ECHO
#Sure.
We're expecting fourth quarter commission expense to be in the range of 30.0% to 31.0% of net revenue.
So your math is right, the midpoint is down about $25 million for the full second half of the year and about half of that comes from continued fuel decline and the re-signing of those contracts to fee-based and the rest are really market conditions.
It's really more of a change in the way the revenue is recognized in the accounting for that and still a great customer and still a really good partnership and profitable for Echo.
<UNK>, this is <UNK>.
There's nothing to expect there in the short-term.
There's certainly a process to go through to execute on an expansion like that and get everyone under one roof.
So those costs will be incurred and start to work their way into the income statement [and] CapEx second half of 2016 most likely.
So as we go into the next call and start giving you guidance on what we see for 2016, we'll make sure that's very clear, the cadence and the magnitude of any changes related to that initiative.
Hey, <UNK>.
I'll jump on this one.
So I think one thing to consider is that as we grow to $3 billion, a large portion of that growth will be in truckload and truckload does traditionally have a lower margin percentage.
So as we think about our EBITDA margin it's really over the net revenue dollars that we generate.
I know your comment relates to that EBITDA margin relative to gross revenue, but we do expect to continue to expand the EBITDA margin as a percentage of net revenue over these coming years as we get leverage over the fixed costs and infrastructure that we've built out, the synergies that we were expecting from the Command integration and so we do definitely expect those to expand over that period of time.
So I think the uniqueness of our business model is we can adapt.
So in a soft market, the cost of transportation drops and we've got great sourcing capabilities in both companies.
When we combine them and when we combine the technology, we'll have even better sourcing capabilities and we'll have better density from a broader network of carriers.
So, I think we'll be able to do just fine in a soft market on the buy side.
When things tighten up and we know that's going to happen with the future of regulations and electronic recorders and driver shortages and everything else that's looming somewhere in the future, it comes down to being able to find capacity in a tight market and both Echo and Command are known for being good spot market brokers and being able to find that capacity when shippers really need it and so, you sort of adjust your resources on the sell side or the sourcing side depending on market conditions but we've got a very flexible model that I think will be successful in either condition.
I think there's competing forces right now.
You've got shippers that recognize that the market is soft and trying to get a better price but they are also concerned about locking in capacity and so I'm not quite sure how that's going to play out yet, but you know the market will dictate it and the competitive forces will dictate it.
I didn't quite hear that <UNK>, are you talking about the uberization of truckload.
Well look, first of all, we consider ourselves a strong technology company and we invest heavily in it and we keep our eye on the trends in the emerging technologies and the emerging players.
That being said, it is a market where having customers matters, having capacity matters, having relationship matters, having working capital matters, and so we have all those things and we have the technology, and whether or not a new entrant can make a new marketplace I think remains to be same because you've got to have those other ingredients that I already mentioned, but we're keeping an eye on it.
We intend to look around the corner at every bend and we're continuing to invest in our new technology and I think we'll be fine.
That's certainly the way we'd view it.
All the guidance that we talked about and the analysts who built their models, best of my understanding, that built them around the other guidance that we had given for the second half of the year including that G&A, and we had called out separately some integration costs that obviously we incurred.
So we certainly view it as $0.37 number.
Thanks.
Thanks Nate.
Well, I think that you know on these calls in this industry we talk a lot about spot business and contract business really as it pertains to routing guide, but I also consider there's a third category of business, which I would consider transactional relationship business and it is spot market business because you get it every day and it's not contracted to you, but it's based on relationships with carriers and relationships with shippers and doing a good job and servicing them and having them come back repeatedly to do business with you.
So, I think both Command and Echo excel at serving our customers and having great relationships with them and if they're not big enough to run a routing guide, it probably doesn't get categorized by those previous two classifications.
Well, I mean I would say that if you look at the big routing guides right now, the freight is getting easily covered by the top carrier broker and it's not going very deep into the routing guide.
So that essentially means there is no spot rate.
On the other hand, I think the distance between a loose market and a tight market is a lot narrower than it used to be.
So I can't predict when we go from loose to right, but I think that you know bad weather, disruption in the national network of transportation capacity isn't always that far away and we saw that happen in the first half of 2014.
Well, it's a huge market.
We've always been true to our strategy of not getting distracted by going too far out of the guard rails.
So we want to continue to build scale and density in our chosen markets, but I go back to <UNK>'s question, I do think there is a role for technology both on the shipper side and on the carrier side to increase our productivity, and to increase the value that we provide to customers.
So, we're going to continue to look at technology as a differentiator.
I just want to ---+ so you can't underestimate the network effect of combining our complementary networks and how that makes us both stronger with our carriers and with our shippers.
Well, first of all, I grew up in the asset-based trucking business for many years and I can tell you, it's very hard business.
And the beauty of this business is that we essentially outsource that part of it.
We buy the capacity from other people that are running the trucks, they're managing labor and dealing with fuel and maintenance and accidents and all of those things that asset-based companies have to do.
That's a huge distraction for us that we don't want to deal with.
We want to focus on sales, we want to focus on sourcing, we want to focus on maximizing our margins, and delivering shareholder value and we don't want to have to re-invest our EBITDA on replacing aging assets.
That is correct.
Well, it comes from a variety of sources.
First of all, we ---+ in our managed transportation business, most of the time we're taking small companies that have never outsourced transportation before and for the first time are using a third party logistics company to manage their transportation for them.
So, that's one source.
We don't really measure who the business comes from.
We've had success this last year in routing guides getting a more contract rate.
When the capacity was tight last year, we had a lot of success in the spot market.
So, I would really sum it up by saying we're an aggressive sales organization and we try to have a multi-channel, multi-modal strategy.
We think about the market segmented by size of customers and the size of customers essentially correlates to their complexity and the needs that they have and I think our sales strategy has been proven to be successful.
Probably haven't given that a lot of thought at this point.
First of all, I'll leave the ELDs when I see them.
I know they're coming, but that seems to keep getting postponed, but we do have good compliance processes in place today, and of course ELD is not part of that, but once it becomes the law, we'll figure out a way to include it.
I'm saying that it has a ---+ since their seasonality is a little different than ours that it will have a bigger impact on our total growth in Q4 than it might otherwise.
In my opinion, the problem that you have with Uber strategy is a couple of things, one, truck drivers don't pick their next load, their dispatchers do, unless of course, they're an owner-operator, but owner-operators comprise a fairly small portion of the capacity market.
So, the real audience is dispatchers not truck drivers.
Certain convenience items that the truck driver would enjoy.
Our interest in mobile app has more to do with tracking and productivity documents.
That sort of thing.
The ability to make a marketplace using a Uber app I think really requires that you control customers and so if you are a start-up tech firm with a slick mobile app, you've got to get enough shippers and you have to get enough carriers to get to critical mass and make a marketplace and it's a big market and I think there are some of these apps, I keep an eye on them, that are having some success, limited success getting a market of capacity but shippers are price sensitive.
So, any day I [can] beat that price, the shippers going to rather go with us and I think you have to have a lot of scale, size, and density in truckload brokerage to command the best prices and be competitive and I just can't see a startup doing it.
What we're talking about the integration being in middle of 2016.
On the headcount, we would likely on the sales side, you'd probably see a modest decline in Q4.
We've typically seen that historically because that's not a big hiring quarter for us.
So it would be normal to get a slight decline in Q4 and then that would probably translate through to total headcount as well I would say.
Well, we don't really worry about it.
The market is what the market is and we get up every day and we go find as much freight as we can and then we cover it.
If the market is soft, we can cover it at better prices and get better margins and when the market tightens, we find capacity when our customers can't.
So if you look back at the history of Echo, we really came into being during the great recession and of course we were much smaller then, but we had no difficulty growing in 2008 and 2009 and you know there was slight bump in the road but we recovered within a quarter or two and resumed our trajectory and I think that's kind of in our DNA.
We'd like to think that we're fast on our feet and agile and we'll adapt to any market condition.
Sure <UNK>, this is <UNK>.
We probably expect a similar amount of integration costs in Q4 that we had in Q3 and that put us right in the middle of the range that we previewed on our last call which was $2 million to $4 million in the back half of 2015.
Then as we go through the integration process through the next quarter, we'll offer some more color on the next call about the cost that we'll incur up to the completion of the integration in the middle of next year.
Yes.
Absolutely.
We're going to teach the Command sales reps how to sell it to their customers.
Yes <UNK>, we're continually looking at our capital allocation in terms of our M&A pipeline as well as investing in our own stock or convertible debt.
We think there are opportunities, we're looking at it and as that develops we'll make sure that you are informed.
We think that marketing works.
We have a lot of audiences that we need to market to and tell them our story.
We market ourselves to our shippers obviously but we market ourselves to carriers.
We work hard at managing the morale of our employees and there's a marketing component to that.
We brought a fellow in that's got great marketing leadership experience outside the industry and we think that those marketing concepts can apply within Echo, not just for a [mark comm], but from a market research, and analytics standpoint and the market segmentation and strategy.
Thank you.
I would like to take a moment just to acknowledge the efforts of our team.
I think the employees of both Echo and Command have delivered outstanding results despite a tough market and with the added duties associated with integration.
So hats off to everybody and I appreciate your efforts and look forward to the coming quarters.
And finally, thanks to everybody on the call.
We appreciate you listening in and hearing our Q3 results and we will talk to you later.
