Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson Fourth Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. Following the company's prepared remarks, we will open the line for a live question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, January 31st, 2024. I would now like to turn the conference over to Chuck Ives, Director of Investor Relations.

Thank you, Donna, and good afternoon, everyone. On the call with me today is Dave Bozeman, our President and Chief Executive Officer; Arun Rajan, our Chief Operating Officer; and Mike Zechmeister, our Chief Financial Officer. Dave and Mike will provide a summary of our fourth quarter results and our expense guidance for 2024. Arun will provide an update on our initiatives to improve the customer and carrier experience, improve operating leverage and increased focus on revenue management. And Dave will share the findings from his initial diagnosis of the company. From there, we will open the call up for questions. Our earnings presentation slides are supplemental to our earnings release and can be found in the Investors section of our website at investor.chrobinson.com. Our prepared comments are not intended to follow the slides. If we do refer to specific information on the slides, we will let you know which slide we're referencing. Today's remarks also contain certain non-GAAP measures and reconciliations of those measures to GAAP measures are included in the presentation. I'd also 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'll turn the call over to Dave.

Thank you, Chuck. Good afternoon, everyone, and thank you for joining us today. Our fourth quarter results did not meet our expectations as we continue to battle through a poor demand and pricing environment. But we made progress on a number of important initiatives, including charting our path forward. But let me address our results first. On our third quarter earnings call, we indicated the Q4 truck volumes in NAST could follow the normal seasonal pattern. And in fact, that is what occurred. Specifically, the average sequential Q4 decline in the Cass Freight Shipment Index over the past 10 years is 2.4%. Excluding the pandemic-impacted years of 2020 and 2021, the average sequential Q4 decline was 3.7%. In Q4 of 2023, the shipment index declined 4.3% sequentially and our combined truckload and LTL shipments declined less than the index at 3.5%. In Global Forwarding, we increased our ocean shipments on a year-over-year basis, but they were down sequentially as well, as they typically are in a fourth quarter. For the enterprise in total, the sequential declines in volume drove a 3% sequential decline in our Q4 AGP versus Q3. And this equated to $0.11 of our sequential EPS decline. Below gross profit, personnel and SG&A expenses were within the guidance ranges that we provided on our Q3 earnings call. Although personnel expenses were toward the high end of our guidance range. Sequentially, Q4 personnel expenses increased due to the reduction of our incentive compensation accruals in Q3 that we didn't expect to repeat in Q4, as was explained on our Q3 earnings call. SG&A expenses were down sequentially but slightly above the midpoint of our guidance. In total, the 3.7% sequential increase in our operating expenses equated to $0.13 of sequential EPS decline. The combination of all these changes in…

Thanks, Dave, and good afternoon, everyone. As Dave said, we continue to execute on a handful of concurrent workstreams that are addressing significant opportunities to eliminate productivity bottlenecks and to deliver process optimization and an improved customer experience. Two of the workstreams on the productivity roadmap are aimed at quoting and order entry. In both areas, we are reducing manual touches and our response time to customers driving faster speed-to-market and higher customer engagement. In addition to our past learnings, we're leaning more heavily on Generative AI to deliver process improvements. In our order entry workstream, we're utilizing GenAI to translate structured and unstructured emails, PDFs, and Excel files that we receive from customers and their vendors into orders on our system. This solution fills in customer-specific requirements based on their past history and customer-specific prompts and scenarios entered by frontline teams who know the customers' business. GenAI puts the power of large language models into the hands of our front-line teams, rather than relying solely on data scientists to train models for unique customer requirements. While our preference is still to receive an order via API or other structured electronic means, there's large variability in how customer orders are transmitted. And this new method allows customers to have an interaction as though we receive their order via structured electronic means even when they choose to email an order to us. With more data and history to leverage than any other 3PL, we have opportunities to harness the power that Generative AI now offers to further capitalize on our information advantage, and we'll continue to look for and pursue those opportunities. Another area where we've advanced our capabilities is in touchless appointments where we've introduced technology to automate the entire process. This technology also uses AI to determine the optimal…

Thanks, Arun, and good afternoon, everyone. The soft freight market outlined by Dave resulted in fourth quarter total revenues of $4.2 billion and adjusted gross profit or AGP of $618.6 million which was down 20% year-over-year, driven by a 24% decline in NAST and a 14% decline in Global Forwarding. On a monthly basis compared to Q4 of 2022, our total company AGP per business day was down 24% in October, down 20% in November, and down 13% in December. Turning to expenses, Q4 personnel expenses were $361.8 million, including a $1.3 million favorable restructuring charge adjustment, primarily driven by the significant devaluation of the Argentine peso prior to completing the divestiture of our Global Forwarding operations in Argentina. Excluding these reversals, our Q4 personnel expenses of $363.2 million were down 10.5% year-over-year, primarily due to our cost optimization efforts and lower variable compensation. Our average Q4 headcount was down 13.3% year-over-year, including double-digit decreases in NAST, Global Forwarding, and our All Other and Corporate segments. Ending headcount was down 12.4% year-over-year to 15,246. As Dave mentioned, the sequential increase in our Q4 personnel expenses was included in our guidance. Although Q4 personnel expenses were within our guidance range, they came in at the higher-end due to the achievement of certain objective bonus targets, for example, delivering results on cost-reduction initiatives. Moving to SG&A. Q4 expenses were $149.4 million, including a $2.9 million reversal of restructuring charges, also driven by the peso deflation prior to completing the divestiture of our Global Forwarding operations in Argentina. Excluding the reversal, SG&A expenses were $152.3 million, a decline of 5.8% year-over-year, primarily due to reductions in contingent worker expenses, and were down 2.6% sequentially. As you recall from our Q1 earnings call in April, we raised our cost-savings commitment to $300 million from…

Thanks, Mike. We shared a sentiment of some of our peers in that we're happy to say goodbye to 2023. And although 2024 still presents some of the same challenges and headwinds, I'm excited about the work that we're doing to reinvigorate Robinson's winning culture. Over my first six months here, I completed my initial diagnosis and we're taking actions to chart our path forward. At a high level, we need to focus on both our customer value proposition and revenue generation, and our structural cost, and we need to aggressively seek the optimal balance. Let's review my findings. First, our structural cost base grew too much during the pandemic and we made significant progress on reducing that cost structure in 2023, but it needs to continue to improve. We will do that by embedding lean practices, removing waste and expanding our digital capabilities. This will enable us to strengthen our productivity and optimize our organization structure in order to be the most efficient operator in addition to the highest value provider. Second, as I listen to our customers, it's clear that their logistics needs are becoming increasingly complex and robust capabilities are required to power vertical-centric and value-added solutions. I have found that C.H. Robinson has people with deep expertise in the freight market and long standing trusted relationships with our customers and carriers. This is a competitive advantage, but we can do a better job of leveraging our unique expertise and information advantage and advance our cutting-edge technology to deliver more robust capabilities and market leading outcomes. Third, we need to focus on profitable growth in our four core modes, North American truckload and LTL, and global ocean and air as the engines to ignite growth by reclaiming share in eroded segments and expanding our addressable market through…

Thank you. In order to let as many callers ask questions as possible, we ask that you limit yourself to one question. [Operator Instructions] Our first question today is coming from Brian Ossenbeck of JPMorgan. Please go ahead.

Hey, afternoon. Thanks for taking the question. Dave, maybe I can just ask you to give a little more context around the rationale of pivoting more to the spot market. You've been running a little bit harder in contract for longer, so just wanted to see what changed in terms of why you went that route and then maybe tying on to that, the revenue management focus things would be really important, especially given we all know what happens when the market recovers, contracts get squeezed. Last cycle, Robinson had a pretty big headwind from negative files. So wanted to hear if this new focus was potentially going to limit that eventuality as we see the market turn? Thanks.

Hey, Brian, I'm going to have Arun jump in and address your question. Thanks for the question, by the way.

Yeah, Brian, I think the way we look at it is it's opportunistic, right? I mean, where the -- where we can get profitable demand, we will go. And there was an opportunity in the spot market, so we went there. As it srelates to revenue management, ultimately, as you know, the market is soft and so it's a very, very competitive environment. And the reality is, I think everybody's in this situation where prices are low, costs are also low. And I think what we have to think about it from -- think about from a revenue management perspective is sort of the short term and the long term. I mean there's two different perspectives. Right. And so seasonally we expect around the holidays costs to go up and then settle back down. What's different this year is the winter storms and such have kept costs a bit elevated. But regardless, in the short term, we have contracts, we have commitments, and based on our revenue management objectives, our value proposition to the customer and certain customer attributes, we make a determination on when we reprice certain targeted lanes. In the short term, we don't see an inflection in the market. So we're not really triggering any major repricing other than making sure we're trying to grab as much volume as we can in the spot market. But the revenue management sort of -- discipline will really kick in if there's a true sustained inflection in the market and we don't quite see that yet.

Thank you. The next question is coming from Jack Atkins of Stephens, Inc. Please go ahead.

Okay, great. Thanks for taking my question. And first, Mike, I just want to say really enjoyed working with you and congratulations as you move on to the next phase of your career. I guess, a lot of different ways we could go with this, I guess, would love to get your thoughts on just broadly the first quarter. We've had -- Arun, to your point, things have tightened up here in January with the winter storms. We've seen some volatility in the Global Forwarding markets as well. How does that impact -- how has that impacted your business through January? Are you seeing AGP get squeezed a bit? Could you maybe walk us through what you're seeing in the business so far this year?

Yeah, Jack, thanks for the question. Sort of building on my response to Brian. January, we have this -- I think we all know this, there's a seasonal cost increase as capacity comes out of the market for the holidays. We expect that to generally settle down by the second week of January or latest by mid-January. And we haven't seen that. Well, we've seen that in markets that are not affected by adverse weather, but where there has been weather, storms that were unexpectedly -- that were just unexpected or worse than what were -- what was expected, what we're seeing is a lot of cost pressure and essentially capacity pressure, increased load to truck ratios, increased cost per mile in those markets. Now we're starting to see that ease up and dissipate as the weather sort of dissipates. And so, from our perspective, everything that we see in the data suggests that any cost increases that we saw in January are purely a function of weather. Because like I said, we see that weather impacted areas have this capacity strain versus non-weather impacted regions. So -- but as these storms dissipate and cost per mile comes back down, I think we're back to where we expected this year to be in terms of costs. And so in terms of revenue management, and how we think about that in the short term, we could make a decision to go reprice customers, but the idea is to honor commitments so long as changes in the costs are short term. However, if we see that this sustains, our revenue management will kick in. And based on sort of our revenue management objectives, the value we provide customers and customer attributes, we will have to do targeted repricing.

Okay, got it. And then, Arun, could you maybe touch on the Global Forwarding side of it as well, just because there's been volatility there too?

Hey, Jack, I'll chime in on that. And first of all, thanks for your comments, I appreciate it. Feeling is mutual. Yeah, just before I go into Ocean, just maybe add a comment on the truck side. And I think one point to be made about where we're at and the AGP that's coming in for us both in Q4 and then into January, is the emphasis on the point about this elongated trough and its impact on our contract business in particular. And if you look at cycles from the past that aren't as prolonged as you're coming down and then coming back up, the older contracts that you have in your portfolio still have higher pricing. One of the differences here is this elongated trough has caused time to pass such that we've repriced pretty much our entire portfolio. So what's different is we have more contracts now at current market price than we would normally have at this point in the cycle. And that's suppressing the margin, even with normal activity underneath. And it's really just a mechanical reflection of an elongated trough. So I just wanted to throw that in there also. Then over -- on the Ocean side, yeah, a lot going on there. Obviously, you read about what's going on in the Red Sea. We've got water depth issues in Panama Canal, and that has caused a lot of the capacity to be rerouted, which I think we would consider to be a temporary capacity disruption on the Ocean side, which has really led to some increased pricing, both at the end of Q4 and then into January in the marketplace. I don't think that we see that as being demand-driven at this point, and it's really probably a temporary capacity disruption. So I think after we get past Chinese New Year and with the additional capacity that's also coming in in 2024, I think you'll see some kind of normalization there. The other point I'd make on Ocean is that the composition of that business from contract to spot is very different than what we have in truckload. In fact, in the Ocean side, we're only about 20% contract as opposed to what we were quoting on the truckload side at 65%. So that's just another difference to keep in mind. And that means we're able to benefit from the increased spot market in Ocean more immediately than we are on the truckload side.

Okay, thank you very much. Really appreciate it, guys.

Thank you. The next question is coming from Jon Chapelle of Evercore ISI. Please go ahead.

Thank you. Good afternoon. So clearly this tough market had an impact on others as well. Those are not as well as financially secure as C.H. Robinson is. We've seen some bigger names go out of business. I'm just wondering now, as this elongated market reaches almost the third year, are you seeing any desperation in some of the newer or maybe even established competitors out there that's creating an even more either volatile or kind of punitive pricing environment? And if so, what's the opportunities and risks to you in that type of backdrop?

Thanks for the question, John. Let me take a cut at that. So you're right, it is a very stressed market and one of the things that we believe may be an advantage to us in this stressed market is that we're still investing. We're still putting our money down on the pipeline of projects that we intended to do. In fact, as we try to increase clock speed, we're doing some of those projects concurrently. And so while others may be looking to cut to kind of hang in there, weather the storm, we're continuing to make ourselves better with the idea that when we emerge the inevitable turn here, we'll be stronger as we come out. Wouldn't comment on anybody specifically in there in the pinched front, but boy, we certainly hear about it. We see it. The implications out there are clear given where we've been and how long we've been there.

Okay. Thank you.

Thank you. The next question is coming from Chris Wetherbee of Citi. Please go ahead.

Hey, thanks. Good afternoon, guys. It looks like from a cost perspective, as you think about 2024, that you're guiding OpEx to be roughly flattish year-over -year. I think you guys have also said that you're not necessarily expecting a freight rebound coming in 2024, at least as far as you can see in the relative near term. So I guess I was just trying to square that up. Obviously, you guys have added a lot of costs for COVID, Dave, as you noted. So as you think about sort of the opportunity here, is flat enough for 2024, and maybe you can help us give some perspective of what the longer term might look like on a cost basis.

Yeah, Chris, let me take a cut at that. So appreciate the question. There are some offsetting things going on here. One is that we've got restoration of our incentives in 2024, and we've got normal inflation that's hitting, and so we're offsetting that. And to break it down and just be a little more specific about your question, on the personnel side, the midpoint of our guidance is up 0.2% versus where we landed in 2023 ex-restructuring. And on the SG&A side, we're down 0.8% at the midpoint versus where we landed ex-restructuring in 2023. But we absolutely have to improve our cost structure. We continue on that path. The productivity numbers that we generated, the 17% in NAST and 20% in GF, as you heard, continue into 2024, 15% on NAST and another 10% on GF. So we're talking about over 30% on a compound basis in both businesses here over the two-year period. So the efforts continue. We do expect some rebound in the market, so that we'll have some volume pickup there as well. But we got to continue to head down the path that we've been on.

Yeah, Chris, just to add on to what Mike said, we're also looking at this to, as we've said before, is really position ourselves to be in a strong pole position for the market rebound, and we feel good about where we're headed there. Best data we have is back half of this year. If we start seeing that inflection, we're driving our cost structure to have really that operating leverage put us in a great position as well as continue to go after structural cost while creating that balance. So I feel really good about that and the things that we're putting in place to drive that. So thanks for the question.

Okay. Thanks.

Thank you. The next question is coming from Stephanie Moore of Jefferies. Please go ahead.

Hi. Good afternoon. Thank you. I was hoping that you could maybe touch a little bit on what you're seeing kind of bid environment, where it stands today and how it's been trending and those conversations have been going. And on the other side, would love to get your thoughts on what you're seeing in terms of capacity exits. I think we all are pretty aware of what's going on on the demand side, but capacity exits have been much slower for the last year. So would love to hear your thoughts on kind of where that stands today. Thanks.

Yeah. Thanks for the question, Stephanie. In terms of bids, there's a variety. Customers come in their own forms and there are different customers with different approaches. A lot of customers want resilient pricing in their contracts. So, meaning, like, they know the market is going to turn at some point and they want to price some of that prediction in such that the contract doesn't have to be repriced, whereas others want to be more aggressive and want us to quote, based on what the market looks like today, understanding that none of us have a crystal ball. So there's a variety of contracts and variety of customers in terms of the bid environment. Having said that, the way we approach pricing any of these contracts is obviously a combination of our revenue management objectives, the attributes of the customer, things like their customer lifetime value and so on. And finally, the value proposition that we deliver. So on balance, we have to consider all those things in terms of how we respond based on what the customer is asking for, such that we can sustain through the contract in a way that meets our objectives. And in terms of capacity coming out of the market, Mike, do you want to take that?

Yeah, sure, Stephanie, I'll cover that. So, one of the interesting differences in this cycle has been the delay in the capacity on the truckload coming out. But the good news is we are starting to see that kind of normal behavior, the capacity coming out. There's a little bit of momentum in that space. It hasn't significantly impacted pricing yet, but we'd expect that to come. Just by way of example, one of the things that we track is new carrier sign-ups. Last year we were about 9,100 in Q4, and we're about half that, a little less than half that here in this past Q4. So would expect that to continue. When you think about -- on the Ocean side, I think it's a little bit different story where there'll probably be a net capacity increase in '24 on the Ocean side.

Helpful. Thanks so much.

Thank you. The next question is coming from Jeff Kauffman of Vertical Research Partners. Please go ahead.

Thank you very much. And thank you for laying everything out so clearly today. I want to revisit David's assessment and in particular the focus on the core four. Is there an implication here that we're applying the 80/20 rule and those are the four businesses that we really want to drive, or is the implication here that we're going to simplify the structure at Robinson? And if you're not part of the core four, then eventually that might not be a business we're in in the long run.

Hey, Jeff, thanks for the question. Yeah, let me double-click on that a little bit more here. The implication as we're looking forward is about what you said the first time. It's about focus for where we want to go. Our focus for this company is truckload, LTL, Ocean, and Air. And that doesn't mean -- I mean, we have a lot of other feeder type of businesses that will help to drive the growth of those key businesses that I spoke of. And that's really what our focus is going to be about. Now you're going to always look at things and evaluate them and say what's the best for the company from an operational perspective and long term. But focus is about really truckload and it's about LTL, Ocean, Air and maximizing the feed of those particular businesses. So that's really where I'm doing, and I'm constantly evaluating the entire company on that.

Okay, that's my one. Thank you for the clarification.

You got it. Thank you.

Thank you. The last question today is coming from Bruce Chan of Stifel. Please go ahead.

Thank you, operator, and good afternoon, everyone. Dave, you talked about one of your big findings, I think it was number four, as being the opportunity to drive some better synergies across the portfolio. Maybe if you could just talk about how many of your customers today are using multiple service lines and where that number could go, or if you're thinking about that in a different way, like what the revenue synergy opportunity could be, I'd love to get some color on that too.

Yeah, Bruce, thanks for the question. The -- today if you look at -- let's just focus on our two largest businesses, which really kind of drive overall for Robinson, in NAST and Global Forwarding. We track today our customers. Half of our customers use essentially both NAST and Global Forwarding Services are driven by [half] (ph). So what we're looking at is that the opportunity there, while that's good, we think that there's a opportunity for more wallet share that we have there by unlocking the potential of those services. And as I look at this, showing up in a more synergistic fashion, which is something that I notice going forward, our customers really want that. They want solutions to complicated problems that they have in their supply chain. We can offer that, and I think that separates us out. But showing up as kind of a la carte or individual solutions, I think while we're generating some value there, there's more value we get by really showing up as a suite of services to solve more complicated, deeper issues for the customer. And that's why we're focusing on that. We have good momentum and energy around that, and we have some structured things that we're doing already within the company to drive and unlock some of that value.

I appreciate the color. Thank you.

Thank you. We actually do have time for an additional question. The next question is coming from David Vernon of Bernstein. Please go ahead.

Hey, good afternoon. Thanks for fitting me in here. Just a real quick question. It doesn't sound like we're given any sort of explicit guidance for the year, which I totally understand and respect given the uncertainty that's out there. But I'd love your thoughts on whether sort of the exit rate of fourth quarter here is kind of as bad as it gets, or do we expect it to get a little rockier? And then any thoughts on how we can translate the productivity numbers you guys are giving us in terms of 32% compound into profitability? Thank you.

Yeah, thanks, David. So I would say a couple of things on that. We have a history of giving you expense guidance across the business. So we give you personnel, SG&A, CapEx, depreciation, amortization, tax rate, but we don't give AGP. And that's really because of the volatility that we all experience in this business and the difficulty in predicting the macro demand and capacity elements that drive the pricing there. So we've tried to stay away from that. Part and parcel to that, to your question about we're here in the trough, how long does the trough last? When do we come out of it? We provide some guidance on our website about where we think pricing is going, but again, we're doing our best to forecast where we're at, but those things are very difficult to know with certainty. And so kind of the same element there of the comments that we've made, I think our back half of the year is when things start to really turn around the truck.

Thank you. At this time, I'd like to turn the floor back over to Mr. Ives for closing comments.

Thank you, everyone, for joining us today. That concludes today's earnings call. We look forward to talking to you again. Have a great evening.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log-off the webcast at this time and enjoy the rest of your day.