C.H. Robinson Worldwide, Inc. (CHRW) Earnings Call Transcript & Summary

[Audio Gap] President and CEO. Bob, any opening comments you want to make before we jump into questions?

Yes. I'll be brief, Scott, because I want to make sure we leave enough time for the Q&A. I think, hopefully, most of the people in the room are familiar with C.H. Robinson. If not, we are one of the largest leading global logistics providers with a leading franchise here, both domestically in terms of truckload and LTL. As well as globally in air and ocean, where we're primarily focused on the transpacific eastbound lane. What we see in the marketplace is that large shippers continue to look for us to deliver global integrated solutions that help them to solve really the complex supply chain problems that they're facing today. Through our history, our non-asset base, flexible business model has continued to return to our investors, higher-than-average returns through our efforts as well as our focus on share buybacks and our consistently growing dividend. Our combination of our digital products, our great people, our scale, our information advantage, we really believe are some key components that help us to have a differentiated and sustainable value proposition in the market.

Perfect. Great. So you have big truck brokerage, big forwarding. You have good insights into what's going on domestically, globally. Give us your view of the macro landscape right now. We've got inflated inventory levels at Target and Walmart and others. We've got the China shutdowns. Take us -- domestically, globally, what's your view of where we are right now?

Yes. So I said on the Q1 call as we came into the quarter that April really kind of looked like March, and I'd say that May has continued to kind of look like April domestically in terms of what we're seeing on truck and LTL. We have seen some moderating in terms of what we refer to as aggregate demand in the truckload side of the business, basically just the number of tenders that are hitting our system. So we are seeing some moderation there. But on the global side, we really haven't seen any easing of demand. While we had Shanghai, ports were down, what, 25% in terms of exports. Last month, I think China in total was down about 2.5%. So we continue to see strong global demand there. There's been a lot of talk about spot pricing in the domestic market. We have seen, whether it be through our own data or external data sources, spot pricing continue to come down from the peaks in January over the course of the last 12 weeks. But contracts have largely held up and continue to be fairly resilient. The overall easing of the supply chain, I've talked about in a few different components and that we needed to solve for kind of port velocity, labor, equipment availability. And we've started to see that in each case. So it's not surprising to see that the market is, I guess, coming back into some bit of balance. I think all of this coincides with one of the busiest times of the year in terms of repricing and contracts resetting. And what we've seen in the first half of the year is contracts resetting at higher rates but routing guides holding up really, really well. And so there's just simply not the amount of freight in the spot market. And we came through Roadcheck last week, and we kind of saw in the market what we would expect to see in the market during Roadcheck, which is tightening of the overall marketplace and some increase in costs.

Okay. Great. So just to that point, was that a 1-week sort of tightening of the market and costs? Has that continued into this week? Or are we sort of normalizing back down post-Roadcheck?

We look at Roadcheck as just one of those kind of cyclical impacts every year. And it's really a 4-day impact. And we can go as far as back as we can go, whether they ran it in May or June or September, it's always a 4-day impact to kind of the spot market and costs.

Okay. And so where are we right now, would you say, spot rate versus contract rate?

Yes. I mean the spot rate -- the spot and contract obviously have some influence on each other. Spot market is always kind of a leading indicator to where contracts are going. We would expect -- we updated our forecast in our customer advisory that we put out last week. And we now expect that in terms of overall kind of truckload pricing -- or costing rather, through the balance of the year to see year-over-year decreases in cost of trucking by about 11%. And we drew that down from our previous forecast, which was expecting things to be flat on a full year-over-year basis. So we do expect that the decreases in the spot will eventually start to drag down on the pricing in the contract market, and we'll adjust pricing for Robinson, accordingly for our customers.

So that down 11%, that's a second half comment or a full year comment?

That's a full year estimate right now, Scott. And you can see that customer advisory out on chrobinson.com. We provide kind of a base of bull-and-a-bear case on that.

So that full year down 11%, that implies second half, then down probably close...

More than.

Yes. More than...

Yes. Given that the first part of the year was up.

And so you think that that's mostly spot, but at some point, that will lead to contract heading negative?

Yes. I mean...

I don't want to put words in your mouth.

In my experience, the spot market is always a precursor for where contracts head. And we have no reason to think that this will be any different in the cycle. Obviously, the impact to shippers and receivers and the economy in general hasn't been as impactful as what we've seen spot rates come down simply because of the impact of fuel and record-high diesel prices as well.

And is your view -- is this a demand factor, a supply factor?

I think it's a balance of both, Scott. As I said, we've seen some softening in terms of truckload demand. But I see that really as being routing guides working better, first tender acceptance working better, less freight being available in the spot market. First tender acceptance is way up. I mean there's no question that from a supply perspective, we have a lot more supply in the transportation, specifically trucking industry today than we did a year ago. We look at the FMCSA registration data annually. And what we see is that there are about 180,000 trucks added in 2021. So that equates to almost a 10% increase in capacity in the market. The majority, if not all of that, has been in the small carriers, about 125,000 roughly, in really that owner-operator space of 1 to 5 trucks. So to me, I think that's the biggest impact right now.

Okay. I want to take sort of that macro view and think about what this means for C.H. So you guys gave us some new disclosures on the first quarter call that was helpful when you talk about gross profit per shipment, and that's been improving even though gross profit percentages remain muted. And so if you look at that slide that you gave us this last quarter, we are seeing a bigger divergence in gross profit per shipment versus gross profit percentages. Like that -- those lines are diverging more this cycle maybe compared with last cycle. So I guess, why is that happening? And then if we think that gross profit per shipment maybe is getting closer to a peak, but margin percentages are going to improve, right? Ultimately, is this -- should NAST net revenue dollars be growing from here or not? Because ultimately, I think that's what should matter the most, net revenue dollars. So hopefully, that made sense.

Yes. So let's talk about that a little bit. And I think about it just simply in terms of the differences between what I'll call the past cycle, 2017 or '18 and '19 versus today. If you look at the 7 quarters in the past cycle where we saw pricing increase, the average increase there was, I think, about 14% year-over-year over the course of those 7 quarters. If you look at this cycle, it's closer to 25%. And so part of the impact to our adjusted gross profit percent -- margin percent is simply that the sell rate to customers was increasing at a much faster rate. And our adjusted gross profit per shipment, as you can see in that chart -- obviously, we don't have it in front of us, but you can see in our earnings deck. Our adjusted gross profit per shipment is relatively range-bound. And so just -- it's just a function of the numerator and denominator that drives down that adjusted gross profit margin percent. The expectation moving forward is certainly that we do continue to grow NAST net revenue, both through taking share, growing volume as well as normalizing that adjusted gross profit per shipment. We've been, I guess, on the upside of our 10-year average for the past 2 quarters after lagging that 10-year average for the 8 quarters before as we were really trying to catch up with the increasing cost of purchased transportation, specifically in our contractual portfolio.

Okay. Do you think that -- for your business, do you think it's likely that second quarter is that sort of peak spread between spot and contract? And do you think it's possible that, that second quarter is sort of the peak in truckload net gross profit per shipment?

I don't know. It may end up being. Q4 of '18 was the last peak. As I look at the continuum of the last 10 years, and there's obviously cyclicality to the adjusted gross profit per shipment, I think what I'm really most focused on and the team is most focused on is, given the cyclicality is just how do we make sure that we maintain the resiliency of that profit stream over time. And as you can see over the past 10 years, it's remained relatively consistent. And so whether this is the peak or next quarter is the peak, that's one data point across a long continuum that we're focused on growing the business.

Okay. But just to be clear, even if like that metric of gross profit per shipment peaks in second quarter, you think that net revenue dollars for NAST can keep growing?

Absolutely.

Right. Okay. And that would be sort of consistent with our expectations. Well -- and just real quick, going back to that sort of down 11% that you talked about on pricing. That's -- is that an ex fuel comment?

Yes. That's an ex fuel cost forecast.

Okay. Perfect. Okay. Now you guys have been talking about wanting to get back to 40% net operating margins in NAST. You guys said that -- or I think implied you were pretty close to that 40% in March, right? The contract versus spot spread's only widened, right? Do we have a good shot of being above that 40% in the second quarter?

Again, I'd want to broaden out the horizon on the question, Scott, and not be as focused on the quarter and really be focused on the longer term because that's how we're going to create the most shareholder value is not just getting to that 40% this quarter, but getting to and maintaining that 40% longer term. And we still believe that that's the right level of profitability that this business can and will deliver. Up until the third quarter of '19, we consistently delivered at that 40% operating margins prior to that. And over the course of the past several quarters, it's been challenging to achieve that, mainly driven by the health of the contractual portfolio that I talked about, the impact of the cost of purchase transportation. But that also coincided with the time of increased investment in NAST in terms of the technology, the investments that we've made as well as just many of the changes that we've been undertaking structurally in that business. And so what gives me confidence about the future is the quality of the underlying customer base, the quality of the revenue associated with the services in NAST, the broad market -- total addressable market, the market opportunity that sits in front of us. As well as the progress that we have made from those technology investments and some of our digital advancements that we've made on both the customer side and the carrier side of the business. Recently, we added some personnel to help unlock growth as well, which will serve as a bit of a drag on that operating margin for a few quarters until that cohort of new employees gets up to speed. The one piece that has structurally changed since '19 in the expenses of NAST, I just want to make sure people understand is, whether it be through the acquisition of Prime or as we've gotten deeper into consolidation in our LTL business and providing that for different verticals, 2019 warehouse expense was about 1.5% of our operating expenses in NAST. And the first quarter is about 4.5% of our operating expenses in NAST. So in order to get back to that 40%, we have to deliver the appropriate returns on those assets as well, and I'm confident that we will do that.

Okay. So let's -- can we dig in a little deeper? Because I think you're right that -- let's -- it's ultimately going to be about sustaining a 40% net operating margin beyond just second quarter. And so in an environment where the margins were falling, which was a function of, I guess, 2 things. One, you have that negative spread of spot versus contract and the negative loads you were talking about on top of heightened investments. And then I guess you had incentive comp for the enterprise flowing through NAST as well. So you had a bunch of sort of factors at play here. And so forget about second quarter, where maybe we have this like peak spread between contract and spot. In a more sort of normalized mid-cycle sort of environment, how -- what are the sort of structural changes in cost structure or anything that you guys can make to get us back to that and sustain that 40% net operating margin?

Yes. So it -- first lever point is on the truckload adjusted gross profit per shipment, right? And so us getting and staying at close to that average is important for us to be able to sustain that. Secondarily, if you look within NAST, 65% roughly of our expense base in NAST is personnel. And so we've talked a lot about digital and the investments and the acceleration of the carrier bookings, the acceleration of the customer connectivity. We still got some work to do in the middle to unpack that and drive to be able to capture the efficiency gains that we created by digitizing both the customer and carrier side. And you see that. I mean we demonstrated last quarter, I think it was 100% increase in digital bookings, but you didn't see the commensurate increase in truckload volume associated with that or the shipments per person per day move at the same level. And so part of the journey we've been on at NAST is, call it, tech plus or people plus tech is really harnessing the benefit of those technological investments, not just in digitizing a process but driving that automation through so that we get the productivity uplift associated with it. So there's a lot of work underway today to help our employees to move more shipments, to be more efficient, to be more effective, to generate value for our customers in different ways. That's going to be a big part of the unlock. And so efficiency improvement there, normalization of adjusted gross profit on the truckload side will be the 2 primary levers. As I said, with the new employees that we've added, we've got about 1,000 people right now somewhat doing the work of 250, and that's almost an accurate picture of kind of what it takes to ramp to productivity with these new employees. And so our head count will likely peak out in NAST in the second quarter and then draw down through the -- or flatten out over the back half of the year as those new employees ramp up to productivity and start to be a positive impact on that 40% versus a drag.

So if anyone has questions, raise your hand. We'll get you involved. So the way that I'm -- let me know if this is a fair way to sort of interpret the set. 40% is now the goal for the NAST net operating margins in an environment where we've got that -- where gross profit per shipment is below trend, maybe we'll be below that 40%; and in an environment where profit per shipment is above the historical average, we could be above the 40%. But we should, through the cycle now, hopefully, we'll start to average 40%?

Yes, Scott. I mean the other lever that we haven't talked about is volume growth there, both in truckload and less than truckload. And that's a critical metric as well. I mean fully aware that our NAST truckload business likely missed opportunity through the course of the past several quarters in terms of truckload growth relative to our peer set. And as I said, we've been undertaking a lot of change within the network and readily are aware of the fact that we did not perform to expectations in terms of truckload volume growth there. And so getting that back -- I mean our model forever has been as margins compress, truckload volume growth tends to accelerate. As margins expand, truckload volume tends to decelerate a bit or at least not be at the same growth rate. And I feel like we're in a place today where we're rounding home plate in terms of the structural changes that we've made in NAST, aligning against our customer verticals and segments that will get us back to that more than normal operating pattern in the business.

So let's talk about that then. So first quarter truckload volumes up 4%, NAST headcount up 12%. I think you said second quarter will be the peak for NAST headcount, you just said. So as you think about the back half of the year, what should that -- what's an ideal sort of growth rate on volume, on headcount? Does that spread? I assume that spread converges. Could that spread potentially in the second half of the year, inflect positive for you guys?

Yes. So prior to the third quarter of '19, headcount and volume really moved in parallel, right, up 1%, down 1%, but it was really tightly correlated. From Q3 '19 towards -- through the middle of last year, we saw that diverge. And volume on average increased, I don't know, 5.75% per quarter against headcount that was down on average 9% per quarter. And then on the back half of last year, as we started realizing that we likely weren't capitalizing on the market opportunities in front of us, you saw us start to add people back, which in turn led us to kind of that flip in the other direction in the first quarter of this year. Now -- so was it 8 of the past 13 quarters we've seen volume growth ahead of headcount growth. If we compare where we sit from a productivity standpoint today, we're -- on the shipments per person per day, we're about 15% higher than we were 5 years ago. And at the peak, middle of last year, that was about 30% higher. So we anticipate with this new cohort of employees getting back to that kind of 30% productivity improvement against that base year that we've demonstrated through the middle of last year. So I don't know if that hits your question directly, Scott. I mean throughout the balance of this year, should we expect to see volume grow at a rate ahead of head count growth? That would be the goal as we get through kind of with the Q3, Q4 into next year.

How much of that is just -- is that -- that comment about shipments per employee, is that -- that's a truckload comment or a total volume comment?

You can look at it a couple of different ways. A total volume, if that -- what I just referenced, it was in the spirit of total volume versus our full employee base. It's -- within truckload, the one area where I can look at truckload volume specifically is relative to our carrier job family, those employees that are interacting with carriers every day, booking trucks every day. And you see a very similar productivity uplift relative to truckload shipments per person per day in the carrier job family. It's a bit -- if you looked at truckload across the entirety, you wouldn't see that same uplift simply because of those sales and commercial people are selling multiple models.

Okay. Yes. I wasn't sure how much of this was just sort of a mix impact of more LTL volume because I think you get a lot more productivity there.

Yes.

Okay. So we hear so much from trucking carriers that have brokerage businesses now about their power-only business, their trailer pool business, whatever you want to call it. Why -- what's changed why this is now such a hot market? And to what extent are you guys participating in this?

So about 10% of our truckload volume roughly is drop trailer business, and that's grown for us over the past few years, but we've always been active in that drop trailer space. I mean shippers are clearly looking for efficiencies. They're looking for productivity gains within their business. We introduced to the marketplace our POWER + program, I think about 3 years ago, which is our kind of lease trailer. We call it a gray box fleet. But we go to market within the drop trailer in 1 of 3 different ways. One is that we partner with larger carriers, and we establish dedicated trailer pools for a customer, right, or a group of customers. That's kind of the traditional way that we've done the business there. The second way that we go to business, we refer to as our rainbow fleet program, which is essentially bringing together a number of small carriers and establishing interchange agreements that allow them to kind of act as one digital fleet and share the use of each other's trailers. The third way is in that POWER + manner, and that's where we have several hundred trailers leased today. We expect to be north of 1,000 trailers by the end of this year. And those are customer-specific drop trailer programs on leased assets POWER-only.

So several hundred trailers, maybe going to 1,000. I know you've got some of the truckload companies with thousands and thousands of trailers involved there. Would you be open or interested? Are you contemplating a bigger investment in trailers to focus more on this business?

We would be larger in that space today. It's limited greatly just by the access and the availability of trailers in the market. I don't know that we would get to the point -- based on what we see on the returns on it today, Scott, where we would take an aggressive material capital allocation of going out and buying a number of trailers, at least as we look at the returns on the program today. And I think we'll stay down the path of longer-term leases because it gives us some flexibility. But getting trailers right now is the limiter to expanding that.

And is this a business that you think -- is this now a structural grower for the market overall? Or is this, say, we were in a really tight market right? That's when we really need these trailer pools in a looser market we'll see? Or is this now -- or do you think that, again, this could be more of a structural growth piece for the whole trucking industry?

I think it's an opportunity to engage smaller carriers into a space that's always been important to shippers, right? I mean shippers have always had preference. Many shippers had preference to drop trailers with larger fleets through technology. And I think we've now gotten to the point where we can bring smaller carriers together to participate in this space in a way that we haven't in the past, and I do think that it could be a structural grower. It's off of a very small base, albeit within our business today. But us having the ability to offer it has allowed us to win more business.

Okay. Last, just thing on trucking and then I want to go to the forwarding side of the business. So first quarter, you guys added 13,000 -- sorry, 11,000 carriers in the quarter. As fuel has gone up, as spot rates have come down, have you seen a meaningful drop in new carriers getting it into the market? Are you seeing any signs of capacity start exiting the market in a lower-spot, higher-fuel environment?

We have not seen any firm data points that would indicate that FMCSA registrations are coming down or that carriers are exiting the market. I would expect that our new carrier sign-ups in this quarter will be below where they've been in the past few quarters. But like I said earlier, you've got 127,000 trucks that came in just on the owner operator, the 0 to 5, or I guess 1 to 5 truck space. And a lot of those folks came into this industry with a higher cost basis, right? If you think about the impact of fuel, the impact of insurance, the impact of used equipment prices where they were likely buying in at, the sustainability of some of those carriers will likely be challenged should pricing in the marketplace continue to come down. We, as Robinson, certainly do everything we can to keep those trucks moving because their biggest challenge in this high-fuel environment is empty miles and deadhead.

Okay. You mentioned on the 1Q call, you haven't really seen a big drop in volume coming out of China. Has -- why are we not seeing that? And what does that mean as China reopens? Is there going to be a big surge of volume coming out of China?

We're not in the camp of expecting the "wall of freight" to be hitting the ports 80 days from now that Shanghai started to reopen. But we do expect the back half of the year to be dynamic on the forwarding side. I mean China was down, I think, in April, 2.5% in terms of export containers. That's 2.5% is a really big number. But as things reopen, we do expect the convergence of labor negotiations in the West Coast ports, the regular peak season. We think that the macro environment is going to be maintaining really a strong market in air and ocean through the balance of the year.

Okay. I want to ask a near-term question on forwarding and then a longer term. So do you think from, what, $320 million of forwarding net revenue in Q1, does -- is that a number that can grow sequentially from here in the near term?

We don't give revenue guidance, as you know, much to, I think, the chagrin sometimes of some analysts and investors. But in many cases in our business, we're a taker of adjusted gross profit or of net revenue, right? The market conditions indicate -- will dictate that as much as anything. But as we look at those market conditions, the macro environment for forwarding, the work that the team has done to take share to really evolve our customer mix, we continue to see growth opportunities in forwarding on a long-term basis.

Is there anything about like the pricing in air, ocean or the volume that suggests clearly one way or the other, which direction we should be going in forwarding earnings right now?

Scott, I missed -- like I missed the first part of your question there. Sorry.

Yes. Is there like the -- from the market, ocean rates, airfreight rates, is there anything that makes it directionally clear which way forwarding should be trending right now?

Well, as you saw in the first quarter, we grew our forwarding business both through taking share, growing volume as well as expanding margins. And so we've been significant share gainers over the course of the past couple of years. We've got -- we continue to have a pipeline of customers that we have yet to implement and onboard. The team has done a really good job of working with the ocean carriers and the air carriers to expand our relationships to get more capacity to fuel growth. And so while the industry may have seen some declining volumes over the course of the past quarter or months, we simply have not seen that in our business.

Okay. So now longer term, so forwarding earnings today versus pre-COVID I think you're up like 6x, right? And I think everyone in forwarding is over-earning to some extent, right? But how much of this -- whenever air and ocean rates ultimately normalize, like how much of this profit growth do you think you can keep? And where do you think the net operating margins ultimately settle? And I know it's a tough question, but how do you think about where forwarding earnings could look like in a few years?

Yes. It's the billion-dollar or multibillion-dollar question for sure. And we've stated since the acquisition of Phoenix in 2012 that our target was to deliver operating margins in our forwarding business at or above the 30% range or in the range of 30%. We've been over that for the last 8 quarters and have no reason to believe that it won't be 9 in the second quarter this year. The macro environment still remains favorable for us in forwarding as far out as we can see. We've -- there has been a structural shift in our customer base in forwarding. Historically, we worked with more mid -- I'll call it, mid-cap customers, didn't work with a lot of the large global international companies that you would recognize. And today, we are. And through that, we're seeing larger award sizes, longer contract terms, more kind of sticky relationships. As we've been going through the chaos of the global supply chain in the last couple of years, the team has also done a lot to really structurally improve the profitability of that business. We've had that kind of, I'll call it, a string of pearls of acquisitions, integrating them, getting them all in Navisphere, getting them all on platform, looking and working through global process standardization, investing and implementing technology. And I think as we come out of this and into whatever normal looks like, I think the structural improvements in the profitability of that business will be much more evident to our investors long term.

Okay. The capital allocation and planning committee, I guess what are the types of things that, that new committee is focused on? And maybe if you can -- if you have some insight you could share, what do you think is more likely? Is this -- is it more likely this results in a big acquisition, divestitures? Where is the mindset right now?

Sure. The mindset right now is that we've added 2 really talented directors that bring a fresh perspective on to our Board, and we've added 1/3 outside of the purview of our agreement with Ancora. And right now, we're getting those new Board members up to speed in terms of understanding the industry, in terms of understanding our position within the industry, how we drive returns for our investors, how the system works together across our various business units. We've reaffirmed our broad capital allocation strategy around ensuring an investment-grade credit rating, growing our dividend in line with our long-term EBITDA growth, doing internal investments, looking at strategic M&A and doing opportunistic buybacks. So nothing has changed in terms of the capital allocation strategy for the company as it sits today. In terms of your question of what's more likely a big M&A deal or a divestiture, today, the focus is on, for me, running the company as it sits. But anything is on the table for discussion in terms of maximizing value for our shareholders, and we'll look at that through each lens as we go through it.

How about buyback in terms of, yes, being opportunistic, but maybe being more aggressive with -- you're still relatively low balance sheet leverage. At some point, there should be a big working capital sort of normalization tailwind coming.

Yes. It's certainly on the table, Scott. The working capital point is an important one in terms of free cash flow and the working capital absorption that's occurred over the course of the past several quarters. Once we start to see pricing normalize in air and ocean and start to come down, you'll see a huge influx in cash, some 80 to 100 days later based on the DSO associated with that. And on the truckload side, you'll see it 40 to 50 days later. And so yes, we will have opportunities with some strong cash flow to make determinations on how to best utilize that.

Okay. And then just last question for me. We've seen a big increase in the tech spend over the last few years at corporate. Other head count is up a lot, I think over 30% since 2018. Where do we see that trending going forward? Does that continue to grow? Does it start to level off? Could it start to come down? Where do we go from here?

Yes. So 2 important questions there. I will hit the corporate head count one first and then finish with the tech spend. So maybe a little bit more difficult to unpack the way that we share this publicly. But if you think about all other in corporate and the increase in headcount there, I think in your question, Scott, that you'd sent me, it was kind of from 2018 to 2022, we've seen headcount there of about 1,100 adds. Within that all other and corporate, you've got IT and product together. You've got the finance organization, HR, any of our kind of shared services groups as well as Managed Services, Europe Surface Transportation and Fresh. And so within that 1,100 additional heads, the first tranche I'd look at is transfers in from business units into that group. So a lot of effort around kind of standardization, simplification, centralization and automation of shared services functions in order to drive scale and efficiency improvement. So that's about 400 heads. There's about 100 heads in there that are adds from M&A deals that we've done, whether it be Prime, Combinex or [ Dema Transportation ]. That was about 170. It's through synergies. There's about 100 there in terms of corporate heads. 400 of the adds are within TMC and European Surface Transportation, which is offset by a decline in headcount of about 100 in Fresh. And the balance of that is increases in technology, engineering and product, and that's about 400 people roughly. In terms of the tech spending, we anticipate that being flattish in 2022 relative to 2021. It will increase investment in areas focused on product and our customer and carrier-facing products while we subsequently draw down investments in some of the more foundational things that we've been doing over the course of the past few years relative to cloud migration and architectural improvement and the such. So you'll see a shift in terms of where those dollars are being allocated at this point. And over time, we'll continue to look at the right level of investment in tech and digital relative to our business as well as the overall size of the shared services team to support the business overall.

Good stuff, Bob. We're going to wrap it there. Thank you very much. Appreciate it.

Thanks, Scott. Thanks, everyone.

Okay. All right. We're going to get going in 2 minutes with Werner.