羅賓遜全球物流 (CHRW) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson first-quarter 2010 conference call. At this time all participants are in a listen-only mode. Following today's presentation instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, April 21, 2010. I would now like to turn the conference over to Angie Freeman, C.H. Robinson Vice President of Investor Relations. Please go ahead, Miss Freeman.

Thanks. On our call today will be John Wiehoff, CEO, and Chad Lindbloom, Senior Vice President and CFO. John and Chad will provide some prepared comments on the highlights of our first-quarter performance and we will follow that with a question-and-answer session.

I would like to remind you that comments made by John, Chad or others representing C.H. Robinson may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. With that I'll turn it over to John.

Thank you, Angie, and thanks for everybody who's taking the time to listen to our first-quarter call. I want to start by apologizing to anyone who we inconvenienced with our schedule change. We had an audit committee meeting yesterday, our review process was complete.

As most everyone knows, there's a lot of change going on in the marketplace and we have a lot of activities scheduled with customers, conferences for the next week. And we reached the conclusion that for a lot of reasons we'd be better off to share our results earlier and get them out to the marketplace since we were prepared to do that. So, we moved our call, and, again, I apologize if that schedule change inconvenienced anyone.

So, in terms of the first quarter, I'd like to start by highlighting just a few of the key financial results on the release. So for the first quarter ended March 31 of 2010 our total revenues increased 22.9% to $2.1 billion; our net revenues decreased 1.8% to $332.6 million; income from operations decreased 1% to $136 million; net income decreased 1.6% to $84 million; and fully diluted EPS was flat at $0.50 per share. In addition to these overall financial results, our press release gives more detailed growth percentages by our various service offerings.

In our year end 2009 conference call we discussed that 2010 was beginning with accelerating volume growth; however, year-over-year price declines and margin compression resulting in relatively flat net revenue for January. Through the remainder of the first quarter of 2010 we continued to see strong volume growth and the corresponding tightness of capacity in the transportation marketplace resulting in continued margin compression. As a result, for the first quarter of 2010, while we had a 23% increase in total revenues, our diluted EPS for the quarter was flat at $0.50.

Our transportation revenue increase of over 24% was primarily driven by transaction volume increases and services compared to last year. A year ago at this time the transportation industry was adjusting to unprecedented volume declines by the recession. Those volume declines resulted in overcapacity for all modes, a very soft market, and very significant bid activity driving prices down. One year later, today we are experiencing volume increases, capacity tightening in assessing what price adjustments might be necessary.

As we discussed every quarter last year and very often in the past, one primary component of our business model that's important to understand in assessing our results is the timing variances in transportation customer pricing and capacity procurement that can result in meaningful fluctuations to our gross margins, particularly in the truckload mode which is our dominant source of revenue.

Virtually all of our truckload capacity is sourced daily with prices that adjust daily or at least very quickly when market conditions change. Some of our customer pricing arrangements are also transactional and can adjust quickly, but major portions of our customer pricing are committed or contractual rates that have a longer-term or expectation to them and require a longer process to notify and adjust when market conditions change.

The gross margin fluctuations that result from our pricing practices are hard to predict based on market conditions that can change pretty fast and our decentralized approach to account management and pricing. A year ago, while we were coping with volume declines, we were able to benefit from lower truckload cost of capacity for several months while customer rates were gradually adjusting downward. We're now experiencing an increase in our truckload cost of capacity and it will take us a longer period of time to adjust customer pricing upward where appropriate.

This recession has caused volume changes the past year that were pretty extreme which has also generated margin fluctuations for our business that have been quite significant. Despite the magnitude of the fluctuations we're very comfortable at Robinson that the market is responding to demand and supply fluctuations very much like it always has with price and capacity adjustments.

We're very encouraged and positive about our volume growth in transportation and the strength of our relationships and our ability to provide value. While many of the metric -- we have a lot of different metrics that we measure our success, but shipment volume, market share and our scope and strength of customer relationships have always been some of those critical metrics that we look at to gauge our long-term success. We felt pretty good about those metrics in the first quarter of 2010.

Gross margin fluctuations are a part of our business model that we believe we are very capable of managing, but they're difficult to predict and they can have a significant impact on our results in the short term.

Our sourcing business revenues grew 17.7% in the first quarter from both the acquisition of Rosemont Farms as well as organic volume growth. Our sourcing gross margins compressed compared to a year ago as well due to a variety of factors including commodity mix and customer price reductions.

Our information services business, where our primary source of revenue is driven by refueling transactions, showed nice growth as this portion of our business is fee-based in net revenue growth will correspond more immediately with the volume increases in the marketplace.

With regards to our operating expenses for the first quarter of 2010 I'd share the following remarks -- our employee count is roughly flat from the beginning of this year; our variable performance-based pay system helps drive our variable cost model and resulted in personnel costs being down 4.2% compared to the first quarter of last year.

The increase in volume and activity during the first quarter of this year did result in significant improvement in many of our productivity metrics. We're very focused on further productivity gains through automation and process improvement within all of our teams and believe that we can continue to drive further improvements. We've also remained active in hiring and training a level of new employees for turnover replacement and we do feel confident that we can accelerate hiring activity if continued volume growth warrants it.

Transitioning to some thoughts looking forward to the remainder of 2010 -- first, as we shared in our press release, our net revenue activity for the first three weeks of April is approximating that of our first-quarter results. The trends of volume increases in transportation offset by significant gross margin compression have continued.

We believe our decentralized branch network is a strength in making the correct long-term relationship decisions with regards to price and service specific to each account and circumstance around service and commitment. The decentralized approach also makes it more difficult to predict or quantify when and how price adjustments will occur.

Our network is focused on providing service, growing, building relationships and adjusting prices where appropriate to move with the market. We've been adjusting rates in some lanes with some accounts; however, we do believe at this point the truck market continues to tighten and the cost of capacity is continuing to increase as well. Accordingly, it's too soon to know what if any impact price adjustments will have on our gross margins for the second quarter or the remainder of the year.

We know that from the standpoint of historic gross margin rages we have a few more quarters of challenging comparisons to live through; our margins have always fluctuated and will continue to in the future. Our business processes for working through these market cycles have worked for decades and we feel very confident our approach in the marketplace is very solid now.

We are growing volume in our service offerings; we believe we are continuing to take market share. While our margins are less than a year ago, we remain very profitable and believe we are building sustainable relationships. We feel good about our team and continuing our long-term success. Those are by prepared comments and with that I will turn it over to Chad for a few prepared comments.

Thanks, John. I'm going to give some comments on our balance sheet and cash flow statement. Our balance sheet remains strong with cash and investments of approximately $282 million. Our investment in working capital increased, as is normal in times of increasing volumes. Our accounts receivable is up $119 million during the quarter offset partially by an increase in accounts payable of $37 million.

We continue to feel good about the quality of our accounts receivable portfolio and our aging looks as good as it ever has. During the first quarter of this year our total provision for doubtful accounts was $2.6 million compared to $3.9 million last year. We have discussed in the past our strategy of remaining or maintaining a strong cash position to fund working capital fluctuations and provide flexibility.

In addition to our increased investment in receivables we paid approximately $90 million of 2009 accrued compensation during the fourth quarter; we paid $42 million -- a $42 million dividend and repurchased 1,250,500 shares at an average price of $54.54. Our capital strategy has remained consistent. That concludes our prepared remarks and we will now open it up for questions.

(Operator Instructions). Jon Langenfeld, Robert W. Baird.

Good morning. On the productivity side how are you managing the volume of transactions with I guess 4%, 5% fewer average employees in the quarter? And we think of that average employee count, is that primarily in the transportation side or would that be across the board?

It is primarily in transportation and I guess the historical reference on that is -- so if you go back a year ago -- a year ago in the first quarter, we started 2009 with 8% more employees than we had in the beginning of the previous year and our volumes were down double-digits. So, while we made some adjustments to our network last year, we were very conscious that we were not adjusting the network all the way down to where we thought would be kind of longer term productivity metrics.

So we, I guess in manufacturing terms, carried some excess capacity throughout the year last year to make sure that we were ready to respond to whatever kind of changes happened in the last half of 2009 and going forward. So, what we've seen tail end of 2009 and first quarter of this year is volume increases that have taken most of our productivity metrics back up to where we'd like to see them.

So it feels a little bit like we're maybe approaching a crossroads now, where if we do see continued volume growth sequentially, that we're going to start to have more and more pressure to add resources to respond to that.

Okay, good context. And then separately, you have a large customer that's moving more towards controlling a larger portion of its own freight versus having the vendor control it. How does that play out for you guys? Do you see that more as an opportunity? Is that more of a risk? And how do you manage that relationship?

From a transportation standpoint with the customer I believe you're referring to we would see it as an opportunity. So, I guess in any relationship assessment like that, if you have a lot of current freight with them you have the risk of losing it versus the trade-off of gaining new opportunities.

With most of the very largest retailers we do not have a very direct transportation presence outside of the produce or perishable area. So a lot of the bid activity and supply-chain activity that we're aware of today is more focused on dry transportation and other areas where we haven't been as large of a player. So for the most part we're seeing transportation opportunities.

We have discussed in the past within the sourcing world several of the larger retailers continue to look at their supply chain and are making different procurement decisions and things where we have a little bit more at risk in terms of losing opportunities to source or provide transportation within the produce or perishable area.

Okay, great. Thank you.

Matt Troy, Citigroup.

Yes, thanks, John, Chad. I'm just wondering, can you refresh our memory? There seems to be a now near consensus euphoria almost on the truckload side that there is a capacity crunch, and you can certainly see that reflected in the TL stocks and multiples. Understanding you guys lag a bit on the two- to three-quarter basis just because of that net margin compression, but shouldn't a capacity crunch [shoot] sooner ultimately help you guys stabilize margins? If there would be a failure in the supply chain you'd be able to pass on pricing increases more easily?

It's a good question and we've had a lot of discussions here over the last couple of quarters about going through this part of the cycle and exactly how and when to reprice and what type of a scenario is easier or harder. Part of what makes answering that question difficult for us is that decentralized approach that we have towards pricing and account management.

So we look at it and say, hey, there are literally thousands of different commitments out there, service commitments, promises, where we're doing different things. So it's hard to aggregate all of those unique relationships into exactly what sort of market conditions are going to provoke the quicker repricing.

Another thing that we've talked a lot about is just the fact that given the severity of the recession and the cost cutting and so much pressure that was on the industry side of it, it does feel like maybe the shipper community is just a little bit more stressed and petite and cost focused than maybe they would be during normal market fluctuations.

Other variables that we've discussed are the unique changes on the capacity side around regulations, trending regulations around CSA 2010 or any of those other things that might be causing the capacity side to think differently about how and when they're adding capacity.

So, theoretically in general, yes, if the market moves aggressively that would help everybody understand quicker that price adjustments are necessary. But each market cycle seems a little bit unique in terms of some of the dominating considerations that might cause every carrier or every shipper to interact a little bit differently. And we've got a pretty decentralized network with a lot of that going on.

Sure, sure, and there are nuances in every cycle. But the core understanding that supply-chain failure, the inability to get capacity ultimately is the hard stop which makes pricing easier to pass through?

Yes. Service failures that result from that which will trigger behaviors in peoples' -- yes, that's correct.

Got it, thanks. And the second question just for Chad, it's been a while but we've hit the reset button, we're in a new year. Could you just refresh us as we think about labor costs, personnel costs in the model, what the comp plan accrual might look like? Are they the same hurdle rates we've heard about in the past that was aligning with the long-term growth objectives or any moving parts and pieces in that comp line outside of headcount we should be wary of as we anniversary a very tough year in the model?

Right. If you're talking about the comp formulas tied to long-term 15% growth, I think you're referring to our equity program.

Yes.

More specifically our performance-based restricted stock.

Yes.

The formulas have not changed, so it's still the number of shares that are available to vest times the growth percentage plus 5% in a simplified way. There are many other cash programs that -- there are some that are just based on an earnings level and there are also some that are based on incremental growth in earnings above expectations at the branch level.

So, some of those could -- both the restricted stock as well as some of those other cash growth programs could cut -- if our growth went -- accelerated that could be a slight drag on personnel as a percent of net revenue. But we believe that would be a good problem to have.

Right. So unlike the asset-based transports who are seeing some of that kick in, for you guys it would require more growth which isn't a bad problem to have later in the year.

Right. So our percent of net revenue might go up slightly a percent or two, but again the earnings -- absolute earnings level should be growing even faster than that. So I hope we have that problem.

Great, thank you for the time.

Scott Flower, Macquarie Securities.

Yes, good morning, all. Just a couple of questions. One, I know that obviously things are different every cycle and you don't necessarily manage to a net revenue number. But when I look at your net revenue margins on a sequential basis, I guess I was surprised to see actually a decline. I don't think I've ever seen that happen. Is that perhaps speaking to a different kind of marketplace than what you've seen traditionally? Obviously you'll manage it, but I'm just trying to get a sense of how I should think about that.

Are you saying you don't think you've ever seen a decline from a fourth quarter to a first quarter, is that what you mean?

Yes, that's correct.

I can't -- I don't have a lot of first quarters in front of me so I can't say whether it is the first time or not. But one of the dynamics we've been talking about throughout the second half of last year was our pricing to our customers was relatively flat sequentially, but we were starting to see some pricing increases or cost increases to the carriers. Now all those rates are excluding the estimated impacts of fuel.

What we experienced in the first quarter is again relatively flat pricing to our customers sequentially and continued increases from the carriers sequentially. So I think although it is -- I can't tell you it's the first time, but it is kind of unusual for our transportation margins to be lower in the first quarter than the fourth because the first quarter tends to be the loosest. I think it has more to do this time with where we are in the cycle in the increasing demand relative to supply versus that overweighed the seasonal impacts that we usually see.

Got you. And then the second question, and it's kind of related, is obviously the large public carriers have talked about their newfound discipline on the TL side about reducing capacity, etc., and obviously they've had a pretty significant drop in their [seeded] tractors. Are you seeing any differences in the more fragmented smaller mom-and-pop end, or the smaller carriers that do make a large part of your carrier base? Is there any difference in how they've behaved in this market versus the larger TL carriers?

I would say not one specific thing that we could point out, it's a lot of players, it tens of thousands of players. But in general we've gone through quite a long period of time now where there's been this gradual reduction of capacity that's come out of the marketplace.

And I think the good questions that have been asked, and that we've been asking ourselves and struggling with, is when you look at the supply and demand fluctuations it feels like over the last four or five years, for a laundry list of reasons, the capacity side, not just the big ones but all of them, have maybe been a little bit more hesitant to add capacity.

Or that all of the elements that it takes to add capacity, like insurance and financing and the hours, regulatory restrictions and all of that, that maybe capacity doesn't flow into the market in any size carrier quite as easily as it used to. But again, that's just sort of a general industry discussion caution, it's really hard to evaluate the 80,000 to 100,000 medium/small carriers out there and understand whether they as a group are behaving the same or not.

Great, well, thank you all very much.

Alex Brand, Stephens Inc.

Hey, good morning, guys.

Good morning.

Let's see, can you talk -- let's see, Chad, you usually give us weight per shipment changes in LTL, and can you just talk maybe about TL and LTL volume trends by month in the quarter as well?

Okay, on the TL volume trends on a growth perspective, they increase sequentially when you look at the absolute numbers. But from a growth perspective compared to last year, the growth rate was relatively consistent throughout the quarter. When you look at LTL weight per shipment, it's down 4% compared to last year's, but remember, last year was also down, if I remember right, right around 10% per shipment.

So, the rate of decline has slowed in the weight per LTL shipment. Some of that -- you know, when it's only 4% maybe some of it's due to the customer mix in addition to just the -- when it was 10% we were pretty comfortable that like shipments were down on a weight per shipment.

With respect to pricing or passing through carrier pricing, is there a significant difference in what you're seeing in TL versus LTL at this point?

TL on the buy side is much less transactional. Almost all of our LTL are bought under a contract or we have committed rates from the carriers. So they give us a notice when they're going to change prices, which gives us time to give notice to the customer as well and it tends to be easier to adjust the prices because when LTL carriers, being that the capacity is so concentrated relative to truckload, it's a known event when LTL rates are going up.

Okay, and can you -- it sounds like you're not yet at the point where you guys feel like you can push price with the shippers and maybe that's to come sometime in the next few months. Is there a decision you could make or you would be willing to make at some point that you need to get price and you're willing to push that a little bit harder even if you have to give up some volume?

Well, again to kind of a repeat of some of the things that I started to touch on in the prepared comments, we are adjusting pricing up. So, we have reached that point where there are lanes, there are accounts that have we reached that tipping point. And we have in the March/April timeframe seen in aggregate some slight increases in the pricing.

So remember, we have this decentralized network with all these decisions happening across hundreds of locations and we're sitting here analyzing the collective behavior of our network and trying to share what we see and what makes sense based on the marketplace. So we are starting to see customer pricing moving up; however, carrier pricing is moving up as well too.

So, when the market starts to turn like this, we not only need to raise customer prices, we need to raise them at the same rate as carrier pricing or a [faster] rate in order to improve margins if we want to go there. So it has started to turn, but I guess one of the -- the overarching thing that domestics that we're trying to share is in the last couple of months we've seen the truckload market tighten pretty aggressively. So, it's starting to happen but it takes time.

Great. Good color. Thanks for the time.

Chris Ceraso, Credit Suisse.

Thanks, good morning. I've got a couple of questions also on the carrier base and maybe you can give us some ballpark numbers. I mean, you've got a large base of carriers, in many cases you're a short-term lender. Do you have a feel for how many of these carriers you would consider to be distressed from a credit perspective? And what have the trends been in that regard?

We are not a short-term lender to carriers, just to clarify that. We do have quick pay programs, but when we do issue a quick pay they've already delivered the goods. We do advance money to carriers en route, but again we've confirmed that they've picked up the freight and that as a standard we'll only give them half of what we owe them for that shipment while they're en route. So we never feel like in our core C.H. Robinson business that we are a lender to the carrier.

One exception to that is we do within T-Chek extend terms sometimes up to a week for fuel purchases of those carriers. But again, that's more of a trade payable than a lender.

And with regards to the kind of overall health of the carrier community, a lot of the economics for the medium and small carriers kind of come down. When you see a very soft market like last year and utilization deteriorates, in that medium/small, especially owner/operator world, what that translates into is direct lower wages for them to take home after they've made their equipment payments and paid for fuel.

So, while there has been a lot of turnover and capacity reduction over the past, when the market starts to tighten like this as a broad statement I would say that that's going to drive much more effective utilization for everybody in the market and should start to improve the net take-home pay of the wages for the medium and small carriers and improve their financial health going forward in this type of a market.

I think the key thing is all those variables that I rattled off before of what will it take to create extra capacity? What will it cost to get more trucks and more drivers into the market? But the actual financial health of those existing carriers we would think in general would be starting to improve in this part of the cycle.

Okay. And then maybe a similar question more about the equipment. Are there any carriers that you've had to stop using because maybe they haven't replaced their equipment in a long enough time and it's starting to hurt their reliability?

You know, we have scorecards and metrics that we manage our carrier performance. But it wouldn't be isolated to specific equipment issues. I mean if they have a service failure with us it's more generally a service failure that maybe they didn't show up for whatever variety of reasons.

So we would isolate that variable in terms of why we might be scaling back with a carrier. So I couldn't help you specifically with that. But it is -- we're constantly moving more or less freight to all of the 50,000 carriers that we deal with, but we wouldn't isolate that equipment variable.

Okay, so big picture, you don't see any overarching trends on either of those fronts that suggest there's a reduction in the number of carriers that you can use?

No, like I said earlier, I think the general conversation topics that we've had internally and in the industry is that if you look at all of the components that are required to add capacity for any size carrier, that it appears compared to five or 10 years ago when you're talking about OEM status, financing, regulatory rules around emissions or hours of service, getting insurance for a new driver, getting a driver given driver demographics that perhaps it's going to be more challenging to add capacity going forward than it has been in the past. But again, the carrier community would probably have a greater insight to that than we would.

Okay, thank you very much.

Tom Wadewitz, JPMorgan.

Yes, good morning. I wanted to ask you some comments on the language you had in your press release about April and I think you kind of repeated the comments on April. You said I think flat net revenue in the first couple weeks. Is that -- and similar trends. Does that imply that as you look at second quarter you think that second-quarter net revenue would be flat versus first? That would be I guess pretty unusual seasonally.

Or are you more trying to say that hey, we're still going to have strong volumes and gross margin pressures? So kind of the broader factors are similar, but you would still expect some normal seasonality in terms of second quarter being a bit stronger than first?

Right. What we meant was -- and I hope we said this -- is in the first quarter our total revenues were down 1.8% compared to last year's first quarter. We think the growth or decline through the first few weeks of April is the same. So when we look at the first few weeks of last year's April, the first few weeks of this year's April, net revenues are down about the same on a growth percentage basis as they were for the first quarter. We're not trying to say that April looks exactly like the first quarter on a net revenue per business day basis.

Okay. It's more the year-over-year decline that looks similar?

Correct.

Okay, great, I appreciate that clarification. I know you've been asked a lot of questions about kind of how the market is moving here and so forth. But I wanted to ask you one in terms of timing of bids on your contract side.

So you're kind of 50-50 in terms of on the customer side spot and contract. Do you have more of your contract business coming up this time of year where in second quarter you could see those rates move up just as a function of the timing of the contract repricing? Or are your contracts not really set up that way where you have more of the contracts repriced in the kind of April/May/June timeframe?

So it's a good question and our assessment of the marketplace and kind of the way we would describe how pricing works on the customer or shipper side is that most shippers reserve the privilege of doing a bid when they see it appropriate to do it. So some of them have a regular pattern where they will do an annual bid. However, most of them reserve the privilege of only bidding portions of their freight or portions where they would think it would be advantageous for them to test the market pricing or look for declines.

So, even with the larger customers who do bids, whether they do them regularly or under what sort of cycle that they do them, when the market is starting to move this way for all of the obvious reasons most of those customers would not be doing bids or they'd be putting a lot less of their activity in the bids.

So what that does is, both from a transactional or contracts will standpoint, during this part of the cycle it's incumbent on the provider to initiate the rate discussions. And sometimes there are 30-day notices. Sometimes providers will just start to decline freight, they'll let it show up in service deterioration, of load acceptance ratios or other things.

We tend to honor our commitments and perform under the contractual requirements and absorb any margin compression that goes with that until we have that open discussion about we can't perform at this level anymore, we either need to reprice or start moving the volume.

So there are unique dynamics, but we don't see any sort of regular predictable pattern towards bids that facilitate price increases or price adjustments from an upward standpoint. We have to decide tactically based on each relationship and what's going on in the marketplace when to initiate that.

You provided some comments about repricing of lanes in March and April that that was beginning to happen. So, I mean, do have a pretty good degree of conviction that your pricing is going to improve through the second quarter? I mean, I know it's relative to what you have to pay on the carrier side, but I mean, given the comments on March and April do you feel like you're building some momentum in terms of getting the contract pricing up in second quarter?

I would say based on March and April we are seeing small percentage increases and a growing conviction that price increases will happen and will stick. But as I said earlier, we're also seeing carrier prices continue to rise as well too. So the fact that prices are moving up does not necessarily translate into instant margin stabilization or improvement.

Right, right, okay. Great, thank you for the time.

John Barnes, RBC Capital Markets.

Hey, thanks. John, you talked about LTL pricing; most of your LTLs are under contract. Are you in a similar situation now with the LTL's having announced general rate increases kind of across-the-board? Are you seeing any increase in your LTL rates? I guess that goes along with what you were just talking about on you having to initiate the discussion with your customers, are the LTL's initiating the discussions with you now?

Yes, so it would be very similar to truckload in that it is a negotiation process both with our carrier base and with our customer base. I think the comment earlier was accurate that it's easier to initiate discussions or be certainly aware that they're necessary because of fewer larger LTL carriers and the visibility of the press releases and the notification of price increases. But that does not mean that we automatically get to pass them along to all of our customers.

And furthermore, a big part of the way -- one way that we add value in the LTL community is to be a single source provider with a more diverse carrier base for a lot of the shippers. So we might be using eight or 10 LTL providers and four or five of them will come out with a price increase, the percentages might vary and then we have to decide what's appropriate based on the blend of business.

Are there any routing changes that should occur and what, if any, aggregate price increases would we try to pass along to a customer. So the dynamics are a little bit different and they are moving up just like the truckload pieces. But again, it's a negotiation process that to us is very account specific and handled on a decentralized basis based on service requirements.

Okay, thank you. And then I know your network is fairly decentralized, you may not have a great numbers on this. But, can you give us any idea -- the volume improvements as the quarter progressed, can you point to the verticals in your business that you saw that were starting to see some pretty good improvement where the strength came from?

That's a good question. I don't know that we have that.

What are the volume --

By industry vertical.

By industry vertical? There's nothing noticeably different by industry vertical. We continue to analyze and look at our customer base as a whole or at least large customers and try to classify it. And it's more of a customer-by-customer story and more often has to do with our gains of market share or loss of market share with them than we can draw a pattern on industry verticals.

Okay, very good. And then, Chad, could you just remind us kind of what your goal is in terms of cash on the balance sheet and has that changed at all versus what you talked about in 2009?

Right. You know, I look back to see what I said about our goal and what I can find is sometimes I said $250 million to $350 million and sometimes I said $300 million to $400 million. So maybe if we're still within reason of either of those goals then we still believe that is our consistent goal.

And part of the reason why it dipped to the low end of the range or got out of the bottom end of the range is the volume growth, especially in March, was more significant than we predicted when we decided how many shares we were going to rebuy during the quarter.

So again, there is a slight variance that to bring it back up maybe we will slow down a little bit on the share repurchases to what we would have otherwise, but the first quarter we intentionally adjusted it down a little bit compared to what we were doing at the end of last year because we knew we were paying out the bonuses as well of $90 million. So it's a consistent strategy that we are continuing to maintain and feel good about where we ended up.

Okay, very good. Thanks for your time, guys.

Nate Brochmann, William Blair & Co.

Good morning, everyone. Hey, I wanted to talk a little bit -- we focused a lot on the contractual pricing, but wanted to talk a little bit more about the spot activity. Typically, we've always said in times of disruption that that is usually good for C.H. Robinson gaining a little bit of activity here and there. I wanted to see if that indeed is happening here and there in terms of the [lanes], and also then in terms of what you are seeing in terms of pricing on the spot side?

You know, the price increases that we are seeing across the network, it is not easy for us to split those between where there was an existing contract or not. Even with a lot of those transactional customers, there tends to be a history of pricing that is in place that when they call while there might not be a contractual promise to move it at that, there is an expectation in place as to what pricing in that lane has been for a while.

And as I kind of suggested earlier, even in the more transactional world, it is typically incumbent upon us to raise the discussion on whether a higher rate is appropriate. So that certainly would be the portion of the freight that starts to reprice faster and is being repriced in the March and April timeframe.

It is those longer-term contracts where many of those, we're just in early discussions. And if there is a price adjustment, there is generally an effective date at some point in the future which is another reason for the lag on customer pricing in all of the different parts of the cycle.

So a lot of the price adjustments that are coming in March and April would be on the portion of the continuum of relationships where pricing is a little bit more fluid and a less formal contract in terms of pricing notifications.

I would also say part of the volume growth we are experiencing, this isn't as much of a comment on pricing as it is volume, is because in general we believe and the data we have seen leads us to believe that shippers are going a little bit deeper in their route guide. So some of the freight growth we're experiencing might be where we are the second or third carrier in the route guide, so we weren't seeing that freight six months ago but we're starting to see it now.

That's a good color. And then second, in terms of the market share gain, and that's probably a little bit part of it, but just wanted to see if you could comment a little bit in terms of where you're seeing that the most? Is that within greater penetration of your top say 200 or 500 accounts? Or is it dipping down in some of the smaller medium-sized shippers?

It's pretty much across the board. There's definitely been a rebound in some of our larger customer accounts where their volumes were very compressed a year ago and that activity is back. But I know that we also added several thousand active customer IDs over the last couple of quarters. As well too, our network is out very aggressively looking for new opportunities and kind of growing across the continuum like we have in all parts of it.

So, when we look at industry growth, vertical growth, customer size, margins, all the rest of that, it does seem pretty spread across the customer base of all shapes and sizes and industries. There really isn't anything that jumps out at us in terms of specific verticals or growth opportunities that were disproportionate to everything else in the quarter.

Great, thank you very much.

Chris Wetherbee, FBR Capital Markets.

Great, thanks. I guess just if I could comment a bit more on the pricing side. When you think about the price you're paying on the spot side from truckload carriers, the sense kind of an order of magnitude at least sequentially what you're seeing there. Have we seen a step up on the April -- the first couple weeks of April or are we kind of is seeing the steady kind of year-over-year increases just continue where they are?

Based on the first few weeks of April, excluding our estimated impacts of the cost of fuel, sequentially the rate is up maybe -- it's somewhere between 1% and 2%, pretty close to 1.5%.

On a sequential basis?

On a sequential basis. I'm looking at April compared to March.

Okay.

March was up compared to February as well, so --.

Okay. And when you think about the order of magnitude of the price increases that you were starting to be able to affect with your customers in the March and April timeframe, does it seem like the match is there relative closely or is it going to start with a slower process on the front end and then accelerate over time as you're getting a little bit more traction with your customer base?

The customer, again April over March, is closer to 1%. So there is still in April -- I think we've alluded to this -- we are still experiencing margin contraction even though our prices to our customers have started to rebound.

Okay. That's helpful. And then just switching gears onto the headcount side for a second. Can you give us a sense of the -- through first few weeks of April and how you look at the volume outlook relative to your headcount and where you think you might need to go kind of going forward with overall headcount based on what we're seeing?

I would say that during the first quarter we were busy; we were able to meet all of our service requirements and do what we needed to do. But as I suggested earlier, while we've moved up within our kind of key productivity metrics and stuff, we feel like we can sustain this and that there are opportunities for further process improvements to the way we route freight to automate things, we've got a long list of initiatives that we would kind of target that.

We also do know that over time though that people are only capable of a certain level of activity in terms of selling, customer service, account management, covering loads, all the rest of that activity. So if sequentially our business activity continues to grow and pick up from the levels that they're at today we'll need more people.

So we have that hiring pipeline that's open at any point in time, we're hiring for replacements and there's some level of activity of turn in the network. And we're prepared to add whatever we need to on a net basis to make sure that we keep servicing our customers the right way.

Great, that's very helpful. And I guess just one final question just on free cash flow. From a working capital perspective clearly the volumes come back, you absorbed some of that, your accounts receivable will go up. Can you give us a sense of kind of how you think about that as you get into I guess more of a sustained growth type of environment and how you may be able to manage that down a little bit going forward?

Yes, I mean, our working capital, if you look at days of sales outstanding, it fluctuates a little bit and in times of extremely growth, especially when you're calculating based on the whole quarter sales, it looks like the DSO goes up maybe a little bit more than it does. So, when you do a quarterly calculation our DSOs are up a little bit compared to the end of the year. I think as the rate of increase normalizes more and the market stabilizes a little bit more, if that ever happens, I think that, yes, you'll see maybe working capital will stay up, but the (technical difficulty) working capital that's added might slow down.

Okay, great. Well, (technical difficulty).

(technical difficulty) about it.

Okay, thanks very much, that was very helpful.

Justin Yagerman, Deutsche Bank.

Hey, guys, how are you doing?

Good.

Just to clarify a point that you were making earlier. It sounded like you guys would add headcount if you need to given where your productivity is. Would you do that before net revenue stabilized?

It would depend upon -- net revenue is one key metric, but depending upon volume is a pretty important one as well too. If we're seeing lots of volume coming in (technical difficulty) lots of growth opportunities that we believe have good long-term sustainable opportunity to them but there are going to be tight margins in the beginning, we might add people a little bit ahead of the net revenue but not a lot and not for a long time.

Yes. And I guess when I think about -- I mean, we're now in the second quarter of net revenue decline in a row and it's pretty much the most I have in my model going back. When I look over history, probably don't have a public recession that was maybe as tough as this last one that we went through. When you guys think longer-term and go back through the history of the Company, what's the longest period of time that you guys have had net revenue decline on a quarterly basis even pre-public history?

I think there might have been one in 2001 or 2002 where we were down slightly. And besides that I, frankly at least on a yearly basis, am not aware of a year where net revenues declined.

Yes, and again, this is a completely different economic environment than we've ever experienced.

Yes, I know, absolutely. That was kind of why I was asking.

Yes, one of the beauties of the business model is although our earnings have been $0.50 for the last three first quarters, they may go down with the recession, which is one of the good things that we talked about last year and feel really good about the business model. And it has been a great test for the business model that our tops can also be variable on the downside.

Yes. No, absolutely. And I guess just a follow-up to that, I mean, as you're going through the quarter are you guys able to manage volume versus margin compression on a regular basis? How do you think about that as you have increasing volumes coming on and if you really felt like it was starting to get to the point where it was compressing margins too much? Could you turn it off mid-quarter if need be?

Again, like we've always said, those decisions are decentralized and are out in the branches. And I think it would happen naturally that if a branch -- if you look at one branch in isolation and they're already stretched they're probably going to price their business more aggressively.

So, hopefully what you would see is it would be higher profit business as they're taking people on, like John mentioned earlier. It might be a short term where they think the net revenue might not be as high as we want it. But if they believe in it long term they will make the right business decision is our belief.

Got it, okay. All right, that's helpful, guys. I appreciate the time.

Thank you.

Ken Hoexter, Merrill Lynch.

Great, good morning. John, just looking at the market, is there anything that's changed that you're back onto you 15% out of this downturn, do stick with that? Is there anything fundamentally that you see that's changed that would avoid that kind of long-term 15% growth rate?

No, in most quarters we've echoed that and I thought maybe everyone was getting tired of hearing it so I didn't put it on this one. But when we do our long-range planning and we look at the business model and third-party logistics and kind of what we think our long-term growth opportunity is, frankly, we feel very good about things and that we can sustain that.

It's really just the fact that this recession and this drop in volume that has impacted everybody, the impact to us from that gets spread over a longer period of time because of margin fluctuations. So, while we feel really good about the long-term we didn't want anybody to think that the impacts of the last year and a half are completely behind us yet.

The only reason I asked is because usually you're so forward about mentioning it, especially in this kind of market. In this kind of market is it -- obviously you've been very acquisitive in the same period, in 2001 you kind of took a step back during the downturn. Do you view this type of market to be more advantageous for taking some of that cash for acquisitions or is it a period where valuations or expectations are still too high relative to where business levels are?

Yes, we've talked about our acquisition strategy a lot internally and externally. And we really don't think short-term market fluctuations change our strategy at all, nor -- in the downturn when everybody said our company is cheap now, well the good companies aren't, they just don't put them up for sale. So, I don't think that we're going to be any more or less acquisitive just because of the market.

All right, thanks. And then just last one, kind of a small-business line item. But on the miscellaneous, if you look at it excluding the acquisitions it was up 20%. Is this because you're selling other products along with the truckload services or is it brokerage taking off? What's driving that -- that increase?

Management fees and others, which we used to call miscellaneous, is -- the primary driver of that excluding the acquisition is our transportation management services, which is all different modes. But we're managing people's route guides for them. (multiple speakers) our TMC division and other things in the past.

So, you've won the business, now you can -- can you choose to give yourself more of that revenue then, or is it they're already giving it to you to manage, so you're getting a management fee for that?

So part of our product offering in that is that we facilitate the route guide that the shipper designs. So it's 100% the shipper's decision as to who's going to get the freight, including the C.H. Robinson branch network. We believe that we have some good insight and some very efficient automated processes in terms of executing whatever strategy that shipper would decide on and we certainly consult with them to share what we see in the marketplace and how it would work.

But these are the fees associated with the automation and the management process to interact with the customer. Any revenue that would come from those management relationships in the form of traditional transportation services would show up in the other revenue categories based on whatever mode we executed for them.

So, we've talked about this in the past, compared to some other companies that say they're all automated, this is your ability to provide that similar service?

It's designed for a shipper who wants highly automated, very efficient route guide transportation management services without the capital expenditure or implementation risk. It's more of an SAS model of providing access to what we believe is a state of the arts transportation management system and technology, but having us execute it for them.

Right. We call it managed TMS. So, in addition to them getting the system we are providing the people that schedule the appointments as well. For anything that can't be automated whether it's communicating with a very small carrier, which is an unusual situation. But there are a lot of times when appointment setting can't be automated, we also provide the people to do the scheduling and other tasks like that.

Great, thanks for the time.

(multiple speakers) basically a SAS model plus the people to operate the software.

Scott Malat, Goldman Sachs.

Good morning, thanks. Maybe it's a little bit different than some of the resources questions, but it's very helpful how you think about bringing back resources. Can you help me think about addressing white space, maybe in areas or cities where you've not focused before? You say the short-term business environment doesn't change your longer-term strategy. I would think it makes sense to continue to open new branches, maybe think about the new branch strategy and it's maybe a good time to take share where you haven't before.

Yes, so we think about -- at least within North America, we think of attacking the market twofold. With the bigger national accounts we have a nationwide or a continental wide network that we can service as any kind of customer requirement with what we have today. But we also know that when we look at small shippers, local communities, local trucking companies, that when we open those offices we do gain greater relationship access and better insight into those markets.

When we were last year going through a period of time where we were rationalizing some resources and adjusting to a very difficult market, it makes it a little bit more problematic to free up some of our resources from the existing market to go on and pursue those small markets. But we have never moved away from our longer-term goal of continuing to open offices and feel like we can be very effective at pursuing those local markets.

So that is something that we would expect to resume in the future. It will be constantly reassessed based on balancing kind of the large account versus small account growth opportunities and where we think we can get the most effective return on the good people that we have that we would put into those roles. But it's part of our growth strategy that is still there.

It's more about balancing the small and large opportunity -- is there a way that you think the productivity of new branches? Or if the productivity of new branches is still very strong I would think that's sooner rather than later, like there would be no reason to slow it. Or do you think about -- is there a way to think about cannibalization if you open new branches and how much you'd be willing to take?

I think it is a lot about small versus big customers. Because obviously a newer office can only on their own handle a certain size account and they'll rely on the network. So, it is about greater geographic access to all the local shipping communities. I mean, there are traffic clubs and everything in most decent sized cities around the country that you can become a part of and kind of network differently.

You can build relationships and the local community with a lot of that. So, it is very much about the type of customer that we're going after when we do that. So, we do view it more as a resource allocation of where are the most lucrative opportunities and how are we going to spread our people around to help drive those decisions.

Okay, thanks.

Scott Group, Wolfe Trahan.

Good morning, guys. How are you doing? John, you talked about that the rates that you paid were up 3% year over year, but the rates you received from customers were down 3%. Can you break that out by month and maybe give similar numbers for April?

Month by month --.

Just trying to get a sense if that spread is tightening or widening as we went through the quarter and then into April.

Right. It was -- okay, I would -- it was tightening.

Okay. Do you have a sense on what that spread was in April or March?

Which -- you know, you're asking it slightly differently than we look at it.

Right. Would you have the numbers for in terms of April -- the rates you paid were up X% and the rates you received from customers were either down or up X%?

We gave it sequentially, I don't have it calculated in front of me compared to last year.

Okay. But less than a 6% difference -- percentage point difference between the two? Tightening, I mean that spread is tightening.

I guess I don't completely understand the way you're asking the question.

There was -- the rates that you paid were up 3% in the quarter, the rates you received were down 3%. So that's a 6 percentage point difference between the two?

Yes, but not exactly because you're talking about a rate and a cost that are 20% away from each other, 18% away from each other or whatever it is.

Right.

That's why I can't really answer your question. Because that has a big leverage affect on the difference.

Right, (inaudible). Okay, and you don't have the April year-over-year numbers? Do you have the March year-over-year numbers?

We're not disclosing (multiple speakers).

Okay, that's fair, okay. Okay. Can you just give some color in terms of during first quarter how much of your business you were able to reprice and maybe how much you think you can reprice in second quarter and then by the end of 2010?

What makes that difficult to answer is that there is this transactional component of the business where we have these long-term relationships, but which lanes we get the freight in and from which customer and what time it evolves. So, I would say that the couple percent price increase that we've been talking about in the March and April timeframe was pretty widely spread across a lot of customers and a lot of different lanes. But not a very high percentage of our customers, it's going to take more time, especially --.

You know, we've talked in the past about how our top 200 customers where we have those more committed relationships are maybe as much as 30 some, close to 40% of the business. It's in those more committed relationships where the timetables and the process for changing pricing takes much longer.

So numbers of customers would probably be a wider spread percentage of things that are changing because of the transactional influence. But in terms of the total customer base or total numbers of shipments, there's a lot of it that still needs to be addressed as the market changes.

All right, that's good color. And then just last one, just wanted to clarify. The comment that the first three weeks of April the net revenue year over year was similar with first quarter. Are you thinking total net revenue just the transportation or just the truck?

Total net revenue growth.

Okay.

Not (multiple speakers).

Right, on a year-over-year basis, right?

(multiple speakers).

Okay. And within the individual lines is it -- are they all pretty similar year over year or are there certain ones that are doing better or worse than first quarter?

We're giving the total number for right now.

Okay, great. Thanks for the time, guys.

Thank you.

Unfortunately we're out of time, so that will have to be our last question. We apologize we could not get to all of your questions today. Thank you for participating in our first-quarter 2010 conference call. I want to remind you that this call will be available for replay in the Investor Relations section of the C.H. Robinson website at CHRobinson.com.

It will also be available by dialing 800-406-7325 and entering the pass code 428-2239 pound. The replay will be available at approximately noon Eastern Time today. If you have any questions please call me, Angie Freeman, at 952-937-7847. Thank you.

Ladies and gentlemen, this does conclude the first-quarter 2010 earnings conference call. Thank you for your participation. You may now disconnect.