Echo Global Logistics, Inc.
Q4 2014 Earnings Call Transcript

Published: 7 Feb 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Echo Global Logistics Fourth Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Kyle Sauers, CFO. Please go ahead, sir.

[Kyle L. Sauers:]

Thank you and thank you for joining us today on our fourth quarter 2014 earnings call. Hosting the call are Doug Waggoner, 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 expectation. We will also be discussing certain non-GAAP financial measures. The reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure is contained in the press release and supplemental 8-K filings, both of which are also posted on our website. With that, I'd like to turn the call over to Doug.

[Douglas R. Waggoner:]

Thanks and good afternoon, everyone. As Echo approaches its 10-year anniversary, I'm extremely proud of our team's accomplishments over the years, but in particular during a fantastic 2014. We've talked about the investments we've been making to establish Echo as a dominant player in the growing 3PL space. While the pace of those investments won't slow anytime soon, they paid off handsomely over the last year. We expect more impressive results over the coming year. This was a record year in all areas of the business of Echo, and I'd like to highlight a few for you right now. Revenue grew 33% to $1.17 billion during 2014. 19% of this growth came organically. Net revenue grew to $208 million, a 34% increase over the prior year. Our truckload revenue grew by 57% to $690 million during the year. Our gross margins grew by 14 basis points, while we increased truckload as a percentage of our revenue from 45% to 53% during the year. We more than doubled our truckload sourcing team, adding 139 people to our carrier sales group during the year. We completed three acquisitions in the first half of 2014, which we're generating $115 million of annual revenue at the time that we acquired them. These businesses contributed $75 million in revenue during the second half 2014. Finally, we increased non-GAAP EBITDA in 2014 by 33% to 45.1% and non-GAAP earnings per share to $0.81 up 32%. Now, I want to talk more specifically about our fourth quarter results. Turning to Page 3 of the Slides, you'll find a review of the numbers for the fourth quarter of 2014. For the quarter, we delivered total revenue of $300 million, which represented 36% growth over Q4, 2013. This growth came despite the headwind from lower fuel prices, which we estimated, impacted our revenue by approximately $4 million, but had minimal impact on our profitability. Our organic growth rate during the quarter was 20% which is now our third quarter in a row with organic growth of 20% or better. We again saw excellent growth in all modes of transportation and out of both of our transactional and managed transportation clients. Our net revenue was $54.2 million, a 47% increase from the prior year. Our growth was again driven by large volume increases and a solid increase in our net revenue margins despite a dramatic shift in our mode mix towards our truckload business. Our non-GAAP EBITDA was $11.5 million, up 69% from the prior year. We continue to make significant investments in the growth of our business both through technology and additional headcount and these investments are driving our topline growth, which in turn is increasing our profitability. This afternoon, we also announced the acquisition of Xpress Solutions, it just earlier this week. Xpress located just outside of Chicago, is a multi-modal broker, bringing a great team of employees and clients to Echo. Xpress delivered $13 million in revenue in 2014. Steve Rotondi, the Founder and Owner of Xpress, will remain with Echo to continue to lead this new part of our organization. As is customary, we will quickly integrate their business onto our Optimizer platform, giving them access to our vast network of LTL and Truckload Carriers offer to their growing business base of clients. Really excited to welcome Steve and all of the employees to Echo. I now want to turn the call over to Dave who will discuss our fourth quarter results and more detail.

[David B. Menzel:]

Thanks, Doug. Q4 was a strong quarter in terms of both revenue growth and margin improvement across our entire business. On Slide 4, we've highlighted our performance in terms of revenue growth by mode. And as you can see, we delivered strong revenue growth in all of the major modes that we provide. Our truckload revenue grew 64% in Q4 on a year-over-year basis. Our truckload growth was driven both organically and through our acquisitions. In fact, our organic growth rate was 37% in the truckload mode for Q4. Our strong truckload growth was driven primarily by increased volume, but also by higher rates. Our volume was up 45% and our revenue per shipment was up 14% on a year-over-year basis. As we communicated in the past, the rate changes have been driven by a tighter capacity and have been fairly consistent over the last few quarters, meaning modest changes on a sequential basis. We saw a decline of 2% in revenue per shipment in Q4, which was driven primarily by lower fuel prices. Truckload revenue totaled $619 million for the year which was a 57% increase over 2013. Turning to LTL, our revenue increased to $109 million in Q4, 2014. This was a 20% increase over the prior year. Volume was up 12% and revenue per shipment increased by 8% on a year-over-year basis. This rate increase was driven by both freight mix and increased rate. Intermodal revenue was up 8% at $18 million for the quarter. Page 5, breaks out our revenue by client type and as you can see, our transactional revenue grew by 48% on a year-over-year basis, totaling $225 million in Q4, 2014. This was driven by organic growth in revenue across all major modes as well as the impact of acquisitions consummated over the last year. In fact, we completed the integration of One Stop Logistics in Q4 and all of these employees are now operating on our proprietary systems. Another way to measure our transactional revenue growth is through the continued increase in the size of our sales force and the productivity of our salespeople. On an overall basis, our client and carrier sales reps, the total of which we referred to as our transactional sales force, grew by 295 people on a year-over-year basis, totaling 1,116 at year-end. In addition, the productivity of our sales force continue to improve and the transactional revenue per sales rep was up 8% in the quarter as compared to the prior year. Organically our sales headcount was up 190 people year-over-year and the transactional revenue per client-facing sales rep in our inside sales organization was up 22% in Q4, 2014. Our enterprise revenue or also referred to as managed transportation grew 9% to $76 million in Q4, 2014. Enterprise revenue for the year was up 13%, totaling $302 million. Similar to a variation I explained in Q3, we experienced a $5 million year-over-year decline in revenue from two specific clients, primarily related to small package revenue what that offset to our growth rate in the quarter. In fact, one of these large clients was renewed and slightly restructured shortly after year resulting in a shifting of payment responsibility to carriers and a revised fee structure for a large portion of their transportation spend. Under this new fee structure, a portion of our gross revenue will consist only of the fees we charge for services and will not include the gross transportation costs in 2015. This change will impact year-over-year growth metrics but does not have a meaningful impact on our net revenue or our profitability. Our contract renewal rate was 99% in the quarter and for the full year; the renewal rate was 97%. Slide 6 breaks out our net revenue and highlights by mode and client mix, which contribute to the overall net revenue margin. In Q4, our net revenue was up 138 basis points over prior year at 18.1% for the quarter and this increase ad Doug mentioned, continued despite a shift in our mix, as truckload and intermodal collectively represented 59% of our overall revenue in Q4 2014 as compared to 53% in Q4 2013. As I mentioned earlier, we experienced margin gains in all major modes of transportation, which collectively drove the overall margin improvement in the face of this increased mix shift. Specifically, our truckload margin improved by 183 basis points and our LTL margin improved by 44 basis points, both metrics are on a year-over-year basis. I would like to now turn it over to Kyle to review additional elements of our financial performance.

[Kyle L. Sauers:]

Thanks Dave. On Page 7 of the supplemental materials, you'll find a summary of our key operating statement line items. Commission expense was $14.8 million in the fourth quarter increasing 58% year-over-year; commission expense was 27.3% of net revenue representing the 195 basis point increase from Q4 2013. This increase is the result of significant growth in our truckload revenue which has a higher commission expense as well as change sin our sales channel mix largely due to our 2014 acquisitions. Non-GAAP G&A expense was $27.9 million in the fourth quarter 2014 that’s up 35% from the fourth quarter of 2013. Sequentially G&A expense decreased modestly. We expect G&A expense to increase sequentially in the first quarter of 2015, by approximately $1.5 million to $2 million due to annual changes in our employee compensation and benefits programs, the impact of our acquisition announced today and ongoing investments in the growth of the business. Depreciation and amortization expense was $3.8 million in the fourth quarter of 2014, increasing 42% year-over-year. The majority of the increase is related to our 3 new acquisitions completed during 2014. Including the impact of our recent acquisition we expect depreciation and amortization to approximate $4.1 million in the first quarter of 2015. Our effective income tax rate was 39.0% for the fourth quarter of 2014, compared to 37.7% in the prior year. We expect our annual effective tax rate to remain in the 38% to 39% range for the full-year 2015. Non-GAAP EBITDA increased 69% from the fourth quarter of 2013 to $11.5 million. Non-GAAP net income increased 86% from the fourth quarter of 2013 to $4.7 million. Non-GAAP fully diluted earnings per share were $0.20, increasing 83% from the fourth quarter of 2013. GAAP fully diluted earnings per share were $0.20 in the fourth quarter of 2014, after accounting for changes in our contingent consideration payables. Slide 8 contains selected cash flow and balance sheet data. In the fourth quarter of 2014, we generated $5.3 million in operating cash flow. This was a increase of 74% from the fourth quarter of 2013, as a result of higher operating earnings offset by changes in working capital needs. In 2014, we generated $32.4 million in operating cash flow, which represented increase of 30% over 2013. Capital expenditures totaled $2.7 million in the quarter, an increase of 20% from the fourth quarter of 2013. This increase is related to continued investments in technology and the expansion of our facilities to accommodate our growth. We also made $1.6 million in payments under our contingent obligations related to prior acquisitions. At the end of the quarter, our contingent obligation and notes payable to sellers is reflected on our balance sheet at $22.8 million, which is its estimated fair value. Also, as of the end of the quarter, we had $30 million in cash. I will now turn the call back over to Doug for closing comments.

[Douglas R. Waggoner:]

Thanks, Kyle. Through January, our revenue has grown 20% over the prior year period. We are excited about this continued growth and there are several elements of this growth that are important to understand. First, as Dave mentioned, we have recently renewed one of our larger clients to a new contract, which is economically similar to our bottom line, but with an estimated decrease in gross revenue over 2014 of approximately $25 million for the full-year 2015. Further, the recent decline in fuel prices will likely have an impact on our topline revenues in 2015. We have a diverse offering for our clients and the impact of fuel will be different depending on the mode of transportation, the structure of our client arrangement, and the pace at which fuel rates change in either direction over time. Generally, we view fuel as a pass-through cost from our carrier partners to our shipper clients. If fuel prices remain at their current levels, we expect the topline impact relative to 2014’s average fuel prices to be approximately $50 million to $70 million, independent of changes in linehaul rates. All else being equal, we expect the impact of the contract renewal and sustained lower fuel costs to have a 70 basis point to 90 basis point uplift in our overall gross margin percentage for the full-year 2015, relative to where it was otherwise would have been without these two factors. Now, I'd like to take you through our 2015 guidance. We expect revenue to be in the range of $1.3 billion to $1.38 billion. We expect commission expense to be in the range of 29% to 30% for the full-year and we expect SG&A costs to be approximately $120 million to $125 million excluding any changes to our contingent consideration payable. We estimate deprecation and amortization to be in the range of $16.5 million to $17 million and our capital expenditures for the year to be approximately $15 million to $17 million. As a reminder, our guidance does not include the impact of any future potential acquisitions. Wrapping up, back in January of 2013, we had lots of question from investors trying to understand if the value proposition for third party transportation providers was still holding true. We had a period where the net revenue margin contraction has been a consistent theme and everyone was worried about the impact of pending driver shortages and tightening truckload capacity. Weather disruptions drove a change in the market and our value proposition was demonstrated as shippers recognized the value of our ability to tap in the capacity in a constrained market. Bottom line, market conditions were favorable. At the same time, we've continued to invest in our capability of our truckload operations and they had performed well. Our people have delivered in terms of executing to our clients' needs and matching those needs with our carriers to improve their yield and utilization of their equipment. As we enter 2015, I see those conditions continuing. The environment of tight capacity is likely to continue and we plan to continue to make the investments necessary to ensure that we deliver on the value proposition we make to our clients. This environment combined with my confidence and our ability to execute gives me the confidence to reiterate our long-term targets, which were $2 billion in revenue and $100 million in EBITDA in 2017. With that, I will reopen it up for questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Jack Atkins from Stephnes Inc. Your line is now open, please go ahead.

[Jack Atkins:]

Good afternoon, guys, and thanks for taking my questions.

[Douglas R. Waggoner:]

Hi, Jack.

[Kyle L. Sauers:]

Hi, Jack.

[Jack Atkins:]

So I guess just to start out, Doug, you referenced January topline trends. Could you maybe talk about what you're seeing from a net revenue growth perspective in January? And then, from a bigger-picture perspective, as we entered 2015, certainly capacity is still very tight. But the spot market isn't quite as hot as it was this time last year because of better weather on a year-over-year basis, but could you maybe just talk about the setup as you see it for your business as you look out across 2015?

[Douglas R. Waggoner:]

Yes. So, first quarter of 2013 was a little different, it started off very slow due to weather. And then it built pretty consistently up to a strong crescendo at the end of the quarter. So when we look at the comps, the comps looked fairly easy in the first part of the quarter. They looked tough around the second part of the quarter and then you've these factors expecting the topline revenue that I mentioned that don't necessarily affect profitability. We do see an uplift in our gross margins in the first quarter and we indicated that we project those throughout the year.

[Jack Atkins:]

Okay, okay, that makes sense. And then, just to kind of touch on your 2017 targets for a moment, you reiterated those both in your prepared comments and in the press release, but to get to that $100 million EBITDA goal for 2017 [indiscernible] you don't already know, but that's a 30% CAGR from 2014 levels? Could you maybe talk about the initiatives that you guys have going both internally and then potentially some M&A that could help you guys from a topline and from our margin perspective get that level of growth? I mean you're coming off of a 30% EBITDA growth year in 2014. So it's not out of the realm of possibility. But, yes, those are pretty substantial growth goals on a year-on-year basis.

[David B. Menzel:]

Jack, I will give you a little color on that, this is Dave. As you know, there are three or four primary organic growth drivers, the first being our continued emphasis on building our truckload capabilities, investing in our sourcing organization, continuing to pursue opportunities in the truckload brokerage market and we see a big opportunity given the market conditions to continue to both invest and drive growth in that area of the business. The second key thing as we’ve continued to grow our managed transportation quite effectively, we’ve added substantial numbers of new clients over the past couple of years and we are making additional investments to continue to capture that market opportunity. And then, thirdly, finally, the same theme of continued investment, hiring new salespeople and getting growth in productivity there, but obviously our long-term targets do continue to include additional M&A and we feel really good about the results from the acquisitions that we made in 2014. And we see big opportunity over the next two to three years to continue to make tuck-in acquisitions combined with our organic growth strategy that will get us to these long-term targets.

[Jack Atkins:]

Okay that’s great Dave, thank you and then last question I’ll turn it over, but Dave could you maybe comment on your expectations for 2015, in terms of hiring both in terms of client facing reps and also your carrier facing guys.

[David B. Menzel:]

Sure, we are going into the year with a game plan of hiring about 300 new reps that’s obviously a gross number, so in other words that’s not necessarily the net additions of the hiring plan. And we will emphasize slightly on the carrier side again as we did this year, but maybe a little more balanced. So we're thinking about 60% of those new hires will be focused on the carrier side and 40% of those new hires would be focused on the client facing side.

[Jack Atkins:]

Okay that makes sense. Thanks so much again for the time.

[David B. Menzel:]

Sure, thanks.

[Operator:]

Thank you and our next question comes from Allison Landry from Credit Suisse. Your line is now open, please go ahead.

[Allison M. Landry:]

Thanks for taking my question. I was wondering if you could clarify on the net revenue margin comments, I know that you mentioned that you would see an uplift in the gross margins in Q1 or expecting that for the balance of the year but if you excluded the customer that you renewed, how would you think about net revenue margin sort of organically relative to 2014?

[David B. Menzel:]

Okay, yes. Good question Allison. So I think we’ve not historically given a tremendous amount of color on the interim margin, but given the environment, I wanted to clarify a couple of things. So we’ve seen slight lift in margins in January, both in what I'll call the organic apples-to-apples type comparison, as well as some additional lift, and some of that may be driven by fuel, but I think there's a little bit of lift even above and beyond what we were seeing in December as the market loosened a little bit and we saw a little lift. And then, secondly, there is also some lift, it's not significant, but 30 or so basis points probably on this customer going into kind of a portion of it going into a net deal, but we haven't closed the books for January. So we don't have that precision so to speak on all the components.

[Allison M. Landry:]

Okay. That's really helpful. Thanks. And just following up on the comment you made about capacity loosening a little bit in December, any sort of insight into what drove that and did things tighten up a little bit in January or are you still seeing sort of that looser environment?

[David B. Menzel:]

Actually, Allison, I meant to say, maybe I hopefully came out right, it loosened a little in January, not necessarily in December.

[Allison M. Landry:]

Okay.

[David B. Menzel:]

And so one of the things that we looked at was – and its really just the last couple of weeks of loosened up just a little bit and January is obviously a month that typically it does get a little bit loose. So, on the one hand, that's not unusual. The rates are still up on a year-over-year basis if you look at like a trailing four or five weeks average. So but we did see a little loosening over the last couple of weeks, but again its only a couple of weeks not exactly sure if that will persist through the remainder of the quarter.

[Allison M. Landry:]

Got it.

[David B. Menzel:]

Wouldn't expect it through for the year.

[Allison M. Landry:]

Okay. And in terms of the business that you have under route guide, whether you want to talk about January or Q4, did you see any change in terms of the percentage of your business that fell under that, maybe in the fourth quarter relative to Q3 or the prior year?

[David B. Menzel:]

No, it's been relatively consistent. No

[Allison M. Landry:]

Okay. Thank you very much.

[Douglas R. Waggoner:]

No, it's been relatively consistent. No material change there.

[Allison M. Landry:]

Okay, thank you very much.

[Douglas R. Waggoner:]

Thank you.

[Operator:]

And our next question comes from Bill Green from Morgan Stanley. Your line is now open. Please go ahead.

[William J. Greene:]

Okay, good evening, thanks. Doug or Dave, can I ask, I just want to clarify a little bit what you're seeing on fuel. I understood you to say there was a revenue impact that makes a lot of sense. But, was there an EBIT impact? I thought it would be more or less a pass-through and it wouldn't, but can you just add any color there?

[Douglas R. Waggoner:]

Yes. We said, there is not an EBIT impact that there would be a gross margin uplift.

[William J. Greene:]

Oh, got it, right, okay, that's what I thought, okay. The other thing I want to sort of think a little bit about is, when we look at these longer-term projections that you have there, you've got a lot underway on the productivity side, and one would think that over time as you gain scale in the market and you get that productivity from the sales force, that there would sort of be an acceleration and improvement in the margins. But, do you think that's a realistic way to think about it, or is it more linear how you get to the targets? How do you think that sort of rolls in?

[David B. Menzel:]

I think the market opportunity has been kind of unique in 2014 and we think continues in 2015. So I do think that if you're asking kind about leverage and getting to that part of the puzzle, it's probably going to come a little later in the cycle, because we're continuing to invest and we're investing more heavily in our truckload operations today than we were a year-and-a-half ago and expect to continue to do that in 2015. And so, I think that gets to your question, is it? That's what you were asking, Bill.

[William J. Greene:]

No, exactly. I mean, I guess I was sort of thinking, will – you could error in the side, if you will, of hiring a lot more people and growing that gross revenue quite a bit more, perhaps on a margin basis, you don't hit the EBITDA margin target, but you hit the EBITDA absolute dollar value? This is what I mean. So, I was trying to think about what you're going to weigh more as you look at the future and you try to think about the growth?

[Douglas R. Waggoner:]

Yes. Great question I mean we talked about this a lot at the Investor Day as well and it's one of the reasons we've targeted an EBITDA dollar number, not a margin, because we are going to continue to invest and so our primary strategy is growth, over time we will get some leverage, but we are still an investment mode to try to drive to that topline and EBITDA goal.

[William J. Greene:]

Yes and then, just one quick one on the M&A here. So the transaction you just did, reasonably small, but is that sort of the size we should think of, that's kind of the right level that you're comfortable doing or is there something more transformational that you'd consider?

[Douglas R. Waggoner:]

Well, we're staying true to our strategy, Bill, of looking at smaller tuck-in deals, but we're also open to larger transformational deals if they make sense and if they're strategic. So we're staying the course, but we keep our eyes open.

[William J. Greene:]

And would a transformational deal get you into a new segment or is it more just to gain scale in the segments you are already in?

[Douglas R. Waggoner:]

I would say the latter, to gain scale in the segments that we're already in.

[William J. Greene:]

Yes, okay. Alright, I appreciate the time. Thanks, guys.

[Douglas R. Waggoner:]

Thank you.

[Operator:]

Thank you. And our next question comes from David Rossman from William Blair. Your line is now open. Please go ahead.

[David Rossman:]

Good evening, guys.

[Douglas R. Waggoner:]

Hi, Dave.

[David B. Menzel:]

Hi, Dave.

[David Rossman:]

Hey, wanted to talk a couple of things, just in terms of all this transactional growth that you're getting, which is a pretty decent there and definitely improving the strategy out. Is that coming from your traditional smaller customer base? Are you getting a little bit more bid activity where you are kind of moving up the chain a little bit with some larger customers?

[David B. Menzel:]

So I think that's come in kind of from all areas of the business. Obviously, in the fourth quarter, our transactional revenue growth was driven organically and through our acquisitions. So I think our organic growth rate transactionally was 48% or so, and organically I think was about 25%. And so when we look at that organic – that overall growth, I'd say it's been probably on the organic side balanced maybe waiting a little more to large truckload customers, not necessarily all contract rates, but when you look at it from an overall perspective, including the acquisitions that we've made, it's continued to be quite balanced in terms of what we've seen in the past.

[Douglas R. Waggoner:]

Also give you a statistically related to our number of active customers in the fourth quarter was 21.2000 and those are 26% increase over same quarter last year. So that happens from a small account penetration.

[David Rossman:]

That's great. And then, in terms of – Dave, you just kind of made a comment not that long ago here talking about the TMS and some new clients there as one of the growth platforms. And I know that, that kind of efforts had a few lumps over the years, but kind of sounds like it might be kind of back on track. Can you talk about what you've done there and where the overall client acceptance is? And I assume that like in terms of clients really looking at that? I know that that's kind of a bigger area of opportunity for you. Just kind of where you see that and how you're tackling that?

[David B. Menzel:]

Yes, I mean I think as I mentioned, we're going up market and talking to bigger clients about offering our platform as a TMS and we've signed over the past year a couple of clients that we're managing in that respect. And we've got more in the pipeline. We think that we've got an excellent capability to leverage what we've got in the marketplace. Earlier this year, we hired a gentleman out of Ryder that's leading up our efforts to sell that product in the marketplace and he's building up a small team underneath him to help him go up to the markets. So we're optimistic that we can continue to make penetration in that market and grow both the top and the bottom line by selling not only the bread and butter smaller deals but actually selling some larger deals as well.

[David Rossman:]

Okay, it sounds good. That's all from me. I'll pass it along.

[Operator:]

Thank you. And our next question comes from Jason Seidl from Cowen and Company. Your line is now open. Please go ahead.

[Jason H. Seidl:]

Thank you very much. Hey, gentlemen, how are you?

[Douglas R. Waggoner:]

Good Jason.

[Jason H. Seidl:]

You talked about the organic growth in the quarter being 20% and I think you called out truckload at 37%. Obviously, that would imply that the organic growth rate was lighter than 20% at least one of other two lines of business. Can you talk about the organic growth rate in LTL and intermodal?

[David B. Menzel:]

The organic growth in our LTL business was about 13%.

[Jason H. Seidl:]

Okay.

[David B. Menzel:]

And so in the intermodal organic growth rate I believe was right at 8% or 11%. Hang on just a second I got to check that number. Organic growth rate was 4% in intermodal. Sorry so small. So the volume growth I think was higher on the intermodal side it was – the overall growth rate was 8% the organic growth rate was 4% on the intermodal side.

[Jason H. Seidl:]

Okay, that's good color. And how much on the intermodal side has been sort of impacted from rail service and what are you hearing from your customers about that getting better?

[David B. Menzel:]

Well you know it’s a small part of our business. Obviously, it represents about represents about 6% of overall revenue, so its kind of a smaller part of our business, obviously the rail service has been for the bulk of the year was suffering and we intern did not have a great opportunity to grow that business in that environment. Most of our intermodal growth has come from serving some of our larger clients, penetrating those as well as some existing transactional clients that we do a lot of intermodal with. Towards the end of the year here, the pricing loosened up just a little bit, and service has improved so we do think there may be a nice opportunity to show some more growth on the intermodal side and we’ve talked a lot about integrating our technology. We've got about 70% of where we wanted, but we want to get the last 30% in 2015, which we think will be kind of lighting up our sales force to be able to be more effective in driving growth in that sector.

[Jason H. Seidl:]

Okay. A quick question on Xpress. You said it was primarily truckload and LTL was evenly split at Xpress?

[David B. Menzel:]

Yes, I think there was a slight waiting towards the LTL, but it was about 60/40 LTL truckload.

[Jason H. Seidl:]

Okay. And when we start looking out, I mean are you guys going to continue to just look to grow companies that fit like this or are you going to still try to grow truckload a little bit more? What's sort of the plan for you guys?

[Douglas R. Waggoner:]

Well, we look at both modes and we think LTL was at the core that we got started on and then last few years, we've put a lot of emphasis and focus on truckload; and obviously, we've success with that, we think its important to grow them both.

[Jason H. Seidl:]

And longer term, guys, as we've gone through earnings season here, several companies have either announced smaller non-asset-based acquisitions or announced their desire to aggressively grow logistics operations within their own sort of asset-based umbrellas. And it sounds like they're even ramping up the plans more. How do you see the market shaping out, call it over the next three to five years? Because it seems like the big players are getting huge, medium-sized players are getting big and the small guys are trying to ramp up as well.

[Douglas R. Waggoner:]

Well, there's clearly been a level of consolidation in the industry. It doesn't really feel like there's a lot of new entrants. It's just the bigger getting bigger, but the market is huge and so we don't have to have competitors lose in order for us to win, and we’ve proven quarter-after-quarter that we can outgrow the other players and we do that by executing and taking market share satisfying our clients.

[Jason H. Seidl:]

Doug, it's just a situation where the really small brokers sort of get left out in the cold over time, unless they have a specific niche?

[Douglas R. Waggoner:]

Well, I think it varies by mode. If you're talking about an LTL broker, I think as the LTL carriers build up their networks, it's a little tougher for the small broker to be competitive. If you're looking at truckload, I think there is a place for small brokers that it tends to be operating in a geographic region or niche where they can have intimacy with that market and know who the customers are and know who the small carriers are, but if you want to operate in a 48-state ubiquitous network and be able to supply capacity on a daily basis at competitive rates, then, you have to have people, technology, and scale. And so I think you've seen our performance improve as we've scaled up and those are the investments that we've been making in terms of technology and people and that's how we get the results.

[Jason H. Seidl:]

Okay. That's all I got guys. I appreciate the time, as always.

[Douglas R. Waggoner:]

Thank you.

[Operator:]

Thank you. And our next question comes from George Sutton from Craig Hallum. Your line is now open. Please go ahead.

[George Sutton:]

Thank you. Guys, within the context of your growth plan though, I wondered if you could explain the importance that you see for the enterprise part of your business. How key is that to achieving your growth plan?

[Douglas R. Waggoner:]

I think it's definitely an important component, George. I mean it’s - we’ve seen an organic growth rate in that business over the last three years of around 15%. There's a little bit of an exception over the last couple of quarters with some of the changes I mentioned in my prepared remarks. But, we've got a really strong offering there. We feel like we can continue to drive organic growth in that part of the business. So, it definitely continues to be an important part of the plan.

[George Sutton:]

So if I'm hearing you correctly, maintain organic growth, but not necessarily accelerate organic growth from this level?

[David B. Menzel:]

I mean I think that we haven't gotten by mode, so to speak, or by these service lines, and kind of nailed the specifics. We've achieved over the last three years kind of this 15% range, and that seems like a strong number, but we wouldn't want to nail ourselves down on the specifics by these different service offerings.

[Douglas R. Waggoner:]

I think just to add a little color, George, if you look in absolute dollars, I think our enterprise or managed transportation growth has been very, very consistent. It tends to get diluted down by our M&A activity, because that business is generally 100% transactional. So I think we are proud of the growth we've had in that segment. At the same time, I think there is an opportunity to accelerate it and our strategy over time is to shorten the sales cycle, also be able to have products and services that allow us to go upmarket and sell managed transportation to bigger companies. And Dave mentioned, we brought a gentleman on from Ryder that's got a lot of experience doing bigger managed transportation deals; and we think over time, he is going to really help that part of our business.

[George Sutton:]

Okay, great. And relative to productivity, productivity at least by our math tended to slow as the year went on. I'm just curious how you're thinking about 2015 with respect to your guidance. What kind of expectations you have for productivity?

[Douglas R. Waggoner:]

I mean in terms of just - the productivity per rep, so to speak, typical metrics that we've been reporting against. Yes, I think that obviously, it's going to depend a little bit on the headcount plan and how much turnover we have which obviously affects those metrics, but we would anticipate continuing to see improved productivity, primarily probably in the second and third quarters, kind of double-digit productivity for sure in those quarters, but first quarter and fourth quarter tends to lighten up a little bit as the volumes are slightly smaller. You got to remember also that those are gross revenue productivity metrics and so the productivity numbers will be affected by the impact of fuel on our gross revenue.

[George Sutton:]

Absolutely. Okay, thanks, guys.

[Douglas R. Waggoner:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from David Campbell from Thompson, Davis & Company. Your line is now open. Please go ahead.

[David P. Campbell:]

Hey, thanks for taking my question, Doug and Dave and Kyle. I think I heard Doug that you said that the commission cost as a percentage of net revenues would be 29% to 30% this year. Is that correct? [That's down] quite a bit.

[Douglas R. Waggoner:]

David, that's our expectation for the full-year 2015, as we talked about, as we continue to increase truckload as a percentage of our overall revenue that has a higher commission expense and then we also do have an impact from some of the acquisitions we completed in 2014 having a cost structure with a higher commission rate. So that will move around as it has throughout 2015 from quarter-to-quarter but we’d expect throughout the year that it would be in that range.

[David P. Campbell:]

And [does that] contract, it went from gross to just fee based, that increases it as well. Doesn't it?

[Douglas R. Waggoner:]

Relative to commission expense, that does not have an impact there, no.

[David P. Campbell:]

Okay. Okay. And can you explain that again a little bit why that account went from gross to fee and there's a [likelihood of] other accounts. I assume this is an enterprise client?

[Douglas R. Waggoner:]

Yes, I mean it's - basically, the contract was restructured whereby the client took direct control over their small package payments and carrier relationship. We still do fee-based processing for them on that part of the business. And so it's more of a kind of a contractual obligation as well as kind of control of those small parcel shipments. And so when we sign bigger deals from time-to-time if the client has control of those types of relationships than we are providing a service fee utilized in our technology and people that would be considered net. It’s a small percentage of our total business today and that was just one kind of specific situation on a specific mode that we restructured in this deal at the clients request.

[David Campbell:]

It does it necessarily imply any more of that?

[David B. Menzel:]

Does not imply that.

[David Campbell:]

Right, right. And a last question as well, did the sales agent increase in the fourth quarter, from the third?

[David B. Menzel:]

The head count you mean?

[David Campbell:]

Yes, number of sales agents.

[David B. Menzel:]

Hang on just one sec, I got to check that metric, I don’t think it increased; it would be a pretty minor change. Hang on just one second if you don’t mind on my many pages. Agent headcount was down 1%, did not change.

[David Campbell:]

Okay. Okay. That's what I've got. I'll let someone else have it. Thank you.

[David B. Menzel:]

Yes.

[Douglas R. Waggoner:]

Thanks Dave.

[Kyle L. Sauers:]

Thank you.

[Operator:]

Thank you and our next question comes from Matt Young from Morningstar. Your line is now open, please go ahead.

[Matthew Young:]

Good afternoon, guys.

[Kyle L. Sauers:]

Hi Matt.

[Matthew Young:]

Quickly, back on the acquisitions front, I know the margin profile for deals came up a little bit with One Stop if I have that right. Wondering if you're seeing other opportunities kind of with high margin on that revenue that is high margin kind of prospects out there and does the Express Solutions operations fit that bill or are they kind of too small?

[Kyle L. Sauers:]

II would say from time-to-time I mean you will see typically companies operating let's say between 25% maybe best case 35% depending on how lean they are operating margins. I think on the Xpress deal, it's a smaller company, probably consistent with our margins, not a lot different. So I don't know that it – because it's small, it's not going to have a meaningful incremental impact. I would say that in general, they could be slightly accretive typically from the operating margin because they don't have some of the public company costs and they tend to operate a little bit more leanly. And as we move forward, one of the things – one of the questions earlier about the size of the deal, the Xpress deal is probably in the low end of the range at things we are typically looking at in terms of gross revenue size. So but we anticipate to continue to make acquisitions as we move forward.

[Matthew Young:]

The higher-margin deals would probably be on the larger size of the spectrum then, the high side?

[Kyle L. Sauers:]

Possibly, yes, right intermod sale.

[Matthew Young:]

And then, - sorry, you might have mentioned it, did you provide the -- what was the total number of enterprise accounts in the quarter?

[Kyle L. Sauers:]

260 in the quarter, I don’t think I mentioned it in the prepared remarks.

[Matthew Young:]

Okay, great. That's all I had. Thanks. End of Q&A

[Operator:]

Thank you. I’m not showing any further questions in queue at this time. I would like to turn the call back to Douglas Waggoner for any further remarks.

[Douglas R. Waggoner:]

Well thank you for joining us for our 2014 fourth quarter call. We appreciate your time and we will see you next quarter. Thank you.

[Operator:]

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