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Dynamic quotes 
OFFON

ECHO GLOBAL LOGISTICS, INC.

(ECHO)
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ECHO GLOBAL LOGISTICS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

02/28/2020 | 05:04pm EST

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 Operations

The 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 $ 2,439,701 $ 1,943,086 Transportation costs

                                                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 $ 28,723 $ 12,623


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 $8.9 million resulting from the enactment of the Tax Cuts and Jobs Act of 2017 (the "Act" or "TCJA"). (2) 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.

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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
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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 $26.6 million and $23.6 million, respectively.

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 $11.8 million and $13.0 million, respectively.

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 due May 1, 2020 issued in May 2015 (the "Notes"). In October 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 of December 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 on May 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") on January 1, 2019. Results for reporting periods beginning on or
after January 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
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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")
on January 1, 2018. Results for reporting periods beginning on or after January
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.

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Goodwill and Other Intangibles
Goodwill 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. In October 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 December 31, 2019 and 2018

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 from
Freight Management Plus, Inc. ("Freight Management" or "FMP"), which we acquired
in July 2018.

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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 of December 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.


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Income tax expense

We recognized income tax expense of $7.0 million and $9.3 million for the years
ended December 31, 2019 and 2018, respectively. Our effective tax rate for the
year ended December 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 ended December 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 $14.8 million in 2019, compared to $28.7 million in 2018, due to items previously discussed.


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                  4,727

Earnings 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 December 31, 2019, we had $34.6 million in cash and cash equivalents, $105.8 million in working capital and $216.9 million available under our ABL Facility.

Cash provided by operating activities


For the year ended December 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 ended December 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 $23.9 million and $24.1 million for the years ended December 31, 2019 and 2018, respectively. Our capital expenditures decreased in 2019 as compared to 2018 due to a slight decrease in internal development of computer software.

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Cash used in financing activities

Cash used in financing activities was $66.2 million and $45.7 million in 2019 and 2018, respectively.


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 of December 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 of December 31, 2018).

ABL Facility


On October 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 of June 1, 2015, as amended, by and among the Company, the
lenders party thereto, and PNC 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 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. Our obligations under the Amended ABL Facility are secured, on a
first lien priority basis, by certain of our working capital assets.

At December 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. At December 31, 2019, there were $0.7 million of letters
of credit outstanding. The total draw allowed under the Amended ABL Facility at
December 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 at
December 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 due May 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 $1.0 million of potential contingent earn-out payments and$2.0 million to satisfy the semi-annual Note coupon payment. In addition, we currently expect to use approximately $25 million to $27 million for capital expenditures in 2020.


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.
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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements. Contractual Obligations


Our corporate headquarters is located in Chicago, Illinois. As of December 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 of December 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 $ 12,536 $ 11,810 $ 15,630 Senior convertible notes, including interest

                                      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


In February 2016, the Financial 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. In July 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 on January 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 of January 1, 2019. The Company's previous
liability for deferred rent of $20.3 million, as of January 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.

In June 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 after December 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 on January 1, 2019, and the amendments
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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.

In August 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 after
December 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.

In July 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 the SEC'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.

In January 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
after December 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. On October 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


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 will be effective for
annual periods beginning after December 15, 2019. We adopted the standard on
January 1, 2020, prospectively, and we anticipate that the standard will not
have a material effect on the consolidated financial statements.

In June 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 after December 15, 2019, including interim periods
within those fiscal years. We adopted this standard on January 1, 2020,
prospectively, and we do not anticipate the standard having a material effect on
our consolidated financial statements.


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