羅賓遜全球物流 (CHRW) 2014 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the C.H. Robinson fourth-quarter 2014 conference call.

(Operator Instructions)

Following today's presentation, Tim Gagnon will facilitate a review of previously submitted questions.

(Operator Instructions)

As a reminder this conference is being recorded Wednesday, February 4, 2015. I would now like to turn the conference over to Tim Gagnon, the Director of Investor Relations.

Thank you and good morning everyone. On our call this morning will be John Wiehoff, Chief Executive Officer and Chad Lindbloom, Chief financial and Chief Information Officer. John and Chad will provide some prepared comments on the highlights of our fourth quarter and year end. We'll follow that with a response to pre-submitted questions that we've received after our earnings release yesterday.

Please note there are presentation slides that accompany our call to facilitate the discussion. The slides can be accessed in the Investor Relations section of our website, which is located at chrobinson.com. John and Chad will be referring to these slides in their prepared comments.

I'd 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 to begin his prepared comments on slide 3 with a review of our fourth-quarter and year-end 2014 results.

Thank you, Tim. And good morning, everyone. As you can see on page 3 with our results for the fourth quarter, we had a very solid fourth quarter and finished what we believe is a very strong year in 2014.

Looking at some of the key financial metrics on that slide 3, for the fourth quarter our gross revenues increased 6.5%. Net revenues increased by 12.9%. We'll get into the components of that, as we always do, but most of the net revenue growth was driven by truckload and global-forwarding services.

For the fourth quarter, the income from operations increased 21.5% and net income increased 21%. Later on in the presentation we'll cover some of the expense management and changes in some of the expense items, but obviously we were pleased with the fact that our income from operations was able to grow faster than our net revenues for the quarter.

As it has been the case throughout 2014, largely because of our share repurchases, our diluted EPS grew faster than our net income or income from operations. EPS growth in the quarter was 24.2%.

I do want to share some comments about the year-to-date numbers, as well too, particularly as a reminder when you think about C.H. Robinson that, because so much of our cost structure is driven by personnel expense and a significant part of our personnel expense is based upon annual incentives and annual contracts, the year-to-date numbers and the annual numbers really are, over a longer period of time, probably the best way to understand and study the metrics. So looking at some of those 12 months or calendar year 2014 financial metrics, the gross revenues were up 5.6% to $13.4 billion, which was a new record high for us.

The record net revenues of $2 billion was another milestone that we were anxious to achieve and was pleased that we were able to reach that this year. If you look at our income from operations growth for the year of 9.6% to $748 million, one of the key metrics that we like to highlight there is that our income from operations was able to grow faster than our net revenues for the calendar year, as well, too.

Again, Chad will cover some of the personnel numbers, but that growth in income from operations was despite the return of some pretty meaningful increases in our variable compensation plans. So, when we look at the year-to-date results we feel very positive about our business model and how it continues to share the variable performance with all of the stakeholders, including shareholders and employees.

Earlier this year, in several of our calls, we've talked about our goal of leveraging our past investments of talent that we had made into the network. On that slide 3 you can see our average and ending headcounts of our team for the year.

One of the things that we're very proud of is that we were able to achieve our results during 2014 with a relatively consistent amount of people on our team. And it is a combination of some market condition changes, how we adapted to them and, really, leveraging the team and the business platform that we had in place to drive some good results for 2014. So, we feel like it was a great quarter and a good year and we're proud of our results for 2014.

Turning to slide 4 and starting to break down those overall results, again I'd like to start with total transportation, which is the majority of the business. Every time we speak to the total transportation growth and net revenue margin, it's probably appropriate to remind you that there are a lot of factors that impact this. So, after this slide we'll get into the various service lines and try to break it down further.

A couple of constant themes when we look at the overall net revenue margins is that, across virtually all of the services, there is a common theme of capacity constraints. Falling fuel prices is another theme that we'll touch on and a couple of the different services and the impact on that. And then, also, our change in the mix of our business. When we get into the different transportation services, we'll talk about our length of haul, we'll talk about truck versus rail, and a number of items that impact the mix that impact these net revenue margins.

While there's a lot going on on this page, I do think it is useful to look at it in terms of an enterprise view of our net revenue margins, particularly as we continue to move more into integrated services and multi-modal solutions, that there are more and more tradeoffs and interrelated parts to the different transportation offerings. As you can see, the net revenue margin for total transportation for the quarter was 15.8%, which compares favorably to a year ago of 15% and is down from 16.1% in the third quarter of this year.

Moving along then to page 5 and focusing in on our truckload results, our truckload net revenue for the fourth quarter increased to 15.3%. As you can see in the upper right hand side, volume for North America truckload transportation increased about 3% for the quarter. These results are fairly consistent with what we've seen the past couple of quarters and reflect what we've discussed in the past around our emphasis on adapting to the market changes during the year, with more focus on pricing and a little less emphasis on going after our long-term goal of gaining market share.

In that upper right hand corner of page 5, as well, it highlights how we think about our pricing and our margins, that the approximate pricing to our customers during the quarter, excluding the price of fuel, increased around 12%, and the cost paid to the carriers around 11%, which is what drove the net revenue increase in excess of the volume activity for the quarter. As we've talked in previous quarters, when we look at that approximate pricing, there are a number of things that are going on within those calculations, as well, too.

There is a mixture of business with both contractual and committed and spot-market activity, similar to what we've shared in the past. A more common price increase on committed or contractual business would be something more in the mid-single digits during the year, where some of the contractual pricing could increase meaningfully more than that. In addition, we continue to experience a shortening in the length of haul from a year-over-year standpoint, and the rate-per-mile on some of that shorter length of haul can have more significant increase, as well.

Falling fuel prices were a factor. Again, what I've talked about so far is doing the best that we can to exclude the estimated cost and impacts of fuel on the pricing that we experienced during the quarter. The declining price of fuel during the quarter and coming into the current year, we'll come back and talk to that in the look ahead, as well as some of the Q&A, but just from a high level when we look at our truckload results, we do not believe that the falling fuel prices in the fourth quarter of 2014 had a material impact on our business. It does have a material impact on the gross revenues and the amounts that we are invoicing and, both, paying.

And we still continue to believe that, over a longer period of time, that fuel functions as a pass through in our business. Similar to what we've shared in the past, whenever fuel is moving significantly in either direction, there can be an impact during the transition. And we'll analyze that as best we can and share some more thoughts later, but we do not believe that it was a material impact in the quarter.

Moving on, then, to slide 6 and talking about our LTL results for the fourth quarter, less-than-truckload net revenues increased 7.8% for the fourth quarter on approximately 4% volume increase. Similar to my comment earlier, what we've seen in the LTL marketplace is that capacity has been relatively tight and that prices have been increasing throughout the year. And similar to my comment on our truckload services, we have been a little bit more focused during 2014 on adjusting to those market changes, and making certain that we are adapting to the right pricing model and serving our customers to get that capacity that they need, as opposed to aggressively chasing market share during 2014.

As we move into 2015, again a look ahead, I will come back with some prepared comments on our Freightquote acquisition, which closed as the first of the year in 2015. If you recall, the common themes or the headlines of the Freightquote acquisitions were that it's a good business, it's very technology-driven and it's very focused in LTL. So, we do expect organic growth from our core network in LTL, but we also expect to see some meaningful growth in the LTL net-revenue results in 2015 from the Freightquote acquisition. What you can see is, for the year 2014, that $258 million of net revenue in LTL represents about 13% of our net revenue, which has continued to become a slightly greater percentage of the mix over the last decade or so.

Moving on, then, to slide 7 and our intermodal results, intermodal net revenue increased 3.8% in the fourth quarter and volume was up approximately 1% for the quarter. Again, fairly consistent messages and themes with the past couple of quarters. We continue to feel very comfortable with our service levels and our execution capability. We're doing some operational improvements that are helping our net revenues and feel like managing our capacity and equipment better.

Rail capacity and train speeds continue to be a challenge in the comparisons of offering this service versus truckload. But congestion at the West ports also introduce some operational challenge with intermodal. But despite all of that we continue to feel very good about our operational capability and our service offering in the marketplace.

Our biggest challenge in intermodal that we think we've been very up front about is that it has been challenging to find ways to aggressively grow the business while maintaining the high return on invested capital that we like to have. So, we will continue to keep looking for better opportunities to aggressively grow intermodal but feel comfortable with it as part of our service offering.

Moving to slide 8 and talking about our global forwarding, air, ocean and customs results for the fourth quarter, the combined results for the Global forwarding services was an 18.4% increase in the fourth quarter over the fourth quarter of 2013. The strong second half of the year helped us finish year to date with a 10.7% net-revenue increase for these combined services. The growth was led by ocean with a net revenue increase of 22.8% in the quarter and an air increase of 7.9%, customs brokerage was up 16.8%.

In our global-forwarding services, as you'll recall, a little more than two years ago we made a very significant investment with the acquisition of Phoenix International to drive greater growth and improve service in our global-forwarding division. At that time we talked about the fact that we had a lot of integration work to do and that we were going to take a very long-term focus to building a strong foundation and retaining our customers and retaining our people in our global-forwarding business.

I feel really good about the first two years of integration and our success in growing our global-forwarding business. We feel very good about the caliber of the team. Almost all of the integration work has been completed over the last couple of years. We have a very solid network with a good leadership team in place and some very good processes and procedures that have improved our global-forwarding offering.

The primary area where we still have some continued work is in regard to the IT systems. And we think that there is some opportunity to continue to improve some of our business processes and our global-forwarding activities. But the first two years have been very positive and we feel great about how we've improved our competitive presence in the network around the world.

Moving on then to slide 9, our other logistics services for the quarter, again, as a reminder, this includes our transportation-management services, warehousing, small parcel and some other miscellaneous non-transportation services that we provide. Net revenues for the quarter increased 4%. Net revenues for the year increased 7.6%.

In 2014, we finished below our longer-term growth target of 10% for these services. However the pipeline continues to look really good. There was some transition in some of those services and some customer activity but the pipeline looks great and we continue to feel that this is going to be a very important part of our business going forward, particularly with regards to integrating services and creating a lot of innovation outside of our core transportation services. As we've said in many past quarters, almost all of these other logistics services are heavily intertwined with a meaningful amount of our transportation revenue, probably somewhere in the neighborhood of 10% of our transportation revenue that is overlapping with these customers.

Moving then to slide 10 and our sourcing results for the fourth quarter of 2014, net revenue decreased 7% for the quarter and we finished down 9% for the year. We've talked throughout 2014 about the changes in our sourcing business, with the mix of larger customer changes, some of the weather-related issues and the other things that have impacted the turnover in our results.

We have a good sourcing team in place and they're working hard to deliver better results in 2015. And we do have a plan to grow our net revenue in 2015 back to our longer-term target of more a mid single-digit, net-revenue growth. So we feel that this is an important part of our business.

As I've mentioned many times in the past, the buying and selling of our fresh fruits and vegetables is very integrated into our temperature-controlled transportation services and there are a lot of very effective customer solution offerings that are offered through this team. And we're optimistic about the future that there are opportunities to grow and create value in this service line, as well, within Robinson.

That concludes the overview of the services we offer, our margins and our results for the quarter. And with that I'll turn it over to Chad for some comments on our income statement.

Thanks, John. As John mentioned, I will begin on slide 11 which is our summarized income statement. As John mentioned earlier in the overview, our total net revenues were up 13% for the fourth quarter and our operating income was up 21%.

When you look at our personnel expenses for the quarter, they increased approximately 15%, or $32 million. Of that $32 million increase, approximately $29 million was caused by increased incentive compensation.

Our equity compensation was up $16 million for the quarter compared to last year's fourth quarter, and our cash and other incentive plans were up $13 million. Our average headcount was slightly down at 0.6% for the fourth quarter. So, basically, the overall increase in our compensation expense during the quarter was driven by those incentive plans that we've talked about all year that were extremely low last year and are coming back.

Year to date, some similar metrics. Our total personnel increase was $112 million. $79 million of it was from increased incentive compensation, made up of $38 million increase in equity expense and $41 million in cash and other incentive programs.

Our incentive compensation philosophy [in plants] have stayed relatively consistent with previous years. The increase is based on our increased net revenues and earnings growth. Last year, our incentives were extremely low due to the lack of earnings growth.

Moving on to the other SG&A line, which decreased about 7.6% for the quarter, this was driven primarily by reductions in our provisions for [doubtful] accounts. Bad debt expense was $5.3 million in last year's fourth quarter, and we experienced a credit of approximately $800,000, or a negative expense in this year's fourth quarter, for an improvement of $6 million.

We expect this expense to fluctuate from period to period. It is influenced by specific customer issues, our aging and the quality of our accounts receivable portfolio, and the size of our accounts receivable portfolio. We had a great collection quarter and no significant issues with specific customers.

For the year, our provision for doubtful accounts was $15.1 million this year, compared to $15.6 million last year. This level of expense relative to our gross revenues are within historic ranges.

Moving on to slide 12, looking at our cash flow and some other balance sheet data, we had a strong free cash flow quarter, with cash provided by operations of $208 million and CapEx including software of $4.3 million. During 2015, we expect an increase in our total CapEx.

We expect it to be between $50 million and $55 million. Included in this estimate is building a second data center for disaster recovery. We are outgrowing our current disaster recovery site, which is in Chicago, and will build another center similar to our current primary site. We expect to spend $15 million to $20 million on this site in 2015, with some carryover CapEx into 2016, and plan to bring the site live in early 2016.

At the end of the quarter, we had $359 million in restricted cash. This was related to our purchase of Freightquote. Because the deal closed on January 1 and banks are closed on January 1, we had the funds held in escrow by an escrow agent. Our debt balance, including the borrowings related to the Freightquote purchase price, was $1.1 billion.

Moving on to slide 13 looking at our capital distribution, as we talked about, our goal is to distribute 90% of our net income to our shareholders in most environments while maintaining a debt-to-EBITDA ratio in the 1% to 1.5% range. This will vary, the 90% total return of net income to shareholders, will vary based on our cash flow generations, needs for working capital, and other capital needs. For the right acquisition opportunity, we mentioned before we would be willing to go out to 2.5 or 3 times debt to EBITDA in the future.

During the quarter, we paid $57.4 million in cash dividends and spent $39.7 million repurchasing shares. For the year we fell slightly short of our 90% goal. We suspended share repurchase activities during November and didn't buy during December. This was due to the Company having knowledge of the acquisition prior to public announcements, which precluded us from purchasing shares on the open market.

With that I'll turn it back to John for our closing, prepared comments.

On our last slide, page 14, is the look ahead where we try to share what we're seeing in the marketplace and what we're thinking about 2015. If you look at the bullet points there, I think, as we've talked over the last several years about the changes in both secular issues, the competitive landscape, technology, all of that, and then the cyclical changes in the transportation marketplace, pretty much comes down to looking at those two topics, and the first one around truckload performance. It's 59% of our net revenue.

And I know that in terms of trying to understand what our future performance, especially in the shorter term might look like, is to try to get a sense of what's happening in the truckload environment. For the month of January, in our legacy or traditional C.H. Robinson truckload activity, we had net-revenue growth approximating 15%, which is very similar to what we experienced during the fourth quarter of 2014. We also had more modest volume growth in that same lower single-digit range for the month of January. Those numbers exclude any impact of Freightquote, which we have some preliminary numbers but want to do more quality control and understand before we start to talk about what those would do.

The challenge this year, even more so than past years, is we're fairly certain that the January results will not be indicative of what the remainder of the year holds. Again, if you'll recall from a year ago when we were sitting in the midst of the polar vortex and a very unusual January period of time, our net revenue had declined. And it was really throughout the remainder of the first quarter and into the second quarter when we began to manage differently and react to the environment around adapting to pricing, increasing prices, and looking at volume growth differently.

So, while the year is off to a great start from a net-revenue standpoint, we know that over the next two to three months, we are going to see a meaningful change in our comparisons in terms of the margins that we've incurred. And we also know that we will see some difference in the comparison of the volume activity that we've had.

By the time we get to the end of the first quarter, and into the early part of the second quarter, if our net revenue margins remain consistent with what they've been the last couple of quarters, our net-revenue growth would start to be closer to the volume activity that we have, as oppose to benefiting from material year-over-year margin comparison. Now margins can move up or down very quickly, as we've talked much so in the past, so, again it's very difficult to predict and it's why we're not really comfortable giving very specific guidance of what 2015 is going to look like.

The month of January -- what we do know now is that the month of January was very similar to the fourth quarter. There will be probably another 3% to 4% of incremental growth from the truckload portion of the Freightquote net revenues that will roll in for the quarter. And, again, that will be incremental from the acquisition as opposed to comparative year over year.

So, that's what we know about our January results at this point. We talked throughout the presentation and before, too, that volume growth and market-share gains are at the foundation of our long-term growth initiatives and what we want to focus on.

We do intend to continue to invest in talent during the year and we have known for quite some time now that after we cycled through 2014, and we feel very confident about the approach that we took that it was the right thing to do, but that over a longer period of time we do need to focus more on adding talent to the team and more aggressively going after volume growth and market share in 2015 and beyond. So, we know that our margin comparisons will change over the next three to four months. And we also know that over time we will continue to go back to more focus on volume growth.

That's what we can share at this point about our truckload net revenues, margins, cyclicality of where we are at. Turning back a little bit just to our longer-term strategic initiatives and what we're seeing, just a few more comments on the Freightquote acquisition, as we've mentioned a couple of times, that closed the first of the year. Very similar to what we've done on any other acquisition in the past. We do intend to have a very long-term focus on our integration strategies and approach with Freightquote.

We feel like we're off to a good start. We've spent a lot of time getting to learn each others' business and figuring out how the teams will work together. This acquisition and the integration will be very different than the Phoenix acquisition of two years ago.

The employees are essentially in two locations, in Kansas City and an office up here in Minneapolis. And while there will be a fair amount of focus on the technology offerings and how we integrate systems and, most importantly maybe, how we segment customers and align ourselves to go to the market efficiently around all the different sizes and types of customers that we want, there won't be a lot of the similar challenges that there were with Phoenix in having 150 offices around the world and a lot of overlapping locations and sites where we had to merge teams and create structure together.

So, we feel that it's off to a good start. We also feel, that, we'll be able to complete the integration of Freightquote within 2015 and be pretty efficient about how we get there.

Global trade expansion -- we've talked in our global-forwarding service section about the success that we've had in putting the businesses together and penetrating the market with more market share. If you'll recall, both the foundation of our legacy-forwarding business and Phoenix were heavily focused on Asia to North America in those trade lanes. We do feel that there is great opportunity to grow in that lane but, in addition, focus more on Asia to Europe and North America to Europe to focus on building the other trade lanes, as well as strengthening and focusing more on the air services with the higher percentage of our activity today being ocean. So we do feel like there's great opportunity for us to continue to expand globally and to really focus on forwarding in some significant trade lanes.

I touched on the fact that sales execution with all type of customers, as our industry has grown, as we have grown, as things have become more competitive, we feel like we need to focus better and better on our segmentation strategies and make sure that we are adapting our approach and our go-to-market strategies for the various types of customers that we interface with. We have a lot of different initiatives, including a very important small customer focus that's tied into the Freightquote acquisition, that we think will help us grow that segment.

We've talked in the past about the larger, more integrated, customers and the account management strategies and supporting initiatives that we have with them. We feel very good about different verticals and some things we're doing to improve our ability to add value to certain types of customers, as well, too. Those are all really important themes that you'll hear more about in the future and are an important part of how we plan to grow our business.

If you talk about the investments that we'll make: talent, technology and network, we've talked about adding people, hiring employees, and our talent remains the core of our business. There will continue to be more emphasis on that in 2015 with our ongoing focus of training and making sure that we have the right types of people to serve all those customers.

On the technology side, Chad mentioned the infrastructure investments. That just continues to be a more and more important component of how we serve our customers and the value that we provide to them. In addition to that data center and the infrastructure, we will be spending record amounts on our programming and our software capabilities to make sure that we're expanding our capabilities and adjusting to our customers' needs. Integrating Freightquote and the e-commerce and digital presence is an important part of our technology strategy, as well, too.

Network and network optimization, there are a lot of initiatives that we have to improve and continue to drive how our offices work together around sharing freight and improving margins. There's parts of the world where we think we can expand and open some offices. And we have a lot of different initiatives to really improve the efficiency of our network and strengthen the global presence that we have. So, those are our core competencies of how we compete and things that we will continue to invest in, in 2015 and beyond.

The last bullet point, in terms of looking ahead, is a little more than a year ago in the fall of 2013 we had an Investor Day and laid out our long-term expectations of how we thought we could grow and how we could create value in the future. That presentation remains on our website under the Investor section with presentations. I'd invite anybody to go back there and revisit that if you would like to.

We put a lot of effort into that and continue to believe that it reflects a proper assessment of what our growth opportunities and our future can look like. Some of the highlights in there are that we did talk about double-digit EPS growth being sustainable. While it's going to fluctuate, we do think that remains a reasonable long-term goal. We're pleased that, after a difficult start in 2014, that we were able to achieve 15% EPS growth in the first year of that revised long-term expectations.

And, in addition, just a reminder of what I touched on earlier, that really, across all of our services, growing market share is an important part of our foundation in how we expect to create value. We talked about our targeted long-term milestone of $25 billion of gross revenue. We reached over $13 billion this year and we think, within the next 5 to 10 years, that $25 billion of revenues and market share in this very large logistics and transportation industry is a very doable goal.

So we feel very confident about our long-term strategy and the competitive advantages that we're investing in, in order to sustain our growth. And we've shared with you a number of the initiatives that we'll be focusing in on more in the short term to achieve those goals.

That concludes our prepared comments. And with that I will turn it back to Tim to facilitate some of the Q&A that we've received.

Thanks, John. And we'll get right into the pre-submitted questions but first take a minute to thank all of the analysts and investors for taking the time to send us questions. We received well over 100 questions and have done our best to bring a variety of topics to the responses here this morning.

So, I'll get right into our first question for Chad. Did declining fuel have any impact on your profitability either positively or negatively in the fourth quarter?

John covered some of this in his prepared remarks but I'll try to give a little bit of additional color. As we've talked about before, it's impossible to measure with precision for our truckload business what the impacts of fuel are. However, we believe over a long period of time fuel does function as a pass through.

We have much of our business that's done in an all-in price. The transactional business, that's quite common. On the customer side and when you look at the carrier procurement or the buy side, approximately 80% to 90% of our capacity on truckload is hired on an all-in price.

As John mentioned, we don't think there was a major impact on our profitability from fuel in quarter four. Prices to customers for fuel adjust automatically in a lot of cases. All of our contractual business has fuel surcharges that adjust primarily on a weekly basis.

However, in times of volatility we can be helped or hurt as timing differences occur between the buy and the sell. In this type of environment, it is difficult and we could be hurt by the decline in prices as carriers today are looking basically for more money for their line haul. They are very quick to ask for more money when fuel is increasing, and when fuel is decreasing, especially in a relatively tight market like we are now, they are holding more firm on pricing.

So, going forward it will be difficult to predict what that impact will be in the short term but eventually, like we've always said, we think over a longer period of time fuel will be and acts as a pass through on our truckload business.

Thanks, Chad. The second question for John relates to Freightquote. Have you with passage of time refined your thoughts regarding both cost and marketing synergies? What role, if any, have you carved out for Tim Barton going forward?

When we think about integrating Freightquote, I touched on this briefly but the headline themes are technology, LTL and small customers. In terms of the technology side of it, we're very excited about the expanded capabilities that we got with Freightquote. And we think there's going to be some marketing synergies in terms of how we go to market with their small customer offering and blend that in with Freightquote.

From a cost standpoint, that business is going to remain fairly standalone in terms of its site and its team so we don't expect a lot of cost savings in the short term. Probably the biggest short-term opportunity is that in the truckload portion of Freightquote, while they've done an effective job of integrating their go-to-market strategy into those small customers for both LTL and truckload services, we do feel that our procurement capability on the truckload side can hopefully add value in the shorter term and help with some of the truckload margins and truckload capacity procurement stuff.

Hopefully, those improved truckload margins, along with improved operating efficiency by sourcing that capacity more effectively, would have a positive impact on some of the net revenues as well as the operating expenses. For the most part, we're viewing this as an opportunity to gain share and an opportunity to more effectively go after that small customer segment, as well as strengthen our LTL offering.

With regards to Tim Barton, for those who may not be familiar, he was the founder of Freightquote, started the business in 1999 and has a very strong technology background. So, he's been very much a key part of the business over the last 16 or 17 years. Even prior to our acquisition, Tim had removed himself from a lot of the day-to-day activity and had the desire going forward to have a little bit more personal freedom for some other things. So, we've entered a consulting agreement with Tim.

He is going to be available for Matt Druten, the President down there, and our leadership team to help whenever or however necessary in terms of the Freightquote business and the integration of that. And we also have some other strategic initiatives that he's going to be assisting us with, primarily in the managed services and technology areas to help us sort out what's the best approach going to be going forward. So, he will be acting as a consultant for a year or two to help us integrate and learn about our business and help us figure out some strategic things and then we'll reassess from there in terms of what the role will be.

Thanks, John. Next question is for Chad. You have been very clear that plan to add talent in 2015. As you are ramping headcount, do you expect your personnel expenses to grow faster than net revenue in 2015?

As we've mentioned during the year, we are at an all-time high, especially in North America truck productivity levels when we look at volumes per person. Therefore we do expect to grow heads to support our future volume growth. Headcount growth should approximate but hopefully be a little slower than volume growth over time.

Personnel expenses should also grow roughly in line with this volume growth, assuming consistent net revenue margins. Obviously there will be fluctuations between in our net revenue margins going forward, but our variable incentive compensation makes up for some of that margin fluctuations.

So we can't say that personnel expense will grow perfectly in line with net revenues but we expect it to approximate our net revenue growth over time. Again, there will be periods like we experienced this year where it might grow faster. And there's also been periods in the past in different parts of the economic and growth cycles where it's grown slower.

Thanks, Chad. Next question for John. Last year in the first quarter the trucking industry faced an unusual environment as adverse weather throughout much of the US impacted volumes, truck capacity and spot pricing. Will this create any unusual comparison for volumes, net revenue margins that investors should be aware of when you report first-quarter 2015 results?

I touched on this briefly earlier but it's important enough to probably get into again and just reiterate that last year, first quarter was very unusual, started out very difficult with negative net revenue declines. By the month of March, we actually had some fairly decent results and had been adapting to the marketplace with pricing changes and improving things. Also the weather had started to improve by then.

So it makes it very difficult to understand what the first quarter in aggregate will look like but we do expect that things will change meaningfully through out the quarter in terms of our comparisons to the prior year. And then as we get into the second and third quarters we will be comparing to those higher imagines, as well, and be adapting to whatever changes happen this year.

Thanks, John. Next question for Chad. What is your expected tax rate for 2015?

Assuming no changes or tax reform, we expect our rate to be 38% to 38.5%. When you look at the plans of broadening the base and reducing the rate, that would have a significant increase to our earnings by a reduction of our income tax expense as we have very few special incentives in today's tax environment.

Thanks, Chad. Next question is for John on the sourcing business. I realize that there are weather-related issues that impact the sourcing business but is that closer to be a more stable year-over-year net revenue growth rate business at this point?

That is our plan. As I mentioned earlier, there has done a lot of challenge in the sourcing area both with weather and with churn in dedicated customer business. But we do feel very good about our ability to add value in that space and provide growth, and that we believe in 2015 our plan would be for year-over-year net revenue growth.

Thanks, John. Next question for Chad. Did you have any M&a expenses in the fourth quarter related to the Freightquote acquisition?

Our efforts around the Freightquote acquisition were primarily internal expenses. We did not engage an investment banker. However, we did have about $500,000 of professional fees, primarily for lawyers and accountants for due diligence, in the negotiation of the merger agreement.

Thanks, Chad. Next question for John. On the forwarding side, can you highlight a few key trade lanes where you plan to add density in the coming years, either via M&A or organic growth opportunities?

I did touch on this briefly a little bit earlier but Asia to Europe is a core corridor or trade lanes where we think we can have some meaningful growth this year. Also, with the meaningful movements in currency, we think there might be some opportunities to look at some of the trade lanes where there would be more export activity, out of Europe or to Europe and North America, back and forth.

In addition what I mentioned earlier around the air freight offering, that if you look at our global forwarding offering is skewed more towards the ocean activity from Asia to North America. So that we feel there are air opportunities in a number of lanes around the world that we can grow in.

Thanks John. Next question for Chad. CHRW plans to increase the return of cash to shareholders via dividends and stock buybacks. Can you provide the framework you plan to use? What dividend payout ratio are you targeting, how much debt are you comfortable with, either measured by debt to EBITDA or debt-to-capitalization?

I covered a lot of this in my prepared comments but our targeted dividend payout ratio remains at 45%. Our share repurchase activities, again, will vary based on our cash flow generation, with targeting the 90% total return to shareholders.

As far as our debt capacity we said through normal ongoing capital distributions, we want to stay in the 1 to 1.5 times range, but we would be comfortable going up to 2.5 to 3 times debt to EBITDA for the right acquisition opportunity.

Okay, thanks. And again for Chad. You outlined a 7% to 12% long-term EPS growth target at your Investor Day but your press release and slides reference double-digit EPS growth goal. So, wondering if you're officially increasing your long-term outlook. If so, what's the basis for the increased confidence? Does it have to do with the Freightquote acquisition or other acquisition plans or a general improvement in market conditions or your positioning?

As John mentioned in his prepared comments we restated our growth goals from the Investor Day. Our Investor Day slide on long-term growth targets, which I think is slide 9, the first bullet point on that slide states our goal is double-digit EPS growth. You are correct though we did state a targeted range of 7% to 12% EPS growth, which 10% is roughly the mid point of that range.

We gave a range to make it clear that we expect volatility in the growth rate from quarter to quarter and year to year. We still feel good about the goals we set during that presentation and feel that we should be able to achieve these goals over time. Again, some quarters and some years we'll do better, and some quarters and some years we won't achieve double-digit EPS growth.

Okay. Another question for Chad here. Can you provide some color around the decline in D&A, the decline in bad debt, and any one-time expense related to the Freightquote deal?

Sure. The depreciation and amortization declines compared to last year were due primarily to some acquisition amortization running out this year from previous deals. It's important to remember, though, that beginning in quarter one we will have additional amortization expense for Freightquote.

We are in the process of purchase price allocation and our work to get an appraisal done. But based on previous deals we would expect that amortization from the Freightquote acquisition to be somewhere in the $11 million to $13 million per year range.

Moving on to bad debt expense, that fluctuates, as I mentioned, based on our aging and the size of our accounts receivable portfolio and any customer-specific issues. The aging improved during the quarter and the amount of our accounts receivable decreased during the quarter compared to the end of the third quarter.

As I mentioned, there were no significant account specific issues during the quarter, which led to a low expense for the quarter, actually a credit for the quarter. It does vary from quarter to quarter and the fourth quarter was a very good collection quarter. We collected some old money that had been previously reserved.

As I mentioned earlier, moving on to the question about the Freightquote costs, I think I've already answered that, that we had about $500,000 of outside spend. The rest of the effort was primarily with internal resources.

Okay, thanks, Chad. Next question for John. Would you please update us on the development of the European truck brokerage effort? Has the sluggish economic growth in Europe changed your view regarding the potential of this opportunity?

Our European truck brokerage business represents about 4% of the net revenue of the truckload net revenues. And in that investor deck and in our past we've talked about believing that the European continent provides an equal opportunity for growth and platform that we could have a business very similar to our North American truckload services.

We have not changed that long-term view in terms of the opportunity. However, the economic growth and the environment in Europe today has impacted our attitude about the pace and how aggressively we'll go after share during this period of time. Very similar to what we've talked about in North America over the last year or so. We've been at it in Europe for maybe a little over 20 years and there are different environments that are better for going after share and different environments for providing service.

For those of you who may not be familiar with it, in addition to the slow growth and decline, there actually have been declining truckload prices in Europe the last couple of years. And when we look at opening offices and aggressively going after share, a slow growth, no growth, declining price environment can be very challenging. And it can be very expensive, essentially, to go after market share very aggressively during that period of time.

So, we're doing that. We're opening offices, we're investing in our foundation. And we have very long-term goals that that will continue to become a more and more meaningful piece of our business. But we have tried to be realistic and adjust our pace of opening and our investment spending to make sure that we're adapting to the environment in Europe as well as North America.

Thanks, John. Next question again for you. Forwarding performed very well in the fourth quarter. Can you give us a sense that CHRW has already realized all of the benefits from better buy rates related to the Phoenix acquisition or should we expect further benefits in 2015?

When we think about the benefits of the deal, particularly around the buy side, and most of that to date has been in ocean, really, in 2013 we were able to capture a lot of the benefit of the combined contracts and any procurement leverage around scale and getting the best contracting environment. So, year one probably had some of that improvement in there.

A big part of the net revenue or margin opportunity entails the optimized routing of making sure that each box is getting on the right steamship line and that each customer is being served in the optimal way. We got better at that the last couple of years but think there is opportunity to continue to do that more in the future around operational improvement, process improvement. And a lot is supported by the technology that we still have some more work to do on.

Lastly, there are very meaningful margin opportunities in consolidation activity. And very similarly I think we have very good, competitive line haul prices today. But in both air and ocean, the smarter we can be and the more effective we can be at consolidating freight and routing things properly, there will be more margin opportunity there. We've already seen significant amounts of benefits but through operational improvements, systems improvements, better data management, we do hope to continue to drive more efficiency and more margin opportunity in the next couple of years.

Next question again for John. Can you comment on the CFO search? When would you expect to have a new CFO in place?

We do have a search firm engaged who is out actively in the marketplace right now looking for candidates. We expect to have somebody in place by the spring. As we've talked about before, we're making these changes from a longer-term perspective around strengthening the team and adding to the talent that we already have.

We feel like we're in a good spot today with a strong finance team. And we're going to make sure that we take whatever time it takes to get the right person on board and strengthen the team at Robinson. But we hope over the next couple of months and by spring time to have that process completed.

Thanks, John. Next question again for you. 2014 seemed to have a focus of allocating resources towards more profitable freight rather than just volume. How does that balance between the two for 2015?

I probably touched on this in a variety of ways, but obviously moving back towards a little bit more aggressive approach in truckload, for sure, around going after market share. Some of the other services we have been a little bit more aggressive towards market share, especially forwarding like I just touched on.

As I've mentioned in a variety of spots, a lot of what is appropriate has to do with adapting to the current market condition. So, it's our sense today that if capacity remains tight that pricing will continue to escalate, and that hopefully the environment will be conducive for us to invest in our team and continue to go after market share a little bit more aggressively during 2015.

Things can change in a hurry as we learned a year ago, and depending upon what might happen in the market we may have to adapt more because it's a constant assessment of what those market conditions are. But at the current point we feel like we can start to move more aggressively into investing in our team and going after market share like we have for several years prior to this 2014.

Thanks, John. Again to you here. A question about capacity. Do you see any near-term solution to the driver issues where it could create more capacity?

We do have the general industry view that capacity on the truckload side is going to remain tight for an extended period of time. The solution, in our view, has always been a fairly straightforward formula, that it just takes compensation adjustments or pricing changes to attract capacity to the marketplace. New equipment costs more and drivers' wages need to increase meaningfully in order to attract more drivers to the industry.

I think the types of price increases that we saw in 2014 are a healthy start in that movement or in that direction. And it will take more of that in order to continue to attract drivers to the industry. From what we see around data points of new truck offerings or new truck purchases and capacity availability in the marketplace, maybe there are some early signs of that starting to happen, but if we do continue to have increases in economic growth and freight demand we'll need to see a lot more of that in order to provide the capacity that the marketplace needs.

Thanks, John. Next question around acquisitions. What is your M&A appetite following your acquisition of Freightquote? Do you plan to fully integrate Freightquote before pursuing additional M&A opportunity?

As I mentioned earlier, I do believe that the integration process for Freightquote will be quicker and in many ways simpler than our Phoenix acquisition. So, while we do have a culture that says we're going to finish one project before we jump into the next one, I do feel like our opportunities to look at further acquisitions will come quicker, and that by the later part of this year, if the right opportunity came along, we would be interested in pursuing that.

In addition, the Freightquote, while it's a very meaningful business, it is concentrated in a smaller segment of customers. And there are other parts of our business in forwarding or managed services where we could be acquisitive and not really impact or overlap with any of that acquisition. So, there's some consideration for the integration resources, and probably more like in the first half of 2015, and we will continue to look for the right types of high-quality acquisitions even during 2015 to continue to grow the business.

Thanks, John. Next question for Chad. Does CHRW have any meaningful cost levers remaining to pull? What drives margins higher from here? Is it possible to drive further cost from the network or does further margin improvement now depend on volume increases and pricing?

We are always managing the business to look for ways to drive cost efficiency, leveraging our people more, investing in technology and things like that. We feel really proud about the progress we've made over the last 15 years. But as we've been talking about for the last couple, we don't expect the operating margins to expand as much as they did over that period of time.

Going forward, the primary driver of future earnings growth will be net revenue growth. Margins fluctuate over time but the primary driver of net revenue growth will be volume growth. And, as we mentioned earlier, we're at pretty high productivity levels right now. We will try to find ways to make our people more productive but we do expect costs to grow in line but hopefully slightly slower than our net revenues over the long period of time going forward.

Okay, thanks, Chad. And this will be the last question here to John. Are you seeing any increase in the availability of capacity from the small independent owner-operators? You would think higher base rates and lower fuel might increase the attractiveness of the business and wondering if there are any signs of capacity coming into the market?

I touched on this briefly with the previous question, that we do see some opportunities or some changes of capacity coming into the marketplace. But, again, it's very early in the change in that cycle.

In early 2015, January is always a spotty time in terms of overall lower freight demand and generally less tightness in the marketplace. So, there were some periods even during the current month where capacity seemed to be more available but that's probably more a function of January and yearly cyclicality rather than indicative of overall more capacity coming into the marketplace.

As I stated earlier, it's pretty much supply and demand and driven by pricing. And with the types of activity that we saw during 2014, it's very intuitive that you would see more people choosing this as a career profession, and that those new orders of trucks will trickle down into the medium and small carriers, as well, too, and that we will see some continuation of available capacity from them.

Okay, thanks, John. Unfortunately, we're out of time and we apologize that we couldn't get to all of the questions today. We thank everyone for participating in our fourth-quarter and year-end call.

The call will be available for replay in the Investor Relations section of the C.H. Robinson website at www.chrobinson.com. It will also be available by dialing 888-203-1112 and entering the passcode 729-0001-pound. The replay will be available a little bit later on today.

If you have additional questions please call me, Tim Gagnon, at 952-683-5007 or contact me by e-mail at Tim.gagnon@chrobinson.com. Thank you, everyone. Have a good day.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation.