羅賓遜全球物流 (CHRW) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson fourth-quarter 2015 conference call.

(Operator Instructions)

As a reminder, this conference is being recorded, Wednesday, February 3, 2016. I would now like to turn the conference over to Tim Gagnon, the Director of Investor Relations.

Thank you, Mike, and good morning, everyone. On our call today this morning will be John Wiehoff, our Chief Executive Officer, and Andy Clarke, Chief Financial Officer. John and Andy will provide some prepared comments on the highlights of our fourth quarter and full year of 2015, and we will follow that with a response to the pre-submitted questions we received after earnings release yesterday.

Please note that 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 Andy will be referring to these slides in their prepared comments.

I would like to remind you that comments made by John, Andy, 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 will turn it over to John to begin his prepared comments on slide 3, with a review of our fourth-quarter results.

Thank you, Tim, and thanks for everybody taking the time to listen to the call this morning. I am going to start by highlighting a few of the financial metrics that we look at, and then maybe share a few headline thoughts before turning it over to Andy.

In terms of financial metrics on the slide 3 that Tim referenced, if you look at our total revenues for the quarter, we're down 4.4%, similar to the rest of the year. The total revenues grew at a slower pace, primarily due to the cost of fuel, and the reduction of fuel surcharges in our services. In the fourth quarter, we also seen -- did see some decline in prices that result in reduced total revenues.

Total net revenues increased 13.7% in the quarter, as the slide indicates, 7.3% growth came from our organic growth, while the Freightquote acquisition contributed about 6.5 percentage points to that growth. Income from operations for the quarter was up 14.3%, and net income was up 12%. Earnings per share of $0.88, compared to earnings per share of $0.77 last year.

I wanted to share just a couple of comments on the difference between income from operations and net income, and the comment that's noted on slide 4 about the indemnification asset. When we acquired Phoenix three years ago, there were some uncertain tax positions around the world that we received an indemnification promise from the sellers. The purchase accounting for that is to record an indemnification receivable, as well as a contingent tax liability for the issues that were uncertain.

If those issues are all resolved without any obligations, both the receivable and the contingent liability would come back off the balance sheet, without any cash charges or any net impact to earnings. The nuance with the accounting for that is the receivable comes off when the indemnification period ends, and the tax liabilities come off when the statute of limitation passes in all the various countries that they apply to.

So, what we saw during the fourth quarter was a $7.1 million indemnification asset write-off that went to other expense, that's the reversal of the receivable that was recorded, which is a non-cash charge. We also saw a portion of the tax liabilities come off the balance sheet, as well, and reduce the tax provision. And the rest of the tax liabilities will come off in future periods as those statute of limitations pass. So, a little bit unusual, but it does result in a $7 million other expense charge, that, net of those tax liabilities that reversed, did have a negative impact of $0.02 per share on the quarter. That's what results in a different growth rate in net income, compared to income from operations for the quarter.

In terms of other financial metrics down at the bottom of that slide, we talk about our team and our headcount. We finished the year with 13,159 employees, which represents a little over a 14% increase from the previous year. Just under 1,000 of those employees joined us through the Freightquote acquisitions, and the remainder came from the organic growth of staffing up our teams across the network.

If you look at the year-to-date results, which is always good to do because we do have a fair amount of incentive contracts and other things that apply on an annual basis still, we did complete 2015 with year-to-date results that reflected 15% EPS growth. That represents our second year of 15% EPS growth and something that we are very proud of.

If you look at -- almost all of the year-to-date financial metrics represent records in terms of size and scale at Robinson. We're proud of our performance, and Robinson is a bigger and stronger business today, in just about every financial metric that you can look at. I want to take this moment to thank the Robinson team. We have had to adapt and change a lot to a changing marketplace and a changing industry over the last several years, and we are doing that, and we feel very good about the strength of our team and the results that we achieved in 2015.

So those are the financial metrics that I will highlight. Just a few other headline thoughts, again, before I turn it over to Andy. I mentioned Freightquote already once, and the last few quarters we have talked about that. As a reminder, we closed that acquisition on January 1 of 2015, so this will be the last quarter where Freightquote's inclusion will be highlighted.

We have been doing that simply to be transparent around the impact of those acquired revenues, and the acquired impacts of Freightquote. But we're very pleased with that acquisition, similar to what we've said in previous quarters. We're happy with what we have achieved there. We have a little bit more work to do in terms of integrating the business and going forward. But year one was a success, and hopefully the impact of Freightquote to our financials has been clear throughout the year.

The other thought that I would share is with regards to pricing. When you look through the deck and Andy gives the comments on our various services, you'll see a lot of down arrows on pricing. We talked, in our last call, about softening markets and softening pricing, and I don't think it's any surprise to anyone that, over the last quarter -- pretty much in all of our services -- that demand has been softening and that has resulted in price declines.

We have talked a lot -- if you look at the last couple years now of 2014 and 2015, last year, we had some pretty meaningful price increases in all of our services, particularly in the truckload area, and now this year, we are seeing a more typical cycling or turning down of some of those prices. That's an important change that we have to adapt to, and we will to the best we can to give you our color on what we are seeing in the market, and how we adjust our business to do that.

But, as a reminder, we really think of our value creation in the long term around taking market share and helping our customers and suppliers adapt to those changing market conditions. So while it is a pretty relevant change to what is going on in the market, it is nothing that we haven't experienced before, and it's part of how we think we can add value to the marketplace in a declining price market.

So I will stop there with those headline thoughts and turn it over to Andy to walk you through the deck of our financials.

Thank you, John. I also want to echo your comments about our fourth quarter and full year. 2015 was a great year for Robinson, and our people are and should be very proud of these results. While it was a different transportation market than 2014, our global network continues to prove that we can provide excellent service to our customers, and deliver strong results for our shareholders in any condition.

This industry continues to change and evolve, and will do so at an increasing pace in the years to come. We like that, because we have been disrupting and innovating for years. Today, approximately 72% of our customer shipments originate from either an electronic or digital transaction, or is web- or mobile-based. We have connections with well over 150,000 organizations, and execute over 5 million web or mobile interactions a month, with customers and carriers. These customers and carriers rely on us to lead, and that is exactly what we are doing, and I think these results reflect that.

I will start my review of the detailed results on slide 4 with our transportation. Transportation net revenues increased 13.8%, to $544 million in the quarter. We finished the full year with a 13.5% net revenue growth, driven in part by our 14% growth in global shipment count to approximately 17 million shipments in 2015. Fourth-quarter transportation net revenue margin increased 310 basis points from 2014's fourth quarter, to 19%. From a historical perspective, it is our best net revenue margin quarter since Q4 2008.

This increase was a result of the impact of lower transportation cost, in most of the transportation modes, including the decrease in fuel prices when compared to the fourth quarter of 2014. The chart on this page shows our transportation net revenue margin for the past 10 years, representing multiple economic and industry cycles. It is a combination of our people, process, and technology that produced these best-in-class results on a consistent and sustainable basis.

Moving on to slide 5 and our truckload results, we had another strong quarter in our truckload business, growing net revenues by 13.4%. Organic net revenue increased approximately 10%, while Freightquote added approximately 3.5% to the net revenues in the quarter. Truckload volume increased 5%, with organic volume of approximately 2%, and Freightquote adding approximately 3%. By comparison, case volumes were down approximately 2.5% in the fourth quarter. We feel good about our ability to profitably grow volumes and take market share. In fact, we have done that for 26 consecutive quarters.

In North America, the line haul price per mile to customers, excluding the impact of fuel was down 3% on a year-over-year basis, while the cost paid to carriers decreased approximately 5%. From a historical perspective, since 2008, the average increase of pricing to customers has been 2.5%. During that same eight-year period, the price paid to carriers has risen 2.5%. There has been and probably always will be short-term volatility between these two numbers, but over a longer period of time, they tend to converge.

In real time, we are seeing the pricing in the spot market have a larger impact on changes in overall pricing than the previous quarters in the year. Our volume growth in the quarter, and for most of the year in 2015, came from our committed business, with transactional volume down on a year-over-year basis, as you would expect. The demand environment in the second half of 2015 was softer than in the first half, when compared to 2014. Thus far in 2016, our volume growth is similar to what we saw in the second half of 2015. John will talk more about that in his closing comments.

Moving on to slide 6 and the less-than-truckload results, our LTL net revenues increased 41.4%, with organic net revenues increasing approximately 9%, and Freightquote contributing approximately 32% in the fourth quarter. LTL volumes increased 36%, with organic contributing 17% and Freightquote adding approximately 19%. Net revenue margin increased on a year-over-year basis in the fourth quarter, primarily as a result of higher-margin Freightquote business with small customers, and growth in our consolidation business. For the year, LTL net revenues are up nearly 40%, driven by strong organic and Freightquote contributions. We are the largest non-asset LTL provider in North America by a wide margin, and our go-to-market strategy has proven to be a winning one with customers and providers.

Transitioning to intermodal results on slide 7, intermodal net revenue decreased 13.7% in the fourth quarter, with volumes down 8%. Without Freightquote, organic net revenues decreased approximately 22% in the fourth quarter. It was a tough fourth quarter in the intermodal business, as we had a significant decrease in our transactional volumes. The intermodal services represents less than 2% of our net revenues, and we typically see the results impacted negatively in a softer truckload market with lower fuel prices. These market conditions often impact the decision of shippers to utilize truckload services rather than intermodal.

Moving to slide 8 and a review of our global forwarding business. Net revenue for the global forwarding services decreased 2.1% in the fourth quarter. Ocean net revenues decreased 1.5%, while air decreased 4.1%, and customs services were down 1.3%.

There are two things in the quarter to highlight: the first is that we continue to capture market share in global forwarding. Volumes were up in ocean and up slightly in air, despite a very challenging marketplace. Pricing, however, in both ocean and air continued to be a major headwind, with both down double digits in the quarter.

The second issue to reflect is that it's important to remember the strong Q4 2014 comparable, which was driven by the West Coast port strikes, where net revenue grew 18% in that particular period. The 2015 full-year results were very positive on both top and bottom lines, and our global forwarding team has done an excellent job. We have got a great team and are confident in the platform and how we are positioned for the future.

Slide 9 and our other logistics services. The services in this group include transportation management services, warehousing, parcel, and small package. Net revenues increased 16.1% in the fourth quarter of 2015, compared to the same period in 2014. Managed services, primarily our TMS offering, branded TMC, represents over half of the net revenue in this area, and that business is performing extremely well, with strong net revenue growth. TMC finished the year with a record number of new implementations, and the pipeline for pending implementations is at an all-time high.

Transitioning to our sourcing business on slide 10, our sourcing net revenues increased 11.9% in the fourth quarter, and case volume grew 4.5%. We are pleased with the sourcing team's ability to finish the year strong in the fourth quarter, and grow net revenues just short of 5% for the year. Our customer base is very concentrated, with retail and food services customers representing our two largest segments. The sourcing team continues to adapt the value proposition, and they have done a good job working through a tough couple of years, with a lot of change in both our services and how we meet the needs of our top customers.

Slide 11 covers our summarized income statements for the fourth quarter. Operating income increased 14.3% in the fourth quarter, and as a percent of net revenue was 37.6%, up 20 basis points from last year's fourth quarter. For the year, operating income as a percent of net revenue increased 50 basis points, to 37.8%. Thank you to all of our people for another strong productivity year.

Personnel expenses were up 14.1% in the quarter. This increased personnel expense was due to the additional headcount relating to our acquisition of Freightquote, contributing approximately 9.1%, and a 5% increase in organic headcount. Other SG&A expenses increased 11.4%. This increase, again, was primarily due to the Freightquote acquisition, including amortization expense of $1.9 million.

John mentioned earlier that we had an interest and other expense increase during the quarter, by $7.1 million. That expense was partially offset by the related tax liabilities, decreasing earnings per share by $0.02 in the fourth quarter.

Moving on to slide 11 (sic - see slide 12), and other financial information, we had a great cash flow quarter, generating just over $253 million in the period. Year-to-date cash flow was $718 million, a 40% increase versus last year. Capital expenditures were $11.8 million in the fourth quarter and, year to date, $44 million. For 2016, we expect capital expenditures to be between $70 million and $80 million, with $30 million coming from our new data center. We finished the fourth quarter with $950 million in debt, and just under $170 million in cash.

And, finally, before turning it back to John, on to slide 13 and our capital distribution to shareholders. We returned approximately $130 million to shareholders in the quarter, with approximately $64 million coming from dividends, and $66 million in share repurchases. We finished the quarter returning approximately 103% of net income to shareholders and, for the year, we returned 92%, which is in line with our target. Since 2010, we've returned over $3.1 billion to shareholders in dividend and shareholder repurchases.

Again, our thanks to everyone at Robinson for a great quarter in 2015, and thank you all as well for listening in. With that, I will turn it back to John for his closing comments.

All right. Thanks, Andy. So slide 14, labeled A Look Ahead, is just some bullet points that we laid out to share with you what we are seeing and what our headline thoughts are heading into 2016. To start with, our January total Company net revenue organic growth rate is consistent with the fourth quarter of 2015. As I mentioned earlier, Freightquote has lapped, so the impact of Freightquote in 2015 would not recur again this year. But, basically, what we saw in January was a continued soft transactional market and continued margin expansion on our committed freight, very similar to what Andy laid out for Q4 of 2015.

What is our mindset and how are we thinking about 2016? I mentioned in my kick-off comments that our long-term value proposition, and how we think about growing the business, is to be very focused on taking share, knowing that there is going to be different periods of different environments and different pricing scenarios. But that is absolutely what we're focused on in 2016.

We put the word profitably on there. It's important, from our standpoint, that when we think about how we go to market and how we want to grow our business, that when we enter into a committed relationship and are trying to add value to the customers in the marketplace on a longer-term basis, that those relationships are sustainable. And that we're getting compensated for what we are doing, and that we're adding value to the customer on a long-term basis.

In the transactional world, again, there's not a lot of point in executing transactional business if you can't get a return on it. So, when we think about how we go to market, it makes sense for us to think about how we can add value and go after market share in a sustainable way. We think we have done that in our past, and that will continue to be our mindset going forward.

Global forwarding success, Andy touched on the results that we had, and why we feel good about our global forwarding team and our global forwarding success. I think the next two points really go together around integrated services and global forwarding, but we've talked a lot the last three years -- three years ago, we weren't as proud of -- or content with our competitive positioning in global forwarding. With the Phoenix acquisition and the further investment over the last three years, we have been able to grow our combined net revenues high-single digits over that period of time, and really improve our service offering and our capabilities.

It has not only been a good investment, but I think it has been a very important expansion of what Robinson is capable of, and allowing our cross-selling services, and allowing us to look at other regions of the world, and how we can build further on to our network. So we're very focused on that continuation of cross selling, looking at international air, ocean, and customs brokerage in other regions, and really leveraging the platform that we have built over the last three years as an important part of our thoughts, going forward.

The demand for integrated global services is growing -- that is probably not a new thought to most people. But just to share with you that, when we look at our customer metrics and our business, that we do see an escalation of the number of customers that are using multiple services. Andy mentioned the growth and the pipeline in our managed services division, and we have talked about cross selling of some of our international and domestic stuff. There's a lot of data points and a lot of metrics that point to our continued success in working on a more global basis, and working with more integrated customers. So we do feel that's an important trend that we are going to stay focused on.

Another point related to that, though, that we have emphasized and continue to believe is very important, is that all of the services that we offer are very competitive and do require competitive pricing and service levels in order to be successful. So when we think about the pace and how aggressively we expand those services and expand those geographies, it is balanced by wanting to retain our market leadership position and a high-quality, high-service, and competitive price profile as we move into each of those.

We also talked about, we do believe it's important to maintain both a transactional and a committed or contractual presence in the marketplace. So as we grow with those bigger, more global and integrated opportunities, we also are staying focused on how to remain competitive in the transactional marketplace, and balancing the different types of relationships and segment offerings that we have with our customers. So that's a little bit of insight into how we're thinking about our offerings and expanding our profile, and our platform going into the year, and increasing those global integrated services.

The last point is really repetitive from things that we have been emphasizing for a long time. We have talked about people, process, and technology, and really believing that, that is the competitive foundation of the things that really matter in the forwarding and 3PL sector that we are going to continue to focus on. Our people have always been our primary asset, and will remain that. Our talent and our account managers, and how we go to market are just really what we think makes a difference in whether we succeed or fail at Robinson, and will continue to be our primary asset that we invest in.

Technology is as important as ever. A lot of focus and emphasis around technology disruption and the impact that it's having on our industry. We believe we are a technology leader, and we are going to continue to invest in our Navisphere platform and continue to maintain that competitive advantage that we think is really important in the marketplace.

Our business processes are very important. Sometimes it's about bringing consistency and discipline to those processes, and at other times, it's about innovation and new ideas that customers are looking to try to make changes or to improve or to take costs out of their supply chain. And that talent, technology, and innovation -- people, process, technology focus -- we're as convinced as ever that, that is the differentiator at Robinson, and that is what we are going to continue to invest in to make a difference in the marketplace.

Those are our prepared thoughts. With that, I will turn it over to Tim to facilitate the prepared Q&A.

Thanks John, and before I get into the Q&A here, I would like to thank all the analysts and the investors for taking the time to submit some great questions, and I have done my best to compile them here into themes that are relevant and important. I will frame of the questions for John and Andy, and then they will prepare their response. I will get right into it here.

The first question is for Andy around truckload pricing. North America truckload pricing to CHRW customers was down 3% year over year, while transportation costs per mile declined 5%, a spread that widened more significantly during the fourth quarter, when compared to earlier this year. Has this spread widened, narrowed or remained relatively the same in January?

What we've seen in January is it has remained relatively the same, there's been no material change one way or the other from what we saw in the fourth quarter.

Thanks Andy. The next question is for John.

Trying to read the tea leaves, how are you feeling about the macro environment today? Any changes in your customer tone, and any differentiation between large or small customers?

From a macro standpoint, I would say be softening of the market and the decrease in prices is probably the predominant theme that everybody is focused on. Just how long will the market stay soft, and what type of environment will we be in throughout the remainder of 2016? Listening to that question, I would say the other thing that probably comes to mind is that from a macro standpoint, we have been trying hard to analyze our business from an industry and vertical standpoint more and more, and probably, not surprisingly, when you look across the vertical sectors in Robinson, is where you would see some of the higher correlations to the economy, and where things are at.

Anything energy or mining related, obviously very soft, and even in those regions where that is focused, less activity going on. In the retail world, there's a lot of transition, a lot of increase in e-commerce, a lot of store closings, a lot of transition that's going on in the retail world.

We are still fairly big in food and beverage, which is a little bit more stable than a lot of the other sectors. Our automotive business is still remaining pretty good in North America. That industry has continued to do fairly well. So again, not shocking or surprising given the headlines and the types of things that are happening in the US and around the world. But I would say that our freight activities probably validate some of the headlines that you see about what's happening in the overall economy.

Thanks, John. The next question is for Andy around contractual pricing and truckload.

Can you comment on the rate increases or decreases that you are seeing in your contractual book of business for 2016? Asked another way, are shippers demanding and getting rate concessions, or are you able to maintain or even modestly increase your rates as you go through the bid process?

Thanks.

We are currently having a balanced discussion with our contractual customers in this area. On the one hand, you have got regulations such as ELD, that will drive up the cost of transportation later in the year and in 2017, and shippers are aware of that.

At the same time, the current market has softened from a year ago, and we are aware of that. Things such as origin and destination pairs, as well as mix of freight are considered when deciding rates, and our people are working every day to reach out and get the best solution for our customers, and our Company.

Thanks Andy.

Next question for John, it appears you are still in hiring mode, which you promised to do in 2015 to regain some market share. With an uncertain macro picture, how do you see your hiring plans in 2016?

It is our current intention that we do plan to continue to hire in 2016. We have a lot of productivity initiatives and various focus points that we have to try to increase our productivity, and build our business, by being more productive and being more efficient. But as I said earlier, people are the core asset, and we know that we are more successful when we go to market with good people who are talented and trained in what they need to do. So we are continuing to plan to hire in 2016, and we will obviously adjust if the market conditions change significantly, but at this point, it's our intent that we will be able to hire mid-single-digit increases of people and grow our network, and strengthen our team.

Thanks John, next question for Andy.

With the implementation of ELDs, what is your outlook for longer-term truckload pricing?

Thanks. As we referenced in our prepared remarks, our price to carriers has risen on average 2.5% since 2008, which includes different economic cycles and regulations. That rate of increase is reflective of what has happened in the industry overall, and we would expect ELDs to cause long-term truckload pricing to rise, and that increase to be influenced by many different factors, both positive and negative, such as GDP, capacity and the like.

Thanks Andy. Next question for John.

How does the current market environment compared to that seen in 2011 and 2012? Does it look like we are approaching a supply-demand equilibrium at the current tempered freight levels? And if so, how will this impact your net margins?

If you go back -- and this question is around the North American truckload, and if you go back and look at our activity over the last five or six years, throughout 2010, 2011, 2012 and 2013, we talked a lot about it being a little bit unusual in an extended period of time, where there is a fairly balanced market. That balanced market ended with some weather and some meaningful price increases in late 2013 and 2014, and now what we're seeing in 2015 is towards the end of the year, some of that double-digit price increase, especially in the transactional market, being given back.

So yes, from the standpoint of 2014 being a tighter market and some aggressive price increases, and now some of those coming back, we are probably moving back more towards a midpoint around the balance of supply and demand in the marketplace. What I think is different, though, is that a lot of the way we talked about our Business back in 2011 and 2012 was during a sustained period of a balanced market. There became some different dynamics around route guides, and how important it was to be near the top of the route guide, and how we had to aggressively go after share in a fairly sustained, balanced market for a long period of time.

It is too early to know what the rest of even 2016 is going to be like, much less 2017 or 2018. So I don't think it's fair to conclude that we are back into a sustained, balanced market. We will have to see how the rest of 2016 plays out, and what the next couple years look like, to know if we're going back into an environment like we saw in 2011 and 2012.

Thanks John.

Next question for Andy. What is the outlook for share repurchases moving forward, and what is the hierarchy for uses of cash?

The hierarchy for the uses of cash is number one, continue to invest in the business, because that capital generates significant ROI. Number two, strategic acquisitions; between Phoenix and Freightquote, which have occurred over the last three years, we have invested over $1 billion and are very pleased with the returns on those investments. And number three, return capital to shareholders, which we have done; over $3.1 billion since 2010.

Thanks Andy, next question back to John.

Can you discuss the current competitive environment in truck brokerage, and are you concerned about other participants being willing to do the same business for a significantly smaller margin going forward? Who provides the greatest threat, other pure truck brokers, or asset intensive carriers with ancillary truck brokerage operation? Has the competitive environment improved with the acquisition of other competitors?

With regard to the competitive landscape, we have acknowledged, and there has been a lot of discussion over the last five years around the increase in competition. Almost every committed bid that we work on will have dozens of providers and lots of carriers, lots of other 3PLs, and the market remains very competitive. So we continue to see a very competitive marketplace with a lot of people out there.

I commented earlier in our prepared comments that we take an approach around sustainability and profitability. Whenever somebody is aggressively going after market share with a different attitude towards profitability or sustainability, it can have an impact.

We have to try to understand that and make sure that we are not over reacting or mispricing our services, or doing things we don't intend to do, because others are taking a different go-to-market strategy in terms of what they are doing. So we do have to watch out for that, but I think for the most part, the vast majority of the competitors have a similar attitude, and have continued to work on that.

We haven't seen a lot of change this year in the competitive landscape. Again, whenever the market is moving and is softening like it has, there will be a lot of transition, and a lot of bid activity. But with thousands of competitors and a very fragmented market, it's hard to see any unique changes in a short period of time. So I would say there is nothing really unusual about what we have experienced this year.

Thanks John, next question for Andy.

Can you discuss how North America year-over-year organic truckload volume growth trended on a monthly basis through the fourth quarter, and thus far into the first quarter?

Yes. Truckload volume for the quarter was pretty consistent throughout, up 2% per business day in each of the months. January has continued at that same trend.

Thanks, Andy.

Next question for John. Can you speak to the challenges facing your intermodal business in the current market? Would you expect your intermodal volumes to remain under pressure until truckload rates begin to rise?

Short answer is yes.

We have talked a lot about our intermodal business, and the competitive positioning of it over the past several years. What we have today is a capable team. We understand the service and we compete primarily in that multi-modal freight that can typically be served by either truck or intermodal services. We feel like we do a good job of making certain that our customers get exposure to intermodal opportunities and pricing, when that's appropriate.

What we've confessed in the past is that what we don't have is the density of high volume, committed freight in all intermodal lanes, or the dedicated equipment that is sometimes the most effective way to serve those dense corridors and those more committed areas. That's something that we continue to work on and still aspire to be better at in the future. So as our business continues to transition and hopefully strengthen ourselves, in terms of dedicated and committed relationships on the intermodal front, we will continue to see more fluctuations in transactional shipments, based upon the market conditions.

Thanks John.

Next question for Andy. Air freight and ocean freight net revenue growth -- around that net revenue growth. Cross-selling initiatives are noted in the prepared remarks, but are you disappointed in the rate of growth, given their relative lack of size, and the completion of Phoenix's integration?

We are not disappointed at all. In fact, we're very pleased. As John mentioned, you go back three years ago, when we acquired Phoenix and merged it with our global forwarding operation, particularly, I think if you look at any other acquisition that's been done in this space, there are a lot of examples of how not to do it. A lot of businesses that have been significantly disrupted.

And we have continued to grow, both what I will call traditional Phoenix and traditional Robinson global forwarding business. And what we've tried to do, on a very thoughtful and deliberate basis, is merge those two entities across the globe in a way that was in no way shape or form disruptive to our organization. So today, we actually have a significantly stronger global forwarding operation located throughout the globe, with people all over the world doing pretty good things. So again, we are really pleased with the progress of our global forwarding team, the results we're making, and that cross-selling is really -- it's already taken hold, but it's beginning to accelerate.

One of the key aspects to that as well, as John mentioned, is our global platform, Navisphere. So when you bring everybody onto one platform, you are able to provide that visibility end to end across the globe with all of your customers, and I would argue that there are very few people that can actually -- a lot of people say they can do it, but very few people can actually back that up and do it. I think what we have said, and what we have done has been very deliberate in that regard, and the success we are seeing today, not only in 2015, but it's continuing into 2016, is there.

Thanks Andy.

Next question for John around our carrier base. Can you break down the percentage of Robinson's freight hauled by large, medium and small carriers?

We have shown some pie charts about this in the past, and they really haven't changed over the last five or six years. If you look at -- we would define a large carrier as somebody who has more than 400 pieces of equipment, and that group constitutes a couple of percent of our interaction with the capacity side. Carriers that have 100 pieces of equipment or less constitute more than 90% of the activity of the truckload shipments in North America that we do.

So we have an active carrier list, that at the end of the year, was increased to 68,000 carriers and then fragmented market place, and those, it depends on your definition of medium and small, but to us 100 pieces of equipment all the way down to that individual true owner-operator with one truck, that is the backbone of our truckload capacity, and continues to be a very similar mix today that it's been over the last couple decades.

Thanks, John.

Staying on the topic of our carriers for Andy, how many truckload carriers did Robinson add in the fourth quarter of 2015? And has the Company seen any changes to fleet sizes, year to date?

We have added another 2,700 new carriers during the fourth quarter, which was up 13% from the fourth quarter of 2014. It's another great job by our network and carrier relations team, throughout all of 2015, which brought in over 11,500 carriers, representing over 40,000 tractors. So no material change, in terms of the fleet composition.

Thanks, Andy.

For John, what is the best environment for a volume and capacity standpoint for Robinson operationally and financially?

I commented earlier about our commitment to both a transactional presence, and a committed or contractual end. When you think about the years in our history where we've had really significant growth, it was environments where there was a lot of economic growth, and a lot of continued opportunity in the marketplace, where in those longer-term committed relationships, we have a high degree of volume, and we are able to take market share and expand those committed relationships. While at the same time there's a very robust market of transactional opportunities and unexpected freight that we can help service in the marketplace, as well too.

So the very best performance years we've had from a growth and profitability standpoint is when the economies are growing, the markets are very active, and there's healthy market share opportunities in both committed and transactional relationships that we have in the marketplace. There's a lot of other market environments, like we've talked about earlier, where demand will cycle, and capacity will cycle, and so supply and demand will lead to price increases and price decreases.

And as I have said a couple of times, we will continue to add value and take market share and apply our services in whatever environment the marketplace throws at us. But the optimum conditions, which is probably true for a lot of industries and a lot of companies, is overall economic growth and prosperity is a good thing for all of us. When we see a sustained environment of that, it's probably the best thing.

Thanks, John.

To Andy with our next question, CHRW's leverage ratio ended 2015 at the lower end of its 1 to 1.5 times debt to EBITDA target. How is management thinking about the company's current leverage ratio in light of a more uncertain demand outlook, and weighing the potential uses of debt?

First, 2015 was a fantastic and record year in cash flow, generating nearly $720 million, with over $250 million coming in the fourth quarter alone. Obviously, we've had a positive impact on our leverage ratio.

Going forward, we would expect that ratio to be back in the 1 to 1.5 range. We continue to look at strategic acquisitions; we have done them in the past, we will continue to do them in the future. So we believe that we are appropriately structured from a capital basis going forward.

Thanks Andy.

To John, a truckload question. With the softer spot, are you starting to see any decreases in small carrier capacity? What is your insight into where capacity is headed, given the soft spot macro uncertainty, and pending ELD implementation?

We touched on this in a couple different areas, but really, we have not really seen any change in our carrier composition at this point. For the past several decades, there has been a lot of speculation around the extra strain on the small carrier, and whether or not that was going to impact the marketplace as a whole, and whether that would impact our relationships with them.

Some of the regulation that has come into the marketplace over the last six or seven years around safety and hours of service, and now the electronic locks that are coming in, there is a cost factor that impacts that capacity in the marketplace. But we're pretty comfortable that, similar to a lot of the previously-implemented legislation, that it will get absorbed over time, and that it will get adapted to by the small carriers.

I think one of the things that is important to understand, too, is that while hours of service and some of the service ratings and some of the electronic logging regulations that have come or are coming into place -- one of the other impacts of that is, it really is sort of genericizing the capacity out there, where some of the quality differentiations that maybe some of the larger carriers tried to differentiate with in the past are not going to be as prevalent. So while there is a cost issue and a potential productivity issue, we do think that the capacity landscape is going to remain very fragmented, and that in a lot of ways, it will actually improve the quality and the overall blend of capacity that we could utilize in the marketplace.

Thanks, John.

Next question for Andy on our net revenue margin. The slide deck says net revenue margin expansion was the result of lower transportation costs, change in mix of business due to faster growth and shorter length of haul, freight, and the addition of Freightquote. Could you break down in three buckets the contribution of each to net revenue margin expansion in 2015?

Certainly.

Of the 310 basis point improvement during the quarter, approximately 140 basis points came from the improvement in net revenue per mile. Approximately 110 basis points came from fuel, and the remaining 60 basis points came from all other, including Freightquote and air and ocean.

Thanks, Andy.

Next question for John. What is your current spot versus contract mix in the truckload business?

For those of you who aren't as familiar with our history, if you go back 15, 20 years ago we were almost entirely transactional in a brokerage role, and as we have grown our services and grown our company and have entered into more committed relationships, we have talked about that longer-term trend towards a better balance of committed and contractual relationships, along with our spot market.

We continue to believe that there's probably a balance point of around 50-50. I think last year in 2014, we were probably closer to that 50-50 balance. In a market like this in the fourth quarter of 2015, where things are softening, our best metrics would probably say that we are more 60-40, or a higher percentage of committed or contractual freight that's moving along pre-priced arrangements.

Thanks John.

Moving on to the next question around the truckload bid season, to Andy. As trucking bidding season is now underway, can you talk a little about where customer pricing is settling in? And how does that compare to capacity costs? Any color to help understand the different moving parts in that revenue margin number, and how it could trend in the coming quarters?

Yes. Following up on John's answer, and as a reminder, we buy almost all of our capacity in the spot market, where there is a lot of volatility. And over the last recent quarters it has been down, but if you go back through all of 2015, and you look at it on a quarter by quarter basis, first quarter up 6%, second quarter up 3%, third quarter down 1%, fourth quarter down 5%. So there is that volatility and we are very familiar and comfortable in that environment.

On the customer side, as John mentioned, it's about 60% of our business is committed. We're having discussions right now and continue to have discussions about what price is doing over the longer term, so capacity -- when we buy is very short term, pricing is done, the discussions are over a long term, usually a one-year period. That being said, we feel really good about our ability to work with our customers to understand what that volatility is doing, and quite frankly, the ability to price into that volatility with them.

Thanks, Andy.

And staying on the topic of contractual business to John. Since CHRW has become increasingly reliant on contractual business, can you discuss how CHRW's bid season works with customers? Namely when it begins and ends, and is there any bellwether that set market expectations for pricing?

So when we've talked about our committed relationships in the past, important to remember that the contracts are generally for a calendar year, but most of them will have evergreen clauses in them. And one of the things that virtually all shippers retain the privilege of deciding when and if they are going to rebid their committed or contractual pricing.

So when we look across our book of rates and contracts, there will be some that have been in place for years, that we and the customer are continuing to live by, and in other instances, those customers will have a very rigid annual cycle, or a more systematic approach towards how and when they rebid those services.

Even when a shipper rebids their contracts or committed pricing, they may or may not include all of the freight. There's another step in the process to determine, based on market conditions and their service levels, around what they would want to do.

So for us, it's a very fluid process. There are bids going on at any point during the year. There are more of them going on this time of year than in others, but there really is no single bellwether or month. It's very much of an ongoing evolution based on supply and demand conditions, as to when either the providers are giving 30-day notice and opting out, or when shippers are choosing to rebid the contracts in the marketplace.

Thanks, John, and back to you with the next question here on cross-selling. Can you please give us an update on your cross-selling efforts as they relate to both Phoenix and Freightquote?

So Andy set the table with Phoenix. From a global forwarding standpoint when we closed the deal three years ago, we really didn't do a lot in the first 12 months, but after that, began a pretty systematic program with Chris O'Brien and his go-to-market team around looking at our domestic customers, where we know they had global forwarding opportunities, and trying to participate aggressively in those bids. And vice versa, looking at larger global forwarding customers, where we thought we could expand more into domestic services.

We do have metrics that establish that we have been successful with that. There's measured net revenue and relationships that have come in both ways, and as I commented in my prepared comments about the numbers of customers with multiple services, and our cross-selling success from our joint account managers, we do feel very good that's real, and that we've been successful in doing that.

With the Freightquote acquisition, there's probably less specific cross-selling. That business is very transactional. I think the theme that we have talked more about there is really more us having a clearer segmentation strategy, that in our LTL business, while we've been very comfortable with how we have grown it over the last decade, we have gravitated more towards committed relationships with higher volume shippers, because that was really our expertise and capability, and our account management structure really didn't facilitate an efficient interface with a small shipper, who wanted to spend a lot of time price shopping and doing other things that a more typical, smaller transactional customer would do.

So what's been positive about the Freightquote acquisition this year. It's really helping us evolve into a clearer segmentation strategy, where the true transactional smaller shippers, especially the LTL, but also truckload, are leads and opportunities that we can put more under the Freightquote brand, that has established a very efficient front-end and interface with customers for doing that.

And then allowing the traditional Robinson network to focus more on the medium and larger customers, where we are investing our account management resources in a little bit more cost intensive approach, to provide the service that's required for those relationships. So a little bit different in terms of the way we're going after the synergies and the growth, but feeling good about both of them, that they have been good additions to the Robinson network, and have made us stronger.

Thanks John, next question for Andy around productivity. You've been able to grow operating income faster than net revenue for a few quarters in a row now, which is a nice trend. Are there things that you are doing different to amplify the leverage in the model? And how much more is there to go? How sustainable do you think that is, especially if we start to see net revenue margin compression in 2016?

Yes. Thanks.

One of the great stories at Robinson, and they are many, is the office network. We currently have about 270 offices spread across the globe and global forwarding -- North American service trans, PMC, sourcing, and the like. Inside each of those offices are great people and great leaders that manage productivity expenses at the local level.

It helps that a majority of our compensation is variable, and our people do an excellent job of managing for balanced growth on both the top and bottom line. So the credit, obviously, goes to them for the great job and great work that they are doing of improving productivity, managing to balance growth across the network, and improving that ratio.

Thanks, Andy.

To John, question about our sourcing business. The sourcing business was stronger than we were expecting. Is that business back on track, or was there anything unusual in the fourth quarter that we shouldn't assume will continue into 2016?

With regards to our Robinson Fresh business and the produce sourcing activity that we do, as a reminder, I think Andy stated earlier that there's a pretty concentrated customer base there, and we also have a fair amount of concentration in certain commodities, like melons and other stuff that we have unique expertise in, that we do a lot of activity.

So what will happen in any period of time is that there will be some volatility in the results, relative to the weather and the crop yields, and just the amount of freight and activity that comes out of it. That Fresh group also provides a lot of temperature-controlled transportation within the Robinson network, so at any point in time, we are working with those retailers and food service companies to not only provide temp-controlled transportation, but also product for them where we can source and supply the Fresh product into their network.

Because of the customer concentration over the past six or seven years, we have had a couple of instances where we knew that larger customers were not going to be sourcing certain commodities from us in the future, so we have cautioned that some of the declines were foreseeable, that we could see them. At this point, we do think our Robinson Fresh sourcing business is at a normal activity level. We don't see -- we are not aware of any losses or things that we expect in terms of customer declines, so we hope this type of activity in the fourth quarter would be normal.

But again, back to the normal caveat, that it is a very weather-sensitive business and a lot of these commodities can fluctuate up and down in unforeseen ways pretty quickly. So there will continue to be a little bit more volatility in the sourcing line item of our revenues.

Thanks John, and will be the last question for Andy, around our truckload business. A little bit deeper cut on volume. Organic volume growth in truckload for the year was a fairly decent 3%. Given the limited spot market opportunities, where did most of the increase come from?

Yes, following up on John's earlier answer, the majority of that volume growth came from our committed business, and we have seen that number go from that 50-50 split to 60-40 during 2015. So the vast majority coming from committed business.

Thanks Andy, and thank you again, everybody, for the submission of some great questions. I know I didn't get time to ask all of them here. If there's any follow-up that you would like to do with me, please reach out via email or a phone call, and we will get some time scheduled to answer the rest of the questions.

Thank you for participating in our fourth-quarter 2015 call. This call will be available for replay in the investor relations section of the C.H. Robinson website at www.CHRobinson.com. You can access the replay by dialing 888-203-1112, and entering the passcode 4722702 pound. The replay will be available at approximately 11:30 this morning Eastern time. Thank you, everybody, and have a great day.

And thank you for joining us today ladies and gentlemen, this does conclude today's program. We certainly appreciate everyone's participation. You may disconnect at any time.