the light and dark blue lines represent the percent change in North America truckload rate per mile to customers…

Thanks, Andy. In terms of wrapping up our prepared remarks on slide 15 with regards to our final comments, really the first two bullet points tie into the opening messages around margin compression and volume growth. As you see there, we continue to have strong North America truckload volume growth at 12% that Andy mentioned as well as some ongoing margin compression resulting in a net revenue decrease of approximately 4% per business day so far in October. Once again, we do have some strong comparisons from the fourth quarter of a year ago that we'll be dealing with that are helping make that net revenue growth a little bit more challenging. But overall the major themes carry forward in that we continue to feel very good about our service levels, the relevance our offering in the marketplace and the mixture of volume and margin compression that we're dealing with in the marketplace. On the bottom of slide 15, just a couple of other topics to share a few thoughts with before we get into the Q&A. We've hit on this theme a couple of times but just wanted to share that we are very excited and feel really good about the initial interactions on APC integration. I mentioned earlier that we do have a long-standing relationship with them through our agency agreement. The companies of APC and Robinson have worked together successfully for a long time but integrating our businesses is going to provide yet another opportunity to share information and to kind of jointly market what we think is a more effective way. There are some agent relationships both within C.H. Robinson and APC that are transitioning during the fourth quarter of 2016, so there is a lot of activity associated with that, but we feel very good…

Mr. Gagnon, the floor is yours for the question-and-answer session.

Thank you, Donna, and thanks to the many analysts and investors for taking the time to submit questions. I'll frame up the questions as they were submitted and turn it over to John and Andy for a response. And with that, let's get right into it. The first question is for John. The number one concern I continue to hear from investors or potential investors is margins are high. Why shouldn't I be more concerned about margins going down in the coming quarters?

So hopefully our prepared comments gave some light to addressing this issue, but I want to repeat some of it because it is very important and foundational to how we approach things. If you start with the long-term perspective, part of what we have said is that we accept the cyclicality and the margin expansion and compression that happens in our model, particularly as we move into more committed relationships where we have fixed pricing on the shipper side for a period of time and often more transactional or fluid procurement costs. So it's very fundamental as we said in the prepared comments to how we approach the market and how we try to add value. And the way we think about margin expansion and compression is kind of monitoring it over the long term to make sure that we're within the parameters and boundaries of what we've set as expectations around how things are going to cycle. So from a long-term perspective we don't get concerned when we see margin expansion and compression, we just focus on our business processes and making sure that we're reacting, and what we think is the proper way to make sure that we're adjusting much along the chart that Andy talked us through around how customer pricing and carrier pricing are changing and making sure that those blue lines stay close together over time to manage that. So from a long-term perspective, we're not concerned about it in terms of it happening because we do plan for it and it's part of our business model. From a short-term perspective we are concerned about it. We have a lot of things that we do to adjust pricing and a lot of management processes that are very focused on making sure that we are adapting and managing prices and we talk about comparisons and we try to share as much as we can about what is happening with margin compression or margin expansion. So hopefully we shared what we know about that and whether or not somebody should be more or less concerned about it, in the short-term, I think we're doing all that we can to manage through it and the long-term we feel like it's part of our business model that we've dealt with for decades.

Thanks, John. The next question for Andy. Any chance you have net revenue by month for the third quarter?

Yes. Thank you. And these are on a per business day basis; July ended down 3%, August was softer, declining 7% for the month on a per day basis and September recovered a bit but was still down 5%. What's interesting about September was, and as we mentioned this, the growth of our Global Forwarding business was challenged in the month particularly September by the Hanjin bankruptcy and the subsequent carrier rate increases that negatively impacted our net revenue for that service line.

Thanks, Andy. The next question for John, a two-part question. First part, how did total company net revenue trend year over year by month in the fourth quarter of 2015? And then the second part, when are your contractual agreements typically renegotiated?

So starting with the numbers last year in the fourth quarter of 2015, our net revenues grew 14% in October, 15% in November, and 12% in December. So that's the month by month of the double-digit net revenue growth that I mentioned from a year ago that we're comparing to. You may also remember that those 2015 numbers did have some Freightquote growth in there that I think we quantified at about 3% contribution to the growth but still double digit without the acquisition of Freightquote from a year ago. So that's month by month and the growth that we referenced with regards to the comparisons coming into this quarter in 2016. When are the contractual agreements typically renegotiated? We've talked about this quite a bit. So, most of the contracts will have 30 day outs for either side so that there's an expectation of an annual commitment from a pricing standpoint and typically with 30-day notice from either party in terms of if you want to terminate the arrangement. The vast majority of the business gets repriced when a shipper originates a new bid process to take a look at that price or when the providers come up and say that they can no longer service the business under those price arrangements. We do have a disproportionate amount of bid activity typically in the springtime, so there's more of an annual cycle to that. So as we said in our prepared comments, we are constantly looking at pricing, looking at committed arrangements versus transactional arrangements. There's always bid activity happening in the marketplace and we'll see more of it around year end and in the springtime as everybody looks at their pricing arrangements and thinks about what's appropriate going forward.

Thanks, John. Next question for Andy. Can you quantify the impact the Hanjin bankruptcy had on your ocean forwarding business in the quarter? Do you anticipate this margin squeeze will be short-lived? Or is this something that could linger for couple of quarters until capacity re-enters the market?

Yes. Hanjin filed on August 31 and what happened shortly thereafter is the other carriers that remained in the Trans-Pacific eastbound lane began to raise rates. I think what happened then shortly thereafter was that they doubled them. They were up as high as $750 as I mentioned earlier, $750 to $900 a box. Now, we weren't able to immediately pass those rate increases along to our customers. As I mentioned, our account managers are out there right now having those discussions with our customers to reflect the rates that are now in place in that trade lane. We would expect the impact to trickle into the fourth quarter, but not much beyond that. As far as the quantification, to give you an idea, we were growing volumes, and net revenue was fine in our ocean trade lane in July and August. However, September on a net revenue basis was down 15% overall in our ocean business, to give you an idea of how much those rate increases impacted the ocean trade lane.

Thanks, Andy. Next question for John. What was the driver of the need to drop prices to customers so rapidly in the third quarter of 2016? Why weren't truckload carriers willing to absorb price reductions? And was it the shippers' desire to share more of the cost reductions that had been accruing to C.H. Robinson over the past year to year and a half? And was pushback from carriers suggesting that they had an alternative source of freight?

So, there's a lot of good questions in there, really all sort of centering around the bid process and the pricing expectations. And I guess one of the things to reiterate is that very much like earnings season, part of the challenge in this is that there's an element of what's expected versus what's actually occurring. When you come into a year like 2016 we've mentioned a couple of times that shipper expectations were generally for fairly meaningful price reductions. So if you look at bid activity a year ago, these bids typically have lots of parties, they're very efficient, there might be multiple rounds of electronic bidding and it's not any one person or any one expectation, but there's a consensus that comes out of those bid processes around what a shipper is expecting and how the market responds to it. A year ago there were many bid activities that achieved mid single or high single-digit rate decreases as a result of those bid processes. You can see during our third quarter here we had a 5.5% decrease in terms of the pricing that we charge to shippers. As the year goes on then, what we're experiencing is a more fluid or transactional procurement of a lot of those truckload costs. So while during the quarter they were down 3.5%, they were not down the 5.5% that was achieved in a lot of the committed bid relationships that we worked with on the shipper side. So, when we get into the third quarter and we have committed pricing from bids and you mix that in with a current transactional market that again is softer than a year ago, but maybe not quite as soft as people expected, that's when those blue lines on our margin graph get some separation and we see the margin compression. So, really the bottom if you will or the tipping point that may have occurred during the second and third quarter of this year is really a function not so much of prices starting to go up versus a year ago, but cost increases being more than were expected when a lot of those committed relationships were entered into. So, it's challenging, it's part of the reason why it's difficult to predict because you're dealing with a lot of changes in the marketplace and the management of expectations and bid processes versus what then ultimately occurs. But as I said in the previous question, we view it as one of our strengths that we have the types of account management processes and relationships to adjust to how the market does actually change, and we focus on that 10-year graph of showing that over time we've been very successful by making sure that our pricing relationships and our cost relationships do adjust together.

Thanks, John. To Andy with the next question, would you anticipate the tax rate remaining in the 37% range or returning closer to the historical level of 38%?

Our tax rate will remain below the historical tax rate of 38.5%. And the primary reason for that is at the beginning of this year we elected APB 23 which means that we will permanently leave non-U.S. earnings outside of the United States. We will also then redeploy those earnings in areas outside of the United States. The APC deal is a great example of this relocation of capital because Australia's corporate tax rate is 30% which is lower than U.S. tax rate. So, as more of our earnings are generated outside of the United States, the effective tax rate will go down. Mind you, we still generate a significant amount of our earnings and net income inside the United States, but as more capital is deployed outside of the United States where the tax rates are lower, the effective tax rate of our organization will continue to go down. So we do expect it to be below the 38.5% into the range of 37%.

Thanks, Andy. Next question for John. What are your plans for head count for the rest of 2016? Should we expect head count to grow in 2017?

A couple of things to remember there, I think it was mentioned already but with the closing on September 30, we will have the 300-some APC employees that will come in or are in the numbers I guess but will be factored into kind of our productivity metrics and average head count for the fourth quarter of 2016. As I mentioned in the prepared comments, because we do look at our hiring practice as very much correlated around volume and growth of shipment metrics, we do expect to continue to add to our team in the remainder of 2016 and likely going into 2017 as well. When we have periods of margin compression we do get a little bit more conservative in terms of thinking about our headcounts, and just like so far this year where we've had head count growth less than our volume growth, I would expect that in Q4 in 2017 as well too. The combination of productivity initiatives, using technology to automate and just managing our expectations more aggressively when we're in a period of margin compression, all of those lead to probably slightly more conservative hiring practices. However, as I mentioned in the prepared comments, when we feel good about the market share gains that we're having and investing in the network, we will continue to look at how we build out our team and add to it.

Thanks, John. Next question for Andy, what is the catalyst for the acceleration in the North America truckload volume growth in October? How sustainable do you view double-digit truckload volume growth to be?

The short answer is we have a highly motivated, talented and aggressive North American surface transportation team and we happen to think they're the best in the business. They know what they need to do in markets like these because they've been through it before. The longer answer I think reflects and relates to what John and I both mentioned earlier, which is what we viewed as shippers' expectations going into this year as demand slackened and capacity loosened. Our people are in front of our customers every day and staying relevant to them. Now, are we making as much as we did last year? No, but that's part of our business model and part of the cycle. As to the sustainability, well that depends. We'll emphasize as we always have balance and profitable growth. I just want to like take a step back for moment and reflect on some of our key year-to-date performances. Truckload volumes up 5% and that's off of a very large base, LTL volume is up 7% again off a very large base, ocean volumes up 6%; we're still the number one NVOCC from China to the U.S. Our air volume is up 18%, managed services revenues up 29% and sourcing volumes up 6% – pardon me; 7%. The point is that while this quarter is not stellar, I think it's helpful to take a slightly longer-term view and look at the trends as well.

Thanks, Andy. To John with the next question. Can you please give us your thoughts on the outlook for the forwarding business overall? How are margins trending? And which trade lanes provide the most opportunity for CHRW?

We've not wavered at all on our overall view that our forwarding business is in a great spot right now and we continue to have a very positive longer-term outlook. And we've all discussed the fact that ocean pricing in many of the lanes had dropped down to levels that clearly were not sustainable for the steam ship lines. The fact that a bankruptcy occurred fairly abruptly and prices moved somewhat abruptly, similar to comments in truckload, we are seeing some examples like that of volatility and aggressive movement of margin that maybe didn't occur quite the same 10 years or 20 years ago. But all of that activity is typical in terms of the reduction or addition of supply as the marketplace wavers. So, similar to the broad comments I made about the enterprise, the fact that there's volatility and margins are moving around is well within the boundaries of what we think we're going to need to do in our long-term plans. Since the additional investment in Phoenix four years ago and now followed on with APC, our team has had great momentum in terms of leveraging the increased scale that we've had to become that number one NVO from China to North America, and really looking at how you leverage scale in the Global Forwarding business to be more competitive and to provide better service. We've mentioned several times over the last year our additional initiatives in the airfreight world where, again, the margins are heavily driven by scale and density where you have to build up your volume and build full pallets in order to get to kind of industry norms around profitability. So our long-term outlook is that we hope to be able to continue to gain scale and improve our margins on airfreight by building that density. On the ocean freight standpoint, we do feel like we've reached a level of competitiveness and scale where our margins are very good. But there are a lot of opportunities to expand corridors like Asia to Europe and North America to Europe where we don't have that same level of volume and activity today. So overall the team is in a good spot, we like our network, we like the scale and competitiveness that we've reached in some of the primary ocean corridors, and we're investing aggressively in other areas and other services to try to build up with that. So, all in all a very positive outlook for our forwarding business going forward.

Thanks, John. To Andy with a question on the bad debt accrual. Can you talk about why the year-to-date bad debt accrual is tracking down nearly 80% year-over-year? Also, did you make any accrual for bad debt for Hanjin in the quarter? And how should we think about bad debt next year? Should it normalize to, say, just under 1% of net revenues?

Yeah. I'll answer them in a slightly different order. First we don't have exposure to Hanjin simply because they're not a customer, so there's no accrual for Hanjin. And then back to the first part which is overall Robinson's receivables are down versus last year. The reason they show as being up on the balance sheet is that we closed the APC acquisition on September 30 and we have an opening balance sheet which is reflected of their numbers. But traditional C.H. Robinson receivables are down. So that's the first reason why the reserve is down. The second reason is the quality of the receivables are up. So each of our customers receive a D&B rating, and today there are more dollars in what we call the low risk category of customers, there are more dollars in that low risk category today than there were last year. So therefore, that lowers your reserves. The final category is the aging. And again it goes below 60 days and above 60 days in terms of our aging categories. There are more dollars today in the less than 60 days category than there were last year. Again, you take higher-quality receivables where the amount that is in less than 60 days is higher than last year, therefore you have a low receivable. As far as looking forward into the future, it's certainly hard to determine or give an accurate prediction as to whether we will take more customers in the low to medium or high risk category, or whether those customers will be paying in 30 days, 45 days or beyond 60 days. So, we are very happy with our credit and finance team, our credit and finance policies, so we do expect to continue to drive good results on our receivables balance.

Thanks, Andy. To John, an M&A question. With the APC acquisition complete do you expect to focus on acquisition opportunities going forward more domestically or globally?

We've hit on this a little bit already but we do expect to continue to look for both. We will look for market share and service expansion opportunities both in North America and outside of it. Andy talked about some of the restructuring that we've done to make sure that we can take the earnings that we're now achieving outside of North America and redeploy those internationally to have a more efficient structure. So with that in place and the success of some of our businesses outside of North America, the mix going forward will have a greater bent towards looking at global acquisitions than we had in the past, but we'll continue to look for both.

Thanks, John, and staying on the topic of APC for Andy. Can you please provide us more color on the APC acquisition? What's the split between air and ocean? And what is the geographic distribution? Do you expect APC's net revenue growth to be similar, slower or faster than the legacy business?

Yes. And it's great; we've hit on this theme several times throughout the morning, and the color is we're really excited to have them part of the Robinson Global Forwarding network. Prior to the acquisition I think they were the sixth largest forwarder in Australia. The mix of their business, because it's an agent-based business, was primarily ocean and forward to customs with a little air import mixed in. I think if you were to categorize it, it's roughly a third of it was coming from North America, a third from Europe and a third from Asia. And so, but because they were an agent -based network and they were focused primarily on the import, they didn't focus as much on the export market, which Australia does have a pretty strong export market. Now that they are part of a global network of company-owned stores that are branded Robinson, they can begin to really sell. And as John mentioned, the initial interactions have been incredibly positive, an Australia export service. And we've got teams in the U.S. We've got teams in Europe and teams in Asia that are working on it. Additionally, and we talked a little bit about this, is that we're able to pick up that business that they were traditionally running through agents in Europe and Asia. Roughly that was by order of magnitude two-thirds of the business. So we're excited about the initial returns on picking up their agent businesses in those markets because we have teams on the ground that are working on it today. I would just finally close by, usually, it's very rare to find an acquisition like this where the cultural fit is exceptionally high. They run their operations incredibly tight and incredibly successful, and they fit very well into the Robinson culture and the Robinson team. There are a lot of incremental and additional opportunities that we look to explore with them. So the color is very positive.

Thanks, Andy. To John with an LTL question. What are your expectations for LTL growth, especially if we remain in a relatively lackluster industrial production environment? Do you think you can meaningfully outpace the market growth by taking share from the asset-based providers?

So I guess the first point of clarification is when we think about our LTL offering, we don't see it as competing directly with the asset providers. It's about partnering with those asset providers and the vast majority of everything we do in the LTL space, it is tendering it to a traditional asset-based LTL network where they're executing the freight. So from our standpoint, the question becomes how much more of the market can we prove our value proposition to be involved in the transaction, to use our technology, to use our routing, to use our tools to help both the shipper and the carrier with a better outcome around doing that? We do feel good about that. We think we can continue to take market share and grow faster than the overall market just by continuing to penetrate our services that are out there. So yeah, we do feel very positive about it. And in terms of the competitive market, there are some additional LTL third parties or brokers today that maybe they weren't 10 years or 15 years ago. But again, as I commented earlier, I think that in some ways provides validation to our business model and how we're adding value and we'll have to continue to evolve with a more competitive landscape just like we do in all of our other services.

Thanks, John. Next question for Andy on ELDs. Are you beginning to hear from customers that want to secure capacity from carriers that are already ELD compliant? What procedures does Robinson have in place to make sure that carriers they use are compliant once the mandate is effective?

Yeah, we really haven't heard any specific request from customers related specifically to using ELD-compliant carriers. So, it just hasn't come up yet. As far as the accountability in terms of the compliance, so let's all remember that ELD's aren't actually changing the hours of service; it's only changing the manner in which those carriers comply to the hours of service. And today as well in December of 2017 when the new law goes into effect, is part of our agreement with all of our carriers is that they comply with local, state and federal regulations and laws. And we would expect them to continue to comply with all local, state and federal laws just like we do today. So there won't be any change in terms of how we actually adjudicate that.

Thanks, Andy. To John for a question on European truck brokerage. What percentage of your truck brokerage net revenue is generated in Europe? How would you characterize the state of the truckload supply and demand dynamic in Europe? Are margins behaving better in Europe than in the U.S.?

So our European business represents about 5% of our truckload net revenue. Because we're much smaller in Europe and don't have the network scale, our margins are lower in Europe than they are in North America. In addition, because we have that smaller, more transactional network, our margins in Europe are actually more stable than they are in North America. Again, that's just in the Robinson business. We've talked a lot today about how those committed relationships and the large shippers that we deal with and enter into those agreements that are more – a little more than half of our North America truckload business contribute meaningfully to kind of the margin volatility and the expansion and compression that we have during the various cycles. So our business in Europe is profitable, the margins are lower, but they are more stable because of the mix of business and the transactional majority that we do in Europe.

Thanks, John. To Andy and a question on managed services. Your TMC operations seems to have emerged as the premier transportation manager in the U.S. Are you satisfied with the revenue and profit generated from this operation given the amount of freight you manage, and the amount of value you create for customers?

I guess it's hard to say that we're not satisfied with 31% growth in the quarter. The team there is doing a great job, and yes we agree with your statement with one caveat. We do believe that TMC is the premier transportation manager, but not only in the U.S. but the entire world. We have five control towers on four continents and the Indian subcontinent, and it's backed up by a world-class IT team that provides global supply chain visibility. They continue to win mandates from new and existing customers, and are on track to manage over $4 billion in freight spend. So, yeah, we're pretty satisfied.

Thanks, Andy. To John with a quick question on regulation. Are there any other pending regulations you think could cause a disruption to trucking capacity? If so, can you please give your thoughts on them.

Short answer is no. Andy kind of lined out the discussion around ELDs and why we don't think that will be disruptive from our standpoint. In our industry presentations we talk a lot about the last six years or seven years and the escalation of regulation around safety and emissions type themes, hours of service, CSA and different things that have added cost and have added some price inflection to various periods in the truckload portion of it. We've lived through most of those. ELD is just kind of the big one that everyone's talking about right now and we don't expect a lot for that. So, short answer is no.

Thanks, John. Next question for Andy on the topic of M&A. How does the acquisition pipeline look? Are you seeing quality properties that might be a good accretive strategic fit? Are valuation expectations on the part of the seller reasonable?

Yes. We have a really strong team dedicated to this area and the acquisitions pipeline looks good right now. That doesn't mean that we're going to run out and buy a bunch of companies, because our filter is what they've always been. It's cultural, it's strategic, it's business model and its value. We're in constant dialogue with companies that are out there and remain disciplined in our approach. Some sellers right now are reasonable while others, their valuation expectations are beyond what we believe are reasonable. So...

Thanks, Andy. Next question for John on intermodal. Would you consider buying a large existing intermodal franchise from an asset-based carrier? Would you be willing to fix an existing business? Or would you prefer to buy something already firing on all cylinders? Or would you rather just grow organically? Have your thoughts evolved on this in recent months?

Well, from an overall M&A philosophy standpoint our first preference is to grow organically because that does have the highest return on it. We've acknowledged that there are a lot of opportunities where we can invest through M&A and not only accelerate our growth but sometimes bring in management and business processes that we're not as capable at that are really good for us. So we have not, and we do not really look at kind of fixer-upper type acquisitions. We're generally looking for what we think are well-run and good businesses that are going to add to the strength of our network and add to our competencies because we really don't have the bandwidth or the extra management in place to go around and fix things. We would like to be bigger in the intermodal business. We do remain very open-minded about intermodal opportunities and looking at how we can be more relevant to that space in the future, but our approach has generally been around looking for good management teams and well-run businesses that will make us stronger.

Thanks, John. To Andy with the next question. How are you thinking about your preferred spot or contractual mix heading into 2017, given the general consensus expectation that ELDs will begin to have an impact on capacity next year which could drive higher rates and margin compression, especially if you have an outsized mix of business tied to contractual commitments.

We've hit this point quite a few times, not only on this call but also in previous ones where we try to meet customers where they want to buy. And what we've seen and what we've experienced for some time now is customers are looking to secure capacity and they're looking to secure rates which is part of the reason why we're helping them manage their supply chains and growing our volumes the way they have. So with that being said, our mix between contractual and spot remains fairly consistent quarter-over-quarter and year-over-year. When we see disruption, whether it's significant or not, on either supply or demand, that mix shift shifts. So, if we were to see a significant impact in capacity to yield these, which by the way, we don't anticipate, we would expect to see more higher-margin opportunities in the spot market while we would continue to honor our commitments to our contractual customers for the term of the agreement, which – they usually reset every 160-plus days. So, obviously volume would increase if there's a disruption, and we would take advantage of it in the spot market and we would continue to honor those contracts on the contractual side but we would also take advantage of – in a situation like that where routing guides failed, the further down you go the more opportunities there are for margin expansion.

Thanks, Andy. Unfortunately, we're out of time and we apologize that we couldn't get to all the questions that came in. We really appreciate everybody participating in the third quarter of 2016 conference call. This call will be available for replay in the Investor Relations section of the C.H. Robinson website at chrobinson.com. It can be accessed by dialing 1-877-660-6853 and entering the passcode 13646518#. And that replay should be available later this morning. If you have any additional questions, please call me, Tim Gagnon, at 952-683-5007 or by email. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.