Q4 2020 Echo Global Logistics Inc Earnings Call
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Echo Global Logistics, Inc earnings call Q4 2020.
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Thank you.
And thank you for joining us today to discuss our fourth quarter 2020 earnings hole.
During the call are Doug Waggoner, Chairman of the Board and Chief Executive Officer, Dave Menzel, President and Chief operating Officer, and Pete Rogers, Chief Financial Officer, we have posted presentation slides to our website that accompany management's prepared remarks, and these slides can be accessed in the investor Relations section of our website at Echo Dot com.
During the course of this call management will be making forward looking statements based on our best view of the business as we see it today, our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. We also will be discussing certain non-GAAP financial measures the definition and.
Of the Asian of each non-GAAP financial measure.
And throughout our materials.
With that I'm pleased to put I'm pleased to turn the call over to Doug Waggoner.
Thanks, Pete and good afternoon, everyone. I appreciate you all joining today.
As most of you are acutely aware of freight markets remained very strong throughout Q4 capacity.
Capacity was tight.
Rates at all time highs in this backdrop, along with another consistent outstanding quarter of execution enabled echo to achieve record breaking revenue.
Adjusted gross profit or formally net revenue and.
And adjusted EPS in the fourth quarter of 2020.
I'm extremely proud of the amazing execution, we saw across the organization and I want to thank all of our people all of our employees for their hard work and dedication.
In addition, all of us of Echo greatly appreciate all of our clients and carriers for putting their trust in echo to continue to provide brokerage and managed transportation services. During these challenging times.
Before we jump into the quarter I'd like to step back and comment on the progress we've made over the last five years.
As all of you know our long term goal is to capture market share and grow profitably.
At times those two goals can somewhat be at odds, especially in a highly competitive industry that has seen new competitors enter the market with a pure growth focus.
And in many of these cases these large digital entrants have been willing to invest significant capital and fund the operating losses to achieve that objective.
And echo we've been delivering value for our clients for over a decade at of half.
We remain highly confident in our ability to provide solutions for our clients that blend industry, leading technology and data science with an extremely talented team.
Through the proper blend of people Tech and data science and refine business processes. We've created a real sustainable advantage that advantage has and will continue to enable echo to grow our top line, while maintaining and growing our profitability.
Those competitive advantages, we're clearly seen in our performance throughout 2020, despite the unique challenges the rose throughout the year.
And looking over a five year cycle, you can get a better sense for our consistent execution and growth. So here are a few key stats the provide evidence of this execution.
In Q4 of 2020, we achieved the following five year CAGR over Q4 2015.
13%.
Percent total revenue growth, which consisted of 11% and grow in brokerage.
20% in managed transportation.
As a reminder, our long term guidance provided back in 2017 was that we would have low double digit growth over the long term.
We had 7%.
Adjusted gross profit growth and while that does reflect margin degradation of 445 basis points much of that margin degradation resulted from higher truckload rates as our adjusted gross profit per truckload was actually up by over 10% over the five year period.
Truckload shipments were up 6% and LPL shipments were up 8% over this five year cycle by comparison. This is about four times the market volume growth over the same period as reported by the cash index.
Adjusted EBITDA was up 8%.
And adjusted EPS was up 15%, reflecting both a growth and profitability and effective use of our free cash flow to buy back shares.
Our total debt also decreased to 135 million as of December 31, 2020, as we retired our $230 million convertible notes during the year and our EBITDA leverage ratio net of cash is 1.2 X.
Bottom line I'm very proud of our ability to grow the topline and profitably and make meaningful progress investing in our technology and building a more automated digital freight marketplace.
We've only really scratched the surface of where we think we can take this business and our business model and brand will continue to evolve around a proper mix of people and technology.
Our shippers require competitively price capacity with reliable service and our carriers require freight that improves their operating performance, our talent and technology put it altogether and in essence makes this an efficient market.
As we like to say technology at your fingertips and experts by your side.
So, let's turn to a review of the full year.
We just closed out.
Might the first the rough first half we delivered impressive record results over 2019.
On a full year basis, we had two $5 billion in revenue a 15% growth over the prior year.
393 million and adjusted gross profit, 2% growth over the prior year.
And $79 million and adjusted EBITDA, a 6% decline over the prior year, mainly attributable to the slowdown in the first half of 2020 caused by the pandemic.
Now I'll take you through some of the highlights of the quarter as highlighted on slide three.
We had record revenue in Q4 as total revenue was $754 million.
Representing a 42% increase from last year.
We had record brokerage revenue of 578 million record managed transportation record revenue of $177 million.
Record truckload revenue of $549 million and record LTM revenue of $184 million.
We have.
Yes.
2 million, a 55% increase over the prior year.
And non-GAAP fully diluted EPS was also a new record at 56 cents compared to 26 cents in the year ago period, reflecting a 114% increase.
Again, a strong market and a record breaking quarter and I'm really proud of our team and these results. So now I'd like to turn it over to Dave to cover some additional details by mode.
Thanks, Doug.
I also want to start off by thanking the entire echo team for a job well done in Q4 and throughout 2020 for that matter.
This year, we've seen it all and our people have remained highly committed to serving their clients and carriers. Despite all of the external factors, we've been dealing with all year long.
Their dedication to providing outstanding service. During this time speaks to the strength of our culture and when I talk about our team and their commitment to service that includes all of our team top to bottom everyone would echo plays a meaningful role in providing our services to clients and carriers.
I also want to thank our shippers for continue to trust the echo to play a meaningful role in providing capacity to keep their supply chain is operating at a high level and I want to thank our carriers of being a part of the Echo network and allowing us to make an efficient utilization of their valuable capacity.
Now to slide four and a bit more color on the quarter.
Strong freight demand combined with tight capacity for the two themes that dominated the Q4.
This environment triggered a significant increase in spot rate as routing guides began to break down due to continued escalation of truck rates.
As indicated we delivered another record revenue truckload revenue of $549 million in Q4, an increase of 56% over the prior year.
This was driven by a 20% increase in volume and a 30% increase in revenue per shipment.
Truckload rates had another all time high in the quarter truckload line haul per mile was up 38% in Q4, so the impact of lower fuel prices is muting some of the rate impact on average shipment value.
We continued we saw a continued shift in mix between spot and award business in Q4 spot truckload freight grew by 44% over the prior year.
And our primary award grew by 1%.
This further shifted our mix of business of spot truckload moved to 52% of the overall truckload freight mix up from 46% last quarter and 43% a year ago.
Turning to our less than truckload business, we delivered another record with revenue of $184 million in Q4 of 16% increase over the prior year.
Our growth in <unk> was primarily driven by increased volume as our shipments grew by 13% and our revenue per shipment increased by 3%.
<unk> line haul rates were up 6%, but the lower cost of fuel again brought the total cost increase around 3%.
Our <unk> volume growth was driven from both increases in our brokerage and our managed transportation business on the brokerage side strong freight demand throughout Q4 provided the healthy tailwind for volume growth. However of the larger component of our growth was driven from continued managed transportation wins and as such new business pushed our volume.
Gains into double digits.
Moving to slide five we delivered record transactional revenue of $578 million in Q4, which was an increase of 40% over the prior year.
Our growth was driven by increased volume and rates as I just highlighted.
On December 31 of our sales organization totaled 1665 people and was flat when compared to the prior year, given our Q4 volume gains combined with the static sales head count, we're clearly continuing to drive improved productivity as our technology initiatives take hold.
The number of shipments per sales and operational reps increased by 9% on a year over year basis. In Q4. This marks the sixth consecutive quarter of increases in this productivity metrics.
Driving this improvement in productivity of the investments, we are making in automation and self service capabilities and predictive pricing algorithms.
As we move forward, we will continue to invest and enhance the technology and tools to make our people even more efficient and productive.
Our technology focus obviously extends externally as well.
And we continue to see increased adoption of Echo drive <unk>.
Carrier's direct access to our load board has resulted in more bookings and increased efficiency for both us and our carriers.
Our mantra when thinking about how we interact every day with our carriers is let's make sure that we're easy to do business with today.
To that end Echo drive enables our partner carriers to quickly find freight that matches their network needs reduces their downtime in empty miles and at the end of the day improve their operating performance.
Faq, we saw of 98% increase in electronic offers and over 500% increase in bookings, resulting from those offers when compared to a year ago.
In addition.
We've seen continued success with direct API integration with shippers. We've established these connections with several shippers and through this capability, we're able to quote any load requested by the shipper without any manual intervention. If accepted this truckload shipment is automatically tendered into our system.
Of a strong pipeline of new shippers and third parties that will be integrated in 2021, and we anticipate this to provide an efficient growth channel moving forward.
Our managed transportation business also had another record.
As new business wins from earlier this year have been integrated and began to ship with us.
We delivered revenue of $177 million in Q4, an increase of 47% over the prior year.
We ended the year with new business signings of 135 million another record in terms of new account side.
So it's a great job to our managed transportation team for their hard work this year and their ability to help our clients navigate all of the volatility and a challenging freight environment.
Turning to slide six we generated a record $115 million and adjusted gross profit.
The 28% increase over the prior year.
The increase was driven by record revenue, but offset by a 165 basis points of compression resulted in adjusted gross profit margin of 15, 2%.
The majority of the adjusted gross profit compression was driven by our truckload business, where we experienced a 200 basis point decline due to the increase in the cost of capacity.
Despite this year over year compression, we experienced a sequential improvement in adjusted gross profit margin, resulting from the increase in spot business.
I'd like to now turn it over to Pete to review, our operating expenses liquidity position cash flow and forward outlook.
Thanks, Dave on.
On page seven of the slides Youll find the summary of our key operating statement line items.
Commission expense was $34 $6 million in the fourth quarter of 2020, increasing 29% year over year Commission expense was 31, 31% of adjusted gross profit compared to 29, 9% for the fourth quarter of last year.
Non-GAAP G&A expense was $52 $9 million in the fourth quarter of 2020, increasing 16, 8% from the fourth quarter of 2019. The main drivers of the increased expense, where head count increases and incentive compensation.
Depreciation expense was $6 $6 million in the fourth quarter of 2020 down from $6 $7 million for the same period a year ago.
Cash interest expense was <unk> $8 million during the fourth quarter of 2020 compared to $1 $3 million in Q4 of 2019.
The decrease is due to our lower amount of outstanding debt.
Our non-GAAP effective income tax rate was 25, 6% for the fourth quarter of 2020.
As Doug mentioned non-GAAP fully diluted EPS was <unk> 56, Inc.
Increasing from 26 cents in the fourth quarter of 2019 the <unk>.
Primary differences between our GAAP and non-GAAP fully diluted EPS in the fourth quarter of 2020 are $2 $7 million of amortization of intangibles from acquisitions and $2 $1 million of stock compensation expense.
Slide eight contains selected cash flow and balance sheet data.
We ended the quarter with $41 $3 million in cash on hand, and $439 million of accounts receivable, which is the basis for our ABL borrowing base.
In Q4, 2020, we had free cash flow of $4 million in operating cash flow of $10 $4 million.
As a reminder, the biggest impact on our free cash flow is our working capital and the difference between how quickly our customers pay versus how quickly we pay our carriers. So it's usually a source or use of cash when we decline or inquiry increase sequentially at the top line in.
In Q4, we saw continued sequential expansion and this is reflected in the free cash flow number for the quarter, we expect that to normalize in 2021.
Capital expenditures totaled $6 $4 million in the quarter compared to $5 $1 million in the prior year the <unk>.
Growth is consistent with our plans and are related.
The related to continued investments in technology.
Yes.
On slide nine we are highlighting our liquidity position as I said previously at the end of the quarter, we had $41 $3 million of cash on hand, we had an available borrowing capacity on our ABL facility of $330 million and that borrowing capacity is calculated is 85% of our eligible accounts receivable we had borrowings.
<unk> of $135 million on our ABL down from 145 in Q3.
Our combined cash on hand, and available borrowings on the ABL leaves us with net liquidity of $236 million at the end of the fourth quarter.
Now I'll walk through our guidance for the first quarter and the full year 2021, which we have highlighted on slide 10 as.
As usual, we also want to give you. Some recent trends through the early parts of January which of this quarter is 20 business days of activity.
Per day revenue in January is up 37% over the last year true.
Load volumes are up 15% and LDL volumes are up 14% compared to last January.
And adjusted gross profit margin in early January was around 15, 9%.
Now for the 2021 guidance around some of our main drivers of the performance for.
For Q1, 2021, we expect revenue of $690 million to $730 million a range of up 25% to 33% year over year. The midpoint of the guidance reflects a modest slowing of year over year truckload volume as we approach the end of the quarter. As a reminder, we saw from significant increases in truckload.
I am the last two or three weeks of March in 2020 triggered in part by aggressive restocking in the early phase of the pandemic. There was also one less business day in the first quarter of 2021.
We anticipate commission costs to be approximately 30% of our adjusted gross profit.
And G&A costs are expected to be between $52 $5 and $55 $5 million from the first quarter.
Please reference the slide deck for guidance on some of our other cost line items.
Guidance for the full year 2021 is as follows.
Revenue of $2 75 billion to $2 95 billion up 12, 5% at the midpoint.
At the midpoint the guidance the guidance indicates a strong freight environment in 2021 with the majority of the volume growth occurring in the first half of the year.
In addition at the midpoint, we anticipate that the year over year growth rate of truckload spot market freight that we observed in Q4 of 2020 will lessen throughout the year as contracts re price. One last note. There are also two less business days in 2021.
Commission expense should approximately be 30% of adjusted gross profit for the year.
We expect G&A cost to be between $220 million and from $230 million up 14, 7% at the midpoint.
It is very important to note that this increase is only six 2% zone when compared to our Q4 2020 run rate.
As a reminder, we had furloughed individuals throughout 2020 in response to the pandemic and pause some additional spending during Q2 and Q3. This had returned to more normalized levels during Q4.
The overall increase is primarily driven by increases in head count and technology operations and sales throughout 2021. There is also the anticipation of a return of normalized <unk> levels in the back half of the year.
We believe that 2021 is the year to invest in the automation and development of our digital freight marketplace. In addition, we will strive to moderate modestly increased our sales head count to drive growth over the long term.
As I mentioned previously the the further guidance on some of our other cost line items are on slide 10 of the presentation deck and with that I'd like to turn it back over to Doug.
Thanks Pete.
Thanks.
For 2020 was quite the year of just about every respect.
Record of it was an opportunity to demonstrate our value to shippers to carriers and to shareholders and we believe that we delivered.
Over the past five years, our capabilities of continued to grow as our technology has enabled our people and helped us to scale the business effectively.
As we look ahead, we see enormous possibility to use 2020 as a springboard for echo so.
So I'd like to point out the top three operations.
We will drive continued productivity gains.
Both internally for our reps and externally for our clients through the implementation of technology and data science Roadmaps.
And there are five core elements to strengthen our digital marketplace.
The first element is API connectivity.
By continuing to rollout our API connectivity with shippers third party ERP software and carriers, we're presented with more opportunities to quote on more loads and this certainly has volume growth implications with larger shippers, but it's worth noting that this these are touchless transactions.
And this obviously boosts our productivity.
The second element is automated pricing.
With automated pricing powered by our algorithms.
We can drive effective API quoting.
This capability allows our clients and teams to quickly adapt to changing market conditions. So we can optimize for volume and margin.
I think we demonstrated these capabilities very well in 2020.
Algorithms also guide our client and carrier reps to optimize buy and sell prices in real time.
And we're also able to use these capabilities to evaluate and respond the truckload rfps when submitting our bids on contractual lanes and again, we haven't nearly reached our potential here, yet and have significant more value to drive as we further leverage our technology.
The third element is echo drive adoption.
Go dry will continue to grow and will automate the relationship with many carriers that have heretofore been handled manually.
This ease of doing business for them will cause them to make more of their capacity available to echo as they optimize their own networks.
Again, our data science and algorithms will automate pricing in many cases driving further efficiencies for all parties.
The fourth element is echo ship adoption.
Echo ship will continue to receive enhancements, making it the industry, leading self service portal for multimodal transportation. This is especially attractive to SMB shippers and our managed transportation clients.
And then finally, the fifth element of our digital marketplace is internally facing technology and data science.
We've always been a leader and pioneer in the use of technology and data to support our in house teams.
We will continue to improve our workflows and reduced the number of clicks the process transactions and we will also eliminate waste and rework.
We will guide the behavior of our employees to make thousands of decisions each day that optimize our business.
Well the second opportunity is our managed transportation business, where we see strong momentum and the ability to grow further in this business through <unk>.
First continued investment in technologies with improved reporting and analytics, so clients can visualize and optimize their supply chains.
Through our ability to provide cost savings of on their transportation.
Through our execution capabilities, allowing them to provide better service to their clients.
And finally, our ability to take this offering upmarket by offering new capabilities that are attractive to larger shippers.
And then finally, the third opportunity is to continue leveraging the strong and powerful culture at Echo that allows us to connect with shippers and carriers and build those relationships into win win partnerships.
For as much as we talk about technology and data science. We also know that this business has a huge people component relationships matter and I believe that we are among the best when it comes to cultivating those relationships. We will continue to invest in our people by hiring the best and brightest and then providing them with ongoing.
Training and career development.
Our focus on diversity and giving back to the community is important to our people that makes echo of place that people want to work.
Our value system that we call. The echo away has five simple tenants the drive everything that we do and act as a beacon for how we operate.
I'll review them quickly.
One better is the only option.
To carry the load together three.
Three work hard and hustle.
Four do what's right.
The five bring your own.
I would challenge you to ask any of echo employed of recite those that I think I'll do it.
Finally, as Pete highlighted we continue to strengthen our balance sheet utilizing our free cash flow true.
The smartly executed acquisition strategy.
This was the hallmark of our success through 2015, and while we've been more of an opportunistic buyer over the past few years, we intend to escalate our efforts in the in this area over the next five years.
And with that that concludes our prepared remarks. So at this time I'd like to open up the call for questions.
Thank you.
At this time.
If you would like to ask a question you May press star one on your telephone keypad.
And we'll pause for just a moment chicken <unk> roster.
Okay.
And your first question from Jack Atkins of Stephens. Your line is now open.
Great. Thank you good afternoon, guys and congratulations on a great quarter.
Thanks, Jack Thanks, Jay.
I guess, maybe if we could just start.
I don't know who wants to take this so I'll just throw it out there with the just the macro assumptions behind the revenue guidance, obviously first quarter starting out.
Very strong with second quarter comp is fairly easy.
It seems like you guys are maybe expecting.
So of conservatism or maybe youre kind of guiding some conservatism around the second half of the year because it's just hard to have a lot of visibility at this point, but could you maybe walk us through sort of how youre expecting the year to play out from a top line perspective, the kind of.
Brackets that that revenue guidance, just so we can I understand how you think things are going out sort of.
The old from here.
Sure.
I'll take that one to begin with Jack and so as you mentioned, obviously Q1, we gave some stats around that and obviously, that's a strong year over year comp and then Q2 will have the impact of the pandemic on a year over year basis as well in the back half of the year.
I think that some of the volume growth that we've seen in the spot market. We anticipate the kind of migrate back to some of the contract rates and we expect the second half of the year to look similar to what this year looks like.
In terms of a volume perspective and things like that.
I would just I would just add that we expect 2021 to continue to be of pretty strong.
The freight environment I think it would be a bit speculative at this point in time to two.
To think about what the rates might look like in the second half of the year, because there's still a lot going on in the economy and.
A lot of moving parts I would say.
So, but I do the I think the I think rates will remain relative to historic levels very high.
And.
And volume to remain strong just the comps will be a bit tougher in the second half of the year sure.
Absolutely.
Dave I mean as you go through bid season here, obviously, just kind of going back to doug's comments in his prepared remarks, you guys have made a lot of investments in this business over the last five years to really position yourself to go after.
The the big Sandbox. It is the U S for hire truckload market. So theres a lot of lot of space out there for you guys to sort of go ahead and take market share. How are you thinking about the ability to grow your contractual volume.
Just this year, but but.
But but multiple years through the cycles come what may with what's sort of the broader freight markets. I mean, do you feel like youre in a position to really.
Got it.
Get that growth story.
Really.
Charged up here as we move forward just just given all of the investments of the platform you've been making.
Yes, we do we feel.
Like we said very optimistic about our ability to execute I think that the.
The.
Yes.
We've been responsive to the desire to continue to grow in a profitable way to leverage our network.
And not to take the approach of just.
The growth for.
For growth sake, so to speak so I do think there'll be some impacts of the cycles as there have been in our past, but we are and our focus is of high service.
And continue to penetrate both large and mid market companies and the opportunity is tremendous for us and we still represent a very small percentage of the overall market.
We.
We have a lot of confidence in our ability to continue to automate our platform and leverage the people that we have to sustain growth and that's one of the reasons Doug highlighted the stats over the last five years I think we've we've navigated the cycles of lot of times it.
It's easy to get focused on the current quarter at hand, and what the what what's the what's the freight cycle that we're in kind of explained that away, but we see a big opportunity over the next five years and think we're well positioned to capture okay. Great. Maybe last question I'll turn it over but you know and I know there are ebbs and flows as you sort of move through the.
The freight cycle, but how are you guys thinking about the progress you've made over the last couple of years around productivity per employee I know something we should talk about an awful lot of these conference calls years ago.
But it certainly feels like we're flat head count.
Almost 20% volume growth in your truckload business and the open in the fourth quarter.
How are you if you could you maybe share some thoughts around productivity per employee and do you think you can make even further progress on that in 2021.
Yes.
As I mentioned in the prepared remarks, we've had six six quarters in a row here with improvements in and productivity per employee and.
We see that over the next five years, there is a tremendous opportunity to continue to improve.
Improve our productivity and further advance that metric.
I do think debt free.
<unk> volumes and our investment in growing sometimes can.
Cause short term fluctuations in that number Pete.
Pete mentioned earlier that we do intend to continue to hire to grow our business. The big a big part of our business does grow with especially with SMB clients and our people reaching out to those customers and a lot of people want that point of contact and that's required. So we've got an opportunity to to to grow and a lot of times when we add debt.
Head count.
The benefits of that are sick of 12 to 18 months. Later, so we are hiring in the second half of the year was obviously much more significant than in the first half of the year in our hiring plans in 2021 are in fact greater than what we what we did in 2020 so.
We will add people to continue to help us grow the business, but we do expect volume growth to exceed head count growth over the over the long term.
Okay. Thanks again for the time guys I'll turn it over thanks.
Thanks Jack.
And your next question from Allison Landry of Credit Suisse. Your line is now open.
Thanks, Good afternoon.
Obviously theres a lot of talk about the digital platform.
And Doug each step of a lot of about this in Europe opening comment.
But just curious theory of thoughts on the broader competitive environment.
And specifically if you're seeing increased rate of gross added.
Good day.
The question will it be surrounding new tech and trying to get a lot of price, but actually I'm sort of more interested in hearing your perspective on competition from traditional asset based transfer of players that are.
Also of building out their platforms and rapidly growing scale.
So any sort of color and perspective, you could provide there would be helpful.
Okay.
Well I think that 2020, there was a lot of freight capacity was tight and so.
We didn't see as much price gouging as we saw.
In 2019 for instance, I think it was tough to find capacity and you had to pay for it.
And the asset based carriers, certainly used the opportunity to increase their rates.
Coming into 2021, you know, especially when we look of contractual freight and RFP bids.
Yes.
You know even if they are probably is a little bit more competition on rates bidding into these of these contractual lanes.
Because of discount from spot today is still higher than the contract a year ago. So I think that lends itself to people trying to get their place in the routing guide and secure the volume and it could also mean the continuation of spot freight through 2021, if people are over committing so it's kind of an interesting time.
Right now Allison.
The man it seems like it's continuing to be strong.
The capacity haven't seen much movement in that and a lot of the rfps are delayed so we're kind of waiting to see how that plays out but we're confident it's going to be a good year for pricing.
Okay, and then just on the route guide.
You just mentioned that.
Not sure if you sort of.
The specific number for Q4.
Maybe if you could if you could share that.
Relative to Q3 and sort of speak to how that may have progressed during the quarter and how that trended in January thank you.
Yes Allison.
We don't talk about exactly the depth of the routing guide what we would say is.
It's obvious from the numbers a little bit is that the award business growth rate slowed a bit.
Because of.
The extremely high rates in the market to some extent and so that drove a lot of spot market. So inherent in that number is definitely the idea that across the board shippers faced situations, where primary award tenders were debt acceptance rates were down and so.
Freight was flipping over flipping down the routing guide as you say and into the spot market for a lot of for a for a big part, but we don't we don't have specific measurements regarding that depth of routing guide.
Okay. Thank you guys so much of it.
Thank you.
And for the next question from Bruce Chan of Stifel. Your line is now open.
Yes, good evening, Jeff and I apologize if I missed this earlier.
Actually drop the call for a little bit there, but.
You talked about.
Doug.
The the bid cycle, maybe getting pushed out a little bit of some of the RFP is getting delayed.
Should we think about that in terms of the gross margin as we move through the year.
Is that business, just kind of moving into the transactional spot bucket.
Hello.
Hello.
Let's see if there's a problem.
Jeff are you there.
Can you hear us Bruce now, yes, I can hear you I wasn't sure. If that was just me no we're not sure either so.
So fair enough.
Douglas.
I'll just jump in a little bit and say that I think that.
We'd probably just kind of one or two months away from the normal cycle my anticipation would be debt.
Shippers are kind of waiting to see where rates settle into obviously rates were very high in Q4, and so that resulted in a slowdown a little better than the.
The more.
Two things happened shippers.
<unk> slowed down the bid cycle, we had less.
The bid submitted in Q4 than historically and less bids awarded in Q4 than historically and.
The more bids worth of shorter duration. So I think it's probably just going to push push it push it out of few months and.
Speculating on the margin probably there's too many moving parts to get for me to go too deep on that point.
Okay, That's fair and then.
Just touching on the comment that you made earlier you talked about some early restocking driving a lot of activity.
Especially towards the end of the year.
What's your sense for where customer inventory levels are now I mean, I don't know I know you don't have.
Tremendous visibility into that but what's your what's your sense of where inventories are right now and how much more restocking there is to do.
Hi.
The Doug May have a better sense of that idea of but Bruce that's hard for me to say I think that it.
It seems like.
Freight demand remained strong E. Commerce remains strong we are in the kind of a slowdown period here in January and February of solid I would guess debt, it's catching up but I don't have specific metrics to point to on that front.
I can't really add metrics just anecdotally.
I know some industries like steel are backed up on their supply chains. You know clearly there's a lot of ships at the ports that are waiting to get in.
That's obviously pent up demand that we haven't even seen yet but by enlarge our existing customers seem to be doing fine.
Chipping shipping like normal.
Great and then just one final one here on the M&A front I mean your balance sheet now is probably in a better place than it's been in the long time I just wanted to get your take on whether theres any renewed appetite or any change in appetite for acquisitions.
No.
As I mentioned in my prepared remarks, we've been fairly deliberate and very selective.
But as we've been saying we continue to be interested we continue to.
Look at opportunities.
Well look in the near.
Army Bruce.
Gotcha Yep.
We seem to be dropping off and we're not we're texting what the operators are trying to figure this out but our phone system looked like it's fine so okay.
Yes, we need to pay our phone Bill here, then but I appreciate it.
Yeah.
Okay.
Yeah Okay.
What else do you have force Bruce.
I'm all set here thanks for the time okay.
Okay. Thank you.
The next question from Tom Waits Lids.
Of UBS. Your line is now open.
Yes, good afternoon.
Yes.
I wanted to Doug you gave us a lot of perspective.
You know on what you guys are doing with technology, which is really helpful. So thank you for that.
And in the numbers too so I apologize if I missed the but I.
I guess, how would you think about like the percent of loads talking about the truckload side net LCL I know that's more automated.
But how would you think about like the percent of loads it might be automated on the shipper side.
And then maybe automated on both side and I don't know if you know you're talking specific numbers, but maybe directionally kind of.
Where you're at today, and where you think that can get you in the future given the aggressive investments you have in technology.
Yes, Tom.
We've talked about this a few quarters ago and the way we look at it is on the when you think about our contract business. The majority of those loads.
Our automated in terms of we've got of pricing arrangement with our client of the shipper and they are tendered to us through an integrated fashion and.
In general the we may have somebody there.
The moving may of somebody reviewing that tender, but for the most part of that shipment is automated on the front end and so that's anywhere from $50 to 60% of our business.
And on the spot side. The majority of the shipments are still quoted where the person and through of load board and we've got tools that enable our people to do that and so I think the opportunity on the truckload side is to go from an environment, where say 60% of our shipments today give or take our automated on the front end too.
88 in the 80% or something like that over time, there's still going to be a component of of manual work and and.
And.
The debt that would probably preclude getting to a 100% anytime soon so yes. It is.
Hard to put a timeframe on that but you know I would think over the next three years or so maybe a fair timeline to say you can get to 80% of the shipper side.
And not to say that you Couldnt go there faster, but youre still trying to manage profitability in expectations and so I think that.
We are kind of letting that evolution occur as it occurs naturally the rather than kind of fortunate in certain cases, I would say and then on the carrier side.
There's a huge opportunity to do more today today.
For Echo, it's still a very small percentage of our freight is actually booked without some form of manual.
Intervention and confirmation if you will and I mentioned on the call that we had of 500% increase in bookings resulted from Echo drive offers actually the majority of our carriers are honour of Echo drive Theyre, making inbound offers on our load board and <unk>.
A negotiating and accepting those offer so I think we can go to an environment over time, where you know.
The majority of our truckload shipments are touchless, but that may take five years.
And so we don't have a definitive timeline on that because again, we're letting that evolution occur kind of naturally and as our capabilities our capabilities are there, but we.
We're just going to let it migrate forward.
Right. Okay. That's helpful. And then one one kind of broader question as well.
I guess we've seen.
Obviously over couple of years ago some of it.
Digital freight brokers, if you will.
Of that debt.
Traction with the App downloads and <unk>.
Buildings of the business in the market.
Some some of it certainly price driven.
You've seen.
More recently the asset none of the big asset players trying to leverage their trailer fleet.
Do you know I think power only has one of the terms and and so how do you think about the the winning models and how you think things.
The evolve over the next couple of years and.
Just.
Yes.
There's competitive pressures develop I don't know Doug if you can offer some thoughts on some of the different approaches to the market.
Sure well I think of <unk>.
First and foremost shippers care about service because what we're talking about is getting their products to their clients and so that's kind of of the price of admission and then they want to deal with partners that are easy to do business with.
The more sophisticated shippers definitely want to automate theres more and more API relationships.
And they want a fair price so.
I think that.
Having the technology and the capability are table Stakes, but you also have to have a great service product and and if you can combine those two things, it's a huge market and theres going to be all of the freight that you want to grow the business.
Right, so plenty of room for the different approaches to what to.
To do well over time it sounds like.
Well I mean, if somebody wants to buy market share that's fine it's a huge market in the camp I at all.
And so you know we see business all the time that we don't think is price correctly, and we choose not to participate and there's other business that we think we're at.
Where our service of our execution is valued and we price it fairly and we went at.
And I think we're just going to continue to have a very thoughtful strategy about the business that we go after and how we price it and the service that we offer in exchange and it's been a winning strategy. So.
I don't think the market's changing all of that fast and if theres predatory pricing out there.
Will get what they get there's plenty of other freight leftover.
And Tom I'll add that debt.
There is a tremendous amount of fragmentation and the capacity pool out there and so.
The kind of dovetail off of Doug, saying that I do think theres room for lots of different models and debt.
<unk>.
And any combination of of those models. So so I can see we're providing power only solutions and having a trailer pool can provide advantages in certain segments of the markets really really big and it depends on your specific network and how valuable that resource might be to the network of your survey. So I think there's there is room for different models.
Out there and and and.
And we'll continue to see that.
Great. Okay. Thanks for the time.
Thanks, Tom.
Yes.
Your next question from Boscombe majors.
Susquehanna Your line is now open.
Yes, thanks for taking my question.
It's certainly been impressive.
How this market is pretty continually strengthening for the last couple of quarters. I'm curious if you could give us a look at how things are trending into January the more specifically.
Is most of your business really just performing seasonally the.
Volume pricing anyway, you want to slice of it at a very high level and stable there are certain parts still perhaps outperforming what you would expect given the calendar or certain parts starting to underperform. If you could just slice and dice. It. So we get a little more fidelity to how things are trending that would be helpful. Thanks.
Yes, I would say.
Masking the that the the lure of the larger accounts are probably.
Fortunate call. It 2000, 2500, something something like that you know performing a little bit stronger so I wont slice and dice it by industry, but I'll say that.
The those are performing.
Maybe.
It better in the SMB is more of making a comeback so we have seen care customer counts down.
More so in the SMB market that makes up depending on where you slice. It I mean, a big part of our business is SMB about 35% of our of our R.
Our business is coming from companies that are less than 25 million in revenue. So we've got a we've got a big SMB component to what we do and the growth rates likely to be higher and that part of the business going forward as the economy as things reopen more fully.
The business has come back a little bit, but we'll have to see how that plays out. So I do think it's the only way I would price slice. It up is that the larger segments seem to be a little stronger.
But we have seen obviously a good comeback if you will.
Throughout the year on the SMB side.
Thank you for that.
No.
Perhaps to the longer term outlook and the view on capital allocation.
You're fortunate and that your business generates a lot of cash relative to the size of your equity base.
The.
The the converts gone now you have a little bit of debt, but it's pretty moderate.
You've talked about M&A, a little bit earlier.
What do you do or Theres some opportunities too.
Perhaps co invest with the larger company and increase the size of the portfolio maybe the more you can do it all just anything creative on capital allocation to use that cash other than the traditional buyback or debt pay down it would be very very interesting I think.
Yes.
The best ROI on that cash is to make an accretive acquisition and that would be our top priority, but we could.
Got to be something that's a good strategic fit.
And the Gradable fits.
<unk> fits with our culture fits with our strategy. So as I said in their prepared remarks, we are actively engaged in looking at opportunities for M&A, because we do think that's the best use of our cash.
Thank you.
Thank you.
And your next question from Brian of from Bank of Jpmorgan. Your line is open.
Yes.
Hey, Thanks, good afternoon.
So I guess question for per Dave you gave some dynamics around.
The delay in some of the bids and usually it takes a little while for spot to move back from the contract. When you see this the sort of market dynamic. So I wanted to ask is two questions. First you do you think there is a <unk>.
Chances of this could stay elevated as part of the contract for longer than than I guess normal.
And then secondly, given what you see how are you thinking about positioning into next year from the spot contract mixing out of a lot of that depends on a number.
The factors, but you do have some I would think our flexibility to take of lean in either direction. So thoughts on that would be appreciated.
Well I think I do think that the spot business could stay strong stronger for.
For longer than usual I don't know what usual is anymore of the cycles.
Have.
Typically I would have said 18 to 24 months of the cycle and then we had a whole cycle in 12 months.
So, but I do think the delaying of the bids.
Which will delay the going live of new rates in lot of cases.
All of that keeps the spot market a little stronger for longer than you might normally expect and I think that's triggered of course because of the significant rise in rates in Q3, and Q4 of never stopped and so just kind of like letting the market kind of settled down a little bit.
It's probably.
In many shippers mind, so I think that's that's.
That's true.
Looking back at our award contract mix I mean the word.
Our goal is to continue to grow and I think.
I would sense that we'd see.
Our our award our award freight mix has been 50% to 60% for the last three years kind of bounce depending on where you're at in the cycle and so the things play out the way they've played out in the past I think you would see.
In the second half of 2021 the.
The award piece of the business start to grow again.
At a higher rate than kind of kind of you'd see that mix shift begin to occur would it jump up past, 60%, probably not you've got and you got to remember our spot business includes a lot of SMB business. So it's not this kind of traditional fortune 1000 company in the spot business. It just transactional business with lots of SMB clients.
So I think that we will see it tick back up we don't proactively really target of percentage of mix because we're just we're trying to grow profitably in each category and.
I think the cycle will dictate how that mix plays out.
Okay, Great that's helpful and I guess with within that.
Brian discussion about bids and being delayed do you see any any real move towards more frequent.
Many of Andrew or tenders.
Or do you think that's really just kind of a sign of where we are in the.
Great and capacity backdrop, and where we'll probably see you back to your I guess normal whatever that is but maybe fewer of those before we're not getting rid of of the RFP anytime soon it seems like.
So wanted to see if theres any.
Any sort of lasting change on how freight is bid after this.
When you know, especially when rates are going up you see a lot more many bids and.
When rates are going down.
Hi.
You know I guess I guess in either case, I mean, I think back it's a we see a lot of many beds I looked at the number of submissions. It's a it's a pretty significant amount of bid activity that happens in the summer. We always talk about the bid season being kind of late Q4 and into Q1, and maybe bleeding over a little bit into Q2, but when you look at the numbers there's bids throughout the year.
And we've always.
See a lot of many beds. So that's been a trend that I think has been out there for a while.
If rates are going up in of shippers need to do of many bad day kind of settle in on a project or new rates, so that they're not 100% reliant on the spot obviously, but if rates go down the new projects come up in the.
You wrestle with honoring the freight commitments that are out there versus appealing something out and doing the mini bids. So I think it's it is a reality and it's a mechanism that shippers can use to kind of get current rates moving forward. So I think we'll continue to see that activity.
And whatever the cycle is over.
Okay, and then last quick one for Doug just on the carrier side I think you mentioned <unk>.
He is still pretty tight.
Are you anticipating a return I guess, what would have you seen from those.
Those carrier signing up to the various platforms are you seeing new people will sign up are you seeing drivers come back as rates come up.
What do you have you seen in the fourth quarter and kind of what are you expecting for for the year ahead.
We actually saw an increase in our number of carriers utilize in Q4 up fairly substantially.
So I think that was just due to the tight market and us going deeper into our database to find more carriers I think it was also a function of.
Our marketing push on Echo drive in getting carriers signed up where they can find the right loads for their network. So.
You know it's.
Our activity increase with the number of carriers and.
We still have a very large portion of our carrier database that's untapped.
Not.
Currently in use so so even though capacity is tight we have a pretty big pond deficient.
Yeah.
Okay.
Thanks for the time I appreciate it.
You.
And your next question from Ravi Shanker of Morgan Stanley. Your line is now open.
Hey, guys. Thanks, it's actually Iqos Dean Garvey on for Ravi.
What are the I also cut out earlier, so if you can discuss the.
Excuse me, but there's a lot of.
The interesting color on Matt in terms of nation earlier in the call I was just wondering if we could get a little bit more color on the pipeline as we head into next year in particular, if there's anything you're seeing trend wise that you would call out in terms of customer base or sort of the driving psychology, maybe behind some of the win.
And then also of the comment about growing up market.
Two larger shippers, if you could elaborate a little bit on that as well.
Sure.
The.
Yes.
The may our managed transportation business is primarily focused on has been focused on SMB customers and we've seen a lot of success.
Both through referrals of of Dis.
Customers and expanding our relationships in places, where we've landed business that have.
Parents ownership and other subsidiaries and so we've got.
I think of a pretty a very strong offering when it comes to multimodal offering and L. T L truckload intermodal.
Partial truckload suite of services in the that SMB client base.
This year as I mentioned earlier, we close the $135 million of new business that was a record for us and we've got a strong pipeline.
Going into 2021, so we feel really good and a lot of that business came on are still comment on board and some of it came on in the second half of the year. So it really sets up nicely for us to have a nice strong.
2021, when it comes to the managed transportation business and so because of that focus.
Our client base has has.
A good mix of LTE, Alan truckload and so when we talk about going up market that means really selling the companies that are going to be more predominantly truckload shippers and.
And we've got capabilities that we've built over the years to in essence go upmarket and serve those larger truckload shippers that hasnt been our sweet spot over time, and I think that as we continue to grow we will continue to.
To grow in that area as well as focusing on the SMB.
Market that we've had success and in the past.
Got it that's very helpful. Maybe just one quick one of the follow up to the M&A.
Question earlier, just J D I'll answer the kind of makes sense.
But just kind of curious what are you guys looking for or is it something where you'd be targeting different geographies or technology platform.
Is it that you guys are looking for there.
Yes, I mean, we.
We certainly have.
Opportunities that would fit under the description of the tuck in.
And when we think about our brokerage tuck in the <unk>.
Things that might make it interesting would be geographical.
Fickle presence.
Including Canada and Mexico.
It could be niche specialties like temperature control of our flatbed.
And then when we get outside that realm, where we're looking at maybe potentially acquisitions in adjacent spaces that are not too far from our non asset model, but potentially add new capabilities to our portfolio and fit well within our sales channels.
We also have interest in data science.
And the analytics companies as well as companies the do managed transportation.
We've looked at.
Consolidation business LPL consolidation for big box retailers. So there's really a lot of areas that can be of interest to us.
Either in our core business in technology, and data science or in adjacent spaces.
Got it that's very helpful. I appreciate the time I'll leave it there.
Thank you.
Your next question from Kevin Steinke from Barrington Research. Your line is now open.
Hi, <unk>.
Touched on this a bit but.
Okay. What are you seeing or hearing in terms of the ability the carrier the ability of carriers too.
The capacity in this environment either through our equipment <unk> drivers.
Well they've been.
They took of vacation and too much of 2020 and Didnt buy many new class a trucks.
The the pace of.
Class eight truck sales has accelerated in recent months.
What's unknown to US is how quickly are the retiring old equipment or the holding onto that old equipment to gain capacity and I did see a statistic recently that you.
Used truck sales.
This year are relatively lower mileage vehicles than in past years, So that would that would almost indicate to me that theyre, turning the equipment faster and bring in new new equipment, which is obviously.
The better maintenance costs better fuel efficiency and there is also attractive for recruiting drivers so.
The I don't know the definite answer to your question, but.
It would seem that capacity is staying relatively level I think in part due to the driver shortage and.
And despite the class eight truck purchases.
Okay.
Okay. Thanks, that's all I had.
Thank you.
Next question from Stephanie Benjamin of true best.
Your line is now open.
Hi, everybody.
Hi, Stephanie.
Most of the questions have been answered here, but I was hoping you could talk a little bit about what youre seeing on the <unk> side of your business.
Nice acceleration from <unk>, but is this just a function of maybe some of your more industrial focused companies.
It kind of brewery reaccelerate, even the pandemic are you seeing any.
E Commerce benefit just anything on the LTE business would be helpful. Thanks.
Yes, I think the primary driver of steps.
And its tight every.
So you're just seeing a lot of overflow business and.
But our primary.
It was across all sectors, but mainly in the managed trans side.
Got it that's really helpful. Thanks.
Thank you.
Your next question from David Campbell Thompson Davis <unk> Company. Your line is now open.
Hi.
Dave.
The I just wanted to ask.
That just gives you had any opinion of the.
The sale of the.
The <unk> business from UBS, whether that sale of the day there.
Ed here.
But the NGL of renewable business are one of the problem.
The the new the new manager of the vs business being more aggressive than EPS.
Certainly got yes.
It didn't do anything with it for 10 years.
Yes, I think that.
You know from our perspective, it won't have an impact on our business.
Can't really comment on that.
Management team for EPS freight has.
As moving over so.
I don't see any significant change from from our perspective.
So you think recently.
Sales.
The good thing for any of the answer do you have any opinion on the.
Yes, I would not have a have a strong opinion.
On it for Upa as I know the I know the day.
Obviously, they think it's a good thing in a win win.
The four for all parties so.
We would just debt.
Take that from what it's worth.
And I solar for the.
The lesson they bought it for 10 years ago.
A pretty bad investment.
Got it.
Our net.
The they shouldnt have done it in the first place.
But also I wanted to see if you had any thought of that.
The impact of the new President and the New administration eagerness to raise taxes on U S.
And on people.
And whether that would have any impact on your business.
The other whether you just can't.
And what do they do and can't do much about that because they haven't announced any evidence of what they want to do.
Any opinion on the.
On the on the policy.
Well, David it looking in the short term if theres additional stimulus dollars that go into the consumer's pockets I would expect that that would be good for the freight industry. It seemed to be the case in 2020, when the stimulus hit.
The next thing I would look to as regulations that affect trucking, whether it's hours of service or.
Drug testing some of some of the things that we've been dealing with for the last year or two.
I think we all know the impact that some of those regulations have on capacity so that could be an impact.
And then beyond that.
Of the above my pay grade to know of.
You know what the what the political ramifications on the economy are going to be but those of the two that are obvious to me.
Yeah, well they the.
The amount of raise your corporate tax rate.
Uh huh.
From I guess, you're paying 20 drivers of that now sounds like it could go to the 30%.
Uh huh.
If they do what they want to do.
Anyway. Thanks for the thanks for the the questions Oh, one last one fast quick one I don't think of it.
Impact on any of that it might the Chinese new year.
Starting.
The most later this year than last year.
Have you ever noticed any impact from those those dates changing around every year.
Well, sometimes theres an impact on the import freight coming out of the west coast, but this year, we're already backed up with chips in the.
In the ports of long beach in L. A in and so I would assume that the.
And any impact will get absorbed by the backlog.
Mhm.
Okay. Thanks for the thanks for the questions Andrew Thanks for the answers. Thank you Dave.
And your last question from Matt Young of Morningstar. Your line is now open.
Thanks, guys good afternoon.
No there's macro uncertainty here and lots of moving parts, including mix, but do you think it's safe to say that the overall contract rate strength youre seeing could be sufficient to keep.
Bush of keep the gross margin percentage up overall in 2021, if I if I have it right.
Already at 15, 9% in January so the trend looks positive in terms of catching up to buy rates here at this point.
And I think if you look at historic cycles, when you're when you've got a situation where rates are really high.
You tend to see three to three to four quarters of positive margin. I think this is a bit unique because of the extreme lehigh rates and the fact that the bid cycles or deferred so I think the first half of the year is probably.
Got a little better chance of having the positive margin in the second half, but the reason we don't.
Don't give specific guidance is because it's too hard to really predict.
That's there.
I'm just wondering if also if it's possible to shed.
Some color on your general exposure of mix in terms of retail versus industrial end market shippers.
And perhaps maybe what that might have looked like before the pandemic or the 2019 slowdown I guess, what I'm wondering here is the potential for incremental an incremental growth capex should manufacturing industrial end market sees from recovery of this year, yes.
Yes, I think so I think that you know.
We're going to be we're going to be more manufacturing in industrial than retail our retail business tends to be.
More into grocery and.
The big box kind of retail, but on the on the on the.
Not necessarily produce but but.
Beverages and such so.
I think to the extent that we have a strong industrial recovery that would that could be a pause of positive for us given our mix.
Any sense of the numbers there I mean is it like 60 40.
<unk> the.
The retail piece is probably closer to closer to 20.
But when you get them then.
The.
Doesn't mean everything else as industrial or would be you would classify it that way so I'd have to the that the.
Peel that apart there is a lot of distribution in there and the other things.
Okay. So I had thanks, Steve.
Okay. Thank you.
And there are no further questions at this time.
Now I would like to turn it back he Mr. Doug Waggoner.
Yes, well, we went a little bit over but we wanted to make sure everybody got a chance to get their questions answered. So thanks for joining us the big Big Shout out to all of the Echo employees that I know listen to the call and great great job in 2020.
For our clients and our carriers and thanks to our shareholders. We will talk to you the next quarter.
Ladies and gentlemen. This concludes today's conference. Thank you everyone for participating you may now disconnect.
[music].