C.H. Robinson(CHRW) - 2022 Q4 - Annual Report

PART I This section provides an overview of the company's business operations, associated risks, property details, and ongoing legal matters Item 1. Business C.H. Robinson is a global asset-light logistics provider offering diverse transportation and sourcing services, leveraging its proprietary technology platform Overview and Segments The company achieved $24.7 billion in 2022 revenues, operating through North American Surface Transportation and Global Forwarding segments - In 2022, the company achieved consolidated total revenues of $24.7 billion, handling approximately 20 million shipments for 100,000 customers[33][54] - Operations are structured into North American Surface Transportation (NAST) and Global Forwarding segments, with other operations grouped into 'All Other and Corporate'[55] Transportation and Logistics Services The company offers comprehensive transportation and logistics services, accounting for 97% of adjusted gross profits - The company provides a comprehensive suite of transportation and logistics services, including Truckload, Less Than Truckload (LTL), Ocean freight, Air freight, Customs brokerage, and other logistics services[37][38][58] - Transportation services accounted for approximately 97% of adjusted gross profits in 2022[92] Sourcing Services Under the Robinson Fresh brand, the company provides sourcing services, primarily for fresh produce, contributing 3% to adjusted gross profits - Under the trade name Robinson Fresh, the company provides sourcing services, primarily buying, selling, and marketing fresh fruits, vegetables, and other perishable items[35][55] - Sourcing services accounted for approximately 3% of the company's adjusted gross profits in 2022[67] Proprietary Information Technology The company's operations are primarily run on Navisphere, a global transportation management system, supported by a large team of tech professionals - The company's operations are primarily run on Navisphere, a single global, multimodal transportation management system, serving as a key competitive advantage[73][97] - Approximately 1,300 data scientists, engineers, and developers innovate and enhance technology offerings, including tools like Emissions IQ™, Procure IQ®, and Market Rate IQ™[73][99][100] Human Capital As of December 31, 2022, the company had 17,399 employees globally, with specific metrics on diversity and turnover Employee Count by Region (as of Dec 31, 2022) | Region | Total Employees | | :--- | :--- | | North America | 12,276 | | Europe | 2,121 | | Asia | 2,113 | | Oceania | 504 | | South America | 385 | | Total | 17,399 | Diversity, Equity, and Inclusion (DEI) Metrics (as of Dec 31, 2022) | Metric | Percentage | | :--- | :--- | | Women in Workforce | 48% | | Management Positions Held by Women | 46% | | U.S. Racial and Ethnic Minorities in Workforce | 29% | | Management Positions Held by U.S. Minorities | 23% | - The employee turnover ratio for the 12 months ended December 31, 2022, was 19%[90] Item 1A. Risk Factors The company faces significant risks from economic downturns, intense competition, technology dependence, cybersecurity threats, international operations, and regulatory compliance - Business Environment Risks: The company is exposed to economic recessions, reduced freight volumes, credit risk, and intense industry competition[136][191][194] - Company-Specific Risks: The business is highly dependent on internally developed technology, vulnerable to system failures and cybersecurity attacks, and faces challenges in international operations and retaining key personnel[172][179][198] - Governmental and Legal Risks: The company must comply with numerous regulations and is subject to claims from transportation operations, potentially exceeding insurance coverage[183][207] Item 2. Properties The company's headquarters is in Eden Prairie, Minnesota, supplemented by approximately 250 leased global offices and 4.7 million square feet of warehouse space - The company leases approximately 250 office locations in 38 countries and warehouse space totaling approximately 4.7 million square feet[214] - In 2022, a 201,000 square foot facility in Kansas City, Missouri, was sold and leased back for a ten-year term[214] Item 3. Legal Proceedings The company is involved in routine litigation, with no expected material adverse effect on its financial position or operations - The company is not subject to any pending or threatened litigation other than routine litigation arising in the ordinary course of business[216] - Management does not expect the resolution of current legal proceedings to have a material adverse effect on the company's consolidated financial position, results of operations, or cash flows[216] PART II This section details the company's common stock market, financial performance analysis, market risk exposures, and audited financial statements Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, with significant share repurchases in Q4 2022 and remaining authorization for future buybacks Q4 2022 Share Repurchases | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2022 | 2,665,000 | $95.94 | | Nov 2022 | 1,564,812 | $93.55 | | Dec 2022 | 115,100 | $94.48 | | Q4 Total | 4,344,912 | $95.04 | - As of December 31, 2022, there were 7,409,198 shares remaining for future repurchases under the company's share repurchase authorization[248] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes 2022 financial performance, highlighting revenue and net income growth, segment-specific trends, increased operating expenses, and a significant rise in operating cash flow Consolidated Results of Operations In 2022, the company reported increased revenues, adjusted gross profits, and net income, alongside higher personnel expenses and restructuring charges Consolidated Financial Highlights (FY 2022 vs. FY 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $24.7 billion | $23.1 billion | +6.9% | | Adjusted Gross Profits | $3.6 billion | $3.15 billion | +14.0% | | Income from Operations | $1.3 billion | $1.08 billion | +17.1% | | Net Income | $940.5 million | $844.2 million | +11.4% | | Diluted EPS | $7.40 | $6.31 | +17.3% | - Personnel expenses increased 11.6% to $1.7 billion, mainly due to an 11.7% increase in average employee headcount[257] - The company recorded $36.7 million in restructuring charges in 2022, including $21.5 million in personnel expenses and $15.2 million in other SG&A[264][511] Segment Results of Operations NAST showed strong performance driven by margin benefits, while Global Forwarding experienced declining volumes and pricing North American Surface Transportation (NAST) Results (FY 2022 vs. FY 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $15.83 B | $14.51 B | +9.1% | | Adjusted Gross Profits | $2.20 B | $1.79 B | +22.5% | | Income from Operations | $833.3 M | $585.4 M | +42.4% | - NAST's strong performance was driven by higher adjusted gross profits per transaction, as declining purchased transportation costs benefited margins[295] Global Forwarding Results (FY 2022 vs. FY 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $6.81 B | $6.73 B | +1.2% | | Adjusted Gross Profits | $1.08 B | $1.07 B | +0.9% | | Income from Operations | $449.4 M | $510.8 M | -12.0% | - Global Forwarding's income from operations declined due to decreasing volumes and pricing in the second half of 2022, with air freight volumes falling 9.0% year-over-year[7][269] Liquidity and Capital Resources Cash flow from operations significantly increased in 2022 due to reduced working capital, with anticipated capital expenditures of $90 million to $100 million in 2023 Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Cash from Operating Activities | $1,650,171 | $94,955 | | Cash used for Investing Activities | ($64,918) | ($85,672) | | Cash used for Financing Activities | ($1,619,546) | $7,573 | - The significant increase in cash from operations was primarily due to a $650 million sequential decrease in operating working capital, driven by declining transportation costs and freight rates[304] - The company anticipates capital expenditures of approximately $90 million to $100 million in 2023[330] Critical Accounting Policies and Estimates Key accounting policies involve judgment in revenue recognition for in-transit shipments, annual goodwill impairment testing, and establishing income tax reserves - Revenue Recognition: Management uses judgment and estimates to recognize revenue for in-transit shipments, with $257.6 million recorded for such services as of December 31, 2022[10][310] - Goodwill: Goodwill is tested for impairment annually, with the Europe Surface Transportation reporting unit showing no impairment in 2022[11][23][313] - Income Tax Reserves: The company establishes reserves for uncertain tax positions, requiring significant judgment and reevaluation based on audits or changes in tax law[315][340] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's market risks primarily stem from interest rate fluctuations on variable-rate debt and foreign currency exchange rate movements, with a hypothetical 10% USD weakening impacting 2022 net income by $20.4 million - The company's primary market risks are interest rate changes on variable-rate debt and foreign currency fluctuations[364] - A hypothetical 10% weakening of the U.S. Dollar against key foreign currencies would have decreased 2022 net income by approximately $20.4 million[367] Item 8. Financial Statements and Supplementary Data This section includes the audited consolidated financial statements, an unqualified auditor's opinion from Deloitte & Touche LLP, and disclosures on a critical audit matter regarding in-transit revenue estimation - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and internal controls over financial reporting[347][368] - A Critical Audit Matter was identified related to the high degree of judgment required in auditing the company's estimate of revenue for partially complete in-transit contracts[14][349] - Total debt as of December 31, 2022, was $1.97 billion, consisting of revolving credit facilities, senior notes, and a receivables securitization facility[428] - In 2022, the company recognized $36.7 million in restructuring charges related to workforce reductions and software impairment[511] PART III This section provides information on the company's directors, executive officers, and corporate governance practices, primarily by reference to the Proxy Statement Item 10. Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement, alongside the company's code of ethics - Information regarding the Board of Directors and executive compensation is incorporated by reference from the company's Proxy Statement[521][523] - The company has a code of ethics that applies to its principal officers, directors, and all employees, available on its investor relations website[522] PART IV This section lists all documents filed as part of the Form 10-K, including financial statements, auditor's report, and an index of exhibits Item 15. Exhibits, and Financial Statement Schedules This section provides a comprehensive list of exhibits filed with the Form 10-K, including financial statements, the auditor's report, and an index of corporate governance and material contract documents - This section includes the company's 2022 Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm, Deloitte & Touche LLP[528][548] - An index of all exhibits filed with the report is provided, including key agreements such as the Credit Agreement, Note Purchase Agreement, and various equity incentive plan documents[529][531]