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Echo Global Logistics Inc (NASDAQ:ECHO)
Q3 2020 Earnings Call
Oct 28, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Echo Global Logistics Third Quarter 2020 Earnings Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Pete Rogers, Chief Financial Officer. Please go ahead, sir.

Peter M. Rogers -- Chief Financial Officer

Thank you. And thank you for joining us today to discuss our third quarter 2020 earnings. Hosting the call are Doug Waggoner, Chairman of the Board and Chief Executive Officer; Dave Menzel, President and Chief Operating Officer; and Pete Rogers, Chief Financial Officer. We have posted 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, echo.com. 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 comparable GAAP financial measure is contained in the press release we issued earlier today and the Form 8-K we filed earlier today.

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

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Thanks and good afternoon, everyone. I appreciate all of you joining us today. First off, I want to introduce Pete Rogers as our new Chief Financial Officer. Pete is a long-tenured Echo veteran, and I'm thrilled to have him join Echo's executive team. Pete has played an instrumental role and had various leadership positions in our accounting and finance organization dating back to when we were a private company. He has a deep understanding of our industry, our business, our processes and our technology. In his 13-plus years at Echo, Pete has built strong internal relationships with people throughout our organization, including our Board of Directors, and I'm confident in his ability to lead our finance organization. Switching gears, let me cover some of the key highlights for this third quarter. As all of you know, the freight markets have been accelerating since the brief trough triggered by the COVID-19 back in April. Capacity has been very tight and truckload rates have increased throughout the quarter, hitting record highs as recently as last week.

We saw an increase in demand from shippers while the supply of capacity has not correspondingly expanded. This obviously creates upward pressure on prices. It also creates an environment where shippers find it increasingly difficult to find a truck and a larger percentage of the loads that they tender pursuant to the execution of their routing guides gets rejected. While this environment can be quite difficult on shippers, it's also an environment where Echo can provide increased value by tapping into our capacity across multiple modes of transportation. This quarter, we not only did a great job of living up to our shipper commitments and our contracts, but we also found them a lot of additional capacity in the spot markets. Our people have continued to do a great job serving our clients and carriers while continuing to work remotely, and I want to thank all of them for their hard work throughout the quarter.

Now I'll take you through some of the highlights of the quarter as highlighted on slide three. We had record revenue in Q3 as total revenue was $691 million, representing a 23% increase from last year. Speaking of records, we actually had record brokerage revenue of $534 million, record Managed Transportation revenue of $158 million, record truckload revenue of $488 million and record LTL revenue of $175 million. Net revenue was $100 million, representing a 4% increase from last year. Adjusted EBITDA was $21.9 million, a slight increase over the prior year. And non-GAAP fully diluted EPS was $0.40 compared to $0.39 in the year ago period. Q3 was a really strong quarter, and we delivered excellent results, and I'm extremely proud of the organization.

And now I'd like to turn it over to Dave to go into more detail on our performance.

David B. Menzel -- President and Chief Operating Officer

Thanks, Doug. As I mentioned last quarter, we had what we described as a full freight cycle within the span of a few short months. We entered Q2 in a soft environment and exited with increasing freight volumes and rates. Those trends continued into Q3 and contributed to the record revenue in the quarter. When thinking about the current market, I believe the biggest difference in what we experienced in the third quarter compared to recent and even not so recent history was the velocity of the truckload rate increases. The magnitude of the truckload pricing increase in just three short months has never been greater. Our truckload cost per shipment increased by 29% sequentially, which is almost two times the largest sequential change we've ever experienced. In the past, we've discussed how the combination of the change in rates and the speed of the change is a significant determinative factor on net revenue margin performance. I also believe our team did a great job of managing in this very difficult environment, which includes balancing the service needs of our shippers and carriers, honoring contractual commitments, repricing strategically where the market has dislocated and delivering spot capacity to ensure that shippers can keep up with increasing demand.

Now let's take a look at slide four, and I'll highlight some more specific details underlying our truckload and LTL performance. We delivered truckload revenue of $488 million in Q3, which is an increase of 32% over the prior year. This growth was fueled by record shipments and increased rates. Our truckload shipment volume increased by 14% year-over-year, and our revenue per shipment increased by 16%. The combination of market conditions and our own strategic intent has resulted in a steady increase in our award business over the past seven quarters. This culminated in our primary award freight representing 62% of our truckload freight mix in Q2. This quarter, due to ongoing capacity constraints, shifting supply chains and increasing freight demand, we saw that trend reverse. Our award freight dropped to 54% of total truckload in Q3. However, it's important to emphasize that our primary award business continued to grow during this tough market, which is consistent with our long-term commitment to shippers. Our award volume was up 14% over the prior year. On top of that, we also provided much needed capacity to our clients through the spot market. Our spot volume grew by 17% year-over-year.

Again, our ability to execute in very challenging conditions is enabled by a combination of our proprietary technology and data science, our unique business processes, our robust quality and quality carrier network and the commitment of our talented people. Bottom line, our freight volume has continued to grow, and this is a reflection of Echo continuing to take share, as well as the underlying tailwind of improving freight demand. Freight demand is improving due to overall economic factors driven by reopenings and closely related to the restocking that is occurring due to depleted inventory levels. In addition, supply chain disruption resulting from shifting consumer spending patterns has impacted the role that we play and help our shippers secure much needed capacity. Clearly, capacity has not expanded as rapidly as freight demand. The primary culprit seems to be the ongoing dilemma of the driver shortage, exasperated by the impact of COVID-19. Drivers are more reluctant to be away from home for extended periods of time, and the funnel of new drivers coming in, in the industry has slowed. This has resulted in line-haul rates to carriers hitting an all-time high in Q3.

That peak was short-lived as they then again increased in early October. I will say that the rates have flattened out a bit over the last few weeks. This very tight truckload market is also impacting LTL. Turning to our less-than-truckload business, we delivered a record revenue of $175 million in Q3, a 5% increase over the prior year. Shipment volume was up 7%, and our revenue per shipment decreased by 2% over the prior year. The rate decline was due to lower fuel costs. LTL rates tend to move a bit slower than truckload rates, nowhere near the level of volatility that we see in truckload. But as you would expect, LTL rates are, in fact, increasing. LTL revenue per shipment went up by 4% sequentially, was -- which was indicative of the capacity squeeze that's impacting this mode. We do anticipate continued increasing costs in LTL. Our LTL volume growth was driven from both increases in our brokerage and our Managed Transportation business. We're very proud of the -- of our LTL capability, which is made possible by our strong relationships with the LTL carriers and our robust network. Given our scale, we have a unique ability to provide significant value to both shippers and carriers in a tight market like this one.

On the shipper side, we provide a comprehensive network, one-stop shop execution and leading online capabilities. On the carrier side, we also deliver significant value, enabling them to optimize their own networks, improve yield, manage service levels, assure reliable payment and continue to serve small shippers with a high degree of efficiency.

Moving to slide five. We delivered record transportation revenue of $534 million in Q3, which was an increase of 23% over the prior year. Our strong multimodal capabilities has enabled this significant growth. At September 30, our sales organization totaled 1,617 and was down 7% over the prior year. Our focus on automation, enabled by our ongoing technology investments, have helped us deliver on productivity improvements in this market.

In Q3, our shipments per sales FTE increased by 15% over the prior year. This is the fifth consecutive quarter of improvement in productivity and demonstrates our ability to grow volume faster than headcount even in a tough market. Some of the improved automation is coming from our carrier-facing application, EchoDrive. In August, we launched Book Now in EchoDrive mobile, enabling our carriers to secure freight through our -- either through our portal or on their phone.

In fact, mobile bookings increased by 76% sequentially as we've begun to get much more aggressive in marketing these capabilities across our carrier base. We also recently announced a partnership with KeepTruckin, a leading ELD provider, to make our freight available through their Smart Load Board. We continue to innovate and ensure that it's easy for carriers to join our network and find freight that reduces their empty miles and improves their overall yield. On the shipper side, we also continue to automate. We saw LTL volume growth recovery, fastest through EchoShip, our online shipper portal. In addition, we've launched direct API connection with several shippers to provide fast, real-time truckload quoting. This adds efficiency for both us and our clients and leverages the investments we've been making in our data science and our ability to deliver targeted truckload quote [Technical Issues] coming online. We delivered revenue of $158 million in Q3, an increase of 23% over the prior year.

We also had another strong quarter of new business as we closed approximately $26 million in Q3 and another $10 million already in October, bringing our year-to-date signings to $122 million. It's encouraging to see that most of our clients have bounced back from the slowdowns in Q2 and the new business is now driving year-over-year growth.

Turning to slide six. We generated $100 million in net revenue, a 4% increase over the prior year. The increase was driven by record revenue, but offset by 275 points of compression, resulting in a net revenue margin of 14.5%. The majority of the net revenue compression was in our truckload business where we experienced a 293 basis point decline due to the increase in the cost of capacity and its impact on our award business. We've consistently talked about how shipper pricing typically lags when the market changes, and there's no doubt that the tight capacity we're currently experiencing is unprecedented. However, on an overall basis, our truckload net revenue margin showed modest sequential improvement in August and September, and spot business growth offset the award margin pressure from rapidly rising rates.

I'd now like to turn it over to Pete to review our operating expenses, liquidity position, cash flow and outlook for Q4.

Peter M. Rogers -- Chief Financial Officer

Thanks, Dave. On Page seven of the slides, you'll find a summary of our key operating statement line items. Commission expense was $29.8 million in the third quarter of 2020, increasing 2% year-over-year. Commission expense was 29.7% of net revenue compared to 30% for the third quarter last year. Non-GAAP G&A expense was $48.7 million in the third quarter of 2020, increasing 5.8% from the third quarter of 2019. Depreciation expense was $7 million in the third quarter of 2020, up from $6.8 million in the same period a year ago. Cash interest expense was $1 million during the third quarter of 2020 compared to $1.3 million for the same period in 2019. The decrease is due to a lower amount of outstanding debt. Our non-GAAP effective income tax rate was 24.8% for the third quarter of 2020. As Doug mentioned, non-GAAP fully diluted EPS was $0.40, increasing from $0.39 in the third quarter of 2019. The primary differences between our GAAP and non-GAAP fully diluted EPS in the third quarter of 2020 are $2.7 million of amortization of intangibles from acquisitions and $2.3 million of stock compensation expense. Slide eight contains selected cash flow and balance sheet data.

We ended the quarter with $47.6 million in cash on hand and $433 million of accounts receivable, which is the basis for our ABL borrowing base. In Q3 2020, we had free cash flow of $12.6 million and operating cash flow of $17.6 million. Capital expenditures totaled $5 million in the quarter compared to $5.7 million in the prior year.

On slide nine, we are highlighting our liquidity position. As I stated previously, at the end of the quarter, we had $47.6 million in cash on hand. We had an available borrowing capacity on our ABL facility of $316 million. That borrowing capacity is calculated as 85% of our eligible accounts receivable. We had borrowings of $145 million on the ABL, consistent with the end of Q2. Our combined cash on hand and available borrowings on the ABL leaves us with net liquidity of $219 million at the end of the third quarter. We are offering Q4 guidance along with some select information provided for the full year.

As usual, we also want to give you some recent trends through the early parts of October, which this quarter is 17 business days of activity. Per day revenue in October is up 37% over last year. Truckload volumes are up 18%, and LTL volumes are up 14% compared to last October. Net revenue margin in early October was approximately 15%. Now for the guidance for Q4. We expect the following: revenue to be between $675 million and $725 million, a range of up 27% to 36% year-over-year; commission expense to be between 29.75% and 30.25% of net revenue. G&A costs are expected to be between $49.5 million and $52.5 million for the quarter. This is driven by continued investment in our future through the addition of new sales and operations individuals along with the expansion of our technology and data capabilities and increased incentive compensation. We expect depreciation of about $6.8 million, cash interest of approximately $1 million, a tax rate of approximately 25% and share count of approximately 26.5 million shares. Excluded from our non-GAAP calculations in the fourth quarter, we anticipate amortization of approximately $2.7 million and stock compensation expense of about $2.3 million.

With that, I now want to turn it back over to Doug.

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Thanks, Pete. You heard the numbers from Dave and Pete, and I think they speak for themselves. From my vantage point, those numbers are even more impressive when viewed side by side with our original 2020 guidance that we provided back in February. Since then, we've endured the economic impact of a global pandemic and almost our entire workforce has been working remotely. Yet when I look at the latest guidance that we just provided on Q4, they would imply full year revenue growth of 5% above our original full year 2020 estimates and G&A costs 4% below our original figures. Quite simply, I believe that those numbers in this quarter again demonstrate tremendous execution on the part of the Echo team. We bounced back from the initial impact of the pandemic, and we're able to quickly capitalize on favorable market conditions by moving more freight with fewer people, all working from home. It isn't easy in this market. It's hard work to find trucks when capacity is tight as we -- as tight as we've recently experienced, but that's what we do. I think we also did a great job of managing net revenue margin at a time when our buy rates increased 19 consecutive weeks in a row. How do we do it?

Well, it takes a talented and motivated team of people with strong client and care relationships. It takes proprietary processes and workflows. And we put a lot of thought into the nuances of how to best source capacity and incentivize our team for consistent execution. It also takes leading technology enabled by massive amounts of data and sophisticated algorithms to support real-time decision-making and execution. And I'm proud of the entire Echo team. We rolled out quite a bit of new technology in the recent quarter. The new features were primarily in the area of client and carrier integration capabilities for more touchless transactions, all of which provide cost-effective access to more freight, more capacity and enhanced internal productivity. As our financial position has continued to improve by utilizing our free cash flow to pay down our debt, we continue to look at opportunities to expand our capabilities through M&A. As you know, it's impossible to say when we will pull the trigger on something as we continue to have a very thoughtful approach that considers value, synergy, ease of integration and how a particular target would complement our existing business.

Looking forward, it's difficult to see how the current conditions abate anytime soon. Capacity seems to be somewhat capped for the time being. As Dave mentioned, there continues to be a driver shortage, and renewed drug testing is beginning to take its toll. Class eight truck sales surpassed the replacement level in September of 2020, but that was the first time that's happened since October of 2019. On the demand side of the equation, it would seem that the -- as the pandemic drags on, consumers will continue to favor purchasing physical goods as opposed to services, and that is a boon to the freight industry. And with that, that concludes our prepared remarks.

So at this time, I'd like to open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from Jack Atkins of Stephens. Your line is now open.

Jack Atkins -- Stephens -- Analyst

Hey guys, good afternoon. Pete, congratulations on your new role. You've got some big shoes to fill.

Peter M. Rogers -- Chief Financial Officer

Thanks, Jack.

Jack Atkins -- Stephens -- Analyst

So, I guess first question, I don't know who wants to take this, maybe this is for Doug or Dave. But I mean when I look at your results in the third quarter, you just significantly outperformed the -- your two I guess closest competitors that have similar business models that have reported. You saw net revenue up sequentially. And I guess, Doug, if you want to maybe take a step back for a minute, I mean what do you think is driving the significant share gains you're seeing and the outperformance relative to the rest of the industry? Is it the technology that you guys have been implementing now, finally getting some traction, the productivity gains, the automation? Walk us through it because it clearly feels like you guys are differentiating yourselves from the rest of the industry here.

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Well, I think we've got a very stable team running this business. We've been very focused now for several years on enhancing our technology, enhancing our data science as we've talked about. And it really comes down to execution. And that's a big word that has to happen across the entire business, whether it's in sales, whether it's in carrier sales, operations, finance.

And so I can't really speak to what our competitors are doing. But as I said multiple times in my prepared remarks, I'm just real proud of how the Echo team has executed. And I think that we've got our business down. We're making incremental improvements, nothing that's drastic and we just keep getting better. Jack Atkins -- Stephens -- Analyst

Well, that makes sense. I guess as we look forward, how are you guys thinking about your headcount plans as we sort of move into 2021? What do you need to do on the headcount side to support this type of growth?

David B. Menzel -- President and Chief Operating Officer

Yes. Jack, the -- we mentioned last quarter that we had resumed our -- picked up our hiring plans after -- in Q2, we did some furloughs and deferred, if you will, our sales and headcount. And then we picked that back up in July. And even now, we're ramping that up a little bit more. So we saw a sequential increase in sales headcount going from Q2 to Q3. I would anticipate a small sequential increase again by the end of Q4. We haven't formalized 2021, but I would -- as we said, we've got five straight quarters of productivity increase. At the same time, we're showing great growth. And we want to continue to build our team. And so we will continue to hire. We'll hire into 2021, and we'll probably communicate more detail what the plan is in February for the next year. But I would anticipate seeing some growth in headcount, but again, volume -- depending on market conditions and certainly over the long run, we would expect the volume to outpace the personnel growth.

Jack Atkins -- Stephens -- Analyst

Okay. Okay. That makes a lot of sense. Maybe just one near-term question and I'll hand it over. But could you maybe talk about what your customers are telling you around their expectations for peak season? And I guess it's pretty clear we're going to have capacity challenges well into next year. How are you guys thinking about the puts and takes on the demand front as we go into next year? I guess inventory restocking is going to be a big item, but how are you guys thinking about the demand side of the equation?

David B. Menzel -- President and Chief Operating Officer

It's a great question, Jack. I think that looking at the first part of your question about peak in 2020, we're kind of in the middle of it now, obviously. And as we've talked about over the last, gosh, six years, the peak for -- certainly for our business isn't what it used to be. Our peak might really be in the second and third quarter versus in the holiday season. And so we've seen steady demand, growing -- I should say growing demand coming out of this pandemic and continuing into October. I would expect that to subside a little bit as we get past the -- maybe the Thanksgiving holiday. But given that e-commerce is going to -- seems to be dominating the consumer spending pattern, so I think that -- as I think about the fourth quarter, I do think that, I mentioned in my remarks, the rates have kind of started to level off, and it wouldn't surprise me if they stayed level for a little bit here in the fourth quarter. So I think the capacity will remain very tight, see pretty strong demand certainly for the next -- I believe for the next four to six weeks, and then we may see a slight decline, and then we'll jump into Q1, which is a typically, seasonally more soft quarter.

Having said that, going out and thinking about 2021, it's really hard to say. I think there's just a lot of economic uncertainty that's still out there. One of the things that we've noticed is -- and looked at is that we've never seen such a steep increase in rates so quick, three-month period of time to see costs go up by 30%, as I mentioned, is unprecedented. Freight cycles have tended the last 18 months. So I think that at the end of the day, we would expect capacity to remain pretty tight and the demand side of the equation is probably going to depend to some extent on the pandemic and our response and how the economy handles that.

Jack Atkins -- Stephens -- Analyst

Okay, thanks for the time. I'll hand it over.

David B. Menzel -- President and Chief Operating Officer

Thank you, Jack.

Operator

Your next question is from Jason Seidl of Cowen. Your line is now open.

Jason Seidl -- Cowen -- Analyst

Thank you operator. Gentlemen, hope everyone is well. Pete, congratulations on the promotion and new gig. I wanted to talk a little bit about repricing of your business on the contractual side, how much gets repriced in 4Q and how much gets repriced in 1Q.

David B. Menzel -- President and Chief Operating Officer

Yes. I think of the -- this question around repricing on the contractual side as an ongoing evolution. If you look at the DAT report in the contract rates in our industry, you'll notice that they change every month. And so as we look at our book of business, we've got a [Technical Issues].

Jason Seidl -- Cowen -- Analyst

Hello? Guys, did I lose you? Guys?

David B. Menzel -- President and Chief Operating Officer

It could be on our end. I'll continue with the question and see what happens. But basically...

Jason Seidl -- Cowen -- Analyst

Yes. We hear you now.

David B. Menzel -- President and Chief Operating Officer

Okay. Sorry about that. I don't know what happened there. Anyway, back to the question. So I was saying that the repricing activity is ongoing. A lot of our business is mini bids, etc.. And what I see happening is on a lane-by-lane basis, repricing activity on many accounts is happening all the time. And it depends on dislocations in the market and what -- and where capacity might be extremely tight. I'd see the bid cycle as being pretty normal, if not maybe even pushed back a little bit because the market has gone up so quickly, many companies are kind of waiting for things to settle down before they really complete their bid cycle. So I'd see shippers doing that, but at the same time making pricing decisions where they need to, to try to reduce their spot exposure or whatever the case may be. So I know it's a roundabout answer. I can't give you a precise percentage that's going to get "repriced" in the quarter. I would just say that repricing activity is an ongoing activity, and I still expect the majority of the bid activity that happened in the first part of 2021, that -- under annual bid cycles.

Jason Seidl -- Cowen -- Analyst

Okay. I know you guys don't give guidance. So I think you said 15% of the net revenue margin side. But if current conditions were to continue, you guys have basically said that the upswing and sort of the cost to procure the transportation has sort of leveled off, albeit at high levels. Should we think about that 15% as getting better as you guys do get a chance to sort of get away from the hockey stick jump-up in the prices as well as a couple of repricings in the quarter?

David B. Menzel -- President and Chief Operating Officer

Yes. I think that the -- again, we don't give guidance on that number and don't put a forecast out there. You could look at 2018 and you would see that we had some margin expansion that occurred after periods of rising prices. That's a pretty typical component of the freight cycle. This whole economy is way different than what we've seen in the past. So in 2020, it seems like anything could happen. So I'd say that. But I do think that we've seen two or three consecutive months of improved margins. And so there's certainly the opportunity for margins to continue to improve based on what we've seen happen historically.

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

And I would just add, Jason, there's a lot of moving parts, right? Because as business reprices, it could move freight from the spot market back into the contracts. And that can have a margin impact as well. So it's hard to pin it on one thing.

Jason Seidl -- Cowen -- Analyst

Okay. I wanted to do a quick follow-up. And I don't know if you guys thought about this too much. As we hopefully come out of this pandemic and we get a vaccine or maybe even multiple vaccines, there's going to be a quick need for vaccine distribution. Do you think that could materially impact some of the supply at least on a temporary basis as the government steps into procure capacity?

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

I haven't given that a lot of thought. I think most of those vaccines require extreme refrigeration. So it probably occurs in a niche. And I don't know that, that niche would affect us all that much.

Jason Seidl -- Cowen -- Analyst

Yes. You guys don't play that much. Okay. Perfect. That's all I have gentlemen. I appreciate your time as always.

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Thank you, Jason.

Operator

Your next question is from Allison Landry of Credit Suisse. Your line is now open. Are you there, Allison?

Allison Landry -- Credit Suisse -- Analyst

Yes. I'm here. Sorry. Thanks guys. I just wanted to ask about the route guide that you saw in Q3 and maybe how that progressed throughout the quarter and if you've seen any uptick in that as we've moved into October.

David B. Menzel -- President and Chief Operating Officer

So I think in terms of routing guide, we don't report like the metrics in terms of where every shipment falls on a routing guide. But I think the evidence of increasing spot volume is -- tells you that routing guides kind of across the industry are breaking down and more business has moved over into the spot market to cover the demand and -- that's needed for shippers.

Allison Landry -- Credit Suisse -- Analyst

Okay. And then my follow-up just in terms of the enterprise pipeline, just given the volatility of current market and the different factors. Maybe if you could speak to how the pipeline of business is shaping up for Q4 and heading into 2021. Thank you.

David B. Menzel -- President and Chief Operating Officer

Yes. Sure, Allison. Thank you. I mean we -- on the Managed Transportation side, we've been very excited about the amount of business we've executed this year. And I think what we see is that shippers are faced with significant challenges, and we can provide a lot of value to help them both manage their routing guide and their network of carriers, but also to provide deep reporting and execution on the transportation side. So, our pipeline remains very strong on the Managed Transportation side. I think we've broken a record already in 2020 with $122 million of new business signed as of this point in time. So we'll obviously anticipate more business coming through the end of the quarter, and that will be a record year in terms of signing. So we feel very, very good about where we stand there, and it's great to see that growth in that business, and that's been consistent really over the last four or five years. We've seen some nice consistent growth on this managed transportation side.

Allison Landry -- Credit Suisse -- Analyst

Okay. Thank you guys so much for your time.

David B. Menzel -- President and Chief Operating Officer

Thanks, Allison.

Operator

Your next question is from Stephanie Benjamin of Truist. Your line is now open.

Stephanie Benjamin -- Truist -- Analyst

Hi. Good afternoon.

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Hi, Stephanie.

Stephanie Benjamin -- Truist -- Analyst

I was curious if you could talk a little bit about your end market exposure, maybe some particular verticals where you saw some particular strength during the quarter.

David B. Menzel -- President and Chief Operating Officer

Sure. The -- we talked about this a little bit last quarter as well. Our business is very, very diverse. As you know, we've got -- a pretty large component of our overall business is small to midsize companies. And so we've got a diverse customer base, and we've seen strong growth in areas that you'd probably suspect: industrial growth in general, which was very light at the beginning of Q2, but has been strong in Q3; distribution, including DC to DC moves that I think are in support of e-commerce, has been very strong; packaging; retail; food; big box. And we've seen a nice comeback on the small business side. Our business is not concentrated heavily in entertainment, travel, hospitality and some of the industries that are probably feeling the most pain. And so it's been pretty broad-based, I would say, in terms of what we've seen leading to all these record revenue growth in the numbers that we just reported.

Stephanie Benjamin -- Truist -- Analyst

Got it. Thank you. And then just as a follow-up, I'm curious about what you're seeing from a competitive activity standpoint, not only in the truckload side, but also in LTL, any pickup in either of those areas.

David B. Menzel -- President and Chief Operating Officer

I would say the competitive landscape, as we've always said, there's a lot of options for shippers out there. There's a lot of asset-based providers, a lot of brokers. And there's a lot of competition ongoing. In terms of kind of bidding and winning freight every day, I think that most certainly are -- the more direct competitors that we would face in the brokerage industry are facing similar challenges with very rapidly rising cost of capacity, and then trying to adjust rates to reflect those additional costs. And so because of the environment, we're not as -- we don't see the competition. It's not probably the same as when it's very soft out there and there's a lot of bidding going into routing guides. And in some cases, you've got guys in the past over the last three, four years, maybe trying to buy some market share. And so it's kind of eased on that front is what I would say. And I think that's largely in response to the tremendous increase in the cost of capacity.

Stephanie Benjamin -- Truist -- Analyst

Got it. Thanks so much.

David B. Menzel -- President and Chief Operating Officer

Thanks, Stephanie.

Operator

Your next question is from David Campbell of Thompson, Davis & Company. Your line is now open.

David Campbell -- Thompson, Davis & Company -- Analyst

Yes, thanks for taking my question. More of a theoretical question I have. And I recognize that your tremendous investments in technology over the last five years has produced this capacity and capability to increase market share, especially in the truckload business, but also in less-than-truckload. But I'm not -- I'm confused about if the technology is so great in acquiring new business, why is it that you take on the business at a certain cost and not have the technology match that with higher rates, except on a delayed basis, that’s leading to decreases in the gross margin?

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Well, I think, David, there's market pressures -- market forces at work both on the buy side of the transaction and the sell side. So as prices go up, especially at the rate of change that we just experienced, there's a lag impact. And our technology helps us with the execution. Some of our algorithms are focused on price discovery. But still, there's a rate of change that when prices are going up, our buy cost usually goes up faster than our sell cost. And conversely, when prices are falling, our buy cost goes down faster than our sell cost. So throughout the freight cycle, there's portions of expanding margins and compressing margins, and I think that's always been a feature of this industry. And I think we manage that as best as we can. And I think on a relative basis, we do a pretty good job of it.

David Campbell -- Thompson, Davis & Company -- Analyst

All right. My second question is next year, you probably will have the opportunity for employees to work back at your offices. That the -- once the pandemic is over, you'll move back into your facilities. Is that going to change any of the productivity measures? Or how will that move back into facilities change your profit margins?

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Dave, you've been here. I think we have a really strong culture, and part of that culture comes from being together. So I actually think having everybody back together will improve our productivity. Certainly, not commuting to the office add some more time to everybody's day, and that's a feature of working from home. But I think there's also a lot of power in having everybody together. And I know you've been here on our trading floor and seen the energy that we generate. So I can't wait to get back to those days.

David Campbell -- Thompson, Davis & Company -- Analyst

Okay. Great. Thank you.

David B. Menzel -- President and Chief Operating Officer

Yes. And I would just add that we're going to wait and see how everything evolves over the course of next year. And we certainly -- we talked about this a couple of quarters ago. We're very pleased and, to some extent, even surprised that our productivity has remained very high. Our execution has remained fantastic in this remote working environment. And so there will probably be a transition period where there is more flexibility for people. And that stuff, those questions and decisions, we're going to be looking at in 2021 once we get a little bit further past the pandemic that we're in right now.

David Campbell -- Thompson, Davis & Company -- Analyst

Okay. Thanks Dave.

David B. Menzel -- President and Chief Operating Officer

Thank you, David.

Operator

Your next question is from Bruce Chan of Stifel. Your line is now open.

Bruce Chan -- Stifel -- Analyst

Hey, good afternoon. Pete, you picked a nice quarter to make your debut here. Doug, if I can...

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

[Indecipherable]

Bruce Chan -- Stifel -- Analyst

Yes. Right. Exactly. They don't get off easy. Doug, I just want to start with some of your comments about how this cycle is different than some of the previous cycle upturns. That was certainly a helpful characterization. But I wanted to follow up and ask maybe how that's influenced your strategy. Did you do anything differently this time around than maybe you did in 2017 or early 2018? Did you maybe get more aggressive in shedding freight and going back to customers or going back to the well for increases? And has that had any negative impact as far as you could tell on retention?

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

No. I mean if I think back to 2018, we benefited from the rising tide just like we have recently. I think if you go back to '19, the capacity supply side overcompensated for what happened in '18. So we saw an excess of capacity and rates started coming down in '19. And I would say that throughout '19, we were pretty aggressive in growing our contractual business, and we had a lot of success doing that. And in fact, if you look back at probably some of our past transcripts from 2019, there really wasn't much spot business. So, we had success with that strategy. And then when COVID hit and we got through the trough, we were able to maintain all that contractual business that we won plus start to benefit from the incremental spot business that occurred. And as we look forward, I think part of it is in 2020, we're a lot different company than we were in 2017. And we've got a lot more scale and a lot more capability, got more relationships with shippers and carriers. And so we think we can continue to be aggressive on the contractual freight regardless of where we are in the cycle, and we'll take the spot freight when it's there.

Bruce Chan -- Stifel -- Analyst

That's very helpful. And then just switching gears a little bit. Of the multitude of major issues that we're looking at right now, one of them, of course, is the upcoming election, and I'll start -- stop short of asking you to prognosticate on result. But when you think about the likely outcomes, what are the big issues out there -- as they may affect your business, what are the ones that you're worried about or looking forward to? Is there anyone that you think is going to have a really material influence on what happens to Echo in next year one way or the other?

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Yes. You're getting above my pay grade, Bruce.

Bruce Chan -- Stifel -- Analyst

I think one thing...

David B. Menzel -- President and Chief Operating Officer

Good point. But the -- I mean one thing that I think is on my mind is the extent of "business lockdowns." We're starting to see some -- this resurgence of COVID in response and there's some lockdowns. And then there's also the discussion around needed government stimulus because of the high unemployment rate. So I think that the -- some of those issues hopefully will get resolved post election. And I think -- we saw I think a strong recovery in June through September, call it, in part, attributed to some pretty good government stimulus that helped offset what would be a very highly impactful unemployment rate. So I think those are kind of some of the key things on my mind that could impact 2021 or depending on how they're resolved and how timely they're resolved.

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

I would just add to Dave's comment that I think we saw some of that government stimulus incentive drivers to stay home. And so to the extent that there's more of that, potentially, it puts more strain on the driver force.

Bruce Chan -- Stifel -- Analyst

Great. Well, I really appreciate the time gents. Thank you.

David B. Menzel -- President and Chief Operating Officer

Thanks, Bruce.

Operator

Your next question is from Bascome Majors of Susquehanna. Your line is now open.

Bascome Majors -- Susquehanna -- Analyst

Yes, thanks for taking my questions here. I'll stop sort of asking you to tell us what 2021 is going to look like, but I was hoping that you could help us with some of the items. You do have some visibility into some things that may have been unique this year on the G&A side, with some of the volatility and temporary cost saves that need to come back next year or even incentive comp. And maybe any other items on free cash flow where there's something unique this year that has a cyclical reversal next year. Thanks.

Peter M. Rogers -- Chief Financial Officer

Sure. Thanks, Bascome. On the G&A front, I think the one thing that obviously has been reduced in 2020 is definitely T&E. We anticipate that coming back a little bit in '21 and be -- depending on, obviously, some of the timing of the vaccine and return to normal, we anticipate '21 would probably be slightly above '20, but probably below '19 levels just given the fact that there probably will be some sort of a reset to a new normal. I think we anticipate some increased health insurance costs, employees kind of return to a more regular cadence of doctor and wellness visits. And right now, we're obviously going through our planning phase from there. But those are two things that kind of stand out as items in '21 on the G&A side that might be a little bit different than '20. As it relates to free cash flow, I think it's just an important reminder that the biggest impact on our free cash flow is our working capital and the difference between how quickly our customers pay versus how quickly we pay our carriers. And so typically, it's a source or use of cash when we see a sequential decline or increase sequentially at the top line. This quarter, we saw the largest sequential decline in revenue in our history from $514 million to $691 million, and we were still able to produce free cash flow of about $12.6 million.

Bascome Majors -- Susquehanna -- Analyst

And just to run back to the G&A piece, you did not mention incentive comp in your discussion. Is that because this year is going to end up kind of near your target level? Or just wanted to make sure that, that baseline we're seeing this year is representative of next year.

Peter M. Rogers -- Chief Financial Officer

Yes. Obviously, our incentive compensation is based on company performance, and we've obviously seen an uptick in performance here in the back half. So I don't anticipate that -- we have obviously a quarter to go. But not necessarily sure if there might be a headwind or a tailwind right now. I think it's kind of in line with what we'd expect for '20 to '21. Thank you.

Operator

Your next question is from Tom Wadewitz of UBS. Your line is now open.

Alex Johnson -- UBS -- Analyst

Hey. Good afternoon. It's Alex Johnson on for Tom. Just first question I want to ask, any direct or indirect impact that you guys see here in the fourth quarter from Amazon Prime Day switching into the fourth quarter? I mean I heard Dave's comments about rates flattening out a little bit over the last couple of weeks. I don't know if Amazon Prime Day is a significant enough factor to cause that as that passes. But any direct or indirect impact?

David B. Menzel -- President and Chief Operating Officer

Probably -- I can't -- I honestly can't remember when it was last year exactly, what the date switch was. The -- but I do think that in early October, we saw some demand increase, and that could have been a bit of a driver in terms of restocking activity and preparation for that.

Alex Johnson -- UBS -- Analyst

Okay. And then a second follow-up question. Going back to Doug's -- one of Doug's first comments about how Echo can provide increased value across multiple modes, is that a reference to shippers being willing to change modes? And how can Echo help shippers find alternate modes? If that's the case, any thoughts you have there?

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Yes. Well, when there's -- when the truckload market gets tight, sometimes you see movement of shipments into LTL or what we would call partials, so partial truckloads. And we've got a really strong partial business that is able to combine loads from multiple shippers or find partial capacity on a truckload or even an LTL carrier with a backhaul and move it at rates that are frankly cheaper than truckload and cheaper than LTL because it's kind of in between size shipments. So it's really about giving shippers options. And we've also got an intermodal option that in some markets is a good option, maybe not currently. But being multimode just means that we can give a shipper multiple prices on the same shipment depending on which mode we choose to use.

Alex Johnson -- UBS -- Analyst

Are there any specific metrics that you think about? Like if a shipper comes to you asking for truckload, how often you find partial LTL or truckload for them? Or is there any metrics we should be aware of?

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

I mean not summary metrics, but I would just use an example. Let's say, a shipper has a 15,000-pound shipment. It's kind of not big enough to be a full truckload and it's too big to be LTL, and LTL tariffs wouldn't treat it very well. So perhaps that shipper would typically ship it as a truckload. But with truckload capacity tight and trucks hard to find and rates elevated, we can offer them a great option using our partial service, which has a whole operation behind it. And so that 15,000-pound shipment, which normally moves as a truckload, we would treat it as a partial and probably save them money from the prevailing truckload rate.

Alex Johnson -- UBS -- Analyst

Great. That's very helpful. Thank you very much.

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Thank you.

Operator

There is no further questions. And I would like to turn it back to Doug Waggoner, Chairman, Chief Executive Officer, for any further comments.

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

Well, I would just like to thank everybody for joining us today. I'd also like to say once more welcome to Pete, and he did pick a good quarter to join us in this meeting. So we look forward to talking to you all next quarter. Thanks for joining us.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Peter M. Rogers -- Chief Financial Officer

Douglas R. Waggoner -- Chairman Of The Board And Chief Executive Officer

David B. Menzel -- President and Chief Operating Officer

Jack Atkins -- Stephens -- Analyst

Jason Seidl -- Cowen -- Analyst

Allison Landry -- Credit Suisse -- Analyst

Stephanie Benjamin -- Truist -- Analyst

David Campbell -- Thompson, Davis & Company -- Analyst

Bruce Chan -- Stifel -- Analyst

Bascome Majors -- Susquehanna -- Analyst

Alex Johnson -- UBS -- Analyst

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