C. H. Robinson Worldwide 10-Q 2022-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

Commission File Number: 000-23189

C.H. ROBINSON WORLDWIDE, INC.

(Exact name of registrant as specified in its charter)

14701 Charlson Road

Eden Prairie, MN 55347

(Address of principal executive offices, including zip code)

952-937-8500

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 27, 2022, the number of shares outstanding of the registrant’s Common Stock, par value $0.10 per share, was 123,883,299.

C.H. ROBINSON WORLDWIDE, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

C.H. ROBINSON WORLDWIDE, INC.

Condensed Consolidated Balance Sheets

(unaudited, in thousands, except per share data)

See accompanying notes to the condensed consolidated financial statements.

C.H. ROBINSON WORLDWIDE, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

(unaudited, in thousands except per share data)

See accompanying notes to the condensed consolidated financial statements.

C.H. ROBINSON WORLDWIDE, INC.

Condensed Consolidated Statements of Stockholders’ Investment

(unaudited, in thousands, except per share data)

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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; risks associated with significant disruptions in the transportation industry; changes in relationships with existing contracted truck, rail, ocean, and air carriers; changes in our customer base due to possible consolidation among our customers; risks with reliance on technology to operate our business; cyber-security related risks; risks associated with operations outside of the United States; our ability to identify or complete suitable acquisitions; 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 associated with the potential impact of changes in government regulations; our ability to hire and retain a sufficient number of qualified personnel; risks associated with the changes to income tax 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, 2021, filed with the Securities and Exchange Commission on February 23, 2022 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):

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):

MARKET TRENDS

The cost of purchased transportation in the North American surface transportation market remains elevated compared to pre-pandemic levels and compared to the prior year but it began to decline within the second quarter of 2022. The decline of purchased transportation is the result of an increasingly balanced freight market compared to the tight capacity market conditions seen in recent periods. In the second quarter of 2022, moderating consumer demand and carrier capacity entering the market has better aligned the overall demand with available carrier capacity. Industry freight volumes, as measured by the Cass Freight Index, decreased 2 percent during the second quarter of 2022 compared to the second quarter of 2021. 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 second quarter of 2022 declined to 1.4, representing that on average, the first carrier in a shipper's routing guide was executing the shipment in most cases. This average routing guide penetration is reflective of a more balanced freight market compared to the 1.7 average routing guide depth in both the first quarter of 2022 and the second quarter of 2021.

The global forwarding market also began to show signs of softening as shippers continue to work through elevated inventory levels and cautiously approach the upcoming peak season due to macroeconomic uncertainty and declining import demand in the United States. The cost of purchased transportation remains elevated compared to pre-pandemic levels and compared to the prior year but it began to decline within the second quarter of 2022 as global demand declined to better align with the industry’s overall capacity. Despite increasing activity from the ports in China reopening from their pandemic related shutdowns, the port congestion on the United States West Coast has improved due to moderating demand and the continued diversion of freight to ports in the Southern and Eastern United States. Shippers continue to divert freight away from the United States West Coast to mitigate risk from a potential dockworker labor dispute. Despite port congestion improving during the second quarter of 2022 on the United States West Coast there is evidence of it edging back up again in addition to increased congestion on the United States East Coast due to a higher percentage of freight being routed to their ports. Air freight conversions back to ocean freight have continued with more shippers seeking lower supply chain costs by tolerating the longer duration of ocean freight transit. Air freight capacity has improved in certain trade lanes due to increased belly capacity as commercial flights become more frequent after being significantly reduced during the COVID-19 pandemic.

BUSINESS TRENDS

Our second quarter of 2022 surface transportation results benefited from the softening market conditions, as periods where the cost of purchased transportation begins to decline often result in improved adjusted gross profits per transaction in our portfolio. Industry freight volumes as measured by the Cass Freight Index decreased 2 percent in the second quarter of 2022 compared to the second quarter of 2021. Our combined NAST truckload and less than truckload (“LTL”) volume decreased 2.5 percent during the second quarter of 2022. As a result of the softening market conditions, our contractual rates negotiated in prior quarters contributed to an increase in our adjusted gross profit per shipment and significantly reduced the percentage of shipments with negative adjusted gross profit margins. Our average truckload linehaul cost per mile, excluding fuel costs, decreased 5.0 percent during the second quarter of 2022. Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, increased approximately 1.5 percent during the second quarter of 2022 due to our contractual rates negotiated in prior quarters.

In our global forwarding business, we continued to experience elevated purchased transportation costs for ocean freight, which resulted in growth in both total revenue and cost of purchased transportation compared to the second quarter of 2021. The cost of purchased transportation began to moderate within the second quarter of 2022 as softening demand better aligned with the industry’s overall capacity. This change in market dynamics was most evident on the Transpacific trade lane where we experienced a decline in Asia Pacific ocean volumes in the second quarter of 2022 compared to the second quarter of 2021. Despite this decline, our total ocean volumes increased 2.5 percent due to strong growth in other regions where we operate. Air freight tonnage decreased 6.0 percent as we experienced more customers willing to accept longer transit times by converting their freight to the increasingly balanced ocean freight market.

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.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select second quarter 2022 year-over-year operating comparisons to the second quarter 2021:

• Total revenues increased 22.9 percent to $6.8 billion, driven primarily by higher pricing across most of our services and higher truckload and ocean volume.

• Gross profits and adjusted gross profits increased 37.7 percent to $1.0 billion, primarily driven by higher adjusted gross profit per transaction across most of our services and higher truckload and ocean volume.

• Personnel expenses increased 22.6 percent to $444.8 million, primarily due to higher headcount and higher incentive compensation costs. Average headcount increased 16.2 percent.

• Other selling, general, and administrative (“SG&A”) expenses decreased 6.8 percent to $117.2 million, and included a $25.3 million gain on the sale-leaseback of a facility in Kansas City. This was partially offset by higher purchased and contracted services and increased travel expenses.

• Income from operations totaled $469.7 million, up 80.2 percent due to the increase in adjusted gross profits, partially offset by the increase in operating expenses.

• Adjusted operating margin of 45.5 percent increased 1,070 basis points.

• Interest and other income/expenses totaled $27.4 million, consisting primarily of $17.0 million of interest expense, which increased $4.3 million versus last year due to a higher average debt balance, and $10.3 million of foreign currency revaluation and realized foreign currency gains and losses, which increased $8.4 million versus last year due primarily to a strengthening of the U.S. Dollar versus the Euro and Yuan.

• The effective tax rate in the quarter was 21.3 percent compared to 21.6 percent in the second quarter last year.

• Net income totaled $348.2 million, up 79.7% from a year ago.

• Diluted earnings per share (EPS) increased 85.4 percent to $2.67.

• Cash flow from operations improved $158.7 million in the six months ended June 30, 2022 driven by the increase in net income, partially offset by a small unfavorable change in working capital.

CONSOLIDATED RESULTS OF OPERATIONS

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

(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 June 30, 2022 Compared to the Three Months Ended June 30, 2021

Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased primarily due to higher pricing across most of our services, most notably in ocean, truckload, and LTL services, in addition to increased volumes in truckload and ocean services. While prices remain elevated compared to pre-pandemic levels and compared to the prior year due to driver availability challenges and supply chain disruptions, including port congestion and equipment shortages, prices began to decline within the second quarter of 2022. The decline in pricing within the second quarter of 2022 is the result of softening market conditions as demand has better aligned with capacity available in the market as shippers work through elevated inventory levels, and cautiously approach macroeconomic uncertainty and moderating consumer demand. Our sourcing total revenue and purchased products sourced for resale increased as a result of higher cost and pricing per case and increased case volume across all customer verticals.

Gross profits and adjusted gross profits. Our transportation adjusted gross profits increased due to elevated pricing compared to the prior year across most of our services, most notably in truckload, ocean, and LTL services, resulting in higher adjusted gross profits per transaction. Our surface transportation adjusted gross profit per transaction increased significantly driven by the declining cost of purchased transportation within the second quarter of 2022 relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins. Sourcing adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals.

Operating expenses. Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount. SG&A expenses decreased due to a $23.5 million gain on the sale-leaseback of a facility in Kansas City and lower credit losses. This was partially offset by higher purchased and contracted services and increased travel expenses.

Interest and other income/expense. Interest and other income/expense primarily consisted of interest expense of $17.0 million in the second quarter of 2022 and a $10.3 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses primarily due to a strengthening of the U.S. Dollar versus the Euro and Yuan. Interest expense increased driven by a higher average debt balance in the second quarter of 2022 compared to the second quarter of 2021. The second quarter of 2021 included a $1.9 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses.

Provision for income taxes. Our effective income tax rate was 21.3 percent for the second quarter of 2022 compared to 21.6 percent for the second quarter of 2021. The effective income tax rate for the second quarter of 2022 was higher than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit, which increased the effective income tax rate by 2.0 percentage points. This impact was partially offset by the tax impact of foreign tax credits, which reduced the effective tax rate by 1.4 percentage points. The effective income tax rate for the second quarter of 2021 was higher than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit, and foreign income taxes which both increased our effective tax rate by 2.0 percentage points. These impacts on the effective income tax rate were partially offset by the tax impact of foreign tax credits, which reduced the effective tax rate by 1.2 percentage points.

Consolidated Results of Operations—Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Total revenues and direct costs. Total transportation revenues and purchased transportation and related services increased driven by higher pricing in all of our service lines, most notably in ocean and truckload services. Volumes also increased in ocean and truckload services. Purchased transportation and related service costs remain elevated compared to pre-pandemic levels and compared to the prior year as supply chain disruptions continue to impact both the surface transportation and global forwarding markets. While supply chain disruptions continue to drive higher costs and pricing in the period we did see evidence that the market may be softening as demand has better aligned with available capacity within the second quarter of 2022. Our sourcing total revenue and purchased products sourced for resale increased as a result of higher cost and pricing per case and increased case volume across all customer verticals.

Gross profits and adjusted gross profits. Our transportation adjusted gross profits increased due to increased pricing compared to the prior year across most of our services, most notably in truckload, ocean and LTL services resulting in higher adjusted gross profits per transaction. Our surface transportation adjusted gross profit per transaction also benefited from the declining cost of purchased transportation within the second quarter of 2022 relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins. Sourcing adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals.

Operating expenses. Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount. SG&A expenses increased primarily due to increases in purchased and contracted services, travel, and warehouse expenses, partially offset by a $23.5 million gain on the sale-leaseback of a facility in Kansas City.

Interest and other income/expense. Interest and other income/expense primarily consisted of interest expense of $31.5 million and an $11.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses in the six months ended June 30, 2022 primarily due to a strengthening of the U.S. Dollar versus the Euro and Yuan. Interest expense increased driven by a higher average debt balance compared to the six months ended June 30, 2021. The six months ended June 30, 2021 included a $4.8 million unfavorable impact of foreign currency revaluation and realized foreign currency gains and losses that was 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.

Provision for income taxes. Our effective income tax rate was 20.0 percent for the six months ended June 30, 2022 and 20.1 percent for the six months ended June 30, 2021. The effective income tax rate for the six months ended June 30, 2022 was lower than the statutory federal income tax rate primarily due to the tax impact of foreign tax credits, U.S. tax credits and incentives, and the tax impact of share-based payment awards, which reduced the effective tax rate by 1.1 percentage points, 1.0 percentage points, and 0.9 percentage points, respectively. These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate by 1.7 percentage points. The effective income tax rate for the six months ended June 30, 2021 was lower than the statutory federal income tax rate primarily due to the tax impact of share-based payment awards, U.S. tax credits and incentives, and the tax impact of foreign tax credits, which reduced the effective tax rate by 1.5 percentage points, 0.9 percentage points, and 0.5 percentage points, respectively. These impacts were partially offset by state income tax expense, net of federal benefit, which increased the effective income tax rate by 2.1 percentage points.

NAST Segment Results of Operations

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

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

Total revenues and direct costs. NAST total revenues and purchased transportation and related services increased primarily due to higher pricing in truckload and LTL services, in addition to higher truckload volumes. These increases were partially offset by a decline in LTL volumes. While prices remain elevated compared to pre-pandemic levels and compared to the prior year due to driver availability challenges and supply chain disruptions, including port congestion and equipment shortages, they began to decline within the second quarter of 2022. The decline in pricing within the second quarter of 2022 is the result of softening market conditions as demand has better aligned with capacity available in the market.

Gross profits and adjusted gross profits. NAST adjusted gross profits increased due to increased pricing compared to the prior year in truckload and LTL services resulting in higher adjusted gross profits per transaction in addition to higher truckload volumes. These increases were partially offset by a decline in LTL volumes. Our NAST adjusted gross profit per transaction increased significantly driven by the declining costs of purchased transportation within the second quarter of 2022 relative to our contractual rates negotiated in prior quarters which significantly reduced the percentage of shipments with negative adjusted gross profit margins. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 1.5 percent in the second quarter of 2022 compared to the second quarter of 2021. Our truckload transportation costs, excluding fuel surcharges, decreased approximately 5.0 percent.

NAST other adjusted gross profits increased primarily driven by an increase in warehousing services and an increase in intermodal adjusted gross profits.

Operating expenses. NAST personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount. NAST SG&A expenses increased due to increased investments in technology, increased expenditures for purchased services including temporary labor, and increased warehouse expense. The operating expenses of NAST and all other segments include allocated corporate expenses. Allocated personnel expenses consist primarily of stock-based compensation allocated based upon segment participation levels in our equity plans. Remaining corporate allocations, including corporate functions and technology related expenses, are primarily included within each segment’s other SG&A, and allocated based upon relevant segment operating metrics.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

Total revenues and direct costs. NAST total revenues and purchased transportation and related services increased due to higher pricing in truckload and in LTL services, in addition to volume increases in truckload services. Truckload pricing reached historic levels during the first quarter of 2022 due to tight carrier capacity caused by driver availability challenges and the supply chain disruptions facing the industry, however, prices started to decline within the second quarter of 2022. The costs of purchased transportation also started to decline driven by moderating demand and capacity entering the market but remain elevated compared to the prior year.

Gross profits and adjusted gross profits. NAST adjusted gross profits increased due primarily to increased pricing resulting in higher adjusted gross profits per transaction, in addition to an increase in volume. The increased adjusted gross profit per transaction was the result of the softening market conditions resulting in moderating costs for purchased transportation relative to our contractual rates negotiated in prior quarters. This significant reduced the percentage of shipments with negative adjusted gross profit margins. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, increased approximately 10.5 percent. Our truckload transportation costs, excluding fuel surcharges, increased approximately 7.5 percent.

NAST other adjusted gross profits increased driven by an increase in warehousing services.

Operating expenses. NAST personnel expense increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount. NAST SG&A expenses increased due to increased investments in technology, increased expenditures for purchased services including temporary labor, increased warehouse expense, and a non-recurring legal expense.

Global Forwarding Segment Results of Operations

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

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

Total revenues and direct costs. Global forwarding total revenues and purchased transportation and related services increased due to higher pricing and higher volumes in our ocean services. The cost of purchased transportation and pricing continues to be elevated compared to pre-pandemic levels and compared to the prior year driven by the continued supply chain disruptions impacting the global forwarding market. The market did begin to show signs of softening which resulted in prices beginning to moderate within the second quarter of 2022, most notably on the Transpacific trade lane as we experienced a decline in Asia Pacific ocean volumes. Despite this decline, our total ocean volumes increased due to strong growth in other regions where we operate. Air freight total revenues and purchased transportation and related services decreased driven by conversions back to ocean freight and the impact of increased air freight capacity on purchased transportation costs in certain trade lanes due to the increased frequency of commercial flights which were significantly reduced at the onset of the COVID-19 pandemic.

Gross profits and adjusted gross profits. Ocean freight transportation adjusted gross profits increased due to higher pricing resulting in increased adjusted gross profits per transaction, in addition to an increase in total volumes. Air freight adjusted gross profits increased due to an increase in adjusted gross profits per transaction driven by the declining cost of purchased transportation, partially offset by a decrease in volume. Customs adjusted gross profits increased due to an increase in transaction volume.

Operating expenses. Personnel expenses increased primarily due to an increase in salaries and incentive compensation driven by an increase in average headcount. SG&A expenses increased due to increased investments in technology and travel expenses, partially offset by favorable credit losses.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

Total revenues and direct costs. Total revenues and purchased transportation and related services 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 cost of purchased transportation and pricing continues to be elevated compared to pre-pandemic levels and compared to the prior year driven by the continued supply chain disruptions impacting the global forwarding market.

Gross profits and adjusted gross profits. Ocean and air freight transportation adjusted gross profits increased driven by higher pricing resulting in increased 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 salaries and incentive compensation driven by an increase in average headcount. SG&A expenses increased due to increased investments in technology, increased purchased services including temporary labor, and travel expenses. These increases were partially offset by favorable credit losses.

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.

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

Three Months Ended June 30, 2022 compared to the Three Months Ended June 30, 2021

Total revenues and direct costs. Robinson Fresh total revenues increased due to higher pricing per case and increased case volume across all customer verticals. In addition, total revenues in Other Surface Transportation increased due to higher Europe truckload pricing.

Gross profits and adjusted gross profits. Robinson Fresh adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals. Managed Services adjusted gross profits increased due to an increase in freight under management, which was driven by growth in business with both new and existing customers. Other Surface Transportation adjusted gross profits increased due to increased Europe truckload adjusted gross profits per transaction.

Six Months Ended June 30, 2022 compared to the Six Months Ended June 30, 2021

Total revenues and direct costs. Robinson Fresh total revenues increased driven by higher pricing per case and increased case volume across all customer verticals. In addition, total revenues in Other Surface Transportation increased due to higher to higher Europe truckload pricing and an increase in Europe truckload volumes.

Gross profits and adjusted gross profits. Robinson Fresh adjusted gross profits increased driven by an increase in case volume and higher adjusted gross profits per case across all customer verticals. Managed Services adjusted gross profits increased due to an increase in freight under management, which was driven by growth in business with both new and existing customers. Other Surface Transportation adjusted gross profits increased due to increased Europe truckload adjusted gross profits per transaction and an increase in Europe truckload volumes.

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 (in thousands):

(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 $238.9 million as of June 30, 2022 and $257.4 million as of December 31, 2021. Cash and cash equivalents held outside the United States totaled $204.4 million as of June 30, 2022 and $217.1 million as of December 31, 2021.

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):

Cash flow from operating activities. Cash provided by operating activities improved in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due to increased net income, partially offset by a small unfavorable change in working capital. We continue to closely monitor credit and collections activities and the quality of our accounts receivable balance 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 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.

During the second quarter, we sold an office building in Kansas City, Missouri, for a sales price of $55 million and recognized a gain of $23.5 million on the sale of the building in the three months ended June 30, 2022. We simultaneously entered into an agreement to lease the office building for 10 years.

Cash used for financing activities. Net borrowings on debt in the six months ended June 30, 2022 and June 30, 2021 were to fund working capital needs and share repurchases. The increase in cash used for share repurchases was due to an increase in the number of shares repurchased and a higher average price per share during the six months ended June 30, 2022. 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.

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 and the foreseeable future. We also believe we could obtain funds under lines of credit or other forms of indebtedness on short notice, if needed.

As of June 30, 2022, we were in compliance with all of the covenants under the Credit Agreement, 364-day Credit Agreement, Note Purchase Agreement, Senior Notes, and Receivables Securitization.

Recently Issued Accounting Pronouncements

Refer to Note 1, Basis of Presentation, contained in this Quarterly Report and in the company's 2021 Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to the company's 2021 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates. As of June 30, 2022, there were no material changes to our critical accounting policies and estimates.

Refer to the company’s 2021 Annual Report on Form 10-K for a discussion on the company’s market risk. As of June 30, 2022, there were no material changes in market risk from those disclosed in the company’s 2021 Annual Report on Form 10-K.

(a) Evaluation of disclosure controls and procedures.

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2022. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022.

(b) Changes in internal controls over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three months ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not subject to any pending or threatened litigation other than routine litigation arising in the ordinary course of our business operations. For some legal proceedings, we have accrued an amount that reflects the aggregate liability deemed probable and estimable, but this amount is not material to our consolidated financial position, results of operations, or cash flows. Because of the preliminary nature of many of these proceedings, the difficulty in ascertaining the applicable facts relating to many of these proceedings, the inconsistent treatment of claims made in many of these proceedings, and the difficulty of predicting the settlement value of many of these proceedings, we are often unable to estimate an amount or range of any reasonably possible additional losses. However, based upon our historical experience, the resolution of these proceedings is not expected to have a material effect on our consolidated financial position, results of operations, or cash flows.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors disclosed in Part I, “Item 1A. Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. As of June 30, 2022, there were no material changes to the risk factors set forth in the Company’s 2021 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about company purchases of common stock during the quarter ended June 30, 2022:

(1) The total number of shares purchased based on trade date includes: (i) 3,212,624 shares of common stock purchased under the authorization described below; and (ii) 69,078 shares of common stock surrendered to satisfy minimum statutory tax obligations under our stock incentive plans.

(2) In December 2021, the Board of Directors increased the number of shares authorized for repurchase by 20,000,000 shares. As of June 30, 2022, there were 16,831,321 shares remaining for future repurchases. Repurchases can be made in the open market or in privately negotiated transactions, including Rule 10b5-1 plans and accelerated repurchase programs.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

On July 27, 2022, the Talent and Compensation Committee (the “Committee”) of our Board of Directors approved the C.H. Robinson Executive Separation and Change in Control Plan (the “Executive Severance Plan”), to be effective as of July 27, 2022. The Executive Severance Plan is intended to provide severance benefits to our executives in the event of a qualifying involuntary termination of their employment under certain circumstances, including such a termination involving a change in control of the company.

Certain of our executives, including all of our executive officers, are eligible to participate in the Executive Severance Plan. Executives who are parties to individual agreements providing for severance benefits are not eligible to participate in or receive benefits under the Executive Severance Plan. However, Messrs. Rajan and Zechmeister have agreed to waive the severance benefits provided under their employment agreements in order to be eligible for benefits under the Executive Severance Plan.

Under the Executive Severance Plan, following a termination by the company of an executive’s employment related to a reduction in staff, business reorganization, position elimination, closing of a business unit and other similar events, unless the executive’s employment is terminated for misconduct, failure to perform executive’s duties, actions which may harm the company, or any of the other reasons specified in the Executive Severance Plan (“cause”), an executive will be eligible to receive continuing base salary for 24 months (for the CEO), 18 months (for executive officers and presidents) or 12 months (for certain other vice presidents). A terminated employee will also be eligible to receive a lump-sum amount of the executive’s monthly COBRA premium payment multiplied by the same number of months as the continued base salary.

The Executive Severance Plan also provides that if an executive is terminated by the company for cause or by the executive for “good reason” (as defined in tour equity incentive plan) within 24 months after a “change in control” (as defined in our equity plan), the executive will be eligible to receive a lump sum payment equal to 2.5 (for the CEO), 2.0 (for executive officers and presidents) or 1.0 (for certain other vice presidents) times the executive’s (i) annual salary, (ii) annual target bonus, and (iii) annual cost of COBRA premiums. In addition, in connection with a termination following a change in control, all of an eligible executive’s outstanding equity awards will be fully vested (with performance awards vesting at the greater of actual or target performance levels). However, if the applicable equity incentive plan or the eligible executive’s outstanding equity award agreements provide more favorable terms than those provided by the Executive Severance Plan, the more favorable terms will apply. In addition, the Executive Severance Plan adopts a “net best benefit” approach with respect to addressing any potential parachute payments subject to Section 280G of the Internal Revenue Code.

To receive benefits under the Executive Severance Plan, an executive must sign and not revoke a separation agreement and general release of claims in the form we provide, including a non-disparagement agreement, comply with all other restrictive covenants, and the executive must work through the scheduled termination date. The Committee may amend the Executive Severance Plan from time to time to provide for different severance benefits and/or severance benefit terms and conditions, or to eliminate severance benefits entirely, for all or a portion of our executives.

The purpose of adopting the Executive Severance Plan is to provide for market competitive severance benefits for executives to aid in the attraction and retention of executive talent.

The Executive Severance Plan is attached as Exhibit 10.3 to this Quarterly Report on Form 10-Q.

Exhibits filed with, or incorporated by reference into, this Quarterly Report:

• Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on July 29, 2022.