Conference Transcript - CHRW 2025-11-11

Dan Moore, Analyst — Baird

Good afternoon. My name is Dan Moore. I'm the Senior Transportation Analyst here at Baird. I'm fortunate to have a good chunk of the executive leadership of C.H. Robinson with us today. A pleasure to have both of you here. Chuck, you as well. Appreciate your time. Appreciate the opportunity to ask you questions.

Damon J. Lee, CFO

Happy to be here.

Dan Moore, Analyst — Baird

Yeah, happy to be here. Thanks for having us. How's everything going?

David P. Bozeman, CEO

everything's going well we're pretty we're pretty happy with the team and what they're doing I think before we get started I do want to acknowledge because we certainly have veterans in Robinson want to really pay pay respect to our veterans and what's going on on Veterans Day so to all the veterans out there we just want to pass that on I don't think we had any slides that we were

Dan Moore, Analyst — Baird

going through we're just going to launch and launch into questions that's it um you know i like to maybe start off with a state of freight type question um you know the market's been a very dynamic one yeah um really for for the better part of the year um kind of the absence of seasonality earlier in the year uh front loading of inventories tariff policy um government shut down, not to be lost on anyone. Certainly, there's a very powerful idiosyncratic story taking place at CH, but if you could frame just the state of freight and how you see things today, it might be a good place to start.

David P. Bozeman, CEO

Yeah, thanks, Dan. Well, as you know, we don't spend a lot of time on the macros, But per the question, first of all, truckload, lower for longer. That's what we kind of see there. From an ocean perspective, you kind of called it out. There's dislocation happening, peaks where it's not supposed to be. And we kind of see that happening. There's some uncertainty, of course. But that's about kind of what we see on that. We try to design our system to say, listen, I can't control the macros. Let's do what we can control and build that system, which I'm sure we're going to talk about today. But I don't know if you had anything else.

Damon J. Lee, CFO

Well said. I don't think there's been much of a marked change in the macro environments for either truckload or forwarding. So I think Dave summarized it well.

Dan Moore, Analyst — Baird

I know this may sound a little repetitive, but there's still a lot of investors who probably don't fully appreciate the scale of the transformation that's taking place at C.H. Robinson. AI and automation have played a very pivotal role, the cost out piece, the ability to procure capacity more effectively, identify price more effectively, the opportunity to take that model and apply it to global forwarding. If you could just talk a little bit about the transformation that has occurred and what remains to be done.

David P. Bozeman, CEO

Yeah, well, let me start, and then, Damon, you can add in, too, because you're a big part of this as well. So, listen, Dan, you and I, we've talked before on this going back, spent a little bit over almost two and a half years since taking the seat here at Robinson. As we came in, we said back then I needed to do a diagnosis of the company, and we did that. We did do it along the lines of what we call the four Ps, like people, product, process, and portfolio, and just went deep in this company along that grain of those four P's. Came out of that diagnosis, and I use that terminology because it's kind of a lean terminology. Being somewhat of a lean practitioner, that's a big part of our transformation, and you have to diagnose a problem before you can treat it. And we wanted to do that scan of the organization to figure out what was going on. So what did we find? A number of different things that as we started the treatment, we said, hey, this company, which has really good bones overall. I mean, it was a company that started the 3PL market, was used to winning way back in the day and driving that. It kind of started a lot of other companies in the industry. So Robinson has a history of success. It certainly ran across some headwinds when it came to digital insurance, price transparency, and a number of other things that what the industry would have had to deal with, and certainly Robinson as well. And it kind of lost its swagger. It lost its winning attitude. And as I came in, what I saw were headwinds on margins, a number of other things, activist, investor that was in the company. and just a number of other things, unhealthy type of business environment. But as we decided from a treatment perspective, this company was in need of an operating model, and that operating model was based on lean principles. We started it in January of 2024. What was the intent? The intent was to shift this company to get back on rhythm and get into a cadence, drive innovation, drive speed and drive problem-solving throughout the organization some of the things that we saw is that we were a culture that admired problems and now we don't admire problems we solve problems and so and part of this I could talk very frank because that's part of who we are we're pretty vulnerable at Robinson we put on the table what's broken so that we can fix it and this particular model was one that said we're no longer going to prosecute the person we're to prosecute the business and the problem and that kind of led us really on a scale since then along with our technology which was really good but this operating model allowed our technology to bloom and to open up and we went from kind of machine learning to generative AI and then to the advent of Legintic, which we could talk about, but those three things, that technology, that operating model, and then our logisticians who are really, really good, the best in the world, that allowed us to kind of shift this company. And since then, it's been seven quarters, I think, of really good performance within the company. The company has gotten this swagger back. It has gotten this winning nature back. And anyone right now, if you walk in there, they're not high-fiving or anything. They're still going to work because we've got a lot more work to do at Robinson, and we feel really good about what we're building. So I don't know if you want to add on that.

Damon J. Lee, CFO

I'll just add a couple of comments. I think to your point about what's been underappreciated, I think the operating model, I think, has been underappreciated. I think certainly people have gravitated to the technology, and certainly the technology has been a critical element of our success. But the discipline, the rigor, the problem-solving capability that the operating model brings, I think, is underestimated for the folks that follow Robins. And I think there's some that get it, some that don't, right? Because the operating model makes the technology better. The technology makes the operating model better. It really drives the enterprise results. The other area I'd say I think is underappreciated is the sustainability of what we're doing, right? So I think a lot of people question, can you guys continue to do what you're doing? And our answer is absolutely, right? The fundamental changes we've made to the company, these aren't hatchet changes. These are very surgical, very purposeful. They have fundamentally changed the way we operate the business. And so when we get the question of, well, will this sustain when volume comes back to the system, the answer is it'll absolutely sustain because the processes themselves are fundamentally different, right? And so to me, those are the two items I'd highlight. And one is just, I think the operating model is underappreciated and it's absolutely a critical element of what we're doing. And I think the sustainability of what we're doing is probably also underappreciated. And we feel very confident that we were having this conversation two years from now. It would be the same conversation on overperformance at Robinson versus our peers in the market.

David P. Bozeman, CEO

Dana, people appreciate it. They love it. They're having fun, right? And they're inventing because we fail fast, we break things, and we stand up and keep going. And one thing that's for sure, in 12 months, we will create something that we don't know about yet. And that will happen in Robinson. And that's just how the company moves at a speed that's different for this industry as well. And that's how we always say, hey, you know, we were a company that was being disrupted, but then, you know, turned that into the disruptor. And we feel good about that. And we've got a lot more in store. And so Damon and I always say the next two years are going to be more exciting than the last two years. we fundamentally believe that, what we got going on.

Dan Moore, Analyst — Baird

You know, it occurred to me, Damon, you just mentioned that you would expect the benefits to be sustained going forward. In a stronger volume environment, a stronger longer term price environment, you could make the argument that they should be expressed in a more substantive fashion because you get the leverage effect of volume and price over what you've done. So you should be able to benefit to scale. For sure. I want to make sure that we address that and then maybe pivot into Argentic and what the opportunity set is to go deeper in the organization, address more complicated opportunities.

Damon J. Lee, CFO

No, you hit it, right? I think it's the operating leverage that we expect to demonstrate when volume returns to the system, right? Because you think about the processes we've fundamentally changed, many of them on the back of AI, right? Where the process used to be human heavy, now it's human light, right? It is a technology-based process. So rather, let's just take requests for quotes. Rather we're getting 600,000 quotes, or six million quotes, I don't need any more people, right? The technology is all that needs to scale, and to scale the technology, it's tokens, right? So that's why we feel so confident in our ability to roll this model out regardless of market cycle, right? The strategy we have in place, the fundamental changes we've made to the company, we believe they will be successful in every phase of the market.

David P. Bozeman, CEO

We've really looked at this at a quote-to-cash process, as we've talked about before. That quote-to-cash process for anyone that's in this industry knows that that's somewhat of a physical process. I mean, it's hand-offs, it's manual. And we've really attacked that with this technology. And so for that, certainly, as Damon said, you know, those manual tasks we're eliminating, but we're shifting as well, right? You know, we're investing in small, medium business. We're going to customer facing. So a lot of our hiring we're investing in is kind of shifting to the right. Some of the operational things, as you know, that's where productivity came 40% since the end of 2022, and that's something being asset light that will continue to drive. We committed to single-digit productivity no matter the market, right, and double-digit at times where we have, you know, a wave of technology. We had double digits committed to or single digits next year, and we switched that to double-digit productivity improvements with the things we expect to come out of global forwarding as well. So this is just how the company works and how we create.

Dan Moore, Analyst — Baird

And maybe that's an opportunity to touch on Agentic. You talk about global forwarding. Global forwarding is not as standardized as truck brokerage. You know, you're dealing with different currencies, you're dealing with duties, tariffs, different countries, different policies, different procedures, a lot, you know, a lot to process. Can you talk about the ability to leverage automation into global forwarding?

David P. Bozeman, CEO

Yeah, we can, and we both will. But first start off by saying that business has done a really nice job. And going back to the importance of the operating model, you're talking about a business last year that grew every quarter but also dropped its expenses. That was just on the backs of the physical operating model. That business goes through the same process that NASS goes through on our review set. And so it's just fundamentally gotten better from a discipline perspective. But now we've leaned in heavy with our technology stack on NAS, typically on generative AI. And as you said, the difference between the two, you're talking about on-system data. And in truckload, it moves really, really quickly, right, especially at our scale. And so this was a perfect application for generative AI, and that's why you're seeing a lot of the rewards that we're seeing within NAS. Global forwarding, as you say, you go from China to North Carolina, there are a lot of sausage making that has to happen, right, behind the scenes to do that. And what's included in that is data that's off-system versus on-system. And this is where the advent of agentic technology works. A lot more reasoning. It works with data off-system, and it learns. And so if you think about it, it takes several days for you to put together a quote, potentially, to go from a load from China to, say, North Carolina. It takes several days, and it's a reason for that. You start doing this technology, and you can get down into hours to do that, which is why we feel really good about where we're going with this technology. And by the way, it's not just for Global 40. Natogenic technology will also come back and help NAS as well as it comes back.

Damon J. Lee, CFO

Yeah, great clarification because we get the question a lot. Is your NAS business in the later innings of technology deployment? And the answer is absolutely not. We're in the early innings of our technology deployment at NAS. As Dave mentioned, the entire universe of opportunity is that quote to cash cycle, right? I mean, if you think about that, that's hundreds of sub-processes that are target-rich for automation, right? And we've only touched a fraction of those for our NAS business today. So we're still in the very early innings for NAS. On global forwarding, we call it inning one because up until this point, most of our technology has been over-indexed to NAS, right? That was done intentionally. That's where we could prove out proof of concept. We could get scale. We could get benefit quicker. You know, now we're to the point where we're going to move that indexing over to global forwarding. And as Dave mentioned, we think agentic is perfect for global forwarding because, you know, just kind of the quick assessment of gen versus agentic. For gen AI, it works really well when you're dealing with simple processes. Now, the volume can be extreme. So as Dave mentioned, it can be hundreds of thousands of processes or hundreds of thousands of transactions, millions of transactions, but they're simple, one-to-one, simple processes, high volume. Gen works perfect for that, and it also works perfect for that if your data is on system. For us, our Booker record is Navisphere. The majority of our data in the NAS business is on Navisphere. So therefore, target perfect environment for Gen AI. You move over to global forwarding, where not all of our data is on system. A lot of our data is in, call it SharePoint sites, spreadsheets, and maybe in customer websites. Less structured than NAS. So a portion of our data is off system. Gen AI can struggle with that. Agentic AI has higher levels of reasoning, so it can look at multiple data sources, whether it be on-system or off-system, and produce a much more efficient product than Gen AI can. And as Dave mentioned, the physical attributes of global forwarding, where you may have a many-to-many relationship, or a many-to-one, or a one-to-many, it's just more complicated on the global forwarding side than the NAS side. But again, Agentic works really well because that requires a higher degree of reasoning that Gen.AI doesn't have the great capability of doing. So we're really excited about it. Because if you think about all the benefits we've realized on the NAS side of the business due to the technology, and now we're starting to index that over to global forward. And we do believe that'll be over-indexed to the second half of 26, right? There's like a 12- to 18-month cycle time when you start to go from concept to full-scale operation on the AI technology. And so we think we'll certainly be seeing benefits of agentic and global forwarding for the first half of 26, but it'll be over-indexed to the second half of 26.

David P. Bozeman, CEO

And, Dan, just to put a point on this, on how we started this conversation, I can't emphasize more the importance of how we're running the company from that operating model. Everything Damon just said, how we got to agentic AI, that really came out of our operating model. That came out of our reviews in which we are saying, hey, we have to reach a certain point. And in our discovery, our five whys, as we're going deep, our technology team said, hey, where we are, we can't get there. We think the only way to get there is this new technology in agentic AI. and that started a very fast process in which we all looked at that made a high judgment call and next you know we're building these agents as we're moving forward that typically would not have happened that's that's not easy to do but it shows the power of why you have that discipline operating model because it drives discovery and innovation right that's super important for where we're

Dan Moore, Analyst — Baird

more. There's another theme here that I don't think gets talked about enough, and it's this notion that there's a consolidation story, both in terms of domestic freight brokerage as well as global forwarding. Brokerage is a highly fragmented business. Most brokers don't have, no broker has your data set. Very few, if any, have your tech stack or anything remotely close to it. The ability to leverage those things into a market that can't respond the way you can to develop the tools that cost out the efficiencies, it presents the opportunity to consolidate in a way that these tools, this technology, I mean, it affords you that opportunity in a way that never has been present in the past. I think that's in I think what's been occurring in your business is what you've delivered is very much a CH story. What's in front of you also, though, is very much, I think, a consolidation story. Can you speak to your views around that, whether or not you think that's a prescient theme, whether or not there's substance to that?

Damon J. Lee, CFO

to that yeah i i think certainly any any marketplace where you've got the fragmentation and the long tail like we have in brokerage right i think the the thesis is always consolidation um you know makes sense right and i would argue that consolidation is happening now right you have brokers leaving the system every day right now they may not be the brokers that make the headlines right but there's you know tens of thousands of brokers and they're exiting the system every day so that some of that consolidation on say that the tail of the industry is already happening. Now, to your point, and again, we try to articulate this as best we can. The way we're using AI and the way we're deploying AI, we believe is quite different than the most companies, right? So we're not buying our solutions off the shelf. We're not using third-party vendors. We're not using, you know, consulting companies to help us integrate it. We have 450 engineers that are, you know, C.H. Robinson engineers. They've grown up in the company. They built Navisphere, and now they're building our AI agents for very bestowed, customized solutions for C.H. Robinson. So why is that a benefit? Benefit number one is it's a custom solution for C.H. Robinson. It's not a generic solution that we have to make fit our business model. It's a solution that we come up with an idea to solve a problem and generate a return, and we build an agent custom fit to that solution set, right? So that's benefit number one. Benefit number two is, you know, we built Navisphere, right? So our transportation ERP system is already custom to Robinson, right? We control the code. You know, we don't have to rely on a third-party vendor to let us augment that ERP. So therefore, our ability to deploy this technology, I would say, is, you know, substantially faster than anybody that's using third-party capability where they're having to negotiate timelines. We don't have to do that, right? We own the code. We can put AI agents on top of Navisphere. We control that timeline. And then lastly, I would say is our cost advantage because we create our own tech. We create our own agents. So therefore, once we've created an agent, the marginal cost of managing that agent is close to zero. It's just tokens. We're not paying by the drink. We're not paying a third-party vendor for fees, right? I mean, it is a very attractive cost curve, and so to your point, I think AI for smaller brokers could actually become cost-prohibitive, right? They're not going to be able to develop their own tech. They're going to have to feel like they're going to buy it off the shelf to be competitive, and I actually think in most cases in that scenario, it's not going to drive efficiency. It's just going to add cost to their, you know, So they're already thin margins, right? And so I think there is an opportunity as we go through this journey where AI may drive a further consolidation in the industry just because those that have command of the tech, that can drive that leverage and that competitive advantage. Those that don't have it, I think they become part of that consolidation.

David P. Bozeman, CEO

And Dan, I think you in this audience would also appreciate it's also speed, and it's also these engineers know freight. So they grew up with it, and knowing freight and growing up with it is a big difference than I'm going to learn freight and do it. That time is money in this industry, and we feel like that's a competitive advantage.

Dan Moore, Analyst — Baird

I have one more question, then I'll turn it over to the audience to the extent that they have any. Growth versus margin improvement. Yeah, both. High-quality opportunities. So you've got these choices in front of you. You guys have realized a tremendous amount of margin improvement. It affords you the ability to take your, I don't mean to say eye off that, but to hold that in a steady state and really begin to leverage what you've done to begin to take share and go after growth in a way that you maybe haven't in previous cycles, which I think for better or for worse has been a struggle for CH through the last cycle and maybe even the last two cycles. I think you're very well positioned to demonstrate a different growth trajectory this next cycle. Talk to us for just a minute about how you plan to manage the balance between those two, recognizing you've achieved essentially 40% margins at this point in NAST, but there's still room to go, not lost on me. Could you just frame that?

David P. Bozeman, CEO

Yeah, I'll start, Damon will finish, and then we'll take questions if they haven't. Number one, this is our strategy that we started with. We said, hey, we're gonna do two things that are critical. One, we're gonna take market share and we're gonna expand margins. So this is not something new for us. We were building a process and a system to do those two things. And I think we're demonstrating that we can do that in a really, really tough environment. But there's handoffs that we do every day when it comes to that. And so let's hit on your margin percentage. Why don't you just double click on that?

Damon J. Lee, CFO

Yeah. So as I think all of you are aware, right, we had our investor day in December of 24. We put out what was deemed pretty aggressive targets, both on margin and results. And we just came out with an update to that investor day target set in our Q3 earnings, right? And you'll notice it wasn't a typo by Chuck. We didn't change our margin targets. So we left NASDAQ at 40%, and we left global forwarding at 30%. Those are what we've called mid-cycle margin targets. And as you just referenced, we're close to those now. And the reason we didn't update those targets is the optionality, right? I think historically, I think there was a misnomer in this industry where you could either grow or expand margins. You couldn't do both, right? And as Dave mentioned, we set a strategy that said we have to do both, and we're doing both, right? Our operating model, our technology, our leadership team, our people, we're doing both, and we have been doing both now for several quarters. But there becomes a time where, you know, when you're already demonstrating industry-leading profitability, right, at some point in time, the best decision for earnings is to invest some of that margin back into growth, right? And so once we establish with sustainability those margin targets, 40% for NAS, 30% for global forwarding, right, we reserve the optionality in any given quarter that, you know, we may grow margin to 42% or we may not. We may take that 200 basis points and go take demonstrable, profitable share, right? Different mindset than we've had historically, right? You know, and again, there may be quarters where the right decision is to grow margin because the quality of the incremental growth that's available just isn't there. And we're not going to chase volume. We're not going to take bad freight. But we believe that's the right equation going forward. Now, over the long haul, we'll do both, right? So if you think about over years, we'll continue to expand operating margins. We'll continue to outgrow the market. We'll continue to grow on an absolute basis. But we just want to make sure we don't put ourselves in a box on the quarter-to-quarter basis where we can make the right decision for investors and not sub-optimize that decision because we're trying to get to a new margin target.

David P. Bozeman, CEO

And again, that was part of the strategy of operating leverage that we always talked about. But we'll turn it over to you on questions. Any questions?

Damon J. Lee, CFO

Well, it's a great question. It's actually one of the competitive advantages we love about how we're using AI, right? So if you think about the AI ecosystem, right? You've got the hyperscalers and the chip guys on the left. You've got the data center guys in the middle. Then you've got companies that are using AI to drive business results, right? We think we're one of few that are on that far right that's actually delivering revenue growth and margin expansion by using AI. So to your point, we're using LLM models and we use them all, okay? And so therefore, for our perspective, we're in the perfect spot from a cost curve perspective because what is one of the themes you hear is, well, the LLMs are already becoming commoditized, right? Well, that's great for us because we use them all. So the more they become commoditized, the cheaper they become for Robinson, the less costly they are for me to deploy my technology, right? So for us, we actually don't see any cost pressure at all. In fact, we see cost deflation as it relates to the use of those LLMs and the tokens, right? One stat, you know, over the last 12 months, our use of tokens has gone up over 250%. The cost of those tokens has come down between 25% and 30%.

David P. Bozeman, CEO

That's right.

Damon J. Lee, CFO

So we feel like we are in the sweet spot as it relates to the cost of deploying our technology for the business results that we're getting.

David P. Bozeman, CEO

That's why we say it's an undervalued industrial AI play because of the results we're getting and because of that question. That's an important question from a cost perspective that many don't realize.

Dan Moore, Analyst — Baird

Anybody else have time for one more question? Gentlemen, thank you for being here. We appreciate it. Thank you, Dan, appreciate it. Look forward to catching up with you in the fourth quarter.

Damon J. Lee, CFO

Sounds good. Thanks.

Dan Moore, Analyst — Baird

Happy holidays.