Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q




ý

 

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2010

o

 

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
Phone: (800) 354-7993, 60654
(Address (including zip code) and telephone number (including area code)
of registrant's principal executive offices)



        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: ý    No: o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: o    No: o

        Indicate by check mark whether the Registrant is an a large accelerated filer, an accelerated filer, or non-accelerated filer. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer: o   Accelerated filer: o   Non-accelerated filer: ý
(Do not check if a smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o     No: ý

        As of May 14, 2010, the Registrant had 21,806,492 shares of Common Stock, par value $0.0001 per share, outstanding.


Table of Contents

 
   
  Page

 

PART I. FINANCIAL INFORMATION

   

Item 1.

 

Consolidated Financial Statements

   

 

Consolidated Statements of Income for the three months ended March 31, 2009 and 2010 (Unaudited)

 
3

 

Consolidated Balance Sheets as of December 31, 2009 and March 31, 2010 (Unaudited)

  4

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2010 (Unaudited)

  5

 

Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2010 (Unaudited)

  6

 

Notes to Consolidated Financial Statements (Unaudited)

  7

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 
18

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 
24

Item 4.

 

Controls and Procedures

 
25

 

PART II. OTHER INFORMATION

   

Item 1.

 

Legal Proceedings

 
26

Item 1A.

 

Risk Factors

 
26

Item 6.

 

Exhibits

 
26

SIGNATURES

 
27

EXHIBIT INDEX

 
28

2


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements

        


Echo Global Logistics, Inc.

Consolidated Statements of Income

(Unaudited)

 
  Three Months Ended
March 31,
 
 
  2009   2010  

REVENUES

  $ 49,063,748   $ 89,104,024  

COSTS AND EXPENSES:

             
 

Transportation costs

    38,049,946   $ 72,059,487  
 

Selling, general, and administrative expenses

    9,851,945     13,335,117  
 

Depreciation and amortization

    1,039,777     1,682,586  
           

INCOME FROM OPERATIONS

    122,080     2,026,834  
 

Interest income

        12,463  
 

Interest expense

    (61,893 )   (22,842 )
 

Other, net

    (14,785 )   (39,337 )
           

OTHER EXPENSE

    (76,678 )   (49,716 )
           

INCOME BEFORE PROVISION FOR INCOME TAXES

    45,402     1,977,118  

INCOME TAX EXPENSE

    (17,866 )   (741,147 )
           

NET INCOME

    27,536     1,235,971  

DIVIDENDS ON PREFERRED SHARES

    (265,034 )    
           

NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS

  $ (237,498 ) $ 1,235,971  
           

Basic net income (loss) per share

 
$

(0.02

)

$

0.06
 

Diluted net income (loss) per share

  $ (0.02 ) $ 0.06  

See accompanying notes.

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Echo Global Logistics, Inc.

Consolidated Balance Sheets

 
  December 31,
2009
  March 31,
2010
 
 
   
  (Unaudited)
 

Assets

             

Current assets:

             
 

Cash and cash equivalents

  $ 47,803,704   $ 41,772,416  
 

Accounts receivable, net of allowance for doubtful accounts of $1,323,916 and $1,423,916, respectively

    43,689,684     49,626,355  
 

Income taxes receivable

    344,117     337,069  
 

Prepaid expenses

    6,420,750     7,129,591  
 

Other current assets

    391,054     352,927  
           

Total current assets

    98,649,309     99,218,358  

Property and equipment, net

   
8,153,741
   
8,699,432
 

Intangible assets:

             
 

Goodwill

    18,651,496     22,697,658  
 

Intangible assets, net of accumulated amortization of $2,243,765 and $2,662,377, respectively

    4,527,043     5,323,305  

Other assets

    459,735     410,794  

Deferred income taxes

    2,233,964     1,709,590  
           

Total assets

  $ 132,675,288   $ 138,059,137  
           

Liabilities and stockholders' equity

             

Current liabilities:

             
 

Accounts payable—trade

  $ 27,039,510   $ 30,181,493  
 

Current maturities of capital lease obligations

    302,518     307,982  
 

Due to seller—short term

    717,738     2,032,218  
 

Accrued expenses

    3,058,102     2,377,439  
 

Deferred income taxes

    1,894,204     2,090,952  
           

Total current liabilities

    33,012,072     36,990,084  

Due to seller—long term

    5,452,303     5,475,536  

Capital lease obligations, net of current maturities

    420,840     341,765  
           

Total liabilities

    38,885,215     42,807,385  

Stockholders' equity:

             
 

Common stock, par value $0.0001 per share, 100,000,000 shares authorized, 21,768,659 and 21,769,491 shares were issued and outstanding at December 31, 2009 and March 31, 2010, respectively

    2,177     2,177  
 

Additional paid-in capital

    88,368,796     88,594,504  
 

Retained earnings

    5,419,100     6,655,071  
           

Total stockholders' equity

    93,790,073     95,251,752  
           

Total liabilities and stockholders' equity

  $ 132,675,288   $ 138,059,137  
           

See accompanying notes.

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Echo Global Logistics, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 
  Three Months
Ended March 31,
 
 
  2009   2010  

Operating activities

             

Net income

  $ 27,536   $ 1,235,971  

Adjustments to reconcile net income to net cash used in operating activities:

             
 

Deferred income taxes

    17,867     721,122  
 

Noncash stock compensation expense

    191,391     207,918  
 

Reduction in contingent consideration due to seller

        (1,264,798 )
 

Depreciation and amortization

    1,039,777     1,682,586  
 

Change in assets, net of acquisitions:

             
   

Accounts receivable

    (2,981,714 )   (5,574,680 )
   

Prepaid expenses and other assets

    (541,358 )   (842,004 )
 

Change in liabilities, net of acquisitions:

             
   

Accounts payable

    1,771,287     2,978,168  
   

Accrued expenses and other

    (648,674 )   (660,984 )
           
   

Net cash used in operating activities

    (1,123,888 )   (1,516,701 )

Investing activities

             

Purchases of property and equipment

    (976,770 )   (1,574,746 )

Payments for acquisitions, net of cash aquired

    (350,000 )   (2,605,752 )
           

Net cash used in investing activities

    (1,326,770 )   (4,180,498 )

Financing activities

             

Principal payments on capital lease obligations

    (49,697 )   (73,612 )

Borrowings on credit line

    2,135,109      

Payment of costs associated with initial public offering

    (961,200 )   (278,267 )

Issuance of shares, net of issuance costs

    51,996     17,790  
           

Net cash provided by (used in) financing activities

    1,176,208     (334,089 )

Decrease in cash and cash equivalents

   
(1,274,450

)
 
(6,031,288

)

Cash and cash equivalents, beginning of period

    1,872,922   $ 47,803,704  
           

Cash and cash equivalents, end of period

  $ 598,472   $ 41,772,416  
           

Supplemental disclosure of cash flow information

             

Cash paid during the year for interest

  $ 61,893   $ 22,842  

Cash paid for income taxes

        18,396  

Noncash investing activity

             

Purchase of furniture and equipment with capital lease

    168,156      

Noncash financing activity

             

Vesting of restricted shares

    56,250      

Due to seller

        2,602,511  

See accompanying notes.

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Echo Global Logistics, Inc.

Consolidated Statements of Stockholders' Equity

(Unaudited)

Three months ended March 31, 2010

 
  Common Stock    
   
   
 
 
  Additional
Paid-In
Capital
  Retained
Earnings
   
 
 
  Shares   Amount   Total  

Balance at December 31, 2009

    21,768,659   $ 2,177   $ 88,368,796   $ 5,419,100   $ 93,790,073  
                       
 

Share compensation expense

            207,918         207,918  
 

Exercise of stock options

    832         17,790         17,790  
 

Net income

                1,235,971     1,235,971  
                       

Balance at March 31, 2010

    21,769,491   $ 2,177   $ 88,594,504   $ 6,655,071   $ 95,251,752  
                       

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Three Months Ended March 31, 2009 and 2010

1. Summary of Significant Accounting Policies

Basis of Presentation

        The condensed consolidated financial statements include the accounts of Echo Global Logistics, Inc. and its subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated in the consolidation. The consolidated statements of income 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 for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (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 three month period ended March 31, 2010 are not necessarily indicative of the results expected for the full year of 2010. These interim consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's most recent audited financial statements.

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 value of the Company's financial investments, which consist of cash and cash equivalents, accounts receivable, accounts payable, capital lease obligations, and a line of credit, approximate their fair values due to their short term nature. The fair value of the due to seller obligation is determined based on the likelihood of contingent earn-out payments.

Reverse Stock Split

        As of September 24, 2009, the Company's Board of Directors approved a resolution to effect a one-for-two reverse stock split of the Company's capital stock with a corresponding change to the par value of the capital stock. The reverse stock split became effective on September 25, 2009. Any fractional shares resulting from the reverse stock split were rounded down to the nearest whole share and stockholders were entitled to cash in lieu of any fractional shares. All share numbers and per share amounts for all periods presented have been adjusted retroactively to reflect the one-for-two reverse stock split.

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

2. New Accounting Pronouncements

        In October 2009, the FASB issued ASC Topic 605 (previously ASU No. 2009-13, Multiple Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force (ASU 2009-13)). The guidance addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance may have on the Company's consolidated financial statements.

        In January 2010, the FASB issued ASC 820 (previously "Improving Disclosures about Fair Value Measurements" (ASU 2010-06). This guidance improves disclosures originally required under SFAS No. 157. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. The Company is currently evaluating the impact that the adoption of this guidance may have on the Company's consolidated financial statements.

        In February 2010, the FASB issued ASC 855 (previously "Amendments to Certain Recognition and Disclosure Requirements" (ASU 2010-09)). ASU 2010-09 amended SFAS No. 165, "Subsequent Events" to resolve conflicts with SEC reporting requirements. The adoption of this guidance did not have a material impact on the Company's consolidated results of operations and financial condition.

3. Acquisitions

Mountain Logistics Acquisition

        For the year ended December 31, 2009 and three month period ended March 31, 2010 the Company paid $350,000 and $1,350,000, respectively, in contingent consideration related to this 2007 acquisition. The contingent consideration paid was recorded as additional goodwill as December 31, 2009 and March 31, 2010. In addition, the Company recorded $3.9 million increase in goodwill in 2009 as related to the vesting of 275,000 common shares associated with the acquisition as certain performance measures were met effective October 1, 2009.

RayTrans Distribution Services, Inc. Acquisition

        Effective June 1, 2009, the Company acquired RayTrans Distribution Services, Inc. (RDS), a non-asset based third-party logistics provider with offices in Matteson, Illinois and the results of RDS have been included in the consolidated financial statements since that date. The acquisition provided the Company with strategic growth of its presence in the truckload business and added an assembled workforce that has significant experience and knowledge of the industry.

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

3. Acquisitions (Continued)

        The acquisition-date fair value of the consideration transferred totaled $9,226,511, which consisted of the following:

Fair value of consideration transferred

       

Cash

  $ 5,384,069  

Contingent consideration

    3,842,442  
       

Total

  $ 9,226,511  
       

        The contingent consideration arrangement requires the Company to pay an additional $6.5 million in cash if certain performance measures are achieved by or prior to May 31, 2012. The performance measures are based on both annual and cumulative targets of adjusted EBITDA. EBITDA relates to earnings before interest, taxes, depreciation and amortization. The fair value of the contingent consideration arrangement at the acquisition date was $3.8 million. Pursuant to the adoption of ASC Topic 805 effective January 1, 2009, any changes to the contingent consideration obligation will be recorded in selling, general and administrative expense. For the period ended March 31, 2010, the Company recorded a reduction of $639,645 to the contingent consideration obligation as a result of reductions to RDS' forecasted financial performance resulting in a liability due to seller of $2.4 million at March 31, 2010. The reduction in contingent consideration is included in general and administrative expenses in the consolidated income statement. The Company estimates these contingent payments to be approximately 37% of total eligible payments due prior to May 31, 2012. The Company expects total undiscounted contingent consideration payments to RDS to be between $2.4 million and $4.0 million. There were no other contingent liabilities assumed in the acquisition.

        The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of acquisition.

Accounts receivable

  $ 3,314,551  

Other assets

    244,595  

Goodwill

    7,488,042  

Customer relationships

    2,820,000  

Non-compete agreements

    70,000  

Internally developed software

    170,000  

Accounts payable

    (4,007,612 )

Other current liabilities

    (873,065 )
       

Net assets acquired

  $ 9,226,511  
       

        Goodwill of $7.5 million represents the premium the Company paid over the fair value of the net tangible and intangible assets it acquired. The Company paid this premium for a number of reasons, including expanding its presence in the flatbed, over-sized, auto-haul and other specific services as well as traditional dry van brokerage, and adding more than 400 transactional clients, which expands its pipeline of clients to which the Company can market its transportation and supply chain management services. In addition, the Company gained approximately 1,500 new carriers that provide specialized transportation services to its existing clients. The amount of goodwill deductible for U.S. income tax purposes is $3.0 million, excluding future contingent consideration payments.

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

3. Acquisitions (Continued)

        The customer relationships have a life of seven years and the non-compete agreements have a life of five years.

        The following unaudited pro forma information presents a summary of the Company's consolidated statements of operations for the three month period ended March 31, 2009 as if the Company had acquired RDS as of January 1, 2009.

 
  March 31, 2009  

Revenue

  $ 56,831,445  

Income from operations

    463,695  

Net income

    52,505  

Net income (loss) applicable to common shareholders

    (212,529 )

Basic net income (loss) per share

  $ (0.02 )

Diluted net income (loss) per share

  $ (0.02 )

Freight Management Inc.

        Effective July 1, 2009, the Company acquired Freight Management Inc. (FMI), a non-asset based third-party logistics provider with offices in Buffalo, Minnesota and the results of FMI have been included in the consolidated financial statements since that date. The Company agreed to purchase the assets and assume certain liabilities of FMI for $1.4 million. An additional $4.6 million in cash consideration may become payable upon achievement of certain performance measures by or prior to July 31, 2012. As a result of the acquisition, the Company recorded $4.6 million of goodwill, of which $3.3 million related to contingent consideration. Pursuant to the adoption of ASC Topic 805 effective January 1, 2009, any changes to the contingent consideration obligation will be recorded in selling, general and administrative expense. For the three month period ended March 31, 2010, the Company recorded a reduction of $630,626 to the contingent consideration obligation as a result of reductions to the forecasted financial performance of FMI resulting in a liability and due to seller of $2.5 million at March 31, 2010. The reduction in contingent consideration is included in general and administrative expenses in the consolidated income statement. The Company expects total undiscounted contingent consideration payments to FMI to be between $3.0 million and $4.1 million. Pro forma results of the acquisition have been not been included as the acquisition does not have a material impact on the Company's financial statements

Distribution Services Inc.

        Effective January 1, 2010, the Company acquired Distribution Services Inc. (DSI), a non-asset based third-party logistics provider with offices in Coon Rapids, Minnesota and the results of DSI have been included in the unaudited consolidated financial statements since that date. The Company agreed to purchase the assets and assume certain liabilities of DSI for $0.8 million. An additional $2.6 million in cash consideration may become payable upon achievement of certain performance measures by or prior to December 31, 2014. As a result of the acquisition, the Company recorded $1.8 million of goodwill, of which $1.8 million related to contingent consideration. Pursuant to the adoption of ASC Topic 805 effective January 1, 2009, any changes to the contingent consideration obligation will be recorded in selling, general and administrative expense. For the three month period ended March 31,

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

3. Acquisitions (Continued)


2010, the Company recorded a reduction of $9,208 to the contingent consideration obligation as a result of adjustments to the forecasted financial performance of DSI resulting in a liability due to seller of $1.8 million at March 31, 2010. The reduction in contingent consideration is included in general and administrative expenses in the consolidated income statement. The Company expects total undiscounted contingent consideration payments to DSI to be between $2.0 million and $2.6 million. Pro forma results of the acquisition have been not been included as the acquisition does not have a material impact on the Company's financial statements.

Resource Group and Associates

        Effective January 1, 2010, the Company acquired Resource Group and Associates (RGA), a non-asset based third-party logistics provider with offices in Andover, Minnesota and the results of RGA have been included in the unaudited consolidated financial statements since that date. The Company agreed to purchase the assets and assume certain liabilities of RGA for $0.5 million. An additional $1.5 million in cash consideration may become payable upon achievement of certain performance measures by or prior to December 31, 2012. As a result of the acquisition, the Company recorded $0.9 million of goodwill, of which $0.8 million related to contingent consideration. Pursuant to the adoption of ASC Topic 805 effective January 1, 2009, any changes to the contingent consideration obligation will be recorded in selling, general and administrative expense. For the period ended March 31, 2010, the Company recorded an increase of $22,566 to the contingent consideration obligation as a result of adjustments to the forecasted financial performance of RGA resulting in a liability due to seller of $0.8 million at March 31, 2010. The reduction in contingent consideration is included in general and administrative expenses in the consolidated income statement. The Company expects total undiscounted contingent consideration payments to RGA to be between $0.6 million and $1.0 million. Pro forma results of the acquisition have been not been included as the acquisition does not have a material impact on the Company's financial statements.

4. Fair Value Measurement

        The Company applies ASC Topic 820 (previously SFAS No. 157, Fair Value Measurements) for its financial assets and financial liabilities. The guidance requires disclosures about assets and liabilities measured at fair value. The Company's financial assets primarily relate to money market funds and financial liabilities primarily relate to contingent earn-out payments of $7.5 million.

        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:

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

4. Fair Value Measurement (Continued)

        The significant inputs used to derive the fair value due to seller include financial forecasts of future operating results, the probability of reaching the forecast and the associated discount rate. The probability of the contingent consideration ranges from 5% to 55% with a discount rate of 12%. The following table sets forth the Company's financial liabilities measured at fair value on a recurring basis and the basis of measurement at March 31, 2010:

 
  Total Fair Value Measurement   Level 1   Level 2   Level 3  

Assets:

                         

Money market funds

  $ 32,532,387   $ 32,532,387   $   $  

Liabilities:

                         

Due to seller

  $ (7,507,754 ) $   $   $ (7,507,754 )

        The following table provides a reconciliation of the beginning and ending balances for the assets measured at fair value using significant unobservable inputs (Level 3):

 
  Due to Seller  

Balance at December 31, 2009

  $ (6,170,041 )
 

Contingent earnout payments—Acquisitions

    (2,602,511 )
 

Contingent earnout payments—change in fair value

    1,264,798  
       

Balance at March 31, 2010

  $ (7,507,754 )
       

        For the three month period ended March 31, 2010, the Company recorded an adjustment to the original contingent consideration obligations recorded upon the acquisitions of RDS, FMI, DSI and RGA. The adjustments were the result of using revised forecasts and updated fair value measurements that adjusted the Company's potential earnout payments related to the purchase of RDS, FMI, DSI and RGA.

        For the three month period ended March 31, 2010, the Company recognized a benefit of $1,264,798 in selling, general, and administrative expenses in the statement of income due to the change in fair value measurements using a level three valuation technique.

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

5. Intangible assets

        The following is a summary of goodwill as of March 31, 2010:

Balance as of December 31, 2009

    18,651,496  
 

Additional purchase price related to the purchase of Mountain Logistics, Inc. 

    1,350,000  
 

Goodwill acquired related to the purchase of DSI

    1,817,265  
 

Goodwill acquired related to the purchase of RGA

    878,897  
       

Balance as of March 31, 2010

  $ 22,697,658  
       

        The following is a summary of amortizable intangible assets as of December 31, 2009 and March 31, 2010:

 
  December 31, 2009   March 31, 2010   Weighted-
Average Life

Customer relationships

  $ 6,441,808   $ 7,656,682   6.4 years

Noncompete agreements

    139,000     139,000   2.9 years

Trade names

    190,000     190,000   3.0 years
             

    6,770,808     7,985,682   6.2 years

Less accumulated amortization

    (2,243,765 )   (2,662,377 )  
             

Intangible assets, net

  $ 4,527,043   $ 5,323,305    
             

        Amortization expense related to intangible assets was $172,683 and $418,612 for the three months ended March 31, 2009 and 2010, respectively.

        The estimated amortization expense for the next five years and thereafter is as follows:

2010

  $ 1,213,314  

2011

    1,497,642  

2012

    993,617  

2013

    600,701  

2014

    468,256  

Thereafter

    549,775  
       

  $ 5,323,305  
       

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

6. Accrued Expenses

        The components of accrued expenses at December 31, 2009 and March 31, 2010 are as follows:

 
  December 31, 2009   March 31, 2010  

Accrued compensation

  $ 384,526   $ 368,162  

Accrued rebates

    943,446     1,008,316  

Deferred rent

    784,674     794,461  

Other

    945,456     206,500  
           

Total accrued expenses

  $ 3,058,102   $ 2,377,439  
           

7. Income Taxes

        The following table shows the Company's effective income tax rate for the three months ended March 31, 2009 and 2010:

 
  Three months ended
March 31,
 
 
  2009   2010  

Income before taxes

  $ 45,402   $ 1,977,118  

Income tax expense

    17,866     741,147  

Effective tax rate

    39.4 %   37.5 %

        The Company's effective tax rate decreased from 39.4% to 37.5% for the three months ended March 31, 2009 and 2010, respectively.

8. Earnings Per Share

        Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per 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 conversion of preferred shares. Conversion of 3,191,996 of Series B and D preferred shares were excluded from the calculation for the three month period ended March 31, 2009 as they were anti-dilutive. The Series B and Series D preferred shares converted to common stock effective September 24, 2009. Employee stock options totaling 287,827 and 86,500 for the three month periods ending March 31, 2009 and 2010, respectively, were excluded from the calculation of diluted earnings per share, as they were anti-dilutive. The

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

8. Earnings Per Share (Continued)


computation of basic and diluted earnings per common share for the three month periods ended March 31, 2009 and 2010 are as follows:

 
  March 31, 2009   March 31, 2010  

Numerator:

             
 

Net income

  $ 27,536   $ 1,235,971  
 

Preferred stock dividends

    (265,034 )    
           

Net income (loss) applicable to common shareholders

  $ (237,498 ) $ 1,235,971  
           

Denominator:

             
 

Denominator for basic earnings per share—weighted-average shares

    12,456,478     21,768,661  

Effect of dilutive securities:

             
 

Employee stock options

        401,895  
           

Denominator for dilutive earnings per share

    12,456,478     22,170,556  
           

Basic net income per common share

  $ (0.02 ) $ 0.06  

Diluted net income per common share

  $ (0.02 ) $ 0.06  

9. Stock-Based Compensation Plans

        Using the Black-Scholes-Merton option valuation model and the assumptions listed below, the Company recorded $191,391 and $207,918 in compensation expense with corresponding tax benefits of $74,642 and $81,088 for the three month periods ended March 31, 2009 and 2010, respectively. During the three month periods ended March 31, 2009 and 2010, the Company granted 40,000 and 440,000 options, respectively, to various employees.

        The following assumptions were utilized in the valuation for options granted during the three months ended March 31, 2009 and 2010:

 
  2009   2010

Dividend yield

   

Risk-free interest rate

  2.28%-3.39%   3.05%

Weighted-average expected life

  7.1 years   6.6 years

Volatility

  33.5%   36.0%

10. Related Parties

        Certain stockholders and directors of the Company have a direct and/or indirect ownership interest in InnerWorkings, Inc. (InnerWorkings), a publicly traded company that provides print procurement services. InnerWorkings is one of the Company's stockholders. As of March 31, 2010, InnerWorkings owned 577,778 shares of the Company's common stock, or 2.7% of total shares outstanding on a fully-diluted basis.

        For the three months ended March 31, 2009 and 2010 Innerworkings has also provided print procurement services to the Company. As consideration for these services, the Company incurred

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

10. Related Parties (Continued)


expenses of $14,829 and $17,388 for the three month periods ended March 31, 2009 and 2010, respectively.

        The Company provided transportation and logistics services to InnerWorkings and recognized $910,235 and $1,658,787 for such services during the three month periods ended March 31, 2009 and 2010, respectively.

        In June 2006, the Company entered into a supplier rebate program with InnerWorkings, pursuant to which the Company provides InnerWorkings with an annual rebate on all freight expenditures in an amount equal to 5% of revenue received from InnerWorkings. In April 2008, this rebate program was amended to provide InnerWorkings with an annual rebate on all freight expenditures in an amount equal to 3% of revenue received from InnerWorkings, plus an additional 2% of revenue for amounts paid within 15 days. Total supplier rebates to InnerWorkings were $25,619 and $16,112 for the three month periods ended March 31, 2009 and 2010, respectively.

        As of December 31, 2009 and March 31, 2010, the Company had a net receivable due from InnerWorkings of $1,168,538 and $1,293,593, respectively, of which $1,313,014 is included in accounts receivable and $19,421 is included in accounts payable in the balance sheet as of March 31, 2010. The Company had no accounts payables due to InnerWorkings as of December 31, 2009.

        During 2009, one of the Company's stockholders who is a director of the Company became a director of Manpower Inc., a publicly traded company that serves the employment services industry. For the three month period ended March 31, 2010, the Company provided transportation and logistics services to Manpower and recognized $34,001 for such services. As of December 31, 2009 and March 31, 2010, the Company had a net receivable due from Manpower of $7,883 and $13,475, respectively.

        In January 2009, the Company entered into an Independent Contract Referral Services Agreement with Holden Ventures, LLC. Under the terms of the agreement, the Company will pay Holden Ventures 10% of the gross margin, or the actual payments received minus actual expenses that the Company receives from clients referred by Holden Ventures. This agreement may be terminated by either party upon 15 days written notice and prohibits Holden Ventures from competing with the Company's business and soliciting its clients and employees for one year following the termination of the agreement. As of March 31, 2010, no payments have been made to Holden Ventures under the terms of this agreement.

        The Company subleases a portion of its office space to Groupon, LLC (Groupon), a web-based collective buying power organization whose investors include certain stockholders and directors of the Company. The sublease agreement was entered into on May 1, 2009, which was subsequently amended effective November 1, 2009. The agreement requires the Company to provide 30-days notice in advance of cancelling the sublease. For the three months ended March 31, 2010, the Company received sublease rental income of $18,825. The Company did not receive sublease rental income for the three months ended March 31, 2009. The Company had no amounts due to or from Groupon as of December 31, 2009 and March 31, 2010.

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Echo Global Logistics, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements (Continued)

Three Months Ended March 31, 2009 and 2010

11. Legal Matters

        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 our carriers. Management does not believe that the outcome of such matters will have a materially adverse effect on its financial position or results of operations.

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

Overview

        We are a leading provider of technology enabled transportation and supply chain management services, delivered on a proprietary technology platform serving the transportation and logistics needs of our clients. Our proprietary web-based technology platform compiles and analyzes data from our network of over 24,000 transportation providers to serve our clients' shipping and freight management needs. Our technology platform, composed of web-based software applications and a proprietary database, enables us to identify excess transportation capacity, obtain competitive rates and execute thousands of shipments every day while providing high levels of service and reliability. We focus primarily on arranging transportation across the major modes, including truckload (TL), less than truck load (LTL) and small parcel, and we also offer inter-modal (which involves moving a shipment by rail and truck), domestic air, expedited and international transportation services.

        We procure transportation and provide logistics services for more than 15,600 clients across a wide range of industries, such as manufacturing, construction, consumer products and retail. Our clients fall into two categories, enterprise and transactional. We typically enter into multi-year contracts with our enterprise 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. We provide transportation and logistics services to our transactional clients on a shipment-by-shipment basis, typically with individual, or spot market, pricing.

Revenue

        We generate revenue through the sale of transportation and logistics services to our clients. Revenue is recognized when the client's product is delivered by a third-party carrier. Since our inception, our growth rates have decreased as our revenue has grown. Our revenue was $49.1 million and $89.1 million for the three month periods ended March 31, 2009 and 2010, respectively, an increase of 81.6%.

        Our revenue is generated from two different types of clients: enterprise and transactional. Our enterprise accounts typically generate higher dollar amounts and volume than our transactional relationships. We categorize a client as an enterprise client if we have a contract with the client for the provision of services on a recurring basis. Our contracts with enterprise clients typically have a multi-year term and are often exclusive for a certain transportation mode or point of origin. In several cases, we provide substantially all of a client's transportation and logistics requirements. We categorize all other clients as transactional clients. We provide services to our transactional clients on a shipment-by-shipment basis. As of March 31, 2010, we had 124 enterprise clients and, for the three month period ended March 31, 2010 we served over 9,900 transactional clients. For the three month period ended March 31, 2010, we entered into contracts with eight new enterprise clients. For the three month periods ended March 31, 2009 and 2010, enterprise clients accounted for 43% and 42% of our revenue, respectively, and transactional clients accounted for 57% and 58% of our revenue, respectively. We expect to continue to grow both our enterprise and transactional 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 and density and mileage of the product shipped. The primary modes of shipment that we transact in are TL, LTL and small parcel. Other transportation modes include inter-modal, domestic air, expedited services and international. Typically, our revenue is lower for an LTL shipment than for a TL shipment, and revenue per shipment is higher for shipments in modes other than TL, LTL and small parcel. Material shifts in the percentage of our revenue by transportation mode could have a significant impact on our revenue growth. For the three month period ended March 31, 2010, LTL

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accounted for 44% of our revenue, TL accounted for 38% of our revenue, small parcel accounted for 6% of our revenue and other transportation modes accounted for 12% 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 have experienced 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 transportation and logistics services for our clients. Our fee 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 consists of transportation revenue minus transportation cost. Our transportation costs consists primarily of the direct cost of transportation paid to the carrier.

        Net revenue is the primary indicator of our ability to procure services provided by carriers and other third-parties and is considered by management to be the primary measurement of our growth. Although our transportation cost is typically lower for an LTL shipment than for a TL shipment, 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, including small parcel, could have a significant impact on our net revenue. The discussion of results of operations below focuses on changes in our net revenues and expenses as a percentage of net revenue margin. For the three month periods ended March 31, 2009 and 2010, our net revenue was $11.0 million and $17.0 million, respectively, reflecting a growth rate of 55%.

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 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 they have primary responsibility. For the three month periods ended March 31, 2009 and 2010, commission expense was 29.0% and 30.7%, respectively, as a percentage of our net revenue. The percentage of net revenue paid as commissions will vary depending on the 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 of our revenue growth and the relative impact of changes in sales teams and service offerings.

        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 reflected as a prepaid expense on our balance sheet. As our sales personnel earn commissions, a portion of their commission payment is withheld and offset against their prepaid commission balance, if any.

        Our general and administrative expenses, which exclude commission expense, primarily consist of compensation costs for our operations, information systems, finance and administrative support employees and change to contingent consideration liability. For the three month periods ended March 31, 2009 and 2010, our general and administrative expenses were $6.7 million and $8.1 million, respectively. For the three month periods ended March 31, 2009 and 2010, general and administrative expenses as a percentage of net revenue were 60.5% and 47.6%, respectively.

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        Our depreciation expense is primarily attributable to our depreciation of purchases of computer hardware and software, equipment, furniture and fixtures, and the capitalization of internally developed software. For the three month periods ended March 31, 2009 and 2010, depreciation expense was $0.9 million and $1.3 million, respectively.

        Our amortization expense is attributable to our amortization of intangible assets acquired from business combinations, including client relationships, tradenames and non-compete agreements. For the three month periods ended March 31, 2009 and 2010, amortization expense was $0.2 million and $0.4 million, respectively.

Reverse Stock Split and Recapitalization

        Prior to our initial public offering, on September 25, 2009, we effectuated a one-for-two reverse stock split of all outstanding shares of our Series A common stock, Series B preferred stock and Series D preferred stock. Immediately following the reverse stock split, we exchanged all outstanding shares of our Series A common stock, Series B preferred stock and Series D preferred stock for newly issued shares of common stock on approximately a one-for-one basis.

Income Taxes

        On June 7, 2006, our company completed a conversion pursuant to which Echo Global Logistics, LLC, a limited liability company, converted to Echo Global Logistics, Inc., a corporation. As a limited liability company, we were treated as a partnership for federal income tax purposes. As a result, all items of income, expense, gain and loss of Echo were generally reportable on the tax returns of members of Echo Global Logistics, LLC.

        As a result of our conversion, we account for income taxes in accordance with ASC Topic 740 (previously SFAS No. 109, Accounting for 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. In connection with our conversion, we used $9.4 million of our net proceeds from the issuance of our Series D preferred stock to redeem certain of our Series A common units. Because we redeemed the units as a limited liability company, the cash distribution was taxable to the members and our tax basis increased resulting in the recognition of a deferred tax asset of $3.8 million, for which we recorded a valuation allowance of $2.0 million and a corresponding net increase to additional paid in capital of $2.0 million. The Company evaluated this valuation allowance as of December 31, 2009 and determined it was more likely than not that the existing deferred tax assets would be fully realized, thus the valuation allowance was reduced to zero with the corresponding income tax benefit recorded to income tax expense in 2009.

Comparison of three months ended March 31, 2010 and 2009

        Our revenue increased by $40.0 million, or 81.6%, to $89.1 million for the three month period ended March 31, 2010 from $49.1 million for the three month period ended March 31, 2009. The increase was attributable to the increase in the number of our clients, the total number of shipments executed on behalf of, and services provided to these clients. This was partially offset by a decrease in the transportation rates due to pricing declines caused by a weaker economy. In addition, $7.3 million of revenue was generated for the three month period ended March 31, 2010 from the RayTrans Distribution Services acquisition completed in June 2009.

        Our revenue from enterprise clients increased by $16.4 million, or 77.4%, to $37.6 million for the three month period ended March 31, 2010 from $21.2 million for the three month period ended March 31, 2009, resulting from an increase in the number of enterprise clients and shipments executed

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and services provided. As we increased our number of transactional clients, our percentage of revenue from enterprise clients decreased to 42% of our revenue for the three month period ended March 31, 2010 from 43% of our revenue for the three month period ended March 31, 2009. As of March 31, 2010, we had 124 enterprise clients under contract, which was an increase of 26, compared to 98 enterprise clients under contract as of March 31, 2009.

        Our revenue from transactional clients increased by $23.6 million, or 84.8%, to $51.5 million for the three month period ended March 31, 2010 from $27.9 million for the three month period ended March 31, 2009. The growth in revenue from transactional clients during this period was driven by the increase in the number of our transactional clients due to the addition of transactional sales representatives and sales agents, including those acquired in connection with the acquisition of RayTrans Distribution Services. Our percentage of revenue from transactional clients increased to 58% of our revenue for the three month period ended March 31, 2010 from 57% of our revenue for the three month period ended March 31, 2009. We served over 9,900 transactional clients in the three month period ended March 31, 2010, an increase of approximately 2,000 compared to the 7,900 transactional clients served in the three month period ended March 31, 2009.

        Our transportation costs increased by $34.0 million, or 89.4%, to $72.1 million for the three month period ended March 31, 2010 from $38.1 million for the three month period ended March 31, 2009. The growth in the total number of shipments executed on behalf of our clients accounted for most of the increase in our transportation costs during this period. Our transportation costs as a percentage of revenue increased to 80.9% for the three month period ended March 31, 2010 from 77.6% for the three month period ended March 31, 2009.

        Net revenue increased by $6.0 million, or 54.8%, to $17.0 million for the three month period ended March 31, 2010 from $11.0 million for the three month period ended March 31, 2009. The growth in the total number of shipments executed on behalf of our clients accounted for most of the increase in our net revenue during this period. The remaining increase in net revenue was the result of the $1.3 million generated from the RayTrans Distribution Services acquisition. Net revenue margins decreased to 19.1% for the three month period ended March 31, 2010 from 22.4% for the three month period ended March 31, 2009. The decrease in net revenue margins was the result of tightening in capacity in the truckload market and a higher mix of truckload revenue.

        Commission expense increased by $2.0 million, or 63.7%, to $5.2 million for the three month period ended March 31, 2010 from $3.2 million for the three month period ended March 31, 2009. This increase is attributable to the increase in net revenue.

        General and administrative expenses increased by $1.4 million, or 21.8%, to $8.1 million for the three month period ended March 31, 2010 from $6.7 million for the three month period ended March 31, 2009. The increase is primarily the result of hiring personnel to support our growth. This increase was offset by a $1.2 million reduction of to the contingent consideration obligations recorded primarily related to the acquisitions of RayTrans Distribution Services and FMI. As a percentage of net revenue, general and administrative expenses decreased to 47.6% for the three month period ended March 31, 2010 from 60.5% for the three month period ended March 31, 2009. The decrease, as a percentage of net revenue, is partially attributable to the reduction of contingent consideration obligations as well as our ability to add clients and sales personnel in order to increase our net revenue without the same corresponding increase in our general and administrative expenses.

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        Depreciation expense increased by $0.4 million, or 45.8%, to $1.3 million for the three month period ended March 31, 2010 from $0.9 million for the three month period ended March 31, 2009. The increase in depreciation expense is primarily attributable to purchases of computer hardware and software, equipment, furniture and fixtures, and the capitalization of internally developed software. Amortization expense increased by $0.2 million, or 142.4%, to $0.4 million for the three month period ended March 31, 2010 from $0.2 million for the three month period ended March 31, 2009. The increase in amortization expense the result of the intangibles acquired in the RayTrans Distribution Services and FMI acquisitions completed in 2009.

        Income from operations increased by $1.9 million to $2.0 million for the three month period ended March 31, 2010 from $0.1 million for the three month period ended March 31, 2009. The increase in income from operations is attributable to the increase in net revenue in excess of the increase in operating expenses, due to improved leverage gained through the growth of our business.

        Other expense decreased to $50,000 for the three month period ended March 31, 2010 from $77,000 for the three month period ended March 31, 2009. The decrease is due to the pay down of our line of credit during the second half of 2009.

        Provision for income taxes increased to $0.7 million for the three month period ended March 31, 2010 from $18,000 for the three month period ended March 31, 2009. Our effective tax rate decreased from approximately 39% for the three month period ended March 31, 2009 to 38% for the three month period ended March 31, 2010.

        Net income increased by $1.2 million to $1.2 million for the three month period ended March 31, 2010 from $28,000 for the three month period ended March 31, 2009 related to the items previously discussed.

Liquidity and Capital Resources

        As of March 31, 2010, we had $41.8 million in cash and cash equivalents, $62.2 million in working capital and $20.0 million available under our credit facility. On April 15, 2010, we amended the line of credit facility from $20.0 million to $10.0 million in availability.

        For the three month period ended March 31, 2010, $1.5 million of cash was used in operating activities, representing an increase of $0.4 million compared to three month period ended March 31, 2009. For the three month period ended March 31, 2010, we generated $1.2 million of operating cash flow from net income, as compared to $28,000 for the three month period ended March 31, 2009, or an increase of $1.2 million. This cash flow generation was offset by a change in net current assets of $4.1 million, which was primarily attributable to increases in accounts receivable and prepaid expenses, offset in part by an increase in accounts payable. This increase in net current assets was attributable to the growth in our business. For the three month period ended March 31, 2010, the increase in net current assets was $1.7 million. The higher increase in cash utilized due to changes in net current assets was due to the acceleration of the timing of payments made to our vendors in an effort to improve their cash flow in response to the overall slowdown in the economy.

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        Cash used in investing activities was $4.2 million and $1.3 million during the three month periods ended March 31, 2010 and 2009, respectively. The primary investing activities during these periods were acquisition related payments, the procurement of computer hardware and software and the internal development of computer software. During the three month period ended March 31, 2010, we used $1.2 million for new acquisitions, and paid a $1.4 million earn-out payment to the former owners of Mountain Logistics.

        During the three month period ended March 31, 2010, net cash used in financing activities was $0.3 million compared to cash provided by financing activities of $1.2 million for the three month period ended March 31, 2009. This was primarily attributable to the $2.1 million net borrowings on our credit line for the three month period ended March 31, 2009, offset by a $0.7 million decrease in IPO fees paid for the three month period ended March 31, 2010.

        As of March 31, 2010, we had no amounts outstanding on a $20.0 million line of credit with JPMorgan Chase Bank, N.A., which is due to expire on July 31, 2010. Any outstanding borrowings are collateralized by substantially all of our assets. The maximum amount outstanding under our line of credit cannot exceed 80% of the book value of our eligible accounts receivable. Our line of credit contains limitations on our ability to incur indebtedness, create liens and make certain investments. Interest on the line of credit is payable monthly at an interest rate equal to either: (1) the prime rate or (2) LIBOR plus 2.25%. We have discretion in determining if specific advances against the line of credit are drawn down as a prime rate advance or a LIBOR advance. The terms of the credit line include various covenants, including covenants that require us to maintain a maximum leverage ratio and a minimum interest coverage ratio. As of March 31, 2010, we were not in violation of any of these various covenants. On April 15, 2010, we amended the line of credit facility from $20.0 million to $10.0 million in availability.

        Our priority is to continue to grow our revenue and net revenue. We anticipate that our operating expenses and planned expenditures will constitute a material use 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. We also expect to use available cash to make approximately $19.3 million of potential earn-out payments due in connection with our acquisitions. We currently expect to use up to $5.0 million for capital expenditures through the end of 2010. We also expect that we will use up to $5.0 million through the end of 2010 to fund working capital requirements. We expect the use of cash for working capital purposes will be offset by the cash flow generated from operating earnings during this period.

        Historically, our average accounts receivable lifecycle has been longer than our average accounts payable lifecycle, 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 will depend on the growth of our business.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements.

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Contractual Obligations

        As of March 31, 2010, we had the following contractual obligations:

 
  Total   Less than
1 year
  1-3 years   3-5 years   More than
5 years
 

Capital lease

  $ 701   $ 343   $ 358   $   $  

Operating lease

    11,103     2,220     4,249     3,631     1,003  

Contingent consideration obligations(1)

    19,284     5,687     10,474     3,123      
                       

Total

  $ 31,088   $ 8,250   $ 15,081   $ 6,754   $ 1,003  

(1)
Amounts relate to contingent consideration for the Mountain Logistics, Inc., Bestway Solutions, LLC, RayTrans Distribution Services, Inc., Freight Management, Inc., Distribution Specialist Inc. and Resource Group acquisitions.

Recent Accounting Pronouncements

        In October 2009, the FASB issued ASC Topic 605 (previously ASU No. 2009-13, Multiple Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force (ASU 2009-13)). The guidance addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. The guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the impact that the adoption of this guidance may have on our consolidated financial statements.

        In January 2010, the FASB issued ASC 820 (previously "Improving Disclosures about Fair Value Measurements" (ASU 2010-06). This guidance improves disclosures originally required under SFAS No. 157. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. We are currently evaluating the impact that the adoption of this guidance may have on our consolidated financial statements.

        In February 2010, the FASB issued ASC 855 (previously "Amendments to Certain Recognition and Disclosure Requirements" (ASU 2010-09)). ASU 2010-09 amended SFAS No. 165, "Subsequent Events" to resolve conflicts with SEC reporting requirements. The adoption of this guidance did not have a material impact on the Company's consolidated results of operations and financial condition.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

        We pass through increases in fuel prices to our clients. As a result, we believe that there is no material risk exposure to fluctuations in fuel prices.

        We have exposure to changes in interest rates on our line of credit. The interest rate on our line of credit fluctuates based on the prime rate or LIBOR plus 2.25%. Assuming the $20,000,000 line of credit was fully drawn, a 1.0% increase in the prime rate would increase our annual interest expense by $200,000.

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        Our interest income is sensitive to changes in the general level of U.S. interest rates, in particular because all of our investments are in cash equivalents. Due to the short-term nature of our investments, we believe that there is no material risk exposure.

        We do not use derivative financial instruments for speculative trading purposes.

Impact of Inflation

        We believe that our results of operations are not materially impacted by moderate changes in the inflation rate. Inflation and changing prices did not have a material impact on our operations for the three months ended March 31, 2009 and 2010.

Item 4.    Controls and Procedures

        Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2010. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2010, our chief executive officer and chief financial officer concluded that, as of such date, the Company's disclosure controls and procedures were effective at the reasonable assurance level.

        No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the first quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

        We are not a party to any legal proceedings that we believe would have a material adverse effect on our business, financial condition or operating results.

Item 1A.    Risk Factors

        There have been no material changes from the risk factors described in Item 1A ("Risk Factors") of our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 6.    Exhibits

Exhibit No   Description of Exhibit
  31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

    ECHO GLOBAL LOGISTICS, INC.

 

 

 

 

 
Date: May 14, 2010   By:   /s/ DOUGLAS R. WAGGONER

Douglas R. Waggoner
Chief Executive Officer

 

 

 

 

 
Date: May 14, 2010   By:   /s/ DAVID B. MENZEL

David B. Menzel
Chief Financial Officer

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EXHIBIT INDEX

Number   Description
  31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
ECHO GLOBAL LOGISTICS, INC.
PURSUANT TO
SECTION 302 Of THE SARBANES-OXLEY ACT OF 2002

I, Douglas R. Waggoner, certify that:

        1.     I have reviewed this quarterly report on Form 10-Q of Echo Global Logistics, Inc.;

        2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

        4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

        5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

Date: May 14, 2010   /s/ DOUGLAS R. WAGGONER

Douglas R. Waggoner
Chief Executive Officer

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EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
ECHO GLOBAL LOGISTICS, INC.
PURSUANT TO
SECTION 302 Of THE SARBANES-OXLEY ACT OF 2002

I, David B. Menzel, certify that:

        1.     I have reviewed this quarterly report on Form 10-Q of Echo Global Logistics, Inc.;

        2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

        3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

        4.     The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

        5.     The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

Date: May 14, 2010   /s/ DAVID B. MENZEL

David B. Menzel
Chief Financial Officer

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EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 Of THE SARBANES-OXLEY ACT OF 2002

        I, Douglas R. Waggoner, Chief Executive Officer of Echo Global Logistics, Inc. (the "Company"), hereby certify, that:

May 14, 2010   /s/ DOUGLAS R. WAGGONER

Douglas R. Waggoner
Chief Executive Officer

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EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 Of THE SARBANES-OXLEY ACT OF 2002

        I, David B. Menzel, Chief Financial Officer of Echo Global Logistics, Inc. (the "Company"), hereby certify, that:

May 14, 2010   /s/ DAVID B. MENZEL

David B. Menzel
Chief Financial Officer

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