Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes.

FORWARD-LOOKING INFORMATION

Our quarterly report on Form 10-Q, including this discussion and analysis of our financial condition and results of operations and our disclosures about market risk, contains certain “forward-looking statements.” These statements represent our expectations, beliefs, intentions, or strategies concerning future events that, by their nature, involve risks and uncertainties. Forward-looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the effects of acquisitions or dispositions, the expected impact of recently issued accounting pronouncements, and the outcome or effects of litigation. Risks that could cause actual results to differ materially from our current expectations include, but are not limited to, changes in economic conditions, including uncertain consumer demand; changes in market demand and pressures on the pricing for our services; fuel price increases or decreases, or fuel shortages; competition and growth rates within the global logistics industry; freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight; changes in relationships with existing contracted truck, rail, ocean, and air carriers; changes in our customer base due to possible consolidation among our customers; cyber-security related risks; risks associated with operations outside of the United States; our ability to successfully integrate the operations of acquired companies with our historic operations; risks associated with litigation, including contingent auto liability and insurance coverage; risks related to the elimination of LIBOR; risks associated with the potential impact of changes in government regulations; risks associated with the produce industry, including food safety and contamination issues; the impact of war on the economy; changes to our capital structure; changes due to catastrophic events including pandemics such as COVID-19, and other risks and uncertainties, detailed in our Annual and Quarterly Reports. Therefore, actual results may differ materially from our expectations based on these and other risks and uncertainties, including those described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 19, 2021 as well as the updates to these risk factors included in Part II—“Item 1A, Risk Factors,” herein.

Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update such statement to reflect events or circumstances arising after such date.

OVERVIEW

C.H. Robinson Worldwide, Inc. (“C.H. Robinson,” “the company,” “we,” “us,” or “our”) is one of the world's largest logistics platforms. Our mission is to improve the world's supply chains through our people, processes, and technology by delivering exceptional value to our customers and suppliers. We provide freight transportation services and logistics solutions to companies of all sizes in a wide variety of industries. We operate through a network of offices in North America, Europe, Asia, Oceania, and South America. We offer a global suite of services using tailored, market-leading solutions built by and for supply chain experts. Our global network of supply chain experts work with our customers to drive better supply chain outcomes by leveraging our experience, data, digital solutions, and scale.

Our adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit is calculated as gross profit excluding amortization of internally developed software utilized to directly serve our customers and contracted carriers. Adjusted gross profit margin is calculated as adjusted gross profit divided by total revenues. We believe adjusted gross profit and adjusted gross profit margin are useful measures of our ability to source, add value, and sell services and products that are provided by third parties, and we consider adjusted gross profit to be a primary performance measurement. Accordingly, the discussion of our results of operations often focuses on the changes in our adjusted gross profit and adjusted gross profit margin. The reconciliation of gross profit to adjusted gross profit and gross profit margin to adjusted gross profit margin is presented below (dollars in thousands):


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
Revenues:
Transportation	$	5,999,901			$	3,944,981			$	15,800,576			$	10,835,710
Sourcing	263,794				279,819				799,714				821,944
Total revenues	6,263,695				4,224,800				16,600,290				11,657,654
Costs and expenses:
Purchased transportation and related services	5,180,390				3,378,651				13,580,980				9,141,354
Purchased products sourced for resale	239,113				256,876				723,562				744,621
Direct internally developed software amortization	5,152				4,388				14,601				12,124
Total direct costs	5,424,655				3,639,915				14,319,143				9,898,099
Gross profit / Gross profit margin	839,040		13.4	%	584,885		13.8	%	2,281,147		13.7	%	1,759,555		15.1	%
Plus: Direct internally developed software amortization	5,152				4,388				14,601				12,124
Adjusted gross profit / Adjusted gross profit margin	$	844,192	13.5	%	$	589,273	13.9	%	$	2,295,748	13.8	%	$	1,771,679	15.2	%

Our adjusted operating margin is a non-GAAP financial measure calculated as operating income divided by adjusted gross profit. We believe adjusted operating margin is a useful measure of our profitability in comparison to our adjusted gross profit, which we consider a primary performance metric as discussed above. The reconciliation of operating margin to adjusted operating margin is presented below (dollars in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020

Total revenues	$	6,263,695		$	4,224,800		$	16,600,290		$	11,657,654
Operating income	310,769			168,239			794,702			466,466
Operating margin	5.0		%	4.0		%	4.8		%	4.0		%

Adjusted gross profit	$	844,192		$	589,273		$	2,295,748		$	1,771,679
Operating income	310,769			168,239			794,702			466,466
Adjusted operating margin	36.8		%	28.6		%	34.6		%	26.3		%

MARKET TRENDS

The North American surface transportation market continues to be impacted by tight carrier capacity as strong demand combined with ongoing driver availability challenges and supply chain disruptions caused by port congestion and weather events continue to drive purchased transportation costs to new historic levels. Industry freight volumes, as measured by the Cass Freight Index, increased approximately 9 percent during the third quarter of 2021 compared to the third quarter of 2020. This compares to an 8 percent decline for the same index during the third quarter of 2020. One of the metrics we use to measure market conditions is the truckload routing guide depth from our Managed Services business. Routing guide depth represents the number of carriers contacted prior to acceptance when procuring a transportation provider. The average routing guide depth of tender in the third quarter of 2021 was 1.7, representing that on average, the first or second carrier in a shipper's routing guide was executing the shipment in most cases. This routing guide penetration compares to 1.6 in the third quarter of 2020 and is reflective of the tight carrier capacity in both the third quarter of 2021 and 2020.

The global forwarding market continues to be significantly impacted by supply chain disruptions caused by ongoing port congestion along with equipment and labor shortages. These disruptions combined with strong demand have continued to drive purchased transportation costs for both ocean and air freight to historic levels. Due to the unprecedented challenges in the ocean freight market, conversions to air freight have become increasingly common. This has resulted in a continued increase in charter flights and larger than normal shipment sizes as traditional air freight capacity remains strained by a reduction of commercial flights since the beginning of the COVID-19 pandemic.

BUSINESS TRENDS

Our third quarter of 2021 surface transportation results continue to be impacted by the rising cost and price environment summarized in the market trends section. We have not, however, experienced the significant year over year volume volatility seen in the industry as measured by the Cass Freight Index. Industry freight volumes increased approximately 9 percent during the third quarter of 2021 compared to an 8 percent decline during the third quarter of 2020. Our combined NAST truckload and less than truckload ("LTL") volume increased 2.5 percent during the third quarter of 2021 compared to an 8.0 percent increase during the third quarter of 2020. We have continued to work with our customers to meet our contractual commitments since the beginning of the COVID-19 pandemic which has resulted in a higher than normal percentage of shipments with negative adjusted gross profit margins and less volatility in our combined NAST truckload and LTL volumes as compared to the Cass Freight Index. We continue to reshape our portfolio by adapting our pricing to reflect the rising cost environment and participating to a greater extent in the spot market. The strong demand and tight carrier capacity conditions resulted in our average truckload linehaul cost per mile, excluding fuel costs, increasing 26.0 percent during the third quarter of 2021. Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, increased approximately 27.0 percent during the third quarter of 2021.

In our global forwarding business, we continued to experience significant increases in purchased transportation costs for both ocean and air freight due to port congestion in addition to the equipment and labor shortages impacting the global forwarding market. This along with increased volumes has resulted in strong growth in both total revenue and cost of transportation for our ocean and air freight services. Ocean volumes increased 12.0 percent with strong growth in nearly all regions we serve driven by higher award sizes from existing customers and new customer growth. In addition, we experienced strong growth in our air freight services driven by ocean freight conversions resulting from the significant disruptions experienced in the industry.

On June 3, 2021, we acquired Combinex Holding B.V. (“Combinex”) to further expand our European road transportation presence. Our consolidated results include the results of Combinex as of June 3, 2021. On March 2, 2020, we acquired all of the outstanding shares of Prime Distribution Services (“Prime Distribution”), a leading provider of retail consolidation services in North America for $222.7 million in cash. This acquisition adds scale and value-added warehouse capabilities to our retail consolidation platform, adding to our global suite of services. The acquisition was effective as of February 29, 2020, and therefore the results of operations of Prime Distribution have been included as part of the NAST segment in our consolidated financial statements since March 1, 2020.

SIGNIFICANT DEVELOPMENTS

During the three months ended September 30, 2021, our financial results and operations were impacted by the COVID-19 pandemic and supply chain disruptions impacting the global forwarding and surface transportation markets as described above and discussed throughout Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations.” The extent to which the COVID-19 pandemic and supply chain disruptions impact our financial results and operations for the remainder of 2021 and going forward will depend on future developments which are highly uncertain and cannot be predicted, including fluctuations in the severity of the COVID-19 outbreak and the actions being taken to contain and treat it in addition to actions being taken to resolve issues facing supply chains around the globe.

We have taken a variety of measures to ensure the availability, continuity, and security of our critical infrastructure, ensure the health and safety of our employees around the globe, and provide service and supply chain continuity to our customers and contracted carriers in order to deliver critical and essential goods and services. We have also adopted work-from-home arrangements, and as of September 30, 2021, approximately 80 percent of our employees were working remotely executing their duties and responsibilities. We do not believe these policies and initiatives will adversely impact our operations.

Due to the ongoing uncertainty around the severity and duration of the outbreak, including the emergence of COVID-19 variants, we are not able at this time to estimate the impact COVID-19 may have on our financial results and operations for the remainder of 2021 and going forward. However, the impact could be material in all business segments and could be material during any future period affected either directly or indirectly by this pandemic. Many businesses have experienced, and may continue to experience, reduced production and output which has resulted, and could continue to result, in a decrease in freight volumes across a number of industries, reducing our contractual and spot-market opportunities. In addition, a significant number of our contracted carriers have reduced, and may continue to reduce, their capacity or charge higher prices in light of the volatile market conditions which has reduced and may continue to reduce our adjusted gross profit margins as we honor our contractual freight rates.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select third quarter 2021 year-over-year operating comparisons to the third quarter 2020:

Total revenues increased 48.3 percent to $6.3 billion, driven primarily by higher pricing and higher volume across most of our services.
Gross profits increased 43.5 percent to $839.0 million. Adjusted gross profits increased 43.3 percent to $844.2 million, primarily driven by higher adjusted gross profit per transaction and higher volume across most of our services.
Personnel expenses increased 32.0 percent to $399.9 million, primarily due to higher incentive compensation costs and also due to the benefit realized in the third quarter of 2020 from our short-term, pandemic-related cost reductions. Average headcount increased 7.1 percent.
Other selling, general, and administrative (“SG&A”) expenses increased 13.0 percent to $133.5 million, primarily due to the benefit realized in the third quarter of 2020 from our short-term, pandemic-related cost reductions.
Income from operations totaled $310.8 million, up 84.7 percent due to the increase in adjusted gross profits.
Adjusted operating margin of 36.8 percent increased 820 basis points.
Interest and other expenses totaled $16.7 million, consisting primarily of $13.1 million of interest expense, which increased $1.2 million versus last year due to a higher average debt balance. The third quarter also included a $3.8 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses.
The effective tax rate in the quarter was 16.0 percent compared to 15.1 percent in the third quarter last year. The rate increase was due primarily to a lower tax benefit related to stock-based compensation.
Diluted earnings per share (EPS) increased 85.0 percent to $1.85.
Cash flow from operations decreased $317.9 million driven by a large increase in working capital as of September 30, 2021.

CONSOLIDATED RESULTS OF OPERATIONS

The following table summarizes our results of operations (dollars in thousands, except per share data):


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021			2020			% change		2021			2020			% change
Revenues:
Transportation	$	5,999,901		$	3,944,981		52.1	%	$	15,800,576		$	10,835,710		45.8	%
Sourcing	263,794			279,819			(5.7)	%	799,714			821,944			(2.7)	%
Total revenues	6,263,695			4,224,800			48.3	%	16,600,290			11,657,654			42.4	%
Costs and expenses:
Purchased transportation and related services	5,180,390			3,378,651			53.3	%	13,580,980			9,141,354			48.6	%
Purchased products sourced for resale	239,113			256,876			(6.9)	%	723,562			744,621			(2.8)	%
Personnel expenses	399,880			302,904			32.0	%	1,123,616			933,607			20.4	%
Other selling, general, and administrative expenses	133,543			118,130			13.0	%	377,430			371,606			1.6	%
Total costs and expenses	5,952,926			4,056,561			46.7	%	15,805,588			11,191,188			41.2	%
Income from operations	310,769			168,239			84.7	%	794,702			466,466			70.4	%
Interest and other expense	(16,662)			(7,465)			123.2	%	(41,419)			(32,904)			25.9	%
Income before provision for income taxes	294,107			160,774			82.9	%	753,283			433,562			73.7	%
Provision for income taxes	47,054			24,245			94.1	%	139,136			74,948			85.6	%
Net income	$	247,053		$	136,529		81.0	%	$	614,147		$	358,614		71.3	%

Diluted net income per share	$	1.85		$	1.00		85.0	%	$	4.56		$	2.63		73.4	%

Average headcount	15,968			14,904			7.1	%	15,482			15,177			2.0	%

Adjusted gross profit margin percentage(1)
Transportation	13.7		%	14.4		%	(70 bps)		14.0		%	15.6		%	(160 bps)
Sourcing	9.4		%	8.2		%	120 bps		9.5		%	9.4		%	10 bps
Total adjusted gross profit margin	13.5		%	13.9		%	(40 bps)		13.8		%	15.2		%	(140 bps)

(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.

A reconciliation of our reportable segments to our consolidated results can be found in Note 9, Segment Reporting, in Part I, Financial Information of this Quarterly Report on Form 10-Q.

Consolidated Results of Operations—Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020

Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased significantly, primarily driven by higher pricing in ocean and truckload, in addition to increased volumes in nearly all services. The higher pricing was driven by the continued supply chain disruptions impacting both the global forwarding and surface transportation market discussed above in the market and business trends sections. Our sourcing total revenue and purchased products sourced for resale decreased as a result of a decrease in case volume with retail customers.

Gross profits and adjusted gross profits. Our transportation adjusted gross profit increased due to increased pricing in ocean and truckload services resulting in higher adjusted gross profits per transaction in addition to volume increases in nearly all services. Our transportation adjusted gross profit margin decreased driven by the increased cost of purchased transportation in all of our service lines. Sourcing adjusted gross profits increased driven by an increase in case volume from sourcing managed procurement customers in the food service industry as the prior year period experienced a significant decrease in demand resulting from the COVID-19 pandemic. This increase was partially offset by a decrease in case volume with retail customers.

Operating expenses. Personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current period, an increase in average headcount, and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior period, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees. Stock-based compensation expense recognized on performance-based equity awards granted prior to 2021 totaled $22.7 million in the current period compared to none in the prior period. SG&A expenses increased due to increased purchased services primarily due to the impact of short-term pandemic-related cost reductions in the prior year period.

Interest and other expense. Interest and other expense primarily consisted of interest expense of $13.1 million in the third quarter of 2021 and a $3.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses. Interest expense increased driven by a higher average debt balance in the third quarter of 2021 compared to the third quarter of 2020. The third quarter of 2020 included a $3.3 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Provision for income taxes. Our effective income tax rate was 16.0 percent for the third quarter of 2021 compared to 15.1 percent for the third quarter of 2020. The effective income tax rate for the third quarter of 2021 was lower than the statutory federal income tax rate primarily due to a lower tax rate on foreign earnings which decreased our effective tax rate by 4.2 percentage points in the third quarter of 2021. The effective income tax rate for the third quarter of 2020 was lower than the statutory federal income tax rate primarily due to foreign tax credits and the tax impact of share-based payment awards, which reduced the effective tax rate by 5.2 percentage points and 3.8 percentage points, respectively.

Consolidated Results of Operations—Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased driven by higher pricing in nearly all services, most notably in truckload and ocean services. Volumes also increased in nearly all services, most notably in ocean, air freight and LTL services. The increased pricing in truckload and ocean has been driven by strong demand in addition to tight truckload carrier capacity and unprecedented supply chain disruptions in the ocean freight industry. Our sourcing total revenue and purchased products sourced for resale decreased as a result of a decrease in case volume with retail customers.

Gross profits and adjusted gross profits. Our transportation adjusted gross profits increased driven by increased pricing in ocean and truckload services resulting in higher adjusted gross profits per transaction in addition to volume increases in our ocean, LTL, and air freight services. Our transportation adjusted gross profit margin decreased driven by the increased cost of purchased transportation in all of our service lines. Sourcing adjusted gross profits decreased slightly driven by lower adjusted gross profits per case, partially offset by increased case volume from customers in the food service industry which experienced a significant decrease in demand resulting from the COVID-19 pandemic in the prior year.

Operating expenses. Personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current year, an increase in average headcount, and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior year, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees in addition to increased health insurance costs. Stock-based compensation expense recognized on performance-based equity awards granted prior to 2021 totaled $42.4 million in the current year compared to none in the prior year. SG&A expenses increased primarily due to increased purchased services driven by the impact of short-term pandemic-related cost reductions in the prior year period, partially offset by lower credit losses in the current year. The prior year also included an $11.5 million loss on the sale-leaseback of a company owned data center.

Interest and other expense. Interest and other expense primarily consisted of interest expense of $38.0 million and a $8.6 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the nine months ended September 30, 2021. These expenses were partially offset by a $2.9 million local government subsidy in Asia for achieving specified performance criteria that was almost entirely offset by a reduction in foreign tax credits within the provision for income taxes. Interest expense increased driven by a higher average debt balance compared to the nine months ended September 30, 2020. The nine months ended September 30, 2020 included a $2.2 million favorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Provision for income taxes. Our effective income tax rate was 18.5 percent for the nine months ended September 30, 2021 and 17.3 percent for the nine months ended September 30, 2020. The effective income tax rate for the nine months ended September 30, 2021 was lower than the statutory federal income tax rate primarily due to a lower tax rate on foreign earnings which reduced the effective tax rate by 1.5 percentage points and the combined tax impact of Global Intangible Low-tax Income ("GILTI") and Foreign Derived Intangible Income ("FDII"), which reduced the effective tax rate by 1.3 percentage

points. These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate. The effective income tax rate for the nine months ended September 30, 2020 was lower than the statutory federal income tax rate primarily due to the tax impact of share-based payment awards, including the tax benefit from the delivery of a one-time deferred stock award that was granted to the company's prior Chief Executive Officer in 2000, which reduced the rate by 4.1 percentage points, in addition to foreign tax credits which reduced the rate by 3.1 percentage points.

NAST Segment Results of Operations


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2021		2020		% change		2021		2020		% change
Total revenues	$	3,814,988	$	2,923,842	30.5	%	$	10,611,892	$	8,222,879	29.1	%
Costs and expenses:
Purchased transportation and related services	3,354,839		2,555,899		31.3	%	9,294,039		7,102,602		30.9	%
Personnel expenses	202,304		148,958		35.8	%	571,486		474,999		20.3	%
Other selling, general, and administrative expenses	108,810		96,459		12.8	%	309,456		287,380		7.7	%
Total costs and expenses	3,665,953		2,801,316		30.9	%	10,174,981		7,864,981		29.4	%
Income from operations	$	149,035	$	122,526	21.6	%	$	436,911	$	357,898	22.1	%

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		% change		2021		2020		% change
Average headcount	6,764		6,702		0.9	%	6,650		6,870		(3.2)	%
Service line volume statistics
Truckload					4.5	%					1.0	%
LTL					1.0	%					12.5	%

Adjusted gross profits(1)
Truckload	$	309,787	$	226,992	36.5	%	$	876,665	$	722,843	21.3	%
LTL	131,166		117,602		11.5	%	379,438		335,360		13.1	%
Other	19,196		23,349		(17.8)	%	61,750		62,074		(0.5)	%
Total adjusted gross profits	$	460,149	$	367,943	25.1	%	$	1,317,853	$	1,120,277	17.6	%

(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Total revenues and direct costs. NAST total revenues increased primarily driven by higher truckload and LTL pricing and an increase in truckload and LTL volumes. Truckload pricing has remained at historic levels during the third quarter of 2021 driven by tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry as discussed above in the market trends section. Total purchased transportation and related services increased, driven by higher average truckload linehaul costs per mile and, to a lesser extent, higher purchased transportation costs per transaction in LTL services and volume increases in both truckload and LTL services.

Gross profits and adjusted gross profits. NAST truckload adjusted gross profits increased driven primarily by increased pricing resulting in higher adjusted gross profits per transaction in addition to an increase in volume. The increased adjusted gross profit per transaction in truckload was the result of an increase in spot market opportunities and continued progress repricing our contractual truckload business to reflect the rising cost environment. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 27.0 percent in the third quarter of 2021 compared to the third quarter of 2020. Our truckload transportation costs, excluding fuel surcharges, increased approximately 26.0 percent.

NAST LTL adjusted gross profits increased due to higher adjusted gross profits per transaction resulting from higher pricing and an increase in volumes.

NAST other adjusted gross profits decreased driven by lower adjusted gross profits per transaction and volume in intermodal.

Operating expenses. NAST personnel expenses increased primarily due to incentive compensation increases reflecting the strong results in the current period, an increase in average headcount, and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior period, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees. NAST SG&A expenses increased driven by increased investments in technology and increased warehouse expenses and purchased services. The operating expenses of NAST and all other segments include allocated corporate expenses.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Total revenues and direct costs. NAST total revenues increased due to higher pricing in truckload and, to a lesser extent, higher pricing in LTL services in addition to volume increases in both LTL and truckload services. The increased pricing in truckload has been driven by tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry as discussed above in the market and business trends section. The prior year was adversely impacted by weakening demand during the early stages of the COVID-19 pandemic which resulted in industry volume decreases. Total purchased transportation and related services increased, driven by higher average truckload linehaul costs per mile in addition to higher purchased transportation costs per transaction in LTL services and volume increases in both LTL and truckload services.

Gross profits and adjusted gross profits. NAST truckload adjusted gross profits increased driven by increased adjusted gross profits per transaction due to the higher pricing discussed above. Our average truckload linehaul rate per mile charged to our customers increased approximately 34.0 percent. Our truckload transportation costs, excluding fuel costs, increased approximately 35.5 percent.

NAST LTL adjusted gross profits increased due to increased volumes.

NAST other adjusted gross profits decreased slightly as lower adjusted gross profits per transaction and lower volume in intermodal were mostly offset by incremental warehousing services related to the acquisition of Prime Distribution.

Operating expenses. NAST personnel expense increased primarily due to incentive compensation increases reflecting the strong results in the current year and the impact of steps taken to reduce costs in response to the COVID-19 pandemic in the prior year, including furloughs, reduced work hours, and the temporary suspension of the company match to retirement plans for U.S. and Canadian employees. These increases were partially offset by a decrease in average headcount. NAST SG&A expenses increased driven by increased investments in technology and increased warehouse expenses partially offset by a reduction in credit loss.

Global Forwarding Segment Results of Operations


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2021		2020		% change		2021		2020		% change
Total revenues	$	1,978,901	$	831,957	137.9	%	$	4,585,734	$	2,070,161	121.5	%
Costs and expenses:
Purchased transportation and related services	1,668,003		674,300		147.4	%	3,821,782		1,621,230		135.7	%
Personnel expenses	96,298		71,095		35.4	%	260,243		205,310		26.8	%
Other selling, general, and administrative expenses	49,445		40,263		22.8	%	139,753		126,588		10.4	%
Total costs and expenses	1,813,746		785,658		130.9	%	4,221,778		1,953,128		116.2	%
Income from operations	$	165,155	$	46,299	256.7	%	$	363,956	$	117,033	211.0	%

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		% change		2021		2020		% change
Average headcount	5,167		4,607		12.2	%	4,951		4,716		5.0	%
Service line volume statistics
Ocean					12.0	%					22.0	%
Air(1)					50.5	%					47.5	%
Customs					10.5	%					18.5	%

Adjusted gross profits(2)
Ocean	$	214,824	$	88,878	141.7	%	$	501,136	$	237,422	111.1	%
Air	59,621		33,836		76.2	%	157,047		112,254		39.9	%
Customs	25,468		22,463		13.4	%	75,203		63,115		19.2	%
Other	10,985		12,480		(12.0)	%	30,566		36,140		(15.4)	%
Total adjusted gross profits	$	310,898	$	157,657	97.2	%	$	763,952	$	448,931	70.2	%

(1) Beginning in the second quarter of 2021 reported air volumes represent metric tons shipped. Previously reported statistics were based on transactional volumes and have been restated to conform with the current period presentation.

(2) Adjusted gross profit margin is a non-GAAP financial measure explained above.

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Total revenues and direct costs. Global Forwarding total revenues and direct costs increased driven by higher pricing in our ocean services and, to a lesser extent, higher pricing in air freight and increased volumes in both our ocean and air freight services. The higher ocean and air freight pricing and costs were driven by the continued supply chain disruptions impacting the global forwarding market discussed above in the market and business trends section. Increased air freight volumes were driven by ocean freight conversions resulting from the significant disruptions experienced in the industry and the continued increase in charter flights and larger than normal shipment sizes as traditional air freight capacity remains strained by a reduction of commercial flights.

Gross profits and adjusted gross profits. Ocean and air freight transportation adjusted gross profits increased driven by higher pricing resulting in higher adjusted gross profits per transaction in addition to an increase in volumes. Customs adjusted gross profits increased driven by an increase in transaction volume.

Operating expenses. Personnel expenses increased primarily due to an increase in average headcount and incentive compensation increases reflecting the strong results in the current period. The prior period included the impact of steps taken to reduce costs in response to the COVID-19 pandemic, including furloughs and reduced work hours. SG&A expenses increased driven by increased investments in technology, partially offset by a reduction of amortization expense due to the completion of amortization related to intangible assets from a prior acquisition.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Total revenues and direct costs. Total revenues and direct costs increased driven by higher pricing and volumes in our ocean services and, to a lesser extent, higher pricing and volumes in our air freight services. The increased ocean pricing was driven by the unprecedented supply chain disruptions impacting the industry combined with strong demand. The first half of 2020 was also severely impacted by reduced demand and production due to the COVID-19 pandemic which led to significant volume declines in all services in the prior year.

Gross profits and adjusted gross profits. Ocean and air freight transportation adjusted gross profits increased driven by higher pricing resulting in higher adjusted gross profits per transaction in addition to increased volumes. Customs adjusted gross profits increased driven by an increase in transaction volumes.

Operating expenses. Personnel expenses increased primarily due to an increase in average headcount and incentive compensation increases reflecting the strong results in the current period. The prior year included the impact of steps taken to reduce costs in response to the COVID-19 pandemic, including furloughs and reduced work hours. SG&A expenses increased driven by increased investments in technology and increased purchased services, partially offset by a reduction of amortization expense due to the completion of amortization related to intangible assets from a prior acquisition.

All Other and Corporate Segment Results of Operations

All Other and Corporate includes our Robinson Fresh and Managed Services segment, as well as Other Surface Transportation outside of North America and other miscellaneous revenues and unallocated corporate expenses.


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2021		2020		% change		2021		2020		% change
Total revenues	$	469,806	$	469,001	0.2	%	$	1,402,664	$	1,364,614	2.8	%
Income from operations	(3,421)		(586)		N/M		(6,165)		(8,465)		N/M

Adjusted gross profits(1)
Robinson Fresh	26,651		24,449		9.0	%	81,539		82,109		(0.7)	%
Managed Services	26,720		24,060		11.1	%	78,510		70,090		12.0	%
Other Surface Transportation	19,774		15,164		30.4	%	53,894		50,272		7.2	%
Total adjusted gross profits	$	73,145	$	63,673	14.9	%	$	213,943	$	202,471	5.7	%

(1) Adjusted gross profit margin is a non-GAAP financial measure explained above.

Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020

Total revenues were essentially flat driven by higher truckload pricing and volumes in Other Surface Transportation, including a 9.5 percentage point increase from the acquisition of Combinex, which was mostly offset by a decline in our Robinson Fresh business driven by a decrease in case volume with retail customers.

Robinson Fresh adjusted gross profits increased driven by an increase in case volume primarily from sourcing managed procurement customers in the food service industry as the prior year period experienced a significant decrease in demand resulting from the COVID-19 pandemic. This increase was partially offset by a decrease in case volume with retail customers. Managed Services adjusted gross profits increased driven by increased transaction volumes resulting from an increase in freight under management. Other Surface Transportation adjusted gross profits increased as a result of higher adjusted gross profits per transaction and a 13.5 percentage point increase from the acquisition of Combinex.

Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020

Total revenues increased driven by higher truckload pricing and volumes in Other Surface Transportation, including a 4.5 percentage point increase from the acquisition of Combinex partially offset by a decline in Robinson Fresh driven by lower pricing.

Robinson Fresh adjusted gross profits decreased slightly driven by lower adjusted gross profits per case, partially offset by increased case volume from customers in the food service industry which experienced a significant decrease in demand resulting from the COVID-19 pandemic in the prior year. Managed Services adjusted gross profits increased driven by increased transaction volumes resulting from an increase in freight under management. Other Surface Transportation adjusted gross profits increased primarily due to a 5.5 percentage point increase from the acquisition of Combinex.

LIQUIDITY AND CAPITAL RESOURCES

We have historically generated substantial cash from operations, which has enabled us to fund our organic growth while paying cash dividends and repurchasing stock. In addition, we maintain the following debt facilities as described in Note 4, Financing Arrangements (dollars in thousands):


Description	Carrying Value as of September 30, 2021		Borrowing Capacity		Maturity
Revolving credit facility	$	632,000	$	1,000,000	October 2023
Senior Notes, Series A	175,000		175,000		August 2023
Senior Notes, Series B	150,000		150,000		August 2028
Senior Notes, Series C	175,000		175,000		August 2033

Senior Notes (1)	593,950		600,000		April 2028
Total debt	$	1,725,950	$	2,100,000

(1) Net of unamortized discounts and issuance costs.

We expect to use our current debt facilities and potentially other indebtedness incurred in the future to assist us in continuing to fund working capital, capital expenditures, possible acquisitions, dividends, and share repurchases.

Cash and cash equivalents totaled $202.6 million as of September 30, 2021 and $243.8 million as of December 31, 2020. Cash and cash equivalents held outside the United States totaled $170.6 million as of September 30, 2021 and $230.9 million as of December 31, 2020.

We prioritize our investments to grow the business, as we require some working capital and a relatively small amount of capital expenditures to grow. We are continually looking for acquisitions, but those acquisitions must fit our culture and enhance our growth opportunities.

The following table summarizes our major sources and uses of cash and cash equivalents (dollars in thousands):


	Nine Months Ended September 30,
	2021		2020		% change
Sources (uses) of cash:
Cash provided by operating activities	$	19,100	$	337,049	(94.3)	%

Capital expenditures	(52,565)		(40,261)
Acquisitions, net of cash acquired	(14,749)		(223,230)
Other investing activities	—		5,525
Cash used for investing activities	(67,314)		(257,966)		(73.9)	%

Repurchase of common stock	(428,801)		(68,563)
Cash dividends	(208,926)		(207,428)
Net borrowing (payments) on debt	629,701		(83,000)
Other financing activities	17,937		84,007
Cash provided by (used for) financing activities	9,911		(274,984)		N/M
Effect of exchange rates on cash and cash equivalents	(2,844)		612
Net change in cash and cash equivalents	$	(41,147)	$	(195,289)

Cash flow from operating activities. Cash flow from operating activities decreased significantly during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 due to unfavorable changes in working capital. The unfavorable changes in working capital were primarily related to a sequential increase in accounts receivable and contract assets partially offset by a related increase in accounts payable and accrued transportation expense. Both increases were driven by a sequential increase in pricing and volumes in nearly all services, most notably in global forwarding, during the third quarter of 2021. The increase in accounts receivable was driven by our global forwarding business where our days sales outstanding ratio is approximately double that of our NAST business. Despite the increase in accounts receivable, we are not experiencing a deterioration in the quality of our accounts receivables balance, and the results of the nine months ended September 30, 2021 include sequential and year-over-year improvements in the percent of accounts receivable that are past due. Additionally, given the COVID-19 pandemic, we are closely monitoring credit and collections activities to minimize risk as well as working with our customers to facilitate the movement of goods across their supply chains while also ensuring timely payment.

Cash used for investing activities. Capital expenditures consisted primarily of investments in hardware and software, which are intended to increase employee productivity, automate interactions with our customers and contracted carriers, and improve our internal workflows to help expand our adjusted operating margins and grow the business. We used $14.7 million for the acquisition of Combinex during the nine months ended September 30, 2021. We used $222.7 million for the acquisition of Prime Distribution during the nine months ended September 30, 2020.

Cash used for financing activities. Net borrowings on debt in the nine months ended September 30, 2021 were to fund working capital needs and share repurchases. Net repayments on debt in the nine months ended September 30, 2020 were used to reduce the outstanding balance of the Receivables Securitization Facility. The increase in cash used for share repurchases was due to an increase in the number of shares repurchased during the nine months ended September 30, 2021 as we temporarily suspended our share repurchase activity in 2020 as we continued to assess the impacts of the COVID-19 pandemic. The number of shares we repurchase, if any, during future periods will vary based on our cash position, other potential uses of our cash, and market conditions. Over the long term, we remain committed to our quarterly dividend and share repurchases to enhance shareholder value. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. We may seek to retire or purchase our outstanding Senior Notes through open market cash purchases, privately negotiated transactions or otherwise.

Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we believe that, assuming no change in our current business plan, our available cash, together with expected future cash generated from operations, the amount available under our credit facilities, and credit available in the market, will be sufficient to satisfy our anticipated needs for working capital, capital expenditures, and cash dividends for at least the next 12 months. We also believe we could obtain funds under lines of credit or other forms of indebtedness on short notice, if needed.

As of September 30, 2021, we were in compliance with all of the covenants under the Credit Agreement, Note Purchase Agreement, and Senior Notes.

Recently Issued Accounting Pronouncements

Refer to Note 1, Basis of Presentation, contained in this quarterly report and in the company's 2020 Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to the company's 2020 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates. As of September 30, 2021, there were no material changes to our critical accounting policies and estimates.

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