C. H. Robinson Worldwide 10-Q 2024-03-31

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 March 31, 2024

☐ 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 May 1, 2024, the number of shares outstanding of the registrant’s Common Stock, par value $0.10 per share, was 117,094,728.

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 represent our expectations, beliefs, intentions, or strategies concerning future events. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience or our present expectations, including, but not limited to, factors such as 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 that could adversely impact our profitability; freight levels and increasing costs and availability of truck capacity or alternative means of transporting freight; risks associated with seasonal changes or significant disruptions in the transportation industry; risks associated with identifying and completing suitable acquisitions; our dependence upon and changes in relationships with existing contracted truck, rail, ocean, and air carriers; risks associated with the loss of significant customers; risks associated with reliance on technology to operate our business; cyber-security related risks; our ability to staff and retain employees; risks associated with operations outside of the U.S.; our ability to successfully integrate the operations of acquired companies with our historic operations; climate change related risks; risks associated with our indebtedness; risks associated with interest rates; risks associated with litigation, including contingent auto liability and insurance coverage; risks associated with the potential impact of changes in government regulations including environmental-related 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 changes in political and governmental conditions; changes to our capital structure; changes due to catastrophic events; risks associated with the usage of artificial intelligence technologies; 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, 2023, filed with the Securities and Exchange Commission on February 16, 2024, 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

The North America surface transportation market continues to gradually move toward a balance of carrier supply and shipper demand. Despite modest decreases in carrier counts, there remains an excess of carrier capacity, leading to continued soft market conditions. The elevated capacity levels that entered the market in the latter half of 2020 and throughout 2021, driven by historically high demand during the COVID-19 pandemic, have contracted more slowly than typical capacity reductions at this stage of recent market cycles. In the current state of the market, subtle volume increases—whether due to seasonality or improving demand—would likely be absorbed by available capacity, resulting in a continuation of soft market conditions in the near term. 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 first quarter of 2024 remained low at 1.2, essentially in-line with the average routing guide depth experienced throughout 2023. The average routing guide depth in the first quarter of 2024 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.

In the first quarter of 2024, the global forwarding market faced significant disruptions limiting the availability of several of the world’s most significant waterways. These disruptions have resulted in increased re-routing and degrading schedule reliability for ocean shipments. Ocean vessel capacity continues to expand although the challenges presented by these global disruptions have mitigated the impact on ocean freight pricing. The ongoing global disruptions, coupled with emerging geopolitical conflicts and potential shifts in consumer demand, will likely continue to impact ocean freight pricing in the near term. The challenges facing the ocean freight market are leading to increased ocean freight conversions, which alongside elevated e-commerce demand out of North Asia, have led to sharp increases in the cost of air freight in certain trade lanes.

BUSINESS TRENDS

Our first quarter of 2024 surface transportation results were significantly impacted by the prevailing soft market conditions discussed in the market trends section. These conditions led to most shipments moving under committed pricing agreements and suppressed freight rates for the limited number of shipments reaching the spot market. Consequentially, our surface transportation total revenues and adjusted gross profits decreased in the first quarter of 2024 compared to the same period in 2023. Industry freight volumes decreased in the first quarter of 2024 compared to the same period of 2023. Despite these challenging market conditions, our combined North American Surface Transportation (“NAST”) truckload and less than truckload (“LTL”) volumes increased by 1.5 percent during the first quarter of 2024 compared to the first quarter of 2023. In addition, our combined NAST truckload and LTL volumes along with our adjusted gross profits per transaction showed sequential improvement each month within the first quarter of 2024, driven by our improved execution and pricing discipline within our portfolio. Our average truckload linehaul cost per mile and linehaul rate charged to our customers, excluding fuel surcharges, both decreased approximately 7.5 percent during the first quarter of 2024.

Our first quarter of 2024 global forwarding results were significantly impacted by the global disruptions discussed in the market trends section. Specifically, we experienced a 23.0 percent increase in air freight tonnage, driven by ocean freight conversions in many trade lanes. These ocean freight conversions were driven by the disruptions affecting the market, which coupled with increased e-commerce demand out of North Asia, held the cost of air freight at elevated levels and led to lower adjusted gross profit per metric ton. Despite the challenges posed by market disruptions, our ocean volumes increased 7.0 percent as the prior year period was significantly impacted by elevated inventory levels and weak consumer demand.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select first quarter 2024 year-over-year operating comparisons to the first quarter 2023:

• Total revenues decreased 4.3 percent to $4.4 billion, primarily driven by lower pricing in our truckload services, partially offset by higher pricing and increased volume in our ocean services.

• Gross profits decreased 4.5 percent to $647.5 million. Adjusted gross profits decreased 4.1 percent to $657.7 million, primarily driven by lower adjusted gross profit per transaction in truckload.

• Personnel expenses decreased 1.0 percent to $379.1 million, primarily due to cost optimization efforts and lower average employee headcount, which decreased 11.3 percent, partially offset by higher restructuring charges related to workforce reductions.

• Other selling, general, and administrative (“SG&A”) expenses increased 7.1 percent to $151.5 million, primarily due to favorable credit losses in the prior year and restructuring charges in the current year related to impairment of internally developed software.

• Income from operations decreased 21.1 percent to $127.1 million, due to decreased adjusted gross profits.

• Adjusted operating margin of 19.3 percent declined 420 basis points.

• Interest and other income/expense, net totaled $16.8 million of expense, consisting primarily of $22.1 million of interest expense, which decreased $1.5 million compared to last year, due to a lower average debt balance, and a $3.9 million net gain from foreign currency revaluation and realized foreign currency gains and losses, compared to a $9.6 million net loss in the prior year.

• The effective tax rate in the quarter was 15.8 percent compared to 13.5 percent in the first quarter last year.

• Net income totaled $92.9 million, a decrease of 19.1 percent from a year ago.

• Diluted earnings per share (EPS) decreased 18.8 percent to $0.78.

• Cash flow from operations decreased $287.9 million in the three months ended March 31, 2024, primarily driven by an increase 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 March 31, 2024, Compared to the Three Months Ended March 31, 2023

Total revenues and direct costs. Total transportation revenues and direct costs decreased primarily due to reduced pricing and lower purchased transportation costs in truckload services. This decline was partially offset by increased volume and higher pricing and purchased transportation costs in ocean services compared to the previous year. The soft market conditions, characterized by weak demand and excess carrier capacity, continue to suppress freight rates in the surface transportation market as discussed in the market and business trends section above. Conversely, the global forwarding market has shown improvement from the weak consumer demand experienced in the prior year, resulting in increased ocean volumes. In addition, the disruptions facing the global forwarding market have led to elevated pricing and purchased transportation costs compared to the prior year. Our sourcing total revenue and direct costs increased, driven by higher average pricing with retail customers and increased case volume with foodservice customers.

Gross profits and adjusted gross profits. Our transportation adjusted gross profits decreased driven by lower adjusted gross profits per transaction and a slight volume decline in truckload services, and to a lesser extent lower adjusted gross profits in other logistic services. The lower adjusted gross profit per transaction in truckload services was driven by the weak demand and excess capacity in the surface transportation market discussed in the market trends and business trends sections above, which have continued to suppress freight rates in the first quarter of 2024. Despite the challenging market conditions, our combined NAST truckload and LTL volumes, along with our adjusted gross profits per transaction, showed sequential improvement each month within the first quarter of 2024, driven by improved execution and pricing discipline within our portfolio. Sourcing adjusted gross profits increased, driven by integrated supply chain solutions for retail customers.

Operating expenses. Personnel expenses decreased primarily driven by cost optimization efforts, including lower average employee headcount. These reductions were partially offset by an increase in stock-based compensation expense as the prior year period included an accrual reversal related to certain performance-based awards. Other SG&A expenses increased primarily due to higher credit losses. This increase was driven by a decrease in the allowance for credit losses in the prior year period.

In addition to the above, our personnel expenses for 2024 included $7.9 million of severance and related personnel expenses. We also incurred a $5.0 million impairment loss in other SG&A expenses primarily related to capitalized internally developed software. These expenses were both associated with our 2024 Restructuring Program. Our personnel expenses for 2023 included $3.6 million of severance and related personnel expenses associated with our 2022 Restructuring Program. Refer to Note 13, Restructuring, for further discussion related to our 2024 and 2022 Restructuring Programs.

Interest and other income/expense, net. Interest and other income/expense, net primarily consisted of interest expense of $22.1 million. Interest expense decreased $1.5 million during the first quarter of 2024, due to a lower average debt balance. The current year included a $3.9 million net gain from foreign currency revaluation and realized foreign currency gains and losses, compared to a $9.6 million net loss in the prior year.

Provision for income taxes. Our effective income tax rate was 15.8 percent for the first quarter of 2024 compared to 13.5 percent for the first quarter of 2023. The effective income tax rate for the first quarter of 2024 was lower than the statutory federal income tax rate primarily due to the tax impact of U.S. tax credits and incentives, which reduced the effective tax rate by 7.8 percentage points. These impacts were partially offset by a higher tax rate on state income taxes, net of federal benefit, which increased the effective income tax rate by 2.8 percentage points during the first quarter of 2024. The effective income tax rate for the first quarter of 2023 was lower than the statutory federal income tax rate primarily due to the tax benefits of share-based payment awards, which reduced the effective tax rate by 5.6 percentage points, and U.S. tax credits and incentives, which decreased the effective income tax rate by 3.8 percentage points. These impacts were partially offset by a higher tax rate on state income taxes, net of federal benefit, which increased the effective income tax rate by 2.3 percentage points during the first quarter of 2023.

NAST Segment Results of Operations

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

Three Months Ended March 31, 2024, Compared to the Three Months Ended March 31, 2023

Total revenues and direct costs. NAST total revenues and direct costs decreased primarily due to reduced pricing and lower purchased transportation costs in truckload services. The soft market conditions, characterized by weak demand and excess carrier capacity, continue to suppress freight rates in the surface transportation market as discussed in the market and business trends section above. Partially offsetting the decline was an increase of 1.5 percent in combined NAST truckload and LTL volumes.

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 first quarter of 2024. Our average truckload per mile linehaul cost and linehaul rate charged to customers, which excludes fuel surcharges, both decreased approximately 7.5 percent in the first quarter of 2024 compared to the first quarter of 2023. Despite the challenging market conditions our combined NAST truckload and LTL volumes, along with our adjusted gross profits per transaction, showed sequential improvement each month within the first quarter of 2024, driven by improved execution and pricing discipline within our portfolio. NAST other adjusted gross profits decreased, primarily driven by a decline in intermodal adjusted gross profits per transaction and decreased intermodal and warehousing adjusted gross profits. These decreases were partially offset by an increase in LTL volumes.

Operating expenses. NAST personnel expenses were essentially flat compared to the prior year. Cost optimization efforts, including lower average headcount in addition to lower commission expenses, were mostly offset by an increase in stock-based compensation expense. The prior year period included an accrual reversal related to certain performance-based awards. NAST other SG&A expenses decreased primarily due to lower allocated corporate expenses, which were partially offset by a benefit in the prior year from lower credit losses.

In addition to the above, NAST personnel expenses for 2024 included $3.0 million of severance and related personnel expenses. We also incurred a $1.9 million impairment loss in other SG&A expenses related to capitalized internally developed software. These expenses were both associated with our 2024 Restructuring Program. Refer to Note 13, Restructuring, for further discussion related to our 2024 Restructuring Program.

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.

Global Forwarding Segment Results of Operations

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

Three Months Ended March 31, 2024, Compared to the Three Months Ended March 31, 2023

Total revenues and direct costs. Global Forwarding total revenues and direct costs increased driven by increased volume and higher pricing and purchased transportation costs in ocean services compared to the previous year. The global forwarding market has shown improvement from the weak consumer demand experienced in the prior year. In addition, the disruptions facing the global forwarding market have resulted in an increase in air freight tonnage, driven by ocean freight conversions in many trade lanes. These ocean freight conversions coupled with increased e-commerce demand out of North Asia have led to sharp increases to the cost of air freight in certain trade lanes compared to the prior year.

Gross profits and adjusted gross profits. Global Forwarding adjusted gross profits increased driven by increased volume in ocean services, partially offset by lower adjusted gross profits per shipment in ocean services. Air freight adjusted gross profits decreased slightly as a significant increase in metric tons shipped was more than offset by lower adjusted gross profits per metric ton shipped. The lower adjusted gross profit per metric ton shipped was driven by the elevated cost of air freight due to disruptions facing the market as discussed in the market trends and business trends sections above. Customs adjusted gross profits increased driven by an increase in transaction volumes and higher adjusted gross profits per shipment.

Operating expenses. Personnel expenses increased primarily due to increased variable compensation reflecting the improved results relative to the prior year. This increase was partially offset by cost optimization efforts, including lower average employee headcount. Other SG&A expenses decreased driven by the completion of amortization of intangible assets related to a previously completed acquisition and lower allocated corporate expenses.

In addition to the above, Global Forwarding personnel expenses for 2024 included $3.2 million of severance and related personnel expenses associated with our 2024 Restructuring Program. Personnel expenses for 2023 included $1.5 million of severance and related personnel expenses associated with our 2022 Restructuring Program. Refer to Note 13, Restructuring, for further discussion related to our 2024 and 2022 Restructuring Programs.

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 March 31, 2024, Compared to the Three Months Ended March 31, 2023

Total revenues and direct costs. Total revenues and direct costs increased driven by higher average pricing with retail customers and increased case volume with foodservice customers in our Robinson Fresh business. This increase was partially offset by a modest decline in our European truckload revenues within our Other Surface Transportation business.

Gross profits and adjusted gross profits. Robinson Fresh adjusted gross profits increased driven by a 1.5% increase in case volume and integrated supply chain solutions for retail customers. Managed Services adjusted gross profits were essentially flat with the prior year. Other Surface Transportation adjusted gross profits decreased primarily due to a decrease in adjusted gross profits per transaction in European truckload, partially offset by an increase in European truckload volumes.

Restructuring expenses. Personnel expenses in 2024 included $1.7 million of severance and related personnel expenses. We also incurred a $2.9 million impairment loss in other SG&A expenses related to capitalized internally developed software. These expenses were both associated with our 2024 Restructuring Program. Personnel expenses in 2023 included $1.2 million of severance and related personnel expenses associated with our 2022 Restructuring Program. Refer to Note 13, Restructuring, for further discussion related to our 2024 and 2022 Restructuring Programs.

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, share repurchases or other investments.

Cash and cash equivalents totaled $121.8 million as of March 31, 2024, and $145.5 million as of December 31, 2023. Cash and cash equivalents held outside the United States totaled $118.1 million as of March 31, 2024, and $142.8 million as of December 31, 2023.

We prioritize our investments to grow our market share and expand globally in key industries, trade lanes, and geographies, and to digitize our customer, carrier, and internal tools to support our organic growth. 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. Our operating cash flows benefited in the prior year from declining freight rates in ocean and truckload services, which resulted in a decrease in net operating working capital and drove strong operating cash flow. In the current year, freight rates in ocean services have increased resulting in an increase in net operating working capital driving a decline in operating cash flows in the three months ended March 31, 2024, compared to the three months ended March 31, 2023. 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.

Cash used for financing activities. Net borrowing on debt in the three months ended March 31, 2024 were to fund our working capital needs. Net repayments on debt in the three months ended March 31, 2023 were primarily to reduce the current portion of our debt outstanding. No shares were repurchased during the first quarter of 2024. 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 March 31, 2024, 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 2023 Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to the company's 2023 Annual Report on Form 10-K for a complete discussion regarding our critical accounting policies and estimates. As of March 31, 2024, there were no material changes to our critical accounting policies and estimates.

Refer to the company’s 2023 Annual Report on Form 10-K for a discussion on the company’s market risk. As of March 31, 2024, there were no material changes in market risk from those disclosed in the company’s 2023 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 March 31, 2024. 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 March 31, 2024.

(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 March 31, 2024, 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, 2023, which could materially affect our business, financial condition, or future results. There have not been material changes in our risk factors set forth in the company’s 2023 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.

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 March 31, 2024:

(1) The total number of shares purchased based on trade date includes: (i) no shares of common stock purchased under the authorization described below; and (ii) 212,545 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 March 31, 2024, 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 March 31, 2024, 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 May 3, 2024.