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Echo Global Logistics (NASDAQ:ECHO)

Q4 2012 Earnings Call

February 07, 2013 5:00 pm ET

Executives

Suzanne Karpick - Vice President of Investor Relations

Douglas R. Waggoner - Chief Executive Officer and Director

David B. Menzel - Chief Financial Officer, Principal Accounting Officer and Secretary

Analysts

Jack Atkins - Stephens Inc., Research Division

Nathan Brochmann - William Blair & Company L.L.C., Research Division

John R. Mims - FBR Capital Markets & Co., Research Division

William J. Greene - Morgan Stanley, Research Division

Christopher J. Ceraso - Crédit Suisse AG, Research Division

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

David P. Campbell - Thompson, Davis & Company

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Matthew Young - Morningstar Inc., Research Division

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Operator

Thank you for standing by, and welcome to the Echo Global Logistics Fourth Quarter 2012 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, February 7, 2013. It is now my pleasure to turn the call over to Suzanne Karpick, Vice President, Investor Relations. Please go ahead.

Suzanne Karpick

Thank you, Janine. Thank you for joining us today on our fourth quarter 2012 earnings call. Hosting the call are Doug Waggoner, Chief Executive Officer; and Dave Menzel, Chief Financial Officer.

We have 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, www.echo.com.

During the course of this call, management will be making forward-looking statements based on our best view of business as we see it today. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. 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 for the quarter, both of which are posted on our website.

With that, I'd like to turn the call over to Doug.

Douglas R. Waggoner

Thanks, Suzanne. I'd like to kick off today's call by highlighting another strong quarter of top line revenue growth in earnings. Our results are consistent with the guidance we offered on our last third quarter earnings call after considering the increase in our effective tax rate and costs associated with recent acquisitions. I'll also touch upon the 8-K we filed today with respect to our amendments to our third quarter results. But first, let's get started with our most recent results.

I'm very pleased with our execution in 2012. We delivered $757.7 million in total revenue at 18.9% net revenue margins. This represents a 25.7% revenue growth over 2011 and only a 56-basis-point margin decline in light of our continued truckload shift.

Here are few of the key highlights for the year. Our transactional revenue grew 28.8%, totaling $526.8 million for the year. Our number of sales reps increased by 116 people to 873 reps at year end. Our transactional revenue per sales rep increased 22.6% year-over-year. Our truckload business grew by 25.6% to $330 million in 2012. We added 26 new enterprise accounts, which contributed to our 19.2% growth in enterprise business. Our enterprise revenue was $230.9 million in 2012, a $37.1 million increase over 2011.

Our acquisition of Sharp Freight in the fourth quarter added significant intermodal capability to our business and contributed $18.5 million of revenue in the fourth quarter. All in all, I believe our execution capability continues to show great progress. We're leveraging our technology to achieve meaningful scale and we're quite proud of how this is driving our growth in the marketplace.

In the fourth quarter, we delivered results in line with expectations we said out on our last call. On Page 3 of the supplementary materials, the key metrics and results are as follows: Total revenue increased 29.7% to $211.2 million from the fourth quarter of 2011. The increase was driven by growth in both transactional and enterprise business, and included in this increase was $18.5 million in revenue from Sharp.

Our organic year-over-year revenue growth for the quarter was 14.7%. Net revenue increased 22.9% to $39.1 million from the fourth quarter of 2011. This increase was driven by the overall growth of our business.

Our net revenue margin was 18.5%, a 102-basis-point decrease on a year-over-year basis. This compression was largely attributable to a mix shift as our LTL business represented a smaller percentage and our intermodal business a larger percentage of the overall revenue in Q4 2012 when compared to the same period last year.

Our LTL business was 46% of total revenue in Q4 '11 and 41% of total revenue in Q4 '12. Contributing to this mix shift was the acquisition of Sharp, which accounted for about 50 basis points of decline in our gross margin in the quarter.

Non-GAAP operating income increased 17% to $6.1 million from the fourth quarter of 2011, driven by the increase in net revenue for the period. Non-GAAP operating income was negatively impacted by approximately $300,000 in integration costs related to recent acquisitions, as we highlighted on our Q3 conference call.

Non-GAAP operating margin was 15.6%, down 79 basis points from the fourth quarter of 2011, the result of both increased G&A and delayed sales force productivity attributable to our investment in training and development and additional resources associated with the investment on our truckload business.

Non-GAAP net income before taxes increased 16.8% from the fourth quarter of 2011 to $6.0 million. The decrease in non-GAAP net income by 0.8% was due to an increase in our effective tax rate.

Non-GAAP fully diluted EPS was $0.15 in the fourth quarter. The effective higher income tax rate in the fourth quarter was $0.01 per share.

Before I turn the call over to Dave, I'd like to provide you with an update on the status of the company's acquisition of Shipper Direct in July 2012. As we discussed on our third quarter conference call, soon after the transaction closed, we noted that Shipper Direct's revenue was slightly below the historic levels disclosed by the sellers during our due diligence. Based on this information, we updated our performance expectations for the business. Through additional diligence and investigation by our accounting staff, we concluded that this revenue shortfall related almost entirely to Shipper Direct's falsification of its historical transactional level records and its significant misstatements of historical financial results, which, we believe, were part of a fraud scheme perpetrated by the sellers. In January 2013, Echo filed a lawsuit in the U.S. District Court in Chicago, alleging, among other things, breach of contract and fraud by the sellers of Shipper Direct, which we disclosed in our 8-K filing on January 15, 2013.

I want to reiterate that this fraud was discovered by the company and is limited to the time period prior to our purchase of Shipper Direct. Once this fraud was discovered, we took immediate and decisive action to mitigate our exposure. This included recovering a portion of the upfront payment and terminating the Shipper Direct employees who, we believe, play a role in perpetrating the fraud. Additionally, we retained an outside expert to prepare an independent valuation to determine the fair value of Shipper Direct. And through that analysis, we determined that the acquired business has a de minimis value. While we are pursuing all available legal remedies to recover our financial loss through the legal process, the likelihood and timing of that process cannot be assured. Accordingly, we have recorded a loss of $1.5 million or $0.07 per share, which we concluded was required to be reflected in the third quarter of 2012 resulting in the 8-K we filed today. Importantly, we do not anticipate the Shipper Direct transaction to have any adverse effects on our future results.

Looking ahead, we've appointed an experienced and talented Echo veteran to assume day-to-day responsibilities for operations of Shipper Direct. This new leader has been tasked with running the branch and assisting our newly retained employees with maintaining or reestablishing relationships with customers as we look to continue to develop our truckload solutions footprint in the Southeast and South Central regions of the United States.

We have a successful track record of acquiring and integrating businesses that complement our operations and long-term growth objectives. We are pleased that we have successfully completed 14 transactions over the last 5 years, and we remain proud of our success in identifying exceptional companies with talented leaders that fit the Echo culture, and integrating these companies into the Echo platform and accelerating their growth following the integration. Going forward, we will continue to identify and pursue targeted acquisitions as an important source of the future growth of our company.

And now I'd like to turn the call over to Dave.

David B. Menzel

Thanks, Doug. Please turn to Slide 4, which summarizes the revenues by mode of transportation.

As you can see, our LTL revenue increased 16% from the fourth quarter of 2011 to $86.2 million, driven by and 19.6% increase in volume and a 3% decrease in rates. This reduction rates is attributable to a decline in the average weight per LTL shipment.

Our truckload revenue increased 26.2% to $91 million from the fourth quarter of 2011. Truckload revenue growth was driven by a 25.1% increase in volume or 0.9% increase in rates. This was our first quarter in which our truckload revenue exceeded our LTL revenue, indicating that we're gaining share in this larger market opportunity.

Our intermodal revenue increased 315.8% over the fourth quarter of 2011 to a total $18.2 million for the quarter. This growth was driven primarily by the acquisition of TTS in December 2011 and Sharp Freight in October 2012. Intermodal revenue represented 8.6% of total revenue in the fourth quarter, a relatively significant increase in this mode.

Other revenue increased 30.9% in the fourth quarter over the same period in 2011, totaling $15.7 million. Other revenue includes Small Parcel and International revenue, and the growth was driven by increases in both modes within our enterprise client base.

Please turn to Slide 5 for a breakdown of revenue by client type. Our transactional revenue increased 35.7% year-over-year, contributing $149.9 million for the quarter. This increase was due to both an increase in the number of transactional salespeople, as well as an increase in productivity. As Doug noted, our sales force totaled 873 at year end, increasing 116 year-over-year. Our average transactional revenue per sales rep increased 22.6% in the fourth quarter of 2012 when compared to the same period in the prior year.

Our revenue from enterprise clients increased 16.9% year-over-year, contributing $61.3 million in revenue for the fourth quarter of 2012. This increase was primarily due to new clients.

Turning to Slide 6, I'll review our net revenue and net revenue margin. Net revenue increased 22.9% year-over-year to $39.1 million in the fourth quarter. Our net revenue margin was 18.5% in the fourth quarter, representing a 102-basis-point decrease over the same period in 2011. As we've discussed in the past, our net revenue margins are a function of client mix, mode mix and changing rates. Our overall net revenue margin decline is primarily driven from shifts in mix, and that our LTL revenue is a smaller percentage of total revenue due to higher growth rates in truckload and intermodal.

In addition, we've seen some compression in LTL margins, which has been offset by expansion in truckload and intermodal margins.

If you turn to Page 7 of the slide, I'll review our operating expenses and operating income. Commission expense was $10.6 million in the fourth quarter, increasing 6.7% year-over-year. Commission expense was 27% in net revenue, which is a 410-basis-point decrease over Q4 2011 and 150-basis-point decline over Q3 2012. This decrease is attributable to modest adjustments in our commission plans, reflecting the increases in operational support and -- that enable our sales force to continue to grow and increase their productivity.

SG&A expense was $19.7 million in the fourth quarter, up 36% from the fourth quarter of 2011. SG&A expense was 50.6% in net revenue, a 493% -- or 493-basis-point increase over Q4 2011. This increase was due to increases from the acquisition of Sharp Freight, the additional operating support mentioned previously, our investments in growing our truckload business and longer training cycles for our salespeople.

Depreciation and amortization expense was $2.7 million in the fourth quarter of 2012, a 22.1% increase year-over-year. A more majority of this increase was driven from higher levels investment in our proprietary technology, resulting in increases to the depreciation and capitalized software.

Our effective income tax rate was 41.7% for the quarter as compared to 31.3% of net revenue in the prior year. This increased rate is due to the timing and reenactment of the research and development tax credit, which occurred in December 2011 for the 2011 calendar year, but occurred subsequent to year end in 2012. The impact of this higher tax rate equated to about a $0.01 charge when considering our normalized effective tax rate.

As Doug mentioned, non-GAAP net income was $3.5 million for the quarter and $14.2 million for the year, a decrease of 0.8% and an increase of 19.5% over the respective periods in 2011.

Slide 8 contains selected cash flow and balance sheet data. In Q4 2012, we generated a 43.2% increase in positive operating cash flow over the fourth quarter in 2011, and in the year at $9.7 million. This increase was due to a growth in our profitability. Our operating cash flow, generated over the last 12 months, was $22.8 million, compared to the $15.7 million generated in 2011.

Capital expenditures totaled $2 million in the quarter, compared to $1.5 million in the fourth quarter of 2011.

Acquisition-related payments during the quarter included a $15.1 million outlay for the acquisition of Sharp and payments due under our contingent obligations related to prior acquisitions. Our contingent obligation to sellers is reflected on our balance sheet at $10.7 million, which is at estimated fair value. This obligation was increased during the quarter by $2.5 million related to the acquisition of Sharp, we paid $2.3 million and we increased the estimate of our future obligation by $314,000 in our evaluation of the fair value of this obligation. At December 31, 2012, we had $41.8 million in cash.

As part of our assessment of the value of Shipper Direct, we concluded that there was a material weakness in the operating effectiveness of internal controls as of September 30, 2012, relating to our assessment of indicators of potential impairment of long-lived assets. With the overside of our Audit Committee, we've taken steps and planned to take additional measures to remediate the underlying cause of this material weakness, primarily through enhanced processes, including the utilization of third-party valuation firm when appropriate. Although we can provide no assurances in view of the limited scope of the material weakness and our planned initiatives, the company believes that the material weakness will likely be remediated prior to the filing of our Form 10-K for the period ended December 31, 2012.

Moving on to guidance. Despite the current economic uncertainty, as we look ahead to 2013, we expect to be able to continue to drive meaningful growth. More sales representatives will come online in 2013, and we expect to see them drive increases in revenue in 2013 and beyond.

We project 2013 revenue to be in the range of $940 million to $990 million. Based on this level of revenue and a modest decline in net revenue margins throughout the year as our mode mix continues to shift, we anticipate generating EPS in the range of $0.82 to $0.90. This guidance for 2013 does not include any new acquisitions. We will continue to pursue and execute the M&A component of our strategy, and we would expect any acquired revenue to put us in the top end or above our revenue range for the year. Additionally, through the first 5 weeks of 2013, total revenue was up approximately 24% on a year-over-year basis.

With that, I'd like to turn it back over to Doug.

Douglas R. Waggoner

Thanks, Dave. To wrap up today's call, I want to emphasize our team's solid execution in 2012, evidenced by our 26% growth in total revenue over 2011.

We have similarly continued to grow the earnings of our business as we refine the complementary suite of personalized services, technology and multi-modal solutions for our clients.

In closing, I'd like to remind everyone that our core purpose is to take the complicated out of transportation management for our clients. And in doing so, we are building a high performance business with improving profitability. We're very excited about our opportunity in the market, and we look forward to continuation of our track record in 2013 and beyond.

And with that, I'll open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Jack Atkins of Stephens.

Jack Atkins - Stephens Inc., Research Division

So I guess, to start off, if we could maybe focus on the progress that you've seen so far with the training -- of the new training program. I'm just curious how many folks have graduated from the program so far? And if you can give us some early conclusions on what you've seen with productivity and turnover.

Douglas R. Waggoner

Well, jack, we're very pleased with the investment that we made. The new folks are just coming out of the training, and it's difficult to draw statistically significant predictions. But what I can tell you, anecdotally, is that the productivity of the new folks coming out of training is higher than what we would have modeled in the past. Some numbers that I can give you in the -- expected in the first quarter of -- we'll go back to the fourth quarter of '12, we added an additional 50 in-site sales reps on the customer side and additional 12 reps on the carrier side and 5 in operations for a total of 67. And in Q1 of '13, these are people coming out of training. In Q1 of '13, we have a total of 139 people coming online. So the investment has been made. We have a lot more training into these folks, both in operations and sales, and they're coming online as we speak.

David B. Menzel

And I'll add one piece of color to that related to the second part of your question, which is the turnover. We have seen a decline in turnover over the last couple of quarters. We had our lowest turnover level in the fourth quarter in the mid-20s. So hopefully, that will continue as we move forward into 2014.

Jack Atkins - Stephens Inc., Research Division

Okay, great. And just to make sure I got that straight. 67 sales reps came out of the training program in the fourth quarter, and you expect 139 out in the first quarter. Then maybe if you could give us just an estimate of the total number of folks currently in the training program.

David B. Menzel

Sure. We've got, I think, the estimate in the current program, you've got the full 139 plus about 50 more people. So we've got roughly around 180. I don't have that precise figure in front of me, but I'd say it's in that neighborhood, maybe just even a little bit more than that. And in then the numbers Doug said don't include any potential turnover, it could occur. So may be little bit less coming out, but we're going have a significant numbers of new sales reps that have gone through much more robust training cycle coming online here in the first quarter. And as Doug mentioned, we just had them in the fourth as well. A lot of those were near the end of the quarter. So we should see some pickup and some ramping of those folks through the first half and certainly, the second half of 2013.

Jack Atkins - Stephens Inc., Research Division

Okay, great. And then last question for me, I'll jump back in queue. Doug, we've heard some rather increased rhetoric between the Teamsters and one of the larger LTL carriers really heat up over the last couple of weeks. Just curious if you could talk about the potential impact that you -- on Echo from any freight divergence or maybe a possible strike with one of the larger LTLs. I would imagine tighter capacity and a spike in rates should be a short-term negative, but there could be some market share opportunities. Just sort of curious about the puts and takes there.

Douglas R. Waggoner

Well, we have a lot of diversity in our LTL carrier mix. We've got approximately 125 carriers that we classify as LTL. That includes, obviously, small, local and regional carriers that may not even be on the radars of most companies. And the vast majority of those companies are nonunions. So certainly, we think there's capacity in the industry to pick up the slack if it were to be required. I think you can expect if there was a sudden demand on capacity, there would be upward price pressure, but that would be across the board. And then the last thing I would say is, we work really hard at relationships with our LTL carriers. I think we have good relationships, and we're a valued partner from their perspective. And so I think that diversity would help us through it.

Operator

The next question is from Nate Brochmann of William Blair.

Nathan Brochmann - William Blair & Company L.L.C., Research Division

Just kind of going back to the sales force issue a little bit, Doug. I was wondering maybe if you could talk about the hiring plans for 2013 and what some of the variables might look like on those?

Douglas R. Waggoner

Well, our game plan for 2013 is to roughly execute the same hiring plan that we did in 2012, which was targeting about 250 new hires during the year. We'll adjust that hiring plan as the year progresses based on turnover. So our net goal is pretty consistent with last year. We'd like to add 100 to 120 new folks organically through that program. And so right now, the hiring plan is to do about 250 over the next 12 months.

Nathan Brochmann - William Blair & Company L.L.C., Research Division

Okay, great. And then in terms of on the enterprise business, obviously, it sounds like you got some nice new wins there. I just wonder if you could talk about the -- how the pipeline is looking and also what you're kind of hearing from your customers in terms of any opportunities, either further penetrate them or with the opportunities may you see a little bit of increased sales per account.

Douglas R. Waggoner

Well, I would say that our pipeline is very consistent with what we normally see. We just landed a nice account that went into production this week we're excited about. We've got a couple of new customers on our FlexTMS product, and we've got to continue to work that pipeline. So it's an important part of our business. It tends to be very sticky. They're deep relationships, there's technology integration, there's dedicated people, and we think it's a unique niche in the marketplace.

Nathan Brochmann - William Blair & Company L.L.C., Research Division

And then what about opportunities for your further penetration with some of those accounts, Doug, in terms of...

Douglas R. Waggoner

It just depended on an account-by-account basis. On some -- in cases, we're getting 100% of what they have. In fact, in most cases. So in that situation then, we tend to ebb and flow with their business line. If they make an acquisition, it give us more opportunity, and we grow with that acquired business. In other cases, we may start off with a particular mode. And after we prove ourselves, we might get assigned another mode of transportation, and we have seen typically an increasing share of wallet with our enterprise accounts, but it really varies on an account-by-account basis.

Operator

The next question is from John Mims of FBR Capital Markets.

John R. Mims - FBR Capital Markets & Co., Research Division

Let's see, Dave, let's start with the guidance. The -- that $0.82 to $0.90 is a pretty wide range. So could you add some context and color on maybe anticipated freight growth, the extent of net revenue margin compression that you see coming, EBIT margin improvement. Just any help to help us -- just anything you can add to help us get to that, somewhere within that range?

David B. Menzel

Yes, sure. There's, I guess, a couple of points there. When you think about the freight environment that we're in, we're going to expect relatively modest freight growth during the year, modest low single digit in terms of rates, kind of a 2% GDP type environment, in terms of overall environment that we're executing in. As you know, it's hard to predict future margins. And so we would not try to specifically forecast what our goals or our net revenue margins are going to be over the next 12 months, but I would say that it's fair to assume at least a 50-basis-point decline in net revenue margins just attributable to the changes that we've had in the mix of our business. And so when we think about it, that's kind of how we think about modeling it, and then we have to think about what the market gives us as the year goes on. In terms of your question around EBIT margins, we estimate -- like at Q4 -- in 2012, we're about $16.5 million, I believe, for the year. And so we expect to see probably between a 1% and 2% improvement through the year -- throughout the year, most of that coming probably in the back half of the year as the new sales folks, even though they're going online today and go in live, their productivity ramps are probably going to occur throughout the back half of the year. But again, some of that may depend a little bit on the G&A that we spend and how the year progresses. So -- but that's basically what we're looking at today.

John R. Mims - FBR Capital Markets & Co., Research Division

Okay, that's very helpful. And then just sort on the same theme, can you provide some color as far as progression of revenue growth per month in the quarter for the different business segments? And then what you've seen so far in January and February?

David B. Menzel

So what I would say is that typically, we see -- if I'm thinking about the first quarter, if that's your question, John, definitely we're used to seeing, like January, with a modest increase in daily levels in margin at a more significant -- or even in February a more significant increase in March. I would say that we did see a little bit of a slowdown in the back half of December. We felt like the holidays fell kind of mid-week and that may have had some impact of the production that we saw in the last week in December and the first week in January. But looking at last year, I would say that the economy felt a little bit soft to us in the back half of December and the first half of January.

John R. Mims - FBR Capital Markets & Co., Research Division

Okay. Anything different from expectations on a margin basis in January?

David B. Menzel

No.

John R. Mims - FBR Capital Markets & Co., Research Division

Okay. Then one last one, then I'll get back in the queue. Doug, did I hear you right in the beginning, that without the Shipper Direct impact, you would have hit the guidance range? The Shipper Direct was -- had a $0.03 to $0.06 impact. Am I thinking about that right?

David B. Menzel

Let me clarify that, John. The Shipper Direct impact, actually had a -- we took back to Q3. So that didn't impact us at Q4. What did affect Q4, and we talked about it on our last call, is that we expected additional integration costs with both Shipper Direct and Sharp as we moved into Q4. So we had about $300,000 in additional costs that I'm not sure were picked up in the models after our conference call last quarter. And so that was one piece of additional G&A spend that occurred in the quarter, and then the second piece was the tax rate.

John R. Mims - FBR Capital Markets & Co., Research Division

Okay. With that G&A, the $300,000, that's not one-time like you didn't exclude that?

Douglas R. Waggoner

Correct. We did not pull that. We didn't pull that out, it was just an expected cost that we incurred in integrating those businesses.

John R. Mims - FBR Capital Markets & Co., Research Division

Sure, sure. Fair enough. Actually, one just last one. Should we expect any increase of legal expenses going forward with Shipper Direct or is that not meaningful?

Douglas R. Waggoner

Well, it's hard to predict where that goes, but I don't believe that would be material to our results. There may be some modest increases as that progresses, but I would not expect that to be material to our overall financial results at this point in time.

Operator

The next question is from William Greene of Morgan Stanley.

William J. Greene - Morgan Stanley, Research Division

I wanted to ask about the acquisition, I guess, pipeline. But before we even get to that, does the experience -- this most recent experience with Shipper Direct, does it sort of -- did it cause you to kind of take a big step back and say we've got to kind of change the process or do we just sort of say, well, fraud is fraud, and it's tough to identify in advance. I don't know if there's like a lesson learned here that we need to sort of think about. And then secondarily, does that lead to a little bit more sort of slower approach towards acquisitions going forward or do you feel like now, that was sort of a one-off.

David B. Menzel

Bill, I'll take that. I mean, I think that obviously, we take it seriously. And so I don't want to underestimate that. But it was a fraud, and so we don't expect to encounter that again. At the same time, we have made modifications to our diligence procedures to do the things that we think are prudent to ensure that it doesn't happen again. So having said all that, we intend to continue to move forward. We've got a platform that we believe we can leverage significantly through our M&A strategy. And we'll continue to do that, but we will adjust our procedures to be sure that we do it successful -- basically make successful acquisitions and do a great job integrating them, like we have in the past on the 14 others. Again, this is a unique situation, but it won't slow us down. But it does cause us to make some improvements in our procedures to make sure it doesn't happen again.

William J. Greene - Morgan Stanley, Research Division

Yes. And just remind us in terms of kind of the targets or goals or I don't know if it's -- maybe not explicit guidance, but just what's a realistic number that you could sort of handle to do on year in terms of the acquisitions?

David B. Menzel

I think that we feel comfortable with the idea that we can do 4 or so acquisitions per year with the staff that we have today. It depends on size and complexity, obviously. And -- but as we continue to move forward, we've seen no reason why the deals that we've done in the past have kind of been in that a lot of deals that have been in the $5 million to $20 million range. There's no reason that our deal size might not step up a little bit to the $20 million to $50 million range. But we're not trying to forecast that specific range because it's going to be based on the quality of the companies that we see and the opportunities that exist in the market place first. And then second, the size of the business and those characteristics.

William J. Greene - Morgan Stanley, Research Division

Okay. And then when you look at out at the market overall and you look at sort of the LTL and the truckload space, sort of each uniquely, but also sort of as a broader concept, when you look at the pricing dynamics there, do they feel like they've changed at all as we've entered into 2013 and starting to get into bid season or what-not? Does it feel like anything is tightening out there? Or does it still feel pretty kind of sluggish and lose?

Douglas R. Waggoner

Bill, it really feels like it's pretty much in balance in supply and demand. Prices might have gone down a little bit, I think for us anyway, in the fourth quarter. Our cost of transportation went down a little bit and so did our price on a per shipment basis. But I would say, overall, supply and demand are in balance, and it doesn't really feel like it's changing much.

William J. Greene - Morgan Stanley, Research Division

Yes. So when you look at your enterprise clients and you think sort of a same-store sales, kind of sense is that -- would that sort of be, like the year-to-date is kind of flatfish from an organic standpoint, not sort of new business or anything like that?

Douglas R. Waggoner

Yes, I'd say, that's right. Maybe a couple of percentage points growth.

Operator

The next question is from Chris Ceraso of Crédit Suisse.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

So I don't mean to be thick here, but I just wanted to go back and revisit what you mentioned about the guidance, originally. We went back it was -- I think you said you were going to do $0.18 to $0.21, excluding $0.02 to $0.03 of acquisition and integration costs, right?

David B. Menzel

Well we said $0.16 to $0.18, including that and we guided on the G&A side between $19 million and $20 million.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

$0.16 to $0.18 including?

David B. Menzel

Yes.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Okay. So the number that you reported today was $0.15. If you back out the $0.01, it's $0.16. Are you excluding already, then, acquisition costs in there? Is that what I see on the walk?

David B. Menzel

So I think the walk would be $0.01 for the tax and $0.01 for the -- yes, it would be $0.16 from that perspective, Chris, near the low end.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Okay. So you have the adjustment for contingent consideration, and then see adjustment for the acquisitions?

David B. Menzel

Right, exactly.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Okay. So okay. The G&A as a percent of sales still seems to be what's dragging your results down. The net revenue growth is good. The growth revenue growth is good. I understand that part of it is from the acquisition of Sharp. Within the context of your new full year guidance, what do you think the G&A as a percent of sales will be? And is it something that's finally going to start to go lower in 2014 or what's the progression here?

David B. Menzel

Well, I do think it will still start to get leverage on the G&A costs as a percentage of sales as we continue to move ahead. Obviously, we're in the 49% range, almost 50% in the current quarter. As we move ahead, we'll see the SG&A spike -- stay at these levels and then back off at the -- as year progresses. Right now, we would estimate maybe around to an $87 million and $89 million in G&A for 2013. So I think that will be a modest, maybe a modest decrease or actually kind of flattish type number because it will increase in the first half of the year, but it will be coming down in the second half of the year. But that's going to be offset by lower commission rates in 2013.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Okay. And you have 139 people coming out of the training program. Do they -- do you start to get leverage from them right away because you're no longer carrying them as a trainee or does it take a while for them to season before you get any leverage?

David B. Menzel

Well, I takes a little while. You don't get immediate leverage because we're replacing them with new hires. So what you'll get is a more of a flattening of the G&A costs. As the new hires are coming on, we won't see the SG&A costs could escalate as the year progresses due to that factor, so to speak.

Christopher J. Ceraso - Crédit Suisse AG, Research Division

Okay. And then maybe lastly, and maybe this isn't the right forum, but given your experience to date in the fourth quarter and, I guess, maybe the third quarter as well since you've had your last Analyst Meeting, has the progression of your costs, your revenue growth, your business model in general changed your longer-term view about your targets for where you think you can get EBIT margins as a percent of net revenue?

David B. Menzel

Well, we didn't plan to address our long term targets on this call. So I would say that we still intend to target that $1.5 billion or better over the -- by 2015. But as time progresses, we'll continue to look at the operating leverage that we're getting as we progress toward that goal, and probably revisit those targets in the summer when we typically do.

Operator

The next question is from George Sutton of Craig-Hallum.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Most of my questions have been asked, but could you just detail a little bit the adjustment that you've made in the commission plans? And obviously, I'm happy to hear that your churn rate in salespeople is actually at a low level. But if you can just kind of walk through how you get to these new commission plans.

David B. Menzel

Yes, I mean, we've given a great level of detail. A couple of moving parts is typical. What we've done is make some modest adjustment downward in certain situations to provide increased levels of operating support for our salespeople. In some cases, it's specifically, we actually increased commissions in other areas, where we feel there's an opportunity to incent folks to go after a larger business, where historically we paid lower commissions. So there's a fair much of netting going on in the design of the plans and the goals of trying to help our people be more successful and ultimately, make more money, to be honest. The second piece, and there's a modest decrease in commission rate that occurred, in connection with the Sharp acquisition because they had a little bit of a different structure with respect to some G&A and commission and some salaried reps. So there was a little bit of an impact from that as well in the current quarter.

Operator

The next question is from David Campbell of Davis & Company.

David P. Campbell - Thompson, Davis & Company

I just want to ask if is there anything significance to your revenue forecast in the first quarter. It's lower than what you reported, 20% -- 21% less than what you reported in the fourth quarter. Is that because of, organically, the growth rate is about the same or is it because you see less growth in the first quarter?

David B. Menzel

Well, we didn't forecast per se, but we kind of gave that January number in terms of where we're at. So I think that it could that we're just off to a little bit of a slow start from a seasonality perspective. And we don't have as many of these new reps online yet, and they will coming online, like I said, at the end of the fourth quarter and the first quarter. They'll be contributing more significantly in the second and third. So that may have a slight impact on that 24% rate that we experienced through the first 5 weeks of January. But this is the slowest time of the quarter. So at the same time, you've really got to see how it progresses throughout the quarter to see where we're going to end up. I mean, it's important to see. March is going to be an important month.

Douglas R. Waggoner

Yes. In Q1, March is always the big unknown. And that's when you start to see the accelerations.

David P. Campbell - Thompson, Davis & Company

But were there some acquisitions made a year ago that you've now circled around so that organically, the growth would be comparable to the fourth quarter?

David B. Menzel

Probably correct. I think that's fair.

Douglas R. Waggoner

Yes.

David P. Campbell - Thompson, Davis & Company

Right. And one -- the other last question is, your depreciation and amortization, Dave, was $2.7 million in the last quarter. That's up a lot from the third. What kind of -- anything unusual in that and could we look at that at 2013 somewhere around $12 million?

David B. Menzel

Yes. We think it's probably closer to $11 million. But it could be -- it depends on the software development side and obviously, new acquisitions, which would increase that. So the fourth quarter was impacted to some extent by just the continuing and ongoing investment we're making in technology, but also, the acquisition of Sharp, which was our largest acquisition to date. So that did step up our amortization expense a little bit.

Operator

The next question is from David Tamberrino of Stifel, Nicolaus.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

I will start off with an easy one. What was organic growth for the quarter?

David B. Menzel

It was 14.7%.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then, kind of going back to what you were just talking about in terms of investing in technology, for 2013, what do your CapEx plans look like?

David B. Menzel

So we're looking at between $9 million and $11 million in CapEx for 2013. I think we were about $8 million for 2012, so a slight increase in absolute dollars in 2013.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then kind of shifting gears, revenue per sales, transactional sales, has seen a reacceleration in year-over-year growth kind of throughout the year. I wondered if you could give some commentary on where you see that going and at what level do you think that's maximized?

David B. Menzel

Well internally, we'd like to see kind of a 10% to 15%. And it's going to ebb and flow based on hiring and turnover and those factors. So it's hard to pin it down on a quarterly basis. But we'd love to see a continued growth in productivity as we continue to increase the size of the sales force.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

But over the absolute value, is there any number that you're pegging to or looking forward in 2013, 2014 and beyond?

David B. Menzel

Well, it's -- give me a second, and I'll -- if you look at our current rates, you'll just probably take a 10% to 15% for 2013. That would be a good proxy. If you think about longer term, we've talked about getting over $1 million in our target in 2015 type areas. So that would be a kind of a longer-term target that we would aspire to.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then more in the day-to-day operations, there's been a proliferation of smaller 3PLs rapidly growing. And I'm wondering, in the soft freight environment, if your transaction sales have been bumping up against, say, some of the other privately held 3PL new hires out there when they're getting on the phone. So if you could give any commentary to any increased competition that they may be seeing.

Douglas R. Waggoner

It doesn't feel any different. It's such a big market. There are so many shippers. There are so many carriers. There are so many competitors that we compete against anybody and everybody. We win some, we lose some. And I think we're getting better. If you look at our truckload margins on a year-over-year basis, we had a nice improvement in margins. Why is that? It's because we're sourcing better, and we're getting scale. And scale matters. So yes, I think there's always going to be competition. There's lots of new entrants into the market, but we'll compete with them and we'll also compete against the big guys.

David J. Tamberrino - Stifel, Nicolaus & Co., Inc., Research Division

Okay, that's fair. And then one last one. If you could just generally touch on geography of your business. Just remind us if there's any one area of the U.S. or not that there may be a greater proliferation.

Douglas R. Waggoner

Well, if you were to plot all of our branches on the map, you would see that we've, through our acquisitions and our own organic ranches that we've opened, we have a heavier concentration in the western half of the United States. Ironically, I think the majority of freight in this country is actually controlled on the eastern half of the United States. So I think there is a lot of opportunity for us to continue to add locations and to get closer to our customers by opening up and acquiring locations that are in the eastern half of the country. So when we look at acquisitions, we're basically looking for good opportunities that are a good fit, so we don't define those entirely by location. But certainly, location is part of the equation. And we have an active pipeline.

Operator

The next question is from Matt Young of Morningstar.

Matthew Young - Morningstar Inc., Research Division

I think C.H. Robinson has, in the past, indicated that it's gravitated up the size spectrum to much larger shippers or at least moved up the route guide for a lot of the larger shippers, and that many of those accounts require more price commitments on certain lanes. I'm just wondering if you guys are seeing that in your enterprise account as you work with these customers. Are you seeing a similar migration to price commitments on some of the lanes you work through.

Douglas R. Waggoner

Well, it's -- for us it's kind of 2 different things. The route guide business, in fact, we don't do a lot of that, even some of it. And our focus is really small and mid-size companies. So route guide isn't much of a factor. With our enterprise business, where we're being an outsourced transportation management provider, we are committing to prices. And we use sourcing opportunities to maximize our margin and continue to improve the cost and the value for our customers.

Matthew Young - Morningstar Inc., Research Division

And then one more on the acquisition side. I think if I had it right, about 85% of your revenue growth, on average, has been organic with the rest from the acquisitions. Just wondering if you think, if you kind of migrate up to some larger acquisitions, if you think that mix would change over time or you generally expect that to hold?

Douglas R. Waggoner

I think, generally, that would hold. As Dave said, we may do slightly larger deals going forward, but we also expect continued organic growth to offset that. So I would probably model that type of a ratio.

David B. Menzel

It's probably down about 2/3 to 7 -- more in the neighborhood of 2/3 to 70% organic, historically. At least over the last couple of years.

Operator

[Operator Instructions] The next question comes from Ryan Bouchard of Avondale Partners.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

I think I missed this earlier. Could you tell me how many total enterprise clients you had during the quarter?

Douglas R. Waggoner

Yes, we're up to 203.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

203. Okay. And then on the training program, you said that you have 139 coming out of training in this quarter. Is that -- do those people come out pretty evenly throughout the quarter, or is that kind of like a March 1 thing, most of those people come out. Or can you describe how that is layered?

David B. Menzel

I don't have that specific information in front of me. I think it's a little bit weighted to the back half, but it is throughout the quarter. So it's not all of it in the back, it might not be "evenly distributed" on a monthly basis.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Okay. And then I know you don't want to talk about the productivity improvement on those employees. But can you give us like a ballpark idea of how much better that is? Is it 25% better than what -- than before or was it 10% better than before? These people that have been in the extended training program.

Douglas R. Waggoner

Well, we look at -- we think about productivity on a gross profit per rep per-day basis. And so we kind of do model ramp based on their tenure. And again, I hate to be tied to any specific number, but we think we've been improved the slope of that curve. I -- conservatively, I think 10% to the 15% is probably safe. But we're encouraged. We think that we're going to be turning out much better productive salespeople.

Ryan T. Bouchard - Avondale Partners, LLC, Research Division

Okay. That's helpful. And then the TL revenue growth of 26% in the quarter. You just talked about organic growth. How much of that 26% was organic?

David B. Menzel

So our organic truckload growth, I think, was in the neighborhood of 12%. So a decent amount of that growth did, in fact, come from the acquisition of Sharp, which if you recall on Q3, we mentioned Sharp's business was 60% roughly intermodal and 40% truckload. So we had a good amount of additional truckload growth from that acquisition as well.

Operator

The next question is from Kevin Steinke of Barrington Research.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

I just wanted to see if you could delve a little bit more into the cadence of operating margins. As we go throughout the year, I know you talked about margin expansion for the full year being driven by the second half of the year. But should we expect a similar experience in the first couple of quarters relative to the fourth quarter, where margins our actually down? Or should be think more flattish. I'm just trying to get a sense as to...

David B. Menzel

Yes, I don't think there's a slope in the back half. I mean, if you look back historically, one of the issues you'll see, we always do have a little bit of a step up in G&A. I don't think we'll have a big step up in Q1, so to speak, '13. But I expect in the low, the lumping in EBITDA margins. But I was going to say in the low 20s, in the first half and in the mid-20s kind in the second half on the EBITDA line. So the same thing in the operating line, it's probably in the low- to mid-teens in the first half, and you're probably in the high teens to the 20s in the second half as the year progresses the way we see it and we get the leverage that we've been talking about through the back half of the year.

Operator

The next question is from Jack Atkins of Stephens.

Jack Atkins - Stephens Inc., Research Division

Great. I just had a couple of housekeeping items here. Dave, could you give us the guidance for your expected tax rate in 2013?

David B. Menzel

Sure. It's probably between about 38% -- 38% to 35% is the range that I expect in 2013.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay. 35% to 38%, somewhere in there?

David B. Menzel

About, 38% to 38.5%.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay. Okay, got you. Got you. And then one last thing, Dave. In the press release, I didn't see the total number of commission sales reps. Could you break that out versus total reps and agents? Just curious how that line has tracked quarter-over-quarter.

David B. Menzel

Yes, let me check a couple of things here. So the -- and I'm not going to use word commission because I think we've dropped that for a reason. And we've got a lot of reps that are -- we count the reps that are in training as sales reps, and they're not commissioned, so that's probably not a good label. But we've got, at the end of the year, we've got 580 sales reps. And then we've got 200 -- let me find my agent count -- the difference between 870 and 580 is my agent count.

Jack Atkins - Stephens Inc., Research Division

Okay, okay. That's very helpful.

David B. Menzel

260.

Operator

I am showing no further questions in the queue. I'd like to turn the conference back for any further remarks.

Douglas R. Waggoner

All right. Well, I appreciate everybody tuning in for our fourth quarter 2012 call, and we're looking forward to 2013. We'll see you in about 3 months. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's program. This does conclude the conference, and you may all disconnect. Everyone, have a great evening.

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