In second-quarter 2020 financial and operational results released after trading ended on Wednesday afternoon, Chicago-based third-party logistics provider Echo Global Logistics (NASDAQ: ECHO) reported gross revenues fell by 7.1% on a year-over-year basis to $514.7 million.
That beat the consensus estimate of $475 million, largely driven by decreases in less-than-truckload (LTL) volumes and revenue per shipment for both truckload (TL) and LTL. Margins were thinner and Echo posted net earnings of $1 million, or 19 cents per share, compared to net earnings of $5.1 million, or 42 cents per share, in the year-ago period, beating the consensus estimate of 12 cents per share.
Cost controls in the quarter included an 8.3% reduction year-over-year in headcount as well as a 14.4% y/y decrease in commission expense due to a decrease in net revenue and automation initiatives. The management team noted that investments in technology allowed shipments per employee to increase 9% y/y. Echo has resumed training classes and plans to hire aggressively through the rest of the year.
Net revenue margin — the difference between Echo’s revenue from customers and its cost to buy trucking capacity — compressed by 106 basis points year-over-year but expanded 80 bps sequentially, to 17.1%. In the first 12 business days of July, Echo’s net revenue margin tightened to 15%.
Echo’s split between contract and spot shifted to 62% contract freight, up from 53% a year ago. The shift to more contract freight put pressure on net revenue margins because of the speed at which the market flipped, capacity tightened and trucking rates increased rapidly in June.
So far in July, revenue per day is up 10% year-over-year while TL shipments per day are up 12% and LTL shipments per day are up 9%.
Echo Chairman and CEO Doug Waggoner praised his workforce’s ability to respond to what he called one of the most volatile quarters ever seen, as market conditions changed rapidly within the three-month period due to the COVID-19 pandemic. Additionally, Waggoner noted that he was encouraged by the increased business volumes in the second half of the quarter that have continued into July.
Managed transportation revenue fell by 6.1% to $117.9 million in the quarter due to a 13% reduction in LTL shipments and a 3% reduction of LTL revenue per shipment.
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 4% in the quarter while LTL volumes fell 9%, increasing truckload’s share of revenue by 301 bps to 68.4%.
Echo also included in its presentation a slide about liquidity. With $5.4 million in cash on the balance sheet and $82.4 million in available credit from its asset-backed lending (ABL) facility, management used the ABL credit line to finance maturity of the convertible notes on May 1. Echo repaid $25 million of the ABL credit line in the second quarter.
The midpoint in Echo’s guidance for Q3 revenue was about 5% above the third quarter of 2019, and the company did not provide further guidance due to continued uncertainty.
