Echo Global Logistics, Inc.
Q2 2018 Earnings Call Transcript

Published: 26 Jul 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Echo Global Logistics Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instruction will follow at that time. [Operator instructions] And as a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Mr. Kyle Sauers, Chief Financial Officer. Sir, you may begin.

[Kyle Sauers:]

Thank you. And thank you for joining us today to discuss our second quarter 2018 earnings. Hosting the call are Doug Waggoner, Chairman and Chief Executive Officer; Dave Menzel, President and Chief Operating Officer; and Kyle Sauers, Chief Financial Officer. We've 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 site, echo.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 will also be discussing certain non-GAAP financial measures. The definition and reconciliation of each non-GAAP financial measure to its most directly comparable 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 Waggoner.

[Douglas Waggoner:]

Thanks and good afternoon, everyone. We're once again very pleased with our results in Q2 from both a quantitative and qualitative perspective. Market conditions have been very difficult for shippers, because tight capacity and strong demand has persisted. Higher costs have started to become a reality and shippers are now thinking about the impact of transportation in a much more strategic way. At the same time, higher rates have positively impacted carriers and they are now able to focus on yield and many are take a good portion of those higher rates to increase driver pay, which is much needed for our industry. This environment is favorable for Echo, as we can provide significant value to all parties due to our technology, people and carrier partners all working together to provide solutions for our clients. Qualitatively, our people are working very well together, our teams are focused externally on our clients and our carriers. This focus is paying off, as for the second consecutive year we have been voted as the number one 3PL in inbound logistics annual shipper survey. We are very proud of this recognition and a big thanks to our clients and our people for making this happen. In addition, I am pleased to report the acquisition of Freight Management Plus, which was completed in early July. This is a tuck-in deal consistent with the 19 acquisitions we made prior to Command. Freight Management Plus had $15 million in revenue in 2017 and is focus primarily on LTL managed transportation. We believe Freight Management Plus will benefit greatly from all that Echo has to offer and we will transition FMP to Echo’s technology platform over the coming months. Now, let me take you through some of the highlights from the second quarter beginning on slide three. Revenue grew by 35% during the quarter, our sixth straight quarter of sequential revenue growth. This is a testament to our strong execution and a continued robust freight market. Net revenue margin was flat in our Transactional Brokerage business on a year-over-year basis. With the decline in our total margin entirely attributed to the rising cost of fuel and the margin decline in our Managed Transportation business. Adjusted EBITDA increased by 74% from the prior year to $24.4 million. Our ability to drive net revenue growth faster than our operating cost was again evident this quarter. Non-GAAP EPS improved by 160% to $0.46 per share. And consistent with last year, I'm again excited and proud to acknowledge that our revenue, adjusted EBITDA and non-GAAP EPS are all new Echo records. Our employees are working tremendously hard in this environment and their effort is reflected in our results. We continue to invest heavily in technology to extent the advantage we have in the marketplace. Those advantages are allowing us to outpace the market with our growth and drive operating leverage and improve profitability through our model. Congratulations to the entire Echo team on great results and thank you all for all the hard work. I now want to turn the call over to Dave, who will discuss our Q2 results in more detail.

[David Menzel:]

Thanks, Doug. In Q2, we experienced a continuation of a handful of key themes that impact our business, which are

[Kyle Sauers:]

Thanks, Dave. On page seven of the slide you’ll find the summary of our key operating statement line items. Commission expense was $32.4 million in the second quarter of 2018, increasing 31% year-over-year and commission expense was 30.3% of net revenue, which is the same compared to the second quarter last year. Our non-GAAP G&A expense was $50.0 million in the second quarter of 2018, up 17% from the second quarter of 2017. Depreciation expense was $5.8 million in the second quarter, up from $4.4 million in the year-ago period. Cash interest expense was $1.6 million during the second quarter, compared to $1.7 million in the year-ago period. Our non-GAAP effective income tax rate was 24.5% for the second quarter of 2018. As Doug mentioned, non-GAAP fully diluted earnings per share were $0.46, increasing from $0.18 in the second quarter of 2017. The primary differences between our GAAP and non-GAAP fully diluted EPS in the second quarter are $3.2 million of amortization of intangibles, $2.1 million of non-cash interest expense and $2.2 million of stock compensation expense. Slide eight contains selected cash flow and balance sheet data. In the second quarter of 2018 we had free cash flow of $11.4 million and operating cash flow of $17 million. Capital expenditures total $5.6 million in the quarter, compared to $5.5 million in the prior year. We ended the quarter with $44.7 million in cash, $393 million of accounts receivable and nothing's drawn down on our $200 million ABL facility. And we continue to be in full compliance with all the covenants related to our borrowing facility. We did not purchase any of our common stock during the quarter and still have approximately $30 million remaining on our repurchase authorization. Now, I'll walk you through our guidance for the third quarter and the remainder of the year. We outperformed our own expectations again this quarter and expect to see strong growth in the second half. Based on our continued strong execution in a robust market we're raising our full year revenue guidance by $100 million at the midpoint, bringing it to a range of $2.375 billion to $2.475 billion. We're also offering revenue guidance for the third quarter of $610 million to $650 million or 20% to 28% top-line growth. Our July daily revenue growth has continued to be strong, it's up 34% over the prior year. As a reminder in the back part of the third quarter of last year, we starting to see an acceleration in truckload rates that makes for a more challenging, comparable as the quarter moves on. We're seeing growth across all major parts of our business, including both the truckload and LTL modes as well as both our transactional and our Managed Transportation clients. Our gross margin so far in July has improved sequentially from the second quarter and is backup over 17%. With regards to other guidance, we expect the following, commission expense to be in the range of 30.5% to 31% of net revenue for the remaining quarters of 2018. G&A cost to be between $194 million and $200 million for the full year, and in between $48 million and $52 million for the third quarter. Depreciation is estimated to be about $24.5 million for the full year and $6.2 million in the third quarter. Cash interest should be approximately $6.8 million for the full year and $1.7 million for the third quarter. We expect our quarterly tax rate to be approximately 25% for the remaining quarters of 2018. And our share count should be approximately 28 million shares. Excluded from our non-GAAP calculations in the full year and second quarter, we should have amortization of approximately $13.1 million and $3.3 million. Non-cash interest of $8.5 million and $2.2 million. And stock compensation expense of $9.6 million and $2.3 million. And now I’d like to turn it back over to Doug.

[Douglas Waggoner:]

Thanks, Kyle. To wrap it up, this is another strong quarter for Echo and we're very pleased with the results. We delivered just over $106 million in net revenue, up by $25 million from the prior year. We delivered $24.4 million in adjusted EBITDA, up by over $10 million from the prior year. And this represents 41% incremental EBITDA and is strong evidence of our ability to not only grow the top-line, but improve the bottom-line overtime. I'm excited about the recent acquisition of Freight Management Plus and we've got more potential deals in our pipeline. And our recognition as the number one 3PL by Inbound Logistics is a testament to the dedication of our people and the value of our carrier network and the return we're getting from our ongoing investment in technology. The landscape for our business is rapidly changing. In large part, this is due to the availability of data. Not only do we produce a massive quantity of our own data from the approximate 16,000 shipments we pick-up every single day, but there's now a plethora [ph] of data available through API connections to third parties, some of which are aggregating ELD and other unique data elements. Utilizing our internal data science team, we're putting this data to work to improve client and carrier experiences, streamline internal processes, optimize pricing, improve sales close rates, and maximize net revenue margins. Along with our focus on data analytics, it's important to be able to incorporate our models and algorithms into our technology to optimize the behavior and performance of our employees. To do this, we've been increasing our investment in technology and enhancing our core platform to drive automation throughout the process. Regardless of mode, we see opportunities to continue to digitize our market and our services that will enhance the quality and efficiency for all of our stakeholders. One such example of this has been the launching earlier this year of a new version of our online freight portal called Echo Ship. This is targeted to small and mid-sized shippers and we're seeing a very positive reviews from our shippers and adoption is increasing at a good pace. We're implementing a variety of solutions and driving electronic real-time information flow across all of our modes of service and anticipate significant increases as the year progress. This along with many other initiatives on our platform will continue to drive automation that will improve our client and carrier experience, enhance service and free up the time for our people to grow and improve their productivity. We're looking forward to a strong second half of the year. The market continues to be tight and our sales and operations team are executing better than ever. And on top of that we're increasingly excited about our technology and analytics teams’ momentum in creating solutions that improve efficiency, productivity and service levels of our people and product offerings. That concludes our prepared remarks, and at this time, we'll open it up for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Jack Atkins of Stephens. Your line is open.

[Jack Atkins:]

Doug, Dave, Kyle good afternoon. Thanks for taking my questions.

[Douglas Waggoner:]

Hi, Jack.

[Jack Atkins:]

Well congratulations on another good question, it's amazing what a difference a year makes. So I guess, Doug, if we could start just sort of where you left off with your prepared comments with Echo Ship and the online portal for small and mid-size shippers. We're hearing other folks talk about similar types of things J.B. Hunt 360 for example. And I would just be curious if you could maybe sort of take us through, how you're expecting that offering to sort of ramp over the course of the next call it 12 to 24 months. I mean, what portion of your business do you think ultimately could go through that portal? And free up to your points, your sales reps to do other things within the business.

[Douglas Waggoner:]

We currently have a portal that's called Echo Track, and it's been widely used. Echo Ship is a what I would call a modernized version of that with new functionality and new capability, a better user experience. And we think that we can take the high adoption that we already have and accelerate that even further especially with small to mid-sized LTL shippers, we think we can get them to a self-service mode of operation. And using our data science and algorithms to make sure that we're making the right pricing decisions almost algorithmically that we used to make with the sales rep that had intimacy with the account and the capability. So it's kind of all comes together, but we've got a number of customers and accelerating on the new platform. And we're going to start aggressively ruling it out over the coming months.

[Jack Atkins:]

Okay. Well that's exciting to hear about that. I guess kind of shifting gears and asking sort of a bigger picture question. We've seen a tough earnings season so far with a lot of companies that have been reporting good numbers, but the stocks have now been reacting favorably. I guess a lot of concerns around just the duration of the cycle. And I know we've asked you this question before, but we're sort of 12 months into this, maybe 11 months into this cycle and things certainly feel very strong out there still. And just would be curious to get your sense Doug and Dave as well. How are you all viewing the duration of this cycle? And is there anything out there that sort of concerns you when you think about potential slowing of activity as we look out over the next six months?

[Douglas Waggoner:]

So Jack, I mean, to me it feels really strong. The demand is strong, the supply is tight, there is a lot of Class A tractor purchases, but from all the carriers that I talk to that’s almost entirely dedicated to replacing aging equipment. Most carriers tell us that even if they wanted to add capacity it couldn't because they don't have drivers to drive it. So anything short of a recession I see this economic condition continuing and it's above my pay grade to predict the next recession.

[Jack Atkins:]

Yes, no that make sense. It certainly feels like it would need to be a demand driven issue versus supply driven issue. So okay, last question for me and I'll turn it over, with truckload volume increasing 7% in the quarter, obviously I think when we kind of think about the comps for price versus volume, your volume comps probably get easier as we move forward and your pricing comps probably get harder. I guess, I am curious to hear how you guys are thinking about the potential for volume growth as you look out over the next several quarters now that we’re through mid-season and we are through sort of the volume churn that happen this time last year?

[David Menzel:]

Yes, Jeff, this is Dave. Couple of things on that front. In terms of our volume progressions, we have seen strong improvement actually in year-over-year volumes throughout the quarter. So we were at 9% I think in April, 10% in May and 11% in June and we have seen that 11% rate continue through the first part of July. So, it’s difficult to predict the demand side of the market as Doug just mentioned. And so it’s hard to see what might be around the corner in terms of recessionary environment that could slow down, but at this point in time I think your characterizations are pretty accurate one, which is the volume comps are pretty steady. And so we don’t see anything ahead that would suggest that our volume growth should change materially, but it’s hard to predict what we can’t see. And then on the rate side, when we start to move into late August, early September we will see much tougher rate comps because that’s when the big spikes occurred in the current market place. So, I think overall we see a good environment to continue driving volume growth throughout the remainder of the year.

[Jack Atkins:]

Okay, that’s great. Well, I’ll hand it over, thanks again for the time.

[David Menzel:]

Thanks, Jeff.

[Douglas Waggoner:]

Thank you, Jeff.

[Operator:]

Thank you. Our next question is from the line of Jason Seidl of Cowen. Your line is now open.

[Jason Seidl:]

Thank you, operator and good afternoon gentlemen. Again echo the strong quarter performance there nice job. I wanted to talk a little bit about your net revenue margin commentary about July, you said it increased a little bit. Can you sort of walk us through why it sequentially is increasing?

[David Menzel:]

So a couple of things, the -- on the net revenue margin, the spot market activity picked up quite a bit in June. So June you saw some pretty big rate increases in the overall market that happen in June and corresponding with that rate those rate increases we saw an increase in spot market activity. Some of that’s continued in July, but also the other piece of the puzzle as July tends to be seasonally a little slower through the first three to four weeks and so it’s not a typical that we’d see as a modest improvement in net revenue margin in the first part of July that may tighten up a bit, depending on the economy into August and end the quarter September month. So, on the one hand it’s a bit to be expected for us to see a slight uptick, it’s not -- it wasn’t a large one but as Kyle mentioned we close the quarter at 16.8 and we’re little over 17 through the first week of July.

[Jason Seidl:]

Well on the slowdown commentary, if I can interject did I hear right that volumes are up 11% in July?

[David Menzel:]

Correct.

[Jason Seidl:]

That doesn’t sound slow to me.

[David Menzel:]

So when you think about year-over-year, so let’s say you typically have a slight slowdown from June to July.

[Jason Seidl:]

Understood, I am just joking. That explains it. Two more and then I’ll pass the baton to somebody else here. Doug, you talked a lot about some of the new technology offerings and about big data and about how it can help your existing businesses. Is there anything you guys are thinking about and utilizing big data as a revenue source as well, almost on a standalone basis for yourselves?

[Douglas Waggoner:]

We have got a lot of projects on the books, that I would characterize in several categories automating the business, optimizing the business to make sure that we’re getting the best margins and the lowest costs and the highest productivity. And then also improving client and carrier experiences and their interactions. And so that’s really been our primary focus. Looking beyond that as to whether it’s a revenue source, I guess, we would think of it as a revenue source to the extent that we improve our gross margins

[Jason Seidl:]

Okay, fair enough. Last on the acquisition seems like a good fit and a nice tuck-in 7 times with an earn out included and it seems to be on the less expensive side. Is that sort of the going rate in the marketplace for transactions of this sort.

[Douglas Waggoner:]

The multiple will tend to vary with the size of the company and the growth rate. And this is a smaller company and I think one of the success stories of Echo has really been if you look at our 19 acquisitions prior to Command, they all looked a lot like Freight Management Plus. And in many cases we were able to grow those companies greater than 5x on the revenue line overtime. So although it's a smaller deal and that brings with it a smaller multiple, we think it's a big opportunity and we love doing these kind of deals.

[Jason Seidl:]

Why imagine in terms of the growth, I mean they're going greatly benefit from an increased technology platform that you could provide.

[Douglas Waggoner:]

Yes, I think so. And then also some model expansion. They were predominantly in LTL managed trans company and we're going to give them some really truckload tools and great capacity and great pricing as well as intermodal if they can use it. And we've also got a business development sales team that can help them to open more doors up in that Northeast area.

[Jason Seidl:]

Yes, that sounds like a plan. Well gentlemen listen, I appreciate the time as always. I'll turn it over to next person.

[Douglas Waggoner:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Bascome Majors of Susquehanna. Your line is open.

[Bascome Majors:]

Yes, thanks for taking my question here. I was hoping you could expand a little bit on what you're seeing in truckload specifically, how the transactional market is doing versus some of the contractual business that you're involved with. And maybe sequentially just kind of frame that how the volume growth is pacing inside of those businesses through the quarter and into July. Anything you like to point out on pricing or even the competitive environment on either? Thank you.

[David Menzel:]

Okay, so I think, on the brokerage side and the truckload market, the first comment would be that obviously the pricing has increased fairly dramatically, the revenue per shipment up 31% year-over-year. And I would say that we've seen a higher growth rate on a year-over-year basis on the spot side of the business versus the contractual side of the business. And this kind of -- and you see that through the increase in spot as a percentage of total of our overall business. And so part of that the reason we see it that way is our strategy over the past year has been to be relatively selective in terms of how we think about the contract business using -- obviously staying committed to our client relationships, but using our capacity strategically and smartly in an environment where prices are rising pretty significantly. So that's kind of how it looks year-over-year. I'd say that as the quarter progresses in months, one of the things we're seeing is that when the prices spike pretty significantly a lot of times we'll see a movement of an uptick in the spot business, the award business tends to be a little more static. But a lot of companies in answer to trying to address this market condition, I'd say are doing more and more of what we call mini bids and trying to go to market and put some award pricing in on the components of their business to try to avoid the spot. So that's a little of a dynamic we're seeing, that's happening, but at the end of the day I'd say that on a year-over-year basis the trend this year has been a higher growth rate in the spot side of the business.

[Bascome Majors:]

In the competitive landscape, I mean have you seen larger smaller brokers change their behaviors as we've got into a bid season or is the environment smell very similar to what you saw in 1Q and even 4Q?

[David Menzel:]

I would say -- characterize it as pretty similar I would say.

[Bascome Majors:]

And lastly Kyle, I don't think I heard you say or give us an update on CapEx expectations. Can you let us know what the envelop looks like from where you should today for 2018? And from a free cash flow perspective I think you did $21 million or $22 million in the first half. What's the second half look like from where you sit today?

[Kyle Sauers:]

Yes, so on the CapEx piece, we're obviously continuing to invest pretty heavily in technology, and a big part of that our internally developed software, which makes up the large portion of our CapEx. Expect that to be in the range of $24 million to $26 million for the full year, which kind of the top half of the range that we've talked about earlier in the year. And then on cash flow I think we've talked about this in the past, but the impact on our working capital needs when we grow at a pretty accelerated pace is large. As you know we pay carriers faster than we collect from our shippers. So when we've got this accelerated sequential growth in particular from quarter-to-quarter has a decent impact on the free cash flow. So I'd say, if we had similar sequential growth in the back half, I think the free cash flow would look pretty similar to what we've seen to the extent that flattens out or you see a seasonal downtick in Q4, which hasn't been unusual for us in the past than maybe free cash flow starts to look even a little bit better. So I don't know if I want to cut it too much finer than that since we don't give a guidance, but hopefully that helps.

[Bascome Majors:]

That's great, I appreciate the time. Thanks guys.

[Kyle Sauers:]

Thanks, Bascome.

[Operator:]

Thank you. The next question comes from the line of Bruce Chan of Stifel. Your line is open.

[Bruce Chan:]

Yes, good evening gents, how are you all doing?

[Douglas Waggoner:]

Good, Bruce.

[Bruce Chan:]

Just want to step back and take a look here at the kind of Managed Transportation strategy. You talked about focusing a little bit more on the larger customers. And then of course the net revenue margin impact that that has. Can you talk a little bit about the strategy behind that? I guess, the motivation behind that strategy. Is this a situation where maybe you're experiencing a little bit of net revenue margin compression, but you make that back up on the operating margin side. Is this sort of a natural kind of progression of the business in this type of tight capacity market. What's kind of driving that mix shift?

[David Menzel:]

So it's a good question. I think that it is -- as we've talked about last few quarters part of the explanation on the margin compression, but at the same time the real strategy here is to leverage the technology that we have in to provide services to larger shippers. And the good news is and you hit the nail on the head, our operating margins and profitability on that business is just as good on the smaller in many cases, because we're able to automate much of the transaction flow and provide a transportation management solution to those customers that adds a tremendous amount of value to their value in terms of overall control of the transportation spend. That is also efficient in terms of its operation on our side. And so you -- in the financial statements, yes it can cause some margin compression depending on the type of deal, but at the end of the day it's providing operating profitability to the business. And we see opportunities to continue to do that, to continue to go up market whether it's LTL or truckload, and be very efficient in terms of the services that we offer. And in some cases that may cause some margin compression, in other cases it might be a fee type deal that actually enhances the margin. But at the end of the day we're going to look at those opportunities from a bottom-line profitability perspective.

[Bruce Chan:]

Great. And then earlier, you talked about sales reps a little bit, and it looks like you're still certainly able to add reps given your inbound logistics achievement seems like others are kind of taking note about the service component that they provide certainly. And I'm wondering are you seeing any increased competitiveness for sales people out there. Is it getting harder to recruit talents are you having any issues?

[David Menzel:]

I would say, relative to others in our industry, no issues. Obviously, there are other companies that do a lot of hiring as well, but I think that the Echo experience and what we have to offer here has been very effective from a recruiting perspective in bringing people into the company. As the labor market tightens up and more and more jobs are -- or easier to come by for new graduates and the market tightens I would say that does have a little bit of impact overall, like it would on any company that's bringing in large numbers to the workforce. So those are things that we're looking at and in some cases need to ramp up some resources to make sure we've got enough touch points to get candidates into Echo and to hit our hiring objectives.

[Bruce Chan:]

Great, well thank you very much. Appreciate the time.

[Douglas Waggoner:]

Thanks, Bruce.

[Operator:]

Thank you. Our next question comes from the line of Allison Landry of Credit Suisse. Your line is open.

[Unidentified Analyst:]

Hi, this is Sam Ellen [ph] on for Allison. I was just wondering in terms of revenue growth expectations for the second half of the year, is that driven by new business or growth within your current customer base.

[David Menzel:]

It is definitely a combination of the two. The -- it’s hard we don’t break that out specifically there is certainly a significant amount of growth coming from within the customer base and especially when you think about the rate environment and how the impact that might have on growth a lot of that comes from the customer base. But we’re really focused on adding new business all the time, we’ve -- as I mentioned in the Managed Transportation commentary, we have added signed deals that have a freight spend of about $36 million in Q2. I think it’s $65 million or so through the first half of the year. So we’re adding lots of new customers and we’re doing that similarly in the brokerage side of the business. So there is certainly a lot of new customer growth as well.

[Unidentified Analyst:]

Thank you.

[Douglas Waggoner:]

Thank you.

[Operator:]

Thank you. Our next question is from the line of Kevin Steinke of Barrington Research. Your line is open.

[Kevin Steinke:]

Hi, can you hear me okay?

[Douglas Waggoner:]

Yes, hi Kevin.

[Kevin Steinke:]

Hi. So on the revenue guidance increase for the full year, just wanted to walk through that a little bit more, obviously you had some upside to second quarter revenue guidance. And then you made the tuck-in acquisition. But, what other factors are driving that revenue increase -- revenue guidance increase. Can you talk about maybe the rate expectations or volume expectations that are factored into that guidance?

[Douglas Waggoner:]

Yes, Kevin. So I wouldn’t want to break it down too detail between rate and volume. As Dave mentioned before and we have may mentioned in the prepared comments, we do expect to grow volumes in the back half of the year we feel great about how the business is operating. We also expect the market to remain tight, but it is a situation where the rates increased pretty dramatically late in the third quarter and then into the fourth quarter as well. The fact is that the rates where they are today and I am talking primarily about truckload are actually highest than where they were in the fourth quarter. But as we saw last year a lot can happen between July and November, but we expect to grow volumes for sure, tough to know what the rate environment will be in the fourth quarter. So really that guidance takes into account a lot of different possibilities.

[Kevin Steinke:]

Okay, fair enough. And it looks like just the guidance for G&A picked up just a little bit for the full year, conversely the commission percentage came down a little bit. So can you just talk about what led to those modest changes?

[Douglas Waggoner:]

Sure, so I think -- I’d first point out that again this quarter we’re above the high end of our revenue guidance, but we still kept the G&A spend within the guidance range. We have upped that full year guidance for G&A a little bit it’s primarily for incentive compensation across the organization match up with the outperformance that we have seen so far this year and the outperformance we’re expecting in the back half for the year relative to the original guidance and internal expectations. And then there is also the addition of our acquisition FMP that add some modest cost to the that G&A cost structure as well.

[Kevin Steinke:]

Okay, great. On the commission side, it looks like that actually came down a bit in terms of percentage. Anything -- I mean, it’s not meaningful but I just wondering if there is anything leading to that.

[Douglas Waggoner:]

Yes, our commission percentage is really, it depends on the mix of business, where the business is coming from in the quarter, the mode mix, the type of customers, brokerage versus Managed Transportation. So to your point it didn’t change much. So nothing really notable about the commission structure to point out.

[Kevin Steinke:]

Okay. And then just lastly you mentioned in the prepared comments about carriers trying to bring some of the higher rates they are generating to their drivers. Do you see any chance that that could maybe start attracting more drivers, do anything to loosen this shortage or is it not really meaningful enough to move the needle at this point?

[Douglas Waggoner:]

It’s hard to say, I saw some articles recently that The Economists have come up with some trigger points they think that would attract more drivers into the industry, I am not sure if we’re there yet, but if you turn on the satellite radio, you’ll hear nothing but advertisements for truck drivers and everybody that I talk to is trying to find themselves. It continues to be a problem.

[Kevin Steinke:]

Okay, great. Thanks for taking the questions.

[Douglas Waggoner:]

Thank you.

[Operator:]

Thank you. Our next question comes from a line of David Campbell of Thompson Davis. Your line is open.

[David Campbell:]

Hi, everybody. Thank you for taking my question and congratulations on another great quarter. I just wanted Doug and Dave whether you had any thought about this -- that I thought about traditionally over a long period of time when it gets tough to find capacity, or when there is a problem in the industry geographically or otherwise tends to drive more business to third party providers like yourselves away from shippers who previously hadn't used third party providers 3PLs? And so do you think there's any possibility that once if and when the -- it's easier for shipper to find capacity that they'll go back to managing the transportation themselves? And therefore your volume growth will not only maybe even less than the industry? Is that a possibility or things different today?

[Douglas Waggoner:]

I've heard that thesis before David throughout the cycles. And I think if you look at our numbers, we've talked about customer acquisitions and numbers of customers, and a statistic that we internally look at called new buying accounts. And we've been able to take market share, regardless of where we are in the cycle. So, I think the more interesting question and we don't have an answer for it is. We've got a great forecast for the rest of the year. And that assumes no exogenous factors like hurricanes and things that disrupted this market in the first place. So, the things that are out there that we can't predict our disruptions to supply, the next recession, there is -- those are the kinds of things that we can't quite wrap our minds around. So we just keep running the business trying to take market share, operate smart and make as much money as we can.

[David Campbell:]

Well, has your growth this year come from market share gaining customers from other third party providers who don’t have the technology. You have the technology to get traffic away from your third party providers, or your 3PL competitors. Or has it come from just generating more business from existing customers that you've already had for years?

[Douglas Waggoner:]

Well, it’s a combination of things, I mean, A, we did grow the volume; B, we got some assistance through pricing and rates. In the tight market people who traditionally as you pointed out, haven't used third party logistics companies turn to third party logistics companies for help. In some cases, those are new customers for us. And when we perform, we keep them, regardless of where we are in the cycle. We focus a lot on customer satisfaction and we also focus a lot on being the broker of choice for carriers. And so, we feel like, if we continue to be sensitive to those partners, there's a relationship component as much as we tout technology. We know that the relationships matter. And so getting an opportunity to service a new account whether it came through a failure in a routing guide or a failure of one of our competitors or just good hard sales work is an opportunity for us to latch on that account and keep it through great service.

[David Campbell:]

Okay. And last question I had was maybe Dave can answer. The -- you haven’t said anything about your employee targets for this year. Do you -- have you reached a point where you need to add significant numbers of sales employees to sustain the growth rate of the company's volume?

[David Menzel:]

I would say that the biggest driver of growth has been the productivity of our people, which is leveraging, their tenure, the technology investments, the training programs that we put into place. And we feel very good about hitting our objectives with the workforce that we have. Now at the same time we’d like to continue to grow our sales organization and client service organization. We're up 55 people year-over-year in that regard and we targeted to be up about 100 people or so throughout the year. So we're probably running just a little short of that 100 expectation, we've got a lot of recruiting and a lot of hiring happening right now as we speak. So we will continue to focus on that, but I don't think that will have an impact on our ability to hit numbers or perform in the marketplace.

[David Campbell:]

The acquisition that you've announced in July, that leave also the sales agents I assume not they will be counted as sales agents.

[David Menzel:]

The majority of that business was a managed transportation type business. And so they didn't have a large sales force actually quite a small team of people. And so that's not going to materially affect any of our sales headcount numbers. And they don’t have any agents actually. So there were no agents on their team.

[David Campbell:]

Okay, thank you very much.

[Douglas Waggoner:]

Thanks, David.

[David Menzel:]

Thank you.

[Operator:]

Thank you. our next question comes from the line of Tom Wadewitz of UBS. Your line is open.

[Alex Johnson:]

Hey, guys. Good afternoon. It's Alex Johnson on for Tom.

[Douglas Waggoner:]

Hi, Alex.

[Alex Johnson:]

Hey. First question I wanted to ask you is one thing that's come up on some of the other -- in discussion with some of the other companies that we cover is the mid-week timing of the 4th of July you've talked pretty extensively about your trends in July. But I just wanted to ask any thoughts in terms of I guess in particular maybe productivity in that week, anything that we should be aware of?

[David Menzel:]

I would say, no, nothing significant. It does affect things a little bit. But last year I think it was on a Tuesday is on a Wednesday this year. So nothing notable or material that I’d speak to you on that from our perspective.

[Alex Johnson:]

Okay, that's fair enough. On the FMP, just curious is the seasonality in that business pretty consistent with the base Echo business? Do you say what the growth rate is for that business right now?

[David Menzel:]

No, we didn't talk about that, it's a smaller company. We did mention that it was a $15 million annual revenue in the prior year. So we didn't notice any significant seasonality trends that would have any impact on our results from that perspective.

[Alex Johnson:]

Okay. And any customer or industry exposure in particular that you would highlight?

[David Menzel:]

No, it's primarily small to mid-size company. So very small industrial oriented shippers predominantly LTL. And like I said about 80% of their business was Managed Transportation business. And there was in that portion absolutely no customer overlap or any customer issues there. So really kind of a smooth fit inside Echo and no concentrations to speak off.

[Alex Johnson:]

Okay, that's helpful. And just one more, one of the things that's come up in some of our discussions with some of the private truck brokers is the development of I guess some trucks freight futures. And given your commentary about the algorithms that you're implying and so forth I'm just wondering is that something that you've looked at the truck freight futures. And is it an opportunity for you in any way or just how you might think about that? Thank you.

[Douglas Waggoner:]

Well, I guess, I've been a student of that idea for a long time and kind of interested that somebody is coming out with it. I think it remains to be seen what can be done and how liquid the market is. And certainly we'll have an interest in it because we think we have a very good pulse on the market and anxious to see the mechanics of how it's going to work.

[Alex Johnson:]

Great, thanks for the time.

[Douglas Waggoner:]

Thanks.

[Operator:]

Thank you. And our next question comes from the line of Matt Young of Morningstar. Your line is open.

[Matt Young:]

Good afternoon, guys. Thanks for taking my call. I think you answered this on the -- with the last question, but I'm assuming that most for the FMT $15 million run rate is going to the managed transport line as oppose to the transactional gross revenue?

[Douglas Waggoner:]

Yes, I think roughly 80% would be the breakdown.

[Matt Young:]

And just wondering are you seeing any other opportunities like FMP out there in the deal phase or in terms of acquisitions tuck-ins in the managed transport area?

[Douglas Waggoner:]

Yes, I think we've got of a number of potential deals that we're looking at and they would fall under the brokerage category either truckload or LTL as well as Managed Transportation and then some closely adjacent areas as well.

[Matt Young:]

I am guessing there is some opportunities on the brokerage side than Managed Transport, correct on average?

[Douglas Waggoner:]

That’s correct.

[Matt Young:]

Okay. That’s all I had, thanks.

[Douglas Waggoner:]

Thank you.

[Operator:]

Thank you. And I am showing no further questions at this time, I’d like to turn the call over to Mr. Doug Waggoner, Chairman and Chief Executive Officer for the closing remarks.

[Douglas Waggoner:]

Yes, I’d just like to thank everybody for joining us today on our second quarter call and we look forward to seeing you next quarter. So, bye and thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program, you may now disconnect. Everyone have a great day.