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C.H. Robinson Worldwide Inc (NASDAQ:CHRW)
Q4 2019 Earnings Call
Jan 29, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the C.H. Robinson Fourth Quarter 2019 Conference Call. [Operator Instructions] Following today's presentation, Bob Houghton will facilitate a review of previously submitted questions. [Operator Instructions].

I would now like to turn the conference over to Bob Houghton, Vice President of Investor Relations.

Robert Houghton -- Vice President of Investor Relations and Treasury

Thank you, Dawn, and good morning, everyone. On our call today will be Bob Biesterfeld, our Chief Executive Officer; and Mike Zechmeister, our Chief Financial Officer. Bob and Mike will provide commentary on our 2019 fourth quarter results. Presentation slides that accompany their remarks can be found in the Investor Relations section of our website at chrobinson.com. We will follow their comments with responses to the pre-submitted questions we received after our earnings release yesterday. I'd like to remind you that our remarks today may contain forward-looking statements. Slide two in today's presentation lists factors that could cause our actual results to differ from management's expectations.

And with that, I will turn the call over to Bob.

Bob Biesterfeld -- Chief Executive Officer

Thanks, Bob, and good morning, everyone. I'll get right to the point this morning. Our net revenues, our operating margins and our earnings per share all finished well our long-term targets. We've been facing some rather extreme, if not unprecedented, cyclical changes in our North American trucking market. one year ago, we were experiencing near record net revenue dollars per shipment and double-digit total company net revenue growth. This was followed by a period of rapid price declines, driven by excess capacity and weak demand. The resulting net revenue reported for fourth quarter of 2019 seems another stark contrast to the results of a year ago. Higher operating expenses for the quarter, including increased investments in Information Technology, magnified this effect. Mike will provide more context on our operating expenses in the prepared remarks. To be clear, our fourth quarter results do not reflect our performance expectations going forward.

We are committed to our investments in technology, even during more challenging periods in the freight side. Our investments this quarter led to operating margins below the low end of our historical fourth quarter averages. We're not immune to large swings in the freight market, but we believe our continued advancements through cycles will align the net revenue growth and the operating cost needed to drive operating margin expansion over the long term. We will continue our focus on cost controls with our target of eliminating $100 million in operating costs over the next three years. So as we move through mid-2020, we expect our operating margins will begin to improve. Despite results below our long-term expectations, I do believe that we took some really important steps in the fourth quarter. We continue to adjust our pricing in order to optimize our results. Our fourth quarter decline in truckload net revenue per shipment was largely anticipated as the fourth quarter of 2018 benefited from contractual pricing in a rapidly falling cost environment, resulting in the highest quarterly truckload net revenue per shipment in the last decade.

On an absolute basis, our fourth quarter truckload net revenue per shipment was very much in line with levels experienced during the balanced freight markets in both 2016 and 2017. Pricing adjustments to reflect the current market helped enable us to deliver flat volume in mass truckload, including a mid-single-digit increase in contractual volume and 4.5% volume growth in LTL. These are healthy market share gains in a quarter where volumes, as measured by the Cass Freight Index, declined approximately 6%. Our truckload volume trends improved further in January, increasing approximately 6%. We're starting to see our increased investments in technology drive operating efficiency in our business, including a 330 basis point favorable spread between truckload volume growth and headcount growth in our NAST business. We continue to deliver industry-leading operating margins in the quarter and returned $137 million to our shareholders through a combination of share buybacks and dividends. We generated $212 million in operating cash flow in the fourth quarter. And for the full year, we generated operating cash flow of $835 million, an all-time high.

During the quarter, our teams continued to excel in the areas that we can control, including another quarter of increased win rates on contractual bids in our truckload and LTL service lines and increased awards with our largest customers, while we continue to provide the excellent customer service and innovation that our customers have come to expect from C.H. Robinson. I'm particularly proud of the results we delivered to our customers and carriers and the efforts of our employees to continue to provide supply chain expertise that brings capacity solutions to life for our customers and secure freight and optimize routing for our carriers. Yesterday, we announced the acquisition of Prime Distribution Services, a leading provider of retail consolidation services in North America. We're excited about the scale and the value-added warehouse capabilities that Prime will bring to our existing retail consolidation platform. Prime is a strong leadership team that's experienced in retail consolidation and warehouse operations, and we're thrilled to bring the employees, the customers and the carriers of Prime to C.H. Robinson.

With those introductory remarks, I'll now turn the call over to Mike to review our financial performance.

Mike Zechmeister -- Chief Financial Officer

Thanks, Bob, and good morning, everyone. Slide four shows our Q4 income statement summary. Fourth quarter total gross revenues decreased 8.3%, driven primarily by lower pricing across most transportation services due to the continued soft demand in excess capacity that Bob referenced earlier. Total company net revenues decreased 18.9% in the quarter, led by margin compression in our truckload service line. Q4 monthly net revenues per business day were down 16% in October, down 13% in November and down 27% in December when compared to the same periods last year. The net revenue deterioration in December was driven by performance in the final two weeks of the month, where the major holidays fell in the middle of both weeks, leading to a more pronounced decline in commercial activity.

Total Q4 operating income was down 46.5% over last year. Operating margin declined to 1,220 basis points compared to Q4 last year when margins were the highest we had seen in 8-quarters. The decline was driven by the drop in net revenue dollars and increased SG&A expenses. The largest contributors to the SG&A expense increase were increased technology spend in purchased services related to accelerating our growth and cost savings initiatives. Within the SG&A expense in Q4 were approximately $10 million that we would not expect to be ongoing expense. Diluted earnings per share was $0.73 in Q4, down 45.5% from Q4 last year. Slide five covers other highlights impacting net income. The fourth quarter effective tax rate was 21.4%, an improvement of approximately 250 basis points from the 23.9% rate in Q4 last year. The lower effective tax rate included a benefit of $3.2 million from onetime items, driven primarily by a return to provision true-up in Mexico. In Q4, we removed our assertion to indefinitely reinvest the earnings of foreign subsidiaries, which is consistent with our change in intent and strategy to repatriate cash in an economically efficient manner.

The resulting increase in income tax expense was almost entirely offset by foreign tax credits. Looking ahead, we expect our 2020 full year effective tax rate to be in the range of 22% to 24%. Fourth quarter interest and other expense totaled $10.8 million, up from $9.5 million in Q4 last year. Interest and other expense includes the impact of currency revaluation, primarily related to the conversion of working capital and cash balances to the functional currency in each country where those investments reside. Q4 this year included a $0.9 million unfavorable impact from currency revaluation compared to Q4 last year that included a $2.4 million gain from currency revaluation. Q4 interest expense declined by $1.6 million, driven primarily by overall debt reduction. Average diluted shares outstanding were down 1.8%, primarily due to $67.4 million in share repurchases in Q4. Turning to slide six. Cash flow from operations declined to 19.9% versus Q4 last year due primarily to decreased earnings and partially offset by improved working capital. Q4 capital expenditures totaled $19.5 million, which brings full year capital expenditures to $70.5 million.

We expect 2020 full year capital expenditures to be between $60 million and $70 million, with spending primarily dedicated to technology. Consistent with our previous announcement, we are planning to invest at least $200 million in total technology spending in 2020. In Q4, we returned approximately $137 million to shareholders through a combination of share repurchases and dividends, which represents an 18.5% decrease versus Q4 last year. We have nearly 10 million shares remaining on our current share repurchase authorization and intend to opportunistically repurchase shares to enhance shareholder value. Now on to some balance sheet highlights on slide seven. Fourth quarter working capital decreased 17.2% versus the prior year, driven by the decline in net revenues. Our debt balance at quarter end was $1.24 billion, down approximately $111 million versus the end of Q4 last year, and our weighted average interest rate was 4.1% in the quarter compared to 4% in Q4 last year.

As Bob mentioned, we are excited about the Prime Distribution Services acquisition and the expanded capabilities that Prime brings to Robinson. We anticipate the acquisition to close by the end of Q1 and plan to finance the acquisition with cash and existing committed financing. While we expect this acquisition to be slightly accretive to EPS in 2020, we would not expect it to have a direct or meaningful impact on the level of share repurchases. I will wrap up my comments this morning with a look at our volume and net revenue trends in January. While our January-truckload volume trends have improved over Q4 levels, the combination of soft demand and excess capacity is keeping pricing well below year-ago levels. January total company net revenues per business day are down approximately 18%. However, net truckload volume is up approximately 6% versus January last year, which would make this our highest NAST truckload volume for a January on record. For reference, in 2019, total company net revenues per business day increased 9% in both January and February and increased 13% in March.

Thanks for listening this morning. Now I'll turn the call back over to Bob to provide some additional context on the business and our segment performance.

Bob Biesterfeld -- Chief Executive Officer

Thank you, Mike. I'll begin my remarks on our operating segment performance by highlighting the current state of the North America truckload market. On slide nine, the light and dark blue lines represent the percentage change in NAST truckload rate per mile billed to our customers and cost per mile paid to our contract carriers, excluding fuel costs over the current decade. During the quarter, both spot market and contractual pricing declined versus year-ago levels. Price per mile billed to our customers declined 11%, while cost per mile paid to our contract carriers, net of fuel, declined 7.5%. The rate of cost decline moderated on a year-over-year basis versus the third quarter, resulting in net revenue margin compression in the fourth quarter. We do accept that managing cyclicality, price variations and margin compression in the marketplace is a big part of the 3PL value proposition, particularly with our committed relationships. Since 2010, the average price and cost, net of fuel, have each increased approximately 3% annually.

So with all the ups and downs, truckload pricing has been more inflationary than the broader U.S. economy. Our fourth quarter results reflect a shift to contractual volume that is typical for us in a declining price and cost environment, resulting in an approximate mix of 70% contractual and 30% transactional volume in the quarter versus a 65%/35% mix in the year-ago period. As we've stated before, one of the metrics we use to measure market conditions is the truckload routing guide depth of tender from our managed services business, which represents just over $4 billion in freight under management. Average routing guide depth of tender was 1.2 for the fourth consecutive quarter, representing that, on average, the first carrier in a shipper's routing guide was executing the shipment in most cases. This route guide depth remains near the lowest levels we've experienced this decade, and contractual routing guides continue to operate with first tender acceptance rates in the high 90% range. Our pricing continues to reflect current market conditions as we work to ensure we're near the top of the route guide headed into 2020.

Turning to slide 10 in our North American Surface Transportation business. Fourth quarter NAST net revenues decreased 23.2%, driven primarily by the decline in truckload. Our fourth quarter combined truckload and LTL volumes outpaced year-over-year changes in the Cass Freight Index for the fourth consecutive quarter. Truckload net revenues decreased 29.6% in the quarter, driven by margin compression. As I mentioned earlier, our pricing to customers resulted in lower margins when compared to last year's fourth quarter. These were not, however, the lowest truckload margins we've seen, but the 29% decline in truckload net revenue per shipment in the quarter is the highest year-over-year decline we've seen in the past decade. We anticipate facing net revenue per load headwinds throughout the first half of 2020, given the historically high comparables in 2019. Fourth quarter NAST truckload volume was approximately flat versus last year. Our fourth quarter truckload contractual volume increased at mid-single-digit pace. Through evaluating our performance on annual truckload bids, where pricing was completed in the fourth quarter, our win rates nearly doubled when compared to the fourth quarter of 2018.

This solid performance in contractual volumes was offset by a double-digit decline in spot market volumes, reflecting the continued softness in the transactional portion of the freight market. During the quarter, we added roughly 3,800 new truckload carriers to our network, which represents a 21% decrease over last year's fourth quarter and a 14% decline sequentially compared to the third quarter of this year. We see this as a clear sign that carriers continue to exit the marketplace. LTL net revenues decreased 3.4%, driven by margin compression. LTL volumes increased 4.5% in the fourth quarter, led by growth in new customers. In our intermodal service line, net revenues decreased 3.1% for the quarter. Slide 11 outlines our NAST operating income performance. Fourth quarter operating income decreased 43.3%, while operating margin of 33.4% decreased 1,180 basis points, driven by the net revenue decline, partially offset by reduced variable compensation expense in the quarter. NAST average headcount decreased 3.3% for the quarter, and NAST ending headcount is down 5% year-over-year for the full year.

Slide 12 highlights our Global Forwarding performance. Fourth quarter Global Forwarding net revenues were down 9.6%. Our acquisition of The Space Cargo Group contributed three percentage points of net revenue growth in the fourth quarter. In our ocean service line, net revenues were down 10.6% in the quarter, driven by lower pricing. Space Cargo contributed two percentage points of net revenue growth. Ocean volumes were down 1.5% in the quarter, and fourth quarter air net revenues decreased 12.8%, driven by a 7.5% decline in shipments and lower pricing. Space Cargo contributed six percentage points of net revenue growth. Fourth quarter results in both ocean and air were negatively impacted by reduced industry demand due to tariff uncertainty in our highest volume trade lanes from China to the U.S. 2019 Q4 growth rates were also negatively impacted by comparisons to the year-ago period that included shipments to build inventory ahead of tariffs enacted in the first quarter of 2019. Customs net revenue decreased 3.5% in the fourth quarter, driven primarily by lower pricing and a 1% decrease in customs transactions.

Space Cargo contributed one percentage point to the net revenue growth in the quarter. Slide 13 outlines our Global Forwarding operating income performance. Fourth quarter operating income decreased 49.5%. Operating margin of 11.7% decreased 920 basis points versus last year, driven primarily by lower net revenues and higher SG&A expenses, which was partially offset by lower variable compensation. Average headcount increased 3.4% for the quarter. Excluding the headcount impact of Space Cargo, our Global Forwarding headcount was flat for the quarter. Over time, we expect to deliver operating margin expansion through the combination of volume growth that exceeds our headcount growth and investments in technology to drive efficiency. Moving to our All Other and Corporate segment on slide 14. As a reminder, All Other includes Robinson Fresh, Managed Services and Surface Transportation outside of North America as well as other miscellaneous revenues and unallocated corporate expenses. Fourth quarter Robinson Fresh net revenues were down 15.2% versus last year, primarily due to changes in business mix and lower restaurant traffic at several key food service customers.

Case volumes declined 6% in the quarter. Robinson Fresh did generate 630 basis points of operating margin expansion in the quarter, driven by a decline in personnel and service center-related expenses. Fourth quarter managed services net revenues increased 5.2%, driven by a combination of new customer wins and selling additional services to existing customers. Managed services operating margin expanded 110 basis points on the quarter. Other Surface Transportation net revenues declined 0.6% in the quarter, driven by truckload margin compression in Europe, partially offset by an 11% increase in European truckload volume. The acquisition of Dema Service added about nine percentage points of net revenue growth for the quarter. On slide 15, I'm going to wrap up our prepared remarks with a few comments on our go-forward expectations. With the cost of purchase transportation and truckload still below year-ago levels and continued softness in spot market freight opportunities, North American routing guides are resetting at lower prices versus last year, and this is a trend that we expect to continue.

On a sequential basis, fourth quarter truckload pricing and costs were relatively unchanged, and we expect pricing to remain relatively flat sequentially over the next couple of quarters. In our truckload business, we continue to expect net revenue dollars per shipment to remain below year-ago levels through the first half of 2020. And in Global Forwarding, concerns regarding tariffs and fears of recession continued to impact shipper demand. As I said in my opening remarks, our fourth quarter results are below our long-term targets. With that said, I am confident that we're taking steps to ensure that we continue to meet the needs of our customers, our carriers and our employees, while we generate strong returns for our shareholders over the long-term horizon. We've reset our pricing to be more competitive with current marketplace conditions, which is driving market share gains in our truckload and LTL service lines.

We're leveraging our increased investments in technology to drive increased employee productivity and in order to bring innovation to our customers and to our carriers. The level of automated truckload carrier bookings doubled and automated customer orders increased by five percentage points versus the first quarter of 2019. We are rapidly increasing the occurrence of fully automated bookings in our largest service line. With the continued focus on lowering our cost to serve and our cost to sell, we do expect to deliver $100 million in operating expense reduction across the enterprise over the next three years. These initiatives will leverage our technology investments to further optimize our network and business operations, while, at the same time, continuing to expand the benefits and the services that we provide to our customers and our carriers. And with nearly 10 million shares still outstanding on our share repurchase authorization, we will continue to opportunistically repurchase shares to create value for our shareholders.

Regardless of the freight environment, we believe that executing over 18 million shipments a year and having visibility to roughly $100 billion in annual freight spend give C.H. Robinson an information advantage that creates better outcomes for the nearly 200,000 companies that conduct business on our global platform and provides more rewarding career opportunities for our employees. We remain firmly committed to leveraging our technology that's built by and for supply chain experts to deliver smarter solutions for our customers and our carriers. We are also firmly committed to the focus areas for our investors, including generating market share gains across all of our services, leveraging our technology investments to reduce our cost to sell and cost to serve, while continuing to deliver industry-leading levels of service and delivering operating margin expansion over time. Finally, I continue to be very proud of our team, and I want to thank them for their efforts that ensure the continued success of our company.

That concludes our prepared comments. And with that, I'll turn it back to the operator so that we can answer the submitted questions.

Questions and Answers:

Operator

Mr. Houghton, the floor is yours for the Q&A session.

Robert Houghton -- Vice President of Investor Relations and Treasury

Thank you, Donna. First, I would like to thank the many analysts and investors for taking the time to submit questions after our earnings release yesterday. For today's Q&A session, I will frame a question and then turn it over to Bob or Mike for a response. Our first question for Bob comes from Brandon Oglenski with Barclays. Ravi Shanker with Morgan Stanley asked a similar question. While potentially coincidental, the timing of C.H. Robinson's recent material revenue declines have occurred as technology-focused brokerage platforms from both industry participants and new entrants have increased investments and doubled down on share gaining strategy. Should long-term C.H. Robinson shareholders be concerned by the apparently rapid changing competitive landscape in truck brokerage markets?

Bob Biesterfeld -- Chief Executive Officer

Thanks, Bob. So what we experienced in fourth quarter was really unprecedented in terms of year-over-year declines in truckload net revenue per load, which really isn't that surprising given the changes that we've seen in the overall market pricing dynamics that occurred in the past couple of years. As we look back, starting in the fourth quarter of 2017 through the fourth quarter of 2018, we saw price increases in the market at really unprecedented levels. And then we saw this pivot in the market and then prices dropped faster than we've ever seen in the past decade. And really all this volatility in the market pricing dynamics has driven a lot of volatility in profit per load, which we're clearly in the middle of right now. Our fourth quarter net revenue per load was at the highest that we've seen in over a decade. And that comparison alone makes this quarter's results look really stark in comparison.

So with that as a backdrop, I do want to come back to the direct question on the impact of competition and profitability. So in order to really peel this back, I think it makes sense to boil things down to what is really the lowest absolute common denominator. And in the case of our truckload business, it's easy to look at this in terms of the net revenue that we earn on a per mile basis, and then look at that compared to points in the past where the market conditions may be fairly similar. So as an example, in the 16 quarters, from the beginning of 2010 through 2013, the market was largely considered balanced. The routing guide metrics that we always report on showed an average about 1.4 on depth of tender. I'd also call attention to 2016 and 2017. Again, relatively balanced markets, with the exception of the uptick at the end of Q4 of '17, when the market started to heat up a little bit.

Routing guides at that time ranged between 1.3 to 1.6, again, relatively balanced markets. If you look at the average net revenue per mile that C.H. Robinson earned during those 24 quarters of similar market conditions, it is nearly the same net revenue per mile that we earned in the fourth quarter of 2019. So we know that the competitive landscape was very different in 2010, in 2013 and in 2016 than it is today in terms of both the companies that are involved and the increased focus on technology. And it's clear that supply chains have continued to shift and evolve. But really, when you boil it all down to that number of how many cents does C.H. Robinson earned for the value that we create in similar markets, it lands on virtually the same number.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is from Jeff Kauffman with Loop Capital. Dave Vernon from Bernstein and Tom Wadewitz with UBS asked a similar question. Mike, the crux of the fourth quarter miss was related to unusually large SG&A spend. Can you please break out how much of the spend increase was related to technology investment, how much to other items, unusual or not? And what this level of SG&A spend should be in 2020?

Mike Zechmeister -- Chief Financial Officer

Yes, sure. As you know, core to our strategy is our commitment to technology investments of $1 billion over the next five years. Of the $24 million increase in SG&A versus Q4 last year, approximately 1/3 of that increase was related to external technology investments, and we expect to continue to spend that in the near term. There were also purchased services related to accelerating our growth and cost savings initiatives over the next three years that will help us bring speed and quality to the implementation of those initiatives. And as I mentioned, we also had approximately $10 million of SG&A expense in the quarter that we would not expect to be ongoing expense.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question for Bob comes from Ben Hartford with Robert W. Baird. Bruce Chan from Stifel asked a similar question. Noting the language of management's expectations for margin improvement over time, do you view the announced $100 million cost reduction initiative as incremental to your efforts to deliver NAST operating leverage? Or more as an offset to the magnitude of the pressure facing the truckload brokerage industry at the moment? Also, is that a net number relative to the 2019 run rate?

Bob Biesterfeld -- Chief Executive Officer

So as Mike said, most of the $100 million target is an output of the work that has been ongoing within NAST. But each of the business units across the enterprise and the shared services have goals and targets around achieving this $100 million in cost reduction as part of our transformation. For NAST, this isn't as much of a new initiative as it is really cementing some of the early stage targets around that transformation of the business through both the digitalization of internal processes and driving greater efficiency to our workforce and to interact with our trading partners. And you saw some examples of this come to life of it in the fourth quarter. But we do anticipate that the impact will continue to grow throughout 2020, and we do intend to achieve portions of this $100 million in savings this year. For the enterprise, we don't intend to amend or adjust our long-term growth targets that have been previously shared based upon the announcement of this initiative.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is for Bob, and it's from Brian Ossenbeck with JP Morgan. Has it become more challenging to grow market share in a down freight market compared to prior cycles? And what has structurally changed? Will the level of margin compression in January persist in the first half of 2020?

Bob Biesterfeld -- Chief Executive Officer

So as you know, our truckload volume was down about 1.5% on a year-over-year basis for the full year of 2019, and we didn't finish the fourth quarter at a flat growth rate. While we were expecting to grow volume over the course of the past year, we did find it challenging to do so. We feel good about the fact that we outperformed the broader Cass Freight Volume index in each of those quarters, however. And structurally, I think that the biggest change in 2019 was really due to the rapid changes in the markets that preceded 2019. And if I put myself in the seat of our shipper customers, they went from managing failing routing guides at increased costs throughout the end of 2017 through most of 2018, where routing guide depth of tender was averaging two or more. And then they encountered a rapidly declining cost environment where routing guides were operating almost flawlessly with high 90% acceptance rates at lower costs than they'd experienced the year before.

So there really wasn't a lot of motivations for shippers to diverge from their plans in 2019. And given that the spot market was really minimal, it was difficult to take share throughout the course of the year if you missed on the initial contractual bids. Now that we're deeper into the 2020 annual bid season, we feel really good about the award levels that we're receiving from our contractual customers. And I think our initial volume growth in January is a good start to the year, and it's our -- it's a testament to our ability to effectively grow volume and take share. In terms of the margin compression, we know that we've got comparables in the first half of the year that are higher than our current run rate of net revenue per load and are above our historical averages. So we anticipate a headwind as we head through the first half of the year, but it will ease as the year progresses.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is from several analysts. Mike, please discuss the cadence of the 3-year $100 million cost reduction initiative. How much of this will be realized in 2020? And please provide some context as to what line items you would expect the cost savings to show up in.

Mike Zechmeister -- Chief Financial Officer

With our enterprise focus on growth and cost savings over the next three years, we have dedicated resources going after a variety of specific projects focused on growth, improving customer experience and gaining efficiency on the business. The cost savings portion is $100 million of reduction by the end of 2022. The majority of that benefit will come to NAST and be realized through projects designed to enhance efficiency, including targeted automation. We'd expect about 1/3 of that $100 million benefit to be realized in 2020.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question comes from Brandon Oglenski with Barclays. Ken Hoexter with Bank of America asked a similar question. Bob, the 18% decline in net revenue per day in January, relative to 6% volume growth, seems to indicate a significant reduction in pricing power in the core brokerage business. Is this the case? And what can be done to reverse a material decline in net revenue?

Bob Biesterfeld -- Chief Executive Officer

I don't really think that the net revenue per day are more accurately, net revenue per load indicates really anything relative to pricing power. I mean, our net revenue on a per load basis is really a derivative of how we sell and what we're able to capture in the marketplace from our customers and how we purchase transportation. As we have said, we serve a really highly fragmented and a highly cyclical market. And while we're the largest in the industry, we still only touch less than 3% of the overall "For Hire" marketplace. I look across the landscape and see 250,000 motor carriers and over one million trucks on the road, over 15,000 brokers and literally millions of shippers in the addressable market, no one party has the power to control the market pricing dynamics. If we look at the cost side of things and we compare our cost of purchase transportation and where that falls related to some of the benchmarks that we look, we index really consistently over time. And as I said, our net revenue on a per mile basis is consistent with the past points in time with similar market conditions.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question for Bob is from Scott Schneeberger with Oppenheimer. Please contrast the level of technology investments expected in 2020 versus 2019 and how they may impact NAST operating efficiency and headcount.

Bob Biesterfeld -- Chief Executive Officer

Technology investments in 2020 are really going to be at similar levels as to what we saw in 2019 for the enterprise without any real meaningful adjustments up or down by business unit. I think the -- one of the positive things that I would say is that since we'd launched this increased investment in technology, I would expect that the value creation from those dollars begins to accelerate. So while the investment dollars may be the same on a year-on-year basis, the output of that investment should continue to increase and compound as we go through 2020 and beyond, as we continue to release new features and functionality that bring new capabilities to life, both internally and for our customers and our carriers.

The benefits of these technology improvements and investments, coupled with the work that's happening around the network to really reengineer workflows and continue to transform the actual footprint of the network, will add additional capacity and productivity to our team within NAST and will allow our people to be more productive. I think that my messaging around this topic has been pretty consistent over the past couple of years. And I still think that the most obvious proof point is the further decoupling of headcount and volume, and we anticipate delivering really meaningful results against this over the course of 2020.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is from Jack Atkins with Stephens for Mike. Given the strength of your balance sheet and cash flows, could you look to get more aggressive with your capital allocation strategy in 2020? Would you look to increase your 90% of net income targeted for shareholder returns going forward?

Mike Zechmeister -- Chief Financial Officer

We're always looking to deploy our capital in ways that maximize shareholder value through investments with high risk-adjusted returns. That's the case for acquisitions or investments in our business, which is our technology investments. The Prime acquisition is a great example. As I mentioned in the prepared remarks, we do not expect the Prime acquisition to have a meaningful impact on share repurchases, which is to say that the $225 million purchase price will effectively increase our net debt. We'll also continue to reward shareholders through buybacks and dividends. In the fourth quarter, we returned 138% of net income to shareholders and 104% for the full year in 2019. As we indicated, with nearly 10 million shares still outstanding on our share repurchase authorization, we have the capacity to continue to opportunistically repurchase shares to enhance shareholder value.

Robert Houghton -- Vice President of Investor Relations and Treasury

Our next question is for Bob from Brian Ossenbeck with JP Morgan. Did competition significantly affect margins and volumes and trucking during the quarter and in January? If so, was it widespread or lane or customer specific?

Bob Biesterfeld -- Chief Executive Officer

Okay. So let's break that into the two pieces of margin and volume. In terms of margins, I would characterize the impacts to our margins in the fourth quarter to be almost entirely cyclical. Relative to volumes in the quarter, and frankly, for the full year, there's no doubt that in some of our customer accounts, we saw volume declines on a year-over-year basis from '18 to '19. And it was clear that in some of those cases, there were competitors that aggressively priced business, below where we felt the actual contractual markets existed. We look at this based on our understanding of the cost of purchase transportation across the overall market. In terms of January, specifically, I think the fact that our volumes are up 6% so far in the quarter is related to the fact that, as I've said before, in this industry, contracts reset annually across most customers.

Networks change for shippers. Networks change for carriers. And as we've seen, pricing dynamics certainly shift as well on a year-over-year basis. And it's really for this reason that we don't believe in the idea of chasing freight, right? We don't believe in chasing freight to the bottom of the market as inevitably, prices reset annually. And the award levels change and freight is distributed to those providers that give the best and most comprehensive service, those that provide highest quality and those that have the pricing that reflects the marketplace.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is for Bob and comes from Todd Fowler with KeyBanc. Please discuss your view on normalized net operating margins for NAST. The 33.4% in the quarter was the lowest since you have reclassified your segment. While not looking for guidance, what do you view as normalized margin range for this segment? And over what time frame is realistic to think about achieving normalized margins?

Bob Biesterfeld -- Chief Executive Officer

So our fourth quarter results is, as I said, in NAST, do not reflect our performance expectations going forward. And they're clearly on the low end of the historical benchmarks. We're committed to our investments in technology though. I mean, in these challenging periods in the freight cycle, certainly, in the case of the fourth quarter, technology investments had a negative impact on our operating margins, which drove them toward the lower end of our historical averages. We believe in these continued investments in tech and the purchase services that we're leveraging in order to accelerate our growth and cost savings. We believe that these investments are going to set us for a much more successful long-term that bring those operating margins up over time as we move through the year and into 2021. So as we move through the year, we expect operating margins are going to improve. We'll take it from there.

Robert Houghton -- Vice President of Investor Relations and Treasury

Our next question is from Jordan Alliger with Goldman Sachs. Bob, please discuss competitive pricing dynamics in the market? And are the new entrants placing undue pressure on prices they roll out geographically?

Bob Biesterfeld -- Chief Executive Officer

Thanks, Jordan. Again, we serve this incredibly fragmented market, and it's really difficult to give a clean answer on this one, but I'll do my best, based on the information that I have on some of the examples that I'll try to cite. As an example, when we go into an annual truckload bid for a large shipper, as we did -- as we do many times throughout the year; it's where we get visibility to about $100 billion in freight on an annual basis, we might go into this bid, competing with 60, 70, 80, maybe more carriers and 3PLs that are invited to participate in the bid. We approach every one of these contractual bids with the customers' needs in mind, first and foremost, and not necessarily what we think the competition's pricing strategy is going to be.

We take these bids and these opportunities to serve these customers, and we examine the characteristics of the customers' freight. We look at the service expectations that they have. We understand the seasonality of their demand. We look at the industries that they serve as well as our freight densities in and out of the markets that the customers served, along with several other variables. From there, we apply our data, we apply our process, our knowledge of the customer and the industry that they serve, along with our forecast on where we think the market and these lanes are going to move in terms of pricing. We then align that against our capacity plan for the customer as well as expected profitability over the life of the contract.

And from there, we boil that out -- all down, and we put a service and a price proposal in front of the customer and submit that to them. We go through that process again and again and again throughout the course of the year, and given all of the variables that are in play, all of the participants that are in each one of these pricing events, it's really difficult to see any one party emerging in the supply chain that's changing pricing dynamics. As I said, we see close to $1 billion or $100 billion of truckload freight every year. And even with all that data and the insight that we garner from that, there just isn't any real correlation that can be drawn to a broad-based disruption to pricing in our industry.

Robert Houghton -- Vice President of Investor Relations and Treasury

Todd Fowler with Keybank asked about our acquisition of Prime Distribution Services, Scott Group with Wolfe Research and Fadi Chamoun with Bank of Montreal asked a similar question. Mike, please discuss the strategic rationale behind Prime Distribution. Is there any revenue overlap? What is the historical growth rate for this business? And what do you expect it to grow at in 2020?

Mike Zechmeister -- Chief Financial Officer

Thanks. Consolidation has been a successful value-added service within our LTL business at Robinson for more than a decade. We currently have a network of over 2.9 million square feet of warehousing across U.S. to service our consolidation business. Strategically, this business is important as many of our customers value our ability to provide consolidation and related services. Upon closing the Prime acquisition, we will add scale by adding 2.6 million square feet to our network of consolidation warehouses. We'll also benefit from fulfillment and distribution services as well as lane density within our truckload and LTL business. To be clear, our non-asset-based business model is not changing. We're also not entering into the contract logistics business. We believe the combination of our consolidation business with Prime and solid growth potential, our businesses are complementary and we're excited about the opportunity to make each other better as we move forward together.

Robert Houghton -- Vice President of Investor Relations and Treasury

Jordan Alliger with Goldman Sachs asked about truckload capacity. Bob, are you seeing any changes to truck capacity now? In other words, is there are any initial signs of tighter markets?

Bob Biesterfeld -- Chief Executive Officer

Beyond the publicly available data that we all are looking at, we watch our rate of new carrier sign-ups, which, as we said, trended down meaningfully both sequentially and on a year-over-year basis. Related to market tightness, the second half of January, the late part of January around the holidays -- or I'm sorry, the late part of December and early January, did represent some tighter markets than we've seen in a few quarters. But as we've gone through January, we've really seen the market settle as the month has progressed.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is for Bob, and it comes from Todd Fowler with KeyBanc. Jason Seidl with Cowen and Company and Jack Atkins with Stephens asked a similar question. What are your expectations for NAST headcount in 2020? Have you reached a point where headcount can decline while volumes increased for a sustainable period?

Bob Biesterfeld -- Chief Executive Officer

We've made a lot of progress in our NAST business in terms of reengineering and rethinking about how that business operates moving forward. And because of that, we do feel that we can grow volume in a meaningful way without needing to add additional headcount. Our focus is less on driving headcount declines as it is about widening that productivity gap between the change in headcount and the change in volume as we continue to layer in additional digitalized and automated processes for our customers, carriers and our employees.

Robert Houghton -- Vice President of Investor Relations and Treasury

Our next question for Bob is from Ben Hartford with Robert W. Baird. Tom Wadewitz with UBS and Allison Landry with Credit Suisse asked a similar question. Please discuss any expectations for contract truckload pricing growth during 2020's bid season? Is flat year-over-year growth on an aggregate basis realistic? Or does the magnitude of pressure in Q4 of 2019, speak to the likelihood of declines in contractual rates during the first half of 2020?

Bob Biesterfeld -- Chief Executive Officer

If you look at the chart that we've provided in the earnings deck and the investor deck over the past few years of really tracking the change in rate and cost over the past several years, you do see that inflection, where it starts to trend up over the past -- or declined less over the past couple of quarters, so fourth quarter wasn't the bottom of the cycle. I think we certainly must be close to that. Obviously, different customers are going to experience market differently in 2020 in terms of either increases or decreases to their freight spend, depending on the characteristics of the customer, the behavior of the customer and where their pricing was set in 2019. But in a very general statement, we think that the contractual market in 2020 will be somewhat flattish to up a couple of points by the time the year fully plays out.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is for Mike from Jack Atkins with Stephens. Brian Ossenbeck with JPMorgan asked a similar question. You indicated that personnel expenses decreased in the quarter due to declines in incentive compensation. To what degree were lower incentive compensation expense is a tailwind in the fourth quarter? And what is your expectation for incentive compensation accruals in 2020 versus 2019?

Mike Zechmeister -- Chief Financial Officer

Yes. Reduced incentive compensation from bonus, to equity to commissions drove the $40 million year-over-year reduction in personnel expense in Q4. For incentive compensation, each quarter, we do a year-to-date true-up of our estimated incentive expense. Given the decline in performance in Q4, a much greater reduction to the incentive compensation expense was needed in Q4 to arrive at the proper expense for the full year performance in 2019. Given the extent of that incentive compensation reduction in Q4, our annual personnel expense for 2019 is a better indicator of our annual personnel expense expectations for 2020 than simply using the Q4 run rate.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question for Bob comes from Scott Schneeberger with Oppenheimer. What is C.H. Robinson's strategy for winning new business with smaller shipping customers?

Bob Biesterfeld -- Chief Executive Officer

So infrequent shippers and small businesses are a huge part of our focus as they make up, really, a majority of our customer count. I think we've said it obviously before, but our top 500 customers make up about half of our revenue, our top 2,000 customers make up about 80%. But we've got this long tail of small businesses and infrequent shippers that make up the majority of our customer count. So that's really one of the reasons why we made the Freightquote acquisition initially in 2015, and then relaunched the Freightquote by C.H. Robinson new product earlier last year to serve these small businesses directly. As we work on building and launching that process.

We spend a lot of time in the field with small businesses, trying to really understand what was at the core of what they needed. And what we found was that for many of these customers, what they really need and want is a super intuitive and simple platform that allows them to move multiple modes of transportation with a -- really with a click of a button and a swipe of a credit card. And so we delivered that to them in the Freightquote by C.H. Robinson platform. What we also learned, though, is that for other companies, even though their businesses may be small, their needs were fairly complex. They needed more comprehensive services, global services or consulting support so we've got an account management team built to serve these small businesses with more complex needs.

For other small businesses, we heard that what they -- maybe they were a bit more advanced in their own carrier management relationships and what they needed was a low-cost, yet highly functional TMS system. So in those cases, we've got our freight viewed TMS product that we're able to implement for those businesses. So I can keep going for a while here, talking about how we serve small businesses in creative and innovative ways, but the punchline, I think, is really that, just like with our larger customers, we leverage our data advantage, our expertise and our technology to deliver solutions that are really tailored to the needs of these small businesses. And we meet them how and where they want to interact with us versus forcing them to a single option for a platform.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is for Bob from Todd Fowler with KeyBanc. Please discuss Robinson incubator, Labs. What role do you see this playing in your organization? What, if any, is the financial impact?

Bob Biesterfeld -- Chief Executive Officer

So first off, Robinson Labs is another example of where our increased technology investment is really intersecting with our customers and creating value in new ways. While we formally launched this last week, we've been in the building stage here for a couple of years, and we're really excited about the output of this team. Robinson Labs, in its essence is an innovation incubator, where the next big ideas in logistics and supply chain are created, tested and scaled to drive smarter solutions for Robinson's customers and carriers. Through Robinson Labs, our logistics experts, our innovation teams, our data scientists are all able to collaborate with customers and carriers to create really personalized solutions for shippers challenges.

From there, the Robinson Labs team is able to work hand-in-hand with our enterprise technology team, which consists, as we've talked about, of more than 1,000 data scientists and engineers and developers and take those solutions once proven and scale them across the Robinson network in Navisphere, which benefits our entire platform and all of our connected customers and carriers. In terms of financial impact, we're in the early stages today. But I can say that with certainty, I think it gave a lot of our customers that have been part of the Robinson Labs sandbox. And they've shared with me directly that they find this experience to be a differentiator for us in the market, and that it will ultimately help lead us to earning more business from these customers as we continue to focus on customer-led innovation. Several of the projects that have originated in Robinson Labs since its founding have already been scaled across many of our enterprise customers and our enterprise systems.

Robert Houghton -- Vice President of Investor Relations and Treasury

The next question is for Mike from Todd Fowler with KeyBanc. The decline in income from operations in the All Other and Corporate segment accelerated in the quarter and for the year. Are there any unusual costs in the quarter? And how should we think about that line into 2020? Is it going to incur a greater loss to support technology initiatives?

Mike Zechmeister -- Chief Financial Officer

Thanks for the question, Todd. The Q4 loss of $8.8 million in income from operations from the All Other and Corporate results segment, was driven by increased expense associated with commercial off-the-shelf software, which included projects to improve our performance in HR, sales and accounting as well as additional IT headcount. We have a practice of carrying expense associated with the installation of commercial off-the-shelf software in our All Other and Corporate segment in the first year. In Q4 and the full year 2019, this expense more than offset the profitability of the businesses in that segment -- or the business segments in there in that line item, and it caused an overall loss. In 2020, these software expenses will be allocated out to the businesses, and as a result, in 2020, we expect income from operations in the All Other and Corporate results segment to be positive again for the year.

Robert Houghton -- Vice President of Investor Relations and Treasury

Our next question for Bob comes from Brian Ossenbeck with JP Morgan. Headcount declined while truckload volume was flat in NAST. However, net revenue per head still declined sequentially. How will you evaluate if the significant levels of investment are improving productivity and generating the expected return on investment? Will you share additional KPIs to provide more transparency in the future?

Bob Biesterfeld -- Chief Executive Officer

Thanks, Brian. So I'd attribute the sequential decline in net revenue per head almost entirely to the sequential decline in net revenue per truckload. That sequential margin compression from Q3 to Q4 negatively impacted sequential revenue by over $30 million. It's meaningful. And we have several metrics that we're tracking internally today to evaluate the impact of investment against productivity and return. Many of these metrics are volume and activity based and tied to automation around particular parts of the business or steps and processes, which ultimately will drive productivity gains across the network.

Again, I'd go back and I'd say, I think that the relationship between headcount and volume is a really good marker for progress here as many of the other measures that we're looking at, at a lower grain all ladder up to that measure. The achievement of the cost savings target that we identified of over $100 million that we talked about earlier, is also a part of the total return on this investment. So to your question on, do we intend to be more transparent, share more KPIs? The answer to that is yes. And as the year progresses, we do intend to peel back of it and show a few more KPIs related to that transformation.

Robert Houghton -- Vice President of Investor Relations and Treasury

Our next question from Mike comes from Jason Seidl with Cowen and Company. Any other opportunistic acquisitions on the horizon?

Mike Zechmeister -- Chief Financial Officer

Thanks, Jason. As has been our history, we continue to see M&A as a lever to help us expand our geographic presence, add or improve services, build scale and enhance our technology platform. We prefer strong businesses with compelling strategic benefits, good cultural fit and a proven non-asset based business models. Specific to your question on opportunistic acquisitions on the horizon, we maintain a solid pipeline of opportunities, and we'll remain disciplined around value creation and strategic fit.

Robert Houghton -- Vice President of Investor Relations and Treasury

Our next question for Bob comes from Brian Ossenbeck with JPMorgan. What impact, if any, are you assuming the regulatory environment in trucking has on capacity in 2020? Has there been any appreciable change in capacity with the drug and alcohol database coming online and the final phase of the ELD mandate?

Bob Biesterfeld -- Chief Executive Officer

We've not yet seen any meaningful impacts to capacity that we could directly tie to the drug and alcohol clearinghouse coming online or the final phase of the ELD mandate. Given all the other variables impacting the balance of supply and demand, we're not forecasting a meaningful change in capacity in 2020 tied directly to regulations.

Robert Houghton -- Vice President of Investor Relations and Treasury

Our final question is from Jason Seidl with Cowen and Company. Bob, we have heard that the new entrants, while still more aggressive than the legacy brokers, are starting to be less aggressive. Are you seeing this too?

Bob Biesterfeld -- Chief Executive Officer

Anything I would share here would be second-hand information. So I'm not going to necessarily comment about what we hear, about other companies and their pricing strategies. I'd reinforce that for the fourth quarter, our win rates on our truckload contract bids doubled when compared to fourth quarter of last year. So we see that as a really positive sign. When I reflect on where our team is focused, they're hyper-focused on running our business. They're focused on building great technology, providing unmatched services to our customers, helping our motor carriers run more profitable and successful businesses and providing great careers for our people, while ultimately staying focused on creating long-term value for our shareholders.

Robert Houghton -- Vice President of Investor Relations and Treasury

That concludes the Q&A portion of today's earnings call. A replay of today's call will be available in the Investor Relations section of our website at chrobinson.com at approximately 11:30 a.m. Eastern Time today. If you have additional questions, I can be reached by phone or email. Thank you again for participating in our fourth quarter 2019 conference call. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Robert Houghton -- Vice President of Investor Relations and Treasury

Bob Biesterfeld -- Chief Executive Officer

Mike Zechmeister -- Chief Financial Officer

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