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Echo Global Logistics Inc (ECHO) Q4 2018 Earnings Conference Call Transcript

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ECHO earnings call for the period ending December 31, 2018.

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Echo Global Logistics Inc  (ECHO)
Q4 2018 Earnings Conference Call
Feb. 06, 2019, 5:00 p.m. ET


Prepared Remarks:


Good day, ladies and gentlemen, and welcome to the Echo Global Logistics Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Kyle Sauers, Chief Financial Officer. Sir you may begin.

Kyle Sauers -- Chief Financial Officer

Thank you, and thank you for joining us today to discuss our fourth quarter and full year 2018 earnings. Hosting the call are Doug Waggoner, Chairman and Chief Executive Officer; Dave Menzel, President and Chief Operating Officer; and Kyle Sauers, Chief Financial Officer. We've posted the presentation slides to our website that accompany management's prepared remarks and these slides can be accessed in the Investor Relations section of our site,

During the course of this call, management will be making forward-looking statements based on our best view of the business as we see it today. Our SEC filings contain additional information about factors that could cause actual results to differ from management's expectations. We will also be discussing certain non-GAAP financial measures. The definition and reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure is contained in the press release we issued earlier today and Form 8-K we filed earlier today.

With that, I'm pleased to turn the call over to Doug Waggoner.

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

Thanks, Kyle, and good afternoon, everyone. I'd like to kick off our call by congratulating the Echo team for delivering a fantastic year, clearly the best in our history as we grew both our top line and our bottom line, improving operating leverage and delivering high levels of client and carrier satisfaction across the board.

I want to first highlight some of our results for the full year. We delivered record revenue of over $2.4 billion, 25.6% growth over the prior year and this growth was driven by an increase in market share with prior capacity, which drew higher rates.

We delivered $420 million of net revenue, which was 24% higher than 2017 and $100 million of adjusted EBITDA. Our adjusted EBITDA grew 62% year-over-year, a clear indication of our ability to improve operating leverage over time.

Our strong freight market through the majority of the year was, obviously, a big factor in terms of our ability to deliver such strong results, but our focus on technology people and process were all important contributors.

Now I'll turn to the Q4 results. Total revenue was $583 million, representing a 6.4% increase over last year. Net revenue was $102.4 million also representing a 6.4% increase over last year. Adjusted non-GAAP EBITDA was $25.6 million, representing a 22% increase over the prior year. Non-GAAP EPS was $0.47, representing a 43% increase over the prior year.

Again we've grown earnings faster than both the gross and net revenue, reflecting our ability to improve our operating leverage as we deploy new technology and achieve scale. We compete in a large industry, unlike all industries technology is increasingly becoming a term of more relevance.

That's good news for Echo, because we've always focused on technology and we believe our platform, which is heavily integrated with our clients and our carriers, delivers the competitive edge in terms of our ability to deliver a multimodal solution to a broad set of clients and synchronizing our talented people that work seamlessly with the platform.

It's visibility to leverage technology people and process that enables us to provide high service levels profitably. We will continue to invest to extend our advantages by automating more processes overtime. We recently rebranded our next-generation architecture as Echo accelerator. This architecture is focused on driving development velocity and automation through all phases of the processes that we manage across all modes.

The four key areas of emphasis are: One coating and pricing; two carrier selection, load matching, and booking; three in-transit, visibility monitoring, and notifications; and four, settlement.

We've already launched key applications both web and mobile that focus on each of these areas. EchoConnect is our integration layer and we have connected with thousands of shippers and carriers through this layer them which includes both EDI and API connections. EchoShip is our client portal and EchoDrive is our carrier portal. Together these applications are the core elements to our digital strategy enables our clients, carriers, and employees to all interact on a common platform in an integrated way.

Now, I would like to turn it over to Dave to go in more details on our performance.

David Menzel -- President, Chief Operating Officer

Thanks Doug. In Q4 we delivered strong results right in line with the revenue guidance we provided back in October. In addition our net revenue margin improved throughout the quarter improving efficiencies across our organization enabled us to effectively control expenses, resulting in strong operating performance. At the same time, our year-over-year comparisons by mode are more challenging as we face tougher comps in Q4.

As a reminder Q4 2017 was a period of significant market disruption. The combination of ELD enforcement in two major weather events in late Q3 of 2017 caused truckload rates to skyrocket. This in turn had shippers scrambling to the spot market to find much-needed capacity. Consequently our spot business increased significantly in Q4 2017.

As a contrast Q4 2018 was marked by decline in truckload rates sequentially and less freight finance rate at the spot market. In other words contract rate with more shippers was moving as expected. This pattern has become somewhat typical as freight cycle shift. And back in October we talked about seeing the signs of the shift in the cycle. With that backdrop let me walk you through how those trends impacted our performance by mode.

Slide four highlights our revenue by mode. In Q4 total truckload revenue was $396 million and increased by 4.3% over the prior year. Truckload volume was flat year-over-year and our revenue per shipment was up by 4%.

As you would expect, based on the changes in the market, our volume in Q4 was impacted by the offsetting influence of a decline in spot business and an increase in contract business. In fact our spot business represented 52% of our total as compared to 59% a year ago. By contrast, contract business was 48% of total, up from 41% in Q4 2017.

As I mentioned truckload pricing is defined by revenue by shipment increased by 4% year-over-year. So, on the one hand pricing remains relatively high by historic standards, however, that only tells a portion of the story. Pricing in Q4 was actually down 4% when compared to Q3.

Interestingly the sequential decline is probably best defined by the peak rates we saw in June and July of 2018. Average truckload revenue per load declined in August 2018, but remained relatively consistent for the final five months of the year August through December.

Shifting gears to LTL, we again had strong results in our LTL business. Total revenue was $164 million representing a 16% increase over the prior year. Increases in both rates and volume drove this increase. Our LTL shipment volume was up 9% in Q4, and revenue per shipment was up 7%.

Turning to slide 5, our Transactional revenue of $449 million grew by 4%. Sales headcount increased by 75 people over this time a year ago bringing us to 1,716 clients and carriers sales reps at the end of the year.

Our Managed Transportation revenue was $134 million in Q4, an increase of 17% over the prior year, another strong consistent quarter delivered by our Managed Transportation business. For the full year, our Managed Transportation business was $524 million in total revenue, up 29.6% over 2017. The success was driven by lot of great work by our teams serving our existing clients and the result of closing on average approximately $100 million in annual new business over the past two years.

I'd like to congratulate our Managed Transportation team for doing a great job. Thank our client base for continue to trust in our ability to manage their freight, during a time when we saw record increases in transportation rates.

As you all know, it's very difficult for shippers to manage such dramatic upward swings in costs and our teams continue to work diligently leveraging our technology and relationships to manage these price pressures effectively while maintaining access to capacity in the marketplace.

Turning to slide 6. Our net revenue margin was flat year-over-year at 17.6%. Net revenue margin was due to a small increase in truckload and a slight decrease in LTL. Looking sequentially, we saw 32 basis points increase over Q3, with improvements in both truckload and LTL.

More specifically, truckload margin increased by 10 basis points year-over-year. Similar, to the story around our contract in spot mix and the changes in volume, due to changes in the freight cycle our truckload net revenue margin was impacted by offsetting enforcers. The decline in spot business was a drag on margin, while the impact of much of the contract repricing that occurred in the first half of the year followed by the decline in truckload rates paid to carriers in the back half of the year had the effect of improving our truckload contract margins. This is one of the strength of our business model as they are often counterbalancing impacts during changes in the freight cycle.

Turning to LTL, net revenue margin was down 59 basis points, due to the continued impact of growth in our Managed Transportation business. Over the past few quarters, we've discussed the impact of larger LTL-centric Managed Transportation deals, which have driven more LTL volume at lower net revenue margin and this impact continued in Q4 2018.

As we've highlighted in the past, these larger deals carry a high degree of automation which benefits all the parties involved Echo, our shippers and our LTL carriers.

I'd like to now turn it over to Kyle, who will review operating cost and profitability.

Kyle Sauers -- Chief Financial Officer

Thanks, Dave.

On page 7 of the slides, you will find a summary of our key operating statement line items. Commission expense was $31.1 million in the fourth quarter of 2018 increasing 5% year-over-year. Commission expense was 30.4% of net revenue, which is down 32 basis points compared to the fourth quarter last year.

Our non-GAAP G&A expense was $45.7 million in the fourth quarter of 2018 flat with the year ago fourth quarter of 2017. With a favorable benefit and our allowance for doubtful accounts of $700,000 during the quarter related to the bankruptcy of the large retail customer, otherwise with the low end of our previous guidance that we had offered.

Depreciation expense was $6.2 million in the fourth quarter of 2018, up from $5.1 million in the year-ago period. And this increase in depreciation is associated with the increase in our continued investment in technology.

Cash interest expense was $1.5 million during the fourth quarter of 2018, compared to $1.7 million in the year-ago period. And our non-GAAP effective income tax rate was 26.1% for the fourth quarter higher than our expected 25% rate due to some small one-time items.

As Doug mentioned, non-GAAP fully diluted earnings per share were $0.47 increasing from $0.33 in the fourth quarter of 2017. The primary differences between our GAAP and non-GAAP fully diluted EPS in the fourth quarter of 2018 are $3.3 million of amortization of intangibles, $2.7 million of non-cash interest expense and $2.2 million of stock compensation expense.

Moving to slide 8, it contains selected cash flow and balance sheet data. In the fourth quarter of 2018, we had free cash flow of $26.6 million and operating cash flow of $31.2 million. And for the full year, our free cash flow totaled $70 million, which is up 150% over the prior year. Capital expenditures totaled $4.6 million in the quarter, compared to $6 million in the prior year.

Turning to the balance sheet. We ended the quarter with $40.3 million in cash and $337 million of accounts receivable. And at the end of the quarter, we had nothing drawn on our $350 million ABL facility.

You recall in our last call, we announced an additional $50 million authorization to repurchase our common stock and convertible debt. And during the quarter, we purchased 421,000 shares of our stock or $9.8 million on an average of $23.19 per share. In addition, we repurchased $37.4 million face value of our convertible debt for $37.2 million.

The associated gain on extinguishment of that debt and accelerated amortization of the bond discount totaling $750,000 has been included in our non-cash interest line item. And as of the end of the quarter, we have approximately $33 million still available on our repurchase authorization.

Now I'll take a moment to walk through our guidance for the first quarter and for the full year 2019, which we have highlighted on slide 9. Revenue during the first 18 business days of the quarter is down 7% over last year on a per day basis.

This data exclude last week as much of the Midwest was shut down for a couple of days. This year-over-year decline was primarily due to lower truckload rates and lower truckload spot volume, partially offset by growth in LTL revenue per day. This after truckload results in January is the continuation of the trends we saw in Q4, pumped against a very strong January a year ago.

The looser capacity impacted our net revenue margin as rates paid to carriers often move faster than rates billed to customers. In fact, our net revenue margin in January is up over 18%, a nice sequential improvement from the fourth quarter.

Given all these current trends, we expect Q1 revenue to be in the range of $530 million and $570 million. And for the full year, we expect revenue in the range of $2.35 billion to $2.55 billion.

And then with regards to other guidance, we expect the following: commission expense to be between 30.5% and 31% for the first quarter and for the full year; G&A cost to be between $46.5 million to $49.5 million for the first quarter and $195 million and $205 million for the full year; depreciation is estimated to be about $6.5 million for the first quarter and $27 million for the year. CapEx is estimated to be $27 million to $30 million for the full year with all of that increase being attributable to technology investments.

Cash interest of approximately $1.5 million for the first quarter and $6 million for the full year and we expect our quarterly tax rate and annual tax rate to be approximately 25%. We anticipate our share count to be approximately 27.5 million shares for the quarter and for the year.

When excluded from our non-GAAP calculations in the full year and fourth quarter we should have amortization of approximately $11.8 million and $3.2 million non-cash interest of $7.5 million and $1.8 million and stock comp expense of about $11 million and $3 million.

And now I'd like to turn the call back over to Doug.

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

Thanks Kyle. To wrap it up, this is another strong quarter for Echo and we're very pleased with the results. Despite very tough comps from last year, we delivered just over $102 million in net revenue, up by $6.2 million from the prior year. We had $25.6 million in adjusted EBITDA, up by $4.6 million from the prior year and this represents 74% incremental EBITDA and is reflective of respectable volume growth, a relatively strong pricing environment, strong gross margins and good control over G&A.

We've had a consistent run of quarters with strong financial performance throughout various parts of the capacity, supply and demand cycles. We've proven that our operating model and the adjustments we make in that are capable of producing strong results, whatever the environment.

Our continued focus on our digital freight marketplace, applying technology and analytics will ensure that we continue to outperform our transportation peers for years to come. Thanks for all the folks at Echo for making transportation simplify for our clients and our carriers. It's your efforts that allow us to achieve the results that we delivered this quarter and in fact for all of 2018.

That concludes our prepared remarks. And at this time we will open it up for questions.

Questions and Answers:


(Operator Instructions) And our first question comes from the line of Jack Atkins with Stephens. Your line is open.

Jack Atkins -- Stephens -- Analyst

Great, thank you. Good afternoon guys and congratulations on strong 2018.

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

Thanks Jeff.

Jack Atkins -- Stephens -- Analyst

So, I guess first is for Doug or Dave. As you think about 2019 sort of what's implied within the revenue guidance, the various -- sort of ends with the revenue guide, how were you guys thinking about truckload volume growth in 2019 just conceptually? It seems like you guys have been in a position to perhaps go after some market share at this point of the cycle, but you really weren't able to go after in 2015, 2016?

Would just curious to get your thoughts on, perhaps seeing some more elevated volume growth because over the last call it four to six quarters volume growth has been fairly flat, but just kind of curious how that trends as we look out into 2019?

David Menzel -- President, Chief Operating Officer

Yes, Jack. This is Dave. When we think about 2019, there is two pieces to the puzzle. One will be, obviously the current market conditions and what that yields for us. And I think what we'll see is, in general, tougher comparables through the first six or seven months of 2019 and then I think the comparables will get a little easier as we get into the back half of the year.

So, we'll continue to focus on volume growth for sure, but we will stay focused on profitable volume growth. So, we're not in a position to try to buy market share so to speak. So, we'll continue to focus on leveraging our network, the relationships we have, the lanes that we run, strong and continuing to build on our client relationships and add new ones.

So, I think that we're not going to get into specifics on, kind of, volume and rates throughout inherent at all guidance numbers, but I do think that you'll see volume gains throughout the year, but it will be a little tougher certainly this quarter and I think also in the second quarter given market conditions.

Jack Atkins -- Stephens -- Analyst

Okay, got you. And then just sort of following up on that and this is sort of goes into Kyle's commentary on the G&A side. So, whoever wants to take this question, just curious how you guys are thinking about headcount growth, particularly, salesforce growth in 2019 what you guys are assuming this year?

Kyle Sauers -- Chief Financial Officer

Yes, Jack, this is Kyle. I'll take that. So, we are anticipating continuing to add to our salesforce that's been a key for us throughout any part of the cycles is always adding to that salesforce. So, we'll continue to do that.

There will be-as we talked about last year and we've continue to talk about increases in our technology workforce that's obviously really important for us. So, those will be areas you will see a lot of or the majority of our headcount adds.

I'd say in terms of our G&A growth year-over-year if you look at the midpoint of our guidance on 2019 is about 3% or $6.5 million higher than we were in 2018. So that -- most of that increase is related to technology investments and then if you think about the cost of our increased headcount and in sales and a little bit in operations that really gets offset by incentive compensation that's expected to be lower in 2019 than it was in 2018.

Jack Atkins -- Stephens -- Analyst

Okay. All right. I got you. Last question I'll turn it over. Kyle this is a balance sheet question. So, I guess this is for you, but I was pleased to see you guys buy back some of the face volume of the convertible note. I think if my calculations are correct you guys have about $193 million just under that left those converts come due I think next May. What are you guys thinking about in terms of refinancing that convertible note? I guess what are some of the options in front of you guys for that? And sort of as a tag on to that is there a way to think about how you all are looking at free cash flow for 2019? It was a great year in 2018. Is $70 million the right way to think about 2019 free cash flow?

Kyle Sauers -- Chief Financial Officer

Yes. So, I'll take the kind of the balance sheet question first. I think as you remember last quarter we announced upsizing our ABL facility to allow borrowings up to $350 million, obviously, contingent on our receivables. So, I think we've got a lot of flexibility there to take out that convert.

But to your point there are options, obviously, we could roll to another convert. There's more permanent debt structures in place where we can just use this ABL facility. So, I don't know I want to signal exactly what we plan to do because we do have a lot of flexibly, but we certainly thought we're in good shape to manage that convert coming due.

On the cash flow, you're right, good -- really good free cash flow year for us this year at $70 million, there was lighter earlier in the year as working capital needs are little heavier due to the significant sequential growth, and then as the working capital needs subside a little bit, free cash flow improved in the back half.

And so I want to stop giving free cash flow guidance, but if you think about 2019, obviously, matters where that profitability comes in, but there is nothing notable in 2019 that would look different or changes in our working capital needs that should make our free cash flow conversion react differently than it would have in 2018.

The only other thing I'd say to consider would be that our CapEx guidance is $4 million or $5 million higher than what we spent in 2018. So I think we're positioned well to continue to generate real strong free cash flow.

Jack Atkins -- Stephens -- Analyst

Okay, that's great. Thank you again for the time.

Kyle Sauers -- Chief Financial Officer

Thanks, Jack.


Thank you. And our next question comes from the line of Jason Seidl with Cowen and Company. Your line is open.

Adam Kramer -- Cowen and Company -- Analyst

This is Adam on for Jason. I guess, just first may be a little bit about what you guys are seeing now in this season in terms of renewals and in terms of pricing? Tell me just a little bit about what you guys are seeing with early bids that have come in? Or may be with bids that are still out? Just in terms of trends that you guys are seeing?

David Menzel -- President, Chief Operating Officer

Sure. I think that we don't get into a lot of specifics, but -- talked a little bit about the general cycle and we're in a point in time today where there's a lot of bids that are nearing completion. Some of are -- we've certainly see a decent amount of bids wrap up in January, but we still got a lot of activity and I think a lot of companies will be wrapping up bids in February and early March as well.

I think that as you would expect the softer market has created a little price pressure on the rates. I think that the -- in general we'll probably see rates across-the-board in flattish to 4%, 5% range but any particular client could vary from that depending on the situation at hand.

So I'd say that the season is going well, companies are obviously repricing their award business right now and we'll probably see most of that wrap up by the time we report again on the next quarter.

Adam Kramer -- Cowen and Company -- Analyst

Got it. Thank you. And I guess just a quick follow-up here on my end. I think, you guys didn't mention anything about acquisitions or acquisition pipeline, so may be just ask a little bit about that? Is there -- are you guys kind of active now and looking for deals, is that something that you've put to the back burner? I think it's been a little while since your last deal. So just wondering, if there is anything coming up or what you guys are looking for if you're out there looking for stuff?

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

Yeah. This is Doug. Well, we did do a deal last year freight management plus and Managed Transportation company that fit in nicely and that's going well, and we continue to be active. We've got a full-time corporate development person that's out looking at opportunities. I get involved. Dave gets involved.

And at the same time we're very selective. We're looking for things that are complementary to our core business. We're looking for management team that we're confident in. We're looking for synergies and we're looking for the right valuation. So we're picky and when we find those opportunities we move forward, and then you got to get the deal across the finish line. So, I would say that it might appear that there is not much going on, but we continue to be active and we have a strong pipeline.

Adam Kramer -- Cowen and Company -- Analyst

Got it. Thank you guys for the time.

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

Thank you.


And our next question comes from the line of Stephanie Benjamin with SunTrust. Your line is now open.

Stephanie Benjamin -- SunTrust -- Analyst

Hi good afternoon. I was hoping you could provide a little bit of color on the Managed Transportation business here? I think when you spoke in the third quarter, you talked that you had about $75 million in new business thus far, just hoping to get an update on how the fourth quarter performed? And really looking at the expectations for that business next year? Is there an opportunity for -- given your revenue guidance to actually see growth there or from new businesses or just some update there would be helpful? Thanks.

David Menzel -- President, Chief Operating Officer

Sure Stephanie. We had a strong fourth quarter. We closed about $20 million in new business. So we closed out the year, I think right at a $100 million or just under $100 million of anticipated revenue from new business. So that number is kind of a bookings number, pre go live with customers.

And so that was a very strong year. That comes on top of a very strong year in 2017 where we closed about $100 million as well. So kind of two years running with great new business and we've got a good pipeline going into 2019. So we feel really good about that.

Some of that business is live already, that drove a lot of growth that you saw in 2018 close to 30% growth in our Managed Transportation business. In 2018, it's up about $120 million year-over-year, so pretty significant growth from all that new business closing.

When we look ahead to 2019 we'll get specific guidance by these different line items. But when we look ahead, I'd just say one thing that, I would expect it to be likely that growth moderates quite a bit. And part of the reason for that is most of that Managed Transportation business is also impacted by the rate environment.

So to the extent that, rates soften, even if we close the $100 million in new business, if rates softened up a little bit going forward, that $100 million might become $80 million or $90 million based on a change in rates. So as we look at -- we had a lot of rate growth in 2018 that was part of driving that growth in the managed trends. So as we look ahead the topline numbers might soften up a bit, but we still feel really good about adding new business and continuing to grow that in the long term.

Stephanie Benjamin -- SunTrust -- Analyst

And just a follow up on that and just the current rate environment and I apologize, if I missed it. Did you give what you're seeing thus far in 2019 just from an overall rate environment? Or from the spot -- what you're seeing on the spot side? I believe you said your contracts were still holding well. Or you do believe even it should be flattish or positive for the year. So then what's baked in for the spot? Is it basically imply to be down low mid-single digits? Or just trying to understand the puts and takes from the low-end and high-end of your full year guidance?

David Menzel -- President, Chief Operating Officer

Yes that's a -- yes. That's a good question. We didn't give that specific in the prepared remarks. On the -- the truckload side which is obviously the biggest part of our business, it's a really tough comp on the rates because January of 2018 was a real -- there was a real spike in truckload rates and we talked about that going back a year ago.

And so when we looked at the truckload rates, January to January they were down close to 12% year-over-year. And so that was I think a really tough comp and a pretty unusual spike that we saw in January 2018. So we don't anticipate that same level of rate degradation. Having said that, hard to predict rates going forward. The market kind of ebbs and flows as you guys know and so we just have to keep a close eye on that. So that I'd caution as to take too much from these January numbers, due to that -- due to the nature of last year's January for the most part.

And then on the LTL side well I think it has softened up quite a bit. The rates don't move as frequently. So the rates were up I think 8% or 9% in January on the LTL side. So this is kind of similar rate growth year-over-year on LTL as you would expect coming out of Q4.

Stephanie Benjamin -- SunTrust -- Analyst

I appreciate it. Thanks.

David Menzel -- President, Chief Operating Officer

Thank you.


Thank you. And our next question comes from the line of Matt Young with MorningStar. Your line is now open.

Matt Young -- MorningStar -- Analyst

Good afternoon. Thanks for taking my question. Hey, Dave did you mention if there was a fuel surcharge impact on truckload gross profit margin in the quarter? I think you said the truckload margin was up about 10 basis points year-over-year?

David Menzel -- President, Chief Operating Officer

Yeah. I didn't mention it. I'll let Kyle address it, if he's got that impact off hand. I don't have it off hand.

Kyle Sauers -- Chief Financial Officer

Yeah. No significant impact in Q4, Matt. I would probably point out just I'm thinking about the 2019 guidance, but if diesel things around right where it is now, it's probably a about $35 million headwind on our 2019 versus 2018, which we got built into our guidance. But we would see some headwind there next year at the top line that could impact margins a little bit.

Matt Young -- MorningStar -- Analyst

Okay. That make sense. So -- and I think you kind of discussed this a little bit. So -- but should we think about if your 17.6% on a gross profit margin should we think about that as a decent run rate for the years assuming lower spot rates paid to carriers? Or should that normalize a little bit as the year progresses? I'm just trying to get a sense if that moves up or down a little bit, I guess down, but wanted to clarify that.

Kyle Sauers -- Chief Financial Officer

Yeah. So, we don't guide the gross margin. So, I want to be -- I'll be a little careful I guess. In Q1, specifically we did mention that so far in January here we're up over 18% so that's a nice sequential trend from the fourth quarter. It wouldn't be unusual that truckload margins could compress a little from January to March. So while we're really proud of where the margins are today and we think it reflects the managing the business well, they may or may not hold for the whole quarter. And then, when you think about the full year and we talked about this before, but in a -- if you have a declining truckload rate environment oftentimes you see a little margin expansion and an increasing rate environment you might see some -- I think some truckload side obviously see some compression.

Now in 2018, we actually beat that trend and we held margins real nicely in a environment, where rates were increasing for the first part of the year. And so I guess part of the answer depends on which way you think truckload rates are going to move. And then, I'd say -- the only other thing I'd point out is that it's not unusual that our truckload margins compress a little bit in Q2 and Q3 seasonally and are higher in Q1 and Q4. So hopefully, that helps give you some kind of guardrails short of us providing specific guidance on margins for the year.

Matt Young -- MorningStar -- Analyst

That make sense. It is helpful. That's all I had. Thanks.

Kyle Sauers -- Chief Financial Officer

Thanks, Matt.


Thank you. Our next question comes from the line of Kevin Steinke with Barrington Research. Your line is now open.

Kevin Steinke -- Barrington Research -- Analyst

Hi. Just wondering if -- as best as you can, you can give us your current view of the U.S. economy and the freight demand outlook as you head into 2019 here?

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

Yes, Kevin. I mean, I think we're still bullish. We don't see any true negative signs, I think, when we look at the supply and demand of capacity that affects our industry so much. It's hard to understand what's demand and what's supply. However, I would say that we do believe that small carriers added some capacity this last year, which would be correlated to prices coming down to a little bit in the marketplace.

So when I think about the supply and demand and the capacity market for freight, I don't know that the current environment is really tied to the U.S. economy, because all the things we hear from customers and the reports we see, people still free pretty bullish about their business.

I think there is a lot of noise that you see when you're watching the news, and you see the same things that we do. So, overall, I would say it feels like it's hanging in there. We don't see anything that's overly negative or overly positive and a lot of noise and so may be some excess capacity in the truckload market.

Kevin Steinke -- Barrington Research -- Analyst

Okay. That's helpful. And just any comment on what you're seeing or hearing in terms of the ELD mandate and driver shortages and the impact on capacity, now and going forward?

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

Yes. We don't really hear much about it anymore. It seems like it's an old subject. I think everybody is adapted to it and we're beyond that. In terms of drivers, I think, the market for drivers are still tight. However, in our research with the smaller truckers that did add capacity, we're able to find drivers to go with the trucks.

Kevin Steinke -- Barrington Research -- Analyst

Got it. Okay. Thanks. That's very helpful. Thanks for taking the questions.

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

All right. Thanks, Kevin.


Thank you. And our next question comes from the line of Tom Wadewitz with UBS. Your line is now open.

Alexander Johnson -- UBS -- Analyst

Hey, good afternoon. It's Alex on for Tom. Just wanted to ask about Doug's comments at the beginning about the rebranding to Echo accelerated. What are the important reasons for the rebranding? What are some of the benefits of doing that?

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

Well, I think, there's a couple of things. One, our technology continues to evolve and as newer architectures are available in the technology community, more cloud-based computing, better tools, we find opportunities to evolve our legacy platform to make it more efficient to build on. So accelerator is really kind of our internal nomenclature for referring to our evolving platform and the ability to crank out functionality faster.

Simultaneous to that, and using that new architecture, we have been and are continuing to release new products to the market that I had mentioned in my prepared remarks. And those products are customer facing, they're career facing, they employ data science. They make us more efficient, they make us easier to do business with and bring a lot of efficiencies for all involved. So we're just tying it all together with our Echo accelerator. It's kind of the base of the system that people don't get to see, but internally at Echo, we talk a lot about it, because it's what's we're building our systems on top of.

Alexander Johnson -- UBS -- Analyst

Great. Thanks. That's really helpful. And then just one in terms of the bid season and contracts. I think Dave mentioned that the markets are a little bit weaker I'm not sure if that's year-over-year absolute interest in your perspective, it seems like the truckload market is still reasonably tight from a historical perspective. Just curious in terms of contracts, are you seeing any unusual language in contracts or that are affirming of the contracts even more than historically just interesting your perspective on that?

David Menzel -- President, Chief Operating Officer

Yes. Couple of comments I'll make on that. In terms of new language or different approaches, so to speak I would say no, we haven't seen anything significant in terms of shippers approaching the market in a new or unique way. So I think that it's pretty consistent with prior practices for the most part. And then I think your comment about the rates and the commentary around the rates is really good one and probably important to clarify a little bit, because I do think that on a year-over-year basis you're correct I mean, in Q4 rates were up 4% as I commented on.

Despite this kind of January peak, which I'm attributing more to such a spike that we incurred in January 2018 really then -- even though it is softer, but more so to that than the January 2019 environment. So the rate commentary and when we refer to a little bit of the softness, I do think it's coming from a high in Q2 and Q3. And so we have like a lot of spot market activity higher rates and coming down with those levels is probably the more the prospective at this moment in time.

Alexander Johnson -- UBS -- Analyst

Great. That's also very helpful. Thanks for the time this afternoon.

David Menzel -- President, Chief Operating Officer

Thank you. Tom.


Thank you. Ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to Doug Waggoner, Chairman and CEO for any closing remarks.

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

All right. Well I'd just like to thank everybody for joining us today and we look forward to talking to you next quarter.


Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.

Duration: 43 minutes

Call participants:

Kyle Sauers -- Chief Financial Officer

Douglas Waggoner -- Chairman of the Board and Chief Executive Officer

David Menzel -- President, Chief Operating Officer

Jack Atkins -- Stephens -- Analyst

Adam Kramer -- Cowen and Company -- Analyst

Stephanie Benjamin -- SunTrust -- Analyst

Matt Young -- MorningStar -- Analyst

Kevin Steinke -- Barrington Research -- Analyst

Alexander Johnson -- UBS -- Analyst

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