Q2 2020 Echo Global Logistics Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Echo Global Logistics second quarter plenty plenty earnings calls at this time all participants are in a recent ldmos actually were just speakers presentation. There will be a question answer session.
<unk> session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you recall any progress you said, Please press star zero, though I would like to find the conference over to your speaker to be our Chief Financial Officer Mr. Kyle Sauers. Thank you. Please go ahead Sir.
Thank you and thank you for joining us today to discuss our second quarter 2020 earnings hosting the call or Doug Waggoner, Chairman of the Borden, Chief Executive Officer, Dave Menzel, President and Chief operating Officer, and Kyle Sauers, Chief Financial Officer.
We posted presentation slides to our website that accompany management's prepared remarks. When these slides can be accessed in the investor Relations section of our site Echo Dot com.
And of course this call management will be making forward looking statements based on our best view of the business as we see it today RCC filings contain additional information about factors that could cause actual results to differ from management's expectations. We will also be discussing certain non-GAAP financial measures and the definition and reconciliation of each non-GAAP financial measure to its most directly compare.
Well GAAP financial measure is contained in the press release, we issued earlier today and form 8-K, we filed earlier today.
With that I'm pleased to turn the call over to Doug Wagner.
Thanks, Kyle good afternoon, everyone.
I appreciate all the new joining today.
With all that is happening in our world. All last quarterly call was spent with much more time talking about lower volumes from our shippers reductions in costs and headcount.
And the strength of our balance sheet and liquidity position.
Well, there's still plenty of uncertainty in the U.S. economy. Today, you will hear it be hearing us talk more about getting back to year over year volume growth, taking market share and the resumption of sales hiring classes and near record free cash flow.
I'll repeat something I sit on our last call, which is how proud I am of the echo team at our ability to serve shippers and carriers in a work from home environment with our industry, leading technology and culture.
I continue to hear stories about go solving problems, where others couldn't and how strong our service levels have been throughout these challenging times.
Nothing can days this message better than being named the number one threepl of year by the readers of inbound logistics for the fourth year in a row.
Our employees should be very proud of this prestigious award and we want to thank all of our shippers and carriers who voted for us.
I'm quite confident we've never seen a quarter with such a stark difference between beginning in the end.
We began the quarter with LTL volumes down 24% in truckload volumes down 4%.
And we exited the quarter with LTL volumes down low single digits, and truckload up double digits remarkable turnaround for the industry as a whole, but I believe just as strong a testament to echo's value proposition for shippers and carriers and our continued success gaining market share.
We watch the the cost to buy capacity go down quickly in April which improved our truckload margins only to see the cost of capacity increase for each of the last 11 weeks since that time.
This in turn has put pressure on our truckload margins due to our award commitments with shippers.
Expect one up two things to happen from here.
First.
Demand continues to hold strong with capacity tight and more spot freight begins to enter the market, which creates opportunities for more volume and improved overall gross margins.
This environment would also result in new award freight to be reset at higher prices.
And alternative scenario is the demand slows, which would likely ease the cost of capacity and improved gross margins on award freight but might be indicative of less robust economic recovery.
However, as you'll hear later the July trends, thus far are not indicating a slow down a freight demand as would be seasonally normal. So why would tend to expect the first of my two scenarios to be more likely.
Whether that happens tomorrow next week or next month I'm not sure, but I think the time is near.
With that as a backdrop on the cadence for the second quarter I'll now take you through some of the highlights of the quarter as highlighted on slide three.
Total revenue was $515 million, representing a 7% decrease from last year.
Net revenue was 88 million, representing a 12% decrease from last year.
Adjusted EBITDA was 14.8 million, representing a 36% decrease from the prior year.
Non-GAAP fully diluted EPS was 19 cents compared to 42 cents in a year ago period.
I'd like to turn it over to Dave to go into more detail on our performance.
Thanks, Doug.
Before I dive into all the numbers I want to start up costs and most of our second quarter metrics require a little more explaining is the freight market, which is much different as Doug mentioned at the beginning of the quarter than it was at the end of the quarter. So.
Let's take a look at slide four for the mode review.
Workload revenue was 352 million Q2, which was a decrease of 3% over the prior year. This decline was all pricing is revenue per load was down 6% in part due to lower fuel costs and the rate decline was offset by 3% increase in truckload volume.
So its role where we've seen dramatic swings in supply and demand within the quarter.
In March or truckload volume was up 12% year over year, Dan as discussed on last quarter's call truckload volume dropped in April and was down by more than 2% for the month.
Boy and quickly bounced back in May and June in fact, we were up 8% on a year over year basis in June.
As you would expect.
Rates fell hard in April then began to steadily rise that trend has continued into July in fact truckload rates. Excluding fuel have recently hit their highest levels that we've seen in the past 12 months bottom line, that's been a very volatile quarter.
Stepping back much like previous core quarters, we continue to take market share with larger shippers and it and we've increased our primary award volume in Q2 or award volume was up 27%, which increased our overall mix of contract volume to 62% of total.
This is up from 53% a year ago and reflective of our success expanding our market share with larger shippers.
As we've discussed in the past Tire award freight mix can impact net revenue margin positively when truckload rates decline like we experienced during the first half of the quarter.
Can also put short term pressure on net revenue margin when rates rise.
And sustained periods of tight capacity shipper prices begin to adjust them capacity constraints typically result, and an increase in spot business.
The growth in our larger truckload clients as well as the strength of our business model positions us well to provide capacity in the sports spot market when it's required.
So switching the topic to spot volumes, the economic slowdown in the first half a quarter at a significant impact on on the spot business and it was down 20% on a year over year basis in both April and May.
When the market tightened in June our spot business did accelerate and it was basically flat with prior year levels.
Turning to or less than truckload business, we delivered 142 million in revenue in Q2, which is a 14% decrease compared to the prior year. The decline was driven by an 11% decrease in shipment volume and a 3% decrease in revenue per load, which was mainly attributable to lower fuel.
Well cost.
Like truckload or LTL volume was down significantly in April and steadily recovered throughout the quarter LTL volume was up 20% on April 11% in May and just 2% in June.
We've been seeing signs of increased increased capacity constraints in the LTL market as well, which are primarily attributable to kobin related operational constraints.
Moving to slide five or transactional revenue of 397 million decreased by 7% due to the lower truckload pricing and they'll and lower LTL volume.
As I mentioned earlier.
Volume in shipping accounts have all trended in a positive direction throughout the second half of the quarter.
We discussed on our last call that we delayed or sales hiring sales hires that were scheduled in the spring.
Which will reduce our overall hires for the year as well as our overall planned headcount at June 30, our sales organization, which is inclusive of the client carrier and operational.
Positions totaled 1586 people, who was down by 12% over the prior year they'll be do the math, that's 219 less people than we had last year in the sales organization as a whole.
However was again started bringing in new classes and we are currently planning to consistently AD sales talent throughout the back half a year.
Out of our training team for quickly adapting and shifting all of our training programs to a virtual setting and we're confident that we have the tools and capability to bring our new people up to speed efficiently and effectively.
In addition, the combination of technology combined with a good dose of hard work and Hustle has continued to drive improved productivity shipments per sales employee were up by 9% in Q2, and I want to thank our entire client and carrier sales team for continuing to drive improved productivity, while maintaining high levels of service.
All while working remote their ability to stay focused on our mission has been amazing.
We continue to make meaningful progress automating our freight market place. Some Q2, we began providing electronically driven quotes via apiay connections, where they select client group. We've launched book it now capability with our carriers and continue to see increases in mobile download and usage or inbound carrier offers and bookings continue to increase.
Turning to managed transportation or munis transportation revenue was up or was it was 118 million in Q2, which was a decrease of 6% over the prior year.
Consistent with the trends in our brokerage business, we were down 26% through April store April earnings call actually and we've seen steady improvement throughout the quarter. This bounce back has been driven by both increases in our existing client base as well as the onboarding the new business on a year to date basis, we've already signed $90 million of new.
Managed transportation business. So this new business along with continued economic recovery is expected to drive growth in the second half of the year.
Turning to slide six we generated $88 million, a net revenue 12% decrease over the prior year.
The decrease was primarily attributable to lower revenue in Q2, but it was also impacted by lower margin compared to a year ago net revenue margin was down 106 basis points at 17.1%. That's despite a sequential increase from Q1.
The decline was due to a decrease in our truckload net revenue margin.
Back to intra quarter intra quarter volatility truckload margin decreased substantially in June as volume continue to grow and capacity tightened.
And thinking about the freight cycle, we've talked about how shipper rates typically lag carrier rates. This cyclical impact on brokerage net revenue margin has been discussed for many years.
One of the key drivers of the cyclicality is the speed of change and it's quite obvious that the speed of rate decline and now rate increase is unprecedented.
As would be expected. This is translating into short term margin pressure, but we believe this market is one in which we provide tremendous value to our clients indoor carriers.
And that pressure will likely ease a shipper rates adjusted spot activity increases.
I'd like to now I'll turn it over to Kyle.
Thanks, Dave.
The move to page seven of the slide you'll find a summary of the key operating statement line items.
Commission expense was 26.6 million in the second quarter of 2020, which is a decrease of 14% year over year and commission expense was 30.2% of net revenue, which compares to 30.9% for the second quarter last year, our non-GAAP DNA expense was 46.6 million in the second quarter 2020.
And that was flat with as the year ago second quarter.
Depreciation expense was 7 million up from 6.8 million in the year ago period, and cash interest was 1.2 million during the second quarter 2020, compared to 1.3 million in a year ago period with that slight decrease.
Being attributed to a lower amount outstanding on the combination of convertible debt and our ABL during the quarter and a lower interest rate on the ABL facility.
Our non-GAAP effective income tax rate was 24.8% for the second quarter.
And as Doug mentioned, our non-GAAP fully diluted earnings per share was 19 cents decreasing from 42 cents in the second quarter last year and then as a reminder of the primary differences between GAAP and non-GAAP fully diluted EPS in the second quarter of 2020.
Our 2.8 million of amortization of intangibles from acquisitions 200000, noncash interest expense in 2.3 million of stock compensation expense.
Moving to slide eight where we have selected cash flow and balance sheet data. We ended the quarter with 35 million in cash on hand, and 305 million up accounts receivable, which is the basis for our ABL borrowing base in the second quarter of 2020, we had free cash flow of 20 million 21 million and operating cash flow 20.
$6 million.
Because the difference between our typical terms of shippers in terms of carriers. Our cash flow is often positively impacted during quarters of sequential decline like we had this quarter due to co bid.
Capital expenditures totaled 5.1 million on a quarter and that compares to 6.8 million in the prior year.
And then as you move to slide nine where we highlight our liquidity position.
As I mentioned previously we had $35 million in cash on hand at the end of the quarter, we had an available borrowing capacity on the ABL facility up 227 million.
And that borrowing capacity is 85% of our eligible accounts receivable, we had borrowed 145 million on a bill.
Down from total borrowings of 169 million at the end of last quarter.
And we settled the remaining obligation on our convertible debt earlier in the second quarters are only debt facility. At this point is our NPL Saar combined cash on hand, and availed borrowings on the Bell leaves us with a net liquidity of 118 million at the end of the second quarter.
No we're offering Q3 guidance along with some select information provided for the full year on the next slide.
Well, we're very encouraged by the direction of freight markets and in particular, our success and continuing to take share.
We recognize there's still plenty of uncertainty so we're limiting our guidance to just this current quarter.
And as usual we want to also give you. Some recent trends through the early parts of July which this quarter is 12 business days of activity.
And that July data is as follows the per day revenue in July is up 10% versus last year truckload volumes are up 12% LTL volumes are up 9% compared to last July and our net revenue margins here in early July are a 15%.
And the guidance for Q3, we expect to following revenue of 565 to 615 million range of up 1% to 10%.
Commission expense should be between 29 in three quarters and 31 quarter percent of net revenue.
DNA costs are expected to be between 46, and a half and 49 and a half million.
We welcome back almost all of our employees that had been furloughed and we've started hiring again for our sales classes as David mentioned.
We continue to monitor our costs and we're being prudent about investments, but we are investing in our future through the addition of new salespeople and expansion of the our technology and data science teams.
We expect depreciation about 7.2 million cash interest of 1.1 million a tax rate of 25% share count of approximately 26.3 million shares and then excluded from our non-GAAP calculations in the third quarter, we should have amortization of approximately 2.7 million in stock compensation expense of it.
About 2.3 million and just as a reminder, we will no longer have the line item a noncash interest.
As we've settled our convertible debt obligation.
I'd like to turn it back over to Doug. Thanks.
So I'm pleased with that goes performance in a very tumultuous quarter.
We saw what is normally an 18 month freight cycle play out in a single quarter.
And during that time, we were very successful at taking market share and our contract award business growing it by an impressive 27%.
Simultaneously, we had a lot of success landing new managed transportation deals that will add to revenue in the coming quarters.
I'm also very happy with our agility in a very volatile market.
Given the wild swings in the industry's capacity utilization, which directly impacts the so called tightness or Luton looseness of the market, we were able to quickly adjust to all market conditions to manage volume growth pricing and margins and we did all of this with our employees working from home.
Given the current market conditions of relatively higher prices and tighter capacity I.
I think we're in the middle of an inflection point, meaning that we have seen the prices spike and it's more difficult to find trucks, but we've not yet seeing significant surge in spot freight.
As we go a little pass this inflection point I would expect to see spot freight increase bringing with it higher margins ultimately a spot volumes continue to build shippers choose to renegotiate contract rates. So they can lessen their dependency on the spot market and so the cycle dose of course, the greater known as how the pandemic will disrupt.
Economic recovery, and which verticals or the winners on which ones are the losers.
I'd like to thank you Echo technology team for creating and supporting World class systems that allow us to work from home and execute efficiently.
In fact, we rolled out quite of new.
Quite a bit of new functionality during the quarter and some of the new capabilities are externally facing with carriers and our digital freight marketplace. While some are more internally focused on better execution.
Finally, thanks, again to our clients and our carriers in our employees for making echo the number one logistics company in the inbound logistics pool for the fourth year in a row.
And with that concludes our prepared remarks and at this time, we'll open it up for questions.
As a reminder to ask a question you've only depressed sarwan telephone.
Your question Brisket South.
Please standby.
You any roster.
Your first question.
From the line of Jack Atkins from Stephens. Your line is now open.
Okay, great. Thank you and congratulations guys on a great quarter here in a very volatile environment.
I guess I guess first question for either Doug or Dave whoever wants to take it already both want to take it but could you talk about you look at your customer base.
Over the course of the last couple of months both for both through June and July maybe where you are seeing pockets relative strength or weakness I mean, it's been such a sharp recovery on the demand side.
Despite the fact, we have high level do unemployment and obviously autonomy is not in the best shape. So.
Well what do you think is driving the strengthened demand we've really been seeing sense since the beginning of June.
Yeah, Jack as Dave the.
I think a couple of things I think that.
The magnitude of the economic shut down in April.
You know caused a you know a restart if you will have the overall economy.
And so.
It probably it and related to that restart has been and what's likely been some rebuilding of inventory levels to kind of catch up in some cases and in some cases, maybe out of concerned that there could be another shutdown. So I think it's it's kinda like the magnitude of this of the slowdown which is.
It probably it and related to that restart has been and what's likely been some rebuilding of inventory levels to kind of catch up in some cases and in some cases, maybe out of concerned that there could be another shutdown. So I think it's it's kinda like the magnitude of this of the slowdown which is.
Followed by the reopening in the restart and that's how I would just kind of distill the demand side I think geographically, we've seen a little bit of additional strengthen in the in some southern states, which are also gets it touches into the capacity side because that a touch of the produce.
Season, that's impacted California, and Texas.
And we've seen.
Capacity, maybe tightened a little bit more in some of the southern states and that may that maybe related to business activity that that initially was starting up in kind of cranking up.
In some of the Reopenings.
I would just add that Jack.
On the supply side I think theres been.
Asymmetrical recovery industry by industry.
And so if you think about the carriers that serve those customers that are either doing better than expected or worse than expected.
It causes them to have their equipment in places, where it might not normally be and so it tends to be a little bit disruptive to the national network.
Yeah, no totally does that make that makes sense and I guess just following up on that Doug.
One of the big outcomes I think most people would agree from from the whole bid 19 pandemic is increasing and B to C E commerce activity.
Just broader adoption of that across the.
Across the retail channel.
To what degree do you think that either drives a higher level of inventory kind of.
More of a steady state going forward.
Ed.
Potentially more truckload activity going forward is this.
E Commerce boom is that good for truckload demand overall.
I guess, how would you think about that.
Well I tend to think that.
The same amount of truckload moves regardless of kind of the supply chain. So as you see shifts from brick and mortar stores into more omni channel distribution strategies, you still got to get it from a manufacturer report to a distribution center somewhere it may not be the same one it was going to in the past but.
No I think it's probably a difficult question.
To answer without a whole lot of analysis across a whole lot of companies in industries.
Yes, yes, no doubt I was just just curious about that last question I'll turn it over you referenced a 9% improvement and shipments per employee in the quarter.
How much of that do you attribute to capacity being looser for call. It a third after the quarter relative to normal and how much of that would you attribute to all the investment that you made in technology to drive higher levels of automation across your system.
I'm just trying to take how much of that we can sort of think about as being more permanent going forward.
Yeah, I think there's.
We've said, obviously over the last few quarters that our longer term intention.
As to grow our volumes faster than we'd grow our sales and operational head count we've been doing that for the last two three quarters, it's difficult to pin down in any specific quarter. The percentages is a great question. Obviously people you know when we've gotten before I think that there's a portion of that productivity that we're getting that directly.
The attributable to the investments we've been making the automation around.
Tracking automated tracking and and.
Rolling out tools for our carriers.
To access our loads online and give us inbound offer so there's definitely a component from that perspective, and there's also a component from.
Slowing down a little bit on the hiring so I mentioned in my prepared remarks or head count in the sales side you know of just under six 1600 people was down by a couple of hundred people now. So some of that was delayed sales glasses that does have the.
Unintended effect of improving the productivity a little bit because those.
Had we brought in those same people they might not be at a productive state early in the cycle. So there's a little bit of that in the number it's hard to parse it you know across both of those thanks.
Okay. Thanks again for the time guys. Okay. Thanks, Jeff.
Your next question comes from the line of Jason Cdels from Cowen and company. Your line is open.
Yes, Hey, guys. This is Adam on for Jason.
Just wanted to ask a little bit about kind of your your actions.
Resulting in being able to take market share.
What do you what do you think is kind of helping you guys take market share.
And maybe who were you would you think you're taking it from.
In the marketplace.
So I think yes, it's a very big market number one so it's difficult for us to say it I'm not going to I'm not going to conjecture exactly where it's where it's coming from per se, but I would say that you know it's not a new concept that we've been very focused on service and our ability to leverage our network for larger shippers over the last couple of years.
Weve.
Talked about our desire to continue to grow whether it's in the spot market or the contract market and so weve extend able to expand.
Relationships across larger shippers I think we're doing the same same thing across the small and midsize companies, but the covance prices probably hit those companies a little more disproportionately.
But we're seeing as we've talked about those monthly metrics, a pretty strong balance back. So I think its its service related and it's a kind of leveraging that you know the things we keep talking about the talent and the technology.
Across both our customer care basis, enabling us to be successful and grow.
Grow volumes, and then I think that.
Revenue and profit growth will come over time as you know we deal with the ebbs and flows of rates and and market conditions.
Got it and then maybe little bit about kind of along similar lines about competitor pricing in the market.
Yeah, there's not much new to report there I think when when the market first off you know you get a little better.
For US you get a little more visibility during the bid cycle, because you're going to rounds of bids and you kind of know where you stand it's a little and a little more apparent you know that it's either you know highly competitive or not.
As we've talked about again lots and it's very competitive industry, it's always very competitive but in the second quarter were kind of through the bid season, we're not seeing as much activity on RFP is.
So the visibility is a little less in that regard and.
The game kind of switches, a little bit which is looking for capacity.
Routing guides start to break down a little bit with a high with more frequency.
And costs are going up it doesn't you don't feel that per se.
Price competition in the same way because you're really looking for capacity and trying to find ways to leverage our network across a shipper basin and helping solve their problems. So I'd say that.
Given that backdrop it feels like.
It's less.
Less of a focus item today than it might have been year ago.
Got it really appreciate the color there and maybe just switching gears a little bit for final question here.
Yes. It has been a a lot of kind of government government stimulus and the PPP loans in particular wasn't maybe asking about that in regards to capacity production, whether you see kind of as those loans come up in stimulus.
Got it becomes less impactful I'm just in the general economy, if you think that capacity will be reduced.
You know or not.
I think it thinking kind of greatly depends on.
The rates and the environment. So it's been such a dramatic swing where rates dropped precipitously capacity came out government stimulus was put in place drivers you know had had options than the rate things have bounced back really quickly.
And it's I think the the ability to track the drivers back in at the same pace has been likely a challenge for many trucking companies and if the rates sustain I think the capacity comes back if we go through another swing on the downward cycle probably stays out so.
That's all I'm looking at that.
You know dilemma, if you will or how that might play out over the next three to six months.
Got it got it thanks, so much for the time.
Thank you.
Your next question comes from the line of Stephanie Benjamin from Suntrust. Your line is now.
Hi, good afternoon.
Our Stephanie.
I just wanted you to talk a little bit on we appreciate that you did frame some guidance for the coronary only kind of revenue line and just we've seen so far so maybe just if he could walk through some of the puts and takes between the low and high end of that guidance that you know what you're assuming current overall market standpoint.
Does that.
Sure seven this as Kyle I'll take that one so obviously, we talked about a range of 565 to 615, which is up up 1% to 10% compared to last year and then we talked about our July revenue.
An up 10% so far in so near the high end to that.
Maybe the first thing I'd point out as we probably think theres, a little bit of benefit given where the holidays.
For the July holiday fell this year versus the prior year, and maybe maybe opportunity for more business activity.
This year kind of across the economy than there would have been the way they fall last year, so probably a little bit of benefit there but.
We've had a really strong start to July increasing volumes increasing revenue per load.
Relative to Q2, but even relative to.
June and where we were exiting June.
So we just want to guidance to be mindful of what a typical seasonal pattern would look like and that may materialize yet here since we're so early in the quarter and the possibility that some of the strength that we've seen.
Cuts could subside.
Obviously, having said that would we haven't seen slowdown yet so we just want that guidance to be able to frame across a bunch different scenarios that could come about.
Got it appreciate it and then switching to.
On the M&A environment.
When it really expect to give any kind of update on that but I think it is interesting just given the math the volatility that we have seen the last couple of months.
Has anything kind of altered from an M&A standpoint, either interest from sellers multiple them.
In the private guys.
Interest or conversations or maybe they went talkie before but now are willing to take your calls and then on the other Ed maybe has anything changed how you would approach the market, but any color there would be helpful.
Yeah, I would say that our appetite right.
Remains unchanged, we're interested in doing accretive M&A.
We continue to look at opportunities I will tell you that some of the.
Opportunities we were looking at you know have struggled a little bit through the cobot crisis and so.
You can imagine when they're looking at a multiple of their EBITDA and their EBITDA us down the it causes them to rethink.
Whether now is the right time to do something or not so we've seen some some opportunities about rate a little bit because of the target companies performance in this environment.
At the same time, we're seeing new opportunities come across the transom and we're evaluating those and us as it pertains to your question on multiples, it's a little tough to say right now because there really haven't been a lot of deals getting done and so I wouldn't say there or any timely comps.
Got it and I'll leave it that thank you.
Thank you.
Your next.
Okay.
Yeah.
Yeah, Hi, everybody. Thanks for taking my question on.
I assume you have not estimated.
DNA and for the year.
Because you're not estimating rather than it is for the fourth quarter is that that the reason.
Yes, so David we Didnt give guidance on that for Q4.
I think it's probably reasonable to expect some small step up sequentially from the third quarter in our in our DNA costs.
David mentioned that we're continuing to add some more sales classes.
It's possible will have lower turnover for some of the upcoming quarters, which.
Adds to near term costs, but it's that's obviously, great for our our growth and productivity longer term.
I guess I want to I'd say, all that with the potentially a step up in costs, but recognize that the reason, we're not giving Q4 revenue guidance in DNA Guidances just due to the overall uncertainty the economy. So if if we were impacted by some additional are significant shutdowns or if there were.
As an even bigger pickup in volumes and maybe rates them than we've already seen that could impact that either way. So just trying to help you frame it a little bit but.
You had to point of why we Didnt give guidance on that because we didnt give guidance on revenue as well.
Right.
You mentioned a lot about market share growth.
Yes, you think that that grows this largely.
Caused by your ability to efficiently provide solutions.
To.
Transportation problems.
That yes are there other competitors don't have the.
Technology for and therefore here.
Here are taking advantage of that by gaining shares that.
Is that a good reason do you expect that to happen.
Yeah, Dave I think Thats, a great point and that's why we invest so much in technology and data science, because we want to.
First and foremost provide great service to our clients, we want to be easy to do business with for our carriers, we want our employees to be as productive as possible and able to process as many transactions per day as they can.
And so you know all that comes together and then not to mention as Dave.
Commented earlier, you know, we've been going up market with larger shippers and larger shippers generally have a lot more freight.
That you're not saying and if you do a good job for them you have opportunities to get to a greater share of wallet. So I think that's also something that pays dividends for us as we go to continue to go up market with larger shippers.
Yes, and you you must know some internal estimates of.
What the market is growing by.
To to calculate say that you've increased your share is that.
Yeah, that's something you disclose.
Well in terms of the short term you know trying to say what percentage of the market. We have it I think it's pretty tough given all the volatility.
And so we would probably look at that statistic on a little longer term basis, but.
That's probably the best I can do off the cuff.
Okay and my final question is.
The approximate net revenue margin in early July 15%.
That's quite a quite much less than than me answer and then the second quarter and how does it compared with a year or though the same for the same gains.
So so we didn't disclose it for the same days.
Last year, David but we for the full quarter last year, we did see a sequential decline from Q2 to Q3, we were at 17.3%.
For the full third quarter.
So hopefully that will help you out.
No I just wondered you know.
[laughter], 15% would be.
Typical for the quarter or weather.
There's some.
Unusual mobility or unusual.
Margins stuff in the first half of July that does this all didn't always does this.
Yeah, it's not it's probably not not typical and wouldn't say always does this I think you talked a little bit about the speed of the market change and how quickly rates have have shifted from.
A steep decline and then a steep increase and we've got on the truckload side of the business you've got the highest rate today that we've seen in last 12 months and that'll happen in about six weeks timeframe that we went from almost a low to a high and that's that's been unprecedented. So we've always got a lag and shipper president carrier pricing and so when rates.
Move that quickly it's.
To be expected that theres going to be margin pressure, we're seeing that as we look forward and we don't forecast where the margins are going because there's just a whole lot of.
Inputs that are going to the theyre going to play out in the in the future.
But we would if things continue on this trend we would expect that there'll be more spot activity and that shipper prices would begin to adjust to reflect current market conditions and that doesn't happen all at once that happens overtime.
Okay. Thank you very I'm not sure answering the questions.
Thanks, David.
Your next question comes from the line of Louise Chen from Stifel. Your line is now open.
Yes, good evening Jets.
You talked about some of the growing business mix with a large shippers, which seems like a pragmatic evolutionary move.
But as I think through that are there any meaningful tradeoffs to consider in terms of absolute net revenue dollars versus maybe your average margin per customer as that change happens as that mix shift happens.
And then just a quick follow up as you kind of full you pull your digital marketplace does that mix, maybe start to shift back in that direction.
Well I think that large shippers are a great opportunity for us to bring in bigger chunks of revenue, but it doesn't diminish our interest in the smaller shippers, especially those that ship predominantly LTL and those smaller shippers are a great hunting ground for our newly hired and trained salespeople who are joining us and probably.
Early in their first year, not not really ready to sell truckload. So we think we have a model that can approach both ends of the market and we like both of those segments.
I'm sorry, what was the second part what was the second part of your question.
I think you kind of answered the second part in there as well, but maybe just another follow up on the M&A side I'm wondering if there's been any change in the types of companies that you're looking at as a result of the pandemic is there any demand for new services that customers are looking out there do you maybe have more of an appetite for technology related.
Acquisitions.
Tools for example that you'd like to shore up a little bit more quickly.
Not really I think.
We are pretty open minded when it comes to looking at any opportunity, but then we're pretty selective when it comes to pulling the trigger. So you know we look at a lot of things that are pretty close to our space, but we also entertain other ideas and but I don't think our criteria or.
Areas of interest of really changed all that much.
Okay, Great and I appreciate the time.
Thanks Bruce.
Next question comes from the line of Jeff Kauffman from capital. Your line is now.
Jeff Your line is now open.
Hi, sorry, I was on mute congratulations everyone.
Two questions.
You mentioned that 9% employee sales productivity and you talk about third quarter business being up anywhere from 1% to 10% and you've started to rehire.
How quickly can you get employment levels to the right number I mean, 9% employee productivity is a tough number to to repeat quarter after quarter and then how long do you think it'll take to to get to the right level of staffing.
That's a good question I think the you know.
I don't have a forecast in front me, but I do think that we in terms of productivity gains I think we can continue to to deliver on pretty high.
Gains because of the technologies, we're rolling out and.
You know I think when with regard to staffing.
You know.
We haven't slowed down that much you know, even though you know I mentioned the 200 people that we were down we actually plan the year to be pretty pretty much even.
Maybe just up a little bit going into the year. So, we'll we'll crank up the hiring and we'll keep an eye on market conditions and you know at the end of the day, it's probably a.
In our mind, a three to four month delay because we push the spring classes out.
So we'll get it's gonna have to continue to monitor.
What the economic outlook looks like to reevaluate our staffing, but well we will we will.
Presume we had I think it added about 60 people in June So we'll continue to do that throughout the year.
And trying to get back on track from a staffing perspective.
Okay, Thanks and.
Can we talk a little bit about your carrier partners when I talk to freight waves or some of the organizations out there on on how spot rates tightened. So quickly. They tell me well demands back a little bit, but really its capacity has come out and you've got drivers choosing not to drive whether its covert related or whether it's a market personnel related.
And everyone. We talk to talks about how capacity is rationalize, particularly the mid to small size carrier can you talk a little bit about what's going on with your carrier partners and your ability to bring that capacity to the table.
Yeah, I mean, I can give you I think we talked a little about I'll try to try to give you a little more color, but I think that.
I think it's as simple as thinking about you know the dramatic swing I mean, I think that like I.
He said earlier fairly dramatic change in the demand side in April demand fell off the table and then in May and June demand came back pretty quickly and so the supply side or the capacity when the demand fell off you know it came out of the equation pretty quickly so and you had government stimulus on top of.
That provided economic relief for drivers and other participants on the supply chain and I think it's just lower to add that capacity back it's not as easy as flipping a switch I mean, you can't in some cases, but just the just it just lags a little bit in terms of the capacity coming back into play and I think.
But I think it these you know as.
At these at the rates increase will see the capacity come back what it takes some time to catch up and rationalize if you will.
So I think it's I think it's a it's both are two sides of the equation is not one or the other it's both I think it's it's the pace of change on the demand side and it's the capacity is just going to be a little slower to react.
Alright, Thank you very much for your answers and congratulations.
Thanks, Jeff.
Oh, Okay. Next question comes from the line of Matthews from Morningstar. Your line is now.
Thanks, Good afternoon, I, just a quick follow up on the sales hires it sounds like you guys trying to accelerate the hires the your progress is does the remote work setting potentially change the recruiting dynamics at all I guess is there a reason to think that if you change the quality of the candidates or perhaps maybe even just make it more difficult in the quarters Ed.
You know I don't think so I think that it's I think it's maybe more difficult for candidates and people to find jobs today than.
In this current market theres, so much change going on I think with the technology tools that we have that we can deploy both from recruiting perspective as well as from a training perspective, we're very confident in our ability to.
Attract people and get them on boarded.
As as needed.
And Dave have you guys seen material uptick in cold related costs. So to speak I mean would that be baked into some of your margins maybe everybody working from home. Your IP cost pick up is there anything speak up there.
So.
Yeah. So.
Now, we were really well positioned to move to work from home.
In March when we did and there was some there was some modest incremental costs that are behind us theres really there maybe a little bit of additional costs, but it's not much.
Probably more than offset with.
Less t. any that's happening right now so.
You know that I'm not sure when that benefit goes away, if we know when people VC backed traveling.
And then I suppose the other there was significant cost we have when we think about how this has impacted us is our facilities.
All of which still exist and.
Paying rent on.
But we have we do have a lot of flexibility with our model and with our technology to think about how we how we manage that going forward and we're continuing to evaluate.
All the way that but I think there's.
We're fortunate that we have a lot of flexibility there to think about what to what the future will be for the way, we manage our facilities costs.
Okay, Thanks, and I guess kind of one more question on the commissions I know obviously, the absolute dollar amounts going to be down year over year, but it was also down as a percentage of revenue.
Just wondering why the relative drop is there would that be related to mix.
It's also right Theres always a mix impact to their depends on the you know that the business channel that it's coming through.
Mode is a big a big piece of that Weve I'm sure we talked about before but when we are truckload.
Has a higher commission rate on it because we have people on on both the buy and sell side of the transaction.
Having said that truckload was actually up.
Other than LTL during the quarter.
I think it's also a reflection of.
Our selling costs in overtime, how we could expect that to decrease as we get more and more efficiencies through new technologies, and and our workforce becomes more productive kinda back to one of the previous questions, where we've had more productive sales folks and we expect that to continue because of technology that that overtime could could impact.
That.
That Rob percentage, even as the dollars grow commission dollars grow along with our net revenue.
Okay.
Thanks Scott.
Thanks, Matt.
Your next question comes from the line of Tom glad events from you begin your line is that.
Yes, good afternoon.
I wanted to see I apologize.
About something that cover their overlapping calls but.
The market tightened up a lot I think we're hearing about you know I mean, I guess failures and so kind of like mini bids coming back with the shippers aren't getting the capacity day back.
I think it's a good thing in terms of getting rates up I just wanted to see if you could offer some thoughts about you think that process is taking place that you're getting higher rates with shippers or how long does that take place. So that you kind of move beyond the gross a gross margin squeeze that I think you know been taking place in June and July.
Yeah in my prepared remarks, Tom.
I talked about the fact that were probably right at the inflection point right now where you're seeing.
Tight capacity spiking rates and not quite any spot freight volume yet so.
Our call as it were would be that you know somewhere in the not too distant future as we passed the inflection point, we'll start to see.
More spot freight.
That will help our margins help our volume and it will also cause shippers to.
Think about re negotiating their contract freight.
So is that something where you would expect to gross like or would you think that conditions in August and September.
Assuming that create stays strong would you think that kind of broker conditions are are pretty similar to what they were in June and July or does that you know upward price.
Adjustment happened pretty quickly.
It probably they probably lag the market a little but they do have they would be in my view happening and different you know different different accounts in different places. Some so they wouldn't they would they would be happening it's hard to predict exactly you know the magnitude I'll put it that way.
Yes, I think the day would be happening.
Okay. So you might see some easing at the gross margin pressure later in the quarter as you have time to get rates up it's certainly possible yep.
Okay.
Appreciate that and then just the second one and again apologize you've already kind of covered this but I think you talked a little about competitive landscape.
Have you seen any kind of changes and is there any evidence of Amazon being.
More active or more of an impact in third party brokerage.
Well, we've heard about it.
In the media I would say that we have not seen a lot of evidence of anything that affects us.
Okay and anything new from some of the other.
Whether it's super afraid JB onsites, yet any together convoy would be else or just seem pretty stable in general.
It seems pretty stable.
Right.
Okay, great. Thank you for the time.
Thanks, Tom.
Your next question comes from the line of Bascome majors from Susquehanna. Your line is now.
Yes. Thanks for taking my question you early on in the call you addressed the M&A environment as a buyer.
I was hoping you could talk about that more broadly what the rumors.
I think we previously mentioned of perhaps one of the larger digital players taking any.
Large private investment in a public economy or any other interest of larger scale strategic or financial M&A in the in the truck brokerage space domestically. Thank you.
You know we've had our heads down focused.
Focused on execution the deals that we've been looking at or more of the tuck in variety. So.
I would say large transformational deals have been pretty much off of our radar.
It should interest.
Come into the market place on the larger side I mean, you've always said, you're not building a business to sell it.
How do you have those conversations at the board level you know it is there a price and do you actively discuss what that is I'm just kind of curious you always do M&A environment does eat up is in an economy continues to cover and plenty of liquidity is out there how your position is not the buyer and potential seller.
Thank you.
Well as you can imagine our board has always.
Having conversations about what's best for our shareholders and so you know if an opportunity were to come up we would handle it on its merits and.
You know we're.
Not really focused on.
That but if that should happen, we would we would take it.
Right.
In terms of being a buyer.
As I said earlier you know, we're we have an appetite or appetite has been more focused on tuck in opportunities I do think in this environment.
There could be some distress out there or are there could be motivated sellers and we're all ears to those types of opportunities, but it's not been our focus.
Thank you for the time.
Thank you.
Your next question comes from the line as Kevin Steinke from Barrington Research. Your line is now open.
Good afternoon. So so earlier in the call you referenced I'm seeing some additional strength in southern states, like California, and Texas, which kind of.
Goes against the headlines we've been seeing in terms of where cobot cases have been spiking. So you know certainly doesn't sound like this is the case, but have you seen any.
Slowdown in specific regions or states, where you've seen started to see some some of the cases.
Surge back up.
Yeah, Kevin probably probably not not particularly I think when I was talking a little bit more about the capacity side than the demand side, you know until a tightening of capacity and in.
Some of the southern states were produce had impacted.
Would be related to you know that there was some reopenings, Unlike Texas, and Florida and Georgia.
So there was there was activity there and you're right now it's kind of gone the other direction I don't know that it's necessarily closed down per se.
So you know you went from.
This environment in many states, where we were shut down in large part to more of a reopened and even though those cases are slicing and precautions and are going out and it's probably affected more services than than commerce at this at this stage entertain.
Travel bars things of that nature been impacted in restaurants of course.
So that was kind of more the commentary that we had.
Okay. That's helpful. That's all I had thanks a lot.
Thanks, Kevin.
You have a final questions for Jack Atkins from Stifel.
Right so.
Okay, great. Thanks for the follow up I, just you know as I'm looking at your results here over the course of this earn this freight recession.
It looks like you guys, you're going to have trough earnings or something around a dollar.
You mean.
The we just had an LTM trough period and again the second quarter.
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And that's well above where are you dropped out of the last spring recession, which I think is about 68 cents. A so clearly you guys were just doing much better job managing the business now that you have integrated salesforce in an integrated technology platform. So that makes a ton of that so I guess as you think about this next great upcycle.
How do I think about the the opportunity to see even greater earnings potential was a bigger organization from a revenue perspective, and you know clearly you guys are making a ton of progress on the efficiency side, a with automation. So I know that's kind of a kind of an open ended question, but you did a you were more profitable in the freight.
So.
Should we expect a similar level of profit improvement at the top of the next freight cycle that the fact question makes sense.
Yeah, I mean, I'm excited about where we are right now I think we're executing as well as we ever have you know we've got increased.
Tenure with our sales organization, we've got a strong culture. We've incorporated data science, we're rolling out New technology every month and you know if you take back in 2017.
We were coming out of a recession as well as a integration of a transformative M&A deal and you know we were able to execute well in 2018 and capitalize on all of that and what the excess supply in 19 and things soften a little bit I think you know going into next period of strength worse.
Well prepared as we've ever been to capitalize and maximize profitability.
Okay. That's great. Thanks, Thanks for the time.
Thank you John.
I don't see any question in the queue at this time I will turn it back chairman and CEO, Doug Let me.
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Well. Thank you a we appreciate everybody joining us today.
Stay healthy and stay safe and we will see you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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