Robert Houghton - C.H. Robinson Worldwide, Inc. John P. Wiehoff - C.H. Robinson Worldwide, Inc. Andrew C. Clarke - C.H. Robinson Worldwide, Inc. Robert C. Biesterfeld, Jr. - C.H. Robinson Worldwide, Inc.

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson Second Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, Bob Houghton will facilitate a review of previously submitted questions. As a reminder, this conference is being recorded, Wednesday, August 1, 2018. I will now turn the conference over to Bob Houghton, Vice President of Investor Relations.

Thank you, Donna, and good morning, everyone. On our call today will be John Wiehoff, Chairman and Chief Executive Officer; Andy Clarke, Chief Financial Officer; and Bob Biesterfeld, Chief Operating Officer and President of North American Surface Transportation. John, Andy, and Bob will provide commentary on our 2018 second quarter results. Presentation slides that accompany their remarks can be found in the Investor Relations section of our website at chrobinson.com. We will follow that with responses to the pre-submitted questions we received after our earnings release yesterday. I'd like to remind you that our remarks today may contain forward-looking statements. Slide 2 in today's presentation lists factors that could cause our actual results to differ from management's expectations. And with that, I will turn the call over to John.

Thanks, Bob, Thanks, bob, and good morning, everyone. Thank you for joining our second quarter earnings call. In my opening remarks, I want to highlight some of the headline themes that you'll be hearing us talk about. First, we are pleased with our overall financial results this quarter. Volume trends improved in the quarter with volume growth in most of our service lines. We delivered a double-digit increase in both net revenues and operating income, and 90 basis point increase in operating income margin. Combined with the benefits of U.S. tax reform, this strong performance enabled us to increase our cash returns to shareholders by nearly 30% in the quarter. Andy and Bob will provide more color on our financial performance in their prepared remarks. We continue to see very high freight demand in the marketplace. Our results through July reflect that and our customer interactions reflect expectations for continued high demand for the remainder of the year. Demand side of the equation is obviously driven by a healthy economy, and it's the more volatile part of the supply and demand relationship. On the supply side, we see high orders for new equipment, driver shortages, and significant logging device impacts on certain lanes and a lot of capacity owners realigning their networks and freight preferences to adjust to the market. While our cost and pricing charts show some leveling off of the significant year-over-year price increases, we do expect the market to remain tight for the remainder of the year. Pricing continues to escalate. We experienced another quarter of double-digit cost and price increases across most of our service lines this quarter. We now have pricing reflective of marketplace conditions across the significant portion of our business portfolio. This contributed to our sequential improvement in net revenues. In our North America truckload business, pricing increased 20.5% in the quarter, approximately in line with carrier cost increases. Our second quarter price increases also reflect an increase in spot market activity that is typical of a rapidly rising price environment. The strength of our business model is the ability to balance our portfolio between long standing customer contractual relationships and our ability to participate in spot market freight opportunities, all while delivering supply chain expertise to both shippers and carriers around the globe. In the current freight environment, we are seeing shipper routing guides deteriorate, resulting in a shift in freight volume into the spot market. We are focused on continuing to honor our customer commitments while also helping our customers secure spot market capacity. We firmly believe the right business model is to leverage our people, process, and technology to drive balanced growth over time, leveraging our supply chain expertise to build long-term committed relationships with shippers and carriers around the world, while also fulfilling spot market opportunities when they become available. With those introductory comments I'll turn it over to Andy to review our financial statements.

Thank you, John, and good morning, everyone. Let me begin by recognizing the hard work of the entire Robinson team across our global network in this volatile freight environment. Your performance was best in class, as we continue to reach new milestones, then push through them to even greater ones. Our organization is always striving for ways of doing it better, but it is also important to say thank you and keep up the good work. We saw a double-digit increase in both net revenues and operating profit, while continuing to make significant investments for future growth. We also delivered operating margin expansion in our NAST, Managed Services and European Surface Transportation businesses. Congratulations to the Global Forwarding team, which grew operating income on a year-over-year basis and made significant sequential operating margin improvement. While the Robinson Fresh team continues to work exceptionally hard in this challenging environment, profits fell short of expectations. ELDs and award management have had an out-sized negative impact on Robinson Fresh. Bob will share our plans to improve profitability of this business segment in his prepared remarks. Now on to slide four and our financial results. Second quarter total revenues increased 15.3% to $4.3 billion driven by significantly higher pricing across most service lines, volume growth in LTL and Global Forwarding, and higher fuel costs. Total company net revenues increased nearly $100 million, or 17% in the quarter. Net revenue growth was led by truckload services, up $59 million, and LTL services, up $17 million. We continue to see the benefits of investments in our Global Forwarding business, where net revenues increased 19% or $23 million in the quarter. Total operating expenses increased $61 million, a 15.4% increase versus the prior year period. Personnel expenses increased 19.8% in the quarter, primarily as the result of…

Thank you, Andy. Good morning, everyone. I'm excited to have the opportunity to speak with all of you today and provide an update on our operating segment performance. To set the stage for the performance discussion, I want to first highlight the volatile nature of the logistics market. On slide 10, the light and dark blue lines represent the percent change in North America truckload rate and cost per mile to both customers and carriers, net of fuel costs since 2008. The gray line represents the net revenue margin for all transportation services. As John mentioned in his opening remarks, the change in North America truckload rate per mile and cost per mile were both around 20% this quarter. This level of increase remains near the highest levels we've seen in this decade. You can see that despite the high level of volatility in the freight market, we are able to maintain our margins through these extended freight cycles. Our second quarter transportation net revenue margin of 16.2% is up 80 basis points versus the same period five years ago, and our annual net revenues have increased over $715 million during this five-year time period. One of the metrics that we use to measure market capacity and volatility is the routing guide depth from our Managed Services business. In the second quarter, average routing guide depth was 1.8, representing that on average the second carrier in a shipper's routing guide was executing the shipment in most cases. The quarter also included weeks where the routing guides spiked to 5 in certain parts of the country, indicating periods of localized displacement between both supply and demand. By comparison, average routing guide depth in a balanced market is roughly 1.4. So, we do remain in a tight capacity environment. We think this…

Thanks, Bob. Before we move to those questions, I'll wrap up our prepared remarks with some comments on our expectations for the balance of 2018. As stated earlier, we believe that the current freight market fundamentals will remain in place for the remainder of the year. With a healthy economy, demand for freight will remain strong. While an increase in new equipment orders may suggest an increase in capacity, we believe the aging truck driver demographics and declining number of new truck drivers combined with the impact of the April 1 hard enforcement of ELDs will continue to constrain capacity. So, we expect the market to remain tight through 2018. We're closely monitoring the escalating tariff activity. The current tariffs that are in place did not have an adverse impact on our first half financial results. Our primary focus has been to work with our customers to help them understand and quantify the impacts or potential impacts of some of the proposed tariffs. We're also working to ensure proper compliance for all enacted tariffs. While the cost of the tariff is ultimately borne by the shipper, our business could be negatively impacted by any resulting slowdown in global trade or redesigning of global supply chains that negatively impacts our customers' shipment activity. We will continue to monitor this situation and work closely with our customers and to adapt to any required changes. We remain focused on working closely with our customers to help them understand the market and to ensure we both meet our customer commitments and achieve pricing reflective of the marketplace conditions. We continue to invest in our people, our processes and our technology to deliver an expanding set of insights and capabilities that increase the value of the supply chain expertise we deliver to our customers and carriers. And we remain focused on operating cost efficiency, driving higher levels of service execution for our employees, and increasing returns to our shareholders. Lastly, I too would like to personally thank the over 15,000 C.H. Robinson team members around the world for their outstanding efforts in delivering strong operating results this quarter. In a rapidly changing freight environment, we were able to deliver double-digit growth in net revenues, operating profit, and earnings per share while continuing to invest in the digital transformation that enables us to provide increased value to our customers, carriers, employees and shareholders. We returned $136 million to shareholders this quarter and delivered a significant improvement in our operating cash flow. We delivered strong results in the quarter, and I'm confident that we have the right people, processes, and technology to continue to win in the marketplace. That concludes our prepared comments, and with that, I'll turn it back to the operator, so we can answer the pre-submitted questions.

Thank you. Mr. Houghton, the floor is yours for the question-and-answer session.

Thank you, Donna. First, I would like to thank the many analysts and investors for taking the time to submit questions after our earnings release yesterday. For today's Q&A session, I will frame up the question and then turn it over to John, Andy, or Bob for a response. And the first question comes from Jack Atkins with Stephens. John, how do you view the potential duration of the current freight cycle? Your comments around a strong outlook for the remainder of 2018 are encouraging, but is there anything on the horizon from a supply or demand perspective that you believe could disrupt the cycle from persisting well into 2019?

As we all know that the markets are moving faster than ever, and in a lot of ways maybe harder to predict. But just to share a little more color on, kind of, our view of the marketplace today, we have always believed and continue to believe that in the supply and demand relationship, the demand is more the trigger point or the more volatile variable in the two equations. Evidenced by even this current cycle where ELDs and some of the capacity constraints are clearly an important factor, but really the tipping point was the hurricanes and the spike of expedited demand services in the fall of a year ago. So while it's hard to predict these cycles, we do feel like the overall demand, the healthy economy, and the likelihood that that will continue for the remainder of the year is what will keep that market tight. Many of you probably know better than we do what would cause a recession or a significant change in the demand to look for the freight outcome, but I know that across our customer base and internally nobody is planning on that. So, we continue to expect a tight freight market with similar kind of pricing dynamics and fundaments at least for the remainder of the year and heading into next year.

Thanks, John. Next question for Andy. A number of analysts asked about Global Forwarding operating margins. Your results in Global Forwarding show a solid improvement in the second quarter relative to your first quarter results. Can you provide a path to more normalized operating leverage in Global Forwarding? Is it simply scale, or productivity initiatives, or a combination of the two?

Yeah, thank you. And Bob did a great job of explaining the sequential improvement that the team performed. And so, I won't go into that, but if you take an historical view, we decided in 2016 to go into segment reporting to really give our investors a clearer view of our different reportable segments. And so, given that, our – if you look at Global Forwarding of those last three-and-a-half years, the operating income as a percent of net revenue has kind of varied between on the low side 18%, on the high side 22% on average. And so, if you look at that 20.7% for the Q2 of this year, it's really within that band. Included in those numbers, because we acquired first, obviously, Phoenix, secondly APC, and thirdly Milgram, there is a lot of non-cash amortization in those figures. So, when you add that back in, and it's roughly 6% to 7% on the operating income line, it's the 27%, 28% as a percent of that revenue. And so, while that team does have continued strides to make, and they will, we do believe that those margins are reflective of a really nice and a really strong Global Forwarding operation. Secondly on that, if you think about the growth that that organization has had, if you go back to Q2 of 2016, so just two years ago, our net revenue was up nearly 50% on a quarter-over-quarter basis in that regard. So, we are growing scale. We are growing organically with some of our additional services. So, we do believe there continues to be opportunities for significant operating margin leverage as we continue to grow.

Thanks, Andy. Next question for Bob is from Jack Atkins of Stephens on Robinson Fresh. Todd Fowler of KeyBanc and Fadi Chamoun of BMO asked similar questions. Robinson Fresh results were negatively impacted by the adverse insurance claim. But can you speak to what is driving the top line in net revenue margin pressure at Fresh? I would have thought that the segment would see improved net revenue trends after being able to reprice its customer contracts in the first half.

Thanks. So, Robinson Fresh is a unique business within Robinson. And while we report both the produce sourcing and transportation revenues separately within the business, they're really closely linked. And at times I think it's difficult to interpret how the results of one impact the other. In many ways our Robinson Fresh product business is experiencing many of the same challenges today that many manufacturing and other food companies are experiencing in this rising freight environment. Our produce business is working to forecast the delivered sale of a product to either retailer or a food service provider at a fixed price into the future. And when the cost of transportation rises beyond that forecast, both the profitability and demand can tend to be impacted. So, across many of the commodities that we sell, demand for our case sales is really driven by the demand for promotions at retail. So, if you think about that supermarket flier that advertises grapes for $0.99 a pound versus $1.99 per pound, consumers are going to tend to buy more when they're $0.99. So, promotions drive consumption in our business, and that ultimately drives demand. When freight costs escalate, promotional prices escalate, and demand goes down. And this has a really negative impact on our overall volume of cases sold. According to IRI, in second quarter, product sold strictly on promotion at retail during Q2 was down about 420 basis points versus Q2 of last year. Additionally, a portion of the freight volume of Robinson Fresh is tied to the sale of that produce, so much of that is priced in advance and it's difficult to reprice that freight, as we're not just repricing the freight component, but ultimately the delivered price of that product. So, in a rapidly rising cost environment we do see potential in the Robinson Fresh business for margin compression on both the freight side and potentially decreased demand on the product side within RF.

Thanks, Bob. The next question is also for Bob regarding NAST EBIT margins and comes from Ben Hartford of R.W. Baird. Scott Schneeberger of Oppenheimer and Tom Wadewitz of UBS also asked about NAST EBIT margins. NAST results were strong during the second quarter, but segment EBIT margins as a percent of net revenue remain below second quarter 2015 and second quarter 2016 levels. Can NAST further improve EBIT margins from Q2 2018 levels and return to recent historical highs? And if so, what is the pathway to doing so?

I don't think that we're at the peak of our EBIT margins as a percentage of net revenue. How we improve those margins is really under a constant state of evaluation and fine-tuning from the leadership of NAST. The four long – mid to long-term goals of NAST around effectively leveraging our data differently, expanding our core services, enhancing our customer experience, and driving the reinvention of the model are all really geared towards driving additional efficiency and effectiveness of NAST. So, we've spoken on this call and in the past about how we're optimizing our network footprint, and this is an important piece of the future success, but really, I think about our success in NAST being driven not only by where work gets done, but also how work gets done. So, we've seen uplift and gaining scale from evolving our footprint, centralizing some task-oriented work, and building out more scaled centers of excellence. But really the real opportunity for us is around the ongoing re-engineering of how work gets done, how we leverage our artificial intelligence, machine learning, and advanced analytics even more effectively to evolve our workflows and eliminate steps within our processes. So, we continue to be focused on maintaining the flat head count within NAST as we continue to add more commercially-facing roles and engineer out task-oriented work. Our IT teams, our engineers, and our business leaders are really active and thinking differently about how we get work done and how we positively impact that EBIT margin.

Thanks, Bob. Next question for Andy from Matt Reustle of Goldman Sachs. Please provide monthly net revenue trends during the second quarter? Additionally, while net revenue per business day growth moderates in the back half of the year, can you still show an acceleration in operating income growth?

Our monthly net revenue growth per day in 2018 was 15% in April, 14% in May, and 23% in June. And now I'm going to give you the comparison. As you all recall, this time last year we talked about how challenging Q2 of 2017 was, and April of 2017 was down 3%, May of 2017 was down 5%, and June of 2017 was down 3%. So, hopefully that will give you a little better historical perspective on the monthly net revenue per day. As to the latter part of the question, clearly, I think we and the team did a great job on a year-over-year basis of driving 20% operating income growth, but also sequentially in the second quarter we grew operating income nearly $30 million, which is reflective of what we've seen in previous periods. We have, as Bob was mentioning on head count, doing a really nice job of making investments that are driving productivity, driving better statistics in that regard. I think across that board you've seen our SG&A pretty much level out, and the only thing that would impact that one way or the other would be issues like allowance for doubtful accounts or continued auto liability claims, which would change that number one way or the other. So, as we continue to drive strong net revenue growth, we do believe that that will translate into operating income growth as well.

Thanks, Andy. Next question comes from Bascome Majors with Susquehanna. Bob, you've been in the COO role for more than a quarter now. What's been your focus during your first few months on the job and what opportunities do you see to improve productivity in the coming quarters? Based on your vision for the company, how will Robinson look different in two to three years compared to today?

Well, thanks for the question there, Bascome. I guess I'll take you on a quick tour over the last few months, as I've been in this role since the end of February and beginning of March. So, in terms of where I've been spending time, I'd say first and foremost I've been focused on continuing to provide guidance to our strong team of NAST leaders as we continue down that path of NAST reinvention. I've spent a couple weeks in Europe with our Surface Transportation and Global Forwarding teams looking and discussing ways that we can drive greater synergies between our North American and European businesses. I've been working closely with our IT organization to determine succession for Chad Lindbloom's retirement. And really been balancing the rest of my time between Robinson Fresh, maintenance services, the broader Global Forwarding team, as well as working with our commercial team as we continue to think about refining our go-to-market strategy to drive growth and serve those 120,000 customers. I'm really fortunate that I've inherited a really strong team on all levels on a global basis. One output that I wanted to share from the first few months is that we're really excited about the fact that we have named a new Chief Technology Officer in Mike Neill. Mike's been with Robinson for about 15 years, and he's a really strong software engineer and a great leader of people. So, Mike's been at the core of building out our product roadmaps, our infrastructure, as well as our architecture, and I'm really confident in his vision for the future of the Navisphere platform. Mike will be a great add to our overall executive leadership team, and we'll continue to add talent to help support Mike and accelerate the speed of development and deployment of…

Thanks, Bob. The next question is for John. Several analysts asked how much of your contract book of business has repriced this year? Is this the point in the cycle where you would begin to favor volume over price consistent with your long-term strategy to drive market share gains?

Our historic metric that we've shared around our committed business is that more of it reprices in the first half of the year, generally two-thirds and one-third in the latter half of the year. Also, in our prepared comments, we shared that a substantial portion or likely more than half of it has repriced and is more reflective of kind of the current market conditions. I think that guidance is still probably about right. That we've got a significant portion, maybe two-thirds of it repriced. But there clearly is still more work to do. Bob referenced some of the fresh activity, and there is still a lot of activity in the network around account management and activities that continue to require analysis and adjustment to the market.

Thanks, John. Ken Hoexter with Bank of America Merrill and Jason Seidl from Cowen & Company asked about personnel expense. Andy, personnel costs ramped up in Q2, rising 120 basis points year-over-year. Is there any catch-up in incentive comp in the second quarter results? If so, should we see a sequential deceleration in Q3 in personnel costs?

I think, we've talked often and at length about our incentive compensation. And it's important to our values and our culture. And as we've often talked, it aligns our incentives with that of our shareholders. So, specifically, we accrue those expenses on a quarterly and year-to-date basis. So, in periods where you see performance accelerating like we did in Q2 of this year, you would see there be a slight amount of catch-up Q1 versus Q2. And, conversely, we experienced the opposite last year as our performance in Q2 of 2017 decelerated, and there was a bit of a takeback in from what we had in Q1. Nothing that we would consider or investor would consider material. One of the things that I'd like to point out is despite the fact that we saw a sequential increase in our Q1 to Q2 compensation, as we talked about it was only 4% head count growth and that was driven in large part by the Milgram acquisition. The amount of that compensation that was fixed quarter-to-quarter actually decreased, so, there was more variable compensation, based on our performance, in Q2 of this year versus Q1, and we think that's reflective of our values, of our culture and in alignment with our shareholders.

Thanks, Andy. The next question for Bob comes from Fadi Chamoun of BMO. The current trucking market is proving exceptionally tighter compared to recent history. Does it change how you think about your exposure mix of spot versus contractual freight?

So, about 20 years ago in truckload we made a really conscious decision as part of our strategy that as a 3PL we wanted to participate in much more than just the spot market that brokers were traditionally focused on. And at that time and today we really believe that our ability to participate with our customers in their overall transportation spend is an important ingredient to our success. And so, today we're really able to wear two hats for the same customer, one that looks and feels much more like a dedicated fixed-asset-committed carrier, and one that's much more flexible and allows shippers really efficient access to the spot market when routing guides and plans fail. So, when markets stabilize, we tend to see a higher percentage of our business lean towards contractual, and when markets are changing rapidly, we tend to see our business lean more towards transactional. The mix between contractual and transactional is not necessarily a conscious choice or a decision that we make, it's much more of a by-product of the overall marketplace and the decisions that our customers make on how they choose to engage us. Over time, our goal is to continue to grow volume at a rate ahead of overall marketplace growth, and that growth will become – will come both from contractual as well as spot market freight.

Thanks, Bob. Chris Wetherbee of Citi asked the next question for John on the competitive landscape. Ravi Shanker of Morgan Stanley and Todd Fowler of KeyBanc also asked about competition. Can you provide an update on the competitive landscape in truckload brokerage? And are newer tech-based competitors more active and are you seeing any impact to pricing?

One of the things that remains most true is that our industry is incredibly fragmented. There still are more than 10,000 members of a TIA association, there's more than 100,000 motor carriers and while we know that we're substantially larger than anybody else, we know that we can't move pricing and that we don't have the sort of clout to impact things. So, the answer is no. We don't really see any specific start-ups or the evolution of the competitive landscape causing a measurable impact on pricing. Obviously, in this current environment, the cyclical impact is trumping any kind of secular changes around digital transformation or how the competitive landscape might be evolving. Now, all that is not to dismiss, Bob shared, in a lot of ways we're big believers in some of the new tools that are coming to the market and I know that there is a better-than-ever menu of competitors who are working on mobile apps and location services, but we think our Navisphere platform is really at a different scale and a competitive differentiator, and we're going to keep investing in it to make sure we stay ahead in that competitive landscape. So, lots of change. It's more competitive than ever, but it's as fragmented as it has always been, and therefore, it's really not likely to see measurable impact from one or a handful of new entrants.

Thanks, John. Todd Fowler of KeyBanc asked about Milgram. Andy, please provide an update on the Milgram integration. Are there duplicative costs associated with integration during the quarter? And if so, can you quantify? At what point will the integration be complete?

Yeah, we're pleased with the integration efforts on behalf of all of our teams, starting with APC in 2016 and most recently Milgram in 2017. And I would offer that they've done a great job of integrating those organizations into the overall Global Forwarding platform, which has driven, as I referenced earlier, significant both operating income as well as net revenue growth. There are a few duplicative costs that are still there, nothing that's material. We've done a great job of integrating the agents into our organization and you've seen a tremendous updraft in some of the performance there. I would say that as we get into the latter part of this year and go into 2018, when we finally put Milgram onto the Navisphere platform, you'll see a few more synergies picked up just in terms of our overall efficiency and performance there.

Thanks, Andy. Next question is for John from Scott Schneeberger of Oppenheimer. How much of an impact is the ELD regulation having on supply in your view?

You know, it's interesting. Prior to the ELD implementation, a lot of projection and speculation around what impact it would have was thinking about what, if any, percentage of trucks might exit the market or not renew their registration and whether 2%, 3%, 5% of capacity would leave the marketplace as a result of the requirement. As we've shared, we haven't really seen any of that. We continue to have very healthy signup of new capacity and we really anecdotally don't know of much meaningful capacity leaving the marketplace. I think the other impact, which has been meaningful, that we've shared in a variety of ways is that the pricing and the uncertainty that has come with those tweener lanes and the repositioning of networks and how a lot of the capacity has changed their behavior around what freight is preferable and how they are pricing, especially certain corridors or certain types of freight like the Fresh division that was reference. So, there's definitely been a meaningful impact because of the types of ways that it's changed. It's really hard to quantify and know what it is, but clearly a contributor to part of the current cycle and the tight side of the supply.

Thanks, John. The next question is also for John from Matt Reustle of Goldman Sachs. Are you seeing your customers act differently than in previous cycles? Are contract terms changing in any way?

I think, the overall answer to that is no. When you think about the current environment, it's been a while since we've had this kind of route-guide deterioration and price inflation in the supply chain. So, whenever we have an escalation of costs like this, it puts a lot of pressure on all of us in the industry, and especially on a lot of the shippers. So, we're definitely seeing with this type of price increase the aversion to the spot market, the refocus on contractual compliance, to committed relationships, all of those things with greater emphasis, just like we would have seen in this portion of cycle in the past. So, maybe a renewed spirit of emphasis and kind of some new reactions compared to the last five, six years, but overall, probably a predictable reaction and adjustment to this part of the cycle.

Thanks. The next question is from Brian Ossenbeck of JPMorgan. Andy, what was the year-over-year impact of changes in fuel surcharges on net revenue margins in the first and second quarters?

Yeah, and recall that fuel is a cosmetic impact to our net revenue margins. In Q1 of this year it had a drag of 40 basis points on our net revenue margins and in Q2, given the increase in fuel, it had a drag of 55 basis points on the net revenue margin percentage.

Thanks, Andy. Now to Bob. Jason Seidl also asked is the improvement in July truckload volume decline a function of easier comps, more favorable direct results at C.H. Robinson, or a combination?

It's really a function of both. Looking back at 2017, we had much stronger volume growth in the front half of the year than we did in the back half of the year with fourth quarter last year even being negative in terms of volume growth. If we look at the first seven months of 2018, we see sequential improvement in total volume on a per-day basis every month. So, while July volume is up on a per-day basis sequentially compared to June, we do have easier comps on a year-over-year basis in the second half of the year.

Thanks, Bob. Another question for Bob from Allison Landry of Credit Suisse. With truck orders that remain elevated, do you anticipate capacity coming online in any meaningful way?

We mentioned in our prepared remarks that we continue to add new carriers to our network at an accelerating rate, but we don't necessarily see this as meaningful new capacity coming into the overall North American network. As much as it is likely company drivers or lease drivers that expanding out on their own to start businesses and act as owner-operators, if you think about the carriers that we added last quarter, the average fleet size of those carriers that we onboarded is right around 1.5 trucks per fleet. So, these are truly owner-operators that are either new to the industry, new to Robinson, or both. So, given the driver shortage that all the mid-sized and larger trucking companies that I talk to report, and the challenges of recruiting and retaining drivers in an environment of nearly full employment, I don't see a meaningful increase in overall capacity entering the market.

Thanks, Bob. Our last question is for Andy from Ken Hoexter of Bank of America Merrill. What are your thoughts on debt paydown? Now that you have $1.4 billion in debt, would you look to pay down the AR securitization and credit facility or would you look to increase your debt exposure to keep leverage just below two times debt to EBITDA?

One of the things that we continue to be proud of is the strength of our balance sheet and our ability to access capital in a meaningful way, as evidenced earlier this year when we took down $600 million of investment-grade debt. If you think about the rates that we're paying on our credit facility at just under 3.3% and the AR securitization at 2.9%, we wouldn't envision paying those down, just given the relatively lower rates at which we borrow. Our comfort level, and we've talked about this, is at between 1 and 1.5 times net debt to EBITDA, absent any other strategic opportunity that came our way.

That concludes the Q&A portion of today's earning call. A replay of today's call will be available in the Investor Relations section of our website at chrobinson.com at approximately 11:30 AM Eastern time today. If you have additional questions, I can be reached by phone or e-mail. Thank you again for participating in our second quarter 2018 conference call. Have a good day.

Ladies and gentlemen, that concludes today's conference. You may disconnect your lines at this time and have a wonderful day.