Echo Global Logistics: 25 Quarters Of Revenue Growth And Aiming For 37

| About: Echo Global (ECHO)

Summary

Echo Global Logistics reported 2015 fourth quarter and full-year results on February 4th. Year-over-year revenue growth now totals 25 consecutive quarters.

The company is pacing well toward its longer-term goals. Of late, this is directly due to its April 2015 acquisition of Command Transportation.

By summer 2016, the technology integration of Command should become the key driver to revenue growth as well as productivity.

And, Echo is already scoping its next acquisition target.

Echo Global Logistics (NASDAQ:ECHO), a transportation and logistics services provider, reported fourth quarter and full-year results on February 4th. The company had delivered double-digit year-over-year revenue growth for nine years. In fact, the CAGR (compound annual growth rate) for revenue was 75.8%. After its third year, double-digit year-over-year EPS growth followed in six of seven years. The CAGR for EPS was 30.5% from the point earnings were positive in that third year. Fiscal 2015 did not disappoint in terms of double-digit growth. Full-year revenue of $1.51 billion grew 29% over 2014's total of $1.17 billion. Earnings per share (non-GAAP) grew 13% from $1.02 in 2014 to $1.16 in 2015. Truckload volumes grew 95% year-over-year.

Here's the glitch - the company actually delivered results that narrowly missed its latest guidance. For revenue, the company expected growth for the fourth quarter in a range of 37% to 43% resulting in $410 million to $430 million. The company delivered $407.2 million. Analysts expected $424.9 million. Its full-year projection for revenue was reaffirmed at $1.515 billion to $1.535 billion in the third quarter. But, results were ever so slightly off at $1.512 billion. Analysts expected Echo to hit the high end of the range at $1.53 billion. Further, analysts had estimated total revenue in 2016 at $1.89 billion. Yet, Echo's 2016 revenue guidance was $1.80 billion to $1.88 billion.

Taking a broader look at Echo's progress on its longer-term targets is inspiriting. The company targeted a truckload to total revenue ratio of 60% by year-end 2017. In 2015, the ratio was 63.8%. After the Command Transportation in April, 2015, Echo changed its non-GAAP EBITDA target to $150 million by year-end 2018 with a ratio of 5% when comparing non-GAAP EBITDA to total revenue. For 2015, non-GAAP EBITDA was $67.8 million and the non-GAAP EBITDA to revenue ratio was 4.48%. Year-over-year growth in non-GAAP EBITDA was 37%. If Echo can continue that trajectory, $150 million is easily achievable by 2018.

Whether Echo can continue the trajectory is the variable. The majority of the growth in 2015 was attributable to the Command Transportation. In the fourth quarter, Echo's truckload revenue grew 73.5% - 5% was due to organic growth and the remainder was due to the addition of Command Transportation. Echo's organic growth also came in light of significantly lower fuel prices. Historical volumes rose 21% but revenue per shipment was 13% lower due to fuel prices. Echo estimated the decline in fuel prices cost Echo $34 million in top-line revenue in the fourth quarter.

Echo's revenue guidance for 2016 represents 19.7% year-over-year growth at the low end and 24.3% year-over-year growth at the high end. Much of this growth is expected to occur because the integration between Command Transportation and Echo is not yet complete. In the fourth quarter earnings call, Mr. David Menzel, president & COO, shared:

"We're making excellent progress integrating Command's truckload technology with Echo's multimodal platform. And, we anticipate it to go live this summer. Once that technology deployment is complete, we'll combine our truckload sourcing organizations to unleash the power of our combined network."

Echo has already explained integrated truckload operations should deliver not only increased revenue from gaining a greater portion of its clients' budgets but also productivity benefits.

Echo will continue to benefit from year-over-year growth due to the acquisition of Command Transportation in the first and second quarters of 2016. In January alone, the company experienced a 46% increase in total revenue. In the two full quarters of 2015 with Command contribution, the average growth rate was 38%. At the point year-over-year comparisons begin to level out, Echo should begin to experience the benefits of technology integration. In theory, the year-over-year growth would then accelerate for another year into the summer of 2017.

But, Echo's long-term goals are based on accomplishment through 2018. An integral key to Echo's performance records has been its acquisition strategy and performance. In ten years, Echo has acquired twenty companies - the first nineteen without incurring debt. The expansion has resulted in twenty-five quarters of year-over-year revenue growth.

But, expansion alone does not guarantee success. Integration into Echo's models and platforms has been pivotal. Echo's CFO, Mr. Kyle Sauers, noted:

"What's important is, really in any market, we've proven we can take pretty significant share."

It is true. Echo has amassed eight consecutive quarters of organic truckload volume growth over 20%.

As Echo grows and expands, the sizes of its acquisition targets naturally grow. The Command acquisition changed Echo from a debt-free company to an indebted company. At year-end 2015, Echo had $196.7 million due in convertible notes. Its cash balance totaled $56.5 million. But, the obligations have not knocked Echo off-track. The company is already contemplating further expansion through acquisition.

"And we also expect to be able to replicate that acquisition success (Command) again in the coming years through that 2018 date."

To be clear, achieving $3 billion in revenue by 2018 represents a doubling of Echo's total revenue in 2015.

Disclosure: I am/we are long ECHO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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