C. H. Robinson Worldwide 10-Q 2023-09-30

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 September 30, 2023

☐ 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 November 1, 2023, the number of shares outstanding of the registrant’s Common Stock, par value $0.10 per share, was 116,651,037.

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; climate change related risks; risks associated with our indebtedness; interest rate related risks; risks associated with litigation, including contingent auto liability and insurance coverage; risks associated with the potential impact of changes in government regulations; 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; risks associated with the use of machine learning and artificial intelligence; 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, 2022, filed with the Securities and Exchange Commission on February 17, 2023, 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. We bring together customers, carriers, and suppliers to connect and grow supply chains. We are grounded in our customer promise to use our technology, which is built by and for supply chain experts and powered by our information advantage, to deliver smarter solutions. These global solutions, combined with the expertise of our people, deliver value–from improved cost reductions and reliability to sustainability and visibility–that our customers and carriers can rely on.

Our adjusted gross profits and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profits are calculated as gross profits excluding amortization of internally developed software utilized to directly serve our customers and contracted carriers. Adjusted gross profit margin is calculated as adjusted gross profits divided by total revenues. We believe adjusted gross profits 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 profits to be a primary performance measurement. Accordingly, the discussion of our results of operations often focuses on the changes in our adjusted gross profits and adjusted gross profit margin. The reconciliation of gross profits to adjusted gross profits 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 profits. We believe adjusted operating margin is a useful measure of our profitability in comparison to our adjusted gross profits, 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

Carrier capacity during the third quarter of 2023 in the North America surface transportation market continued to exceed shipper demand which has resulted in a sustained market of suppressed transportation rates at, or near, the estimated cost to operate a truck. These conditions are typically referred to as a soft market. As recent elevated inventory levels have largely stabilized, many shippers continue to closely monitor consumer spending uncertainty and cautiously manage their inventory restocking activity, which is made easier when excess carrier capacity exists in the market. Market conditions in the third quarter of 2022 had only started to soften as demand began to align with available capacity, which caused industry freight rates to decline. 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 average number of carriers contacted prior to acceptance when procuring a transportation provider. The average routing guide depth of tender in the third quarter of 2023 remained low at 1.2 and was essentially in-line with the average routing guide depth of 1.1 in the second quarter of 2023. This compared to average routing guide depth of 1.3 in the third quarter of 2022. The average routing guide depth in the third quarter of 2023 represents that on average, the first carrier in a shipper's routing guide is accepting the shipment most of the time, resulting in a limited number of shipments reaching the spot market.

Similar to the North America surface transportation market, the global forwarding market continued to soften as ocean vessel capacity continued to expand relative to demand during the third quarter of 2023. New vessel deliveries continue trending higher than vessel capacity leaving the market, which has furthered the recent trend of suppressed ocean freight rates in 2023 as demand has remained weak. These softening market conditions began in the middle of 2022 and also impacted the third quarter of 2022. Steamship lines continue to rationalize services through blank sailings and slow steaming, which will likely impact schedule reliability and transit times in future periods. The low price of ocean freight continues to result in less ocean freight converting to air freight despite increasing transit times and degrading schedule reliability. There continues to be more than sufficient air freight capacity in the market, which has kept air freight rates suppressed although capacity did tighten slightly following the end of the peak summer travel season.

BUSINESS TRENDS

Our third quarter of 2023 surface transportation results were largely consistent with the trends discussed in the market trends section. The weak global freight demand and excess carrier capacity in the market resulted in most shipments moving under committed pricing agreements and suppressed freight rates on the limited number of shipments reaching the spot market. This resulted in declines in both our total revenues and adjusted gross profits in the third quarter of 2023 compared to the third quarter of 2022. The soft market conditions in the third quarter of 2023 resulted in reduced adjusted gross profit per shipment as our pricing strategies continue to reflect the competitive market conditions to ensure we are at, or near, the top of our customer’s routing guides while also aggressively pursuing the limited number of shipments reaching the spot market. Industry freight volumes decreased in the third quarter of 2023 compared to the third quarter of 2022. Our combined North American Surface Transportation (“NAST”) truckload and less than truckload (“LTL”) volume decreased 3.5 percent during the third quarter of 2023. Our average truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 13.5 percent during the third quarter of 2023. Our average truckload linehaul rate charged to our customers, excluding fuel surcharges, decreased approximately 16.5 percent during the third quarter of 2023.

Our third quarter of 2023 Global Forwarding results were largely consistent with the trends discussed in the market trends section. We experienced a decline in both total revenues and adjusted gross profits in our ocean and air freight businesses compared to the third quarter of 2022. Our ocean volumes decreased 0.5 percent while our air freight tonnage decreased 2.0 percent.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select third quarter 2023 year-over-year operating comparisons to the third quarter 2022:

• Total revenues decreased 27.8 percent to $4.3 billion, driven primarily by lower ocean and truckload pricing.

• Gross profits decreased 28.9 percent to $626.6 million. Adjusted gross profits decreased 28.4 percent to $634.8 million, primarily driven by lower adjusted gross profit per transaction in truckload and ocean.

• Personnel expenses decreased 21.5 percent to $343.5 million, primarily due to cost optimization efforts and lower variable compensation, including lower average employee headcount, which decreased 13.7 percent.

• Other selling, general, and administrative (“SG&A”) expenses increased 9.7 percent to $177.8 million, primarily due to $21.4 million of restructuring expenses, partially offset by decreased purchased and contracted services and decreased legal settlements.

• Income from operations decreased 60.5 percent to $113.5 million, driven by decreased adjusted gross profits, partially offset by the decline in operating expenses.

• Adjusted operating margin of 17.9 percent declined 1,450 basis points.

• Interest and other income/expense, net totaled $20.7 million of expense, consisting primarily of $21.8 million of interest expense, which increased $1.0 million versus last year due primarily to higher variable interest rates. The current year included a net $0.1 million gain from foreign currency revaluation and realized foreign currency gains and losses, compared to a net $5.2 million gain last year.

• The effective tax rate in the quarter was 11.7 percent compared to 16.9 percent in the third quarter last year.

• Net income totaled $81.9 million, down 63.7 percent from a year ago.

• Diluted earnings per share (EPS) decreased 61.8 percent to $0.68.

• Cash flow from operations decreased $192.2 million in the nine months ended September 30, 2023, driven by a decrease in net income, offset in part by changes in net operating 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 8, Segment Reporting, in Part I, Financial Information of this Quarterly Report on Form 10-Q.

Consolidated Results of Operations—Three Months Ended September 30, 2023, Compared to the Three Months Ended September 30, 2022

Total revenues and direct costs. Total transportation revenues and direct costs decreased significantly primarily due to lower pricing and purchased transportation costs in ocean and truckload services, in addition to volume declines in most transportation service lines compared to the prior year. The weak global freight demand and excess capacity in both the surface transportation and global forwarding markets has resulted in a sustained market of suppressed transportation rates. Our sourcing total revenue and direct costs increased driven by increased case volume with foodservice and retail customers.

Gross profits and adjusted gross profits. Our transportation adjusted gross profits decreased driven by lower adjusted gross profits per transaction and volume declines in most transportation service lines, most notably our truckload and ocean service lines. The lower adjusted gross profit per transaction was driven by the weak demand and excess capacity in both the surface transportation and global forwarding markets discussed in the market trends and business trends sections above, which have continued to suppress freight rates in the third quarter of 2023. The prior year period benefited from market conditions beginning to soften as the cost of purchased transportation decreased relative to our contractual rates negotiated in prior quarters, resulting in elevated adjusted gross profits per transaction in the third quarter of 2022. Sourcing adjusted gross profits increased driven by increased case volume with retail customers and an increase in integrated supply chain solutions for foodservice customers.

Operating expenses. Personnel expenses decreased primarily due to cost optimization efforts and lower variable compensation reflecting the decline in results relative to the prior year and lower average employee headcount. Other SG&A expenses increased primarily due to $21.4 million of restructuring expenses, partially offset by decreased purchased and contracted services and decreased legal settlements.

Interest and other income/expense, net. Interest and other income/expense, net primarily consisted of interest expense of $21.8 million. Interest expense increased $1.0 million during the third quarter of 2023, driven by higher variable interest rates. The net impact of foreign currency revaluation and realized foreign currency gains and losses in the third quarter of 2023 was insignificant as foreign currency losses primarily related to the devaluation of the Argentine Peso were largely offset by gains related to other foreign currencies. The third quarter of 2022 included a net $5.2 million favorable impact from foreign currency revaluation and realized foreign currency gains and losses primarily due to a strengthening of the U.S. Dollar versus the Yuan.

Provision for income taxes. Our effective income tax rate was 11.7 percent for the third quarter of 2023 compared to 16.9 percent for the third quarter of 2022. The effective income tax rate for the third quarter of 2023 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 a South American restructuring program taxable basis difference, which reduced the effective tax rate by 9.0 percentage points, 6.1 percentage points, and 5.9 percentage points, respectively. These impacts were partially offset by a higher tax rate on foreign earnings, which increased the effective income tax rate by 8.4 percentage points during the third quarter of 2023. The effective income tax rate for the third quarter of 2022 was lower than the statutory federal income tax rate primarily due to U.S. tax credits and incentives, which decreased the effective income tax rate by 6.2 percentage points. This impact was partially offset by a higher tax rate on foreign earnings and state income taxes, net of federal benefit, which increased the effective income tax rate by 2.8 percentage points and 2.4 percentage points, respectively.

Consolidated Results of Operations—Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

Total revenues and direct costs. Total transportation revenues and direct costs decreased driven by lower pricing and purchased transportation costs in nearly all of our service lines, most notably in ocean and truckload services. In addition, volumes declined in nearly all transportation services compared to the prior year. The decline in pricing and purchased transportation costs has been driven by the soft market conditions in both the surface transportation and global forwarding markets in the nine months ended September 30, 2023. Our sourcing total revenue and direct costs increased driven by increased case volume with foodservice customers.

Gross profits and adjusted gross profits. Our transportation adjusted gross profits decreased due to lower adjusted gross profit per transaction in truckload and ocean services, in addition to decreased volumes in nearly all service lines. The lower adjusted gross profit per transaction was driven by the excess capacity and weak demand in the surface transportation and global forwarding markets discussed in the market trends and business trends sections above, which have suppressed freight rates in the nine months ended September 30, 2023. Our prior year surface transportation adjusted gross profit per transaction benefited from market conditions beginning to soften resulting in the declining cost of purchased transportation relative to our contractual rates negotiated in prior quarters. Sourcing adjusted gross profits increased driven by integrated supply chain solutions for foodservice customers in addition to increased case volume with retail customers.

Operating expenses. Personnel expenses decreased primarily due to cost optimization efforts including lower average employee headcount in addition to lower variable compensation reflecting the decline in results relative to the prior year. Other SG&A expenses increased due to a $23.5 million gain from a sale-leaseback of a facility in Kansas City in the prior year and $22.6 million of restructuring expenses in the current year, partially offset by decreased purchased and contracted services, including temporary labor.

Interest and other income/expense, net. Interest and other income/expense, net primarily consisted of interest expense of $68.6 million, which increased $16.3 million driven by higher variable interest rates compared to the prior year. The nine months ended September 30, 2023, included a net $5.9 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses primarily related to the devaluation of the Argentine Peso, which were partially offset by gains related to other foreign currencies. The prior year included a net $6.6 million unfavorable impact from foreign currency revaluation and realized foreign currency gains and losses primarily due to the impact of the strengthening U.S. Dollar versus the Euro and Australian Dollar, partially offset by a favorable impact from the strengthening U.S. Dollar versus the Yuan.

Provision for income taxes. Our effective income tax rate was 13.5 percent for the nine months ended September 30, 2023, and 19.2 percent for the nine months ended September 30, 2022. The effective income tax rate for the nine months ended September 30, 2023 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 4.8 percentage points, 4.5 percentage points, and 2.5 percentage points, respectively. These impacts were partially offset by state income tax expense, net of federal benefit, and a lower tax rate on foreign earnings, which increased the effective income tax rate by 2.5 percentage points and 2.1 percentage points, respectively. The effective income tax rate for the nine months ended September 30, 2022 was lower than the statutory federal income tax rate primarily due to U.S. tax credits and incentives, the tax impact of share-based payment awards, and the tax impact of foreign tax credits, which reduced the effective tax rate by 2.3 percentage points, 1.1 percentage points, and 0.8 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 1.9 percentage points.

NAST Segment Results of Operations

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

Three Months Ended September 30, 2023, Compared to the Three Months Ended September 30, 2022

Total revenues and direct costs. NAST total revenues and direct costs decreased primarily due to significantly lower pricing and purchased transportation costs in truckload services as carrier capacity continues to exceed shipper demand, which has resulted in a sustained market of suppressed transportation rates at, or near, the estimated cost to operate a truck. As shipper demand started to decline in the third quarter of 2022, it began to better align with the carrier capacity available in the market. As the market became more balanced, it resulted in declining pricing and purchased transportation costs in the third quarter of 2022 although still at elevated levels in comparison to the third quarter of 2023. Our combined NAST truckload and LTL volume decreased 3.5 percent driven by the weak global freight demand discussed in the market trends and business trends sections above.

Gross profits and adjusted gross profits. NAST adjusted gross profits decreased due to lower pricing in truckload services, resulting in lower adjusted gross profits per transaction. The lower adjusted gross profit per transaction was driven by the soft market conditions discussed in the market trends and business trends sections above, resulting in lower pricing and limited spot market opportunities at attractive rates in the third quarter of 2023. The prior year period benefited from market conditions starting to soften as the cost of purchased transportation decreased relative to our contractual rates resulting in elevated adjusted gross profits per transaction in the third quarter of 2022. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, decreased approximately 16.5 percent in the third quarter of 2023 compared to the third quarter of 2022. Our truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 13.5 percent. NAST LTL adjusted gross profits decreased due to lower adjusted gross profits per transaction and lower volumes in the third quarter of 2023 compared to the third quarter of 2022. NAST other adjusted gross profits decreased primarily driven by a decline in intermodal volumes.

Operating expenses. NAST personnel expenses decreased primarily due to cost optimization efforts, including lower average employee headcount, and lower variable compensation. NAST other SG&A expenses decreased primarily due to lower allocated corporate expenses and the impact of elevated legal settlements in the prior year. 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 expenses, and are allocated based upon relevant segment operating metrics.

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

Total revenues and direct costs. NAST total revenues and direct costs decreased due to lower pricing and purchased transportation costs in truckload and LTL services compared to the prior year. Truckload pricing reached historic levels early in 2022 due to tight carrier capacity caused by driver availability challenges and the supply chain disruptions that were facing the industry. Truckload pricing and purchased transportation costs began to decline later in 2022 and into 2023 reaching transportation rates at, or near, the estimated cost to operate a truck during the nine months ended September 30, 2023. Truckload and LTL volumes also decreased during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, driven by the weak global freight demand discussed in the market trends and business trends sections above.

Gross profits and adjusted gross profits. NAST adjusted gross profits decreased primarily due to lower adjusted gross profit per transaction in truckload and LTL services in addition to a decrease in volume for both. The lower adjusted gross profit per transaction was driven by the excess capacity and weak demand in the surface transportation market discussed in the market trends and business trends sections above, which has suppressed freight rates in the nine months ended September 30, 2023. The prior year period benefited from market conditions starting to soften as the cost of purchased transportation decreased relative to our contractual rates negotiated in prior quarters resulting in elevated adjusted gross profits per transaction in the nine months ended September 30, 2022. Our average truckload linehaul rate per mile charged to our customers, which excludes fuel surcharges, decreased approximately 22.5 percent. Our truckload linehaul cost per mile, excluding fuel surcharges, decreased approximately 20.5 percent. NAST other adjusted gross profits increased driven by an increase in warehousing services.

Operating expenses. NAST personnel expense decreased primarily due to cost optimization efforts, including lower average employee headcount, and decreased variable compensation. NAST other SG&A expenses decreased primarily due to lower allocated corporate expenses, advertising expenses and purchased and contracted services, including temporary labor, and decreased legal settlements.

Global Forwarding Segment Results of Operations

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

Three Months Ended September 30, 2023, Compared to the Three Months Ended September 30, 2022

Total revenues and direct costs. Global Forwarding total revenues and direct costs decreased driven by lower pricing and purchased transportation costs in ocean and air freight services. As ocean vessel capacity has continued to increase relative to the weak global freight demand, it has continued to suppress ocean freight rates. The air freight market continues to have more than sufficient capacity which has continued to suppress air freight rates as well.

Gross profits and adjusted gross profits. Global Forwarding adjusted gross profits decreased due to lower ocean and air freight adjusted gross profits per transaction in addition to volume declines in both service lines compared to the prior year. The lower adjusted gross profit per transaction was driven by the excess capacity and weak demand in the global forwarding markets discussed in the market trends and business trends sections above, which have suppressed freight rates in the third quarter of 2023. Customs adjusted gross profits decreased driven by a decrease in transaction volume.

Operating expenses. Personnel expenses decreased primarily due to cost optimization efforts, including lower average employee headcount, and lower variable compensation reflecting the decline in results relative to the prior year. Other SG&A expenses increased driven by $21.0 million of restructuring expenses in the current year related to disposal and exit activities, including asset impairments for the planned divestiture of our operations in Argentina. Refer to Note 13, Restructuring for additional detail on our South American restructuring program.

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

Total revenues and direct costs. Global Forwarding total revenues and direct costs decreased driven by lower pricing and purchased transportation costs in both ocean and air freight and, to a lesser extent, volume declines in both service lines. The cost of purchased transportation and pricing remained elevated compared to pre-pandemic levels through the first half of 2022 before falling rapidly in the second half of 2022. The pricing and cost of purchased transportation has remained suppressed during the nine months ended September 30, 2023, driven by the excess carrier capacity and continued weak demand discussed in the market trends and business trends sections above.

Gross profits and adjusted gross profits. Global Forwarding adjusted gross profits decreased due to lower adjusted gross profits per transaction, and to a lesser extent, volume declines in ocean and air freight compared to the prior year. The lower adjusted gross profit per transaction was driven by the excess capacity and weak demand in the global forwarding markets discussed in the market trends and business trends sections above, which have suppressed freight rates in the nine months ended September 30, 2023. Customs adjusted gross profits decreased driven by a decrease in transaction volume.

Operating expenses. Personnel expenses decreased primarily due to cost optimization efforts, including lower average employee headcount, and lower variable compensation reflecting the decline in results relative to the prior year. Other SG&A expenses increased driven by $21.0 million of restructuring expenses in the current year related to disposal and exit activities, including asset impairments for the planned divestiture of our operations in Argentina. Refer to Note 13, Restructuring for additional detail on our South American restructuring program. This increase was partially offset by lower expenditures for purchased and contracted services, including those for temporary labor.

All Other and Corporate Segment Results of Operations

All Other and Corporate includes our Robinson Fresh and Managed Services segments, 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 September 30, 2023, Compared to the Three Months Ended September 30, 2022

Total revenues and direct costs. Total revenues and direct costs increased driven by increased case volume with foodservice and retail customers in our Robinson Fresh business in addition to higher European truckload volumes in our Other Surface Transportation business.

Gross profits and adjusted gross profits. Robinson Fresh adjusted gross profits increased driven by increased case volume with retail customers and an increase in integrated supply chain solutions for foodservice customers. Managed Services adjusted gross profits were essentially flat with the prior year. Other Surface Transportation adjusted gross profits increased primarily due to an increase in European LTL adjusted gross profits.

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

Total revenues and direct costs. Total revenues and direct costs increased driven by increased case volume with foodservice customers in Robinson Fresh and higher European truckload volume in our Other Surface Transportation business.

Gross profits and adjusted gross profits. Robinson Fresh adjusted gross profits increased driven by integrated supply chain solutions for foodservice customers in addition to increased case volume with retail customers. Managed Services adjusted gross profits increased due to growth with existing and new customers. Other Surface Transportation adjusted gross profits increased primarily due to an increase in European LTL adjusted gross profits.

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 $174.7 million as of September 30, 2023, and $217.5 million as of December 31, 2022. Cash and cash equivalents held outside the United States totaled $170.0 million as of September 30, 2023, and $204.7 million as of December 31, 2022. We had $2.5 million of cash and cash equivalents classified as held for sale assets included in other assets in our condensed consolidated balance sheet as of September 30, 2023.

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 decreased in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, due to a decline in our net income in the nine months ended September 30, 2023. This decline was partially offset by a decrease in net operating working capital driven by declining freight rates, most notably in our ocean and truckload services in addition to volume declines in most of our transportation service lines as discussed in the market trends and business trends sections. We continue to closely monitor credit and collections activities and the quality of our accounts receivable balance to minimize risk as well as work 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 develop and deliver scalable solutions by transforming our processes, accelerate the pace of development and prioritizing data integrity, improve our customer and carrier experience, and increase efficiency to help expand our adjusted operating margins and grow the business.

During the nine months ended September 30, 2022, 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 nine months ended September 30, 2022. We simultaneously entered into an agreement to lease the office building for 10 years.

Cash used for financing activities. Net payments on debt in the nine months ended September 30, 2023, were to reduce the current portion of our debt outstanding. Net borrowings in the nine months ended September 30, 2022, were primarily to fund share repurchases and working capital needs. The decrease in cash used for share repurchases was due to a decrease in the number of shares repurchased during the nine months ended September 30, 2023. 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. Our Receivables Securitization Facility has a maturity date remaining in 2023. To the extent we reduce our outstanding debt on this facility or our other debt facilities, it may reduce the number of shares we repurchase in 2023. 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 September 30, 2023, we were in compliance with all of the covenants under our debt agreements.

Recently Issued Accounting Pronouncements

Refer to Note 1, Basis of Presentation, contained in this Quarterly Report and in the company's 2022 Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to the company's 2022 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates. As of September 30, 2023, there were no material changes to our critical accounting policies and estimates.

Refer to the company’s 2022 Annual Report on Form 10-K for a discussion on the company’s market risk. As of September 30, 2023, there were no material changes in market risk from those disclosed in the company’s 2022 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 September 30, 2023. 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 September 30, 2023.

(b) Changes in internal control 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 September 30, 2023, 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, including certain contingent auto liability cases. 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, 2022, which could materially affect our business, financial condition, or future results. Except for the updates to the risk factors set forth below, there have not been material changes in our risk factors set forth in the company’s 2022 Annual Report on Form 10-K. 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.

We concluded our search for a new Chief Executive Officer with the appointment of David Bozeman as our President and Chief Executive Officer and a director, effective June 26, 2023.

We use, and may continue to expand our use of, machine learning and artificial intelligence (AI) technologies to deliver our services and operate our business. If we fail to successfully integrate AI into our platform and business processes, or if we fail to keep pace with rapidly evolving AI technological developments, including attracting and retaining talented AI developers and programmers, we may face a competitive disadvantage. At the same time, the use or offering of AI technologies may result in new or expanded risks and liabilities, including enhanced government or regulatory scrutiny, litigation, compliance issues, ethical concerns, confidentiality, reputational harm and security risks. It is not possible to predict all of the risks related to the use of AI and changes in laws, rules, directives, and regulations governing the use of AI may adversely affect our ability to develop and use AI or subject us to legal liability. The cost of complying with laws and regulations governing AI could be significant and would increase our operating expenses, which could adversely affect our business, financial condition and results of operations. Further, market demand and acceptance of AI technologies are uncertain, and we may be unsuccessful in efforts to further incorporate AI into our processes.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table provides information about company purchases of common stock during the quarter ended September 30, 2023:

(1) The total number of shares purchased based on trade date includes: (i) zero shares of common stock purchased under the authorization described below; and (ii) 20,270 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 September 30, 2023, there were 6,763,445 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.

During the three months ended September 30, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

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

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 November 3, 2023.