Conference Transcript - CHRW 2026-03-03

David Hicks, Analyst — Raymond James

Okay, let's go ahead and get started with the next presentation. For those that don't know me, I'm Associate Analyst of Transportation here at Raymond James, David Hicks, and today we have the pleasure, this afternoon, I have the pleasure of having C.H. Robinson with us, the CEO, Dave Bozeman, and then CFO, Damon Lee, with us today. So I think a lot of people in the room know who C.H. Robinson is, but Dave, maybe just give us kind of a high-level overview of kind of the markets you play into, what you guys do, just to kick us off.

Dave Bozeman, CEO

Yeah, sure. Thanks, David. Thanks for having us here. Just to start off, C.H. Robinson is one of the larger global logistics solution firms in the world, really driving in the 3PL space. And for those of you who don't know that, it's a two-sided marketplace space. And just to give you the numbers, first of all, we do 37 million shipments annually. We have about $23 billion of freight under management. and we play in this kind of two-sided marketplace of carrier relationships on one side, that's capacity. On the other side would be shipper or customer, that's the demand side. And we have over 450,000 carrier relationships, 75,000 customers. We pit those two together, given the carriers access to a broad base of freight and we give the shippers access to a broad network of carriers giving them a good price advantage as well. Our goal is to play in four core modes that's truckload, LTL, ocean and air. That's really where we focus ourselves as a company And then when you think about our strategy, it's been pretty simple. It's been about really kind of growing, outgrowing the market, or growing or taking market share, while also expanding our margins overall. That's been kind of our strategy as a company in doing that, and we'll get into talking about that. We've been pretty successful at doing that, it changing over the last three years or so in driving what we call lean AI. It's our new lean operating model but it's really combined with our logisticians which are really some of the most experienced logisticians in the world. Our technology which we'll talk about which is AI technology as well as our operating model. Those three kind of drive what we call lean AI and they work um symbiotic uh as a relationship uh and that has allowed us to really um outpace outperform the um the industry uh in the last uh several quarters uh eight to eleven quarters in outpacing um the industry here we feel really good about that it's early innings for us in this transformation uh we're we're in the second inning or so and have a lot more to do and we can get into that but But that's the company overall. This is Damon Lee. Anything you add to that opening? No, well said.

David Hicks, Analyst — Raymond James

Great overview, Dave. Maybe just level set before we talk into your story. You have a lot going on in your story. But maybe just talk about what you're seeing in the freight markets right now. We've been in a freight recession three and a half years. But the last six months, it looks like things are starting to kind of perk up, mainly on the supply side, demand still kind of languishing. But maybe just give us some thoughts on the market kind of before we dive into your story.

Damon J. Lee, CFO

Yeah, I'll start, and Dave, jump in if you want to add any color or context. But, look, I'd say start with demand. I think it is more of the same, right? I think there's certainly been a little bit of excitement around some macro indicators. But I think it's been, you know, yet to show up in freight demand yet, right? I mean, certainly CAS index was, you know, down minus 7% again for the month of January. So I think even though there's some talks of green shoots, I think those have yet to be seen. On the cost side, we have had disruptions from a cost perspective. If you go back to Q4, I think that's really where the cost curve started to elevate. Certainly between Thanksgiving and the end of December, that five-week period of time, we did see a material increase in cost. I think certainly brought on by three winter storms that affected a large portion of the country. Those three winter storms were essentially on each other's tail, so they happened in sequence. You had your traditional capacity crunch during the holiday period, and then you had the stacking effect of the various regulatory enforcement actions. So I think all of that led to a heightened environment to drive costs higher. And, you know, certainly, you know, as we say often, we're not immune to the market, but we do hold ourselves to a very high standard. And, you know, we think we performed extremely well in Q4, both from a gross margin perspective, an operating margin perspective, and an outgrowth perspective, and a very difficult cost environment. And what I would say is that cost environment continues into Q1, right? Certainly, we mentioned during our Q4 earnings call that that cost pressure had continued into the month of January and it has continued into the month of February as well. So certainly the cost pressures realized in Q4 will certainly have a meaningful impact on Q1 from the industry perspective as well.

Dave Bozeman, CEO

Yeah, I think that's well said. And just to add a little bit of color on the demand side, for those of you who are more generalists on this, you know we we look at uh demand that what drives freight and those are really three or four things as uh manufacturing retail housing you could break that out and really say automotive um i kind of can put that under manufacturing as well but you know those components are really what would drive freight and if you why damon said that if you're if you're thinking about those the housing side, to retail, to manufacturing, that's all been somewhat muted and not up and to the right yet, and we certainly are looking for that to happen as you start to drive an inflection, but just to give a little bit of color on that.

David Hicks, Analyst — Raymond James

Okay, that sets the stage really well. Let's dive into the story, but before we get into that, Dave, I want to talk about culture. I think it's a very underappreciated aspect of your story. you're the first I believe you're the first outside outsider CEO at Robinson and you have these lean operating principles that we've never seen in brokerage before you bring in Damon a year and a half ago can you just talk about kind of how that culture shift has happened when you came into the came into the company a little under three and a half three years ago yeah thanks David the I know it was a lot it was different for a number of you I've met you uh it's been almost three years a number of you in the room and uh and you've gotten to know me uh as well and it was it's different for for the uh the industry but lean is not different uh

Dave Bozeman, CEO

lean is is transferable to any industry uh and and all we did was i've been doing lean for almost 30 years and and just brought that uh into this company 120 year company um and into an industry that it makes a marked difference in doing that. And culturally, it was something that what we do at Robinson, we're radically transparent with our employees. Two, we do diagnosis like we did. And three, you have to solve problems. And what we found in our company is that we kind of admired problems more so than fixed problems, and that was something we were going to change. And so we no longer admire problems. we fix problems and that's a key tenant of lean problem identification and problem solving and when you look at our culture now it is one that's built on these lean principles and people who have been in industries for over 20 years have now learned tools that help drive this problem identification and problem solutioning and that has ultimately driven our speed our speed to development our speed to creation now with technology that has now supercharged what we're doing and the culture is a culture that really likes winning again they like getting their swagger back it's a company that has grit and hustle but it also likes to win and I think lean and bringing in the lean operating model has tremendously helped our culture and again we're baby steps in this I've seen this for a long time and we are early on in the journey so a lot a lot to go and I'm proud of how the team has accepted uh this transformation so that great overview and before before you got there CH had really over hired during the pandemic brought on a lot of volumes but also brought on a lot of people I always like to frame for investors is that you came in with your lean methodology it was kind of like the ozempic that uh that you guys needed to really get back on track and now you're layering in AI kind of packing on the muscle if you will can maybe break down kind of you've increased productivity double digits the last couple of years over 40% can you maybe just break down kind of what's been on the lean front and what's been on the AI front that have really driven the changes yeah I'll start I have to Damon jump in as well like we get that question and I used to kind of reframe that that question like we i would normally start dave i really like you right and it's like but i normally would say i don't know right on doing that but i want to give some context to that because we don't we don't look at that um as as as separate these are not series like it's not like uh hey how much for technology and how much for lean that's not really the way it works it's symbiotic and they all work um together right our our people the operating model and technology all works together in driving that i will say this if if you think i don't care what industry you're in if you think you can just do like a technology by itself we don't think that that works right you have to have a conduit and that conduit is an operating model that drives accountability responsibility visibility speed and creation and you and you're always ideating and driving velocity on doing that that's you know we don't have enough time to kind of go into the to the depths of that but but it drives with our technology together and so that productivity um you know we don't break it down we say hey in the next few months we'll have more productivity and that productivity is driven off of our operating reviews and what we do. And it happens to just be part of it. I don't know if you'd add to him.

Damon J. Lee, CFO

I would just add a couple of things I'd say. You know, from a lean operating model perspective, I mean, the reason we are implementing agentic AI today as a step function improvement from Gen AI in C.H. Robinson is based on something that was born out of the operating model, right? We were in an operating review, in a PD environment or policy deployment, this is really strategic initiatives, challenging our technology teams, challenging our business teams. How are you going to get to where we're performing today, to where we need to perform tomorrow? They didn't have the answer, right? So they got a 48-hour request to go find answers and options to close the gap, right? and mike neal our cto came back and said look it's early days but there's an evolving ai technology called agentic now mind you this was 15 months ago right i mean agentic hadn't even made the headlines yet right nobody was talking about agentic yet 120 year old logistics company was already starting to experiment with it and operationalize it for our business that would not have happened on the time scale that had happened maybe never if not for the operating model right The operating model, the lean principles drives you to get better every single day, every single week, every single month. And we truly believe the companies that are going to be successful in AI adoption and truly drive sustainable productivity benefits, sustainable revenue growth, sustainable margin expansion, will only be able to do that on the back of a conduit, like Dave said, like lean. right we believe that's the magic sauce for doing ai right going forward is a combination of lean operating model and cutting edge technology which you know we've been deploying now for uh for over two years so we believe as dave mentioned they're symbiotic we get the question a lot to the decimal place how much your productivity is from the operating model versus tech the answer is we truly don't know because you can't separate the impact of the two of those items within the company.

Dave Bozeman, CEO

I'll just put a bow on that too. I mean it's pretty cool to see people who have been in the industry like 20-25 years like it's a lot of people in a room that knows what that looks like and and you have folks who have they're walking in now and they're starting on meeting like hey I'm about to talk to you about my primary secondary and tertiary Pareto charts on solving this problem like they can't unlearn that tool and they're excited about it they're pumped about it and and that's that's the operating model and what it's driving because they know it's every person every day some small improvement which is why we committed to single digit productivity improvements in this company evergreen no matter what i don't care if it's a hot market inflection we will commit to single digit productivity improvement every year there's going to be times when we run across like an agentic technology where we'll have double digit productivities like this year we initially committed to single digit now we'll be double digit productivity gain um this year because things like that are going to happen along this journey but that's the mentality david in driving it i'll just add one more thing this is one of our favorite questions so i have to opine a little bit on it but uh i honestly don't know how a company would deploy ai the way we've deployed without the lean operating model right because i think

Damon J. Lee, CFO

you know we call it hobby ai spend where you kind of spend on ai it it may be a shiny object it may have a cool interface but it doesn't actually drive business you know business benefit doesn't drive revenue growth doesn't drive margin expansion doesn't drive productivity right That's what we call hobby AI. Without an operating model that drives you to value stream analysis that says, here's my opportunity to remove waste, and here's my opportunity to supercharge some revenue component in my business, without a conduit that steers that type of behavior, I think you're shooting in the dark on how you implement AI.

David Hicks, Analyst — Raymond James

And that's why we think it's so impactful to combine the operating model plus AI, what we call Lean AI, because without the delivery mechanism, and we believe Lean is the delivery mechanism, we think most companies will sub-optimize the way they implement AI within their companies. and i think great great on the lean side but maybe let's go to the ai side um i think one of the most amazing things that you've come out on at the ai side is that you were only able to handle 65 of quotes and now you can handle 100 100 at 30 to 40 times the speed and that speed to market from call it 17 minutes down to 30 30 some odd seconds has been a game changer can maybe

Dave Bozeman, CEO

has that played out or is there still more room and that's going to continue to compound in the years ahead yeah no it's it's played out and it's it's just but one example i mean our quoting agent we're really proud about that and you're right 17 20 minutes down to 32 seconds 31 seconds now every second counts um but but the key thing uh is is this in this industry time is money And when you're getting things in 24-7, like quotes come in, you know, if you don't get to them, that's a lost opportunity. And so having this agent actually respond at 100% of the quotes, that is more opportunity. It allows us to win more freight. It allows us to have that option to do it. Now, we could have gone and used examples of agents that we just launched, like the LTL reschedule agent, which was a pain in this industry about rescheduling. If anyone knows that pain, it's there. This agent has really now eliminated overnight, you know, 350 hours of work, manual work, to go and do these kind of reschedules. I mean, and we have appointment examples, as well as, you know, a number of other agents that are working the order-to-cash process and taking that friction out. That's what this is about, is changing the workflow, taking the friction out of the workflow of order-to-cash, and that's where you drive that productivity.

Damon J. Lee, CFO

Yeah, and that one example that we led with, it's our agent that does our request for freight quoting. So AI typically gets lumped in with productivity. And I'd argue there's few companies that are generating real productivity. But typically, AI gets associated with productivity. That one agent generates incremental revenue, expands our gross margins, so better pricing. So we optimize our price, optimize our cost to hire, and it drives productivity. And oh, by the way, the customer benefits on three levels, right? Before, a third of the time they were reaching out to C.H. Robinson on the NAS side of the business, either they weren't getting a response or the response came too late. So that's not customer satisfaction. Today, they get a response 100% of the time, okay? Second is our win rate's gone up because the sophistication level of our quote has gone up as well. So we're a shipper wanted Robinson to carry their freight. And in the past, we probably gave them an unsophisticated quote because we didn't have time to give them a sophisticated quote. They went with somebody else because we couldn't meet the criteria of the quote, right? So there again, customer satisfied because, you know, we are able to give them a sophisticated quote that more times now we win that freight than we would have before. But to me, the astonishing figure in that example is one third of the universe of freight that was coming our way from a NAS perspective, we didn't have an opportunity to win. Today, we have an opportunity to win that third of freight, all that freight now, 100% of that freight, right? To me, that's been a demonstrable impact on our business, but when you think about AI, it's just not limited to productivity. It can facilitate revenue growth, it can facilitate margin expansion, it can facilitate productivity, and it can drive customer satisfaction at the same time if done correctly.

Dave Bozeman, CEO

And I think what makes you guys different is we have every company here is talking about AI, but can you maybe talk about what you're doing externally, buying from a vendor, say and versus building internally and kind of how important your data is as the largest rate broker in North America to kind of feeding those agents and feeding those models yeah I think well first of all we talk about competitive moats one of the competitive moats we have is our domain expertise and that is we have internal engineers we talk about 450 engineers data scientists that that that actually build our technology. Now we sit on our hyperscaler is Microsoft with Azure, but our engineers build our technology and we're able to use the various large language models that come out. The beauty of it is there's this question in the industry right now that says, who's benefiting from AI, from all of this investment that's up the stack that's driving these models, who's benefiting from that well we raise our hand up and say we're benefiting from it because the cost of those models continue to come down and we're able to use all of those models i don't care if it's clawed or open ai or whatever the the technology team has done a wonderful job at being able to do that and in fact we switch between those large language models based on cost and effectivity and and what we're doing i just told some fun somebody in a meeting here i mean we're doing some pretty cool stuff but we're not exactly doing genealogy so the compute power that we need I mean we can use a two-year-old model and be just fine and and our team monitors that all the time for the better economics so so we're doing that we would not be able to do that if we were a buy culture but we are a build culture we built Navisphere which is our internal TMS and we built our overall bespoke solutions based on these large language models and the various agents that our engineers built. And our engineers grew up in the business. So you're talking about engineers that know freight, that know global forwarding, and they're building agents and having a blast right now at building these agents because they actually know that. And if you were going to go and try to replicate this, it would really take you 15 to 20 things that you had to stitch together, get an integrator to help, pay by the drink, that's a lot of headwind on margins. So it's really kind of tough to do a lot of replication. Not that it can't happen, but we're just saying that internal capability is an advantage, we think, in a competitive mode.

Damon J. Lee, CFO

Yeah, we think build versus buy is a critical differentiator for Robinson versus the marketplace. Dave just mentioned, right, our team estimates you would have to partner with 15 to 20 different vendors, to try to replicate the ecosystem that we built, right? Can you imagine that, right? 15 to 20 vendors, then you'd have to hire somebody to orchestrate all those vendors. And even if you got that right, you're still paying for generic AI solutioning for very specific company problems. Today, we build our own agents, right? So we build agents that are custom to solve custom solutions within Robinson, right? We're not trying to fit a generic solution set with a C.H. Robinson power. We build agents to solve our own problems, right? That is very difficult to get that same value if you're buying tech off the shelf. And then the cost curve, we believe, is a huge competitive advantage. Once we build an agent, the marginal cost of ownership for that agent, very close to zero. We're just playing for tokens. If you're buying an agent off the shelf, you're going to pay for that agent forever by the drink. And if you're stacking up agents that you're buying off the shelf, We truly believe that for most companies, an off-the-shelf approach to AI solutioning will actually be a cost adder versus a productivity benefit for the life of that company. So we truly believe build versus buy is a critical advantage for C.H. Robinson. And data is critically important for AI, but also is context, right? And we truly believe you'll never get the optimal context with an agent unless you build it, right? We truly believe that's a competitive advantage that we have at C.H. Robinson.

Dave Bozeman, CEO

And David, you did say at the end about data. We do have the largest data set in the industry. That data set informs us, allows us to really drive fantastic pricing algorithms. And I always try to remind people that data is not just on things that you win. You get data on loads that you lose. And so over time, you know, we have over, you know, a trillion data points that come in because we're able to use that to help inform and educate.

David Hicks, Analyst — Raymond James

Okay, so we've talked a lot of the financial performance we've seen is in NAST on the productivity front, but you also have, call it 20% of your business is in forwarding. Is there kind of a lag where you're taking those learnings from NAST into forwarding? When are those kind of going to start to shine through the results?

Dave Bozeman, CEO

Yeah, actually, first of all, it was it was purposeful and very much an intent for us to focus on NAS from a from a technology perspective. The operating model itself goes across our entire company. So if you think about a global forwarding, which we love that business, it's not in the number one position like NAS, but it punches above its weight. you think about last year it grew each quarter while dropping expenses that was on the back of the operating model so it has some of the best quality um that it has historically within that business but now that we've had nas on our focus we're now going to focus on global forwarding with our technology stack to do some of the same things that we were doing for nas we're more excited as damon said earlier that we're actually going to be bringing in agentic technology into global forwarding. Why? Because global forwarding is super complicated for most in the room. A lot of handoffs, a lot of things to really drive a quote within global forwarding. Because of time, I'll just kind of go to this. At the end of the day, you have agentic technology will allow us to get data off system, which is what you need in global affording and we're really excited that building those agents that help us do that that's going to really drive some of the similar results that you saw in NAST and we're super excited about it from quoting to a number of other things that we talked about.

Damon J. Lee, CFO

Yeah and I would say we're still in the early innings of our tech realization in NAST right so I mean there's you know the the entire universe of what we're looking to drive efficiency to is is quote to cash and we've only automated a fraction of thousands of processes that make up that universal business model. And so we're just getting started on NAST. We are starting to index that tech stack over to global forwarding, but both sides of CH Robinson, both of our large businesses have tremendous runway to go on tech optimization.

David Hicks, Analyst — Raymond James

Okay, great. And then we only have a few more minutes left, so let's maybe talk about capital allocation, Damon. You guys have a stellar balance sheet, net leverage below target, haven't been that acquisitive on M&A. So highly generative free cash flow model, asset light business. So where are you going to position that cash?

Damon J. Lee, CFO

Yeah, good question. I'll clarify one thing. We may not have bought anyone at scale, but we're very inquisitive. I'd say we're more inquisitive today than we've probably been in in the last 15 years, right? So we're kicking the tires on opportunities all the time, We're just not gonna make a mistake, right? Our approach to M&A is gonna be extremely disciplined. It will be the right company we buy. And it could be a traditional broker like ourselves, or it could be a tuck-in that brings technology or capability that we think enhances our enterprise capabilities today. But we're very inquisitive today. Now, from a capital allocation perspective, certainly we have an investment-grade balance sheet. Maintaining that balance sheet is of critical importance to us. We're a dividend aristocrat. Maintaining that status is critically important to us. And, look, we have the benefit of having an extremely deep funnel of organic opportunities within the four walls of C.H. Robinson. So everything we've demonstrated the last two years is just getting started, right? We have a very robust funnel of organic opportunities that certainly get a priority from a capital allocation perspective, from a funding perspective. And we don't turn away any good idea, right? We're almost at a four-year freight recession. We've continued to fund all of our organic ideas throughout this challenging time for the industry. We've been an active buyer of our own stock, right? We think, you know, at current valuation levels, you know, we think buying Robinson stock at current levels is a great decision for capital allocation. We say often that we believe the next two years will be more exciting than the last two years have been for C.H. Robinson, and we're putting our capital where our words are. And then lastly, what I led with, which is, you know, when the right acquisition comes along, we will pull the trigger. It's just we will be dissembled, we will be measured in our approach to M&A.

David Hicks, Analyst — Raymond James

Okay, great. I think that's a great point to end on. Thank you, Dave and Damon. Appreciate it, guys.