Echo Global Logistics (NASDAQ: ECHO), the Chicago-based third party logistics provider, reported its financial and operational results for the first quarter of 2020 after trading ended on Wednesday afternoon.
Echo grew gross revenues by 2.4% on a year-over-year basis to $551 million in the first quarter, which management attributed to Echo’s ability to win contracted and managed transportation business at a higher rate. However, margins were thinner and Echo posted a net loss of $2.9 million, or 19 cents per share, compared to net earnings of $3.5 million, or 19 cents per share, in the year-ago period.
Cost controls included reducing total headcount by 5% year-over-year and pausing some new training classes until the summer, but management said that capital expenditures on technology—primarily internal software development—would proceed.
Net revenue margin — the difference between Echo’s revenue from customers and its cost to buy trucking capacity — compressed by 204 basis points year-over-year but only 10 basis points sequentially, to 16.3%. On the conference call, however, management said that trend reversed itself once truckload capacity loosened in April. In the first 13 business days of April, Echo’s net revenue margin bounced back to 17.4%.
So far in April, though, average revenue per day is down 12% year-over-year.
Echo Chairman and CEO Doug Waggoner praised his workforce for adapting to remote work and noted Echo’s investments in a common technology platform, employee cross-training, infrastructure upgrades, and the strength of internal teams as being critical factors for the success of the transition.
One disconcerting detail from the call was that less-than-truckload (LTL) volumes, which Echo management said were tied to mostly small and medium-size businesses, have plunged 24% in April. Truckload volumes, on the other hand, are only down about 4%.
Echo’s chief operating officer, Dave Menzel, said LTL volumes appear to have bottomed and slightly bounced back, while the most detail he could give about truckload volumes was that the declines have slowed significantly and his customers have not issued warnings about another cliff.
Managed transportation revenue fell by 2.6% to $122.7 million in the quarter; management noted that Echo handles 100% of its managed transportation clients’ logistics needs and was therefore fully exposed to their businesses.
Echo’s book of business shifted in interesting ways during the first quarter of 2020, toward contracted truckload and away from spot and LTL. Truckload volumes grew 10% in the quarter while LTL grew 3%, increasing truckload’s share of revenue by 89 bps to 66.7%. Contracted business was 59% of Echo’s portfolio compared to 52% in the first quarter of 2019.
Echo also included a slide about liquidity in its presentation. With $38.7 million in cash on the balance sheet and $157.7 million in available credit from its asset-backed lending facility, management feels it has enough liquidity to finance the maturity of $69.2 million in convertible notes on May 1.
Waggoner said M&A discussions continue, and once the market settles and Echo can be thoughtful about valuation, liquidity and financing, it will pursue tuck-in deals.
The midpoint in Echo’s guidance for Q2 revenue was about 14% below the second quarter of 2019, and the company declined to provide full year guidance given uncertainty due to the coronavirus pandemic.