ECHO GLOBAL LOGISTICS, INC. Overview
We are a leading provider of technology-enabled transportation and supply chain
management solutions. We utilize a proprietary technology platform to compile
and analyze data from our multi-modal network of transportation providers to
satisfy the transportation and logistics needs of our clients. This model
enables us to quickly adapt to and offer efficient and cost-effective solutions
for our clients' shipping needs. We focus primarily on arranging transportation
by truckload ("TL") and less than truckload ("LTL") carriers. We also offer
intermodal (which involves moving a shipment by rail and truck), small parcel,
domestic air, expedited and international transportation services. Our core
logistics services include carrier selection, dispatch, load management and
tracking.
We procure transportation and provide logistics services for clients across a
wide range of industries, such as manufacturing, construction, food and
beverage, consumer products and retail. Our clients fall into two categories,
Transactional and Managed Transportation. We provide brokerage and
transportation management services to our Transactional clients on a
shipment-by-shipment basis, typically with individual, or spot market, pricing.
We typically enter into multi-year contracts with our Managed Transportation
clients, which are often on an exclusive basis for a specific transportation
mode or point of origin. As part of our value proposition, we also provide core
logistics services to these clients.
This section of this Form 10-K generally discusses 2019 and 2018 items and
year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and
year-to-year comparisons between 2018 and 2017 that are not included in this
Form 10-K can be found in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Part II, Item 7 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the
SEC on February 22, 2019 , and which is incorporated by reference herein.
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Results of OperationsThe following table represents certain results of operations data:
Year Ended December 31,
2019 2018 2017(1)
(in thousands, except per share data)
Consolidated statements of operations data:
Revenue $
2,184,977
1,798,944 2,019,337 1,604,046
Net revenue(2) 386,033 420,363 339,041
Operating expenses:
Commissions 116,959 126,822 103,088
Selling, general and administrative expenses 195,120 202,928 183,149
Contingent consideration expense 1,050 410 991
Depreciation and amortization 38,387 36,638 32,728
Total operating expenses 351,516 366,798 319,955
Income from operations 34,517 53,566 19,085
Interest expense (12,639) (15,546) (14,768)
Interest income and other expense - 0 32
Income before provision for income taxes 21,878 38,020 4,350
Income tax (expense) benefit (7,032) (9,296) 8,273
Net income $
14,846
Stated as a percentage of net revenue: Net revenue(2) 100.0 % 100.0 % 100.0 % Operating expenses: Commissions 30.3 % 30.2 % 30.4 % Selling, general and administrative expenses 50.5 % 48.3 % 54.0 % Contingent consideration expense 0.3 % 0.1 % 0.3 % Depreciation and amortization 9.9 % 8.7 % 9.7 % Total operating expenses 91.1 % 87.3 % 94.4 % Income from operations 8.9 % 12.7 % 5.6 % Earnings per common share: Basic$ 0.56 $ 1.04 $ 0.46 Diluted$ 0.55 $ 1.03 $ 0.45 Shares used in per share calculations (in thousands): Basic 26,682 27,598 27,715 Diluted 26,823 27,922 28,023
Note: Amounts may not foot due to rounding.
(1) 2017 results included a tax benefit of
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Revenue
We generate revenue through the sale of brokerage and transportation management
services to our clients. For our brokerage and transportation management
services, revenue is recognized as the client's shipment travels from origin to
destination by a third-party carrier. Our revenue was $2.2 billion and $2.4
billion for the years ended December 31, 2019 and 2018, respectively, reflecting
a 10.4% decrease in 2019.
Our revenue is generated from two different types of clients: Transactional and
Managed Transportation. Most of our clients are categorized as Transactional. We
provide services to our Transactional clients on a shipment-by-shipment basis.
We categorize a client as a Managed Transportation client if we have a contract
with the client for the provision of services on a recurring basis. Our
contracts with Managed Transportation clients typically have a multi-year term
and are often on an exclusive basis for a specific transportation mode or point
of origin. In several cases, we provide substantially all of a client's
transportation and logistics requirements. Our Managed Transportation accounts
typically generate higher dollar amounts and volume than our Transactional
relationships. In 2019 and 2018, Transactional clients accounted for 77.1% and
78.5% of our revenue, respectively, and Managed Transportation clients accounted
for 22.9% and 21.5% of our revenue, respectively. We expect to continue to
expand both our Transactional and Managed Transportation client base in the
future, although the rate of growth for each type of client will vary depending
on opportunities in the marketplace.
Revenue recognized per shipment will vary depending on the transportation mode,
fuel prices, shipment weight, density and mileage of the product shipped. The
primary shipment modes that we transact in are TL and LTL. Other transportation
modes include intermodal, small parcel, domestic air, expedited and
international. Material shifts in the percentage of our revenue by
transportation mode could have a significant impact on our revenue growth. In
2019, TL accounted for 65.8% of our revenue, LTL accounted for 29.6% of our
revenue and other transportation modes accounted for 4.6% of our revenue. In
2018, TL accounted for 69.1% of our revenue, LTL accounted for 26.2% of our
revenue and other transportation modes accounted for 4.7% of our revenue.
The transportation industry has historically been subject to seasonal sales
fluctuations as shipments generally are lower during and after the winter
holiday season because many companies ship goods and stock inventories prior to
the winter holiday season. While we experience some seasonality, differences in
our revenue between periods have been driven primarily by growth in our client
base.
Transportation costs and net revenue
We act primarily as a service provider to add value and expertise in the procurement and execution of brokerage and transportation management services for our clients. Our pricing structure is primarily variable, although we have entered into a limited number of fixed-fee arrangements that represent an insignificant portion of our revenue. Net revenue is a non-GAAP measure equal to revenue minus transportation costs. Net revenue margin is calculated as net revenue (as previously defined) divided by revenue. Our transportation costs consist primarily of the direct cost of transportation paid to the carrier. Net revenue is considered by management to be an important measurement of our success in the marketplace. Our transportation costs are typically lower for an LTL shipment than for a TL shipment. In turn, our net revenue margin is typically higher for an LTL shipment than for a TL shipment. Material shifts in the percentage of our revenue by transportation mode could have a significant impact on our net revenue. The discussion of our results of operations below focuses on changes in our expenses as a percentage of net revenue. In 2019 and 2018, our net revenue was$386.0 million and$420.4 million , respectively, reflecting an 8.2% decrease in 2019.
Operating expenses
Our costs and expenses, excluding transportation costs, consist of commissions paid to our sales personnel, general and administrative expenses to run our business, changes in our contingent consideration, acquisition-related transaction costs, and depreciation and amortization.
Commissions paid to our sales personnel, including employees and agents, are a significant component of our operating expenses. These commissions are based on the net revenue we collect from the clients for which the sales personnel have primary responsibility. In 2019 and 2018, commission expense was$117.0 million and$126.8 million , respectively. In 2019 and 2018, commission expense as a percentage of net revenue was 30.3% and 30.2%, respectively. TL shipments typically have higher commission percentages than other modes. The percentage of net revenue paid as commissions varies depending on the 23 -------------------------------------------------------------------------------- Table of Contents type of client, composition of the sales team and mode of transportation. Commission expense, stated as a percentage of net revenue, could increase or decrease in the future depending on the composition and sources of our revenue growth. We accrue for commission expense when we recognize the related revenue. Some of our sales personnel receive a monthly advance to provide them with a more consistent income stream. Cash paid to our sales personnel in advance of commissions earned is recorded as a prepaid expense. As our sales personnel earn commissions, a portion of their commission payment is withheld and offset against their prepaid commission balance, if any. Selling, general and administrative expenses, excluding commission expense and changes to contingent consideration relating to acquired businesses, consist of compensation costs for our sales, operations, information systems, finance and administrative support employees as well as occupancy costs, professional fees, acquisition-related transaction costs, and other general and administrative expenses. In 2019 and 2018, our selling, general and administrative expenses were$195.1 million and$202.9 million , respectively. In 2019 and 2018, selling, general and administrative expenses as a percentage of net revenue were 50.5% and 48.3%, respectively. Our contingent consideration expense or benefit relates to acquired businesses and is the change in the fair value of our contingent consideration assets and liabilities. The contingent consideration assets and liabilities presented on our consolidated balance sheets reflect the fair value of expected earn-out payments that may be paid to or received from the sellers of certain acquired businesses upon the achievement of certain performance measures. The fair value of the contingent consideration assets and liabilities are evaluated on a quarterly basis, and the change in fair value is included in selling, general and administrative expenses in our consolidated statements of operations. In 2019 and 2018, we recorded charges of$1.1 million and$0.4 million , respectively, due to fair value adjustments to our contingent consideration assets and liabilities.
Our depreciation expense is primarily attributable to our depreciation of
computer hardware and software, equipment, leasehold improvements, furniture and
fixtures, and internally developed software. In 2019 and 2018, depreciation
expense was
Our amortization expense is attributable to our amortization of intangible
assets acquired from business combinations, including customer and carrier
relationships, trade names and non-compete agreements. In 2019 and 2018,
amortization expense was
Interest expense
The interest expense included in our consolidated statement of operations consists of interest expense related to our ABL Facility and our convertible senior notes dueMay 1, 2020 issued inMay 2015 (the "Notes"). InOctober 2018 , we entered into Amendment No. 2 to the ABL Facility (the "Amended ABL Facility") which provides for a senior secured revolving credit facility in an initial aggregate principal amount of up to$350 million . We amortize the debt discount and issuance costs related to the Notes over the 5 year life of the Notes using the effective interest method. We amortize the issuance costs related to our ABL Facility and the Amended ABL Facility over the remaining 5 year life of the Amended ABL facility using straight-line amortization, as the amount drawn on the line (and thus the interest rate and commitment fee paid by Echo) will fluctuate from period to period. As ofDecember 31, 2019 , an aggregate principal amount of$158.3 million of the Notes remained outstanding. The Company has the intent and ability to refinance on a long-term basis the remaining principal amount of the Notes onMay 1, 2020 using the Amended ABL Facility. Interest expense included in our consolidated statements of operations also consists of the recognized loss on extinguishment of debt upon our repurchase of the Notes. Interest expense was$12.6 million and$15.5 million for 2019 and 2018, respectively. Critical Accounting Policies Leases We adopted Accounting Standards Codification ("ASC") Topic 842 Leases ("ASC Topic 842") onJanuary 1, 2019 . Results for reporting periods beginning on or afterJanuary 1, 2019 are presented under ASC 842, of which prior amounts are not adjusted and continue to be reported in accordance with the account standards in effect for those periods. Under ASC Topic 842, a lessee is required to record, on the balance sheet, the assets and liabilities for the right-of-use assets and lease obligations created by leases with lease terms of more than 12 months. We lease office space for purposes of conducting our business. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on a straight-line basis over the lease term. All Company leases, consisting primarily of facility leases, are considered operating leases. For leases with a lease term of greater than 12 months, we use an incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest 24 -------------------------------------------------------------------------------- Table of Contents rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease within a particular currency environment. Refer to Note 3, New Accounting Pronouncements, and Note 20, Leases, to the consolidated financial statements included in this Form 10-K. Revenue Recognition We adopted ASC Topic 606 Revenue from Contracts with Customers ("ASC Topic 606") onJanuary 1, 2018 . Results for reporting periods beginning on or afterJanuary 1, 2018 are presented under ASC Topic 606, of which prior amounts are not adjusted and continue to be in accordance with the accounting standards in effect for those periods. Under ASC Topic 606, revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to receive in exchange for services. We generate revenue from two different client types: Transactional and Managed Transportation. Most clients are categorized as Transactional clients. For our Transactional business, we provide 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. We categorize 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 our Managed Transportation clients. 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. We are the principal in these transactions and recognize revenue on a gross and 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 we do not have latitude in carrier selection or establish rates with the carrier. We also perform project-based services, such as compliance management, customized re-billing services and freight studies for certain Managed Transportation clients. Refer to Note 5, Revenue, to the consolidated financial statements included in this Form 10-K. Our 2017 revenue was recognized in accordance with ASC Topic 605-20, Revenue Recognition - Services. Transportation revenue and related transportation costs were recognized when the shipment was delivered by a third-party carrier. Fee for service revenue was recognized when the services were rendered. At the time of delivery or rendering of services, as applicable, our obligation to fulfill a transaction was complete and collection of revenue was reasonably assured. In accordance with ASC Topic 605-45 Revenue Recognition - Principal Agent Considerations, we generally recognized revenue on a gross basis, as opposed to a net basis similar to a commission arrangement, because we undertook the risks and benefits associated with revenue-generated activities by, among other things: (1) acting as a principal in the transaction; (2) establishing prices; (3) managing all aspects of the shipping process, including selection of the carrier; and (4) taking the risk of loss for collection, delivery and returns. Certain transactions to provide specific services were recorded at the net amount charged to the client due to the following key factors: (a) we did not have latitude in carrier selection; (b) we did not establish rates with the carrier; and (c) we had credit risk for only the net revenue earned from our client while the carrier has credit risk for the transportation costs. Net revenue equals revenue minus transportation costs. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable are uncollateralized customer obligations due under normal trade terms. We extend credit to certain clients in the ordinary course of business based on the clients' credit history. Invoices require payment within 30 to 90 days from the invoice date. Accounts receivable are stated at the amount billed to the client. Client account balances with invoices past due 90 days are considered delinquent. We generally do not charge interest on past due amounts. The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that reflects management's best estimate of amounts that will not be collected. The allowance is based on historical loss experience and any specific risks identified in client collection matters. Accounts receivable are charged off against the allowance for doubtful accounts when it is determined that the receivable is uncollectible.Internal Use Software Certain costs incurred in the planning and evaluation stage of internal use computer software projects are expensed as incurred. Cost incurred during the application development stage are capitalized and included in property and equipment. Capitalized internal use software costs are amortized over the expected economic life of three years using the straight-line method, with total expense included in depreciation expense. 25 -------------------------------------------------------------------------------- Table of ContentsGoodwill and Other IntangiblesGoodwill represents the excess of consideration transferred over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. In accordance with ASC Topic 350 Intangibles -Goodwill and Other: Testing Goodwill for Impairment, goodwill is not amortized, but instead is tested for impairment annually, or more frequently if circumstances indicate a possible impairment may exist. Absent any special circumstances that could require an interim test, we have elected to test for goodwill impairment during the fourth quarter of each year. We manage the business as one operating segment and one reporting unit pursuant to the provisions of ASC Topic 280 Segment Reporting, which established accounting standards for segment reporting. Accounting Standards Update No. 2011-08, "Intangibles -Goodwill and Other: Testing Goodwill for Impairment" permits an entity to first assess qualitative factors to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. After assessing qualitative factors, if an entity determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, no further testing is necessary. InOctober 2019 , we performed a qualitative goodwill impairment assessment of the reporting unit in accordance with ASC Topic 350. As part of the qualitative assessment, we compared our current results to the forecasted expectations of our most recent quantitative analysis, along with analyzing our market cap as of the assessment date, macroeconomic conditions, current industry trends and transactions, and other market data of our industry peers. We concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount. ASC Topic 350 also requires that intangible assets with finite lives be amortized over their respective estimated useful lives and reviewed for impairment whenever impairment indicators exist in accordance with ASC Topic 360 Property, Plant and Equipment. Our intangible assets consist of customer relationships, carrier relationships, non-compete agreements and trade names, which are being amortized over their estimated weighted average useful lives of 14.8 years, 17.0 years, 6.7 years and 4.0 years, respectively. Customer relationships are being amortized using an accelerated method, while carrier relationships, non-compete agreements and trade names are being amortized using the straight-line method. Refer to Note 8, Intangibles and Other Assets, to the consolidated financial statements included in this Form 10-K. Stock-Based Compensation We account for stock-based compensation in accordance with ASC Topic 718 Compensation - Stock Compensation which requires all share-based payments to employees, including grants of stock options, to be recognized in the income statement based upon their fair values. Share-based employee compensation costs are recognized as a component of selling, general and administrative expenses in the consolidated statements of operations. For more information about our stock-based compensation programs, see Note 15 to the consolidated financial statements included in this Form 10-K. Income Taxes We account for income taxes in accordance with ASC Topic 740 Income Taxes, under which deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and liabilities and their respective tax bases. A valuation allowance is established to reduce the carrying value of deferred tax assets if it is considered more likely than not that such assets will not be realized. Any change in the valuation allowance would be charged to income in the period such determination was made. We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement. Refer to Note 12, Income Taxes, to the consolidated financial statements included in this Form 10-K.
Comparison of years ended
Revenue
Revenue was$2.2 billion in 2019, a decrease of 10.4% from$2.4 billion in 2018. The decrease in revenue was primarily attributable to a 9.7% decrease in revenue per shipment, along with a decrease of 0.8% in volume. Included in our 2019 and 2018 revenue was$17.8 million and$9.7 million , respectively, of revenue fromFreight Management Plus, Inc. ("Freight Management" or "FMP"), which we acquired inJuly 2018 . 26 -------------------------------------------------------------------------------- Table of Contents Revenue from Transactional clients was$1.7 billion in 2019, a decrease of 12.0% from$1.9 billion in 2018. The decrease in Transactional revenue was driven by a decrease in revenue per shipment and volume decreases in the TL mode. Revenue from Transactional clients was 77.1% of our revenue in 2019, a decrease from 78.5% in 2018. Revenue from Managed Transportation clients was$500.1 million in 2019, a decrease of 4.6% from$524.1 million in 2018. The decrease in Managed Transportation revenue was driven by a decrease in revenue per shipment. Revenue from Managed Transportation clients was 22.9% of our revenue for 2019, an increase from 21.5% of revenue in 2018. This increase in Managed Transportation revenue as a percent of total revenue was driven by the decrease in Transactional revenue per shipment.
Transportation costs
Transportation costs were$1.8 billion in 2019, a decrease of 10.9% from$2.0 billion in 2018. Our transportation costs as a percentage of revenue decreased to 82.3% in 2019 from 82.8% in 2018. The 10.2% decrease in carrier rates per shipment and the 0.8% decline in total number of shipments drove the decrease in our transportation costs during this period.
Net revenue
Net revenue was$386.0 million in 2019, a decrease of 8.2% from$420.4 million in 2018. The decrease in net revenue was driven by a 9.7% decrease in revenue per shipment. Net revenue margins increased to 17.7% in 2019 from 17.2% in 2018 due to an increase in TL net revenue margins.
Operating expenses
Commission expense was$117.0 million in 2019, a decrease of 7.8% from$126.8 million in 2018 due to lower net revenue. For 2019, commission expense was 30.3% of net revenue, compared to 30.2% in 2018. The increase in commission expense as a percentage of net revenue for 2019 was due to the fluctuations in the composition of our net revenue by mode and sales channel type. Selling, general and administrative expenses was$195.1 million in 2019, a decrease of 3.8% from$202.9 million in 2018. The decrease was the result of lower headcount and lower incentive compensation. As a percentage of net revenue, selling, general and administrative expenses increased to 50.5% in 2019 from 48.3% in 2018. The increase is due to lower net revenue, primarily due to the decline in TL rates. The contingent consideration fair value adjustment resulted in expense of$1.1 million and$0.4 million in 2019 and 2018, respectively. The expense for both periods was a result of adjustments made to the fair value of the contingent liabilities due to financial performance of previous acquisition owners and the time value of money. The fair value of the contingent consideration liabilities reflected the updated probabilities and assumptions as ofDecember 31, 2019 . Depreciation expense was$26.6 million in 2019, an increase of 12.6% from$23.6 million in 2018. The increase in depreciation expense was primarily due to the depreciation of the increased investments in internally developed software and computer equipment. Amortization expense was$11.8 million in 2019, a decrease of 9.4% from$13.0 million in 2018. The decrease in amortization expense was primarily attributable to the complete amortization of a few of our previously acquired intangible assets, along with the accelerated method of amortization of our acquired customer relationships.
Income from operations
Income from operations was$34.5 million in 2019, a decrease of 35.6% from$53.6 million in 2018. The decrease in income from operations was primarily due to lower net revenue. Interest expense Interest expense was$12.6 million in 2019, a decrease from$15.5 million in 2018. The decrease in interest expense is primarily due to the lower outstanding balance of the Notes due to repurchases in 2019. 27 -------------------------------------------------------------------------------- Table of Contents Income tax expense We recognized income tax expense of$7.0 million and$9.3 million for the years endedDecember 31, 2019 and 2018, respectively. Our effective tax rate for the year endedDecember 31, 2019 was 32.1%, compared to an effective tax rate of 24.5% in the comparable period of 2018. The difference in our effective tax rate for the year endedDecember 31, 2019 from our statutory federal tax rate of 21% was primarily due to state taxes; non-deductible expense, primarily executive stock-based compensation; offset in part by the impact of certain tax credits.
Net Income
Net income was
Quarterly Results of Operations
The following table represents our unaudited results of operations data for our
most recent eight fiscal quarters. You should read the following table in
conjunction with our consolidated financial statements and related notes
appearing elsewhere in this Form 10-K. The results of operations of any quarter
are not necessarily indicative of the results that may be expected for any
future period.
Three Months Ended
Dec. 31, 2019 Sept. 30, 2019 June 30, 2019 Mar. 31, 2019 Dec. 31, 2018 Sept. 30, 2018 June 30, 2018 Mar. 31, 2018
(in thousands, except per share data) (unaudited)
Revenue $ 531,677 $ 561,441 $ 553,775 $ 538,083 $ 582,978 $ 644,821 $ 634,811 $ 577,091
Net revenue(1) 89,682 96,982 100,603 98,766 102,431 111,220 106,789 99,923
Operating income 5,076 9,665 10,672 9,103 13,673 16,281 13,112 10,500
Net income 1,439 4,843 5,067 3,497 6,935 9,383 7,678 4,727Earnings per common share:
Basic$ 0.05 $ 0.18$ 0.19 $ 0.13 $ 0.25 $ 0.34$ 0.28 $ 0.17 Diluted$ 0.05 $ 0.18$ 0.19 $ 0.13 $ 0.25 $ 0.33$ 0.28 $ 0.17
(1) Net revenue is a non-GAAP measure calculated as revenue less transportation costs. See Item 6, "Selected Financial Data" of this Form 10-K, for a reconciliation of net revenue to revenue, the most comparable GAAP measure.
Liquidity and Capital Resources
As of
Cash provided by operating activities
For the year endedDecember 31, 2019 ,$84.5 million of cash was provided by operating activities, compared to$94.2 million in 2018. In 2019, we generated$76.6 million in cash from net income, adjusted for noncash operating items, representing a decrease from$91.3 million in 2018. Changes in working capital primarily relate to changes in accounts receivable, accounts payable and accrued expense balances.
Cash used in investing activities
Cash used in investing activities was$24.0 million and$31.8 million for the years endedDecember 31, 2019 and 2018 respectively. In 2019, the primary investing activities were capital expenditures, primarily internal use software. In 2018, the primary investing activities were capital expenditures, including internal use software, investments and the acquisition of FMP.
Our capital expenditures were
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Cash used in financing activities
Cash used in financing activities was
In 2019, the primary financing activities were the purchases of$33.9 million of Notes (described in Note 10 to our audited consolidated financial statements appearing elsewhere in this Form 10-K) and$29.0 million of our common stock as part of the repurchase program (described in Note 13 to our audited consolidated financial statements appearing elsewhere in this Form 10-K), the$1.2 million payments of contingent consideration up to the amount of contingent consideration liability recognized at the acquisition date, and the$2.1 million use of cash to satisfy employee tax withholdings upon the vesting of restricted stock. We also drew$35.0 million on our ABL Facility (all of which was repaid as ofDecember 31, 2019 ). In 2018, the primary financing activities were the purchases of$37.2 million of Notes and$9.5 million of our common stock as part of the repurchase program, the$0.6 million payments of contingent consideration, and the$2.6 million use of cash to satisfy employee tax withinholdings upon the vesting of restricted stock. These outflows were offset by the$4.2 million of proceeds from exercise of stock options. We also drew$12.0 million on our ABL Facility (all of which was repaid as ofDecember 31, 2018 ).
ABL Facility
OnOctober 23, 2018 , we entered into Amendment No. 2 to its Revolving Credit and Security Agreement, which amended the terms of its Revolving Credit and Security Agreement, dated as ofJune 1, 2015 , as amended, by and among the Company, the lenders party thereto, andPNC Bank, National Association , as administrative agent (as amended, restated or otherwise modified 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"), and a maturity date ofOctober 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. Our obligations under the Amended ABL Facility are secured, on a first lien priority basis, by certain of our working capital assets. AtDecember 31, 2019 , there was no outstanding balance on the Amended ABL Facility. The issuance of letters of credit under the ABL Facility also reduces available borrowings. AtDecember 31, 2019 , there were$0.7 million of letters of credit outstanding. The total draw allowed under the Amended ABL Facility atDecember 31, 2019 , as determined by the working capital assets pledged as collateral, was$217.6 million . After adjusting for the letters of credit, our remaining availability for borrowing under the Amended ABL Facility atDecember 31, 2019 was$216.9 million . Using the availability on the Amended ABL Facility, we have the intent and ability to refinance on a long-term basis the remaining$158.3 million principal amount of the Notes dueMay 1, 2020 .
Anticipated uses of cash
Our priority is to continue to grow our revenue and net revenue. We anticipate that our operating expenses and planned expenditures will constitute material uses of cash, and we expect to use available cash to expand our sales force, to enhance our technology, to acquire or make strategic investments in complementary businesses, and for working capital and other general corporate purposes.
In 2020, we expect to use available cash to make approximately
As discussed in Note 13 to our audited consolidated financial statements appearing elsewhere in this Form 10-K, we may also opt to use cash to repurchase up to$19.6 million of our common stock or Notes under the remaining authority under our repurchase program. The timing and amount of any common stock or convertible notes repurchases will be determined based on market conditions and other factors. We expect our use of cash for working capital purposes and other purposes to be offset by the cash flow generated from operating activities during the same period. Historically, our average accounts receivable life-cycle has been longer than our average accounts payable life-cycle, meaning that we have used cash to pay carriers in advance of collecting from our clients. We elect to provide this benefit to foster strong relationships with our clients and carriers. As our business grows, we expect this use of cash to continue. The amount of cash we use for these purposes will depend on the growth of our business. 29 -------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements. Contractual Obligations
Our corporate headquarters is located inChicago, Illinois . As ofDecember 31, 2019 , we leased approximately 225,000 square feet at our corporate headquarters and we continue to also lease approximately 30 branch sales offices, with a range of lease terms between 3-11 years. As ofDecember 31, 2019 , we had the following contractual obligations (in thousands): More than Total Within 1 year 2-3 years 4-5 years 5 years Operating leases$ 48,333 $
8,357
160,274 160,274 - - -
Contingent consideration obligations(1) 1,907 $ 953 953 - -
Total $ 210,513 $ 169,584 $ 13,489 $ 11,810 $ 15,630
Note: Amounts may not foot due to rounding.
_________________
(1)This represents the maximum undiscounted contingent consideration obligations
that may become payable in each period. The actual payouts will be determined at
the end of the applicable performance periods based on the acquired entities'
achievement of the targets specified in the purchase agreements. See Note 6 in
the notes to the consolidated financial statements included elsewhere in this
Form 10-K for a discussion of the fair values of these contingent consideration
obligations as of December 31, 2019 .
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
InFebruary 2016 , theFinancial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases, requiring a lessee to record, on the balance sheet, the assets and liabilities for the right-of-use assets and lease obligations created by leases with lease terms of more than 12 months. InJuly 2018 , the FASB issued ASU 2018-11, which added amendments to create an optional transition method that provided an option to use the effective date of Accounting Standards Codification ("ASC") 842, Leases ("ASC Topic 842"), as the date of initial application of the transition. In addition, the new standard requires enhanced qualitative and quantitative disclosures related to the amount, timing and uncertainty of cash flows arising from leases. The Company adopted this standard onJanuary 1, 2019 using the modified retrospective approach. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Upon adoption, the Company elected the package of practical expedients that allows it to (i) not reassess whether an arrangement contains a lease, (ii) carry forward its lease classification as operating or capital leases and (iii) not reassess its previously recorded initial direct costs. In addition, the Company elected the practical expedient to not separate lease and non-lease components whereby both components are accounted for and recognized as lease components. The adoption resulted in a lease asset of$21.0 million and lease liability of$41.2 million , respectively, as ofJanuary 1, 2019 . The Company's previous liability for deferred rent of$20.3 million , as ofJanuary 1, 2019 , was offset against the right of use asset upon adoption of the new standard. The standard did not impact the Company's consolidated statement of operations or consolidated statement of cash flows. The Company fully describes the adoption and impact of this standard in Note 20. As part of the adoption of this standard, the Company implemented changes to its accounting policies, practices and internal controls over financial reporting. InJune 2018 , the FASB issued ASU 2018-07, Compensation - Stock Compensation, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from non-employees. The amendments in this update will be effective for fiscal years beginning afterDecember 15, 2018 , including interim periods within those fiscal years, with early adoption permitted. Our current share-based payment awards to non-employees consist only of grants made to our non-employee Directors as compensation solely relates to each individual's role as a non-employee Director. As such, in accordance with ASC 718, we account for these share-based payment awards to our non-employee Directors in the same manner as share-based payment awards for our employees. We adopted this standard onJanuary 1, 2019 , and the amendments 30 -------------------------------------------------------------------------------- Table of Contents in this guidance had no effect on the accounting for our share-based payment awards to our non-employee Directors, and had no effect on the consolidated financial statements. InAugust 2018 , the FASB issued ASU 2018-15, Intangibles -Goodwill and Other -Internal-Use Software , which aligns the accounting for implementation costs of a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This guidance also requires companies to amortize these implementation costs over the life of the service contract in the same line item within the consolidated statements of operations as the fees associated with the hosting service. This accounting standard is effective for fiscal years beginning afterDecember 15, 2019 , including interim periods within those fiscal years. We early adopted this accounting standard prospectively in the third quarter of 2019, and the adoption of this guidance did not have a material impact on the consolidated financial statements. InJuly 2019 , the FASB issued ASU 2019-07, Codification Updates to SEC Sections, which clarifies the disclosure and presentation requirements of a variety of codification topics by aligning them with theSEC's regulations, thereby eliminating redundancies and making the codification easier to apply. This ASU was effective upon issuance and did not have a significant impact on our consolidated financial statements and related disclosures. InJanuary 2017 , the FASB issued ASU 2017-04, Intangibles -Goodwill and Other: Simplifying the Test for Goodwill Impairment, to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This new accounting standard will be effective for annual periods beginning afterDecember 15, 2019 , with early adoption permitted. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. OnOctober 1, 2019 , we early adopted ASU 2017-04. 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
InAugust 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 will be effective for annual periods beginning afterDecember 15, 2019 . We adopted the standard onJanuary 1, 2020 , prospectively, and we anticipate that the standard will not have a material effect on the consolidated financial statements. InJune 2016 , the 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. Current accounting delays the recognition of credit losses until it is probable a loss has been incurred, while the update requires financial assets to be measured at amortized costs less a reserve and equal to the net amount expected to be collected. This standard is effective for annual periods beginning afterDecember 15, 2019 , including interim periods within those fiscal years. We adopted this standard onJanuary 1, 2020 , prospectively, and we do not anticipate the standard having a material effect on our consolidated financial statements. 31
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