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C.H. Robinson Worldwide Inc (NASDAQ:CHRW)
Q1 2020 Earnings Call
Apr 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 First Quarter 2020 Conference Call. Following today's presentation, Bob Houghton will facilitate a review of previously submitted questions. [Operator Instructions] [Operator Instructions] Wednesday, April 29, 2020.

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

Bob Houghton -- Vice President of Corporate Finance

Thank you, Donna, and good morning, everyone. On our call today will be Bob Biesterfeld, our Chief Executive Officer; and Mike Zechmeister, our Chief Financial Officer. In order to devote as much time as possible to the Q&A portion of our call, we are implementing a couple of changes this quarter. First, we will not be covering a review of our segment performance in our prepared remarks as this information is included in both our presentation slides and in our press release. We have also made the decision to no longer include the truckload volume growth per business day and total company net revenue growth per business day for the current month. Bob and Mike will provide brief commentary on our 2020 first 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 list 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, everybody. I'd like to start my remarks today by recognizing over 15,000 C.H. Robinson employees around the world for their tireless efforts during these unprecedented times. Every day, I see examples of how they're stepping in and delivering excellence to the nearly 200,000 customers and carriers across our platform in order to keep commerce flowing and helping businesses stay open. We're delivering critical and essential goods, and I'm thankful for everything that they're doing. Since the beginning of the COVID-19 pandemic, our team has focused on three key pillars as guideposts for our decision-making: First, ensuring the health and the safety of our employees; second, providing supply chain continuity for our customers and carriers; and third, protecting the economic security of our people to the greatest extent possible. We believe that these pillars are the right way to evaluate our decisions and to keep our focus on the long-term health of our organization. Given the global nature of our business, we gained early visibility into the disruptive nature of the COVID-19 virus. Because of these insights, coupled with the output from our investments in technology, we were able to effectively convert to a remote workforce without disruption to our customers or carriers while enabling our employees to work safely from home.

Today, over 90% of our global workforce is working remotely. And we have ample bandwidth to move to 100% remote work, if needed. Our teams are experienced in managing through crisis situations and are committed to ensuring that our customers' supply chains continue to move. Whether it's facilitating the global movement of personal protective equipment, leveraging our expertise in produce distribution to help retailers meet the surge in demand for fresh food items or simply providing truckload capacity to customers when they need it the most, our employees have been laser-focused on enabling the continued movement of goods and services in this environment. Related to this current environment, we're constantly evaluating our global business operations and monitoring the changing economic conditions. While the duration and the effect of COVID-19 is still unknown, we have taken steps across our organization to reduce costs. We're implementing furloughs across our workforce that will reduce operating expenses in the short term, while industry volumes are down.

Our cost reduction efforts also include elimination of nonessential travel, a temporary salary reduction for company executive officers, a temporary reduction in cash retainers for our Board members and a temporary suspension of the company-matched retirement plans for U.S. and Canadian employees. These actions are prudent, short-term decisions and we'll continue to monitor the current environment and take additional steps to further reduce costs as needed to navigate through this difficult time and to emerge an even stronger company. Before I turn the call over to Mike, I'll briefly touch on highlights for the quarter. We continue to make progress on our strategic long-term initiatives around market share gains and productivity improvement. Our first quarter results included significant market share gains in NAST, a 7.5% volume growth in both truckload and LTL in a quarter where industry volumes, as measured by the Cass Freight Index, declined between 8% and 9%. We continue to see our investments in technology drive operating efficiency in the business as indicated by a 1,270-basis point favorable spread between truckload volume growth and headcount growth in our NAST business.

As we've said in the past, this is an important productivity metric and a key focus of our technology investments. Our recent acquisition of Prime Distribution Services is delivering outstanding performance at a time of significant increase in demand for retail consolidation. And during a quarter when global trade volumes were down significantly, our Global Forwarding business performed well with only modest declines in both air and ocean. We have a strong balance sheet and we exited first quarter with over $1.2 billion of liquidity. Our business model is resilient and highly responsive to adversity. And we are well positioned to weather the economic uncertainty in the months ahead.

I'll now turn the call to Mike to review our first quarter financial performance.

Mike Zechmeister -- Chief Financial Officer

Thanks, Bob, and good morning. I'd like to begin my comments by adding some color to Bob's remarks about our solid liquidity position. At the end of Q1, we had $1.22 billion in liquidity, which was comprised of $929 million of committed capital under our $1 billion credit facility, which matures in October of 2023. In addition, we finished Q1 with $295 million in cash. Our business model continues to deliver solid operating cash flow, including $637 million over the past four quarters and $59 million in the difficult Q1 environment. Our model also benefits from very low customer concentration with our top customer representing less than 2% of our net revenue. Slide four shows our Q1 income statement summary. As a reminder, our first quarter results contained one extra business day versus Q1 last year. Our first quarter results also included one month of contribution from the acquisition of Prime Distribution Services. First quarter total gross revenues increased 1.4%, driven primarily by higher volumes in our truckload and LTL service lines, mostly offset by lower pricing in truckload. Total company net revenues decreased 16.3% in the quarter, led by margin compression in our truckload service line.

A decline in Q1 truckload net revenues per shipment was largely anticipated as the first quarter last year benefited from expanding margins in our contractual truckload business due to rapidly falling carrier costs. Q1 net revenues per business today were down 17% in January, down 14% in February and down 21% in March when compared to the same periods last year. For reference, in 2019, total company net revenues per business day increased 9% in both January and February and increased 13% in March. Total first quarter operating income was down 51.3% versus last year. Operating margin declined by 1,380 basis points compared to Q1 last year, driven primarily by the drop in net revenue dollars. Q1 SG&A expense was higher than Q1 last year, primarily due to increased technology spend and purchased services related to accelerating our growth and cost savings initiatives. These increases were partially offset by a reduction in personnel expenses related to lower variable compensation and a reduction in travel expense. Diluted earnings per share was $0.57 in Q1, down 50.9% from Q1 last year.

Slide five covers other highlights impacting net income. Our first quarter effective tax rate was 17.1%, an improvement of approximately 490 basis points from the 22% rate in Q1 last year. Our first quarter typically has a lower effective tax rate due to the tax benefit related to stock-based compensation. While the dollar value of this tax benefit was essentially unchanged versus Q1 last year, it had a larger impact on the tax rate due to the lower pre-tax earnings in Q1. We expect our 2020 full year effective tax rate to be on the lower end of the 22% to 24% range that we provided in late January. First quarter interest and other expense totaled $15.2 million, down from $17.1 million in Q1 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. Q1 this year included a $2.9 million expense from currency revaluation compared to Q1 last year that included a $5.0 million expense. Q1 interest expense declined by $1.1 million, driven primarily by a lower average debt balance in the quarter. Turning to slide six. Cash flow from operations declined 77.2% versus Q1 last year due to unfavorable changes in working capital and decreased earnings.

In Q1 of last year, both gross revenues and receivables declined sequentially compared to Q4 of 2018, which drove a $118 million source of cash from lower working capital in Q1 last year. In Q1 of this year, working capital increased sequentially following the reduction in receivables as business slowed in the back half of December of 2019. That drove a $133 million use of cash in Q1 this year. There was also an uptick in our Q1 past due receivables balance, which amounted to less than 20% of the increase in our Q1 accounts receivable balance. We have tightened our credit and collection processes to minimize risk and exposure, particularly in higher-risk categories and with higher-risk customers. Q1 capital expenditures totaled $14.7 million. We continue to expect 2020 full year capital expenditures to be in the $60 million to $70 million range with spending primarily dedicated to technology. We continue to prioritize the highest-returning technology initiatives on a risk-adjusted basis, and we remain committed to the $1 billion investment in technology from 2019 to 2023. Over the long term, we continue to be committed to opportunistic share repurchases to enhance shareholder value. However, out of an abundance of caution, we have temporarily suspended our share repurchase activity as we continue to assess the impacts of COVID-19. Our last share repurchase was on March 12.

While solid liquidity during uncertain times is of the utmost important, we remain to maintaining our quarterly dividend. In Q1, we returned approximately $152 million to shareholders through a combination of share repurchases and dividends, which represent a 4% increase versus Q1 last year. Now on to some balance sheet highlights on slide seven. First quarter operating working capital decreased 6.3% versus the prior year driven by an increase in accounts payable. Our debt balance at quarter end was $1.41 billion, up approximately $70 million versus the end of Q1 last year and our weighted average interest rate was 3.9% in the quarter compared to 4% for Q1 last year. As previously announced, the acquisition of Prime Distribution Services was completed in Q1 and contributed to our results for the month of March. The $225 million acquisition was financed with a combination of cash and borrowing from our existing credit facilities. Integration plans and synergy assumptions for the Prime acquisition are on track and the business growth in earnings were ahead of expectations in Q1.

Historically, we have provided specific and quantitative intra-quarter performance on volume and net revenue trends. Given the uncertain and changing dynamics within the freight industry and broader economy, we believe it is more relevant to provide a description of the recent trends in volume growth. In general, we continue to see COVID-19 impact our results. At the beginning of April, we saw a continuation of the truckload volume growth that we experienced in Q1. However, after the first week, we have seen volume declines within our truckload business. Thanks for listening this morning.

And now I'll turn the call back over to Bob to provide some additional context on the business.

Bob Biesterfeld -- Chief Executive Officer

Thank you, Mike. As Bob indicated on his opening, I will not be going through all of the segment slides on today's call, but I do want to touch on the state of the truckload market during the quarter, since it is our largest service line and represents about half of our net revenues. On slide eight, the light and dark blue lines represent the percent 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, price per mile billed to our customers declined 8.5%, while cost per mile paid to our contract carriers, net of fuel, declined 2.5%. The rate of cost decline moderated on a year-over-year basis versus the fourth quarter, resulting in net revenue margin compression. However, first quarter truckload net revenue per mile was very much in line with levels experienced during the balance freight market in 2016. As we've indicated in past earnings calls, we experienced historically high net revenue per load for NAST truckload in the first two quarters of 2019, and this will continue to serve as a headwind through the first half of 2020. At C.H. Robinson, we talk a lot about our E.D.G.E. values.

E.D.G.E. is an acronym for evolving constantly, delivering excellence, growing together and embracing integrity. One way that our customers experience these values is through our focus on honoring our customer commitments even when markets are disrupted. Throughout the first quarter, we continue to meet and exceed our commitments on our contractual pricing agreements with our truckload customers despite instances where the cost of purchase transportation exceeded our customer pricing. This resulted in an increase in negative truckload files for the quarter. We believe that honoring these commitments during difficult times is just one of the reasons that we have such higher retention rates with our customer base. As I mentioned earlier, first quarter NAST truckload volumes increased 7.5% and LTL volumes increased 7.5%, significantly outpacing the 8% to 9% decline in the Cass Freight Index. Our Q1 volume represented the fifth consecutive quarter of market share gains. I'll wrap up our prepared remarks this morning with a few final comments on slide 14. The direction of the freight market and of the broader global economy will be very difficult to predict over the next few quarters. In the logistics industry, supply and demand, volume, pricing and cost will likely vary significantly from month-to-month and across different industry verticals.

In looking at our April North American data, volumes continue to grow across food and beverage, retail, paper and packaging as well as technology, while volumes are declining meaningfully in manufacturing, automotive, chemical and the energy verticals. Combined, these verticals comprise 86% of our company gross revenues in 2019. So while the situation remains fluid, one thing is certain. We're committed to our vital role in the global supply chain by delivering critical and essential goods and services, especially in this time of crisis. We'll continue to make measured and thoughtful decisions that are in the best interest of our employees, customers, contract carriers and the long-term health of the company, while remaining true to our values and the pillars that guide our business decisions. We will also continue to act in the best long-term interest of our shareholders by balancing prudent, short and long-term cost reduction efforts with continued investments in technology to maximize our long-term value creation. While this is a challenging environment for all of us, there will be a recovery.

And as that recovery starts to happen, we'll be ready at C.H. Robinson and we'll emerge as an even stronger company. We believe this approach will leave us well positioned to drive growth and create value for all of our stakeholders. And finally, I'm incredibly proud of the focus, the effort and the dedication of our employees around the world in these truly unprecedented times. My thanks to each and every one of them for what they do to deliver excellence to our customers and our carriers and the support that they provide to their communities that we all live and work in. That concludes our prepared comments.

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

Questions and Answers:

Operator

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

Bob Houghton -- Vice President of Corporate Finance

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 up the question and then turn it over to Bob or Mike for a response. Our first question is for Bob from Jack Atkins from Stephens. Scott Schneeberger with Oppenheimer, Todd Fowler with KeyBank and Ken Hoexter with BofA asked a similar question. Bob, this was the lowest quarterly net operating margin in C.H. Robinson's history as a public company. What steps are you taking to balance cost containment initiatives given the slower macro versus investments in the business to meet your long-term strategic goals?

Bob Biesterfeld -- Chief Executive Officer

And thanks for the question, gentlemen. So there's no question that the macro environment is being impacted by COVID-19. And that impact to our revenue has definitely put pressure on our cost structure. The duration of that impact is unknown, but we have taken several steps already to address cost containment in the near term. So to recap a few of the decisions that we've made, we made the very difficult decision to implement furloughs across portions of our workforce. The implementation of these are under way now and will directly impact about 7% of our workforce, and none of that work is represented in our first quarter results. Earlier in April, we shared that we'd temporarily suspended the match to our retirement plans for our U.S. and Canadian employees and the executive team had taken temporary reductions in pay, starting with a 50% reduction in my compensation and 20% for my direct reports. Additionally, our directors, our Board of Directors have taken reductions in their cash retainers of 50%. Prior to the COVID outbreak, we'd already started to limit nonessential business travel. And that obviously was expanded through the quarter.

And at this point, we've limited virtually all domestic and international travel and associated expenses. Furthermore, we've implemented a hiring freeze through the balance of this quarter, and given our expected attrition rate, this will also drive some cost savings. So these steps, along with several others that are smaller in nature, should drive savings of around $60 million between personnel and SG&A in the next three quarters. These are short-term savings, but they are incremental to the $100 million cost savings target that we've previously discussed. As we reported in NAST, we had an extremely strong quarter of volume growth in both truckload and LTL. We did this with 7% fewer employees on an organic basis and 5% fewer when you factor in the impact of the additional Prime employees. Simply put, we're doing more with less in the field today, and this is due to the output of our technology investments and the work that our teams have been doing to standardize, centralize and automate the core processes within our business. There's no doubt there's more work to be done here in order to harness the full impact of these investments in the coming quarters, but progress is being made. So I want to take a moment to address the second part of that question, which is around investment in the long-term strategic goals of the enterprise.

First quarter was a tough quarter. There is no way to call it anything other than that. We gave up over $130 million in net revenue margin compression in NAST truckload in the quarter alone. It's a really tough single variable to overcome in a quarter. But we did, and we still delivered almost $100 million in income from operations in the quarter alone in NAST. Many of the incremental headcount additions in the past couple of years that we've made are in the areas of engineering, data science, and other professional shared services. These are critical roles to our future and are critical teammates at Robinson. But in order to attract the highest level of this type of talent, these teams and these employees come with a compensation cost structure that's less variable than what we're used to in the Robinson branch model, where our account managers, sales and network leaders have highly variable compensation. This showed in our personnel expenses for the quarter and it shows up in our results. So long term, our strategic focus remains unchanged, and it continues to center around taking share, more fully digitizing parts of our business, improving productivity in that relationship between volume and headcount and expanding our operating margins over time while continuing to provide industry-leading service to our customers.

I've said that in the past that over time, I also believe that margins could trend down. So we need to make investments today to engineer cost out of our model for tomorrow. So in the short term, we're faced with a challenge or a question. Are we best off in stopping or significantly scaling back investments in our future and the long-term success of the enterprise? Or should we stay the course with our strategic road map and manage through some of the short-term pain that, that will cause? At this point, I feel good about the prudent short-term decisions that we've made around cost reductions, but I still feel great about our future. There could be more short-term cost reductions to come, depending on our results, but I really want our teams much more focused on doing the work that it will take to reduce cost and drive growth in the long term and not sacrificing the future value that we're capable of creating in order to minimize the impact to a couple of quarters.

Bob Houghton -- Vice President of Corporate Finance

The next question is from several analysts. Mike, net revenue per employee is down 17%, while personnel cost per employee is down only 3%. Historically, that relationship has been more in line. Can you talk to why the traditional shock absorber in the business has not kicked in and whether we should expect this to be a temporary dislocation or a more permanent change?

Mike Zechmeister -- Chief Financial Officer

Yes. Thanks for the question. The increased volatility in the freight market in recent years has made the alignment between personnel expense and net revenue more difficult than it has been historically. The additional $60 million in short-term cost takeout will certainly improve that cost versus net revenue alignment this year. As Bob pointed out, historically, our personnel expense was more heavily weighted to variable cost components like bonus, commissions and performance-based equity. While that enabled our personnel expenses to more closely align with changes in net revenue, it also meant that in a softer freight cycle, our employees saw significant reductions in overall compensation and we experienced talent retention issues. Over the past several years, we have brought our compensation programs more in line with the overall market from a fixed versus variable standpoint. To provide some additional clarity on how our long-term commitment to technology investment plays a role, our increase in IT headcount has grown more than 30% in the past two years. These folks play a critical role in unlocking value for our customers, carriers and cost structure, but their compensation is more fixed than our customer and carrier-facing employees.

Bob Houghton -- Vice President of Corporate Finance

Our next question for Bob is from Jack Atkins from Stephens, Matt Young with Morningstar, and Chris Wetherbee with Citi asked a similar question. Can you provide any color on trends you are seeing thus far in April? Are you seeing some relief in your purchase transportation costs given the changes in the spot market? And has your strong truckload volume growth and outperformance relative to the broader market continued into April?

Bob Biesterfeld -- Chief Executive Officer

Related to truckload growth, first off, I'm obviously proud of the growth that the team delivered in first quarter. I think it's important to point out that volume grew in each of the three months of the quarter and in a fully remote environment, we honored our commitments and delivered when our customers needed us the most. Industrywide pricing, if you compare it to Cass or DAT, was down about 7% or 8%, and our pricing was down in a similar range. So we're pricing rationally with the market. We did see through the quarter significant, albeit short-term spikes in the cost of purchase transportation, both as we started the year as we're coming out from the disruption of the December holidays, and then again in March as retail restocking was extremely robust. During those times, this led to our negative files exceeding 10% of our shipments during those periods. And that had part of the contribution of the wide spread between the change in rate and cost for the quarter. In terms of April, I realized our decision to suspend providing month-to-date April truckload volume and total company net revenues is not appearing to be a popular one among the analysts and investors on the call.

But we made this decision not with the intent to limit visibility that you all have, but to try and provide information that's more relevant to the state of the business. Given the large variations and market dynamics that have occurred between the beginning of April and the end of April, simply providing an average of the two halves, given all the other uncertainties in the marketplace, just didn't seem prudent or reliable. I made a couple of comments in the prepared remarks, but I think it's important to reinforce what we saw in the quarter and how that carries forward into April. As the COVID-19 pandemic took hold in the U.S., cities across the country entered into strict shelter-in-place orders. We saw this drive market disruption, and we saw commerce outside of critical industries virtually draw to a halt. This seemed to hit small businesses first and the hardest, and had an outsized impact to LTL compared to truckload. Obviously, as entire industry shutdowns, such as automotive, this had a negative impact on volumes. For us, the hardest hit verticals have been automotive and manufacturing, and these account for about 25% of our revenues. The flip side of this is that consumer staples in food and beverage, retail, paper and technology all continue to perform really well and show volume growth. These industries make up about 40% of our revenues.

So looking at the market today, it loops by all accounts. Routing guides are performing almost perfectly. Demand is down across some industries. And there's actually a fair amount of truckload capacity that would normally be dedicated to these shuttered industries that's now available in the general for-hire space. The duration of the confluence of these factors is unknown. We know that we continue to have 65% or more of our current truckload portfolio exposed to longer-term customer rate agreements. So we're not trying to be elusive in scaling back the intra-quarter information. We just believe that the unknowns around when cities or states plan to reopen, when industries come back online, what the consumer response will be once stores and manufacturers do open up can't really be answered in our April month-to-date results. And any attempt of us using that to guide to the quarter would really be unrealistic.

Bob Houghton -- Vice President of Corporate Finance

The next question for Mike comes from several analysts. Please provide an update on your previously announced $100 million of cost reductions. Were any of the cost reductions realized in first quarter 2020 earnings? If so, how much? And how much do you anticipate to realize in 2020? How should we think about the cost reductions relative to the increased SG&A to reduce costs longer term?

Mike Zechmeister -- Chief Financial Officer

We continue to expect 1/3 of that $100 million cost savings benefit to be realized in 2020, having the least impact on Q1 and increasing as we move through the year. Most of that benefit will come to NAST and be realized through projects designed to enhance efficiency. We also referenced an increase in SG&A for technology and purchase services to help accelerate growth and cost savings initiatives. These expenses should not be considered ongoing. Once those projects are completed, the associated expenses will go, and of course, the savings are ongoing. And as Bob mentioned earlier, we expect the near-term cost takeout initiatives to yield approximately $60 million of personnel and SG&A costs over the next three quarters. For clarity, these are short-term steps and incremental to the $100 million long-term cost reduction initiatives that we announced in late January.

Bob Houghton -- Vice President of Corporate Finance

The next question for Bob is from Bascome Majors with Susquehanna. There are a number of substantial cyclical challenges facing Robinson today. But as investors try to set realistic expectations for what your business looks like on the other side of this, are there one or two more structural changes from your historic model, either financial or strategic, that we should be prepared for?

Bob Biesterfeld -- Chief Executive Officer

Thanks, Bascome. So we've been going through a tremendous amount of change in the past couple of years, much of which we've talked about on these calls and other forums. Some of that's been pretty apparent and clear and other parts has been more subtle if you're looking from the outside in. We're in this process of making large-scale changes to our global network, in terms of how it's structured, how our teams collaborate and work together, the speed and the manner in which decisions are made and how we capitalize on the strength of our people in order to deliver services to our customers and carriers and how we leverage the scale of our model even more effectively through process automation and digitalization. Our future model will be much more connected, much more deeply integrated with our customers. It will be more platform enabled and digital in nature. Our model will be fueled by a lower cost-to-serve, but we will continue to be driven by a network of global supply chain experts.

We're a fair ways down this path already, and there's a number of initiatives that come together to deliver value in this future state. Some of these initiatives have crossed the finish line already and are already creating value. Some will deliver in the next couple of quarters, and some are longer term in nature. As our continued as our industry continues to evolve, we plan to continue to lead that evolution as we have throughout the history of our organization. Our strategy is the right one. We're pursuing it aggressively, and we're moving faster than any time we have our past in order to reach those targets.

Bob Houghton -- Vice President of Corporate Finance

The next question for Bob is from several analysts. How would you describe the current competitive environment in brokerage? Have the digital freight brokers begun focusing more on increasing gross margins?

Bob Biesterfeld -- Chief Executive Officer

So the truckload market is always competitive. And given our mix of 65% contractual, 35% spot for the quarter and how we ebb and flow there, I still tend to think that we compete as much with large asset-based trucking companies within many of our customers as much as we compete with other brokers. The market has loosened further in April, as I said, as the economy has slowed and routing guides are literally performing almost perfectly. In many lanes and in many regions, supply seems to be exceeding demand. In terms of the digital brokers, I really don't have a perspective on their go-to-market. We're continuing to stay focused on the things and the variables that we can control and ensuring that the service that we stand up for our customers is holding strong and that we're continuing to earn their business through cycles.

Bob Houghton -- Vice President of Corporate Finance

The next question is from Ravi Shanker from Morgan Stanley. Todd Fowler with KeyBank asked a similar question. Mike, can you clarify your plans for long-term leverage and how you are thinking about liquidity at this point? Can you lay out your priorities for capital allocation?

Mike Zechmeister -- Chief Financial Officer

Thanks, Ravi. Our balance sheet remains healthy. As we mentioned in the prepared remarks, we have ample liquidity at over $1.2 billion. In Q1, we borrowed from our $1 billion credit facility and ensured it was working properly. We have plenty of clearance on our debt covenants. Our leverage continues to be low, finishing at 1.8 times at the end of Q1, which included the impact of the Prime acquisition in early March. From a refinancing and ongoing liquidity standpoint, our credit facility matures in October of 2023, our $600 million unsecured note matures in eight years and the majority of our $500 million private placement matures in more than eight years. As I mentioned earlier, out of an abundance of caution, we have temporarily suspended our share repurchases. That said, we remain committed to opportunistic share repurchases to enhance shareholder value over the long term. We will also maintain our quarterly dividend and manage to an investment-grade credit rating on our corporate debt.

Bob Houghton -- Vice President of Corporate Finance

The next question is for Bob from Jack Atkins. Can you talk about what you are seeing in the forwarding market in April? Have you been able to benefit from the surge in airfreight activity that we have seen over the past six to eight weeks?

Bob Biesterfeld -- Chief Executive Officer

We've had several quarters in a row here of really strong sales activity in our forwarding business, and we've added many new customers across air, ocean and customs. During the first quarter and into April, we have been able to help our customers secure air charters and capacity on air charters to meet their unique demands as manufacturing in China continues to come back online. Our April ocean volumes are being driven largely by a mix of backlogs in the ocean shipping industry as well as existing with existing customers as well as a nice mix of new customer additions.

Bob Houghton -- Vice President of Corporate Finance

The next question comes from Allison Landry with Credit Suisse. Jack Atkins with Stephens asked a similar question. Mike, are shippers looking to extend payment terms? And could you speak to any customer liquidity concerns?

Mike Zechmeister -- Chief Financial Officer

Yes. We have seen an increase in the frequency of requests for terms extensions over the past several weeks. In total, these requests represent less than 1% of customers in the U.S. and Canada. As a general practice, we don't accept requests for extensions and payment terms. In certain circumstances, we may entertain extensions when they are accompanied by a firm exchange of greater value. We continue to monitor our receivables by customer and by category across a variety of key metrics. We are utilizing internal and external credit and risk data to enhance our credit and collections results. And we have recently tightened credit limits across a wide range of customers with a focus on higher-risk categories, and we've put additional safeguards in place.

As an example, early on, when customers began converting to remote workforces, we proactively moved targeted customers to electronic invoicing and converted customers to electronic payments to help facilitate collections. From a liquidity concern standpoint, as you would expect, we're having conversations with a variety of higher-risk customers to better understand their liquidity outlook and moving terms, requirements and credit limits accordingly.

Bob Houghton -- Vice President of Corporate Finance

The next question for Bob is from Brian Ossenbeck with JPMorgan. What are you seeing on the capacity front? Have you started to see small carriers exit or park capacity yet? Or is it too early to tell?

Bob Biesterfeld -- Chief Executive Officer

I do think it's too early to tell. I think we put in our slides that we added about 4,000 new carriers to our contract carrier program in the first quarter. And these were virtually all small trucking companies. I don't anticipate that these are all new adds to the industry, but they're new to Robinson. Typically, when we see balanced markets and freight slow down, we see a bit of a retreat to quality. And we see carriers come toward Robinson because we do have more truckload freight than anybody else in the industry. In terms of them exiting, we're working really hard to keep these small carriers in business, right, and keep them moving goods across North America, helping them to eliminate waste in their networks, getting the miles and helping them to improve their yields. These small carriers are a critical part of our economy, and they're critical to our success. As an example, one of the steps that we took in the quarter to help small carriers was to extend some of the benefits of our Carrier Advantage Program to all carriers that work with Robinson, which allows them to capitalize on some of our affinity programs, specifically our fuel program that allows them to save up to $0.30 a gallon on diesel, we extended that to them through the end of May.

Bob Houghton -- Vice President of Corporate Finance

The next question is for Bob from Jordan Alliger with Goldman Sachs. How does the bid season look from a contract perspective? Is it on hold or is it proceeding? And how do contract prices look relative to a year ago?

Bob Biesterfeld -- Chief Executive Officer

This one's a little bit of a moving target, and it obviously varies from customer to customer. I think it's fair to say that bid activity did slow over the past month or so as companies have been dealing with their own challenges with COVID-19, but we do expect activity to pick up as businesses come back online more fully. I expect a little bit of a forward look. I expect that many of our customers, and we've heard from many of our customers that they intend to stick with their annual bid cycles. I think as the economic picture becomes clear, though, there will likely be some occurrences of renegotiations, mini bids, pulling bids forward out of the cycle. I think a lot of that will be dependent on how far the market moves and for how long. Given some of those uncertainties, I want to be a little bit careful not to guide where we see pricing moving.

Bob Houghton -- Vice President of Corporate Finance

The next question for Mike is from Dave Vernon with Bernstein. Net headcount is down 5%, while volume is up 7.5%. Is this the early signs of technology paying off? Or is it that productivity is going up as a result of shallower routing guide depth?

Mike Zechmeister -- Chief Financial Officer

Thanks for the question. The short answer is yes, the improved productivity is an indication of the success we're seeing with technology investments. As we've talked about, one of our key nonfinancial productivity metrics is volume per head count. Historically, volume and headcount have been correlated. We're now a year into our increased tech investments, and you're seeing a shift change that we've been expecting and will continue. As for your question on routing guide depth, average routing guide depth has been 1.2 for the last five quarters. So that would not be contributing to the favorable year-over-year volume to headcount comparisons in NAST.

Bob Houghton -- Vice President of Corporate Finance

The next question for Bob is from Scott Schneeberger from Oppenheimer. How are you balancing volume and price in the current environment?

Bob Biesterfeld -- Chief Executive Officer

Thanks, Scott. As you saw in the first quarter, our pricing to our customers largely moved in line with the movements in the market. And I've said it before, market share is really key to our future growth, and we're focused on growing our market share across all of our services, and this market is really no exception.

Bob Houghton -- Vice President of Corporate Finance

The next question is from Chris Wetherbee from Citi. Bob, volume growth returned to truckload in Q1. Should we read this as a more sustainable move toward capturing market share in a weaker environment?

Bob Biesterfeld -- Chief Executive Officer

It's a similar question to the one that Mike just addressed. I look at this and the results in Q1 as us executing the plan that we've laid out around taking share and becoming more efficient in terms of that relationship between volume and people. Truckload volume is up 7.5% in an environment where volumes are down in the industry, I think, speaks positively for the output in Q1. When you look at our volumes, we make up, I don't know, somewhere in the area of 15% of the brokerage market, which continues to expand. And we're somewhere in the area of 3% of the total for-hire marketplace. So there's a ton of room for us to continue to grow share through cycles. And as we demonstrated in the quarter, we were able to do that with around 450 fewer people in NAST than we had at the same time last year.

Mike Zechmeister -- Chief Financial Officer

The next question for Bob is from Allison Landry from Credit Suisse. Can you talk about headcount plans? Is there the ability or willingness to lower headcount sequentially?

Bob Biesterfeld -- Chief Executive Officer

Allison, headcount has come down in each of the past three quarters in NAST, as we've implemented structural changes and launched new technologies. Annualized, this amounts to about a $40 million positive impact to personnel expense on a go-forward basis. Because of the current market dynamics, as I said, we've made that difficult decision to begin implementing furloughs that are going to impact about 7% of our global headcount. We made the decision to use the approach of furloughs, though, and in some case, our reductions, because we felt it was the right thing to do to align our workforce to the demands in different parts of our business. To be really clear though, these furloughed employees are still employees of C.H. Robinson. We're going to continue to support them through this time of their unplanned leave of absence, covering their medical insurance and other benefits, and we will work to bring them back as soon as the demands of the business dictate. In terms of the overall macro, we're going to continue to monitor the health of the business and the demands across different divisions and shared services. And we'll continue to evaluate staffing levels as we always have as we move forward.

Bob Houghton -- Vice President of Corporate Finance

The next question is from Chris Wetherbee with Citi for Mike. Are there interesting M&A opportunities for Robinson in 2020? Do you think you are in a strong enough financial position to consider M&A?

Mike Zechmeister -- Chief Financial Officer

Our balance sheet and liquidity are solid, and that gives us capability. However, given the uncertainties in the marketplace, we are taking a more conservative approach. We'll continue to evaluate acquisition opportunities that can generate strong risk-adjusted returns. As you know, we prefer opportunities with a compelling, strategic and cultural fit and a proven nonasset-based business model. We are also excited about the prospects of the transformation office initiatives in NAST, and we would hesitate before making an acquisition that would distract us from those critical initiatives. That said, we'll continue to maintain a pipeline of opportunities and remain disciplined about value creation and capital deployment.

Bob Houghton -- Vice President of Corporate Finance

Our final question for Bob is from Allison Landry with Credit Suisse. Given the deceleration in spot rates and loosening truckload capacity, do you expect sequential improvement in NAST net revenue margins in Q2?

Bob Biesterfeld -- Chief Executive Officer

In the short term, given the mix of our business between contract and spot on the customer side coupled with the dynamics we're seeing on the supply and the cost side, I would expect improvement in our net revenue margins. And to see them return to more normal levels from where they were in a depressed state that we saw in first quarter. The duration of that improvement is a bit unknown, given all the market factors in play, including any depth or length of any potential recession, the speed in which the economy restarts and then demand accelerates across different industry sectors, as well as the underlying health of the capacity network and the pace of repricing activity that may occur on the customer side. So a lot of convergence of different factors there. But in the short term, yes, we would expect our net revenue margins to return to more normal levels.

Bob Houghton -- Vice President of Corporate Finance

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 first quarter 2020 conference call. Have a good day.

Operator

[Operator Closing Remarks].

Duration: 47 minutes

Call participants:

Bob Houghton -- Vice President of Corporate Finance

Bob Biesterfeld -- Chief Executive Officer

Mike Zechmeister -- Chief Financial Officer

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