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Echo Global Logistics, Inc. (NASDAQ:ECHO)

Q4 2013 Earnings Conference Call

February 6, 2014 17:00 ET

Executives

Suzanne Karpick - Vice President, Investor Relations

Doug Waggoner - Chief Executive Officer

Dave Menzel - Chief Operating Officer

Kyle Sauers - Chief Financial Officer

Analysts

Jack Atkins - Stephens

Allison Landry - Credit Suisse

Jason Seidl - Cowen and Co.

Nat Brochmann - William Blair

Bill Greene - Morgan Stanley

George Sutton – Craig-Hallum

David Campbell - Thompson Davis

Aaron Reeves - BB&T Capital Markets

Matt Young - Morningstar

Jack Atkins - Stephens

Operator

Thank you for standing by and welcome to the Echo Global Logistics’ Fourth Quarter 2013 Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference call is being recorded for today, Thursday, February 6, 2014.

Now, it is my pleasure to turn the call over to Suzanne Karpick, Vice President, Investor Relations. Please go ahead.

Suzanne Karpick

Thank you for joining us today on our fourth quarter 2013 earnings call. Hosting the call are Doug Waggoner, Chief Executive Officer; Dave Menzel, Chief Operating Officer; and Kyle Sauers, 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, echo.com.

During the course of this call, management will be making forward-looking statements based on our best view of the 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 also posted on our website.

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

Doug Waggoner

Thanks, Suzanne and good afternoon everyone. As must agree the current brokerage environment has been challenging at best and we faced the impact of continued sluggish economic environment in our fourth quarter, where we saw significant deceleration of our monthly year-over-year growth rate to some extent unexpectedly. At the same time, despite terrible weather conditions, we are now posting continued growth and market share gains. So as we dive into the details of our fourth quarter, I want to emphasize that I remain very bullish on our prospects and our position in the marketplace.

As we reported on our third quarter call, revenue growth through the first few weeks of October was approximately 11% ahead of the same period in 2012. This led us to forecast fourth quarter revenue of $230 million to $240 million and earnings between $0.17 to $0.19 per share. However, we saw a deceleration in the growth rate in the back half of October and our November year-over-year growth rate per day declines to low single-digits. Despite a recovery in December getting us partially back to that early October growth rate, this decline resulted in a revenue shortfall to our anticipated results. Our per day year-over-year revenue growth rate continues to improve and in fact increased to 6.5% in January 2014. This improvement is meaningful as January has been hampered by weather delays. And in fact, our LTL growth rate was 1% and our truckload growth rate was 14% in January highlighting both the challenge and the opportunity.

We will cover our fourth quarter results as we go through our prepared slides. First, I would like to summarize a tremendous year in terms of overall growth, market share gains, and an overall improvement in our capabilities to drive long-term growth in the face of one of the more arguably difficult brokerage environments that you have seen in the years.

Turning to Page 3 of the slide, you will find a review of the numbers we just discussed for the quarter. For the full year, we delivered growth in total revenue of 16.7%. We have made significant investments in 2013 to position our truckload capabilities in the marketplace, integrated intermodal capabilities into our offering and continued to invest in technology, training and the development of our people to improve service to our clients. These investments paid off in multiple areas of our business. Specifically, transactional revenue grew 17.1% to $616.6 million. Enterprise revenue grew 15.9% to $267.6 million fueled by the addition of 26 new client relationships. Transactional revenue per sales person increased by 12.1% and total revenue per full-time employee increased by 10.6%. And in the soft demand environment, we grew our truckload business by 19.8% to $395.5 million.

One of the key areas to Echo’s growth strategy remains the ability to identify, close and successfully integrate complementary acquisitions that add capabilities for our clients help us reach more clients and enable Echo to utilize our strong balance sheet and positive cash flow to create scale and compete more effectively. While we were more selective with our acquisitions in 2013 and that did have an impact on our growth rate, I am excited to announce the acquisition of Online Freight Services, a truckload brokerage based in Minnesota delivering about $50 million in annual revenue. OFS was started in 1997. It has got the sales force of seasoned industry professionals who enjoy long tenure with OFS. Their business delivers truckload services to a nationwide network of small and middle market clients and they have grown their operations significantly over the last several years. We are excited about this acquisition and have an active pipeline that we expect will result in additional complementary deals in 2014.

We mentioned last quarter the signing of several significant enterprise contracts. I am happy to report that all of these clients have been implemented as of January. Our teams have worked diligently in concert with our clients and completed the integration necessary to effectively utilize our technology in transportation and management capabilities. This swift implementation is further affirmation of the flexibility of our technology and the value that we quickly bring to our new clients.

On our last call, I discussed changes to our executive team that I believe were necessary to continue to drive our long-term success. Over the last five months, these changes have brought about a more strategic and refined approach to the execution of our growth strategy. I am excited about the progress we are making on the business unit alignments, cross departmental collaboration, employee engagement, retention and productivity. These developments indicate forward momentum, which I believe will translate into top and bottom line results in 2014 and beyond.

I now want to turn the call over to Dave who will discuss some of our operational results in more detail.

Dave Menzel: Thanks Doug. Please turn to Slide 4, which summarizes revenue by mode of transportation. As you can see, our LTL revenue increased 5.4% to $90.9 million driven by a 5.1% increase in volume and a 0.3% increase in revenue per shipment. The increase is largely attributable to growth in our enterprise business over the prior year. Truckload revenue increased 7.3% year-over-year to $97.7 million for the quarter, driven by a 7.8% increase in volume and offset by a 0.4% decline in revenue per shipment. The decline in revenue per shipment was driven by a reduction in average length of haul. Revenue per mile actually increased 7% on a year-over-year basis.

Our intermodal revenue decreased 9.8% year-over-year. Q4, 2013 is the first full quarter with comparable year-over-year results for intermodal subsequent to the acquisition of Sharp. The decline is consistent with the trend we spoke to over the past few quarters. However, intermodal revenue was up 2.9% sequentially and we are encouraged by our intermodal growth in our inside sales group, which grew 27% on a year-over-year basis. We believe our ability to continue to deliver intermodal solutions to our clients has been greatly enhanced by the acquisition of Sharp and CPF (ph) and anticipate continued success integrating this mode into our business over time.

Other revenue increased 4% in the fourth quarter over the same period in 2012 totaling $16.4 million. Other revenue includes Small Parcel, International and Expedited revenue. Again, this growth was primarily driven by increases within the enterprise business.

Please turn to Slide 5 for breakdown of revenue by client type. Our transactional revenue increased 1.3% year-over-year contributing $151.8 million for the quarter. This increase in revenue was driven by an increase in productivity of our sales people of 5.7%, which was partially attributable to an increase in average tenure across our inside sales organization. Our inside sales channel contributes about 45% of total transactional revenue. In Q4, 2013, inside sales grew transactional revenue at 9.5%, which consisted of growth across all modes. This growth was offset by a decline across our agent channel due predominantly to a decline in two agents, which occurred throughout the year.

From a headcount perspective, our total sales force was down 45 people on a year-over-year basis. We ended 2013 with 825 sales people compared to 870 at the end of 2012. So we have mentioned in the past, our business has evolved over the past two years. And our sales headcount includes client sales, carrier sales, and certain operational personnel dedicated to our transactional business. These people have been included in overall sales headcount to maintain consistent year-over-year comparisons as the job functions have been historically performed by commissioned client sales reps. As our business has evolved, many of these functions have been transitioned to specialized teams working in concert with our sales people to improve expertise, client service and efficiency. Our client-facing sales people totaled 586 at the end of 2013 versus 562 at the end of 2012.

Summing all that up, our transactional business is achieving strong growth with fewer people than expected across all modes. Some of that growth in the fourth quarter was muted by these agent accounts I spoke to earlier. Our revenue from enterprise clients increased 13.4% year-over-year contributing $59.5 million in the fourth of quarter 2013. This increase was primarily due to the continued growth in our number of clients. During the fourth quarter, we closed an additional five enterprise clients in all of the new accounts mentioned on our last call have been implemented. We have a robust pipeline of new opportunities and we expect continued growth in our enterprise business.

Please turn to Slide 6 and I will review the net revenue and net revenue margin. As Doug mentioned, net revenue decreased 5.4% year-over-year totaling $37 million in the fourth quarter due to a decrease in net revenue margin. Our net revenue margin was 16.7% in the fourth quarter representing a 180 basis point decrease over the same period in 2012. Our truckload net revenue margin decreased 277 basis points compared to the same period last year. This margin compression is the result of an increasingly challenging truckload market. Our revenue per mile as I mentioned earlier increased 7% on a year-over-year basis, while our cost per mile increased 10.1%. Our cost per mile increase was driven by capacity constraints and a reduction in average length of haul on a year-over-year basis. At the same time, our LTL net revenue margin compressed 149 basis points year-over-year. Much of this change is due to the previously discussed renegotiated enterprise contracts during 2013. From a mix perspective, truckload and intermodal combined remained relatively flat as a percentage of total revenue at 51.5% Q4, 2013 compared to 51.7% in Q4, 2012.

With that, I would like to turn it over to Kyle to discuss some additional financial results.

Kyle Sauers

Thanks Dave. On Page 7 of the supplemental materials, you will find a summary of key operating statement line items. Commission expense was $9.4 million in the fourth quarter decreasing 11.4% year-over-year. Commission expense was 25.3% of net revenue representing 172 basis point decrease from Q4 of 2012. This reduction is a result of both the changes to commission plans we made at the beginning of 2013 that were discussed on prior calls and a change in our sales channel mix.

G&A expense was $20.8 million in the fourth quarter of 2013, up only 5.1% in the fourth quarter of 2012. This amount includes the previously discussed $0.02 per share charge for the effects of separation costs associated with changes in certain senior management. Without these, quarterly G&A costs would have been relatively flat year-over-year. Depreciation and amortization expense was $2.7 million in the fourth quarter of 2013 increasing 1.4% year-over-year. The modest increase was driven by continued investment in our proprietary technology and the overall growth of the business. Our effective income tax rate was 37.7% for the fourth quarter of 2013 and that compared to 41.7% in the prior year when there was an impact to the postponement of the R&D tax credit.

Non-GAAP operating income decreased 32% year-over-year to $4.1 million in the fourth quarter of 2013. And this is a result of the lower net revenue margins. Non-GAAP net income decreased 27.9% from the fourth quarter of 2012 to $2.5 million. Fully diluted non-GAAP EPS was $0.11 and fully diluted GAAP EPS was $0.12 in the fourth quarter of 2013. So each of these non-GAAP operating income, non-GAAP net income and fully diluted non-GAAP earnings per share include the $0.02 per share charge. This affects for the separation cost associated with those changes in senior management. So the fully diluted non-GAAP earnings per share would have been $0.13 without these costs.

Moving to Slide 8 which contains selected cash flow and balance sheet data. In Q4, 2013, we generated $3.1 million in positive operating cash flow. This was a decrease of 68.6% in the fourth quarter of 2012 and this is primarily due to the timing differences of changes in working capital. Our operating cash flow generated over the last 12 months was $24.8 million compared to the $22.8 million generated in 2012. Capital expenditures totaled $2.3 million in the quarter, an increase of 13.5% from the fourth quarter of 2012. There were no new acquisitions during the fourth quarter and we made $1.6 million in payments under our contingent obligations related to prior acquisitions. At the end of the year, our contingent obligation to sellers is reflected on our balance sheet at $7.2 million, which is its estimated fair value. Also at the end of the year, we had $52.5 million in cash.

So Doug highlighted our recent acquisition of OFS, which we are all very excited about. I wanted to give a few more details about the financial aspects of that transaction. We paid $9 million in cash upfront and we will pay up to an additional $1.5 million in cash over four years pursuant to an earn-out of certain EBITDA targets during each of those years are met. OFS’ EBITDA during 2013 was approximately $1.5 million.

So with that, I will turn the call back over to Doug for closing comments.

Doug Waggoner

Thanks, Kyle. There continues to be uncertainty in the truckload brokerage markets. This includes the difficulty in predicting truckload demand and truckload capacity in combination with economic uncertainty, government regulation and driver shortages and other factors influencing pricing. Therefore, we have updated our policy on specific guidance metrics and we will be limiting those to items that we believe to be more predictable and influenced by our own execution. We expect to continue to take market share organically and to grow through strategic acquisitions. However, our top line guidance will only include acquisitions currently completed.

Having said that, we anticipate 2014 revenue to be in the range of $1.02 billion to $1.08 billion; commission expense to be between 25.5% and 27.5% of net revenue; SG&A cost to be in the range of $90 million to $94 million, exclusive of any acquisition deal costs and capital expenditures of approximately $15 million. This amount includes roughly $3 million for the expansion of our headquarters here in Chicago.

From a more qualitative perspective, I am very pleased with the development of our inside sales organization. As our training and coaching programs are enabling our people to be even more successful, which will continue to improve productivity and reduce attrition over the long-term. Operationally, we remain focused on providing the highest levels of service to our clients in any pricing environment. This means continuing to improve productivity meeting our hiring objectives and managing pricing to our clients. In addition, our truckload capabilities continue to expand both technologically and operationally. We have integrated our acquisitions effectively and our improved operations are evident in an increasing growth rate in truckload along the strong client satisfaction. All of this combined with our evolving proprietary technology has enabled us to continue to add enterprise clients and renew our accounts at very high rates, which is providing a strong foundation for future growth and profitability.

With the announcement of our recent acquisition of OFS, we reiterate our commitment to acquisitions as a key component of our growth strategy moving forward. We have robust pipeline of additional opportunities and expect 2014 to be a strong year in this regard. Given the current operating environment, we are pleased with the progress we are making building a very successful, leading transportation management business. We continue to grow, which is giving us more data, more relationships and a strong network of carriers, which when combined with our proprietary technology advantage and our people will continue to enable us to compete successfully in this very large and dynamic marketplace.

With that, I will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jack Atkins of Stephens. Your line is open.

Jack Atkins - Stephens

Good evening guys. Thanks for taking my questions.

Doug Waggoner

Hi Jack.

Jack Atkins - Stephens

I guess to start off with we could maybe focus on the transactional revenue, it was basically flat year-over-year in the quarter. I know you talked about the different puts and takes there, but this was certainly a deceleration in terms of year-over-year growth and if I am looking at my model correctly, the slowest growth in that particular segment of your business since you have been a public company. So I am just trying to understand why you weren’t able to sort of take the advantage of lot of dislocations that were in the market in the fourth quarter. If you could maybe just sort of expand on that a little bit, that would be helpful?

Dave Menzel

Yes, I will give you a couple of comments on that Jack. This is Dave. I think that obviously as the quarter progressed, we saw pretty significant deceleration in our growth rate as Doug mentioned in his earlier comments in November and December. It was fairly consistent with the data we saw from the cap index. And it was a (indiscernible), so it wasn’t just truckload per se, which would be probably more affected by the dislocation you spoke to. So as we looked at it, we have felt like for whatever reason within our business, our November growth rate declined relatively significantly on a per day basis and then we saw it recover partially in December and continue to recover actually stronger especially in the truckload side into January.

So while there was some dislocation, the quarter was hampered by poor weather in both Q4 and at the beginning and actually throughout January in 2014. So I think that all of those factors came into play and then when you looked at the transactional business, specifically as I mentioned in my comments you did see kind of a separate issue in terms of the year-over-year growth comparison. We saw a strong growth in our client, our inside sales organization, but it wasn’t that offset by some of the deceleration on the stations due to a couple of loss accounts, which is basically our agent side of the business. So the transactional growth was muted to some extent by that agent business.

Jack Atkins - Stephens

Okay. And then on the net revenue margin side, just sort of looking at that, you guys saw a more severe net revenue margin contraction, sequentially from the third quarter then. I think any other brokers that reported this earnings season. I am just sort of curious what drove that? And when would you expect to be able to re-price some of those contracts and you expect your margins to recover here as you go back to your super customers and sort of tell them you need higher rates or just given what the marketplace is giving you?

Dave Menzel

Yes, I think that, that’s something we are actively involved in all the time. In terms of looking at the margin sequentially, there were two issues. I didn’t speak to it in my prepared remarks from a sequential perspective, but half of the margin degradation sequentially came from mix issues relative to two things, enterprise to transactional. So, because of the – as you mentioned, Jack, the lower growth rate in our transactional business relative to the enterprise, we saw a little bit of mix shift from enterprise, which tends to be lower margin and transactional, that was part of it. And even within our enterprise business, we saw a small amount of mix shift to small parcel, which is a much lower margin piece of the puzzle, so about half of our margin degradation came from mix shift as I just explained. And then the second piece of it, about 30 basis points came from the truckload side of the business and most of that came in the enterprise side. The transactional truckload remains relatively flat, but within our enterprise, it was relative to a lot of new go-live accounts, where we need to do a little more lane development. So I think it maybe an issue of some modest re-pricing in some situations, but we think it had to do more with the ramping of some of the enterprise business.

Jack Atkins - Stephens

Okay, last question, this is a quick one. Dave, you talked about the decline in revenue from a couple of lost agents, could you quantify that just so we sort of understand what – just how the underlying business performed in the quarter?

Dave Menzel

Yes. I think it was roughly on a year-over-year basis about $3 million in agent business that didn’t – wasn’t there in Q4 2013. It was there in 2012.

Jack Atkins - Stephens

And have we lost all of that now or do you still expected to be a headwind for some of 2014 too?

Dave Menzel

That will still be a little headwind, I’d say, in the first couple of quarters of 2014 and then modestly in the third quarter, but more in the first two.

Jack Atkins - Stephens

Okay, thanks for the time.

Dave Menzel

Yes.

Operator

Thank you. Our next question comes from the line of Allison Landry from Credit Suisse. Your line is open.

Allison Landry - Credit Suisse

Good afternoon. Thanks for taking my question. As you kind of just dig into your comments about November a little bit more, just only because you didn’t really hear much about this from any other transports. So I was wondering if there was anything specific to some end markets that you guys share our verticals or just any sort of color on why you think that business slowed down so much in November?

Dave Menzel

I think one of the factors, this maybe a little Echo unique this year, but again because it crossed all modes, there is a part of it that told of that there was just a slowdown that occurred in November that we felt, but part of our business especially on our truckload side has grown through strategic relations with large beverage shippers and we have actually done more business with some of those beverage shippers in the second half of the year than we did in the first half of the – than we did in 2012. And their businesses obviously seasonal and it has a pretty significant Q2 and Q3. And so to some – there was to extent some of that came from that part of the business, but I would say for us both LTL and truckload. So it was hard to pin it all on that piece of the puzzle.

Allison Landry - Credit Suisse

Okay. In terms of the new enterprise clients that you added, could you give us a sense of how we should think about incremental net revenues from these customers in 2014?

Dave Menzel

So I would say we have added in Q4 about $15 million to $20 million in new enterprise business that’s now ramping in the first quarter. So that’s annual but let me tell you on this call exactly, how that would affect us quarter-to-quarter, because those accounts would have some seasonality in them, but that’s roughly the magnitude of the new business that we have seen.

Allison Landry - Credit Suisse

Okay. And just one last question, in terms of January, could you give us a sense to it’s a margin compression has sort of stated levels, where it was in December or if it actually worsened a little bit?

Doug Waggoner

Been pretty flat.

Allison Landry - Credit Suisse

Okay, fantastic. Thank you for the time.

Doug Waggoner

Thank you.

Dave Menzel

Thanks Allison.

Operator

Thank you. Our next question comes from the line of Jason Seidl with Cowen and Co. Your line is open.

Jason Seidl - Cowen and Co.

Hey, guys. Couple of quick questions. Could you talk a little bit about some of that business that you lost in the agents, any ongoing issues we should be worried about and is this something that we are going to lap in the fourth quarter or next year?

Dave Menzel

Yes, I do believe we’d lap it in the fourth quarter of next year for sure. And no, I wouldn’t say that it’s anything, it was a couple of unique situations. So I don’t want to get into all the particulars, but in one case some just – some guys decided to kind of do things on their own and had a unique relationship with our clients. So, it’s kind of a, what I’d call, a unique situation in our station model and so I don’t anticipate any significant degradation so to speak in that area. I would call it isolated.

Jason Seidl - Cowen and Co.

Okay. And what I am looking here in early January in terms of your revenue growth you said it sort of picked up, can you parse out the transactional from the enterprise growth here in early January?

Dave Menzel

I don’t have that particular information in front of me from an enterprise transactional I thought, so it would be difficult for me to give you those numbers on this call. I suspect it’s a little higher on the transactional side given that what I have seen from a day-to-day basis, but I don’t have the specific numbers to highlight for you.

Jason Seidl - Cowen and Co.

Okay. And the last one, the new acquisition that you guys are going to have start flowing through, could you give us the mix between transactional and enterprise for their business?

Doug Waggoner

It’s all transactional.

Jason Seidl - Cowen and Co.

It’s all transactional. Okay. Gentlemen, thank you for your time. As always, I appreciate it.

Dave Menzel

Thank you.

Operator

Thank you. Our next question comes from the line of Nat Brochmann from William Blair. Your line is open.

Nat Brochmann - William Blair

Good afternoon everyone.

Doug Waggoner

Hey, Nat.

Nat Brochmann - William Blair

I wanted to talk just couple of things like in terms of okay, obviously had a little bit of an issue with the margins in the fourth quarter and again probably a little bit worse than everybody else, but you guys have explained that, but where do we go from here in terms of – do you have to get the transactional sales people and push the pedal down a little bit? In terms of doing a little bit more, do you have to adjust the cost structure if you really believe that this margin pressure is going to be with us for a while or is it just a matter that the spot rates kind of picked up on the carrier base like we have heard from everybody and you’re just got to play a little bit of catch-up on those rates and within a quarter or two assuming that they are not going up 10% continually. So you can play that catch-up and give or take by the second and third quarter, we are back to kind of where we started from? How are you thinking about it in terms where we are at and what you have to do with the business to kind of catch back up?

Doug Waggoner

Well, there is several moving parts. First, as Dave alluded to, when you ramp a new enterprise account, particularly in truckload, you invest a period of time in what we would consider lane development, right, which is the sourcing – a continuous ongoing sourcing process. You are kind of finding the best price and the best service combination to satisfy the client’s requirement. So, there is a little bit of a ramp in there that will improve margins over time. The other thing as we saw that capacity in the marketplace was pretty choppy in Q4. And again it’s going to depend on the lanes that you are in, but that’s something that we manage on a daily basis. We are managing it both on the buy side and we are managing it on the sell side. And we have got tools, we have got data, we have got algorithms, but there is also a negotiation that has to take place between the customer. And also as Dave alluded to there, we did a pretty good job of that in the transactional business, where we can get squeezed a little bit as in our enterprise, where we might have fixed pricing to the client and that would be more of your classic case, where we have go in and re-price the business due to changing market conditions and that can lag by a couple of quarters. So, it’s really kind of a blend of all of those things.

Nat Brochmann - William Blair

Is it most of your enterprise still tied to some kind of like CPI and price escalators if those were to go up where you are covered or are most of those kind of on a fixed kind of rate that always is somewhat negotiable?

Doug Waggoner

Well, we do use a lot of price adjusters that are generally based on Department of Labor indexes and we adjust them quarterly. So there is a little bit of a lag effect there.

Nat Brochmann - William Blair

Okay. So, you do have some adjusters that automatically fit go in rather than having to renegotiate everything?

Doug Waggoner

Correct.

Nat Brochmann - William Blair

Okay. And then just in terms my second question, if things do get a little bit tighter, if indeed it’s more volume related and just capacity in stock because of weather if we do end up in slightly better environment we got better spot activity that should be really good for you guys that something you can really take advantage of in terms of them selling through on higher spot rates, is that a good way to think about it if that were to happen?

Doug Waggoner

Yes, that’s true, Nat. I mean eventually the client has to move their freight and move at a better (indiscernible). And so we have an opportunity to find capacity when our client can’t and the prices generally go up in that environment.

Nat Brochmann - William Blair

Okay, great. Thanks a lot. I will pass the line.

Doug Waggoner

Thanks Nat.

Operator

Thank you. Our next question comes from the line of Bill Greene from Morgan Stanley. Your line is open.

Bill Greene - Morgan Stanley

Hi there. Good evening. I am sorry to come back to this point, but when you look at the transactional revenue, the gross revenue you have been growing up much, much faster, you weren’t so dependent on what went on in a macro level because there was so much share to take. Why would the share opportunity not have been similar in the fourth quarter?

Dave Menzel

Well, I think that when you look at the transactional revenue growth compared with Q3 over Q4, we have historically seen that essentially tail off in December, roughly 10% transactional revenue growth, which is all organic. And again part of our transactional revenue growth I should highlight over the past three quarters included the acquisition of Sharp. So it was a little bit higher, we had a mix of both organic and acquired growth occurring through last three quarters. So, this was the first time where we’ve got that curious variable. We saw it at about a 10% level if not or these agent losses so to speak. And so like I mentioned we saw 6.5% growth overall probably higher in transactional in January, just under that in December. So it just seems to be a bad November and things seems to be on track, our productivity of our sales people is up, was up 5.7% in Q4. So I do expect to see continued organic transactional growth as we keep moving ahead.

Bill Greene - Morgan Stanley

Okay. And one of the goals was to really ramp up some of the hiring and do you feel like the commission structure that you changed has sort of limited your ability to hire or is there something we have to address there to return to the ramp on the headcount?

Dave Menzel

Not at all on the commission structure. We are very confident in the commission structure and the compensation programs that we have. We definitely, as we have talked about on some prior calls in the first half of this year, we got a little behind on hiring. We ended up hiring roughly 200 people. We probably had set an initial goal going into the year at about 250. So we came up roughly 50 people short on that. From a hiring perspective and we turned over probably another 40 or 50 people than anticipated. So, as we go into 2014, we intend to hire again 250 people. We have improved our process on the hiring pipeline and the management. And to some extent decentralized it a little bit as you know we have got a number of branch offices now. So it’s not all centralized in Chicago. So we are paying a lot of attention to that and we would anticipate successfully growing the sales organization in 2014, but to your point the good news is we got some productivity gains, but we did in fact fell short on that hiring objectives at the end of the day in 2014.

Bill Greene - Morgan Stanley

Okay. And then Dave just the last, sorry…

Dave Menzel

And that’s 2013, I said ‘14.

Bill Greene - Morgan Stanley

Right, right, right, okay. Dave, just the last question is just when you look at the experience here in the fourth quarter and you have put this in the context of some of your longer-term goals that we have outlined at Investor Days and whatnot, is there anything here that makes you think we need to revisit that or do you still feel like, no, this was sort of an anomalous quarter and we will get back and sort of hit our targets as we expected longer term?

Kyle Sauers

So, this is Kyle. We don’t plan to address the long-term guidance on this call given the impact of the margin environment, potential M&A activity. We don’t think it’s appropriate to address it on a quarterly or just on an annual basis, but we will address it again this summer as we have the last three years.

Bill Greene - Morgan Stanley

Okay.

Operator

Thank you. Our next question comes from the line of George Sutton from Craig-Hallum. Your line is open.

George Sutton - Craig-Hallum

Thank you. It’s somewhat noticeable that you are viewing acquisitions as more likely in 2014 than in ‘13. And I am just curious have you changed your acquisition criteria at all in that thought process and can you give us a sense of the level of competition for the potential acquisitions you are seeing?

Doug Waggoner

George, we have really not changed anything. We were active last year. We just didn’t pull the trigger on the ones that we were looking at in terms of competition. I don’t really think that it’s – I mean, there is some obvious competition that you are probably aware of, but it’s not affecting us in anyway. And as we said, we feel good about our prospects looking forward.

George Sutton - Craig-Hallum

Coming out of your Analyst Day perhaps the thing I was most excited about was the Open Mile both the people and the technology potential impact to your business, can you just give us an update on how that integration has gone? What that might have done for your business thus far and what we might see from here?

Dave Menzel

Well, on the people side we have placed the two founders in key positions at Echo. Evan Schumacher is our Chief Commercial Officer. He is leading all of the sales channels for the entire company and making a I think a heck of an impact, not only in the morale, but on the sales processes and how we actually go to market. So I am really excited about kind of the strategic direction that he is bringing to sales and marketing. We have also got another Founder of Open Mile, Nitin Kapoor, who is a deep technologist with a lot of formal product development background at companies like Sterling Commerce and IBM and he is working along with our Chief Technology Officer, Mike Reed and really bringing some of the Open Mile kind of operational cost enhancement technology on to the Echo platform. So I think it’s a longer term play, but I think we are positioned not only with technology, but with talent that makes us unique in the marketplace and a lot of that technology is really aimed at making us more efficient on the execution side of the equation.

George Sutton - Craig-Hallum

Perfect. One other question related to client-facing headcount in 2014, did I hear you correctly you plan to grow that by 250, is that a number….

Doug Waggoner

No, no. I said we would hire 250. So we’ll grow in the – what we classify the sales headcount between 100 and 120 people would be our target, ultimately it will depend on both the hiring and the attrition. All of those folks won’t necessarily be client based, a large percentage of those will actually be in it what we could call are carrier-sales organization and focused on sourcing and development of our carrier network on the truckload side. So that split will determine as the year progresses, but I would say in the front part of the year it might even be weighted heavily toward that carrier side and sourcing given the – given what we’re seeing in the marketplace and both as you say the challenge with respect to the raise in cost as well as the opportunity that presents for us add value to clients in a disrupted cycle which is something that I think everybody is thinking a lot about right now.

George Sutton - Craig-Hallum

Yes, okay, gladly clarified. Thanks, guys.

Operator

Thank you. Our next question comes from the line of David Campbell from Thompson Davis. Your line is open.

David Campbell - Thompson Davis

Yes, hi, good afternoon everybody. I just wanted to go to January, the 6.5% further increase in January is great, but – did that include the first revenues from on-time I’m sorry…

Dave Menzel

No, no, OFS no, it does not, that’s the organic number.

Doug Waggoner

I think the thing that’s encouraging about that is generally you see a slight decline from Q4 to Q1 and we’re seeing an increase.

David Campbell - Thompson Davis

Yes, I was (belt in) when you add in OFS that, that will add to the 6.5% growth. So, can you keep that going and then you have a significant increase in revenues sequentially which this is so would be very unusual?

Dave Menzel

Yes, the other thing we could have highlighted I mean is that if you guys know the first week or so, week or two in January we’re really tough leading to from a further perspective and some of this could be a rebound, but really some significant acceleration of the back half of January. So the 6.5% number is in average for the total month, but I would tell you that the front part of the month is much lower than 6.5% and the back part of the month was in fact higher. So that’s encouraging as well.

David Campbell - Thompson Davis

Great. And what about you mentioned G&A at $90 million is one as you target for the year. I think for the year it was a range at roughly $90 million. Is there any…

Kyle Sauers

That was $94 million.

David Campbell - Thompson Davis

$90 million, $94 million. Is there a chance that, that number could be less I mean is the – aren’t you looking at that from a point of view of what the net revenue growth is?

Doug Waggoner

That’s based on our modeling of the top-line and the cost of executing to get there.

David Campbell - Thompson Davis

Right. What I mean is the net revenue growth doesn’t get to your top-line targets and would you be able to lower that cost?

Doug Waggoner

Yes. if we’re about achieving the growth rate that we modeled then we would find a different cost level.

David Campbell - Thompson Davis

Okay. Thank you.

Dave Menzel

Thank you.

Operator

Thank you. Our next question comes from the line of Tom Albrecht of BB&T Capital Markets. Your line is open.

Aaron Reeves - BB&T Capital Markets

Thanks. This is Aaron Reeves in for Tom. I was just wondering if you could maybe talk a little bit more about the impact of weather in the quarter and maybe quantify that as possible?

Doug Waggoner

I’ll give you some color maybe Dave or Kyle can put some numbers. We have a very concentration of LTL and we believe that the LTL mode is a little more affected by weather than it is truckload just due to the nature of how LTL moves and multiple handlings and stops etcetera. So that’s the – I mean that’s the color I would give you around it is to get – we saw in January 1% growth on the LTL side I think that’s largely attributable to the weather.

Aaron Reeves - BB&T Capital Markets

Alright. Thanks. And just a couple of housekeeping questions, could you say what the organic growth rate was in the quarter?

Kyle Sauers

It’s just shy of the revenue growth rate for the quarter because we left that Sharp acquisition.

Aaron Reeves - BB&T Capital Markets

Alright. And then one final question and I’ll get back in the queue. What was the total number of transactional clients for the year?

Doug Waggoner

It was seven – for the year that was added for the quarter.

Dave Menzel

I have to look that much a thing and just one second.

Aaron Reeves - BB&T Capital Markets

So what was it so in quarter is lowest you got that handy?

Dave Menzel

Yes, I’ve got it right here. So it’s 17,067 I believe for the quarter and it was 28,213 for the year.

Aaron Reeves - BB&T Capital Markets

Alright. Thanks so much.

Doug Waggoner

Thank you.

Operator

Thank you. Our next question comes from the line of Matt Young from Morningstar. Your line is open.

Matt Young - Morningstar

Good afternoon, guys. Thanks for taking my call. Based on what we’ve heard from several providers, it does sound like truckload capacity tightened on many lanes in the fourth quarter partly from the weather, partly from somewhat better demand trends. But wondering if you ran into any limitations on finding capacity on any kind of business whether it be transaction or spot if you had to pass anything out?

Dave Menzel

Yes, I mean I think that certainly you pass things up and part of running into this everyday is making right decisions to provide high level of service for your clients. So, there are certainly situations where we are passing upgrade, there is no doubt about that. And you’re right I mean I think that the way that quarter progress was kind of interesting compared to last year. If you look at the TransCore spot average is the line-haul. In 2012, in November there were about s 33 and in December they were about 28 and in 2013 they were about 40 and about 47 in December.

A very interesting trend completely divergent roughly about – we get to 9 in fact 9% total delta, 4% to 5% increase versus a 4% decrease. So, it gives you some sense and I’ve seen that continuing into January. So, it has been an interesting recent rapid wise in pricing. And back to the first part, of course we’re investing in carrier sales, we’re adding lots of sourcing capabilities to make sure that we make the right decisions to provide a high level of service for our clients and accept the truck rate as possible while still delivering that quality resources.

Matt Young - Morningstar

Yes, I think that was part of my question was I know that you’ve talked in the past about investing in a truckload sourcing capabilities. I’m assuming that’s shaping up all the other deals. Much to go in terms of – I know changing infrastructure, investing in IT or adding headcount, are you leverageable at this point with the sourcing.

Dave Menzel

I think on the one hand leverageable we’ve got – we’re doing a lot of things we’re doing and then always making changes in terms of who the process works and how we – as we grow in these centralized, how our business works together in multiple location. And what - we want to keep continue to build scale, continue to build network density, land density to provide great opportunities around the country. But the primarily – the primary you had simple item and it will be transparent to everyone will be the our ability to add people which gives us sourcing capabilities over time. So, it is important that and it’s probably – it’s probably the number one thing we need to do is continue to add people. But we definitely are confident and the infrastructure we have to continue to scale that operation.

Matt Young - Morningstar

Okay. And I’m assuming that, that investment also helps you at cost of hire right as you get more scale there, does that improve you by rates naturally?

Dave Menzel

Absolutely. I mean it’s – but there is so many elements to it in the market conditions for this.

Matt Young - Morningstar

Got you. Okay.

Dave Menzel

As we built, yes it was – as the network improves and as you build consistent parade in different parts of the country and networks to networks to carrier, that should translate into a more testifying.

Matt Young - Morningstar

That’s fair. Thank you, very much. That’s all I have.

Dave Menzel

Thanks, Matt.

Doug Waggoner

Thanks.

Operator

Thank you. And our last question is a follow-up question from Jack Atkins with Stephens. Your line is open.

Jack Atkins - Stephens

Yes, thanks guys. Thanks for taking my follow-up here. So, I guess just kind of going back to the guidance issued for a moment. And I understand that you guys went up only talk about what you can control and clearly that revenue margins have been pretty volatile in 2013. But as you look at some of the trajectory of your earnings for 2014 versus 2013, that would you expect generally speaking your earnings at 2014 your EPS to be higher or lower than 2013 that’s your given a long-item guidance which you provided on the call.

Doug Waggoner

Maybe higher

Jack Atkins - Stephens

Okay, okay, great. Thank you.

Operator

And I’m showing no further questions at this time. I now like to turn it back over to management for further remarks.

Doug Waggoner

Alright. Well, just to review, our revenue came in about $9 million or 4% below – of the low range of our guidance due to a very soft November and so margin compression. That’s translated into a hit on our EPS despite the fact that we can pull our SG&A. Nonetheless, we’re very bullish on 2014. We saw revenue growth accelerate in December and January. We just completed a $50 million acquisition. We got a robust pipeline for both new enterprise clients and additional acquisitions. We received some of our highest scores ever in recent Client Satisfaction Surveys. We continue to invest in truckload so that we can achieve scale which will improve net revenue margins over time. We continue to invest in technology that differentiates our ability to serve clients and make their transportation less complicated. And finally we recognized that the capacity market is volatile and slowly tightening and this will eventually create margin expansion opportunities. And with that, I’d like to thank everybody for their time and we will see you next quarter.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a good day.

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