Echo Global Logistics (ECHO) Douglas R. Waggoner on Q1 2016 Results - Earnings Call Transcript

| About: Echo Global (ECHO)

Echo Global Logistics, Inc. (NASDAQ:ECHO)

Q1 2016 Earnings Call

April 27, 2016 5:00 pm ET

Executives

Kyle Sauers - Chief Financial Officer

Douglas R. Waggoner - Chairman and Chief Executive Officer

David B. Menzel - President & Chief Operating Officer

Analysts

Jack Atkins - Stephens, Inc.

Thomas Stephen Albrecht - BB&T Capital Markets

Nate J. Brochmann - William Blair & Co. LLC

Jason H. Seidl - Cowen and Company, LLC

Alexander Vecchio - Morgan Stanley & Co. LLC

Thomas Wadewitz - UBS Securities LLC

Allison M. Landry - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Kevin Mark Steinke - Barrington Research Associates, Inc.

David Pearce Campbell - Thompson Davis & Co., Inc.

Matthew Young - Morningstar, Inc. (Research)

Operator

Good day, ladies and gentlemen, and welcome to the Echo Global Logistics First Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Kyle Sauers, Chief Financial Officer. Sir, you may begin your conference.

Kyle Sauers - Chief Financial Officer

Thank you, and thank you for joining us today to discuss our first quarter 2016 earnings. Hosting the call are Doug Waggoner, Chairman and Chief Executive Officer; Dave Menzel, President and 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 definition and reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure is contained in the press release we issued earlier today and Form 8-K we filed earlier today.

With that, I'm pleased to turn the call over to Doug Waggoner.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Thanks, and good afternoon, everyone.

We are pleased with our first quarter results and our ability to continue to take market share in a challenging environment. Our value proposition to shippers and carriers continues to grow as we enhance our network density and scale. This value will be amplified when we complete the technology and organizational integration of Command Transportation later this year.

While rates have continued to decline and spot market opportunities are few and far between, Echo posted strong numbers during the first quarter. As you turn to page three of the slides, here are some of the highlights. Revenue grew 43% to $405 million. The growth was despite the year-over-year revenue headwind from the drop in fuel prices of approximately $26 million. Net revenue grew to $81 million, up by 52%. Our net revenue margin increased by 116 basis points, with truckload now comprising 68% of our total revenue, up from 56% a year ago.

Reported non-GAAP EBITDA grew by 44% to $16.5 million. After effecting for integration costs of $1.4 million during the quarter, non-GAAP EBITDA grew by 55%.

Non-GAAP fully diluted earnings per share were $0.24 per share, or $0.27 per share excluding the integration costs. Bottom line, these results reflect a continuation of the trend of very solid performance, execution and results in what most see as a pretty difficult set of market conditions. Our teams are continuing to execute for our clients and our carriers, all while working on the business integration of Echo and Command.

I now want to turn the call over to Dave who will discuss our Q1 results in more detail.

David B. Menzel - President & Chief Operating Officer

Thanks, Doug. I'd also like to reiterate that I'm very pleased with our performance in this market, and as I usually do, I'm going to go through and break down the details by mode and by client types.

As Doug mentioned, Q1 continued the trend of relative softness on the demand side and a continuation of the loose capacity that we saw in Q4. Despite these factors, as depicted on Slide 4, our truckload business continued to deliver dramatic growth, driven by our acquisition of Command. As you can see, truckload revenue grew 74% to $275 million on a year-over-year basis. The acquisition of Command drove the majority of that growth, as Echo grew organically by 4%.

Of course, the impact of lower rates, due to both declines in line haul and fuel, mean that top line revenue doesn't quite tell the story. In fact, Echo's organic growth was driven by an 18% growth in shipments. This volume growth is significant when considering how soft the spot market has been throughout the first quarter.

Command's standalone volume growth was 3% and we're beginning to see increasing momentum in this business as we all settle into the powerful combination that we initiated last June.

In today's market, it's more important than ever to continue to focus on delivering exceptional service to our shippers which enables us to continue to feed our carriers with freight to help them improve their operational performance. Our truckload teams have done a fantastic job, continuing to hustle and work together to build on our reputation in the marketplace. It's this engagement and work ethic that's enabling Echo to continue to take share.

Our LTL business continues to be an important component to our multimodal value proposition, and it continues to perform favorably. As all of you know, the dynamics in the LTL business are much different than truckload as the pricing tend to have a much higher level of stability. Our ability to provide a high degree of automation as well as the ability to optimize freight decisions across a diverse carrier base remains a key driver of our market positioning in this category or mode.

In Q1, our LTL revenue was up by 1% to $106 million. Consistent with our discussions last quarter, the conversion of a contract to fee-based impacted this growth rate, and as such our growth was 6% when adjusting the revenue out of the comparable period last year. On the rate side, our LTL pricing was flat during the quarter due to modest line haul increases, which were offset by lower fuel costs. Our LTL volume was up 2%, or 10% after excluding the impact of the contract restructure.

On the intermodal side, our revenue was up 10% at $18 million for the quarter. This increase is attributable to the intermodal revenue from Command, offset by volume and pricing decreases in Echo's historical Intermodal business. Year-over-year decreases in fuel prices along with the loose truckload capacity have had an impact on our intermodal business, which is consistent with our expectations as many of our shippers were able to secure effective truckload service at competitive rates on medium-haul shipments. Our intermodal capability remains an excellent solution for our client base and we'll be well-positioned as the cycle changes.

Page five breaks out revenue by client type. Transactional revenue grew by 53% on a year-over-year basis, totaling $332 million in Q1 2016. Transactional revenue was down 1% year-over-year, excluding the impact of Command acquisition. Again, volume gains were offset by lower rates.

We ended the quarter with 1,651 sales reps, which includes both client and carrier sales, reflecting an increase of 474 people from a year ago. The year-over-year increase was primarily due to our acquisition of Command. Our transactional revenue per sales rep increased 7% on a year-over-year basis despite softer rates, which is evidence of our ability to deliver sales force productivity gains despite the more difficult market conditions.

Our managed transportation business remains to be an important part of our overall strategy, and we're very pleased with our 11% revenue growth in the quarter, totaling $73 million. After considering the impact of our contracts that were restructured to fee-based arrangements, revenue would have increased by 19%. Our managed transportation net revenue grew by an even greater amount, partially due to the increase in fee-based deals. Our managed transportation net revenue was up 31% in Q1.

On our last call, we highlighted our success in continuing to win new managed transportation accounts, and our Q1 results reflect this success. We had another strong quarter in terms of new account wins, retention rates in the high 90%s once again and we expect strong growth from our managed transportation business for the remainder of the year. I'd like to highlight and congratulate our managed transportation team for continuing to work hard for our clients, which has enabled the strong growth and continued track record of renewal success.

Slide 6 breaks down our net revenue and our mode and client mix. As Doug highlighted, our net revenue was up 52% in a pretty flat market, driven predominately by our acquisition of Command. At the same time, organic growth in our truckload business, along with the expansion of truckload net revenue margins were all contributing factors to our success. Our truckload net revenue margin improved on a year-over-year basis at both Echo and Command. Echo's historical truckload margin improved by 243 basis points and Command's truckload margin improved by 177 basis points year-over-year. In total, our truckload margin was up 359 basis points year-over-year.

As we've mentioned in previous calls, our truckload net revenue margin gains are the result of a combination of factors, including lower fuel prices, continued improvement in our execution and the relative loose capacity that currently exists and its impact on our committed business. However, as more and more shippers have gone live with new routing guides, this impact reduced throughout Q1, and its relevance in Q2 will depend on where rates go from here.

With respect to LTL, our net revenue margin improved by 43 basis points over the prior year, again reflecting a more stable pricing environment. Our integration with Command continues to progress on schedule, and it's going very well. We plan to go live on a common CRM system in Q2, aligning the lead generation and customer acquisition strategies of the Echo and Command sales teams. As we announced last quarter, we anticipate moving all of our locally based employees into our Chicago office at the beginning of Q4. This will be a very exciting time for all of our people, and our work force is eagerly anticipating the upcoming move and the energy and synergies gained by having us all work together out of a single location.

On the technology front, our integration remains on track and is expected to be complete by the end of the summer. And we will begin deployment onto a common system around the same time as we combine our teams into a single location. This roll-out strategy will improve our ability to train all of our people on the enhanced capabilities and position us to realize the synergies of our combined Truckload network.

The process and technology work enabling this integration has been extensive, and many of our top managers as well as our folks on the technology and integration teams have done a great job committing time and energy to this process while continuing to fulfill their responsibilities to our clients, carriers and the people on their teams. We really appreciate their hard work and contributions to enable to continue to deliver strong results in a tough market, all while merging and integrating our operations.

I'd now like to turn it over to Kyle to review the details of our financial performance.

Kyle Sauers - Chief Financial Officer

Thanks, Dave.

On page seven of the slides, you'll find a summary of our key operating statement line items. Commission expense was $24.8 million in the first quarter of 2016, increasing 66% year-over-year. Commission expense was 30.7% of net revenue, representing the 269-basis point increase from the first quarter of 2015. This increase is the result of our continued shift towards truckload, particularly with the addition of Command.

Our non-GAAP SG&A expense was $39.5 million in the first quarter of 2016, up 47% from the first quarter of 2015. Excluding integration costs of $1.4 million related to the Command acquisition, those non-GAAP SG&A expense would have increased 42% over the prior year to $38.1 million. The increase is primarily due to the Command acquisition, but also includes other investments in the growth of our business.

Depreciation expense was $3.5 million in the first quarter of 2016, increasing 29% year-over-year. The increase is largely attributable to the added depreciation costs from the Command acquisition. Our non-GAAP effective income tax rate was 37.2% for the first quarter of 2016 compared to 36.7% in the prior year.

Non-GAAP EBITDA increased 44% from the first quarter of 2015 to $16.5 million, or increased 55% to $17.9 million after considering the integration costs of $1.4 million mentioned earlier.

Non-GAAP net income increased 30% from the first quarter of 2015 to $7.1 million, or increased 46% after integration costs. Non-GAAP fully diluted earnings per share was $0.24, increasing 4% from the first quarter of 2015, or $0.27, an increase of 17% after excluding the integration costs.

GAAP fully diluted earnings per share was $0.01 a share in the first quarter of 2016, and the primary differences from our non-GAAP EPS are $4.0 million of amortization of intangibles from acquisitions, $1.9 million of non-cash interest expense and $5.3 million of stock compensation expense.

Slide 8 contains selected cash flow and balance sheet data. In the first quarter of 2016, we generated $14 million in operating cash flow and $10 million in free cash flow. Capital expenditures totaled $4.3 million in the quarter, an increase of $1.5 million from the first quarter of 2015.

We ended the quarter with $44 million in cash, $209 million of accounts receivable and nothing drawn down on our $200 million ABL facility.

Regarding our stock buyback, we've now repurchased 949,000 shares of our common stock, 910,000 of those during the first quarter at an average price of $20.42 for a total of $19.4 million. This leaves approximately $30 million available on our buyback authorization.

We've talked a lot about the current truckload environment and the continued declining rates. We offered 2016 revenue guidance on our last call with the assumption of no significant changes in rates other than the normal seasonal trends. As it stands, we're seeing April rates 8% to 9% lower than they were in January, which is consistent with industry data points. As a result, we're lowering our full year guidance by roughly 5% to $1.7 billion to $1.78 billion. We're still pleased with our volume growth, but with truckload comprising almost 70% of our revenue base, the lower rates, should they persist, are impactful on our full year revenue targets.

We're also updating some of our other guidance provided on the last call. Anything not mentioned here remains the same. We now expect full year commission expense to be between 29.5% and 30.5%, down from the 30% to 31% from the last call.

We expect SG&A costs of between $155 million and $161 million for the full year, down $3 million from the midpoint of our previous guidance. As before, these costs do not include our anticipated integration costs, which we expect to be between $6 million and $8 million for the full year.

Without considering any potential stock repurchases during this quarter, we would expect shares outstanding in the upcoming quarter to be approximately 29.8 million. Sequentially, we expect second quarter SG&A costs, excluding the integration costs, to increase by $0.5 million to $1.5 million from the $38.1 million recorded in the first quarter, or a range of $38.6 million to $39.6 million.

We've already discussed what we've seen happening with rates as of late, but I also want to update you on our growth thus far during the start of the second quarter. Daily revenue is up 31% compared to the same period a year ago with organic Echo truckload volumes up 14% and Command truckload volumes up 7%, which is a nice uptick for Command over the last couple of quarters.

As a reminder, we closed the Command acquisition on June 1, of 2015. So assuming that our organic growth rates for the underlying business throughout the quarter remained steady, our year-over-year revenue growth would be 18% for the full quarter. And through this early part of the quarter, we've been able to maintain our margins near our first quarter levels.

So with that, I'd like to turn the call back over to Doug.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Thanks, Kyle.

We are in an environment with slower freight volumes, a soft spot market and truckload rates that have declined significantly over the last several quarters. These factors certainly impact our top line revenue in 2016, but we do not anticipate them to persist long enough to alter our longer-term targets. In fact, our volume growth and our ability to expand net revenue margins demonstrate the strength of our business model on multiple fronts.

First, the volume growth says we continue to take share in tough markets, even when spot freight is light. When the market turns, which we know it will, we will again be well-positioned to accelerate our growth.

Second, margin expansion offsets the impact of lighter revenue growth and demonstrates the attractiveness of our business model, which thrives in a variety of market conditions. I'm very proud of the work of the Echo team on our success in this type of market. We are taking significant market share and developing long-term relationships with new and existing shippers and carriers that will serve us all well as the market changes.

We can't predict what will happen with fuel prices, economic demand or the timing and pace of the impact on capacity from the new ELDs or other regulations. What we can predict is Echo is better suited than ever to succeed in the market. The success we've enjoyed over the last few years has come from building a robust network of truckload capacity and utilizing that for our shippers with a leading-edge technology platform.

Finally, we look to later this year when we bring Echo and Command employees together under one roof, and most importantly, on an enhanced technology platform.

And with that, I'd like to open it up for questions.

Question-and-Answer Session

Operator

And our first question comes from the line of Jack Atkins with Stephens. Your line is now open.

Jack Atkins - Stephens, Inc.

Good afternoon, guys, and thanks for taking my questions. So I guess just to start off and to go back to the guidance commentary for a moment, Kyle, when you think about the volume growth assumed in the full year FY 2016 revenue guidance today versus the last update, how has that volume growth assumption changed between those two guidance ranges?

Kyle Sauers - Chief Financial Officer

Thanks, Jack. So the volume growth has not really changed. We feel good about how the volume's trending. This is really primarily about rate changes in the truckload market.

Jack Atkins - Stephens, Inc.

Okay. That's encouraging to hear, because when I think about your model, it's really more of a volume-driven model. So that's pretty encouraging. When we think about the month of April, we've been hearing consistently throughout earnings season from transport companies that April has been relatively soft. Could you guys comment on sort of what you're seeing out there? And sort of if you're seeing that, what do you think may be driving it?

David B. Menzel - President & Chief Operating Officer

Sure, Jack. The – we'd definitely say that things kind of lightened up toward the end of March and into early April. It's difficult for us to assess what the reasons are for kind of the slowdown or the lack of a larger peak coming into April. The last few days we've seen a little bit of activity that suggest things might be starting to heat up a little bit coming into the summer. But the volume did kind of taper off towards the end of March and early April. And I just would attribute that to just kind of a general economic sluggish environment, but hard to pinpoint it any deeper than that.

Jack Atkins - Stephens, Inc.

Okay. Great. And then one last question from me, and I'll turn it over. We saw you guys fairly active repurchasing your stock in the quarter. How are you thinking about capital allocation as you move through the remainder of the year? And what are you seeing out there on the M&A market? Should we read you guys being more aggressive on the buyback is that maybe the M&A market is kind of cool? Or how should we think about that?

Douglas R. Waggoner - Chairman and Chief Executive Officer

We continue to look at M&A opportunities, and we're active, kicking the bushes and looking for things that are a good fit. Obviously, with the Command deal we feel like we've made a lot of progress in our truckload density strategy. So we're probably a little more selective and picky about the things that we look at, but we do have an appetite for that and are looking at it.

Kyle Sauers - Chief Financial Officer

Yes. I think, Jack, on the buyback, your comments are spot on that we were aggressive in the first quarter when we felt like the stock was quite undervalued. And I think as we look forward, if that opportunity presents itself, we'll likely do the same.

Jack Atkins - Stephens, Inc.

Okay. Sounds good. Thanks so much for the time, guys.

Kyle Sauers - Chief Financial Officer

Thanks.

Operator

Thank you. And our next question comes from the line of Tom Albrecht with BB&T. Your line is now open.

Thomas Stephen Albrecht - BB&T Capital Markets

Okay. Thank you. I didn't expect to be in the queue so quickly there. So what I wanted to just double check here, so even though, Kyle, you talked about the – I lost my train of thought here. Let me just go back to the freight environment then. So have you guys seen any evidence of fleet failures yet? I mean I know there's thousands of active carriers, and unless there's probably a big, sizable shakeout in a three-week or four-week period it's probably hard for you to notice, but given where rates are, the regulatory environment, I'm just curious what you're seeing?

David B. Menzel - President & Chief Operating Officer

Yes, Tom. We're not really seeing any evidence of anything significant in that area. It's like we've said the capacity remains to be pretty plentiful right now, and there's no sign of significant amount of failures or anything unusual in that regard to this date. Maybe lower fuel prices have enabled carriers to kind of survive in this loose capacity environment by improvements in their working capital and a little less stress on their models, but we have not seen anything significant in that regard.

Thomas Stephen Albrecht - BB&T Capital Markets

And you gave an April volume update for both the core Echo and Command, but can you kind of talk about, at least directionally, what that transport gross margin has done? Has it kind of maintained? Or begun to come off a little bit? Any color that you can maybe give, whether it be second half of March on through April, just the cadence of that?

Kyle Sauers - Chief Financial Officer

Sure, Tom. I mentioned it pretty quickly in the prepared remarks, but we've been able to maintain the margins that we had in Q1. Obviously, that's not necessarily meant to predict what it'll be for all of Q2, but we feel good about where they are right now.

Thomas Stephen Albrecht - BB&T Capital Markets

Okay. And then I know I've asked you this, Kyle, but I want to hear from a couple of the other guys. Just as you went through bid season, and I know a year from now you're going to be much further integrated and maybe speak as one voice in the marketplace, but your goal for a long time has been to get on to more route guides, et cetera, and there was just a proliferation of so many bids. How successful would you say you were, even though Coyote and Echo are only quasi-integrated?

David B. Menzel - President & Chief Operating Officer

So I'll give you a little color on that. So with the acquisition of Command, we definitely have continued to pursue relationships with larger shippers and have expanded the number of route guides that we're on. But I would say that it hasn't been dramatic expansion, because the environment doesn't – today's environment doesn't lend itself to that. Asset based carriers are tending to offer more significant capacity to shippers. So the good news is our reputation, our performance has earned us bigger seats at the table with our existing customers, and we've earned relationships with new ones. But I think that as market conditions change, our opportunity to kind of capitalize on the power of a combined network and a stronger truckload offering is going to be a big one as we move forward.

Thomas Stephen Albrecht - BB&T Capital Markets

And the last question: diesel fuel prices are up about $0.22 a gallon in the last several weeks, yet, broker pricing continues to go down. And even though the surcharge is, let's call it, maybe between 10% and 15% of the total cost right now, at what point would you expect that some of the rates would begin to move up at least because fuel's begun to move up?

David B. Menzel - President & Chief Operating Officer

So just to get clarity on that question, do you mean rates to shippers or rates to purchase (26:10).

Thomas Stephen Albrecht - BB&T Capital Markets

Yes, rates that shippers would be willing to pay you as you go into the marketplace, because carriers undoubtedly are probably starting to squeal now, $0.22 a gallon later.

David B. Menzel - President & Chief Operating Officer

Yes, most of our arrangements with shippers have a fuel surcharge table that will adjust with the market conditions. So on the sell side, there tends to be a pretty strong and direct correlation with fuel prices as they move about. Obviously, on the procurement side and the buy side, the relationship isn't oftentimes quite as direct because we're procuring in the spot market and in most cases don't have a negotiated fuel schedule with a carrier. So that's where you get a little bit of the imbalance sometimes and the margin either advantage lift or degradation associated with moving fuel prices.

Thomas Stephen Albrecht - BB&T Capital Markets

Right. Okay. Thank you for the color, guys.

Kyle Sauers - Chief Financial Officer

Thanks, Tom.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Thanks, Tom.

Operator

Thank you. And our next question comes from the line of Nate Brochmann with William Blair. Your line is now open.

Nate J. Brochmann - William Blair & Co. LLC

Good evening, everyone.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Hey...

Nate J. Brochmann - William Blair & Co. LLC

So a couple of questions, going back to like the environment and Jack's question a little bit in terms of April. I mean, usually, every April starts off a little bit slow and obviously with the timing of the Easter holiday, and just kind of wanted to clarify a little bit more in terms of the commentary. Sequentially, usually we do see that softness, but are you just seeing the overall trends being that way in terms of reading the tea leaves as you look out further into the year in terms of what your customers are telling you? Or is there just a little bit more near-term nervousness?

David B. Menzel - President & Chief Operating Officer

I'd say more of the latter. It's not that we're getting significant feedback from customers that things are going to slow down and not pick up per se. So it could be a little bit of the holidays and the way they've fallen and that's driven a little bit of the softness and just nuances with the year-over-year comparison. So sequentially, volumes tend to be pretty steady and I think that as the summer moves on, we'll start to see more normal increases.

Nate J. Brochmann - William Blair & Co. LLC

Okay. That's good to hear. And then second question, and maybe you can help me clarify this a little bit, but obviously, totally understand where the rate environment is today and understand your mix of transactional business, but I always kind of thought of Echo as even though a lot of your customers are transactional, a lot of that business just tends to be with smaller shippers that don't have any definitive contracts so that there's a little bit more of a stickiness in terms of actual everyday freight, number one. And number two, a little bit more stickiness in terms of what customers are willing to pay, almost a lot like contractual pricing, which isn't down quite as much as the spot. Can you kind of talk about where that dynamic is for you guys right now? And kind of how that plays out over the next couple of quarters?

David B. Menzel - President & Chief Operating Officer

Sure. I mean I think that two pieces of the puzzle – two or three pieces that I'd just like to comment on. Obviously, with our managed transportation clients it's exactly what you said; it's a high degree of stickiness. We've got typically negotiated pricing arrangements that work in a variety of market conditions and not a lot of concern with respect to kind of the pricing environment and how it moves around, because we've structured arrangements that make sense to handle those conditions.

On the transactional side of the spot, I think on the one hand you kind of hit the nail on the head; we've got about 25% to 30% of our business that is what we'd say is under committed pricing on the truckload side with larger clients and not much spot market or freight available on those opportunities. But we get a tremendous amount of freight from small to midsize customers. So if you just did the math you'd say maybe 75% of our truckload freight is coming from that customer segment, so to speak. And I think the relationships are very sticky, but it would be not – it would be misleading to say they're not oftentimes price competitive. And so we've got to adjust with the market in most of those situations, just like everybody else does. So if the rates are down across the market, we're going to make the necessary adjustments to stay competitive in that transactional customer set. Even though it looks a little bit like spot business in that it's transactional, it's not per se being quoted off a routing guide.

Nate J. Brochmann - William Blair & Co. LLC

Right. Right. Right. Right. Okay. That's helpful. And then just final question as we move a little bit further here into the integration with Command and you combine the offices here later this year and we get a little deeper into some technology combinations, should we be thinking of any either kind of spike up in costs or any temporary distractions that might occur with any of those different moves or moving on to different platforms, whether it's physically or within technology?

David B. Menzel - President & Chief Operating Officer

I'll cover – I'll just talk about the attention, so to speak, or the distraction part of the question, and I'll let Kyle maybe cover a little bit from a cost side of the equation. I mentioned in the prepared remarks that we're looking at the technology work is on schedule expected to really be locked down by the end of summer. We're currently looking at a rollout strategy that would be in combination with the move, which we anticipate happening right at the beginning of Q4, depending on a number of factors, including the timing of the buildout of the space, et cetera.

And so I don't see any reason for any – or impact to the business prior to that date. I think when we do move and go live, the good news is we've got a lot of experience moving people around, as does Command. They're actually located in two buildings. They recently did a student body left move and switched a bunch of people between buildings over a weekend. So we've both got a lot of experience kind of moving people, and opening up new space, and expanding our space for both of those companies.

So while I would say that when we put those things together there'll be some risks associated with a lot of people relocating, but at the same time we feel very confident in our ability to execute that flawlessly. And we've got integration teams building out testing and training plans today to facilitate those actions. So we certainly don't anticipate any disruption, but we'll be able to get more color on the timing of those events as we get a little closer to them.

Douglas R. Waggoner - Chairman and Chief Executive Officer

And I would just add from a technology point of view, the project plan allows for several months after the completion of the coding to do testing and training. So by the time we actually get to the conversion date, we've had plenty of time to do dress rehearsals and be ready to go.

Kyle Sauers - Chief Financial Officer

And just real quick on the cost piece, Nate, the increase in depreciation expense that will be associated with the expanded facility, and then also costs associated with leasing that space are built into the full year guidance that we've given.

Nate J. Brochmann - William Blair & Co. LLC

Okay. Great. Thanks for all the color. That's it from me. I appreciate it.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Thanks, Nate.

Operator

Thank you. And our next question comes from the line of Jason Seidl with Cowen & Company. Your line is now open.

Jason H. Seidl - Cowen and Company, LLC

Thank you, again. Thank you, guys, for taking my question. Just one quick one from me; you touched a little bit on the M&A opportunities and that if you were looking for more of a pure truckload broker it has to be a good fit. Could you talk about maybe some complementary businesses that you might be looking at? Could you look at something like an IMC operation? Or maybe a forwarder that does some air and ocean?

Douglas R. Waggoner - Chairman and Chief Executive Officer

Well, we've stayed pretty pure to our model up until now. We've tried purposely to build density in LTL, truckload and intermodal. We bought two small IMCs already, which gave us the greatest network in rail contracts, and some customer lists and freight density. I think you could look towards niches in the markets that we already serve, whether they're geographic niches or equipment-type niches. There's managed trans brokers out there that have books of business that could be attractive to us.

So I think that we would be mindful not to do something that creates account conflict or carrier conflicts, because we're getting to scale now. But there are plenty of niche opportunities to fill in the gaps whether it would be, like I said, a geographical niche or potentially a market vertical or equipment-type niche.

Jason H. Seidl - Cowen and Company, LLC

Okay. And when you're looking at what you're seeing out there for sale in the marketplace, how are the multiples compared to, let's say, a year ago?

Douglas R. Waggoner - Chairman and Chief Executive Officer

It always depends that the smaller companies that aren't growing as fast go at a smaller multiple, and a bigger company with a high growth rate goes at a bigger multiple. And I think based on the variety of deals that we look like, it's kind of hard to generalize whether multiples are up or down.

Jason H. Seidl - Cowen and Company, LLC

Okay. Gentlemen, I appreciate the time, as always.

Kyle Sauers - Chief Financial Officer

Thanks, Jason.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Alex Vecchio with Morgan Stanley. Your line is now open.

Alexander Vecchio - Morgan Stanley & Co. LLC

Good evening. Thanks for taking the question. I wanted to ask about Command, and the volume growth rates you guys have been seeing there lately. I think it was up 2% in the last quarter. That accelerated to 3% in 1Q, and then quarter-to-date, Command truckload volumes, I think, you said were up 7%, which is pretty remarkable considering how soft the spot market is. So I guess, what's really driving that growth? Are you more aggressively going after market share gains? And are you kind of using price as a lever to drive that volume growth?

David B. Menzel - President & Chief Operating Officer

Well, I'll comment a little bit on that, Alex. I think that, in terms of using price as a lever, I'd say no. I mean, I think we are aggressively going after opportunities that there's a good fit, but we're very focused on profitable business, and you can see that in the gross margins that we've been able to maintain in Q1 and as we talked about how they continue into April. So we're not making decisions that don't make sense for the business and for long-term relationships.

I think that one of the things we've seen with a lot of acquisitions that we've done over the past, and we've done 20 acquisitions, and now Command's obviously the largest by a significant factor, but in any acquisition, the first year's oftentimes tough to get everyone motivated and rolling in the same direction. There's a lot of distraction, cultural change, just the transition, the process transition.

And so I think that the guys at Command have done a great job, like I mentioned in the prepared remarks, working not only on growing the business, but on the integration. And one of the things that I think we've spent a lot of time and effort on is this process intention. And while we might be 80% the same, there might be 20% differences.

And tackling those 20% differences so that when we fully come together we can operate as one single company has been a primary focus of ours. And I'd say that we're over the hill, kind of over the hill on that one. We're running downhill against most of those things. We're really working on the final pieces of technology, and our teams are motivated and engaged and out there trying to win market share. So I look at it more as just getting the guys fully engaged, kind of getting through a lot of the process issues and just getting some good momentum in advance of the network combination.

Alexander Vecchio - Morgan Stanley & Co. LLC

Okay. That's helpful. That makes sense. And then kind of touching back to the guidance, obviously, revenues expectations coming down because your sell rates are coming down, but naturally you're also purchasing lower, and that should support margins presumably. And I know you don't give earnings guidance, but you also did lower some of your guidance on some of these cost items. So at a high level, is the earnings power in 2016 at Echo greater today than what you thought it would be last quarter? And I know gross margins kind of a little bit iffy, but taking all those facts together, right, it sounds like you're suggesting that they are. But I wanted to make sure I understood correctly.

Kyle Sauers - Chief Financial Officer

Maybe, Alex, can you define earnings power for me? I'm not sure exactly what you meant.

Alexander Vecchio - Morgan Stanley & Co. LLC

I just mean whatever you expected your earnings to be in 2016 last quarter, are your expectations higher today for earnings?

Kyle Sauers - Chief Financial Officer

Well, I think as you pointed out, it's a tough one to give you a great answer on, since we don't guide on gross margins or EBITDA. I think that a couple things you could point to. We did reduce some of the guidance on some of our costs, but revenues coming down by $100 million at the midpoint of the range due to the rate environment, and that has a significant impact.

On the flip -side, as you pointed out, margins are probably higher than people expected, but that's an element of fuel and the rate environment as well as us executing better. So I don't know that I'd point to an earnings expectation for the rest of the year relative to where we thought it was last quarter.

David B. Menzel - President & Chief Operating Officer

So, Alex, I'll give one other additional piece of color. So, obviously, we've experienced a lot of rate declines over the last four quarters. That's not 100% new. They make continue. They may stabilize. They may turn around and go back up. Yes. But the one – the two things that we have experienced and we've talked a lot about has been an environment where we had rates declines but we had expanding margins. And so while we don't talk very specifically, but that would imply that our gross profit or net revenue dollars per load has remained relatively consistent even though we don't break that level down.

If we maintain margins in the second half of the year but have a revenue decline that will also imply that your net revenue per load would come down a little bit which would probably have a negative impact on earnings and profitability.

And so, we don't know where margins are going to be, two, three quarters out. We don't know exactly what fuel is going to do. But we wouldn't probably imply that margins are going to continue to expand a significant amount because a lot of the margin expansion that we've seen was driven by fuel. So that's just a little additional color I think on how to think about the next few quarters.

Alexander Vecchio - Morgan Stanley & Co. LLC

Okay. That's helpful. Fair enough. Okay. And then just lastly, some of these public truckload carriers are hopeful that we're going to start seeing ELDs begin to have an impact on capacity in the back half of this year. I guess I wanted to just get an update on your views on that. And then secondly, do you knows how many of your carriers today are equipped with ELDs and have you given some thought to how you expect to monitor compliance once the mandate goes into effect at the end of next year?

Douglas R. Waggoner - Chairman and Chief Executive Officer

Well a couple of things, Alex. We haven't tracked it up until now. Anecdotally, the thought in the marketplace was that a lot of the adoption would come closer to the deadline, rather than sooner. That being said, though, I've seen some ELD solutions out in the market that are very inexpensive, pretty easy to adopt. And so, I wouldn't be surprised to see it start to happen a little sooner than people think. As far as our own tracking, we're not set up in our system today to track it. However, we're making those changes as we speak in our technology to start to begin to track it. And so that by the time that we get to where it's required, we will have data on all of our carriers and whether they're compliant or not.

Alexander Vecchio - Morgan Stanley & Co. LLC

Okay. Very helpful. Thanks for the time, gentlemen.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Tom Wadewitz with UBS. Your line is now open.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Are you there, Tom?

Thomas Wadewitz - UBS Securities LLC

Oh. I'm sorry. I had the mute button on. Sorry about that. I just wanted to follow on I guess the other – flip-side of the coin from the prior question on the earnings. You don't give earnings guidance, but you changed some other elements. I was actually thinking instead of implying that earnings might be stronger that potentially the lower revenue guidance would imply risk to the prior view on earnings. Would you say that that's maybe not the case? It sounded like you said, well, don't imply that earnings should go up in response to the prior question. But you think the flip-side would be, true, there might be downside risk to earnings? Or not necessarily the case?

Kyle Sauers - Chief Financial Officer

Well, so I guess I'd almost answer it the same way I did for Alex. Since we don't give EPS guidance or margin guidance. What I was saying is I wasn't pointing in either direction, since there are analyst numbers that are out there for EPS, not ours. But I do think when you look at the decline in the revenue guidance at the midpoint, that's a significant amount and we're trying to maximize the profitability per load there, but much lower rates can challenge that.

Thomas Wadewitz - UBS Securities LLC

Right. Okay. Yes. I know it's a – yes. Since you don't give earnings guidance, it's hard to be real granular on that. What about on gross margin? I guess I think of the brokers with a lot more leverage to contractual that as the bid prices come in this year – or the new contract rates come in this year that are maybe flat or down that that might be a catalyst for some slowing in the pace of gross margin improvement. You have a different structure with a lot less exposure to the contract business. So would we think of the timing as kind of new contract rates come in as being a source of some kind of incremental pressure on gross margin or a slowing in the pace of improvement? Or given that you don't have a lot of leverage to contract, can you kind of sail through that and keep a pretty high gross margin level, like you said, April similar to your first quarter and so forth?

David B. Menzel - President & Chief Operating Officer

Yes, I think that, as we mentioned, on our contract and committed pricing mix was about 30% of our total. So to your point, maybe it's not weighted as heavy as some others. So there's some muted effect to the pick-up we get when prices come down on the capacity side, but we're protected a little bit in that it's not such a significant part of our business.

Fuel's been a pretty big driver of margin improvement over the past four quarters to six quarters; we've talked a lot about that. Just kind of the simple math when fuel is – even though it may be timing issues, it's generally a pass-through. So if fuel stabilizes or goes up, it could have the effect, but certainly, that piece of the puzzle would have the effect of stabilizing margins. The year-over-year comparison numbers will get a little tougher as we go along. So as Kyle kind of mentioned, we're not trying to forecast where it's going to be one or two quarters out. But those are some of the, I think, factors to consider.

Thomas Wadewitz - UBS Securities LLC

Okay. Then there's one – just one last quick one. Competitive dynamic, obviously there's a lot of excess capacity out there. Would you say kind of brokers versus asset guys that you know maybe it's kind of tougher for brokers to take share versus the asset guys and shippers just going direct to asset players? Is that a reasonable way to look at the dynamic? Or will you say even in a weak market kind of brokers will take a bigger piece of the kind of total pie of the truckload market?

Douglas R. Waggoner - Chairman and Chief Executive Officer

I think you got it right. I think it's – there's asset guys out there wanting to put freight on their trucks and so they're a lot more active in going direct. And shippers will do that. And that's what makes our growth all the more impressive.

Thomas Wadewitz - UBS Securities LLC

Right. Okay. Great. Thanks for the time.

Operator

Thank you. And our next question comes from the line of Allison Landry with Credit Suisse. Your line is now open.

Allison M. Landry - Credit Suisse Securities (USA) LLC (Broker)

Thanks. Following up on the updated revenue guide, I know you mentioned that the bulk of it stems from lower truckload rates, but wondering if it also includes any assumed year-over-year headwind from fuel. I think during the last quarter you talked a little bit about that. So just wondering how you're thinking about that today.

Kyle Sauers - Chief Financial Officer

Yes. So one thing we talked about on the last call was that our headwind in 2016, because of fuel, was about $100 million. And that was built into our guidance that we offered on the last call. There's really been no meaningful change in the fuel surcharge from when we issued that guidance to where we are today. So that reduction really doesn't imply much of a change because of fuel.

Allison M. Landry - Credit Suisse Securities (USA) LLC (Broker)

Okay.

Kyle Sauers - Chief Financial Officer

It really is truly the line haul rates.

Allison M. Landry - Credit Suisse Securities (USA) LLC (Broker)

Okay. And then in terms of the net revenue margin in the first quarter, I apologize if I missed this earlier. But could you break out the impact of lower purchase trend versus fuel and mix with respect to the 120-basis point increase?

David B. Menzel - President & Chief Operating Officer

So, Allison, we didn't cover that in the prepared remarks. So, on the truckload side, we had 360 basis points of year-over-year improvement. And approximately 80 basis points came from fuel; 120 basis points just came from really Command; and then 160 or so basis points was better execution, purchased capacity, et cetera. So there's a lot of factors that drive that other bucket. But the generalization would be loose capacity enables you to achieve it. But it's really a combination of factors that have contributed to that final 160 basis points.

Allison M. Landry - Credit Suisse Securities (USA) LLC (Broker)

Okay. Great. And then my last question, in terms of your head count expectations, are you still thinking about adding about 100 employees for 2016?

David B. Menzel - President & Chief Operating Officer

Yes. On the sales side that's correct. Anticipate about 100 throughout the year.

Allison M. Landry - Credit Suisse Securities (USA) LLC (Broker)

Okay. Thank You.

David B. Menzel - President & Chief Operating Officer

Thanks, Allison.

Operator

Thank you and our next question comes from the line of Kevin Steinke with Barrington Research. Your line is now open.

Kevin Mark Steinke - Barrington Research Associates, Inc.

Good afternoon. I just wanted to ask about your managed transportation business. You talked about the good growth there and your ability to win new clients. Just wondering if any of that might relate to converting Command clients over to a managed transportation solution or if that will become more of an effort as you get CRM rolled out in 2Q as you referenced earlier in the call or as the integration is fully completed.

David B. Menzel - President & Chief Operating Officer

So great question. We've definitely spent time training and educating the Command sales leaders on the offering, and we've got a few deals in the pipeline that we're working on. As you know, the typical managed transportation sales cycle can be 6 months to 12 months, so the growth that we've achieved to date has not been from conversion of any Command accounts or opportunities per se that had resulted in revenue as of yet. So it's something that we see as an opportunity in the back half of this year and certainly into 2017 and beyond as we have a fully integrated solution and we're on the same CRM system and our people are even in the same location where they can work together on opportunities.

Kevin Mark Steinke - Barrington Research Associates, Inc.

Okay. Perfect. That's helpful. And then, Kyle, you took down the expense expectations a little bit as you talked about on both the commission side as well as G&A expense, although G&A expense increased sequentially in the first quarter as you had talked about it would, and commission expense was 30.7% of net revenue, in line with your previous range. So just kind of wondering what's enabling you to bring down those expense expectations a little bit.

Kyle Sauers - Chief Financial Officer

Sure. So it's really the ability to look throughout the cost structure of the company and make sure we're spending money in the right way and we've found some areas to save, but also we've never talked about the Command acquisition as being a way to cut costs as much as we have creating synergistic revenue. But as we've gone through the integration, as we've dug deeper, we've been able to find some ways to save some money that we think are meaningful and good for employees and customers alike, but able to save some at the bottom line. So it's really those combination of things.

Kevin Mark Steinke - Barrington Research Associates, Inc.

Okay, great. Well, thanks for taking my questions.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Thanks, Kevin.

Operator

Thank you. And our next question comes from the line of David Campbell with Thompson, Davis & Company. Your line is now open.

David Pearce Campbell - Thompson Davis & Co., Inc.

Yes. Hi. Thanks, everybody. Just wanted to ask about, Kyle, the April demand, which you described as soft, but I thought I heard you say that there was 14% organic growth in April. That doesn't sound like it's soft. Isn't that better than the first quarter?

Kyle Sauers - Chief Financial Officer

So it's actually a touch lower than the first quarter. We do – we feel really good about that – about that growth. So it was 14% for the organic Echo's truckload business volume growth, and then also 7% for the Command volume growth. So we do – to your point, we feel real good about that ability to grow volumes, but just a little bit lower than first quarter for Echo, but actually higher for Command, in terms of growth rate.

David Pearce Campbell - Thompson Davis & Co., Inc.

So the Echo growth was more than 14% in the first quarter?

Kyle Sauers - Chief Financial Officer

Yes. It was 18% in the first quarter.

David Pearce Campbell - Thompson Davis & Co., Inc.

Okay. And you mentioned that the – you said something about revenue in second quarter up 31%. Or is that April revenue up 31%?

Kyle Sauers - Chief Financial Officer

So April, to-date, up 31%, our daily revenue up 31% so far during the quarter, but remember that we will lap the Command acquisition come the beginning of June.

David Pearce Campbell - Thompson Davis & Co., Inc.

Right.

Kyle Sauers - Chief Financial Officer

So if you just simply assumed that the same growth rate persisted exactly for Command and Echo, that would imply an 18% revenue growth rate for the full quarter.

David Pearce Campbell - Thompson Davis & Co., Inc.

So the 31% in April is consistent with 18% estimate for the quarter?

Kyle Sauers - Chief Financial Officer

Once you take the impact of lapping the Command acquisition for one month, yes.

David Pearce Campbell - Thompson Davis & Co., Inc.

Right. Right. Right. Right. Okay. Thank you very much for your answers, and I really appreciate it.

Kyle Sauers - Chief Financial Officer

Thanks, David.

Operator

Thank you. And our next question comes from the line of Matt Young with Morningstar. Your line is now open.

Matthew Young - Morningstar, Inc. (Research)

Good afternoon, guys. Thanks for squeezing me in. Just a quick question on the M&A front. With the environment for brokers being a little less favorable at this point, is there any evidence that deal multiples, the valuations are kind of coming in a little bit more attractive?

Douglas R. Waggoner - Chairman and Chief Executive Officer

I couldn't hear it.

David B. Menzel - President & Chief Operating Officer

Question is: is there any evidence of deal multiples coming in more attractive given the softness in the brokerage business.

Douglas R. Waggoner - Chairman and Chief Executive Officer

It's hard to answer that, because each deal is different, and you have to look at it on its merits and so it's tough sometimes to have comps for the deal that you're looking at.

Matthew Young - Morningstar, Inc. (Research)

Fair enough. I'm just trying to get a sense of if there might be some more opportunities as time goes on, it's kind of a difficult environment, is offset a little bit by...

Douglas R. Waggoner - Chairman and Chief Executive Officer

I think that's true with the smaller tuck-in deals that they see tough times ahead and they've been thinking about an exit, this might whet their appetite to get out while they can.

Matthew Young - Morningstar, Inc. (Research)

Fair enough. And then, just real quick on the LTL brokerage side. Is the environment different much from a demand standpoint? I know pricing is more stable in LTL, but are you seeing much of a difference from a load opportunity standpoint? Does it feel more stable than truckload?

David B. Menzel - President & Chief Operating Officer

Well, I would say not necessarily. I mean it seems it's softer, just like Truckload is on the demand side. So when it comes to the shipper demand, so to speak, I wouldn't say that there's a meaningful – noticeable difference on LTL and truckload on that side of the equation.

Matthew Young - Morningstar, Inc. (Research)

All right. Great. That's all I had. Thanks, guys.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to Doug Waggoner for closing remarks.

Douglas R. Waggoner - Chairman and Chief Executive Officer

Yes, I'd just like to thank everybody for joining us for our first quarter call, and we're excited about the future opportunities. We think we're executing great. And we will talk to you next quarter. Thank you.

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 great day.

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