Echo Global Logistics, Inc.
Q3 2016 Earnings Call Transcript

Published: 27 Oct 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Echo Global Logistics Third Quarter 2016 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. 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. Mr. Sauers, you may begin.

[Kyle Sauers:]

Thank you. And thank you for joining us today to discuss our third quarter 2016 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 R. Waggoner:]

Thanks, and good afternoon, everyone. Along with our third quarter earnings release today, we issued a press release announcing the completion of our integration of Command Transportation earlier this month. We set out on a plan a little over a year ago to do a very thoughtful combination of two fantastic teams and technology platforms. I couldn't be more proud of our people and the job that has been done in accomplishing just that. This was a huge effort and our teams worked tirelessly to make it happen, while not missing a beat in servicing our clients and our carriers. I'm excited to be able to say that all of our people are now working together on a common platform with state-of-the-art technology capabilities, which will enable the realization of the synergies of our acquisition of Command. We will talk more later about the benefits we're expecting post-integration and some great results that we are already seeing. But I will first take you through some of the highlights from the quarter. As you turn to page 3 of the slides, you will see that revenue grew 2% to $460 million. While volume growth was strong once again, we continued to experience headwinds from lower rates, including fuel. Net revenue was $81 million, declining 7%. Our net revenue margin decreased by 185 basis points, a reflection of lower pricing with shippers, as they strive to lower their transportation costs and reprice their freight after observing seven sequential quarters of falling truck prices. Non-GAAP EBITDA declined by 21% to $16.7 million. After affecting for integration costs of $3.5 million during the quarter, non-GAAP EBITDA would have been $20.2 million. GAAP fully diluted earnings were $0.08 a share, compared to $0.11 a share in the prior-year period. Non-GAAP fully diluted earnings per share were $0.25 per share, or $0.33 per share after excluding the integration costs. We're very pleased with our volume growth in a weak industrial economic environment, reflecting the strength of our model and our ever-improving reputation that we have within our industry. At the same time, we recognized that the net revenue margin declines have a negative impact on our financial performance. Fortunately, not only did we control our G&A expense during the quarter, we have a variable cost model and the majority of our workforce is incented based on net revenue. For these reasons, our ongoing operating costs were 7% lower than the same period last year, despite the increase in our load volume and our revenue. One of the reasons our business model is structured in this way is due to the cyclical nature of our business. While this portion of the cycle has been difficult, we can see how changes in the economy and tightened capacity can cause this to reverse, as it did in 2014. For these reasons, along with our own assessment of our ability to execute on our newly implemented combined platform, we remain highly confident in our long-term model and targets. I now want to turn the call over to Dave, who will discuss our Q3 results in more detail.

[David B. Menzel:]

Thanks, Doug. First off, from a year-over-year perspective, I want to remind everyone that this is our first quarter that includes a full period of results for both Echo and Command. So it's going to make the comparisons a little easier to digest. On slide 4, we summarized our results by transportation mode. And starting with truckload, our revenue grew by 3% at $312 million in the third quarter. Consistent with our trends throughout 2016, we've continued to take market share in a relatively weak environment. In Q3, our truckload volume was up by 11%. At the same time, our truckload rates remained under pressure, mainly due to the soft economy which is holding rates down. Our average revenue per shipment was down 7% in Q3. Our LTL revenue was up 1% on a year-over-year basis, totaling $120 million. LTL volumes grew 6% during the quarter, which also reflected another quarter of strong market share gains in this portion of our business. This continues to be achieved by leveraging our robust carrier base and utilizing flexible and easy-to-use technology to provide multimodal solutions to small- and mid-size shippers. Lower linehaul and fuel rates both contributed to a 6% decline in revenue per shipment. On the intermodal side, our revenue was down 7% at $20 million for the quarter. The decline is attributable to revenue per load, which was lower by 4% year-over-year and a modest decline in volumes in a challenging intermodal environment. Consistent with the trend over the last year, the softer truck market continues to impact this portion of our business. On page 5, we'll take you through our revenue by customer type. Our transactional revenue declined by 1% on a year-over-year basis, totaling $373 million Q3 2016. As described earlier, volume gains were offset by lower rates, which translates into modest revenue decline. We ended the quarter with 1,634 sales reps, which includes both client and carrier sales, reflecting a decrease of 37 people from a year ago. This decrease in overall head count was due to a reduction in our staff on the carrier sales side of the business, as we're down 75 people year-over-year. As we mentioned last quarter, this decline has been planned due to the expectation of productivity gains achievable upon the integration of our carrier team with Command. In fact, we've already achieved significant productivity gains, considering our volume growth in truckload and our reduction of the carrier sales staff. To do the math for you, our loads per day per carrier rep increased by 25% in Q3. On the client side, considering both sales and operations were up 38 people. So we're continuing to grow our client organization, which is the key component to our longer-term growth strategy. Our transactional revenue per rep was up 2% in Q3 despite the softer rates. Our Managed Transportation business again achieved strong growth, with total revenue up 17% to $87 million. We had another excellent quarter of new business wins, closing 10 new opportunities which are expected to generate $31 million of additional top-line revenue. Last quarter, we mentioned that we closed our first Command Managed Transportation opportunity, and I'm pleased to let you know that we followed it up with another one this quarter. And we have a strong pipeline of new opportunities. We've renewed 93% of our revenue from expiring contracts in the quarter. I want to again congratulate our Managed Transportation teams on both the sales and operations side for doing an outstanding job to support our clients' transportation management needs. Slide 6 highlights our net revenue and our net revenue margin. Our net revenue was down 7% year-over-year despite our gains in market share, due to the pressure on rates and its corresponding impact on our net revenue margin. Truckload net revenue margin declined on a year-over-year basis by 241 basis points. There are couple of primary reasons for the decline. First is that many of our contractual rates with customers have now reset and while the spot market buy rates have held steady or even increased in some lanes. Secondly, as we've talked about before, margins generally decline in periods where market conditions remain steady on both the supply and demand side. History tells us that these conditions are unlikely to persist, as we're in a cyclical industry and the cycle will be impacted by changes in both supply and demand, both of which are going to be influenced by market conditions and potentially by upcoming government regulation. With respect to LTL, our net revenue margin declined by 161 basis points over the prior year. This decline is partially attributable to a tough comp, as we experienced peak LTL net revenue margins in Q3 2015 relative to the last three years. LTL revenue margin was down 68 points sequentially and the primary driver of this was a slight shift up-market to larger LTL shippers. Market conditions aside, we're very proud of the progress we've made in growing market share and working on the final phases of the Command integration. And on that front, the past few months have been very rewarding as we've just completed the full integration of Command. Specifically, in the first week of October, we relocated our Skokie employees to our expanded office in Chicago. Our additional space is an incredible work environment for our people. I want to personally thank our facilities team that managed the build-out of this space and the related move. Everything ranging from our phones, desktop equipment and personal belongings of 800 employees were all moved flawlessly over the first weekend in October. I appreciate all of our Chicago-based sales people for staying focused on our clients and carriers during this exciting time of change to ensure that our service is not disrupted. Secondly, during the week of October 10, we simultaneously upgraded Echo's core platform to include functionality that Command utilizes in its truckload business, as well as migrated both Echo and Command data to a common architecture to enable all of our sales and operations people to utilize historical data and all the tools we need to price and service our clients effectively. This migration is the culmination of over 15 months of work impacting our technology and our business processes. I want to personally thank our technology team for getting us to this pivotal point successfully and our training team for deploying this new technology across 2,382 employees in over 30 locations. I also want to thank our sales staff for coming in on the weekends and demonstrating the kind of work ethic and dedication necessary to make this successful. As of today, we've been on the new platform for 11 business days, and we're very pleased to report that our systems are performing on an uninterrupted basis as expected. The other impactful component in this integration has been the combination of our carrier sourcing teams. In concert with this implementation, we combined our carrier sourcing teams and installed a new organizational structure. This combined organization leverages each individual carrier rep's unique carrier base, lane expertise and capacity that they have access to. This combination enables all of our sales people to utilize the strengths of the combined network and increase lane density. We've already started to see this more efficient and effective capacity utilization in action as over 20% of our freight is now being booked by different reps across the business. In other words, over 20% of former Command sales freight is being booked by Echo carrier reps and over 20% of Echo's freight is being booked by former Command carrier sales reps. This more efficient utilization of capacity is better for our clients and for our carriers and for our people, and is fundamental to our ability to achieve the synergies from the acquisition of Command. We believe this cross-booking is indicative of opportunities to source capacity at more attractive rates across our entire network as we move forward. As you would expect, the learning curve associated with our new systems and processes has impacted productivity of our sales people throughout the first few weeks of October. Additionally, in some cases, we acted defensively in the spot and transactional markets to ensure that we would deliver reliably during this time of change. In just 11 days, our people have adjusted to the change and their tone is one of confidence in our ability to execute, now that we have completed this migration onto the combined platform. I'd like to now turn it over to Kyle to review the details of our financial performance.

[Kyle Sauers:]

Thanks, Dave. On page 7 of the slides, you'll find a summary of our key operating statement line items, and I'm going to go and highlight a few of those. Commission expense was $23.8 million in the third quarter of 2016, decreasing 10% year-over-year. Commission expense was 29.5% of net revenue, representing a 79-basis-point decrease from the third quarter of 2015. Our non-GAAP G&A expense was $40.3 million in the third quarter of 2016, up 1% from the third quarter of 2015. After excluding integration costs of $3.5 million related to the Command acquisition, non-GAAP G&A expense would have decreased 4% over the prior year to $36.8 million. The decrease in G&A is primarily due to our ability to reduce costs throughout the integration and then offset by continued investments that we make in the business. Depreciation expense was $4.6 million in the third quarter of 2016, increasing 38% year-over-year. The increase is primarily the result of our headquarters expansion in Chicago. Cash interest expense was $1.6 million during the third quarter of 2016, which is unchanged from the year-ago period. Our non-GAAP effective income tax rate was 29.9% for the third quarter of 2016. The difference between this quarter's tax rate and our expected rate of approximately 38% is primarily related to a state tax credit we received during the third quarter but related to a prior year. This credit had about a $0.02 impact on our EPS. As Doug mentioned, our non-GAAP fully diluted earnings per share was $0.25, decreasing 25% from the third quarter of 2015, or $0.33 and decreasing 11% after excluding the integration costs. The primary differences between our GAAP and non-GAAP EPS in the third quarter of 2016 are $3.9 million of amortization of intangibles, $1.9 million of non-cash interest expense, and $2.0 million of stock compensation expense. Our non-GAAP EBITDA decreased 21% from the third quarter of 2015 to $16.7 million, or decreased 10% to $20.2 million after considering the integration costs. Slide 8 contains selected cash flow and balance sheet data. In the third quarter of 2016, we had a negative free cash flow of $2.7 million, as capital expenditures totaled $24.4 million in the quarter. And just like last quarter, I want to point out that this is not the actual cash outlay for CapEx during the quarter. $12 million of this spend is tenant improvement allowances that were paid directly by our landlord for our new expanded facility and required under accounting rules to be characterized as fixed assets. The remaining $12 million of the cash outlay does relate to our portion of the build-out costs as well as other technology, infrastructure and internally developed software. Turning to the balance sheet, we ended the quarter with $34 million in cash, $246 million of accounts receivable, and nothing drawn down on our $200 million ABL facility. We have been and continue to be in full compliance with all covenants related to our borrowing facility. During the quarter, we also repurchased 150,000 shares of our common stock at an average price of $22.51 for a total of $3.4 million. As of the end of the quarter, we had approximately $13.5 million still available on our buyback program. I now want to take the opportunity to update or reiterate some of the guidance we put out on our previous call. We expect revenue for the fourth quarter to be between $405 million and $425 million, which is in the middle of the range discussed on our last call. Commission expense for the fourth quarter should be in the range of 29.5% to 30.5% of net revenue, consistent with previous guidance. We expect G&A costs for the fourth quarter to be in the range of $37.5 million to $39.5 million, excluding integration costs. This is at the bottom half of the range we had previously guided to. We expect integration costs in the fourth quarter of approximately $2 million to $2.5 million, which includes the final costs associated with the integration of Command, including the costs associated with exiting our previous facilities in Skokie. Depreciation expense should be approximately $4.9 million for the fourth quarter, cash interest expense approximately $1.8 million and we expect our tax rate to be approximately 38.0% in the fourth quarter. Excluded from our non-GAAP calculations, we expect the following in the fourth quarter of 2016; amortization of approximately $3.9 million, non-cash interest of $1.9 million, and stock compensation expense of $2.3 million. And after considering the stock repurchases during the third quarter, share count for the fourth quarter should approximate 28.9 million shares. Now moving on to results thus far in October, there's some moving parts that I think are useful to understand when thinking about how this relates to our revenue guidance for the fourth quarter. As Dave referenced earlier, with the combination of our recent move, 2,000-plus people migrating to a new technology platform, and enhanced but new operating processes being implemented, we were operating at less than 100% productivity in our truckload business for a part of the first few weeks of October. But as he also mentioned, we're seeing some exciting results more recently. We also have one less business day in the fourth quarter of 2016 than there was in 2015. With all of that in mind, thus far during the fourth quarter, we have experienced truckload volume growth of 5%, LTL volume growth of 9%, and total revenue for the first few weeks of the quarter is up a little over 1% per day versus the prior year. And we expect revenue for the fourth quarter to be between $405 million and $425 million, again in the middle of the previous guidance that we offered for the full year. I would now like to turn it back over to Doug.

[Douglas R. Waggoner:]

Thanks, Kyle. The third quarter was a continued trend of a soft macro-environment, where continued downward pressure on price impacted our net revenue margin. As you know, it is in this part of the supply-demand cycle where we typically see margin compression. The cost of capacity has been falling for seven consecutive quarters. In fact, our COGS decline has been at a rate that is slightly faster than the price we charge to our clients up until this most recent quarter. This is particularly true with contractual or routing guide business. The result was a period of expanding margins. Eventually, however, customer pricing comes up for renewal and customers naturally use the current macro conditions to lower their costs. We have seen this in the last two quarters. And the effect is exacerbated by the fact that the soft market conditions produce little, if any, spot market freight, which generally carries higher margins. The next phase of the cycle will likely consist of tightening capacity, which causes the market to reprice, and ultimately produces a surge of spot freight. Both of these factors can expand margins. A recent example would be in 2013 when it was a loose market, margins were low and the word on the street was that brokerage might be in secular decline. Then 2014 came along, which proved to be one of the better years for brokers. However, despite this situation, we have achieved so much over the last few months. The full integration of Command has been completed. Our sales teams are working side-by-side. We're all working on a common CRM system to efficiently access the market and, most importantly, we're now on a common technology platform that is capable of fully leveraging our multimodal capability and our combined truckload networks. As we discussed in the past, we still believe in the long-term synergies expected from this deal, which are driven from our sales team's ability to deliver better service to our clients and to our carriers. Specifically, we expect to achieve $200 million to $300 million in synergistic revenue over the next two years through a few different ways. First, our combined truckload network, enabled by the deployment of new technology and the combination of our carrier sales teams, will drive revenue opportunities on new lanes across both existing and new truckload customers. This business is achievable due to the excellent reputation we've built in the marketplace, the strong truckload network and our ability to utilize and fill our carriers' capacity needs, and our lane density that enable us to competitively price our truckload services to our customer base. Second, we will expand our Managed Transportation business by further educating and training over 200 sales reps from Command. This team has already closed over $6 million in new business. Third, we will deliver LTL and partial truckload services to Command clients, while offering our expanded networking capabilities to this customer set. Finally, I want to remind everyone that we participate in a very large and competitive market. We're confident in our ability to add value to our shippers and our carriers, and our ability to do that effectively continues to increase as we grow in size and scale. Our people become more experienced and our technology and infrastructure continues to advance. At the same time, the pricing is cyclical in nature and we have been in a prolonged tepid economy and coming off a period where rate decline expanded our net revenue margin. The current environment, where shipper pricing is under pressure and carrier rates are increasing, is the natural part of the cycle. In the short-term, our teams are cognizant of balancing the market conditions with the commitments we have made to our clients, and we understand that pricing will adjust in due time. We also know that the market we participate in is likely to continue to change and go through cycles where we may either benefit or feel the squeeze of changing pricing. There is nothing about this current market that deters us from our long-term objectives. One more time a big thanks to all of our people. We've asked a lot of our technology, business and back-office teams to accomplish this massive project and to fully integrate Command's truckload business with ours. This was a merger of our truckload businesses, doubling our load volume and our gross revenue, and it's been accomplished without any service disruption. We're very well positioned to continue to execute for our stakeholders and drive success over the long term. And with that, I'd like to open it up for questions.

[Operator:]

Thank you. Our first question comes from the line of Jack Atkins with Stephens. Your line is open.

[Jack Atkins:]

Great. Thanks. Good afternoon, everybody. So, Doug, I guess first question for you. Congratulations on getting the integration with Command now complete. You talked about some of the exciting things that you've seen in the last couple of weeks. Could you maybe highlight a couple of those just anecdotally? And then, when we think about the revenue synergies, when would you expect those to really start showing up in a material way? Is that sort of 1Q 2017 when we should start seeing that? Or just kind of trying to think about the cadence of those synergies.

[Douglas R. Waggoner:]

Yeah. I mean, we've been pretty consistent on saying that we would expect to see the revenue synergies start to roll-in in Q1 of 2017. To answer your first question, first of all, it was real exciting. This is purely anecdotal, but to walk around the floor and talk to former Command reps who were seeing their loads covered by Echo reps at different price levels than they were used to, it was exciting to see just the combined capability of finding capacity and seeing the technology in place. I can tell you a lot of the Echo reps were very excited to use what was new technology for them. Made their job more efficient. And so, so far, like I said, it's only been 11 days but we're real encouraged by both the user experience and some of the results that we're seeing on booking loads.

[Jack Atkins:]

Okay. That's helpful, Doug. Thanks. And then, sort of thinking about the underlying market, obviously tepid economic growth out there. But we've heard a couple of management teams discuss this earnings season that 3Q to 4Q trends have been a little bit better than normal seasonality. I know that you guys have a lot going on in terms of the integration and maybe that's clouding things. But can you maybe just give us a feel for what you're seeing out there both in terms of underlying demand trends and then just quarter-to-date sort of net revenue margin trends I think would also be helpful, as we sort of think about the fourth quarter?

[David B. Menzel:]

Jack, a couple of things I'll comment on. We definitely saw I would say a bit of a bigger dip in August and a slight kind of modest uptick happening in September. And then that uptick feels like it might be continuing into October. However, because we've gone through all these system changes, our volumes slowed a little bit through the first week of October. So it's a little difficult for us to assess right now the demand from our own numbers, given that we've just kind of gone up and live over the last two weeks on this new system. But I feel like that we're in a position where the economy might pick up a little bit, but we don't have enough anecdotal or quantitative evidence to really talk about it with respect to our results.

[Jack Atkins:]

And then I mean, Dave, as far as the net revenue margin trends that you've seen so far in the fourth quarter, can you comment on that?

[David B. Menzel:]

So it's – we saw probably the biggest decline in the net revenue margins back in June and then we saw throughout the quarter kind of what I'd call a modest compression in July and August and kind of more stabilizing in September. We're really early in October. And again, with the systems and conversion changes, it feels relatively stable. But I would hesitate to give too much commentary on that in terms of thinking ahead about what it might mean for the quarter.

[Jack Atkins:]

Okay. Last question and I'll turn it over. But we think about Echo as being more transactional in nature than some other brokers out there who are perhaps more contractually skewed. I guess the benefit of being more transactional is you can reprice your business relatively quickly or quicker, I guess, than others. But can you maybe help us think through how you guys are thinking about the repricing activity that could be happening in terms of being able to maybe improve the net revenue margin trends that you're seeing in the underlying business? Or is it just too hard to tell at this point?

[David B. Menzel:]

It's a little challenging to forecast that forward, Jack. I think that we have to be cognizant of the competitive pressures in the business. And with a tepid economy, we do feel like shippers are obviously taking their freight out to bid, and we have to respond competitively in the business that we're in that's contractual. We talked in the past about our contractual business being 25% to 30% of the total. It's probably – as we've gotten bigger and continued to post double-digit growth rates in our truckload business, I think it's edged up a little bit on the contractual side. But we still have – a majority of our business is in fact transactional in nature. Having said that, as we've described in the past, we've kind of got two levels of transactional business; spot business, which has been fairly non-existent this year; and then the transactional kind of small- to mid-market business. And obviously, in that business, we're able to price every day the freight that we move for our customers, but we have to also be responsive to the competitive environment.

[Jack Atkins:]

Okay. Great. Thanks again for the time.

[Operator:]

Thank you. Our next question comes from the line of Jason Seidl with Cowen & Co. Your line is open.

[Jason H. Seidl:]

Thank you, operator. Hey, Doug. Hey, Kyle. How are you, guys?

[Douglas R. Waggoner:]

Hi there.

[Kyle Sauers:]

Hi, Jason.

[Jason H. Seidl:]

Sticking with that sort of net revenue margin theme, how much can you actually impact that versus how much is just the market's going to do what it's going to do as we look out into 2017?

[David B. Menzel:]

Well, I think that it's a difficult question to answer. Number one, I think the market is a huge driver in terms of the net revenue margins. We believe that our own execution capability and certainly our business decisions relative to freight that we take and don't take impacts our margins and our growth rate. And I think that's obvious. So we do have some influence over that combination let's say. But at the same time market conditions are probably the primary driver of the margins and then we just have to adjust and react accordingly. If we fail to adjust and react accordingly, it will have an impact. And if we do well, it also has a corresponding impact and it's kind of mitigating compression or accelerating the expansion.

[Jason H. Seidl:]

Okay. And as we think about the pending impacts of the ELD regulations, can you talk a little bit about your carrier group and what percent of your carrier group do you think is not currently compliant? What Echo might have to do in terms of checking their compliance, other than just a generic carrier agreement that you guys have in place? Because if you talk to some of the truckload carriers that are out there now, the big public guys that are already compliant, they'll tell you that two of the themes that could become earlier for the ELD compliance is, number one, obviously insurance company; pushing at number two, shippers pushing 3PLs to get their guys compliant a little bit earlier. Just wanted to know what sort of plan you guys have for that.

[David B. Menzel:]

Sure. I mean I think that on the first part of your question, in terms of the percentage of our customer base that's compliant or not compliant, we wouldn't have accurate numbers on that regard. Obviously, a big part of our carrier base, our small to mid-size shippers, and many of the medium to larger ones are compliant. Many of the smaller to mid are not to-date. That's pretty commonly known in the industry. But for those carriers to continue and operate, they all understand that by the end of 2017 they're going to need to become compliant. And so our job is to put in place agreements with our carriers that are going to be compliant with the current laws of the nation, and we've always done that and will continue to do that. In terms of shippers' interest in understanding the level of compliance, I think that on the one hand we certainly hear from some shippers questions about the level of compliance and what we believe will happen to capacity as these regulations get closer to being implemented. But at the same time, we haven't seen any shippers necessarily suggest or require that only compliant carriers today or in advance of the regulation be used on their freight. So it's not an ongoing issue today and we would expect our carriers to be compliant when they need to be and we don't expect it to have a material impact on our ability to access capacity. But at the same time, it may have an impact on pricing when those laws do in fact go into place.

[Jason H. Seidl:]

Okay. That's fair enough. Now, do you think when the shippers start doing bid packages in 2017 are going to come to you and say, this is a requirement, here you guys need to sign off on this or find a way? Because obviously when you're signing deals next year, it's going to roll into the compliance period.

[David B. Menzel:]

We're not a truckload carrier. So they won't come to us to sign agreements...

[Jason H. Seidl:]

They won't. Okay.

[David B. Menzel:]

...that suggest that – no.

[Jason H. Seidl:]

Okay. That's fair enough. And getting sort of to early here in 4Q, you kind of mentioned that the integration's gone very well and your guys are now fully up and running. You kind of mentioned that that might have skewed some of your early statistics. Did you get a sense that maybe some of your competitors might have been going after some of your business trying to say, hey, shift to us early on here because you don't know how this cutover is going to work for Echo?

[David B. Menzel:]

It's a big industry and I don't have any reason to believe or information that anyone was doing that. But, certainly, sales people use whatever technique they can to try to get their foot in the door and provide their services to the customers. So I wouldn't want to comment on what competitors might have been doing to position themselves. I think what we did is we made sure we made good business decisions at the time when we were going live and going through conversion so that we'd continue to be able to provide reliable service to our clients, wouldn't impact our reputation, no impact on our contractual commitments to customers, et cetera. And so it was more a part of the actions that we took to just ensure that we continue to be reliable. But the great news is we really went without a hitch and business is back to usual. The sales staff and the carrier staff are in fact getting used to some new systems and processes, but the people have adopted really, really quickly. So we feel like we're well-positioned to just start to move toward the synergies and move away from the training and execution of a new system.

[Jason H. Seidl:]

Okay. Great. Final one, the $2 million to $2.5 million of integration costs here in 4Q, that's going to be the last of it, right?

[Douglas R. Waggoner:]

That is what we finished up with that here in Q4, Jason.

[Jason H. Seidl:]

Fantastic. Gentlemen, I really appreciate the time as always. Thank you.

[Douglas R. Waggoner:]

Thank you.

[David B. Menzel:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of David Campbell with Thompson Davis & Company. Your line is open.

[David Pearce Campbell:]

Hi. Thanks for taking the question. I thought maybe you would say that the decrease in revenue per shipment was due to lower weights per shipment, which is a usual economic situation when the economy is so slow. You usually get downturns in weights, but you didn't mention that. Is that not true for you?

[Douglas R. Waggoner:]

Well, David, that tends to be true with LTL where you pay by the pound. But in truckload, we are paying for the full truck for the full trip from point A to point B. The weight is really not a factor.

[David Pearce Campbell:]

Okay. But it was a factor then in the less than truckload because there you also had a decrease in revenue per shipment?

[Douglas R. Waggoner:]

Yeah. I don't have our weight per shipment in front of me. But I would say that it's true that in past in soft economic situations, you see LTL shipments' average weight can decline. And if it does decline, that can pull down your revenue per shipment.

[David B. Menzel:]

Yeah. And our weight didn't move that materially. So a lot of it was fuel and just actually a little bit of softness on the rate side that we saw on the LTL side.

[David Pearce Campbell:]

And, Dave, you mentioned that your plan is to increase revenue $200 million to $300 million in the next two years, largely from benefits from the synergy with Command. Can you sort of describe, have you arrived at that number and exactly how you'd get there?

[David B. Menzel:]

David, yeah, Doug mentioned it I think in the prepared remarks in the script and I'll kind of repeat it. I think that there are three kind of big areas that we've seen that we believe there's opportunity. The first and probably the biggest of the three is the ability to grow our truckload business. And the reason we see opportunities to do that is that Echo historically had a much stronger network west of the Mississippi and Command had a much stronger truckload network east of the Mississippi. And both of us had respective customer bases that kind of reflected the ability to execute in those parts of the country. Not that neither of us didn't do business nationally, but our strengths were in those regions. And so we believe that there's opportunities for all of our sales people to continue to grow and expand their relationships with their customer bases based on this more competitive and effective network. And we've already seen anecdotal evidence of that. We've had sales reps that may have struggled on a lane previously, running around really happy with the new capacity that we have and the ability to execute on those specific lanes, not enough quantitative evidence to really blow it about. But just to give you the anecdotes from some of the sales people that are dealing with freight every day. The second piece of the puzzle was to drive additional Managed Transportation business due to the 200 Command reps that have significant customer relationships. And we've already seen a couple of wins. Doug highlighted $6 million of new business signed. And there's a long sales cycle there. So it's not overnight, but we believe that the transactional or brokers, that part of our sales force has always been a key component to driving our Managed Transportation business. And so by expanding that sales organization in that way, tapping into those relationships and educating our people, we think that's another nice opportunity to grow. And then, thirdly, we can expand our LTL and parcel services across the Command customer base. Historically, Command was a 95% truckload business, did not offer LTL services across their customer base. And now they have access to and the technology to implement the LTL capabilities that Echo brings to the table, which include very competitive rates with over 100 LTL carriers. It makes them much more competitive and able to expand that service. So those are the three primary drivers that lead us to the revenue synergy opportunities.

[David Pearce Campbell:]

And although you had Command for a year or more, you couldn't generate those synergies until you'd merged the systems. Is that the situation?

[Douglas R. Waggoner:]

Yeah. David, I mean we really ran them as two separate companies right up until October when we physically merged the two and merged the technology. And the LTL platform was just released to the Command people about a month ago. So we really spent the better part of the last year thoughtfully looking at the two organizations, figuring out what the structure of the new combined company would look like, looking at compensation plans, looking at best of both processes, finding the right technology solution to support those processes, and then working out the physical logistics of the move and the training and the implementation of the new system, all the while writing the code to complete the integration. So it was a lot of work and it's really just now that we're able to start going after those synergies.

[David Pearce Campbell:]

Okay. Thank you very much.

[David B. Menzel:]

Thanks, David.

[Douglas R. Waggoner:]

Thanks, David.

[Operator:]

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

[Kevin Mark Steinke:]

Good afternoon. So I wanted to ask about the margin pressure from shipping customers, repricing contracts. I think you said that's been going on the last couple of quarters, but how far along do you think you are in that repricing cycle?

[Douglas R. Waggoner:]

Well, I think you tend to get a lot of the annual bids come up in the second quarter. So we saw some of that impact in Q2 and probably the bulk of it in Q3. I would also say that the cost of a truck has been a little bit volatile. While it's generally been soft, we see moments in time or weeks at a time where it suddenly gets tight and prices spike up. So, that's probably added a little bit to the compression. So it kind of feels like we're at a turning point. And we can't predict when it changes. We can't tell you with any certainty when it gets tight and how quickly after that the market reprices. But that's the predictable pattern.

[Kevin Mark Steinke:]

Okay. Okay. And then, on the growth to-date in October, the 5% truckload shipment volume growth and the 1% revenue per day, obviously impacted by the learning curve on the technology platform. But have you seen any upticks or do you expect to see an uptick in growth, I guess, as people get up that learning curve kind of as you move through the next two months of the quarter?

[David B. Menzel:]

I would say that we've only been live for 10 or 11 days. So I think that we've seen a little bit of variation and I would say it was down a little bit and then came back up. So, but to some extent, we've seen a little bit of an uptick, yes, over the course of that 11 days. In terms of how it's going to play out for the rest of the quarter, there's not only is it our execution and learning curve, but the market will dictate some of that as well. So we're hopeful to see a return to the higher growth rates for sure. But at the same time, it's a forecast looking ahead and want to be careful to just make sure we communicate this is where we are today. And as you know, the market sometimes acts in ways that we can't predict. So I'd be careful about getting too far ahead of ourselves there.

[Kevin Mark Steinke:]

Okay. Yeah. Fair enough. Thanks for taking my questions.

[Douglas R. Waggoner:]

Thanks, Kevin.

[Operator:]

Thank you. Our next question comes from the line of Tom Wadewitz with UBS.

[Alex Johnson:]

Good afternoon. It's Alex Johnson on for Tom.

[Douglas R. Waggoner:]

Hey, Alex.

[Kyle Sauers:]

Hi, Alex.

[Alex Johnson:]

And just wanted to ask if – I guess in terms of piggybacking on some of the questions that have already been asked, but is there anything that you could or would do to kind of impact the net revenue margin more in the short-term rather than I think the question was asked before looking out to 2017? Is there anything that you can do if there is some predictability to how the market evolves? Is there anything that you would do to sort of impact margin?

[Douglas R. Waggoner:]

Well, I think Dave well articulated the fact that it's largely driven by the economic environment and the supply and demand of capacity. But I would also say, counter to that, that we're real excited about this technology that we've deployed because we believe that that technology will make us more effective in sourcing trucks and almost gamifying the process of finding a truck and pricing it to the customer in a way that maximizes or optimizes our margins, given the market that we're in.

[Alex Johnson:]

And you would just start seeing the benefit from that with the rollover in the last couple of weeks?

[Douglas R. Waggoner:]

Yeah. I mean I think that's one of the reasons we're still excited about this technology is we think it's really a game-changer for us in how we execute on truckload, but after 11 days there's just not enough time to brag about it.

[Alex Johnson:]

Sure. Right. Okay. And then, just I guess in terms of asking some of the big issues that happened in transportation land in third quarter. Just whether positive or negative, and maybe it's very indirect, maybe there's no impact, but any thoughts in terms of any impact from the Hanjin bankruptcy. And then also Hurricane Matthew, I think, disrupted some maybe demand and/or capacity late in the quarter. Any thoughts on impact there?

[Douglas R. Waggoner:]

When we talked to our West Coast people in Long Beach, they definitely felt impact from Hanjin in the way of delayed freights. Some freight may be shifting modes. But it was hard to quantify. So I don't know that we can really give you anything that hang your hat on in terms of something that's quantifiable. And I would say the same thing with the Hurricane. Now the Hurricane happened to occur while we were going through our conversion. So, normally, when there are natural disasters, it's definitely a negative effect in one aspect, but also there are opportunities to move water and release commodities into the affected area. And I would say that we probably weren't as aggressive on that as we would normally be, given that we were going through a conversion and, as we said earlier, kind of in a defensive mode.

[Alex Johnson:]

Right. Okay. Great. Thank you for the time this afternoon.

[Douglas R. Waggoner:]

Thank you.

[Operator:]

Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Doug Waggoner for any closing comments.

[Douglas R. Waggoner:]

I'd just like to thank everybody for joining us today on our third quarter call. We're real excited about everything that we've recently accomplished and looking forward to what we can do with it going forward, and we will talk to you next quarter.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.