Echo Global Logistics, Inc.
Q4 2018 Earnings Call Transcript

Published: 7 Feb 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Echo Global Logistics Fourth 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 instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call 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 fourth quarter and full-year 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.

[Doug Waggoner:]

Thanks, Kyle, and, good afternoon, everyone. I'd like to kick off our call by congratulating the Echo team for delivering a fantastic year, clearly the best in our history as we grew both our top-line and our bottom-line, improving operating leverage, and delivering high levels of client and carrier satisfaction across the board. I want to first highlight some of our results for the full-year. We delivered record revenue of over $2.4 billion, 25.6% growth over the prior year, and this growth was driven by an increase in market share, with tighter capacity which drove higher rates. We delivered $420 million of net revenue which was 24% higher than 2017, and $100 million of adjusted EBITDA. Our adjusted EBITDA grew 62% year-over-year, a clear indication of our ability to improve operating leverage over time. A strong freight market through the majority of the year was obviously a big factor in terms of our ability to deliver such strong results, but our focus on technology, people and process were all important contributors. Now I will turn to the Q4 results. Total revenue was $583 million representing a 6.4% increase over last year. Net revenue was $102.4 million also representing a 6.4% increase over last year. Adjusted non-GAAP EBITDA was $25.6 million representing a 22% increase over the prior year. Non-GAAP EPS was $0.47 representing a 43% increase over the prior year. Again, we've grown earnings faster than both gross and net revenue reflecting our ability to improve our operating leverage as we deploy new technology and achieve scale. We compete in a large industry and like all industries technology is increasingly becoming a term of more relevance. That's good news for Echo because we've always focused on technology and we believe our platform which is heavily integrated with our clients and our carriers delivers a competitive edge in terms of our ability to deliver a multimodal solution to a broad set of clients and synchronizing our talented people to work seamlessly with the platform. It's this ability to leverage technology, people, and process that enables us to provide high service levels profitably. We will continue to invest to extend our advantages by automating more processes over time. We recently rebranded our next-generation architecture as Echo Accelerator. This architecture is focused on driving development velocity and automation through all phases of the processes that we manage across all modes. The four key areas of emphasis are one, quoting a pricing; two, carry selection, load matching and booking; three, in-transit visibility, monitoring and notifications; and four, settlement. We've already launched key applications both web and mobile that focus on each of these areas. Echo Connect is our integration layer and we're connected with thousands of shippers and carriers through this layer which includes both EDI and API connections. Echo Ship is our client portal, and Echo Drive is our carrier portal. Together these applications are the core elements to our digital strategy enables our clients, carriers, and employees to all interact on a common platform in an integrated way. Now I'd like to turn it over to Dave to go into more details on our performance.

[Dave Menzel:]

Thanks, Doug. In Q4, we delivered strong results right in line with the revenue guidance we provided back in October. In addition, our net revenue margin improved throughout the quarter, and improving efficiencies across the organization enabled us to effectively control expenses resulting in strong operating performance. At the same time, our year-over-year comparisons by mode are more challenging as we face tougher comps in Q4. As a reminder, Q4 2017 was a period of significant market disruption. The combination of ELD enforcement and two major weather events in late Q3 of 2017 caused truckload rates to skyrocket. This in turn had shippers scrambling to the spot market to find much needed capacity. Consequently, our spot business increased significantly in Q4 2017. As a contrast Q4 2018 was marked by a decline in truckload rates sequentially and less freight finding its way to the spot market. In other words, contract freight for large shippers was moving as expected. This pattern has become somewhat typical as freight cycles shift, and back in October, we talked about seeing the signs of this shift in the cycle. With that backdrop, let me walk you through how those trends impacted our performance by mode. Slide 4 highlights our revenue by mode. In Q4, total truckload revenue was $396 million and increased by 4.3% over the prior year. Truckload volume was flat year-over-year and our revenue per shipment was up by 4%. As you would expect, based on the changes in the market, our volume in Q4 was impacted by the offsetting influence of a decline in spot business and an increase in contract business. In fact, our spot business represented 52% of our total as compared to 59% a year ago. By contrast, contract business was 48% of total, up from 41% in Q4 2017. As I mentioned, truckload pricing is defined by revenue by shipment increased by 4% year-over-year. So on the one hand, pricing remains relatively high by historic standards; however that only tells a portion of the story, pricing in Q4 was actually down 4% when compared to Q3. Interestingly, this sequential decline is probably best defined by the peak rates we saw in June and July of 2018. Average truckload revenue per load declined in August 2018, but remained relatively consistent for the final five months of the year, August through December. Shifting gears to LTL, we again had strong results in our LTL business. Total revenue was $164 million representing a 16% increase over the prior year. Increases in both rates and volume drove this increase. Our LTL shipment volume was up 9% in Q4 and revenue per shipment was up 7%. Turning to Slide 5, our transactional revenue of $449 million grew by 4%. Sales headcount increased by 75 people over this time a year ago bringing us to 1,716 client and carrier sales reps at the end of the year. Our managed transportation revenue was $134 million in Q4, an increase of 17% over the prior year, another strong consistent quarter delivered by our managed transportation business. For the full-year, our managed transportation business was $524 million in total revenue, up 29.6% over 2017. The success was driven by a lot of great work by our team serving our existing clients and the results of closing on average approximately $100 million in annual new business over the past two years. I would like to congratulate our managed transportation team for doing a great job, thank our client base for continuing to trust in our ability to manage their freight during a time when we saw record increases in transportation rates. As you all know it's very difficult for shippers to manage such dramatic upward swings in cost and our teams continue to work diligently leveraging our technology and relationships to manage these price pressures effectively, while maintaining access to capacity in the marketplace. Turning to Slide 6, our net revenue margin was flat year-over-year at 17.6%. Flat net revenue margin was due to a small increase in truckload and a slight decrease in LTL. Looking sequentially we saw a 32 basis point increase over Q3 with improvements in both truckload and LTL. More specifically, truckload margin increased by 10 basis points year-over-year. Similar to the story around our contract and spot mix, and the changes in volume due to changes in the freight cycle, the truckload net revenue margin was impacted by offsetting forces, the decline in spot business was a drag on margin, while the impact of much of the contract with pricing that occurred in the first half of the year followed by the decline in truckload rates paid to carriers in the back half of the year, had the effect of improving our truckload contract margins. This is one of the strengths of our business model as they're often counterbalancing the impacts during changes in the freight cycle. Turning to LTL, net revenue margin was down 69 basis points due to the continued impact of growth in our managed transportation business. Over the past few quarters, we've discussed the impact of larger LTL centric managed transportation deals which have driven more LTL volume at lower net revenue margin and this impact continued in Q4 2018. As we've highlighted in the past these larger deals carry a high degree of automation which benefits all the parties involved, Echo, our shippers, and our LTL carriers. I'd like to now turn it over to Kyle to review operating cost and profitability.

[Kyle Sauers:]

Thanks, Dave. On page 7 of the slides, you'll find a summary of our key operating statement line items. Commission expense was $31.1 million in the fourth quarter of 2018 increasing 5% year-over-year. Commission expense was 30.4% of net revenue which is down 32 basis points compared to the fourth quarter last year. Our non-GAAP G&A expense was $45.7 million in the fourth quarter of 2018 flat with the year ago fourth quarter of 2017. We had a favorable benefit in our allowance for doubtful accounts of $700,000 during the quarter related to the bankruptcy of a large retail customer otherwise we're at the low-end of our previous guidance that we had offered. Depreciation expense was $6.2 million in the fourth quarter of 2018, up from $5.1 million in the year ago period and this increase in depreciation is associated with the increase in our continued investment in technology. Cash interest expense was $1.5 million during the fourth quarter of 2018 compared to $1.7 million in the year ago period. And our non-GAAP effective income tax rate was 26.1% for the fourth quarter higher than our expected 25% rate due to some small onetime items. As Doug mentioned, non-GAAP fully diluted earnings per share were $0.47 increasing from $0.33 in the fourth quarter of 2017. The primary differences between our GAAP and non-GAAP fully diluted EPS in the fourth quarter of 2018 are $3.3 million of amortization of intangibles, $2.7 million of non-cash interest expense, and $2.2 million of stock compensation expense. Moving to Slide 8, it contains selected cash flow and balance sheet data. In the fourth quarter of 2018, with free cash flow of $26.6 million, and operating cash flow of $31.2 million, and for the full-year, our free cash flow totaled $70 million which is up 150% over the prior year. Capital expenditures totaled $4.6 million in the quarter compared to $6 million in the prior year. Turning to the balance sheet, we ended the quarter with $40.3 million in cash and $337 million of accounts receivable. And at the end of the quarter we had nothing drawn on our $350 million ABL facility. You'll recall in our last call we announced an additional $50 million authorization to repurchase our common stock and convertible debt and during the quarter we purchased 421,000 shares of our stock for $9.8 million or an average of $23.19 per share. In addition, we repurchased $37.4 million face value of our convertible debt for $37.2 million. The associated gain on extinguishment of that debt and the accelerated amortization of the bond discount totaling $750,000 has been included in our non-cash interest line item. And as of the end of the quarter we have approximately $33 million still available on our repurchase authorization. Now I will take a moment to walk through our guidance for the first quarter and for the full-year 2019 which we have highlighted on Slide 9. Revenue during the first 18 business days of the quarter was down 7% over last year on a per day basis. This data excludes last week as much of the Midwest was shut down for a couple of days. This year-over-year decline was primarily due to lower truckload rates and lower truckload spot volume partially offset by growth in LTL revenue per day. The softer truckload results in January is a continuation of the trends we saw in Q4, bumped against a very strong January a year ago. The loser capacity impacted our net revenue margin as rates paid to carriers often moved faster than rates billed to customers. In fact, our net revenue margin in January is up over 18%, a nice sequential improvement from the fourth quarter. Given all these current trends, we expect Q1 revenue to be in the range of $530 million and $570 million. And for the full-year, we expect revenue in the range of $2.35 billion to $2.55 billion. And then with regards to other guidance, we expect the following

[Doug Waggoner:]

Thanks, Kyle. To wrap it up, this is another strong quarter for Echo and we're very pleased with the results. Despite very tough comps from last year, we delivered just over $102 million in net revenue, up by $6.2 from the prior year. We had $25.6 million in adjusted EBITDA, up by $4.6 million from the prior year and this represents 74% incremental EBITDA and is reflective of respectable volume growth, a relatively strong pricing environment, strong gross margins, and good control over G&A. We had a consistent run of quarters with strong financial performance throughout various parts of the capacity, supply, and demand cycles. We have proven that our operating model and the adjustments we make in it are capable of producing strong results whatever the environment. Our continued focus on our digital freight marketplace, applying technology, and analytics, will ensure that we continue to outperform our transportation peers for years to come. Thanks to all the folks at Echo for making transportation simplify for our clients and our carriers. It's your efforts that will allow us to achieve the results that we delivered this quarter and in fact for all of 2018. That concludes our prepared remarks and at this time we'll open it up for questions.

[Operator:]

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

[Jack Atkins:]

Great, thank you. Good afternoon guys and congratulations on a strong 2018.

[Doug Waggoner:]

Thanks, Jack.

[Jack Atkins:]

So I guess the first one is for Doug or Dave, as you think about 2019 sort of what's implied within the revenue guidance the various sort of end to the revenue guide, how are you guys thinking about truckload volume growth in 2019 just conceptually I mean it seems like you guys would be in a position to perhaps go after some market share at this point of the cycle, but you really weren't able to go after in 2015, 2016. It would just be curious to get your thoughts on perhaps seeing some more elevated volume growth because over the last call it four to six quarters volume growth has been fairly tepid, just sort of curious how that trends as we look out to 2019?

[Dave Menzel:]

Yes, Jack, this is Dave. I think that when we think about 2019, there is two pieces to the puzzle. One will be obviously the current market conditions and what that yields for us and I think what we'll see is in general tougher comparables through the first six or seven months of 2019 and then I think the comparables will get a little easier as we get into the back half of the year. So we'll continue to focus on volume growth for sure but we will stay focused on profitable volume growth. So we're not in a position to try to buy market share, so to speak. So we'll continue to focus on leveraging our network, the relationships we have, the lanes that we run, strong and continuing to build on our client relationships and add new ones. I think that we are not going to get into the specifics on kind of volume and rates throughout inherent in all the guidance numbers but I do think that you'll see volume gains throughout the year but it will be a little tougher in certainly this quarter and I think also in the second quarter given market conditions.

[Jack Atkins:]

Okay, got it. Got it. And then just sort of following up on that and this sort of goes into Kyle's commentary on the G&A side, so whoever wants to take this question, just curious how you guys are thinking about headcount growth particularly sales force growth in 2019? What are you guys assuming this year?

[Kyle Sauers:]

Yes, Jack, this is Kyle, I will take that. So we are anticipating continuing to add to our sales force that's been key for us throughout any part of the cycles is always adding to that sales force, so we'll continue to do that. There will be, as we talked about last year, and we continue to talk about increases in our technology workforce that's obviously really important for us. So those will be the areas where you'll see a lot of or the majority of our headcount adds. I'd say in terms of our G&A growth year-over-year if you look at the midpoint of our guidance 2019 is about 3% or $6.5 million higher than we were in 2018. So that -- most of that increase is related to technology investments. And then if you think about the cost of our increased headcount in sales and a little bit in operations that really gets offset by incentive compensation that's expected to be lower in 2019 than it was in 2018.

[Jack Atkins:]

Okay. All right, I got it. Last question and I will turn it over, Kyle this is a balance sheet question, so I guess this is for you but I was pleased to see you guys buy back some of the face value of the convertible note. I think if my calculations are correct you guys have about $193 million just under that left. Those converts can do I think next May what are you guys thinking about in terms of refinancing of that that convertible note, I mean I guess what's -- what are some of the options in front of you guys for that and sort of as a tag on to that, is there a way to think about how you are looking at free cash flow for 2019, it is a great year in 2018, is $70 million the right way to think about 2019 free cash flow?

[Kyle Sauers:]

Yes, so I will take the kind of the balance sheet question first. I think, as you remember, last quarter we announced upsizing our ABL facility to allow borrowings up to $350 million obviously contingent on our receivables. So I think we've got a lot of flexibility there to take out that convert. But to your point there are options, obviously could roll to another convert there more permanent debt structures in place or we can just use this ABL facility. So I don't know where I want to signal exactly what we plan to do because we do have a lot of flexibility. But we certainly feel like we're in good shape to manage that that convert coming due. On the cash flow, you're right good, really good free cash flow year for us this year at $70 million, it was lighter earlier in the year as the working capital needs were a little heavier due to the significant sequential growth. And then as the working capital needs subsided a little bit, free cash flow improved in the back half. And so I want to stop short of giving free cash flow guidance but if you think about 2019, and obviously it matters where that profitability comes in but there's nothing notable in 2019 that would look different or changes in our working capital needs that should make our free cash flow conversion react differently than it would have in 2018. The only other thing I'd say to consider would be that our CapEx guidance is $4 million or $5 million higher than what we spent in 2018. So I think we're positioned well to continue to generate real strong free cash flow.

[Jack Atkins:]

Okay, that's great. Thank you again for the time.

[Kyle Sauers:]

Thanks, Jack.

[Operator:]

Thank you. And our next question comes from the line of Jason Seidl with Cowen and Company. Your line is open.

[Adam Kramer:]

Hey guys, this is Adam on for Jason. I guess just first maybe a little bit about what you guys are seeing now in good season in terms of renewals and in terms of pricing. Let me tell a little bit about what you guys are seeing with early bids that have come in or maybe with bids that are still out just kind of in terms of trends that you guys are seeing?

[Dave Menzel:]

Sure. I think that what I'm going to do a lot of specifics but talk a little bit about the general cycle and we're in a point in time today where there is a lot of bids that are nearing completion, some of our -- we've certainly seen a decent amount of bids kind of wrap up in January but we've still got lot of activity and I think a lot of companies will be wrapping up bids in February and early March as well. I think that as you would expect the softer market has created a little price pressure on the rates. I think that the in general we'll probably see rates across the board in flattish to 4%, 5% range but any particular client could vary from that depending on the situation at hand. So I'd say that the season is going well, companies are obviously re-pricing their award business right now and we'll probably see most of that wrap up by the time we report again on the next quarter.

[Adam Kramer:]

Got it, thank you. And I guess just a quick follow-up on my end, I think you guys didn't mention anything about acquisitions or acquisition pipelines, maybe just ask a little bit about, is there -- you guys kind of active now in looking for deals is that something that you kind of put to the back burner, I think it's been a little while since your last deal? So just wondering if there's anything coming up or kind of what you guys are looking for, if you're out there looking for stuff.

[Doug Waggoner:]

Yes, this is Doug. We did do a deal last year freight management plus and managed transportation company that fit in nicely and that's going well and we continue to be active. We've got a full time corporate development person that's looking at opportunities, I get involved, Dave gets involved. And at the same time we're very selective we're looking for things that are complementary to our core business, we're looking for a management team that we're confident in, we're looking for synergies, and we're looking for the right valuations. So we're picky and when we find those opportunities we move forward and then you've got to get the deal across the finish line. So I would say that it might appear that there's not much going on but we continue to be active and we have a strong pipeline.

[Adam Kramer:]

Got it. Thank you guys for the time.

[Doug Waggoner:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Stephanie Benjamin with SunTrust. Your line is now open.

[Stephanie Benjamin:]

Hi good afternoon. Just hoping if you could provide a little bit of color on the managed transportation business here, I think when you spoke in the third quarter, you thought that you had about $75 million in new business, I know thus far just hoping to get an update on how the fourth quarter performed and really looking at the expectations for that business next year, is there an opportunity for -- given your revenue guidance actually see growth there or some new businesses or just some update there would be helpful? Thanks.

[Dave Menzel:]

Sure, Stephanie. Yes we had a strong fourth quarter, we closed about $20 million in new business, so we closed out the year I think right at $100 million or just under $100 million of anticipated revenue from new business. So that number is kind of a bookings number pre go live with customers. And so that was a very strong year that comes on top of a very strong year in 2017 where we closed about $100 million as well. So kind of two years running with great new business and we've got a good pipeline going into 2019. So we feel really good about that. Some of that business is live already that drove a lot of growth that you saw in 2018 with close to 30% growth in our managed transportation business in 2018 and it's up about $120 million year-over-year so pretty significant growth from all that new business closing. When we look ahead to 2019, won't give specific guidance by these different line items but when we look ahead, I'd just say one thing that I would expect it to be likely that growth moderates quite a bit and part of the reason for that is most of that managed transportation business is also impacted by the rate environment. So to the extent that rates soften, even if we close the $100 million of new business, if rates soften up a little bit going forward that $100 million might become $80 million or $90 million based on a change in rates. So as we look at, we have a lot of rate growth in 2018 that was part of driving that growth in the managed trans. So as we look ahead the top-line numbers might soften up a bit but we still feel really good about adding new business and continuing to grow that in the long-term.

[Stephanie Benjamin:]

And just a follow-up on that on just the current rate environment and I apologize if I missed it. Did you give what you're saying thus far in 2019 just from a overall rate environment or from the spot -- what you are seeing on the spot side. I believe you said your contracts were still holding well, you do believe you should be flattish or positive for the year, so then what's baked in for the spot? Is it basically imply to down low mid-single-digits or just trying to understand the puts and takes from the low-end and high-end of your full-year guidance?

[Dave Menzel:]

Yes, that's a good question. We didn't give that specific in the prepared remarks. On the truckload side which is obviously the biggest part of our business it's a really tough comp on the rates because January of 2018 was a real -- there was a real spike in truckload rates and we talked about that going back a year ago. And so when we look at the truckload rates, January to January, they were down close to 12% year-over-year. So that was I think a really tough comp and a pretty unusual spike that we saw in January 2018. So we don't anticipate that same level of rate degradation. Having said that hard to predict rates going forward. The market kind of ebbs and flows as you guys know and so we have to keep a close eye on that. So that I'd caution as to take too much from these January numbers due to that -- due to the nature of last year's January for the most part. And then on the LTL side, well I think it has softened up quite a bit, the rates don't move as frequently. So the rates were up, I think 8% or 9% in January on the LTL side. So this is kind of similar rate growth year-over-year on LTL side as you would expect coming out of Q4.

[Stephanie Benjamin:]

I appreciate it. Thanks.

[Doug Waggoner:]

Thank you.

[Operator:]

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

[Matt Young:]

Stephanie thanks for taking my question. Hi Dave, did you mention if there was a fuel surcharge impact on truckload gross profit margin in the quarter, I think you said the truckload margin was up about 10 basis points year-over-year?

[Dave Menzel:]

Yes, I did mention it. I'll let Kyle address it if he's got that impact offhand, I don’t have it offhand.

[Kyle Sauers:]

Yes, so no significant impact in Q4, Matt. I would probably point out just on thinking about the 2019 guidance but if diesel hangs around right where it is now, it's probably a or it's about a $35 million headwind on our 2019 versus 2018 which we've got built into our guidance but we would see some headwinds there next year at the top-line that could impact margins a little bit.

[Matt Young:]

Okay, that makes sense. So and I think you kind of discussed this a little bit but should we think about if you're 17.6% on a gross profit margin, should we think about that as a decent run rate for the year assuming lower spot rates paid to carriers or should that normalize a little bit as the year progresses, I guess just trying to get a sense if that moves up or down a little bit. I guess down but wanted to clarify that?

[Kyle Sauers:]

Yes. So we don't guide the gross margin. So I want to be a little careful I guess in Q1 specifically we did mention that so far in January here we're up over 18%, so that's a nice sequential trend from the fourth quarter, it wouldn't be unusual that truckload margins could compress a little from January to March. So while we're really proud of where the margins are today and I think it reflects managing the business well. That may or may not hold for the whole quarter. And then when you think about the full-year and we've talked about this before but if you have a declining truckload rate environment oftentimes you see a little margin expansion and an increasing rate environment you might see some, in some truckload side obviously, see some compression. Now in 2018, we actually beat that trend and we held margins real nicely in a environment where rates were increasing for the first part of the year. So I guess part of the answer depends on which way you think truckload rates are going to move. And then I'd say the only other thing I would point out is that it's not unusual that our truckload margins compressed a little bit in Q2 and Q3 seasonally and are and higher in Q1 and Q4. So hopefully that helps give you some kind of some guardrails short of us providing specific guidance on margins for the year.

[Matt Young:]

That makes sense. It is helpful. That's all I have, thanks.

[Kyle Sauers:]

Thanks, Matt.

[Operator:]

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

[Kevin Steinke:]

Hi just wondering if as best as you can, you can give us your current view of the U.S. economy and the freight demand outlook as you head into 2019 here?

[Doug Waggoner:]

Yes, Kevin. I mean I think we're still bullish we don't see any true negative signs. I think when we look at the supply and demand of capacity that affects our industry so much. It's hard to understand what's demand and what's supply. However I would say that we do believe that small carriers added some capacity this last year which would be correlated to prices coming down a little bit in the marketplace. So when I think about the supply and demand and the capacity market for freight, I don't know that the current environment is really tied to the U.S. economy because all the things we hear from customers and the reports we see, people still feel pretty bullish about their business. I think there is a lot of noise, you see when you watch the news and you see the same things that we do so. So overall I would say it feels like it's hanging in there. We don't see anything that's overly negative or overly positive and a lot of noise and some -- maybe some excess capacity in the truckload market.

[Kevin Steinke:]

Okay, that's helpful. And just any comment on what you're seeing or hearing in terms of the ELD mandate and driver shortages and the impact on capacity now and going forward?

[Doug Waggoner:]

Yes, we don't really hear much about it anymore. It seems like it's an old subject, I think everybody's adapted to it and we were beyond that. In terms of drivers, I think the market for drivers are still tight. However in our research with the smaller truckers that they did add capacity they were able to find drivers to go with the trucks.

[Kevin Steinke:]

Got it. Okay thanks. That's very helpful. Thanks for taking the questions.

[Doug Waggoner:]

All right. Thanks, Kevin.

[Operator:]

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

[Alex Johnson:]

Hey, good afternoon, it's Alex on for Tom. Just wanted to ask about Doug's comments at the beginning about the rebranding of -- rebranding to ECHO Accelerator, what are the important reasons for the rebranding, what does it -- what are some of the benefits of doing that?

[Doug Waggoner:]

Well, I think there's a couple of things. One our technology continues to evolve and as newer architectures are available in the technology community, more cloud-based computing, better tools, we find opportunities to evolve our legacy platform to make it more efficient to build on. So accelerators really kind of our internal nomenclature for referring to our evolving platform and the ability to crank out functionality faster. Simultaneous to that and using that new architecture we have been and are continuing to release new products to the market that I mentioned in my prepared remarks. And those products are customer facing, they are career facing, they employ data science, they make us more efficient, they make us easier to do business with and bring a lot of efficiencies for all involved. So we're just tying it all together with our Eco Accelerator, it's kind of the pace of the system that people don't get to see but internally at Echo, we talk a lot about it because it's what we're building our new systems on top of.

[Alex Johnson:]

Great, thanks. That's really helpful. And then just one in terms of the bid season and contracts, I think Dave mentioned that the markets are a little bit weaker on that, I'm not sure if that's year-over-year absolute, interesting your perspective it seems like truckload market is still reasonably tight from a historical perspective, I'm just curious in terms of contracts, are you seeing any unusual language in contracts or that are firming up the contracts even more than historically just interesting to hear your perspective on that?

[Dave Menzel:]

Yes, the couple of comments I will make on that. In terms of new language or definite approach so to speak, I would say no, we haven't seen anything in terms of shippers approaching the market in a newer or unique way. So I think that it's pretty consistent with prior practices for the most part. And then I think your comment about the rates and the commentary around the rates is really a good one and properly important to clarify a little bit because I do think that on a year-over-year basis, you are correct, I mean in Q4 rates were up 4% as I commented on. Despite this is kind of January peak which I'm attributing more to such a spike that we incurred in January 2018 really then even though it is softer but more so to that than the January 2019 environment. So that the rate commentary and when we refer to a little bit of a softness I do think it's coming from a high in Q2 and Q3 and so we had like a lot of spot market activity, higher rates and coming down on with those levels is probably the more of a perspective at this moment in time.

[Alex Johnson:]

Great, that's also very helpful. Thanks for the time this afternoon.

[Doug Waggoner:]

Thank you, Tom.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to Doug Waggoner, Chairman and CEO for any closing remarks.

[Doug Waggoner:]

All right. Well I would just like to thank everybody for joining us today and we look forward to talking to you next quarter.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.