Q2 2025 Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the C.H. Robinson Second Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, July 30, 2025. I would now like to turn the conference over to Chuck Ives, Senior Director of Investor Relations.

Thank you, Paul, and good afternoon, everyone. On the call with me today is Dave Bozeman, our President and Chief Executive Officer; Michael Castagnetto, our President of North American Surface Transportation; Arun Rajan, our Chief Strategy and Innovation Officer; and Damon Lee, our Chief Financial Officer. I'd like to remind you that our remarks today may contain forward-looking statements. Slide 2 in today's presentation lists factors that could cause our actual results to differ from management's expectations.

Our earnings presentation slides are supplemental to our earnings release and can be found in the investors section of our website at investor.chrobinson.com. Today's remarks also contain certain non-GAAP measures, and reconciliations of those measures to GAAP measures are included in the presentation. With that, I'll turn the call over to Dave.

Thank you, Chuck. Good afternoon, everyone, and thank you for joining us today. When the current transformation of C.H. Robinson began in early 2024 with the implementation of a new lean operating model, we recognize that some people had doubts and didn't understand how this would enable the company to change its trajectory.

Now with 6 consecutive quarters of consistent outperformance through the disciplined execution of the strategy that we shared at our 2024 Investor Day, there is no doubt in our minds that we are on the right path to deliver sustainable outperformance in all market cycles. I'm proud of the Robinson team for embracing our new operating model and the discipline needed to improve our say-do ratio and to generate higher highs and higher lows across market cycles. Our people consistently demonstrate that they are the industry's best logisticians with the value that they bring to our customers and carriers, and they are excited about the transformation happening at Robinson and the momentum that we have.

We are not waiting for a market recovery to improve our financial results and the strategies that our Robinson team is executing are not only working, but they are built to be effective in any market environment. We're still in the early innings of our transformation journey. We have demonstrated our ability to responsibly grow market share and expand margins at the same time. This has enabled us to approach our mid-cycle operating margin targets despite operating in an elongated trough of the freight cycle.

We are accelerating our progress by harnessing and scaling the evolving power of AI to drive automation across the pool's life cycle of the load. Our industry-leading innovations not only enhance the service and value we deliver to our customers, but also improve our operational performance by automating tasks that free up our talented people to focus on more strategic, high-value work. We are pioneering new ways to eliminate tasks, augment our capabilities and supercharge our talented people with industry-leading technology that materially elevates the customer and carrier experience and our lean operating model enables us to do this in a disciplined way that delivers the most value to all of our stakeholders.

And you can expect the next chapters of this company's evolution to be just as exciting as the last 18 months. Shifting to our Q2 results. In NAST, we outgrew the market again in both truckload and LTL, while expanding gross margins and improving productivity year-over-year and sequentially. In Global Forwarding, we continue to win new business and improve the yield of our portfolio by beginning to implement the revenue management disciplines that we've been utilizing in NAST for over a year.

We also optimized our global forwarding expenses through further increases in productivity. Overall, we delivered a 21% year-over- year increase in our enterprises Q2 income from operations and we will continue to lean into the self-help initiatives that enabled our Q2 market share growth and margin expansion. From a macro standpoint, fluid trade policies continue to create uncertainty, making planning activities more difficult for our over 83,000 customers around the world. For some of them, tariffs caused them to reduce their import volumes.

For instance, when U.S. tariffs on Chinese goods increased to 145% in April, numerous retailers, limited imports to only essentials needed for fall like back- to-school products. Others accelerated shipments to beat tariff deadlines from Southeast Asia and some stuck to their standard peak season schedules, taking a more wait-and-see approach. Although we're approaching the traditional retail peak season for ocean, the industry may not see traditional peak volumes as some retail customers are working through inventories and being highly selective and strategic about bringing in only the essential products they must import.

We saw this dynamic with back-to-school ordering. And that trend is continuing as uncertainty about trade deals continues to shape customer behavior. But these periods of volatility reinforced C.H. Robinson's value proposition.

There is a flight to quality right now, and that is Robinson. Customers need a partner who not only understand how to navigate increasing complexity but who can also partner with them to solve their unique supply chain challenges, especially amid persistent uncertainty and change. We've been doing this for over a century. And with our scale, breadth of services, differentiated experience and financial stability, we are built to lead through disruption and to help our customers adapt just as quickly as we do to changing market dynamics.

During the quarter, we continued to lead the industry in this era of digital enablement, including expanding our suite of cutting-edge self-serve digital solutions to enable faster and more effective navigation of our global trade complexities. Our new U.S. tariff impact analysis tool empowers U.S. importers to assess their overall duty exposure and drill down to the SKU level for precise cost analysis. We also saw a surge in demand for our ACE import intelligence tool, a proprietary self-serve compliance platform that gives importers greater visibility and control over their customs data. Together, these 2 tools provide an unmatched view into both historical compliance and future-facing tariff strategy, helping importers manage every stage of the import life cycle with precision.

Additionally, in Q2, we announced the expansion of our proven item-level solutions to all global customers, offering unmatched visibility and control over every SKU across their supply chains. These tools built on years of experience with complex global shippers reduce blind spots, increase agility and deliver measurable savings. In today's volatile environment, scaling this capability reinforces our leadership in digital logistics and our ability to connect data- driven insights with real-world execution. We'll continue to help our customers strategize on how to make their supply chains most efficient and cost effective.

Our strategic initiatives remain on track. We've been preparing for a variety of market scenarios, and we're intensifying our strategic focus or market outgrowth, gross margin expansion and operating leverage improvement. And while we are not immune to global market dynamics, we remain confident in our strategy and our people. Their consistent, disciplined execution of our strategy, supported by the Robinson operating model makes us stronger, and we'll stay focused on providing differentiated service to our customers and carriers.

I'll turn it over to Michael now to provide more details on our NAST results.

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, the NAST team delivered market share growth in both truckload and LTL in Q2 and further optimized our volume, resulting in year-over-year expansion of our gross and operating profit margin. Once again, we delivered this outperformance in the midst of a historically long freight recession, underscoring the strength and resilience of our model and people. . For more context, the cash freight shipment index declined on a year-over-year basis for the 11th consecutive quarter in Q2 and was down 3.4%.

Our overall mass volume, on the other hand, increased approximately 1% year-over-year. Truckload volume was flat year-over-year and OTL volume was up approximately 1.5%. All of these outpaced the Cass index. Sequentially, truckload volume per business day grew approximately 4.5% and LTL volume per business day grew 2.5%.

At the same time, the market volumes have declined, load-to-truck ratios are higher than they were a year ago, and route guide depth in our managed solutions business has increased over the past year, reflecting an exit of capacity that has brought us closer to better balance in the market. The result of this has been a year-over-year increase in the truckload linehaul cost per mile, excluding fuel surcharges. Supported by our operating model and armed with industry-leading tools, our team of freight experts continues to respond to the challenging freight environment with pricing discipline and a cost of higher advantage.

All of this led to improvement in the AGP yield in both our truckload business and our LTL business, resulting in an 80 basis point year-over-year improvement in our NAST gross margin. Our team continues to actively assess the market and optimize for the most effective combination of volume and margin to enhance earnings performance. With strategic agility built into our model, we have the flexibility to pivot toward volume or margin as market dynamics evolve, making disciplined data-driven adjustments in real time. All while staying focused on long-term value creation.

We're also making smarter use of our proprietary digital capabilities and getting actionable data into the hands of our freight experts faster, enabling them to make better decisions and to capture the optimal freight for us. Additionally, these digital capabilities have enabled us to increase our NAST shipments per person per day at a double-digit pace over the past 2-plus years, and that momentum continued in Q2. Since the end of 2022, we have delivered a more than 35% increase in productivity. This enhanced efficiency is not only lowering our cost to serve, but it is also elevating the customer experience by enabling faster, more reliable service.

As a result of executing on our strategies, our NAST operating margin of approximately 38% in Q2 increased both year-over-year and sequentially. Regardless of market conditions, we remain focused on what we can control. Our people and their unmatched expertise enable us to deliver exceptional service and greater value to our customers and carriers. In line with our disciplined and focused approach to capture growth opportunities in targeted customer segments, we recently announced the expansion of our ISO certification, which enhances our ability to meet rigorous quality standards in the health care logistics sector.

We've also adapted our solutions to match our customers' supply chain needs and invested in capabilities such as drop trailer, cross- border, short haul and Robinson managed solutions and we will continue to deliver the industry-leading solutions and flexibility that only a scale broker can provide to customers and carriers. In what continues to be a challenging marketplace, our people are relentlessly driving improved results, powered by their unwavering commitment to our customers and carriers and fueled by the growing adoption of the Robinson operating model and cutting-edge tools. With that, I'll turn it over to Arun to provide an update on the innovation we're delivering to strengthen our customer and carrier experience and improve our gross margin and operating leverage.

Thanks, Michael, and good afternoon, everyone. In Q2, we continue to disrupt from within to transform our business to better serve our customers and to widen our competitive moat. In line with the strategy that we laid out at our 2024 Investor Day, we are scaling several innovations, including our fleet of secure proprietary AI agents across every aspect of the extensive quote-to-cash life cycle of an order and to more modes and customers. One recently announced example is a new AI agent that helps shippers automate the process of classifying LTL freight under a new national system.

In the AI agents first few months, it has been determining the freight class and code for about 2,000 orders a day and it has reduced the processing time from 10 minutes or more per shipment to 10 seconds or less. The AI agent can also handle hundreds of LTL shipments at once and determine the freight classification for all of them simultaneously. Our customers' freight gets on the road faster, and our people can devote more time to the work that our customers value most, helping them manage disruptions and operate their supply chains more strategically. Another way that we continue to disrupt from within is by leveraging and scaling the use of game-changing AI technology, such as agentic AI to power new capabilities that are backed by our unmatched data and scale.

The advanced reasoning capabilities of agentic AI expands the boundaries of what's possible for process automation by adding the ability to autonomously perform complex tasks without the explicit instructions that Gen AI requires. As we continue to improve our service with cost-efficient AI task agents that listen, learn and act all day, every day, agentic AI has the ability to ignite a revolution and empower systems to think, adapt and act differently, enabling us to deliver fast, accurate and personalized service at scale and in any market. All of these innovations are reducing the amount of time it takes for us to respond to a quote or for a tendered load to be accepted, thereby providing a better customer experience.

Additionally, our proprietary AI is supporting our market share and margin expansion initiatives. The faster speed provided by our AI has enabled us to respond to more quotes and win more business thereby augmenting our market share growth. The continued advancement of our AI is powering our dynamic pricing and costing and we are responding more surgically and faster than ever to dynamic market conditions by performing more frequent price discovery. Along with our operating model rigor and our revenue management practices, this is contributing to the gross margin improvement that we're delivering.

Through the same rigor, we've also improved our ability to manage the short-term gross margin compression that typically comes with a spot rate inflection, such that we are confident in our ability to shorten the time and reduce the impact of any margin compression compared to historical spot rate inflections. Over a 12-month time frame, we expect a stronger demand and/or reduction of excess capacity that leads to a spot rate inflection to outweigh any short-term margin compression that may occur. In this regard, we believe our outperformance will continue as spot rates inflect. Finally, the growing automation across our quote-to-cash life cycle, whether it be quoting, order entry, low tenders, appointment scheduling or other manual tasks, creates business model scalability.

This enables us to decouple head count growth from volume growth and to create greater operating leverage. Our ability to leverage evolving technology has played a key role in our greater than 35% productivity increase since the end of 2022. And we expect to create further operating leverage as evergreen productivity improvements continue in 2025 and beyond. The advancements that we're bringing to our customer supply chains, such as automation powered by AI, have significant impact due to our scale and our information advantage, which comes from moving more truckload freight than anyone in North America and doing more LTL shipments than any other 3PL.

To date, our tech and AI investments have been over-indexed and asked where we could get the greatest leverage. Where we're now putting more emphasis on deploying the same playbook in global forwarding and expect to generate further improvements in that business to enable us to achieve our 30% operating margin target. Ultimately, we are focused on 3 items that are key to our strategy: Transforming the customer and carrier experience to elevate our service offering and drive growth; delivering business model scalability; and driving gross margin and operating margin expansion. Technology continues to evolve, and we have and will continue to disrupt from within to stay at the forefront of that evolution.

With that, I'll turn the call over to Damon for a review of our second quarter results.

Thanks, Arun, and good afternoon, everyone. As you've heard today, Q2 marked another step forward in executing on the strategic initiatives aimed at our North Star of growing operating income. This was driven by market share growth, ongoing AGP optimization, disciplined cost management and evergreen productivity initiatives. Even as overall market volumes declined, we improved the quality of our volume and AGP through market share gains, disciplined capacity procurement and effective revenue management.

Total AGP was up $5.8 million year-over-year despite a $15 million decline due to the sale of our European Surface Transportation business. The overall AGP increase was driven by a 3% increase in NAST and a 1.9% increase in global forwarding. On a monthly basis, compared to Q2 of last year, our total company, AGP, per business day was down 5% in April, up 5% in May and up 2% in June. From an expense standpoint, our total operating expenses declined $32 million or 6.3% year-over-year.

Q2 personnel expenses were $335.3 million, including $3.9 million of charges related to workforce reductions. Excluding these charges, our Q2 personnel expenses were $331.4 million, down $20.3 million due to our continued productivity and cost optimization efforts, the divestiture of our European Surface Transportation business and a nonrecurring benefit of approximately $6.3 million from certain actions taken within Q2. Our average head count was down 11.2% year-over-year in Q2 and was down 3.7% sequentially, reflecting our dynamic workforce planning process that enables us to quickly adapt to changing market conditions.

Based on our strong cost controls and productivity improvements through the first half of the year, and the visibility we have into the back half. We are lowering our guidance for 2025 personnel expenses to be in the range of $1.3 billion to $1.4 billion, compared to our prior range of $1.375 billion to $1.475 billion. This reflects our disciplined approach to managing our cost structure and our ability to drive efficiency while positioning the organization for long-term growth, while remaining committed to further decoupling of head count from volume. With low to mid-teen turnover rates, we are well positioned to manage headcount, primarily through natural attrition, if needed.

Our Q2 SG&A expenses were $142 million. Excluding $0.4 million of other charges related to the divestiture of our European Surface Transportation business, SG&A expenses of $141.6 million were down $0.8 million year-over-year. We are also lowering our guidance for 2025 SG&A expenses to be in the range of $550 million to $600 million compared to our prior range of $575 million to $625 million. This guidance includes depreciation and amortization of $95 million to $105 million.

Although most of our SG&A expenses are subject to inflation, we expect continued cost improvements to partially offset the inflationary impact. Shifting back to Q2. Our effective tax rate for the quarter was 21.4%. We still expect our 2025 full year effective tax rate to be in the range of 18% to 20%. We generated $227.1 million in cash from operations in Q2, and our capital expenditures were $20.2 million.

We still expect our full year capital expenditures to be $65 million to $75 million. From a balance sheet perspective, we ended Q2 with approximately $1.22 billion of liquidity comprised of $1.07 billion of committed funding under our credit facilities and a cash balance of $156 million. Our net debt-to-EBITDA leverage at the end of Q2 was 1.40x, down from 1.54x at the end of Q1. Our financial strength continues to be a key differentiator in our industry as it enables us to continue investing in the bottom of the freight cycle and improving our capabilities. While our capital allocation strategy remains grounded in maintaining an investment-grade credit rating, our financial strength and improved leverage ratio enabled us to return approximately $161 million of cash to shareholders in Q2 through $85.8 million of share repurchases and $74.9 million of dividends.

Compared to last year, our improved leverage ratio has led to a higher likelihood of continued share repurchases in the current year. As we continue to build on our momentum, our Q2 financial results further validate the transformation underway at C.H. Robinson. With the disciplined execution driven by a Robinson operating model and the strength of our strategies to outperform in any market environment.

I'm confident in our trajectory, and I'm energized by what lies ahead. With that, I'll turn the call back to Dave for his final comments.

Thanks, Damon. As you gathered from our comments today, we remain focused on executing our self-help initiatives, to strengthen our market share, expand our margins and enhance the level of service we deliver to our customers and carriers. These efforts are central to our strategy to create long-term sustainable value and to lead the logistics industry forward. I'm proud of the work we have done over the past 2 years to stand up a new operating model and to get fit, fast and focused.

Our cost structure is in a much better position with greater than 35% productivity gains delivered since 2022, and we're continuing to drive further process improvements to enhance our service and increase our overall operating leverage. As lean tools are deployed more broadly across our organization, our teams are becoming more increasingly equipped to identify root causes of problems, implement countermeasures and drive meaningful improvements. That's how we've consistently delivered outperformance for 6 consecutive quarters and how we'll continue to do so regardless of market conditions or cycle.

This outperformance does not happen because you are one of the pack. This is a new and different Robison. And our difference sets us further and further apart from the pack. Our transformation is structural and technological.

We're redefining what it means to be a logistics company. Leading from the front with cutting-edge technology, leveraged by the best logisticians in the game and moving faster than ever to shape the future of the supply chain. And as we lead our industry and stay on offense with our AI strategy, we are excited about the future. Our advanced AI and machine learning technology is improving our gross margins by allowing us to better align capacity and pricing to the specific needs of our customers and to specific market conditions.

These superior dynamic costing and pricing capabilities will be even more important when we eventually see a turn in overall freight demand. Our technology is lifting mundane, repetitive tasks of our people's plates, freeing them up to do more strategic work and to reach more customers, garner more wallet share and move up the value stack by leveraging our growing capabilities. I want to thank our people for their relentless efforts to provide exceptional service to our customers and carriers. We're embracing the Robinson operating model and continuing to execute with discipline.

I'm confident in the team's ability to drive a higher a more consistent level of operational execution and keep pushing the bar higher on our financial performance across market cycles. As I reflect on my first 2 years leading this great company, I'm proud of how we're building on a 120-year legacy of grit, innovation and a relentless focus on the customer. From the beginning Robinson has been grounded in delivering a great customer experience. And that foundation remains core to how we will grow and lead in the future.

But we also have hard work to do to evolve, to push our mindset to deliver more value, sharpen our execution, solve problems quickly and differentiate through speed, simplicity and clarity. We've made great progress on our transformation journey, and we're seeing the results, not just in stronger earnings, but in how we improve execution, innovate fast and elevate the customer and carrier experience. We've reinvigorated a winning culture, and we're getting our swagger back, but we're not resting on our laurels. We will continue to disrupt ourselves and this industry to lead with purpose, move with urgency and build a company that future generations will be just as proud to inherit.

The message is clear. C.H. Robinson is not just transforming. We're leading.

We are the new disruptor, and we're on track to drive sustainable outperformance across market cycles. That concludes our prepared remarks. I'll turn it back to Paul now for the Q&A portion of the call.

[Operator Instructions] Our first question is from Chris Wetherbee with Wells Fargo.

Dave, I'm sitting here looking at the operating margins of NAST at 38%, improving, as you noted, kind of getting you towards your mid-cycle goals at what appears to be sort of the bottom of the market. So I guess, as you start to think about what's possible with the business, I don't know if you've rethought what you think the potential opportunity is on the margin side. It just seems like productivity is moving faster than we had maybe expected. So just would hope if you could expand a little bit upon what you think the potential of NAST margins and just overall margins for the business could be over time?

Chris, good to hear from you. Listen, no, you're right. First of all, we feel really good about our productivity. I mean it's been in 2.5 years at 35% on where we're going.

And we look at that as evergreen productivity. As part of our operating model. It doesn't surprise us as far as how we're moving up the stack on our productivity. And what we really feel good about is as we continue our journey we're jumping into our technology, which will only enhance our productivity as we go forward.

Now we're not discounting the macros. It's still a tough environment out there, but the way we look at it is it's a higher high and higher low, and we're going to continue to drive that productivity. I have Michael maybe expand a little bit more just on NAST overall margins where we are in the cycle. But as I said, we feel really good about where we are and kind of what we talked about at Investor Day as well, which is why we kind of gave that range of the $350 million to $450 million overall.

Michael, you can expand.

Chris, again, thanks for the question. I think Dave hit it. First and foremost, I'd say we believe our productivity gains and the movement we've made in our margins are evergreen, and we expect to continue to challenge ourselves through the operating model to find additional productivity next week, next month, next quarter, you name it. I'll go back to some of the comments Arun made, we do think there's some additional unlock in the world of agentic AI.

We've been industry leading in maybe the first generation of AI and applying that to our business, but we think there's another round of unlocks that we're just in the early innings on just starting to get our arms around. And so we feel really good. One, really proud of the team's performance in a continued difficult environment. But two, I do believe there's some opportunity for us, whether the market changes or not, right?

We believe we can continue to get better at what we're doing and really excited about the work our teams are doing together, Arun's team and our team in NAST, just really a lot of great stuff in front of us. .

Our next question Ms. Richa Hernan with Deutsche Bank.

Hey, everyone. Thanks for the time and very impressive results here, echo Chris' sentiment at the bottom of the cycle, kind of getting these types of margins is quite impressive. Maybe you can talk about there remains this non skepticism about the ability for C.H. Robinson replicate or augment on such success in the event of an up cycle.

I know you've talked about this ad nauseam in the past, but maybe you can update our views and share. As we've seen volume growth this quarter, margins still expand at a very strong amount. Maybe this speaks to is another example of how you'll continue to sort of rebut that? But yes, just all the thoughts you can share around that would be helpful.

Yes, good to hear from you. This is Dave. The -- we look at this, and we've been saying, as you pointed out, one, we feel fundamentally really good about, one, where we are in this cycle. But I will tell you, we feel even better that when the market snaps back that we'll be in pole position to continue to drive what you're seeing and that will be energized even more based on our operating model and the technology that Michael just spoke about and that Arun spoke about as well.

The key thing that we've always talked about and we said it before, is we are fundamentally a different company structurally where we were yesterday, be in 2018 to where we are now. Structurally, we put that in place in how we operate, the discipline we operate with and the execution that we go after with an evergreen continuous improvement approach. And so when the market goes back, we think that we'll be in a really good position. I'll call out that -- we've always point to our global forwarding business as that kind of canary in the coal mine.

Last year, we saw global forwarding grow each quarter while taking down expenses. This business goes through our same operating model and didn't have the benefit of the technology improvements that we put in NAST. So it kind of gives you a headline within that business of what's to come when we start really driving a market rebound within NAST. So we feel like we're positioned extremely well for the rebound.

Damon, do you want to expand on that?

Yes. Thanks, Dave, Rich, I would just say that the way we always answer that question is the processes that we have driven efficiency to, that we've brought technology to. They are fundamentally different, right? They're completely changed.

And so therefore, there's no need to have the same level of human touch on those processes when the market enters a new stage of recovery, right? And so for us, it's not even a question of do you add back head count to support the volume. There's just no need to add that head count back, right? The processes are fundamentally changed.

So I'd say that is point number one. Point number two is, as we've talked about many times, I mean our operating model doesn't let us plateau. It doesn't let us get stale on productivity. It drives continuous improvement consistently, and that's no different in the decoupling of our headcount, right?

If you think about what's fundamental to our productivity. It is driving efficiency in our processes. It's using technology to replace those human touches. And our operating model make sure that's a continuous flow of improvement.

So I think we've been pretty consistent on our answer. We fundamentally believe the processes that we've automated are -- they're different, and therefore, don't require the same level of human interaction that they did yesterday, and therefore, we're highly confident when the market does recover that we'll see great operating leverage as part of that recovery.

Our next question is from Ariel Rosa with Citi Group

This is Ben Mohr of Citi on for Ari Rosa. Congrats on a great quarter. As the biggest freight broker, you see everything across your industry. And I wanted to get your take on trucker capacity related to freight broker technology.

As you know, trucker capacity has been extremely elevated. It's remained elevated for 3 years as FMCSA carrier registrations, this June are still at COVID highs from 2022 and net adds are even above exits in 2Q. And this is happening even as truckers should deplete their COVID savings and transports loan impairments are on the rise. There's this growing narrative that broker technologies enabling owner-operator carriers to stay around longer and that may be a key behind the overcapacity issue that's been pressuring rates.

And this is broker tech, not just you and your largest competitors, but the 25,000 smaller brokers enabling small owner-operator carriers to find loads to better match their costs. Like the Uber apps driven a proliferation of gig drivers to overtake large taxi medallion companies. What are you seeing in terms of broker tech of smaller brokers that you come up against? And do you believe this might be a key behind the overcapacity issue pressuring rates that keeps persisting?

Bruce, this is Michael. Thanks for the question. I think, one, certainly, there's been a democratization of kind of freight brokerage tech over the last couple of years, and there are plenty of folks offering capabilities out to smaller brokers. But there's a couple of things that I would say we believe pretty strongly.

And one, our data and information advantage and scale continues to drive opportunities for us in that space. From your question on, is it enabling carriers to stay in longer. I wouldn't say that's the case. We've seen a decline not only in the number of brokers, but also in capacity exits.

And as we said in our prepared comments, we are seeing a bit better balance in the marketplace. But really, I think our ability to match the right freight to our carriers is unmatched in the industry. and our ability to match our customer supply chain needs with that ability to match with carriers is what's driving our success, right? We believe that there is a clear differentiation between what we do in the marketplace and our competition, whether that competition or assets, large brokers or small brokers. And so I'm not sure I would agree maybe with your sentiment on that being a driver of keeping capacity in the marketplace.

But certainly, I would acknowledge the democratization of freight brokerage tech, but we believe our tech stack, combined with our people, is a clear differentiator for us in the marketplace.

Yes. All right, just to add on to that, the -- we have seen a burn down, as you probably have as well with brokers as well, about 18% plus now over the last 1.5 years, 2 years. So there's a burn down of brokers. And as Michael said, on the carrier side, we see some of that as well.

So -- it's interesting. We stay focused on what we're doing, but it's a tough market out there for a number of individuals, both carriers and brokers.

Our next question is from Scott Group with Wolfe research.

Thanks afternoon. I was wondering if there's any color you can give us on NAST and forwarding trends and to start Q3 or any way how to think about just normal seasonality, if there's such a thing for Q3? And then maybe just separately on the head count piece. Just do we contemplate -- should we contemplate some additional reductions in the back half of the year?

And at what point do we just sort of reach a natural sort of limit in terms of where -- how much more there is to go here? .

Scott, this is Michael. Thanks for the question. I'll speak from a NAST perspective first. Q3 historically is sequentially pretty flat to Q2. And so that's just what I'd say from kind of an industry standard and even our historical numbers.

From a productivity perspective, or head count perspective. What I'd say is we're going to keep holding ourselves to the challenge that Damon, Dave and Arun have mentioned, which is we're going to get more productive every day, every week, every month. Now some of that comes in direct head count changes. Some of it comes in how we handle a quote-to-cash life cycle.

There's tons of opportunities for us to improve the way we run and operate our business. But I don't believe I would buy maybe the idea that there's a limit. I think there's a ton of unknown. The world of AI and now agentic AI is going to create opportunities for us to again shift the way we manage business and create value for our customers and for our people.

And so I would not buy into the idea that we're going to run into a hard floor in that aspect. And so that's where I'd answer from a NAST productive I'll hand it over to Damon, the GF side.

Yes. And Scott, I'll just kind of end my thoughts on productivity, then I'll give you some market commentary on forwarding. Yes, I agree with everything, Michael. I'd say the way I would think about our productivity is, as I mentioned before in previous comments, right, it's an evergreen approach, right?

We expect productivity every month, every quarter, every year, right? That's a baseline expectation. In addition to that, there are going to be milestones where technology evolves or processes evolves and we'll get productivity even on top of that evergreen productivity that's driven by our operating model. So as Michael said, we really don't see any future of a plateau and productivity for us, right?

Our operating model is going to drive us to incremental evergreen productivity. The evolution of our technology is going to drive us to that step function productivity. So -- as Dave has mentioned, we've mentioned often, we're in the early innings of our transformation, and that early innings applies to the productivity journey we're on as well. Specifically to Q3 for global forwarding, as you know, we don't give guidance.

But what I will tell you is I'll start by framing Q2 and then work into Q3. Certainly for Q2, April was the bottom of our volume due to the tariff wars and the level of tariffs in the quarter that we started out with. We did see volume rebound in May and June but it wasn't a significant rebound, certainly not enough to offset the pressure that we saw in April. So as you go into Q3, I think there's just still a lot of uncertainty. As you see every day in the headlines, right, there's still many trade negotiations still pending.

The levels of tariff outcomes related to those negotiations are still pending. So I think the tariff front creates a lot of uncertainty for Q3 and I'd say in the second half of the year. And then I think the unknown on top of that from a macro perspective is what will consumer confidence be? And what will that ultimately derive from a GDP perspective?

So I think that's the equation. I think we've all got a balance for the second half is what pressure are tariffs going to create from an overall demand perspective. And can that be offset by consumer confidence in GDP growth, right? I think that's the equation we're all starting to run through our models for the second half of the year.

Our next question is from Tom Wadewitz with UBS.

Congratulations on the strong results, against a tough freight backdrop. I apologize if you were to comment on this or some overlapping calls. But -- how do you think about the operating margin, I guess, in that the kind of target of 40% or mid, I don't know, mid-cycle target, however you frame it exactly. You're getting pretty close and nice improvement towards that.

Is that something that's kind of around the corner? Or how do you think about, I guess, ability to achieve that in a week what remains, call it, a soft freight market, however you want to frame it? And then on the gross margin for NAST and further improvement, is there a ceiling on that? Or is that -- how do you think about what that can get to that's just been a really favorable progression in the gross margin in NAST as well?

Tom, thank you. This is Michael. I'll take the gross margin side, and then I'll let Damon speak a bit to the operating margin side. We've been pretty consistent over the last couple of quarters around how we view gross margin volume, the optionality we have to really maximize the combination of that regardless of market.

I think what we're getting better is adding intentionality to our optionality, right? So we know what freight is the right freight for our customers, for our carriers. We know there are some key areas. We talked about our value equations, whether it's verticals for specific customers or capabilities like short haul or drop trailer or other places.

And so I think every -- just as we've been talking, productivity is evergreen, so is our expectation of the improvement of our pricing models, our cost of hire models, our team's interaction with those models and how they're getting better at identifying the right freight for us to go pursue. And I also do think that customers are -- Dave mentioned in his comments, there's a flight to quality. And I think customers are identifying the value we're bringing in the marketplace. And so I don't necessarily know if I'd say again, I don't like using the word limit anywhere.

But I think there is an opportunity for us to continue to refine the combination of volume and margin that we're producing to keep driving growth for the business and value for our customers.

Yes, Tom, I'm going to hand it to Damon. I just -- I do want to highlight the fact that the team is doing a really exceptional job in a super tough market. I mean this is -- we're seeing all of this, and I think you all agree that we're well over 3 years here and with that pressure that's on there. But how we're operating in that discipline that the team is operating with it's just something that's fundamentally different.

And we do like to look at that and say, that there's a separation there. I mean how we're operating, how we go about it, how we're trying to separate ourselves out from competition. I give the team a lot of credit for that and it's a lot of hard work in really a tough environment. So again, we don't discount it.

We just get up every day and go do it. But I just didn't want to discount the fact that it's a tough market out there, but this team is kind of innovating through that. And it's just a different way of how we're thinking about it and executing. But Damon, you can add a little bit.

Yes. So Tom, I would just round this out with saying, look, we feel really good about the margins we delivered in Q2, what we've delivered in the first half of 25% as we've said every time we get an opportunity, we feel really good about our Investor Day commitments for 2026. Now with that said, right, we won't slow the momentum, right? So there is no cap on what we think we can do but we are confident in what we've committed to. I think Michael touched on this on the gross margin level.

I'll touch on it on the operating margin level is we've got a lot of optionality between volume and profitability, right? And so we don't want to back ourselves into a corner on limiting that optionality, right? So every day, every month, every hour in some cases, we're playing the optimization gain between market share growth and margin optimization through gross and operating, we feel good about that optionality. So I'll just reiterate, we feel really good about the 40% for NAST at mid-cycle.

We certainly won't use that as a cap and performance allows us to exceed that we will, but we also don't want to give up the optionality we have between market share outgrowth and profitability.

Our next question is from Bruce Chan with Stifel.

Been a long day. So happy to see these results. Appreciate that. And I think the success that you've had this quarter kind of has me maybe drawing about some longer-term possibilities.

So maybe on that front and thinking about M&A, it's been a little while since you've added to the portfolio. You've made some good progress over the past few quarters with optimizing the current business but we've also had a lot of changes to trade patterns and shipper needs. So maybe just talk about the appetite here for inorganic growth and any places in the portfolio or geographic pockets or lanes, especially in global forwarding that you might see some opportunities, especially in what I'd call a buyers market here. .

Yes. Thanks for the question, Bruce. What I would say, and I think it served us well certainly in my 12 months with the company, right, is we have a very disciplined capital allocation model. And as you can see from our results, the organic opportunities we have internal certainly are attractive, right, and certainly get top billing from an investment perspective.

So I'll just recap our allocation strategy, and I'll touch on M&A as I go through that. So certainly maintaining our investment-grade balance sheet is a top priority. Maintaining and growing our dividend is a top priority, as I mentioned just now, Arun and team have a very deep deck of opportunities. That's why we keep talking about early innings because the organic pipeline of opportunities is very deep, and they're very high ROI opportunities.

So they certainly command a large portion of our allocation because the return is there. And then certainly, M&A and buyback become part of that equation. As you've seen, we have bought back stock in Q1 and Q2. There's certainly a higher probability this year than there was last year on a continuation of that buyback. And make no mistake, we're kicking the tires on inorganic opportunities.

I would say every week, right? So we're certainly not dormant on looking at inorganic opportunities. But as Dave has reminded, every investor we talk to and many of you, we're not going to make a mistake on M&A, right? It will be the right acquisition.

And when it is the right acquisition, we'll pull the trigger. But in the meantime, we feel like we have a really good capital allocation strategy and the organic opportunities that have yielded great growth and margin benefits are still plentiful and that continues to be a focus.

Our next question is from David Hicks with Raymond James.

I just wanted to -- I know it's a smaller part of the business, but I wanted to hit on customs because it's outsized impact in the quarter with record gross profit. And I think the most absolute growth among your service lines this quarter. Can you maybe unpack kind of what's driving the strength? Is it more of a transitory benefit from tariff complexity and elevated compliance needs?

Are you seeing more kind of structural improvements from here as long as tariffs are in place?

Yes. Thank you for the question, David. What I would say is, look, we pride ourselves on being able to meet our customers where they're at, both on a global offering perspective as well as a full suite of offerings as well as it relates to customs and duties. And as you can imagine, we've had a lot of activity in the custom space with all of the uncertainty and just range of variability that's going on.

And certainly, that's benefited us. We've been able to benefit our customers by offering them a key value-added offering during this period of time, and we've benefited from that offering. What I would say is the sustainability of the customs performance is highly dependent on the tariff environment, right? And so I don't think any of us know where that's exactly going to land in the next 6 to 12 months.

I think the one thing we can probably be confident in is that the customs complexity is probably not going to go away in entirely, right? There's going to be some level of advanced customs level and complexity as we go forward, and we'll certainly benefit from that complexity in that volume. So what I'd say is there's no way to guarantee would the Q2 levels of customs continue into the future. We believe our customs activity will continue to be elevated.

To what level will depend on the tariff environment going forward.

Our next question is from Jeff Kauffman with Vertical Research Partners.

Well, first of all, congratulations. These are terrific results in a tough environment. I'm just kind of curious, and I think, David, you mentioned this in your earlier commentary, about some of the opportunities you were seeing in the market. But I'm just kind of wondering how is the table shifting with all the uncertainty out there?

And what new opportunities are you seeing for the company that maybe weren't as visible 6 to 9 months ago. .

Jeff, I just want to clarify in the comments. I think your -- opportunities that we spoke of. It's really about our continuous improvement opportunities of the company that we have. I mean Damon just spoke to the potential inorganic versus organic opportunities, and I think you covered that fairly well.

I'll have Arun talk a bit more about something we're really excited about as we continue on this journey. And on how it kind of separates us on how we're looking at the company overall structurally. But Arun, you want to expand a bit on that opportunity.

Yes. You heard both -- well, everyone here has talked about gross margins and operating margins and how much opportunity we have going forward. And the opportunity lies in the way we've approached this, we've used things like machine learning and traditional software engineering techniques to drive dynamic pricing and dynamic costing, so algorithmic pricing and costing and yield management to drive all of our productivity improvements at 35% over the last couple of years. And so the way we think about it is we need -- we are and we will continue to disrupt from within with technology.

We've been doing it with all the tools that were available, traditional software engineering, data science, Gen AI, I think the big opportunity on the horizon for us to continue that evergreen productivity and continued optionality on gross margin and volume trade-offs is agentic AI. We're well set with all the investments that we've done in the past few years to build our muscle. That combined with our operating model creates a significant opportunity going forward.

Jeff, I would just add kind of tagging on to what Dave was talking about is a lot of times, look, we have a great success on productivity. It shows up in our margins. It gets most of the attention I think the one thing that our efforts doesn't always get highlighted is the ability to outgrow the market, right? So certainly, all of the technology improvements, all of the productivity improvements they've also improved our ability to serve the customer.

We're able to get the more quotes than we ever got to before. We can provide a better service level to the customer. And all that has led to our ability to outgrow the market. So as Michael spoke to earlier, we outgrew the Cass index for both truckload and LTL on the quarter.

That's been a continued trend now for many, many quarters. And that's a little bit of a narrative that gets lost as the outgrowth, right? So if you think about everything that Robinson team has been able to deliver, certainly, we've benefited greatly from the productivity at the operating margin level. But all the effort around revenue management, around price optimization, cost to higher optimization that's benefited our gross margins.

And then on top of that, it's unlocked potential on being able to outgrow the market as well. So it's really -- our strategy is allowing us to win on both growth, gross margin and operating margin. And as Arun just spoke to, a lot of that was on the back of Gen AI. We think agnetic AI is the next phase of that kind of breakthrough productivity.

So we're really excited about what the next 12 to 18 months holds.

Our last question is from Jonathan Chappell with Evercore ISI.

Kind of on that same thesis, but maybe outside of your core knitting a little bit. You've done so much with what C.H. Robinson had when you arrived as a new management team, we're seeing some brokers really kind of increase their interest in financial offerings now. And I'm sure you have some, but can you just remind us about your capabilities of some of the financial offerings, fintech, so to speak?

And is there a competitive advantage that you see either getting bigger in that or maybe just kind of keeping to your core knitting?

John, this is Michael. Appreciate the question. We announced certainly Robinson Financial probably been just over a year ago -- probably was just a year ago. But it was really around driving value to the carrier community.

If you're a carrier getting paid accurately quickly, getting access to the right freight, getting -- keeping your trucks moving, all of those together create an ecosystem that we think is the best in the industry. . And so admittedly, while we had the most loads off for anybody in the industry, I think we had the best people and logisticians to match that freight up. But we were missing that extra component of adding that financial support to the carrier. And that's really why we announced our partnership with Triumph about a year ago, and now we're offering industry-leading carrier payment programs and other financial services, and we expect those services to evolve and continue to develop.

We want to be a place that carriers choose to move their equipment. And we believe the combination of services we offer with the most freight to offer really gives us, again, another point of differentiation in the marketplace.

Thank you. This concludes our question-and-answer session. I'd like to hand the call back over to Chuck Ives for any closing comments.

evening.

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