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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
FORM 10-Q
____________________________________________
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2019
OR
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to _______

Commission file number 001-34470
ECHO GLOBAL LOGISTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
 
20-5001120
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
600 West Chicago Avenue
Suite 725
Chicago, Illinois 60654
Phone: (800354-7993
(Address (including zip code) and telephone number (including area code)
of registrant's principal executive offices)

Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common stock, par value $0.0001 per share
ECHO
NASDAQ Global Select Market
____________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No: 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No: 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes:      No: 

As of July 24, 2019, the registrant had 27,282,367 shares of common stock outstanding.



 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I. FINANCIAL INFORMATION


Item 1.    Consolidated Financial Statements


Echo Global Logistics, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
(In thousands, except per share data)
2019
 
2018
 
2019
 
2018
Revenue
$
553,775

 
$
634,811

 
$
1,091,858

 
$
1,211,902

Costs and expenses:
 
 
 
 
 
 
 
Transportation costs
453,173

 
528,022

 
892,489

 
1,005,190

Selling, general and administrative expenses
80,138

 
84,644

 
160,333

 
165,162

Depreciation and amortization
9,793

 
9,033

 
19,261

 
17,939

Income from operations
10,672

 
13,112

 
19,775

 
23,612

Interest expense
(3,555
)
 
(3,754
)
 
(6,968
)
 
(7,504
)
Income before provision for income taxes
7,117

 
9,358

 
12,807

 
16,107

Income tax expense
(2,050
)
 
(1,680
)
 
(4,244
)
 
(3,702
)
Net income
$
5,067

 
$
7,678

 
$
8,564

 
$
12,405

 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.19

 
$
0.28

 
$
0.32

 
$
0.45

Diluted
$
0.19

 
$
0.28

 
$
0.32

 
$
0.45

Note: Amounts may not foot due to rounding.
 
 
 
 
 
 
 
See accompanying notes.


3

Table of Contents

Echo Global Logistics, Inc. and Subsidiaries
Consolidated Balance Sheets
 
June 30,
2019
 
December 31,
2018
(In thousands, except share data)
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
16,022

 
$
40,281

Accounts receivable, net of allowance for doubtful accounts of $3,981 and $4,618 at June 30, 2019 and December 31, 2018, respectively
321,680

 
337,426

Income taxes receivable
665

 
2,805

Prepaid expenses
8,196

 
9,048

Other current assets
3,173

 
4,172

Total current assets
349,737

 
393,732

Noncurrent assets:
 
 
 
Property and equipment, net of accumulated depreciation of $123,054 and $110,010 at June 30, 2019 and December 31, 2018, respectively
61,291

 
61,955

Goodwill
309,589

 
309,589

Intangible assets, net of accumulated amortization of $76,053 and $69,855 at June 30, 2019 and December 31, 2018, respectively
103,365

 
109,563

Operating lease assets
19,852

 

Other noncurrent assets
4,210

 
3,485

Total noncurrent assets
498,307

 
484,593

Total assets
$
848,044

 
$
878,325

 
 
 
 
Liabilities and stockholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
220,035

 
$
216,280

Due to seller, current
950

 
2,243

Accrued expenses
35,461

 
48,129

Other current liabilities
5,704

 
255

Total current liabilities
262,151

 
266,907

Noncurrent liabilities:
 
 
 
Convertible notes, net
153,381

 
183,168

Due to seller, noncurrent
1,150

 
717

Other noncurrent liabilities
533

 
18,369

Deferred income taxes
21,926

 
19,233

Noncurrent operating lease liabilities
33,174

 

Total noncurrent liabilities
210,164

 
221,487

Total liabilities
472,316

 
488,394

Stockholders' equity:
 
 
 

Common stock, par value $0.0001 per share, 100,000,000 shares authorized, 31,498,159 shares issued and 26,396,576 shares outstanding at June 30, 2019; 31,345,220 shares issued and 27,397,760 shares outstanding at December 31, 2018
3

 
3

Treasury stock, 5,101,583 and 3,947,460 shares at June 30, 2019 and December 31, 2018, respectively
(105,679
)
 
(79,571
)
Additional paid-in capital
351,739

 
348,397

Retained earnings
129,666

 
121,102

Total stockholders' equity
375,729

 
389,932

Total liabilities and stockholders' equity
$
848,044

 
$
878,325

Note: Amounts may not foot due to rounding.
 
 
 
See accompanying notes.

4

Table of Contents

Echo Global Logistics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
June 30,
(In thousands)
2019
 
2018
Operating activities
 
 
 
Net income
$
8,564

 
$
12,405

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Deferred income taxes
2,788

 
2,943

Noncash stock compensation expense
5,230

 
4,737

Noncash interest expense
4,202

 
4,211

Change in contingent consideration due to seller
490

 
100

Depreciation and amortization
19,261

 
17,939

Change in assets:
 
 
 
Accounts receivable
15,778

 
(71,543
)
Income taxes receivable
2,328

 
745

Prepaid expenses and other assets
900

 
(3,407
)
Change in liabilities:
 
 
 
Accounts payable
3,785

 
63,517

Accrued expenses and other liabilities
(11,023
)
 
3,409

Payments of contingent consideration in excess of costs over estimated earnings
(1,097
)
 
(375
)
Net cash provided by operating activities
51,206

 
34,680

Investing activities
 
 
 
Purchases of property and equipment
(13,166
)
 
(13,231
)
Investments in business entities

 
(1,000
)
Payments for acquisitions, net of cash acquired
(33
)
 

Net cash used in investing activities
(13,198
)
 
(14,231
)
Financing activities
 
 
 
Payments of contingent consideration due to seller
(253
)
 
(550
)
Proceeds from exercise of stock options
37

 
3,561

Employee tax withholdings related to net share settlements of equity-based awards
(2,027
)
 
(2,318
)
Purchases of treasury stock
(26,108
)
 

Purchases of Convertible Notes
(33,915
)
 

Proceeds from borrowing on ABL facility
15,000

 
12,000

Repayments of amounts borrowed on ABL facility
(15,000
)
 
(12,000
)
Net cash (used in) provided by financing activities
(62,266
)
 
693

(Decrease) Increase in cash and cash equivalents
(24,259
)
 
21,141

Cash and cash equivalents, beginning of period
40,281

 
23,515

Cash and cash equivalents, end of period
$
16,022

 
$
44,656

Note: Amounts may not foot due to rounding.
 
 
 
Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
2,904

 
$
3,282

Cash paid during the period for income taxes
2,476

 
144

Cash received during the period for income taxes refunded
$
3,348

 
$
129

See accompanying notes.

5

Table of Contents

Echo Global Logistics, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Unaudited)
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
 
 
 
(In thousands, except share data)
Shares
 
Amount
 
Shares
 
Amount
 
 
Retained
Earnings
 
Total
Balance at December 31, 2018
31,345,220

 
$
3

 
(3,947,460
)
 
$
(79,571
)
 
$
348,397

 
$
121,102

 
$
389,932

Share compensation expense

 

 

 

 
2,806

 

 
2,806

Exercise of stock options
3,000

 
0

 

 

 
37

 

 
37

Common stock issued for vested restricted stock
215,071

 
0

 

 

 
(0
)
 

 

Common stock issued for vested performance shares
13,267

 
0

 

 

 
(0
)
 

 

Common shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock
(81,936
)
 
(0
)
 

 

 
(1,978
)
 

 
(1,978
)
Repurchase of convertible notes, net of deferred taxes

 

 

 

 
36

 

 
36

Purchases of treasury stock

 

 
(452,350
)
 
(10,629
)
 

 

 
(10,629
)
Net income

 

 

 

 

 
3,497

 
3,497

Balance at March 31, 2019
31,494,622

 
3

 
(4,399,810
)
 
(90,199
)
 
349,298

 
124,599

 
383,700

Share compensation expense

 

 

 

 
2,425

 

 
2,425

Common stock issued for vested restricted stock
5,789

 
0

 

 

 
(0
)
 

 

Common shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock
(2,252
)
 
(0
)
 

 

 
(49
)
 

 
(49
)
Repurchase of convertible notes, net of deferred taxes

 

 

 

 
66

 

 
66

Purchases of treasury stock

 

 
(701,773
)
 
(15,480
)
 

 

 
(15,480
)
Net income

 

 

 

 

 
5,067

 
5,067

Balance at June 30, 2019
31,498,159

 
$
3

 
(5,101,583
)
 
$
(105,679
)
 
$
351,739

 
$
129,666

 
$
375,729

Note: Amounts may not foot due to rounding.
 
 
 
 
 
 
 
 
 
 
 
 
 



6

Table of Contents

Echo Global Logistics, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Unaudited)
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
 
 
 
(In thousands, except share data)
Shares
 
Amount
 
Shares
 
Amount
 
 
Retained
Earnings
 
Total
Balance at December 31, 2017
30,768,050

 
$
3

 
(3,526,870
)
 
$
(69,818
)
 
$
337,445

 
$
91,242

 
$
358,872

Share compensation expense

 

 

 

 
2,350

 

 
2,350

Exercise of stock options
123,442

 
0

 

 

 
1,239

 

 
1,239

Common stock issued for vested restricted stock
195,853

 
0

 

 

 
(0
)
 

 

Common stock issued for vested performance shares
26,567

 
0

 

 

 
(0
)
 

 

Common shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock
(78,812
)
 
(0
)
 

 

 
(2,222
)
 

 
(2,222
)
Cumulative effect of accounting change

 

 

 

 

 
1,136

 
1,136

Net income

 

 

 

 

 
4,727

 
4,727

Balance at March 31, 2018
31,035,100

 
3

 
(3,526,870
)
 
(69,818
)
 
338,811

 
97,105

 
366,101

Share compensation expense

 

 

 

 
2,212

 

 
2,212

Exercise of stock options
201,900

 
0

 

 

 
2,322

 

 
2,322

Common stock issued for vested restricted stock
9,870

 
0

 

 

 
(0
)
 

 

Common shares withheld and retired to satisfy employee tax withholding obligations upon vesting of restricted stock
(3,405
)
 
(0
)
 

 

 
(96
)
 

 
(96
)
Net income

 

 

 

 

 
7,678

 
7,678

Balance at June 30, 2018
31,243,465

 
$
3

 
(3,526,870
)
 
$
(69,818
)
 
$
343,249

 
$
104,783

 
$
378,218

Note: Amounts may not foot due to rounding.
 
 
 
 
 
 
 
 
 
 
 
 
 

See accompanying notes.

7

Table of Contents

Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

1. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Echo Global Logistics, Inc. and its subsidiaries (the "Company" or "Echo"). All significant intercompany accounts and transactions have been eliminated in the consolidation. The consolidated statements of operations include the results of entities or assets acquired from the effective date of the acquisition for accounting purposes.

The preparation of the consolidated financial statements is in conformity with the rules and regulations of the Securities and Exchange Commission ("SEC") and accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules or regulations. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments considered necessary for a fair presentation of the results for the period and those adjustments are of a normal recurring nature. The operating results for the six months ended June 30, 2019 are not necessarily indicative of the results expected for the full year 2019. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's audited financial statements for the year ended December 31, 2018.

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results can differ from those estimates.

Fair Value of Financial Instruments

The carrying values of the Company's financial instruments, which consist of cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values due to their short-term nature. The fair value of the acquired intangible assets was determined using a discounted cash flow analysis as further described in Note 3. The fair value of the due to seller liabilities are determined based on the likelihood of the Company making contingent earn-out payments (see Note 5). The fair value of the liability component of the Notes (as defined in Note 12) was determined using the discounted cash flow analysis discussed in Note 12.

2. 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.


8

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

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 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 and had no impact on cash flows. The Company fully describes the adoption and impact of this standard in Note 13. 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 nonemployees. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company's current share-based payment awards to non-employees consist only of grants made to its non-employee Directors as compensation solely relates to each individual's role as a non-employee Director. As such, in accordance with ASC 718, the Company accounts for these share-based payment awards to its non-employee Directors in the same manner as share-based payment awards for its employees. The Company adopted this standard on January 1, 2019, and the amendments in this guidance had no effect on the accounting for its share-based payment awards to its non-employee Directors, and had no effect on the 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. Early adoption is permitted. The Company is evaluating the effects that the adoption of this guidance will have on its 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. Early adoption is permitted. The Company is evaluating the effects that the adoption of this guidance will have on its 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 will require financial assets to be measured at amortized costs less a reserve and equal to the net amount expected to be collected. This standard will be effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effects that the adoption of this guidance will have on its consolidated financial statements.


9

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

3. Acquisitions

On July 6, 2018, the Company acquired Freight Management Plus, Inc. ("Freight Management," or "FMP"), a non-asset based truckload and less than truckload transportation brokerage based in Allison Park, Pennsylvania, and the results of FMP have been included in the Company's consolidated financial statements since the acquisition date. The Company purchased the assets and assumed certain liabilities of FMP for $6.7 million in cash payable at closing, $0.7 million of common stock, par value $0.0001 per share, and an additional $2.9 million in contingent consideration that may become payable upon the achievement of certain performance measures on or prior to June 30, 2021. The acquisition date fair value of the total consideration transferred was $10.5 million. The Company recorded $2.3 million of goodwill, $1.4 million as the estimated opening balance sheet fair value of the contingent consideration obligation, and $5.1 million of customer relationship intangible assets. The fair values of the contingent consideration obligation and the customer relationship intangible assets are considered Level 3 fair value estimates. The fair value of the contingent consideration obligation was based on the probability of reaching the financial forecasts of future operating results, an appropriate discount rate, and the Company's historical experience with similar arrangements as further described in Note 5. The fair value of the customer relationship intangible assets was determined using a discounted cash flow analysis based on the current customers of FMP at the time of the acquisition. The amount of goodwill deductible for U.S. income tax purposes is $0.9 million, which excludes the opening balance sheet fair value of the contingent consideration obligation.

As of June 30, 2019, the fair value of the contingent consideration has increased to $2.1 million from its opening balance sheet fair value of $1.4 million. The Company will continue to reassess the fair value of the contingent consideration obligation each quarter.

4. Revenue

Adoption of ASC Topic 606, "Revenue from Contracts with Customers"

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers ("ASC Topic 606"), using the modified retrospective method. The Company recorded an increase to the opening balance of retained earnings of $1.1 million, net of tax, as of January 1, 2018 due to the cumulative impact of adoption of ASC Topic 606.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to receive in exchange for its services. The Company generates revenue from two different client types: Transactional and Managed Transportation. Most clients are categorized as Transactional clients. For its Transactional business, the Company provides brokerage and transportation management services on a shipment-by-shipment basis. Carrier selection, dispatch, load management and tracking are integrated services that occur within the brokerage and transportation management performance obligation. For the brokerage and transportation management services performance obligation, revenue is recognized as the client's shipment travels from origin to destination by a third-party carrier. The Company is the principal in these transactions and recognizes revenue on a gross and relative transit time basis.

The Company categorizes a client as a Managed Transportation client if there is an agreement with the client for the provision of services, typically for a multi-year term. Brokerage and transportation management services is typically the performance obligation for the Company's Managed Transportation clients. Other performance obligations for Managed Transportation clients may include transportation management services, which includes the integrated services of dispatch, tracking and carrier payment. For these types of transactions, revenue is recorded on a net basis as the Company does not have latitude in carrier selection or establish rates with the carrier. The Company also performs project-based services, such as compliance management, customized re-billing services and freight studies for certain Managed Transportation clients.


10

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

The following table presents the Company's revenue disaggregated by client type (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
Client Type
2019
 
2018
 
2019
 
2018
Transactional
$
428,224

 
$
502,788

 
$
840,369

 
$
955,897

Managed Transportation
125,551

 
132,023

 
251,490

 
256,005

Revenue
$
553,775

 
$
634,811

 
$
1,091,858

 
$
1,211,902


Note: Amounts may not foot due to rounding.

Revenue recognized per shipment varies depending on the transportation mode. The primary modes of shipment in which the Company transacts are truckload and less than truckload. Other transportation modes include intermodal, small parcel, domestic air, expedited and international.

The following table presents the Company's revenue disaggregated by mode (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
Mode
2019
 
2018
 
2019
 
2018
Truckload
$
362,254

 
$
443,711

 
$
716,572

 
$
844,186

Less than truckload
165,046

 
160,584

 
319,985

 
307,818

Other revenue
26,476

 
30,516

 
55,301

 
59,898

Revenue
$
553,775

 
$
634,811

 
$
1,091,858

 
$
1,211,902

Note: Amounts may not foot due to rounding.

Variable Consideration

Certain customers may receive rebates based on the terms of their agreement with the Company, which are accounted for as variable consideration. Rebates are estimated based on the expected amount to be provided to customers and reduce revenue recognized. The Company also estimates for possible additional fees based on a portfolio approach.

Practical Expedients

The Company adopted the practical expedient to recognize commission expense when incurred because the amortization period is less than one year. Commission expense recognition aligns with the Company's revenue recognition policy under ASC Topic 606, as commission expense is recognized on a relative transit time basis.

The Company applied the disclosure exemption in ASC Topic 606 that permits the omission of remaining performance obligations that have an original expected duration of one year or less.


11

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

5. Fair Value Measurement

The Company applies ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820"), for its financial assets and financial liabilities. The guidance requires disclosures about assets and liabilities measured at fair value. The Company's financial liabilities primarily relate to contingent earn-out payments due to sellers in connection with various acquisitions. The fair value of the due to seller liabilities at June 30, 2019 and December 31, 2018 was $2.1 million and $3.0 million, respectively. The potential earn-out payments and performance periods are defined in the individual purchase agreements for each acquisition. Earnings before interest, taxes, depreciation and amortization ("EBITDA") is the performance target defined and measured to determine the earn-out payment due, if any, after each defined measurement period.

ASC Topic 820 includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity's pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:

Level 1: Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable and market-corroborated inputs, which are derived principally from or corroborated by observable market data.
Level 3: Inputs that are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The significant inputs used to derive the fair value of the amounts due to seller include financial forecasts of future operating results, the probability of reaching the forecast and an appropriate discount rate for each contingent liability. Probabilities are estimated by reviewing financial forecasts and assessing the likelihood of reaching the required performance measures based on factors specific to each acquisition as well as the Company’s historical experience with similar arrangements. If an acquisition reaches the required performance measure, the estimated probability would be increased to 100% and would still be classified as a contingent liability on the balance sheet. If the measure is not reached, the probability would be reduced to reflect the amount earned, if any, depending on the terms of the agreement. Discount rates used in determining the fair value of the contingent consideration due to seller ranged from 5% to 7%. Historical results of the respective acquisitions serve as the basis for the financial forecasts used in the valuation.

Quantitative factors are also considered in these forecasts, including acquisition synergies, growth and sales potential, and potential operational efficiencies gained. Changes to the significant inputs used in determining the fair value of the contingent consideration due to seller could result in a change in the fair value of the contingent consideration. However, the correlation and inverse relationship between higher projected financial results to the discount rate applied and probability of meeting the financial targets mitigates the effect of any changes to the unobservable inputs.

The following tables set forth the Company's financial liabilities measured at fair value on a recurring basis and the basis of measurement at June 30, 2019 and December 31, 2018 (in thousands):
 
Fair Value Measurements as of June 30, 2019
 
Total
 
Level 1
 
Level 2
 
Level 3
Liabilities:
 
 
 
 
 
 
 
Contingent consideration due to seller
$
(2,100
)
 

 

 
$
(2,100
)

 
Fair Value Measurements as of December 31, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
Liabilities:
 
 
 
 
 
 
 
Contingent consideration due to seller
$
(2,960
)
 

 

 
$
(2,960
)



12

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

The following table provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3) (in thousands):
 
Due to Seller Liability
Balance at December 31, 2018
$
(2,960
)
Change in fair value of contingent consideration due to seller
(490
)
Payment of contingent consideration due to seller
1,350

Balance at June 30, 2019
$
(2,100
)


For the three months ended June 30, 2019 and 2018, the Company recognized expense of $200 thousand and $50 thousand, respectively. For the six months ended June 30, 2019 and 2018, the Company recognized expense of $490 thousand and $100 thousand, respectively. These changes in fair value resulted from using revised forecasts that took into account the most recent performance at each acquired business and the effect of the time value of money.

During the six months ended June 30, 2019 and 2018, the Company made contingent earn-out payments of $1.4 million and $0.9 million, respectively, to the sellers of businesses acquired by the Company.

6. Intangibles and Goodwill

The balance of goodwill was $309.6 million as of June 30, 2019 and December 31, 2018, as no changes occurred during the period.

The following is a summary of amortizable intangible assets as of June 30, 2019 and December 31, 2018 (in thousands):
 
June 30, 2019
 
December 31, 2018
 
Cost
 
Accumulated Amortization
 
Net
 
Cost
 
Accumulated Amortization
 
Net
Customer relationships
$
150,239

 
$
(62,626
)
 
$
87,613

 
$
150,239

 
$
(57,875
)
 
$
92,364

Carrier relationships
18,300

 
(4,396
)
 
13,904

 
18,300

 
(3,857
)
 
14,443

Non-compete agreements
5,239

 
(3,391
)
 
1,848

 
5,239

 
(3,003
)
 
2,236

Trade names
5,640

 
(5,640
)
 

 
5,640

 
(5,119
)
 
521

 
$
179,418

 
$
(76,053
)
 
$
103,365

 
$
179,418

 
$
(69,855
)
 
$
109,563


Note: Amounts may not foot due to rounding.

The customer relationships are being amortized using an accelerated method over their estimated weighted-average useful life of 14.8 years, as an accelerated method best approximates the distribution of cash flows generated by the acquired customer relationships. The carrier relationships, non-compete agreements and trade names are being amortized using the straight-line method over their estimated weighted-average useful lives of 17.0 years, 6.7 years and 4.0 years, respectively. Amortization expense related to intangible assets was $3.0 million and $3.2 million for the three months ended June 30, 2019 and 2018, respectively. Amortization expense was $6.2 million and $6.5 million for the six months ended June 30, 2019 and 2018, respectively.

The estimated amortization expense for the next five years and thereafter is as follows (in thousands):
Remainder of 2019
$
5,603

2020
10,973

2021
10,362

2022
10,005

2023
9,501

Thereafter
56,920

Total
$
103,365


Note: Amounts may not foot due to rounding.


13

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

7. Accrued Expenses and Other Noncurrent Liabilities

The components of accrued expenses at June 30, 2019 and December 31, 2018 were as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
Accrued compensation
$
22,874

 
$
31,825

Accrued rebates
3,322

 
2,669

Accrued employee benefits
2,454

 
2,620

Accrued professional service fees
1,599

 
2,082

Accrued interest
879

 
1,017

Deferred rent

 
2,439

Other
4,333

 
5,476

Total accrued expenses
$
35,461

 
$
48,129


Note: Amounts may not foot due to rounding.

The other noncurrent liabilities of $0.5 million at June 30, 2019 consist of the long-term portion of the Company's uncertain tax liability. The other noncurrent liabilities of $18.4 million at December 31, 2018 consist primarily of the portion of deferred rent in excess of twelve months and the long-term uncertain tax liability.

8. Income Taxes     

The following table shows the Company's effective income tax rate for the three and six months ended June 30, 2019 and 2018 (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Income before provision for income taxes
$
7,117

 
$
9,358

 
$
12,807

 
$
16,107

Income tax expense
$
(2,050
)
 
$
(1,680
)
 
$
(4,244
)
 
$
(3,702
)
Effective tax rate
28.8
%
 
17.9
%
 
33.1
%
 
23.0
%


The difference in the Company's effective tax rate for each of the three and six months ended June 30, 2019 and 2018 from the Company's statutory federal tax rate of 21% was primarily due to state taxes; non-deductible expenses, primarily executive stock-based compensation; offset in part by the impact of certain tax credits.


14

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

9. Earnings Per Share

Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share is calculated by dividing net income by the weighted average shares outstanding plus share equivalents that would arise from the exercise of share options, and the vesting of restricted stock and performance shares. The computation of basic and diluted earnings per common share for the three and six months ended June 30, 2019 and 2018 is as follows (in thousands, except share and per share data):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net income
$
5,067

 
$
7,678

 
$
8,564

 
$
12,405

Denominator:
 

 
 
 
 
 
 
Denominator for basic earnings per common share - weighted-average shares
26,731,644

 
27,603,096

 
26,969,277

 
27,466,689

Effect of dilutive securities:
 

 
 
 
 
 
 
Employee stock awards
59,951

 
268,850

 
154,594

 
332,249

Denominator for dilutive earnings per common share
26,791,595

 
27,871,946

 
27,123,871

 
27,798,938

Basic earnings per common share
$
0.19

 
$
0.28

 
$
0.32

 
$
0.45

Diluted earnings per common share
$
0.19

 
$
0.28

 
$
0.32

 
$
0.45



For the three and six months ended June 30, 2019 and 2018, the Company excluded 63,978 and 2,538 unvested performance and market-based shares, respectively, from the calculation of diluted earnings per common share because the effect was anti-dilutive. There were no employee stock options and no unvested restricted stock excluded from the calculation of diluted earnings per common share.

As of June 30, 2019, none of the conditions allowing holders of the Notes (as defined in Note 12) to convert have been met and no conversion spread exists. As such, the Notes did not have a dilutive impact on diluted earnings per common share for the three and six months ended June 30, 2019 and 2018.

10. Stock-Based Compensation Plans

The Company recorded $2.4 million and $5.2 million in total stock-based compensation expense with corresponding income tax benefits of $0.6 million and $1.3 million for the three and six months ended June 30, 2019, respectively. For the three and six months ended June 30, 2018, the Company recorded $2.2 million and $4.7 million in total stock-based compensation expense with corresponding income tax benefits of $0.5 million and $1.2 million, respectively.

During each of the six months ended June 30, 2019 and 2018, the Company did not grant any stock options.

The Company granted 366,417 and 244,448 shares of restricted stock to various employees during the six months ended June 30, 2019 and 2018, respectively.

The Company provides a performance and market-based stock incentive plan for certain executives with vesting requirements based on specific financial and market-based performance measurements. The Company granted 105,543 and 97,966 shares of performance and market-based stock during the six months ended June 30, 2019 and 2018, respectively.


15

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

11. Contingencies

In the normal course of business, the Company is subject to potential claims and disputes related to its business, including claims for freight lost or damaged in transit. Some of these matters may be covered by the Company's insurance and risk management programs or may result in claims or adjustments with the Company's carriers. No such matters are currently expected to have a material adverse effect on the Company's financial position, results of operations or cash flows.

In July 2016, the Company received an unfavorable appeals assessment regarding a state activity-based tax matter of $1.3 million, including penalties and interest, for the state tax audit period from January 1, 2010 to June 30, 2014. The Company believes the assessment is without merit and is currently defending the Company's position through a formal appeals process. The Company has not recorded any potential loss related to this matter as of June 30, 2019.

12. Long-Term Debt

ABL Facility

On October 23, 2018, the Company entered into Amendment No. 2 to its Revolving Credit and Security Agreement (the "Second Amendment"), which amends the terms of its existing Revolving Credit and Security Agreement, dated as of June 1, 2015, by and among the Company, the lenders party thereto, and PNC Bank, National Association, as administrative agent (as amended by the Second Amendment, the "Amended Credit Agreement"). The Amended Credit Agreement provides for a senior secured revolving credit facility in an initial aggregate principal amount of up to $350 million (the "Amended ABL Facility"), with an extended maturity date of October 23, 2023. The initial aggregate principal amount under the Amended ABL Facility may be increased from time to time by an additional $150 million to a maximum aggregate principal amount of $500 million; provided that certain requirements are satisfied. The Company's obligations under the Amended ABL Facility are secured, on a first lien priority basis, by certain working capital assets.

Interest is payable at a rate per annum equal to, at the option of the Company, any of the following, plus, in each case, an applicable margin: (a) a base rate determined by reference to the highest of (1) the federal funds effective rate, plus 0.50%, (2) the base commercial lending rate of PNC Bank, National Association and (3) a daily LIBOR rate, plus 1.00%; or (b) a LIBOR rate determined by reference to the costs of funds for deposits in the relevant currency for the interest period relevant to such borrowing adjusted for certain additional costs. The applicable margin is 0.25% to 0.50% for borrowings at the base rate and 1.25% to 1.50% for borrowings at the LIBOR rate, in each case, based on the excess availability under the Amended ABL Facility.

The terms of the Amended ABL Facility include various covenants, including a covenant that requires the Company to maintain a consolidated fixed charge coverage ratio at any time (a) a specified default occurs or (b) excess availability falls below certain specified levels.

The Company incurred issuance costs of $0.8 million in 2018 related to the Amended ABL Facility. In 2015, the Company incurred issuance costs of $3.1 million related to the ABL Facility. If the Company has an amount outstanding on the ABL Facility, these issuance costs are presented on the consolidated balance sheet as a reduction to the carrying amount of the debt and amortized to interest expense using straight-line amortization over the 5-year life of the Amended ABL Facility. If the Company has no outstanding draw on the ABL Facility, the unamortized issuance costs are presented as a deferred asset on the consolidated balance sheet. For the three months ended June 30, 2019 and 2018, the Company recorded $0.1 million and $0.2 million of interest expense, respectively, related to ABL Facility issuance costs. For the six months ended June 30, 2019 and 2018, the Company recorded $0.2 million and $0.4 million of interest expense, respectively, related to ABL Facility issuance costs.

Under the Amended ABL Facility, the Company is required to pay a commitment fee in respect to the unutilized commitments under the Amended ABL Facility, calculated at a rate of 0.25%. The Company recognized interest expense related to the commitment fee and borrowings on the ABL Facility of $0.3 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively. The Company recognized interest expense related to the commitment fee and borrowings on the ABL Facility of $0.5 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

The Company drew $15.0 million and $12.0 million on the ABL Facility during the six months ended June 30, 2019 and 2018, respectively, all of which was repaid as of June 30, 2019 and 2018. No amounts were outstanding on the ABL Facility as

16

Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

of June 30, 2019 and 2018. As there is no outstanding draw on the ABL Facility at June 30, 2019, the unamortized issuance costs are presented as a deferred asset on the consolidated balance sheets. Since June 1, 2015, the Company has been in compliance with all covenants related to the ABL Facility.

The issuance of letters of credit under the ABL Facility reduces available borrowings. As of June 30, 2019, there were $0.7 million of letters of credit outstanding. The total draw allowed on the ABL Facility at June 30, 2019, as determined by the working capital assets pledged as collateral, was $237.7 million. After adjusting for the letters of credit, the Company's remaining availability under the ABL Facility at June 30, 2019 was $237.0 million.

Convertible Senior Notes

On May 5, 2015, the Company issued $230 million aggregate principal amount of 2.50% convertible senior notes due 2020 (the “Notes”).

The Notes bear interest at a rate of 2.50% per year payable semiannually in arrears in cash on May 1 and November 1 of each year, beginning on November 1, 2015. The Notes will mature on May 1, 2020, unless earlier converted or repurchased in accordance with the terms discussed below. The Notes are the Company's senior unsecured obligations and rank senior in right of payment to any of the Company's indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company's unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company's secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company's subsidiaries.

The Notes will be convertible, under certain circumstances and during certain periods, into cash, shares of the Company's common stock, or a combination of cash and shares of common stock at the Company's election, at an initial conversion rate of 25.5428 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $39.15 per share of common stock.

At issuance, the Company estimated the straight debt borrowing rates to be 5.75% for similar debt to the Notes without the conversion feature, which resulted in a fair value of the liability component of $198.5 million and a fair value of the equity component of $31.5 million. The fair value of the equity component was recorded as a debt discount, with the offset recorded as a credit to additional paid-in capital within stockholders' equity. The $31.5 million debt discount and Note issuance costs discussed below are being amortized to interest expense under the effective interest method over the 5-year life of the Notes, using an effective interest rate of 6.33%.

The Company allocated the total issuance costs related to the Notes to liability and equity components based on their relative fair values. Issuance costs attributable to the liability component were recorded on the consolidated balance sheets as a contra-liability that reduces the carrying amount of the convertible note liability. This amount is being amortized to interest expense over the term of the Notes using the effective interest method and an effective interest rate of 6.33%. Issuance costs attributable to the equity component were recorded as a charge to additional paid-in capital within stockholders' equity.

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, which is considered noncurrent. As of June 30, 2019, the Company continues to classify the convertible debt as a noncurrent liability on the consolidated balance sheet. The Company expects to settle any excess conversion premium that exists in shares of common stock. As such, the principal amount of the Notes will not be included in the calculation of diluted earnings per common share, but any conversion premium that exists will be included in the calculation of diluted earnings per common share using the treasury stock method. As of June 30, 2019 and 2018, none of the conditions allowing holders of the Notes to convert have been met and no conversion spread exists. As such, the Notes did not have a dilutive impact on diluted earnings per common share for each of the three and six months ended June 30, 2019 and 2018.


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Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

During the six months ended June 30, 2019, the Company repurchased $34.3 million par value of the Notes for $33.9 million. The Company accounted for these transactions in accordance with ASC 470-20, Debt with Conversion and Other Options, resulting in the recognition of a loss of $0.5 million and $0.7 million for the three and six months ended June 30, 2019, respectively. The loss is primarily for the write-off of the unamortized debt discount related to the Notes, which was included in interest expense in the Company's respective consolidated statements of operations. During the six months ended June 30, 2018, the Company did not repurchase any of the Notes, and thus did not have a corresponding gain or loss to record on the consolidated statements of operations for three and six ended June 30, 2018.

As of June 30, 2019 and December 31, 2018, the carrying amounts of the Notes on the consolidated balance sheets were calculated as follows (in thousands):
 
June 30, 2019
 
December 31, 2018
Convertible senior notes, principal amount
$
158,295

 
$
192,585

Unamortized debt discount
(4,102
)
 
(7,862
)
Unamortized debt issuance costs
(811
)
 
(1,555
)
Convertible senior notes, net
$
153,381

 
$
183,168


Note: Amounts may not foot due to rounding.

The Notes are carried on the consolidated balance sheets at their principal amount, net of the unamortized debt discount and unamortized debt issuance costs, and are not marked to market each period. The approximate fair value of the Notes as of June 30, 2019 was $157.2 million. The fair value of the Notes was estimated based on the trading price of the Notes at June 30, 2019. As trading volume is low, these are quoted prices for identical instruments in markets that are not active, and thus are Level 2 in the fair value hierarchy.

For the three and six months ended June 30, 2019 and 2018, interest expense related to the Notes consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Contractual coupon interest
$
1,064

 
$
1,438

 
$
2,265

 
$
2,875

Debt discount amortization
1,321

 
1,622

 
2,726

 
3,219

Loss on extinguishment of debt
513

 

 
711

 

Debt issuance cost amortization
261

 
321

 
539

 
637

Interest expense, Notes
$
3,159

 
$
3,380

 
$
6,241

 
$
6,730

Note: Amounts may not foot due to rounding.

The undiscounted interest and principal payments due in relation to the Notes from June 30, 2019 to the maturity of the Notes on May 1, 2020 are as follows (in thousands):
 
Total
2019
2020
Senior convertible notes, including interest
$
162,252

1,979

$
160,274


Note: Amounts may not foot due to rounding.


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Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

13. Leases

The Company leases office space for purposes of conducting its 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, were evaluated upon the adoption of ASC Topic 842, and it was determined that these were all operating leases.

Most leases include one or more options to renew, with renewal terms that can extend the lease term. The Company also has some leases that include termination options. The exercise of lease renewal or termination options is at the Company's sole discretion, and it does not recognize these options as part of its right-of-use assets ("ROU assets") or lease liabilities. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement contains a lease at inception. The Company has performed an evaluation of other contracts with customers and suppliers in accordance with ASC Topic 842 and has determined that, except for the facility leases described above, none of its contracts contain a lease.

The balance sheet classification of lease assets and liabilities is as follows (in thousands):
 
June 30, 2019
ROU assets:
 
Operating lease assets
$
19,852

 
 
Operating lease liabilities:
 
Current portion in other current liabilities
$
5,704

Noncurrent operating lease liabilities
33,174

Total operating lease liabilities
$
38,879


Note: Amounts may not foot due to rounding.

The components of lease cost for the three and six months ended June 30, 2019 were as follows (in thousands):
 
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Operating lease cost
$
1,411

 
$
2,863

Short-term lease cost
44

 
89

Total lease cost
$
1,455

 
$
2,952



Cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2019 was $4.2 million and was included in net cash provided by operating activities in the consolidated statements of cash flows.

The average lease term and discount rate were as follows:
 
June 30, 2019
Weighted average remaining lease term (in years)
7.2

Weighted average operating discount rate
7.6
%


The Company's leases generally do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.


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Table of Contents
Echo Global Logistics, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
Six Months Ended June 30, 2019 and 2018

As of June 30, 2019, maturities of operating lease liabilities were as follows (in thousands):
 
Operating Leases
Remainder of 2019
$
4,210

2020
8,119

2021
5,887

2022
6,178

2023
5,938

Thereafter
20,855

Total lease payments
$
51,187

Less: imputed interest
12,309

Total operating lease liabilities
$
38,879


Note: Amounts may not foot due to rounding.

Practical Expedients

The Company adopted the 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.



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Table of Contents

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors which could materially affect such forward-looking statements can be found in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018 and elsewhere in this Form 10-Q. Investors are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date hereof and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

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 agreements with our Managed Transportation clients, generally with terms of one to three years, to satisfy some, or substantially all, of their transportation management needs. As part of our value proposition, we also provide core logistics services to these clients.


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Table of Contents

Results of Operations

The following table represents certain results of operations data:
 
Three Months Ended June 30,

Six Months Ended
June 30,
(Unaudited, in thousands except per share data)
2019

2018

2019

2018
Consolidated statements of operations data:







Revenue
$
553,775


$
634,811


$
1,091,858


$
1,211,902

Transportation costs
453,173


528,022


892,489


1,005,190

Net revenue (1)
100,603


106,789


199,369


206,712

Operating expenses:
 
 
 
 
 
 
 
Commissions
31,059

 
32,369

 
61,082

 
62,569

Selling, general and administrative expenses
48,879

 
52,225

 
98,761

 
102,493

Contingent consideration expense
200

 
50

 
490

 
100

Depreciation and amortization
9,793

 
9,033

 
19,261

 
17,939

Total operating expenses
89,931

 
93,677

 
179,594

 
183,100

Income from operations
10,672

 
13,112

 
19,775

 
23,612