falsedesktopECHO2020-09-30000142694520000031{"tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "Large accelerated filer\t☒\tAccelerated filer\t☐\tNon-accelerated filer\t☐\nSmaller reporting company\t☐\tEmerging growth company\t☐\t\t\n", "q10k_tbl_1": "\t\tPage\n\tPART I. FINANCIAL INFORMATION\t\nItem 1.\tConsolidated Financial Statements\t3\n\tConsolidated Statements of Operations for the three and nine months ended September 30 2020 and 2019 (Unaudited)\t3\n\tConsolidated Balance Sheets as of September 30 2020 (Unaudited) and December 31 2019\t4\n\tConsolidated Statements of Cash Flows for the nine months ended September 30 2020 and 2019 (Unaudited)\t5\n\tConsolidated Statement of Stockholders' Equity for the three and nine months ended September 30 2020 and 2019 (Unaudited)\t6\n\tNotes to Unaudited Consolidated Financial Statements\t8\nItem 2.\tManagement's Discussion and Analysis of Financial Condition and Results of Operations\t17\nItem 3.\tQuantitative and Qualitative Disclosures about Market Risk\t26\nItem 4.\tControls and Procedures\t27\n\tPART II. OTHER INFORMATION\t\nItem 1.\tLegal Proceedings\t28\nItem 1A.\tRisk Factors\t28\nItem 2.\tUnregistered Sales of Equity Securities and Use of Proceeds\t28\nItem 6.\tExhibits\t29\nEXHIBIT INDEX\t\t30\nSIGNATURES\t\t31\n", "q10k_tbl_2": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(In thousands except per share data)\t2020\t2019\t2020\t2019\nRevenue\t691495\t561441\t1757262\t1653300\nCosts and expenses:\t\t\t\t\nTransportation costs\t591048\t464460\t1478864\t1356949\nSelling general and administrative expenses\t80533\t77722\t235667\t238055\nDepreciation and amortization\t9655\t9594\t29251\t28855\nIncome from operations\t10259\t9665\t13480\t29441\nInterest expense\t(1014)\t(2821)\t(5200)\t(9789)\nIncome before provision for income taxes\t9245\t6844\t8280\t19652\nIncome tax expense\t(2427)\t(2001)\t(3444)\t(6245)\nNet income\t6818\t4843\t4836\t13407\nEarnings per common share:\t\t\t\t\nBasic\t0.26\t0.18\t0.19\t0.50\nDiluted\t0.26\t0.18\t0.18\t0.50\nNote: Amounts may not foot due to rounding.\t\t\t\t\n", "q10k_tbl_3": "\tSeptember 30 2020\tDecember 31 2019\n(In thousands except share data)\t(Unaudited)\t\nAssets\t\t\nCurrent assets:\t\t\nCash and cash equivalents\t47579\t34626\nAccounts receivable net of allowance for doubtful accounts of $5271 and $4255 at September 30 2020 and December 31 2019 respectively\t432525\t286989\nIncome taxes receivable\t0\t2473\nPrepaid expenses\t8607\t8999\nOther current assets\t3026\t3106\nTotal current assets\t491736\t336193\nNoncurrent assets:\t\t\nProperty and equipment net of accumulated depreciation of $149759 and $130320 at September 30 2020 and December 31 2019 respectively\t52689\t58620\nGoodwill\t309589\t309589\nIntangible assets net of accumulated amortization of $89939 and $81656 at September 30 2020 and December 31 2019 respectively\t89479\t97762\nOperating lease assets\t17315\t19638\nOther noncurrent assets\t3653\t4863\nTotal noncurrent assets\t472724\t490473\nTotal assets\t964460\t826666\nLiabilities and stockholders' equity\t\t\nCurrent liabilities:\t\t\nAccounts payable\t330365\t187524\nDue to seller current\t429\t937\nAccrued expenses\t45524\t35229\nOther current liabilities\t4125\t6719\nTaxes payable\t1171\t0\nTotal current liabilities\t381614\t230409\nNoncurrent liabilities:\t\t\nLong-term debt net\t143934\t0\nConvertible notes net\t0\t156298\nDue to seller noncurrent\t0\t770\nOther noncurrent liabilities\t650\t641\nDeferred income taxes\t23132\t23761\nNoncurrent operating lease liabilities\t28657\t31475\nTotal noncurrent liabilities\t196373\t212945\nTotal liabilities\t577987\t443353\nStockholders' equity:\t\t\nCommon stock par value $0.0001 per share 100000000 shares authorized 31718589 shares issued and 25951489 shares outstanding at September 30 2020; 31507247 shares issued and 26229809 shares outstanding at December 31 2019\t3\t3\nTreasury stock 5767100 and 5277438 shares at September 30 2020 and December 31 2019 respectively\t(118679)\t(109239)\nAdditional paid-in capital\t364364\t356600\nRetained earnings\t140784\t135948\nTotal stockholders' equity\t386473\t383312\nTotal liabilities and stockholders' equity\t964460\t826666\nNote: Amounts may not foot due to rounding.\t\t\n", "q10k_tbl_4": "\tNine Months Ended September 30\t\n(In thousands)\t2020\t2019\nOperating activities\t\t\nNet income\t4836\t13407\nAdjustments to reconcile net income to net cash provided by operating activities:\t\t\nDeferred income taxes\t(513)\t2370\nNoncash stock compensation expense\t9225\t7762\nNoncash interest expense\t1711\t5762\nChange in contingent consideration due to seller\t(325)\t543\nDepreciation and amortization\t29251\t28855\nChange in assets:\t\t\nAccounts receivable\t(145536)\t22674\nIncome taxes receivable\t3635\t3015\nPrepaid expenses and other assets\t505\t(386)\nChange in liabilities:\t\t\nAccounts payable\t142497\t(5243)\nAccrued expenses and other liabilities\t8586\t(9363)\nPayment of contingent consideration in excess of amounts established in purchase accounting\t(507)\t(1097)\nNet cash provided by operating activities\t53367\t68298\nInvesting activities\t\t\nPurchases of property and equipment\t(15144)\t(18854)\nPayments for acquisitions net of cash acquired\t0\t(33)\nNet cash used in investing activities\t(15144)\t(18887)\nFinancing activities\t\t\nPayments of contingent consideration due to seller\t(447)\t(1206)\nProceeds from exercise of stock options\t405\t37\nEmployee tax withholdings related to net share settlements of equity-based awards\t(1676)\t(2082)\nPurchases of treasury stock\t(10349)\t(26108)\nPurchases of Convertible Notes\t(88961)\t(33915)\nSettlement of Convertible Notes\t(69242)\t0\nProceeds from borrowing on ABL facility\t170000\t25000\nRepayments of amounts borrowed on ABL facility\t(25000)\t(25000)\nNet cash used in financing activities\t(25269)\t(63275)\nIncrease (Decrease) in cash and cash equivalents\t12953\t(13863)\nCash and cash equivalents beginning of period\t34626\t40281\nCash and cash equivalents end of period\t47579\t26418\nNote: Amounts may not foot due to rounding.\t\t\n", "q10k_tbl_5": "\tCommon Stock\t\tTreasury Stock\t\tAdditional Paid-In Capital\t\t\t\t\n(In thousands except share data)\tShares\tAmount\tShares\tAmount\t\tRetained Earnings\t\tTotal\nBalance at December 31 2019\t31507247\t3\t(5277438)\t(109239)\t356600\t\t135948\t\t383312\nShare compensation expense\t0\t0\t0\t0\t4608\t\t0\t\t4608\nExercise of stock options\t32000\t0\t0\t0\t381\t\t0\t\t381\nCommon stock issued for vested restricted stock\t247224\t0\t0\t0\t(0)\t\t0\t\t0\nCommon shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock\t(82802)\t(0)\t0\t0\t(1541)\t\t0\t\t(1541)\nRepurchase of convertible notes net of deferred taxes\t0\t0\t0\t0\t(190)\t\t0\t\t(190)\nPurchases of treasury stock\t0\t0\t(489662)\t(9440)\t0\t\t0\t\t(9440)\nNet loss\t0\t0\t0\t0\t0\t\t(2933)\t\t(2933)\nBalance at March 31 2020\t31703669\t3\t(5767100)\t(118679)\t359857\t\t133015\t\t374197\nShare compensation expense\t0\t0\t0\t0\t2319\t\t0\t\t2319\nCommon stock issued for vested restricted stock\t8105\t0\t0\t0\t(0)\t\t0\t\t0\nCommon shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock\t(2584)\t(0)\t0\t0\t(51)\t\t0\t\t(51)\nNet income\t0\t0\t0\t0\t0\t\t951\t\t951\nBalance at June 30 2020\t31709190\t3\t(5767100)\t(118679)\t362126\t\t133967\t\t377417\nShare compensation expense\t0\t0\t0\t0\t2298\t\t0\t\t2298\nExercise of stock options\t2000\t0\t0\t0\t24\t\t0\t\t24\nCommon stock issued for vested restricted stock\t10528\t0\t0\t0\t(0)\t\t0\t\t0\nCommon shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock\t(3129)\t0\t0\t0\t(84)\t\t0\t\t(84)\nNet income\t0\t0\t0\t0\t0\t\t6818\t\t6818\nBalance at September 30 2020\t31718589\t3\t(5767100)\t(118679)\t364364\t\t140784\t\t386473\nNote: Amounts may not foot due to rounding.\t\t\t\t\t\t\t\t\t\n", "q10k_tbl_6": "\tCommon Stock\t\tTreasury Stock\t\tAdditional Paid-In Capital\t\t\t\t\n(In thousands except share data)\tShares\tAmount\tShares\tAmount\t\tRetained Earnings\t\tTotal\nBalance at December 31 2018\t31345220\t3\t(3947460)\t(79571)\t348397\t\t121102\t\t389932\nShare compensation expense\t0\t0\t0\t0\t2806\t\t0\t\t2806\nExercise of stock options\t3000\t0\t0\t0\t37\t\t0\t\t37\nCommon stock issued for vested restricted stock\t215071\t0\t0\t0\t(0)\t\t0\t\t0\nCommon stock issued for vested performance shares\t13267\t0\t0\t0\t(0)\t\t0\t\t0\nCommon shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock\t(81936)\t(0)\t0\t0\t(1978)\t\t0\t\t(1978)\nRepurchase of convertible notes net of deferred taxes\t0\t0\t0\t0\t36\t\t0\t\t36\nPurchases of treasury stock\t0\t0\t(452350)\t(10629)\t0\t\t0\t\t(10629)\nNet income\t0\t0\t0\t0\t0\t\t3497\t\t3497\nBalance at March 31 2019\t31494622\t3\t(4399810)\t(90199)\t349298\t\t124599\t\t383700\nShare compensation expense\t0\t0\t0\t0\t2425\t\t0\t\t2425\nCommon stock issued for vested restricted stock\t5789\t0\t0\t0\t(0)\t\t0\t\t0\nCommon shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock\t(2252)\t(0)\t0\t0\t(49)\t\t0\t\t(49)\nRepurchase of convertible notes net of deferred taxes\t0\t0\t0\t0\t66\t\t0\t\t66\nPurchases of treasury stock\t0\t0\t(701773)\t(15480)\t0\t\t0\t\t(15480)\nNet income\t0\t0\t0\t0\t0\t\t5067\t\t5067\nBalance at June 30 2019\t31498159\t3\t(5101583)\t(105679)\t351739\t\t129666\t\t375729\nShare compensation expense\t0\t0\t0\t0\t2531\t\t0\t\t2531\nCommon stock issued for vesting of restricted stock\t7019\t0\t0\t0\t(0)\t\t0\t\t0\nCommon shares withheld and retired to satisfy employee tax withholding obligations upon vesting of share-based awards\t(2551)\t0\t0\t0\t(55)\t\t0\t\t(55)\nNet income\t0\t0\t0\t0\t0\t\t4843\t\t4843\nBalance at September 30 2019\t31502627\t3\t(5101583)\t(105679)\t354216\t\t134509\t\t383049\nNote: Amounts may not foot due to rounding.\t\t\t\t\t\t\t\t\t\n", "q10k_tbl_7": "\tAllowance for Doubtful Accounts\nBalance at December 31 2019\t4255\nProvision charged to expense\t2101\nWrite-offs\t(2476)\nRecoveries\t1391\nBalance at September 30 2020\t5271\n", "q10k_tbl_8": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\nClient Type\t2020\t2019\t2020\t2019\nTransactional\t533853\t433319\t1359021\t1273687\nManaged Transportation\t157641\t128123\t398241\t379613\nRevenue\t691495\t561441\t1757262\t1653300\n", "q10k_tbl_9": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\nMode\t2020\t2019\t2020\t2019\nTruckload\t488158\t368859\t1208131\t1085431\nLess than truckload\t175460\t167604\t474962\t487590\nOther revenue\t27876\t24978\t74170\t80279\nRevenue\t691495\t561441\t1757262\t1653300\n", "q10k_tbl_10": "\tDue to Seller Liability\nBalance at December 31 2019\t(1707)\nChange in fair value of contingent consideration due to seller\t325\nPayment of contingent consideration due to seller\t953\nBalance at September 30 2020\t(429)\n", "q10k_tbl_11": "\tSeptember 30 2020\t\t\tDecember 31 2019\t\t\n\tCost\tAccumulated Amortization\tNet\tCost\tAccumulated Amortization\tNet\nCustomer relationships\t150239\t(74352)\t75887\t150239\t(67317)\t82922\nCarrier relationships\t18300\t(5741)\t12559\t18300\t(4934)\t13366\nNon-compete agreements\t5239\t(4206)\t1033\t5239\t(3765)\t1474\nTrade names\t5640\t(5640)\t0\t5640\t(5640)\t0\n\t179418\t(89939)\t89479\t179418\t(81656)\t97762\n", "q10k_tbl_12": "Remainder of 2020\t2691\n2021\t10362\n2022\t10005\n2023\t9501\n2024\t8897\nThereafter\t48023\nTotal\t89479\n", "q10k_tbl_13": "\tSeptember 30 2020\tDecember 31 2019\nAccrued compensation\t30025\t21192\nAccrued rebates\t2855\t3119\nAccrued employee benefits\t5034\t4235\nAccrued professional service fees\t1533\t1395\nAccrued interest\t177\t881\nOther\t5900\t4407\nTotal accrued expenses\t45524\t35229\n", "q10k_tbl_14": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n\t2020\t2019\t2020\t2019\nIncome before provision for income taxes\t9245\t6844\t8280\t19652\nIncome tax expense\t(2427)\t(2001)\t(3444)\t(6245)\nEffective tax rate\t26.3%\t29.2%\t41.6%\t31.8%\n", "q10k_tbl_15": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n\t2020\t2019\t2020\t2019\nNumerator:\t\t\t\t\nNet income\t6818\t4843\t4836\t13407\nDenominator:\t\t\t\t\nDenominator for basic earnings per common share - weighted-average shares\t25945114\t26398136\t25963524\t26778897\nEffect of dilutive securities:\t\t\t\t\nEmployee stock awards\t509145\t85837\t321805\t131675\nDenominator for dilutive earnings per common share\t26454259\t26483973\t26285329\t26910572\nBasic earnings per common share\t0.26\t0.18\t0.19\t0.50\nDiluted earnings per common share\t0.26\t0.18\t0.18\t0.50\n", "q10k_tbl_16": "\tSeptember 30 2020\tDecember 31 2019\nConvertible senior notes principal amount\t0\t158295\nUnamortized debt discount\t0\t(1667)\nUnamortized debt issuance costs\t0\t(330)\nConvertible senior notes net\t0\t156298\n", "q10k_tbl_17": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n\t2020\t2019\t2020\t2019\nContractual coupon interest\t0\t989\t1063\t3254\nDebt discount amortization\t0\t1208\t1196\t3934\nLoss on extinguishment of debt\t0\t0\t166\t711\nDebt issuance cost amortization\t0\t239\t236\t778\nInterest expense Notes\t0\t2436\t2662\t8677\n", "q10k_tbl_18": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(Unaudited in thousands except per share data)\t2020\t2019\t2020\t2019\nConsolidated statements of operations data:\t\t\t\t\nRevenue\t691495\t561441\t1757262\t1653300\nTransportation costs\t591048\t464460\t1478864\t1356949\nNet revenue (1)\t100446\t96982\t278399\t296350\nOperating expenses:\t\t\t\t\nCommissions\t29789\t29065\t83628\t90147\nSelling general and administrative expenses\t51022\t48603\t152364\t147364\nContingent consideration (benefit) expense\t(279)\t53\t(325)\t543\nDepreciation and amortization\t9655\t9594\t29251\t28855\nTotal operating expenses\t90188\t87316\t264918\t266910\nIncome from operations\t10259\t9665\t13480\t29441\nInterest expense\t(1014)\t(2821)\t(5200)\t(9789)\nIncome before provision for income taxes\t9245\t6844\t8280\t19652\nIncome tax expense\t(2427)\t(2001)\t(3444)\t(6245)\nNet income\t6818\t4843\t4836\t13407\nEarnings per common share:\t\t\t\t\nBasic\t0.26\t0.18\t0.19\t0.50\nDiluted\t0.26\t0.18\t0.18\t0.50\nShares used in per share calculations (in thousands):\t\t\t\t\nBasic\t25945\t26398\t25964\t26779\nDiluted\t26454\t26484\t26285\t26911\n", "q10k_tbl_19": "\tThree Months Ended September 30\t\tNine Months Ended September 30\t\n(Unaudited in thousands)\t2020\t2019\t2020\t2019\nRevenue\t691495\t561441\t1757262\t1653300\nTransportation costs\t591048\t464460\t1478864\t1356949\nNet revenue\t100446\t96982\t278399\t296350\n", "q10k_tbl_20": "Date\tTotal Number of Shares Purchased\tAverage Price Paid Per Share\tTotal Number of Shares Purchased as Part of Publicly Announced Program (1)\tMaximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program (1)\n7/1/20-7/31/20\t73\t23.46\t0\t60189\n8/1/20-8/31/20\t1365\t26.75\t0\t60189\n9/1/20-9/30/20\t1691\t27.04\t0\t60189\nTotal\t3129\t26.83\t0\t\n", "q10k_tbl_21": "Number\tDescription\n31.1\tCertification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n31.2\tCertification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.\n32.1\tCertification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n32.2\tCertification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.\n101.INS**\tXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document\n101.SCH**\tXBRL Taxonomy Extension Schema Document\n101.CAL**\tXBRL Taxonomy Extension Calculation Linkbase Document\n101.DEF**\tXBRL Taxonomy Extension Definition Linkbase Document\n101.LAB**\tXBRL Taxonomy Extension Label Linkbase Document\n101.PRE**\tXBRL Taxonomy Extension Presentation Linkbase Document\n104\tCover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)\n** Submitted electronically with this Quarterly Report on Form 10-Q\t\n"}{"bs": "q10k_tbl_3", "is": "q10k_tbl_18", "cf": "q10k_tbl_4"}None
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2020
OR
☐
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to _______
Commission file number 001-34470
ECHO GLOBAL LOGISTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
20-5001120
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
600 West Chicago Avenue
Suite 725
Chicago, Illinois60654
Phone: (800) 354-7993
(Address (including zip code) and telephone number (including area code)
of registrant's principal executive offices)
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common stock, par value $0.0001 per share
ECHO
NASDAQ Global Select Market
____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ☒ No: ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes: ☒ No: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: ☐ No: ☒
As of October 28, 2020, the registrant had 26,607,989 shares of Common Stock, par value $0.0001 per share, outstanding.
Accounts receivable, net of allowance for doubtful accounts of $5,271 and $4,255 at September 30, 2020 and December 31, 2019, respectively
432,525
286,989
Income taxes receivable
—
2,473
Prepaid expenses
8,607
8,999
Other current assets
3,026
3,106
Total current assets
491,736
336,193
Noncurrent assets:
Property and equipment, net of accumulated depreciation of $149,759 and $130,320 at September 30, 2020 and December 31, 2019, respectively
52,689
58,620
Goodwill
309,589
309,589
Intangible assets, net of accumulated amortization of $89,939 and $81,656 at September 30, 2020 and December 31, 2019, respectively
89,479
97,762
Operating lease assets
17,315
19,638
Other noncurrent assets
3,653
4,863
Total noncurrent assets
472,724
490,473
Total assets
$
964,460
$
826,666
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$
330,365
$
187,524
Due to seller, current
429
937
Accrued expenses
45,524
35,229
Other current liabilities
4,125
6,719
Taxes payable
1,171
—
Total current liabilities
381,614
230,409
Noncurrent liabilities:
Long-term debt, net
143,934
—
Convertible notes, net
—
156,298
Due to seller, noncurrent
—
770
Other noncurrent liabilities
650
641
Deferred income taxes
23,132
23,761
Noncurrent operating lease liabilities
28,657
31,475
Total noncurrent liabilities
196,373
212,945
Total liabilities
577,987
443,353
Stockholders' equity:
Common stock, par value $0.0001 per share, 100,000,000 shares authorized, 31,718,589 shares issued and 25,951,489 shares outstanding at September 30, 2020; 31,507,247 shares issued and 26,229,809 shares outstanding at December 31, 2019
3
3
Treasury stock, 5,767,100 and 5,277,438 shares at September 30, 2020 and December 31, 2019, respectively
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Echo Global Logistics, Inc. and its subsidiaries (the "Company" or "Echo"). All significant intercompany accounts and transactions have been eliminated in the consolidation. The consolidated statements of operations include the results of entities or assets acquired from the effective date of the acquisition for accounting purposes.
The preparation of the consolidated financial statements is in conformity with the rules and regulations of the Securities and Exchange Commission ("SEC") and accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules or regulations. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments considered necessary for a fair presentation of the results for the period and those adjustments are of a normal recurring nature. The operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results expected for the full year 2020. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's audited financial statements for the year ended December 31, 2019.
Preparation of Financial Statements and Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results can differ from those estimates.
Adoption of ASC Topic 326, "Financial Instruments - Credit Loss"
On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses Topic 326, using the prospective approach. Results for reporting periods beginning on or after January 1, 2020 are presented under Topic 326. Prior period amounts are not adjusted and continue to be reported in accordance with the accounting standards in effect for those periods.
The Company is exposed to potential credit losses related to its trade receivables, which the Company categorizes as either Transactional or Managed Transportation. For its Transactional trade receivables, the Company utilizes historical loss information to develop an estimate for future expected credit losses. For its Managed Transportation trade receivables, the Company estimates its potential future expected credit losses on a customer specific basis. The Company considers current economic conditions and forecasts when determining its credit loss estimate based on the aging schedule. The Company transacts with customers in a variety of industries and adjusts its estimate accordingly if it becomes aware of financial difficulties for a specific customer.
The Company extends credit to certain clients as part of its business model. These clients are subject to an approval process prior to any extension of credit or increase in their current credit limit. The Company reviews each credit request and considers, among other factors, payment history, current billing status, recommendations by various rating agencies and capitalization. Clients that satisfy the credit review may receive a line of credit or an increase in their existing credit amount. The Company believes this review and approval process helps mitigate the risk of client defaults on extensions of credit and any potential credit losses. Additionally, the Company maintains a credit insurance policy for certain accounts.
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
The following table summarizes the components of the allowance as of September 30, 2020 (in thousands):
Allowance for Doubtful Accounts
Balance at December 31, 2019
$
4,255
Provision, charged to expense
2,101
Write-offs
(2,476)
Recoveries
1,391
Balance at September 30, 2020
$
5,271
Fair Value of Financial Instruments
The carrying values of the Company's financial instruments, which consist of cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values due to their short-term nature. The fair values due to seller liabilities are determined based on the likelihood of the Company making contingent earn-out payments (see Note 4). The fair value of the liability component of the Notes (as defined in Note 11) was determined using the discounted cash flow analysis discussed in Note 11.
2. Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which replaces the incurred loss methodology previously employed to measure credit losses for most financial assets and requires the use of a forward-looking expected loss model. This update requires financial assets to be measured at amortized costs less a reserve and equal to the net amount expected to be collected.
The Company adopted this standard on January 1, 2020 using the prospective approach. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. At September 30, 2020, the Company reported $432.5 million of accounts receivable, net of allowance of $5.3 million. Changes in the allowance were not material for three and nine months ended September 30, 2020. The Company fully describes the adoption and impact of this standard in Note 1. As part of the adoption of this standard, the Company implemented changes to its accounting policies, practices and internal controls over financial reporting.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This new accounting standard was effective for annual periods beginning after December 15, 2019. The Company adopted the standard on January 1, 2020. The adoption of this new standard did not have a material impact on the Company's consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The guidance is effective for interim and annual periods beginning after December 15, 2021. Early adoption is permitted. The guidance is to be applied using either a full retrospective or modified retrospective method. The Company anticipates that the adoption of this guidance will not have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides companies with optional guidance, including expedients and exceptions for applying U.S. GAAP to contracts and other transactions affected by reference rate reform, such as the London Interbank Offered Rate (LIBOR). This new standard was effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. The Company is evaluating the effects that the adoption of this guidance will have on its disclosures.
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
3. Revenue
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to receive in exchange for its services. The Company generates revenue from two different client types: Transactional and Managed Transportation. Most clients are categorized as Transactional clients. For its Transactional business, the Company provides brokerage and transportation management services on a shipment-by-shipment basis. Carrier selection, dispatch, load management and tracking are integrated services that occur within the brokerage and transportation management performance obligation. For the brokerage and transportation management services performance obligation, revenue is recognized as the client's shipment travels from origin to destination by a third-party carrier. The Company is the principal in these transactions and recognizes revenue on a gross and relative transit time basis.
The Company categorizes a client as a Managed Transportation client if there is an agreement with the client for the provision of services, typically for a multi-year term. Brokerage and transportation management services is typically the performance obligation for the Company's Managed Transportation clients. For this performance obligation, revenue is recognized gross as the Company is the principal in these transactions, and is recognized as the Managed Transportation client's shipment travels from origin to destination on a relative transit time basis. Other performance obligations for Managed Transportation clients may include transportation management services, which includes the integrated services of dispatch, tracking and carrier payment. For these types of transactions, revenue is recorded on a net basis, as the Company does not have latitude in carrier selection or establish rates with the carrier. The Company also performs project-based services, such as compliance management, customized re-billing services and freight studies for certain Managed Transportation clients.
The following table presents the Company's revenue disaggregated by client type (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
Client Type
2020
2019
2020
2019
Transactional
$
533,853
$
433,319
$
1,359,021
$
1,273,687
Managed Transportation
157,641
128,123
398,241
379,613
Revenue
$
691,495
$
561,441
$
1,757,262
$
1,653,300
Note: Amounts may not foot due to rounding.
Revenue recognized per shipment varies depending on the transportation mode. The primary modes of shipment in which the Company transacts are truckload and less than truckload. Other transportation modes include intermodal, small parcel, domestic air, expedited and international.
The following table presents the Company's revenue disaggregated by mode (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
Mode
2020
2019
2020
2019
Truckload
$
488,158
$
368,859
$
1,208,131
$
1,085,431
Less than truckload
175,460
167,604
474,962
487,590
Other revenue
27,876
24,978
74,170
80,279
Revenue
$
691,495
$
561,441
$
1,757,262
$
1,653,300
Note: Amounts may not foot due to rounding.
Commissions
The Company recognizes commission expense when incurred because the amortization period is less than one year. Commission expense is recognized on a relative transit time basis, which aligns with the Company's revenue recognition policy.
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
Variable Consideration
Certain customers may receive rebates based on the terms of their agreement with the Company, which are accounted for as variable consideration. Rebates are estimated based on the expected amount to be provided to customers and reduce revenue recognized. The Company also estimates for possible additional fees based on a portfolio approach.
4. Fair Value Measurement
The Company applies ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820"), for its financial assets and financial liabilities. The guidance requires disclosures about assets and liabilities measured at fair value. The Company's financial liabilities primarily relate to contingent earn-out payments due to sellers in connection with various acquisitions. The fair value due to seller liabilities at September 30, 2020 and December 31, 2019 is $0.4 million and $1.7 million, respectively. The potential earn-out payments and performance periods are defined in the individual purchase agreements for each acquisition. Earnings before interest, taxes, depreciation and amortization ("EBITDA") is the performance target defined and measured to determine the earn-out payment due, if any, after each defined measurement period.
ASC Topic 820 includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity's pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:
•Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable and market-corroborated inputs, which are derived principally from or corroborated by observable market data.
•Level 3: Inputs that are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.
The significant inputs used to derive the fair value of the amounts due to seller include financial forecasts of future operating results, the probability of reaching the forecast and an appropriate discount rate for each contingent liability. Probabilities are estimated by reviewing financial forecasts and assessing the likelihood of reaching the required performance measures based on factors specific to each acquisition as well as the Company’s historical experience with similar arrangements. If an acquisition reaches the required performance measure, the estimated probability would be increased to 100% and would still be classified as a contingent liability on the balance sheet. If the measure is not reached, the probability would be reduced to reflect the amount earned, if any, depending on the terms of the agreement. Discount rates used in determining the fair value of the contingent consideration due to seller ranged from 2% to 3%. Historical results of the respective acquisitions serve as the basis for the financial forecasts used in the valuation.
Quantitative factors are also considered in these forecasts, including acquisition synergies, growth and sales potential, and potential operational efficiencies gained. Changes to the significant inputs used in determining the fair value of the contingent consideration due to seller could result in a change in the fair value of the contingent consideration. However, the correlation and inverse relationship between higher projected financial results to the discount rate applied and probability of meeting the financial targets mitigates the effect of any changes to the unobservable inputs.
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
The following tables set forth the Company's financial liabilities measured at fair value on a recurring basis and the basis of measurement at September 30, 2020 and December 31, 2019 (in thousands):
Fair Value Measurements as of September 30, 2020
Total
Level 1
Level 2
Level 3
Liabilities:
Contingent consideration due to seller
$
(429)
—
—
$
(429)
Fair Value Measurements as of December 31, 2019
Total
Level 1
Level 2
Level 3
Liabilities:
Contingent consideration due to seller
$
(1,707)
—
—
$
(1,707)
The following table provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3) (in thousands):
Due to Seller Liability
Balance at December 31, 2019
$
(1,707)
Change in fair value of contingent consideration due to seller
325
Payment of contingent consideration due to seller
953
Balance at September 30, 2020
$
(429)
For the three months ended September 30, 2020 and 2019, the Company recognized a benefit of $279 thousand and incurred expense of $53 thousand, respectively. For the nine months ended September 30, 2020 and 2019, the Company recognized a benefit of $325 thousand and incurred expense of $543 thousand, respectively. These changes in fair value resulted from using revised forecasts that took into account the most recent performance of each acquired business.
During the nine months ended September 30, 2020 and 2019, the Company made contingent earn-out payments of $1.0 million and $2.3 million, respectively, to the sellers of businesses acquired by the Company.
5. Intangibles and Goodwill
The balance of goodwill was $309.6 million as of September 30, 2020 and December 31, 2019, as no changes occurred during the period.
The following is a summary of amortizable intangible assets as of September 30, 2020 and December 31, 2019 (in thousands):
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
The customer relationships are being amortized using an accelerated method over their estimated weighted-average useful life of 14.8 years, as an accelerated method best approximates the distribution of cash flows generated by the acquired customer relationships. The carrier relationships, non-compete agreements and trade names are being amortized using the straight-line method over their estimated weighted-average useful lives of 17.0 years, 6.7 years and 4.0 years, respectively. Amortization expense related to intangible assets was $2.7 million and $2.8 million for the three months ended September 30, 2020 and 2019, respectively. Amortization expense was $8.3 million and $9.0 million for the nine months ended September 30, 2020 and 2019, respectively.
The estimated amortization expense for the next five years and thereafter is as follows (in thousands):
Remainder of 2020
$
2,691
2021
10,362
2022
10,005
2023
9,501
2024
8,897
Thereafter
48,023
Total
$
89,479
6. Accrued Expenses and Other Liabilities
The components of accrued expenses at September 30, 2020 and December 31, 2019 were as follows (in thousands):
September 30, 2020
December 31, 2019
Accrued compensation
$
30,025
$
21,192
Accrued rebates
2,855
3,119
Accrued employee benefits
5,034
4,235
Accrued professional service fees
1,533
1,395
Accrued interest
177
881
Other
5,900
4,407
Total accrued expenses
$
45,524
$
35,229
Note: Amounts may not foot due to rounding.
The other current liabilities of $4.1 million and $6.7 million at September 30, 2020 and December 31, 2019, respectively, consist primarily of the current portion of the Company's operating lease liabilities. The other noncurrent liabilities of $0.7 million and $0.6 million at September 30, 2020 and December 31, 2019, respectively, consist of the long-term portion of the Company's uncertain tax liability.
7. Income Taxes
The following table shows the Company's effective income tax rate for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Income before provision for income taxes
$
9,245
$
6,844
$
8,280
$
19,652
Income tax expense
$
(2,427)
$
(2,001)
$
(3,444)
$
(6,245)
Effective tax rate
26.3
%
29.2
%
41.6
%
31.8
%
The difference in the Company's effective tax rate for each of the three and nine months ended September 30, 2020 and 2019 from the Company's statutory federal tax rate of 21% was primarily due to state taxes; non-deductible expenses, primarily executive stock-based compensation; offset in part by the impact of certain tax credits.
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
8. Earnings Per Share
Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income by the weighted average shares outstanding plus share equivalents that would arise from the exercise of share options, and the vesting of restricted stock, restricted stock units and performance shares. The computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands, except share and per share data):
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Numerator:
Net income
$
6,818
$
4,843
$
4,836
$
13,407
Denominator:
Denominator for basic earnings per common share - weighted-average shares
25,945,114
26,398,136
25,963,524
26,778,897
Effect of dilutive securities:
Employee stock awards
509,145
85,837
321,805
131,675
Denominator for dilutive earnings per common share
26,454,259
26,483,973
26,285,329
26,910,572
Basic earnings per common share
$
0.26
$
0.18
$
0.19
$
0.50
Diluted earnings per common share
$
0.26
$
0.18
$
0.18
$
0.50
For the three and nine months ended September 30, 2020, the Company excluded in the aggregate 967 and 58,070 unvested restricted stock, restricted stock units, and performance and market-based shares, respectively, from the calculation of diluted earnings per common share because the effect was anti-dilutive. There were no employee stock options excluded from calculation of diluted earnings per common share.
For the three and nine months ended September 30, 2019, there were no unvested performance and market-based shares, no employee stock options and no unvested restricted stock excluded from the calculation of diluted earnings per common share.
As of September 30, 2020, the Notes (as defined in Note 11) were fully settled and did not have a dilutive impact on diluted earnings per common share. As of September 30, 2019, none of the conditions allowing holders of the Notes to convert were met and no conversion spread existed. As such, the Notes did not have a dilutive impact on diluted earnings per common share for the three and nine months ended September 30, 2019.
9. Stock-Based Compensation Plans
The Company recorded $2.3 million and $9.2 million in total stock-based compensation expense with corresponding income tax benefits of $0.6 million and $2.3 million for the three and nine months ended September 30, 2020, respectively. For the three and nine months ended September 30, 2019, the Company recorded $2.5 million and $7.8 million in total stock-based compensation expense with corresponding income tax benefits of $0.6 million and $1.9 million, respectively.
During each of the nine months ended September 30, 2020 and 2019, the Company did not grant any stock options.
The Company granted 3,069 and 379,852 shares of restricted stock to various employees during the nine months ended September 30, 2020 and 2019, respectively.
The Company granted 381,759 restricted stock units to various employees during the nine months ended September 30, 2020. There were no restricted stock units granted during the nine months ended September 30, 2019.
The Company has a performance and market-based stock incentive plan for certain executives with vesting requirements based on specific financial and market-based performance measurements. The Company granted 139,191 and 105,543 shares of performance and market-based stock during the nine months ended September 30, 2020 and 2019, respectively.
Notes to Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
10. Contingencies
In the normal course of business, the Company is subject to potential claims and disputes related to its business, including claims for freight lost or damaged in transit. Some of these matters may be covered by the Company's insurance and risk management programs or may result in claims or adjustments with the Company's carriers. No such matters are currently expected to have a material adverse effect on the Company's financial position, results of operations or cash flows.
In July 2016, the Company received an unfavorable appeals assessment regarding a state activity-based tax matter of $1.3 million, including penalties and interest, for the state tax audit period from January 1, 2010 to June 30, 2014. The Company appealed the assessment further, and on July 23, 2020, received an unfavorable decision from the state tax board. The Company continues to believe the assessment is without merit and will continue to defend its position through the judicial court system. The Company estimates that the additional potential liability related to this matter for the remaining open tax periods is between $3.5 million and $4.5 million, including potential penalties and interest. The Company has not recorded any potential loss related to this matter as of September 30, 2020.
11. Long-Term Debt
ABL Facility
On October 23, 2018, the Company entered into Amendment No. 2 to its Revolving Credit and Security Agreement (the "Second Amendment"), which amends the terms of its existing Revolving Credit and Security Agreement, dated as of June 1, 2015, by and among the Company, the lenders party thereto, and PNC Bank, National Association, as administrative agent (as amended by the Second Amendment, the "Amended Credit Agreement"). The Amended Credit Agreement provides for a senior secured revolving credit facility in an initial aggregate principal amount of up to $350 million (the "Amended ABL Facility"), with an extended maturity date of October 23, 2023. The initial aggregate principal amount under the Amended ABL Facility may be increased from time to time by an additional $150 million to a maximum aggregate principal amount of $500 million; provided that certain requirements are satisfied. The Company's obligations under the Amended ABL Facility are secured, on a first lien priority basis, by certain working capital assets.
Interest is payable at a rate per annum equal to, at the option of the Company, any of the following, plus, in each case, an applicable margin: (a) a base rate determined by reference to the highest of (1) the federal funds effective rate, plus 0.50%, (2) the base commercial lending rate of PNC Bank, National Association and (3) a daily LIBOR rate, plus 1.00%; or (b) a LIBOR rate determined by reference to the costs of funds for deposits in the relevant currency for the interest period relevant to such borrowing adjusted for certain additional costs. The applicable margin is 0.25% to