Acquisition boosts Echo Global Logistics revenue, but hurts profit

Acquisition boosts Echo Global Logistics revenue, but hurts profit

Echo Global Logistics revenue and net revenue in the fourth quarter rose on the the company’s recent acquisition of Command Transportation, but related integration costs dragged down profit by double digits.

Profit in the last three months of 2015 plummeted 62.6 percent year-over-year to $1.7 million. Total revenue, meanwhile, was up 36 percent to $407.2 million and net revenue grew 39 percent year-over-year to $290 million.

Executives at the Chicago-based 3PL say that despite fuel surcharge revenue headwinds and a soft market, 2015 has set Echo up for the long haul and the company is on target to meet 2018 goals of $3 billion in revenue.

“This has been a record year for Echo in all respects,” Douglas Waggoner, Echo chairman and chief executive, told investors and analysts on an earnings call Thursday.

The acquisition of Command in April drove roughly 70 percent of Echo's growth in the fourth quarter, which contributed to a significant boost in business, total truckload volume up 131 percent year-over-year in the quarter, according to Echo leadership.

The gap between Echo’s profit and the uptick in revenue and volume is partly due to the ongoing cost of integrating Command into Echo’s operations, the company said.

Integrating the Command operations ran Echo some $2.3 million in the quarter. Moreover, the firm expects additional integration costs from the Command acquisition to run Echo between $6 million and $8 million in 2016.

“We've already integrated a number of functional areas including HR, IT, training, marketing, payroll and our benefits department with the remaining operational and back-office integration tied to the technology cutover, which is expected this summer,” said Waggoner.

Once that technology deployment is complete, Echo will combine its truckload sourcing organizations to “unleash the power of our combined network,” said David Menzel, president and chief operating officer.

Command's truckload volume was down 2 percent year-over-year in the fourth quarter. But Command still has a strong position in the spot market, Menzel said.

“Command is especially well-positioned to provide needed capacity to shippers when the market tightens as we expect it will over time as new government regulations kick in and economic conditions change,” said Menzel.

LTL revenue was down 3 percent year-over-year in the fourth quarter to $103 million. The decline was primarily due to restructuring of a fee-based contract and lower rates, the company said. LTL volume was up 6 percent over the prior year.

Intermodal revenue was up 3 percent at $18 million for the quarter. The increase was attributable to revenue from Command and that was offset by volume and pricing decreases in Echo's historical business. These reductions were due to softer over-the-road rates, which impacted intermodal opportunities.

Managed transportation revenue declined 7 percent to $70 million in the fourth quarter of 2015.

Menzel pointed out that Echo has renewed two customers to multi-year contracts with fee-based structures, which impacts both top-line revenue and reported shipment volumes but not necessarily net revenue.

These changes when isolated reduced managed transportation revenue by 13 percent year-over-year in the fourth quarter. Despite this impact, managed transportation net revenue increased by 10 percent year-over-year.

“This is important as our delivered numbers is our success in the marketplace,” said Menzel. “We closed over 40 deals in 2015 with an estimated $64 million in annual revenue. Pipeline continues to be strong, and we're looking forward to another great year in 2016.”

Menzel said Echo expects between $1.8 and $1.88 billion in total revenue in 2016, assuming no change in fuel prices.

“I will point out that the year-over-year fuel headwind, given today's rate, is about $100 million,” Menzel added.

With capacity remaining loose, rates have been relatively low, Echo said, tugging on profit and revenue.

“Having said that, we do expect rates to go up over the next few years,” said Kyle Sauers, chief financial officer. “There's plenty of government regulations that have gone into effect or that we expect will that will cause that to happen.”

Contact Reynolds Hutchins at reynolds.hutchins@ihs.com and follow him on Twitter: @Hutchins_JOC.