Hub Group, Inc. - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021 or


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-27754

HUB GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

36-4007085

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2000 Clearwater Drive

Oak Brook, Illinois 60523

(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code: (630) 271-3600

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $.01 per share

HUBG

NASDAQ

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒		Accelerated Filer	☐	Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On July 30, 2021, the registrant had 33,709,310 outstanding shares of Class A common stock, par value $.01 per share, and 662,296 outstanding shares of Class B common stock, par value $0.1 per share.

HUB GROUP, INC.

TABLE OF CONTENTS


	Page
PART I. Financial Information:
Item 1. Financial Statements Consolidated Balance Sheets – June 30, 2021 (unaudited) and December 31, 2020	3
Unaudited Consolidated Statements of Income and Comprehensive Income – Three Months and Six Months Ended June 30, 2021 and 2020	4
Unaudited Consolidated Statements of Stockholders’ Equity – Three and Six Months Ended June 30, 2021 and 2020	5
Unaudited Consolidated Statements of Cash Flows – Six Months Ended June 30, 2021 and 2020	6
Notes to Unaudited Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures about Market Risk	20
Item 4. Controls and Procedures	20
PART II. Other Information	20
Item 1. Legal Proceedings	20
Item 1A. Risk Factors	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6. Exhibits	21

HUB GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)


	June 30,			December 31,
	2021			2020
ASSETS	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	246,021		$	124,506
Accounts receivable trade, net		533,198			518,975
Other receivables		4,283			1,265
Prepaid taxes		1,731			1,336
Prepaid expenses and other current assets		14,483			26,753
TOTAL CURRENT ASSETS		799,716			672,835

Restricted investments		23,305			23,353
Property and equipment, net		632,236			671,101
Right-of-use assets - operating leases		42,191			43,573
Right-of-use assets - financing leases		2,337			3,557
Other intangibles, net		146,724			163,953
Goodwill, net		522,360			508,555
Other assets		17,350			18,469
TOTAL ASSETS	$	2,186,219		$	2,105,396

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable trade	$	331,836		$	285,320
Accounts payable other		37,478			12,680
Accrued payroll		35,492			23,044
Accrued other		87,934			102,613
Lease liability - operating leases		10,400			10,093
Lease liability - financing leases		2,222			1,793
Current portion of long-term debt		86,868			93,562
TOTAL CURRENT LIABILITIES		592,230			529,105

Long-term debt		143,101			176,797
Non-current liabilities		42,805			42,910
Lease liability - operating leases		33,898			36,328
Lease liability - financing leases		187			8
Deferred taxes		166,922			162,325

STOCKHOLDERS' EQUITY:
Preferred stock: $.01 par value; 2,000,000 shares authorized; no shares issued or outstanding in 2021 and 2020	-			-
Common stock
Class A: $.01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2021 and 2020; 33,705,051 shares outstanding in 2021 and 33,549,708 shares outstanding in 2020		412			412
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2021 and 2020		7			7
Additional paid-in capital		186,210			186,058
Purchase price in excess of predecessor basis, net of tax benefit of $10,306		(15,458	)		(15,458	)
Retained earnings		1,296,982			1,253,160
Accumulated other comprehensive loss		(176	)		(191	)
Treasury stock; at cost, 7,519,741 shares in 2021 and 7,675,084 shares in 2020		(260,901	)		(266,065	)
TOTAL STOCKHOLDERS' EQUITY		1,207,076			1,157,923
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,186,219		$	2,105,396

See notes to unaudited consolidated financial statements.

HUB GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)


	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2021			2020			2021			2020

Revenue	$	981,320		$	779,243		$	1,900,873		$	1,618,102
Transportation costs		860,759			671,994			1,671,565			1,406,259
Gross margin		120,561			107,249			229,308			211,843

Costs and expenses:
Salaries and benefits		54,375			49,676			111,326			100,552
General and administrative		20,370			28,970			39,613			55,306
Depreciation and amortization		8,868			7,625			17,370			15,248
Total costs and expenses		83,613			86,271			168,309			171,106

Operating income		36,948			20,978			60,999			40,737

Other income (expense):
Interest expense		(1,859	)		(3,006	)		(3,764	)		(5,461	)
Other, net		(192	)		47			(284	)		228
Total other expense		(2,051	)		(2,959	)		(4,048	)		(5,233	)

Income before provision for income taxes		34,897			18,019			56,951			35,504

Income tax expense		8,305			4,865			13,129			9,114

Net income		26,592			13,154			43,822			26,390

Other comprehensive income:
Foreign currency translation adjustments		25			37			15			(97	)

Total comprehensive income	$	26,617		$	13,191		$	43,837		$	26,293

Basic earnings per common share	$	0.80		$	0.40		$	1.31		$	0.80

Diluted earnings per common share	$	0.78		$	0.39		$	1.30		$	0.79

Basic weighted average number of shares outstanding		33,428			33,171			33,423			33,165
Diluted weighted average number of shares outstanding		33,879			33,455			33,827			33,472

See notes to unaudited consolidated financial statements.

HUB GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts)


								Purchase Price
	Class A & B							in Excess of					Accumulated
	Common Stock				Additional			Predecessor					Other
	Shares				Paid-in			Basis, Net			Retained		Comprehensive			Treasury Stock
	Issued		Amount		Capital			of Tax			Earnings		Income			Shares			Amount			Total
Balance March 31, 2020		41,887,088	$	419	$	175,370		$	(15,458	)	$	1,192,837	$	(320	)		(7,680,505	)	$	(264,139	)	$	1,088,709
Stock withheld for payments of withholding taxes		-		-		-			-			-		-			(3,878	)		(175	)		(175	)
Issuance of restricted stock awards, net of forfeitures		-		-		(568	)		-			-		-			(22,255	)		568			-
Share-based compensation expense		-		-		4,112			-			-		-			-			-			4,112
Net income		-		-		-			-			13,154		-			-			-			13,154
Foreign currency translation adjustment		-		-		-			-			-		37			-			-			37
Balance June 30, 2020		41,887,088	$	419	$	178,914		$	(15,458	)	$	1,205,991	$	(283	)		(7,706,638	)	$	(263,746	)	$	1,105,837

Balance March 31, 2021		41,887,088	$	419	$	182,005		$	(15,458	)	$	1,270,390	$	(201	)		(7,469,756	)	$	(260,654	)	$	1,176,501
Stock withheld for payments of withholding taxes		-		-		-			-			-		-			(3,229	)		(214	)		(214	)
Issuance of restricted stock awards, net of forfeitures		-		-		33			-			-		-			(46,756	)		(33	)		-
Share-based compensation expense		-		-		4,172			-			-		-			-			-			4,172
Net income		-		-		-			-			26,592		-			-			-			26,592
Foreign currency translation adjustment		-		-		-			-			-		25			-			-			25
Balance June 30, 2021		41,887,088	$	419	$	186,210		$	(15,458	)	$	1,296,982	$	(176	)		(7,519,741	)	$	(260,901	)	$	1,207,076

Balance December 31, 2019		41,887,088	$	419	$	179,637		$	(15,458	)	$	1,179,601	$	(186	)		(7,870,888	)	$	(268,734	)	$	1,075,279
Stock withheld for payments of withholding taxes		-		-		-			-			-		-			(75,595	)		(3,944	)		(3,944	)
Issuance of restricted stock awards, net of forfeitures		-		-		(8,932	)		-			-		-			239,845			8,932			-
Share-based compensation expense		-		-		8,209			-			-		-			-			-			8,209
Net income		-		-		-			-			26,390		-			-			-			26,390
Foreign currency translation adjustment		-		-		-			-			-		(97	)		-			-			(97	)
Balance June 30, 2020		41,887,088	$	419	$	178,914		$	(15,458	)	$	1,205,991	$	(283	)		(7,706,638	)	$	(263,746	)	$	1,105,837

Balance December 31, 2020		41,887,088	$	419	$	186,058		$	(15,458	)	$	1,253,160	$	(191	)		(7,675,084	)	$	(266,065	)	$	1,157,923
Stock withheld for payments of withholding taxes		-		-		-			-			-		-			(69,208	)		(3,973	)		(3,973	)
Issuance of restricted stock awards, net of forfeitures		-		-		(9,137	)		-			-		-			224,551			9,137			-
Share-based compensation expense		-		-		9,289			-			-		-			-			-			9,289
Net income		-		-		-			-			43,822		-			-			-			43,822
Foreign currency translation adjustment		-		-		-			-			-		15			-			-			15
Balance June 30, 2021		41,887,088	$	419	$	186,210		$	(15,458	)	$	1,296,982	$	(176	)		(7,519,741	)	$	(260,901	)	$	1,207,076

See notes to unaudited consolidated financial statements.

HUB GROUP, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities:
Net Income	$	43,822		$	26,390
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		64,033			61,759
Deferred taxes		4,428			4,989
Compensation expense related to share-based compensation plans		9,289			8,209
(Gain) loss on sale of assets		(4,033	)		96
Other operating activities		-			5,626
Changes in operating assets and liabilities:
Restricted investments		48			1,640
Accounts receivable, net		(20,088	)		(2,392	)
Prepaid taxes		(395	)		(83	)
Prepaid expenses and other current assets		12,231			10,350
Other assets		(316	)		(637	)
Accounts payable		71,314			4,989
Accrued expenses		(1,652	)		(9,440	)
Non-current liabilities		(4,762	)		21
Net cash provided by operating activities		173,919			111,517

Cash flows from investing activities:
Proceeds from sale of equipment		19,912			521
Purchases of property and equipment		(26,337	)		(49,271	)
Cash used in acquisition		(90	)		-
Net cash used in investing activities		(6,515	)		(48,750	)

Cash flows from financing activities:
Proceeds from issuance of debt		17,464			127,462
Repayments of long-term debt		(57,854	)		(150,282	)
Stock withheld for payments of withholding taxes		(3,973	)		(3,944	)
Finance lease payments		(1,524	)		(1,493	)
Net cash used in financing activities		(45,887	)		(28,257	)


Effect of exchange rate changes on cash and cash equivalents		(2	)		(66	)

Net increase in cash and cash equivalents		121,515			34,444
Cash and cash equivalents beginning of the period		124,506			168,729
Cash and cash equivalents end of the period	$	246,021		$	203,173

Supplemental disclosures of cash paid for:
Interest	$	3,883		$	5,323
Income taxes	$	11,375		$	822

See notes to unaudited consolidated financial statements.

HUB GROUP, INC.

NOTES TO UNAUDITED

CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Interim Financial Statements

The accompanying unaudited consolidated financial statements of Hub Group, Inc. (the “Company,” “Hub,” “we”, “us” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been omitted pursuant to those rules and regulations. However, we believe that the disclosures contained herein are adequate to make the information presented not misleading.

The financial statements reflect, in our opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present our financial position as of June 30, 2021 and results of operations for the three and six months ended June 30, 2021 and 2020.

These unaudited consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality. Certain prior year immaterial amounts have been reclassified in Note 4, Revenue from Contracts with Customers, to conform with the current year presentation.

Note 2. Acquisition

On December 9, 2020, we acquired 100% of the equity interest of NonstopDelivery, LLC ("NSD"). Total consideration for the transaction was $105.9 million which consisted of cash paid of $89.8 million, of which $0.1 million was paid in the second quarter of 2021 as part of the post-closing true-up, and the settlement of Hub’s accounts receivable due from NSD of $16.1 million.

The acquisition of NSD expanded our logistics service offering to include residential last mile logistics. NSD operates through a non-asset business model, working with a network of over 170 carriers throughout the country. The financial results of NSD since the acquisition date are included in our logistics line of business.

The following table summarizes the total purchase price allocated to the net assets acquired and liabilities assumed as of the date of acquisition (in thousands):


	December 9, 2020
Cash and cash equivalents	$	4,775
Accounts receivable trade		25,927
Prepaid expenses and other current assets		207
Property and equipment		1,018
Right of use assets - operating leases		1,295
Goodwill, net		38,156
Other intangibles		47,700
Other assets		14
Total assets acquired	$	119,092

Accounts payable trade	$	9,972
Accrued payroll		1,324
Accrued other		578
Lease liability - operating leases short-term		373
Lease liability - operating leases long-term		922
Total liabilities assumed	$	13,169

Total consideration	$	105,923

Cash paid, net	$	84,989

The NSD acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of December 9, 2020 with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the NSD acquisition was primarily attributable to potential expansion and future development of the acquired business.

The following table presents the carrying amount of goodwill (in thousands):


	Total
Balance at January 1, 2021	$	508,555
Acquisition		13,841
Other		(36	)
Balance at June 30, 2021	$	522,360

The changes noted as "acquisition" in the above table refer to adjustments to other intangibles, property and equipment and other immaterial purchase accounting adjustments related to the NSD acquisition.

The changes noted as "other" in the above table refer to the amortization of the income tax benefit of tax goodwill in excess of financial statement goodwill.

Tax history and attributes are not inherited in an equity purchase of this kind; however, the goodwill and other intangibles recognized in this purchase will be fully tax deductible over a period of 15 years.

The components of “Other intangibles” listed in the above table as of the acquisition date are summarized as follows (in thousands):


			Accumulated		Balance at		Estimated Useful
	Amount		Amortization		June 30, 2021		Life
Customer relationships	$	46,200	$	1,796	$	44,404	15 years
Agent relationships	$	600	$	88	$	512	4 years
Trade name	$	900	$	350	$	550	18 months

The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the three and six months ended June 30, 2021 was $1.0 million and $1.8 million. The intangible assets have a weighted average useful life of approximately 14.13 years. Amortization expense related to NSD for the next five years is as follows (in thousands):


	Total
Remainder of 2021	$	1,915
2022		3,480
2023		3,230
2024		3,218
2025		3,080

The following unaudited pro forma consolidated results of operations present the effects of NSD as though it had been acquired as of January 1, 2020 (in thousands, except for per share amounts):


	Three Months Ended		Six Months Ended
	June 30, 2020		June 30, 2020
Revenue	$	800,868	$	1,655,827
Net income	$	15,946	$	29,735
Earnings per share
Basic	$	0.48	$	0.90
Diluted	$	0.48	$	0.89

The unaudited pro forma consolidated results for the periods shown were prepared using the acquisition method of accounting and are based on the historical financial information of Hub and NSD. The historical financial information has been adjusted to give effect to the pro forma adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2020.

NOTE 3. Earnings Per Share

The following is a reconciliation of our earnings per share (in thousands, except for per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

Net income for basic and diluted earnings per share	$	26,592	$	13,154	$	43,822	$	26,390

Weighted average shares outstanding - basic		33,428		33,171		33,423		33,165

Dilutive effect of restricted stock		451		284		404		307

Weighted average shares outstanding - diluted		33,879		33,455		33,827		33,472

Earnings per share - basic	$	0.80	$	0.40	$	1.31	$	0.80

Earnings per share - diluted	$	0.78	$	0.39	$	1.30	$	0.79

NOTE 4. Revenue from Contracts with Customers

Hub offers comprehensive multimodal solutions including intermodal, logistics, truck brokerage and dedicated services. Hub has full time employees located throughout the United States, Canada and Mexico.

Intermodal. As an intermodal provider, we arrange for the movement of our customers’ freight in containers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals (referred to as “drayage”) are provided by our subsidiary Hub Group Trucking, Inc. (“HGT”) and third-party local trucking companies.

Logistics. Hub’s logistics operation offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal, last mile delivery, railcar and international shipping. We leverage proprietary technology along with collaborative relationships with retailers and logistics providers to deliver cost savings and performance-enhancing supply chain services to consumer-packaged goods clients. We contract with third-party warehouse providers in seven markets across North America to which our customers ship their goods to be stored and eventually consolidated, along with goods from other customers into full truckload shipments destined to major North American retailers. These services offer our customers shipment visibility, transportation cost savings, high service levels and compliance with retailers’ increasingly stringent supply chain requirements

On December 9, 2020, we acquired NSD. NSD provides residential last mile delivery services through a non-asset business model, working with a network of over 170 carriers throughout the country. The financial results of NSD since the acquisition are included in our logistics line of business.

Truck Brokerage. Our truck brokerage operation provides customers with an over the road service option for their transportation needs. Our brokerage service does not operate any trucks; instead we match customers’ needs with carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.

Dedicated. Our dedicated operation contracts with customers who seek to outsource a portion of their trucking transportation needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high service expectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for early termination which serves to reduce the financial risk we bear with respect to the utilization of our equipment.

The following table summarizes our revenue by business line (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Intermodal	$	550,185	$	447,126	$	1,056,189	$	925,160
Logistics		222,449		177,293		439,484		377,495
Truck brokerage		139,991		86,675		267,253		184,692
Dedicated		68,695		68,149		137,947		130,755
Total revenue	$	981,320	$	779,243	$	1,900,873	$	1,618,102

NOTE 5. Fair Value Measurement

The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of June 30, 2021 and December 31, 2020. As of June 30, 2021 and December 31, 2020, the fair value of the Company’s fixed-rate borrowings was $3.0 million and $6.1 million more than the historical carrying value of $230.0 million and $270.4 million, respectively. The fair value of the fixed-rate borrowings was estimated using an income approach based on current interest rates available to the Company for borrowings on similar terms and maturities.

We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of June 30, 2021 and December 31, 2020, our cash is with high quality financial institutions in demand deposit accounts, savings accounts and an interest-bearing checking account.

Restricted investments included $23.3 million and $23.4 million as of June 30, 2021 and December 31, 2020, respectively, of mutual funds which are reported at fair value. These investments relate to our nonqualified deferred compensation plan.

Our assets and liabilities measured at fair value are based on valuation techniques that consider prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2), or unobservable inputs (Level 3). Cash and cash equivalents, mutual funds, accounts receivable and accounts payable are defined as “Level 1,” while long-term debt is defined as “Level 2” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the Codification.

NOTE 6. Long-Term Debt and Financing Arrangements

On July 1, 2017, we entered into a $350 million unsecured credit agreement (the “Credit Agreement”) that matures on July 1, 2022. At June 30, 2021, we had standby letters of credit that expire at various dates in 2021 and 2022. As of June 30, 2021, our letters of credit were $37.4 million.

Our unused and available borrowings were $312.6 million as of June 30, 2021 and $312.3 million as of December 31, 2020. We were in compliance with our debt covenants as of June 30, 2021 and December 31, 2020.

We have entered into various Equipment Notes (“Notes”) to fund the purchase of tractors, trailers, containers and other equipment. The Notes are secured by the underlying equipment financed with proceeds from the Notes.


	June 30,			December 31,
	2021			2020
	(in thousands)

Interim funding for equipment received and expected to be converted to an equipment note in subsequent period; interest paid at a variable rate		8,656			8,902

Secured Equipment Notes due on various dates in 2026 commencing on various dates in 2021; interest is paid monthly at a fixed annual rate between 1.72% and 1.83%		17,058			-

Secured Equipment Notes due on various dates in 2025 commencing on various dates in 2020; interest is paid monthly at a fixed annual rate between 1.51% and 1.80%		66,988			74,494

Secured Equipment Notes due on various dates in 2024 commencing on various dates in 2017, 2019 and 2020; interest is paid monthly at a fixed annual rate between 2.50% and 3.59%		42,804			49,920

Secured Equipment Notes due on various dates in 2023 commencing on various dates in 2016 through 2019; interest is paid monthly at a fixed annual rate of between 2.20% and 4.20%		82,650			112,668

Secured Equipment Notes due on various dates in 2022 commencing on various dates in 2015 through 2017; interest is paid monthly at a fixed annual rate between 2.20% and 2.90%		6,238			8,943

Secured Equipment Notes due on various dates in 2021 commencing on various dates in 2014 through 2017; interest is paid monthly at a fixed annual rate between 2.02% and 2.96%		5,575			15,432

		229,969			270,359

Less current portion		(86,868	)		(93,562	)
Total long-term debt	$	143,101		$	176,797

NOTE 7. Legal Matters

Robles

On January 25, 2013, a complaint was filed in the U.S. District Court for the Eastern District of California (Sacramento Division) by Salvador Robles against our subsidiary HGT. The action was brought on behalf of a class comprised of present and former California-based truck drivers for HGT who, from January 2009 to September 2014, were classified as independent contractors. It alleged that HGT misclassified these drivers as independent contractors and that such drivers were employees. It asserted various violations of the California Labor Code and claimed that HGT engaged in unfair competition practices. The complaint sought, among other things, declaratory and injunctive relief, monetary damages and attorney’s fees. In May 2013, the complaint was amended to add similar claims based on Mr. Robles’ status as an employed company driver. These additional claims were only on behalf of Mr. Robles and not a putative class.

Although the Company believes that the California drivers were properly classified as independent contractors at all times, because litigation is expensive, time-consuming and could interrupt our business operations, HGT decided to make settlement offers to individual drivers with respect to the claims alleged in this lawsuit, without admitting liability. In late 2014, HGT converted its model from independent contractors to employee drivers in California. In early 2016, HGT closed its operations in Southern California.

Adame

On August 5, 2015, a suit was filed in state court in San Bernardino County, California on behalf of 63 named Plaintiffs against Hub Group Trucking and five Company employees. The lawsuit alleges claims similar to those being made in the Robles case and seeks monetary penalties under the Private Attorneys General Act.

In September 2019, the Plaintiffs’ counsel and Hub agreed in principle to settle all claims under both the Robles and Adame matters for $4.8 million, which was recorded in the third quarter of 2019 and is included in Accrued other on the accompanying Consolidated Balance Sheet. The settlements are subject to final court approval.

We are involved in certain other claims and pending litigation arising from the normal conduct of business, including putative class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, failure to reimburse incurred business expenses and other items. Based on management's present

knowledge, management does not believe that loss contingencies arising from these pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.

NOTE 8. New Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. We adopted this standard on January 1, 2021, as required, but it did not have a material impact on our consolidated financial statements.

HUB GROUP, INC.

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

Forward-Looking Information

The information contained in this quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” “predicts,” “projects,” “potential,” “may,” “could,” “might,” “should,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are neither historical facts nor assurance of future performance. Instead, they are based on our beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Such factors include, but are not limited to, uncertainties caused by adverse economic conditions, including, without limitation, as a result of extraordinary events or circumstances such as the coronavirus (COVID-19) pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations, or the operations of our customers.

Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. All forward-looking statements made by us in this report are based upon information available to us on the date of this report and speak only as of the date in which they are made. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those identified in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 10-K”), include the following as they may be affected, either individually, or in the aggregate, by the effect of the ongoing COVID-19 pandemic, including any spikes, outbreaks or variants of the virus, as well as any future government actions taken in response to the pandemic, including on our business operations, as well as its impact on general economic and financial market conditions and on our customers, counterparties, employees and third-party service providers:



the degree and rate of market growth in the intermodal, logistics, truck brokerage and dedicated markets served by us;



deterioration in our relationships, service conditions or provision of equipment with existing railroads or adverse changes to the railroads’ operating rules;



inability to recruit and retain company drivers and owner-operators;



inability to hire or retain management and other key personnel that are critical to our continued success;



the impact of competitive pressures in the marketplace, including entry of new competitors such as digital freight matching companies, direct marketing efforts by the railroads or marketing efforts of asset-based carriers;



unanticipated changes in rail, drayage, warehousing and trucking company capacity or costs of services;



increases in costs related to any reclassification or change in our treatment of drivers, owner-operators or other workers due to regulatory, judicial and legal decisions, including workers directly contracted with the Company and those contracted to the Company’s vendors;



joint employer claims alleging that the Company is a co-employer of any workers providing services to a Company contractor;



labor unrest in the rail, drayage and warehouse or trucking company communities;



significant deterioration in our customers’ financial condition, particularly in the retail, consumer products and durable goods sectors;



inability to identify, close and successfully integrate any future business combinations;



fuel shortages or fluctuations in fuel prices;



increases in interest rates;



acts of terrorism and military action and the resulting effects on security;



difficulties in maintaining or enhancing our information technology systems, implementing new systems or protecting against cyber-attacks;



increases in costs associated with changes to or new governmental regulations;



significant increases to employee health insurance costs;



loss of one or more of our largest customers;



awards received during annual customer bids not materializing;



union organizing efforts and changes to current laws which may aid in these efforts;



further consolidation of railroads;



the effects or perceived effects of epidemics, pandemics or other health concerns;



imposition of new tariffs or trade barriers or withdrawal from or renegotiation of existing free trade agreements which could reduce international trade and economic activity;



changes in insurance costs and claims expense;



losses sustained on insured matters where the liability materially exceeds available insurance proceeds; and



disruptions due to adverse weather conditions.

EXECUTIVE SUMMARY

Hub Group, Inc. (the “Company”, “Hub”, “we”, “us” or “our”) is a leading supply chain solutions provider that offers comprehensive transportation and logistics management services focused on reliability, visibility and value for our customers. Our mission is to continuously elevate each customer’s business to drive long term success. Our vision is to build the industry’s premier supply chain solutions. Our service offerings include comprehensive intermodal, truck brokerage, dedicated trucking, managed transportation, freight consolidation, warehousing, last mile delivery, international transportation, parcel and other logistics services.

As an intermodal provider, we arrange for the movement of our customers’ freight in containers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals (referred to as “drayage”) are provided by our Hub Group Trucking ("HGT") subsidiary and third-party local trucking companies.

For the six months ended June 30, 2021, HGT accounted for approximately 52% of our drayage needs by assisting us in providing reliable, cost effective intermodal services to our customers. As of June 30, 2021, HGT operated approximately 1,400 tractors and 200 trailers, employed approximately 1,400 drivers and contracted with approximately 800 owner-operators.

Our logistics business offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal, last mile, railcar and international shipping. We leverage proprietary technology along with collaborative relationships with retailers and logistics providers to deliver cost savings and performance-enhancing supply chain services to consumer goods clients. We contract with third-party warehouse providers in seven markets across North America to which our customers ship their goods to be stored and eventually consolidated, along with goods from other customers, into full truckload shipments destined to major North American retailers. These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements.

In December 2020, we expanded our logistics services through the acquisition of NonstopDelivery, LLC ("NSD"). NSD provides threshold and white glove residential last mile delivery services including warehousing and distribution, product assembly and reverse logistics to many of the largest retailers in the United States. NSD operates a non-asset business model, working with a network of over 170 carriers through the country. NSD provides high levels of service to customers and end consumers through a centralized call center and dedicated account management teams. NSD’s logistics technology provides customers with real-time visibility to shipments, access to analytical tools and seamless integration with other platforms.

Our truck brokerage operation arranges for the transportation of freight by truck, providing customers with an over the road service option for their transportation needs. Our brokerage service does not operate any trucks; instead we match customers’ needs with carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.

Our dedicated operation contracts with customers who seek to outsource a portion of their trucking transportation needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high service expectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for early termination which serves to reduce the financial risk we bear with respect to the utilization of our equipment. Our dedicated operation currently operates a fleet of approximately 1,100 tractors and 4,600 trailers at 66 locations throughout the U.S. As of June 30, 2021, our dedicated operation employed approximately 1,100 drivers.

We employ full-time marketing representatives throughout North America who service local, regional and national accounts. We believe that fostering long-term customer relationships is critical to our success and allows us to better understand our customers’ needs and specifically tailor our transportation and logistics services to them.

Our multimodal solutions group works with our pricing, account management and operations teams to enhance our margins across all lines of business. We are working on margin enhancement initiatives including pricing optimization, matching of inbound and outbound loads, reducing empty miles, improving the retention of our drivers, controlling our maintenance costs, improving tractor and driver utilization, enhancing our procurement strategy, improving our recovery of accessorial costs, reducing repositioning costs, providing holistic solutions, and reviewing and improving low profit freight.

Our top 50 customers represent approximately 70% of revenue for the six months ended June 30, 2021. We use various performance indicators to manage our business. We closely monitor profitability of our top 50 customers. We also evaluate on-time performance, customer service, cost per load and trade receivables of these customer accounts. Vendor cost changes and vendor service levels are also monitored closely.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020

The following table summarizes our revenue by business line (in thousands):


	Three Months Ended June 30,
	2021		2020
Intermodal	$	550,185	$	447,126
Logistics		222,449		177,293
Truck brokerage		139,991		86,675
Dedicated		68,695		68,149
Total revenue	$	981,320	$	779,243

The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue:


	Three Months Ended June 30,
	2021			2020
Revenue	$	981,320	100.0%	$	779,243	100.0%
Transportation costs		860,759	87.7%		671,994	86.2%
Gross margin		120,561	12.3%		107,249	13.8%

Costs and expenses:
Salaries and benefits		54,375	5.5%		49,676	6.4%
General and administrative		20,370	2.1%		28,970	3.7%
Depreciation and amortization		8,868	0.9%		7,625	1.0%
Total costs and expenses		83,613	8.5%		86,271	11.1%

Operating income	$	36,948	3.8%	$	20,978	2.7%

Revenue

Total revenue increased 25.9% to $981.3 million in 2021 from $779.2 million in 2020. Intermodal revenue increased 23.0% to $550.2 million due to a 7.4% increase in volume and higher pricing. Logistics revenue increased 25.5% to $222.4 million primarily due to growth of our retail supplier solutions services and the contribution of NSD, partially offset by the impact of lost customers. Truck brokerage revenue increased 61.5% to $140.0 million due to a 54.6% increase in revenue per load (price, fuel, and mix), and a 4.5% increase in volume. Dedicated revenue increased 0.8% to $68.7 million primarily due to growth with new and existing accounts, partially offset by business we exited.

Transportation Costs

Transportation costs increased 28.1% to $860.8 million in 2021 from $672.0 million in 2020. Transportation costs in 2021 consisted of purchased transportation costs of $696.2 million and equipment and driver related costs of $164.6 million. Transportation costs in 2020 consisted of purchased transportation costs of $513.4 million and equipment and driver related costs of $158.6 million. The 35.6% increase in purchased transportation costs was primarily due to higher volumes in intermodal and truck brokerage, increased fuel costs, increased repositioning costs, partially offset by decreased container stacking expenses. Equipment and driver related costs increased 3.8% in 2021 due to higher driver costs, partially offset by decreased depreciation expense and decreased usage of our internal drayage resources to 52% of total drayage moves in 2021 from 61% in 2020.

Gross Margin

Gross margin increased 12.4% to $120.6 million in 2021 from $107.2 million in 2020. The $13.4 million gross margin increase was the result of increases in intermodal, logistics, and brokerage, partially offset by a decrease in dedicated. Intermodal gross margin increased primarily due to a 7.4% increase in volume and higher prices, partially offset by increased purchased transportation costs and increased drayage costs. Logistics gross margin increased primarily due to the contribution from NSD, partially offset by higher warehousing costs. Truck brokerage gross margin increased primarily due to a 4.5% increase in volume and higher revenue per load. Dedicated gross margin declined primarily due to business we exited, and higher driver costs.

Gross margin as a percentage of revenue declined to 12.3% in 2021 from 13.8% in 2020. Intermodal gross margin as a percentage of revenue declined 140 basis points due to higher purchased transportation costs and drayage costs, partially offset by higher pricing. Logistics gross margin as a percentage of revenue declined by 30 basis points due to changes in customer mix. Truck brokerage gross margin as a percentage of revenue declined 240 basis points as a result of increased purchase transportation costs. Dedicated gross margin as a percent of revenue declined 470 basis points compared to the prior year primarily due to higher repair, maintenance, and driver costs.

CONSOLIDATED OPERATING EXPENSES

Salaries and Benefits

Salaries and benefits increased to $54.4 million in 2021 from $49.7 million in 2020. As a percentage of revenue, salaries and benefits decreased to 5.5% in 2021 from 6.4% in 2020. The increase of $4.7 million was primarily due to the addition of NSD, increases in employee bonuses of $2.6 million, employee benefits of $0.9 million, and commissions expense of $0.5 million, partially offset by a reduction of salaries expense of $2.7 million primarily related to a reduction in headcount, excluding NSD, and severance expenses in 2020.

Headcount as of June 30, 2021 and 2020 was 1,952 and 1,891, respectively, which excludes drivers, as driver costs are included in transportation costs. The increase in headcount is primarily due to the addition of NSD employees.

General and Administrative

General and administrative expenses decreased to $20.4 million in 2021 from $29.0 million in 2020. These expenses, as a percentage of revenue, decreased to 2.1% in 2021 from 3.7% in 2020. The decrease of $8.6 million in general and administrative expense was primarily due to $5.7 million of expense related to donations of refrigerated trailers in support of COVID-19 relief efforts in 2020, a $2.5 million decrease in professional services related to the completion of a consulting project in 2020, and an increase of $2.1 million for capital gains recognized for the sale of equipment, partially offset by additional costs from NSD.

Depreciation and Amortization

Depreciation and amortization increased to $8.9 million in 2021 from $7.6 million in 2020. This increase was related primarily to the amortization of computer software and intangibles related to the acquisition of NSD. This expense as a percentage of revenue decreased to 0.9% in 2021 from 1.0% in 2020.

Other Expense

Other expense decreased to $2.1 million in 2021 from $3.0 million in 2020 due to lower interest expense related to less borrowings and lower interest rates.

Provision for Income Taxes

Provision for income taxes increased to $8.3 million in 2021 from $4.9 million in 2020 due largely to significantly higher book income in 2021, partially offset by a lower effective tax rate. We provided for income taxes using an effective rate of 23.8% in 2021 and an effective rate of 27.0% in 2020. The lower effective tax rate in 2021 is a result of smaller permanent differences in 2021 than 2020, higher book income in 2021 than 2020, and a tax reserve established in 2020 which had an unfavorable impact on the 2020 tax rate. We expect our effective tax rate for the full year of 2021 to be approximately 24.0%.

Net Income

Net income increased to $26.6 million in 2021 from $13.2 million in 2020 due primarily to increases in gross margin and lower costs and expenses, partially offset with higher income tax expenses.

Six Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020

The following table summarizes our revenue by business line (in thousands):


	Six Months Ended June 30,
	2021		2020
Intermodal	$	1,056,189	$	925,160
Logistics		439,484		377,495
Truck brokerage		267,253		184,692
Dedicated		137,947		130,755
Total revenue	$	1,900,873	$	1,618,102

The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue:


	Six Months Ended June 30,
	2021			2020
Revenue	$	1,900,873	100.0%	$	1,618,102	100.0%
Transportation costs		1,671,565	87.9%		1,406,259	86.9%
Gross margin		229,308	12.1%		211,843	13.1%

Costs and expenses:
Salaries and benefits		111,326	5.9%		100,552	6.2%
General and administrative		39,613	2.1%		55,306	3.4%
Depreciation and amortization		17,370	0.9%		15,248	1.0%
Total costs and expenses		168,309	8.9%		171,106	10.6%

Operating income	$	60,999	3.2%	$	40,737	2.5%

Revenue

Total revenue increased to $1.9 billion in 2021 from $1.6 billion in 2020. Intermodal revenue increased 14.2% to $1.1 billion due to a 4.7% increase in volume, higher pricing, and increased fuel revenue. Logistics revenue increased 16.4% to $439.5 million due to growth of our retail supplier solutions services and the contribution of NSD, partially offset by the impact of lost customers. Truck brokerage revenue increased 44.7% to $267.3 million due to a 46.3% increase in revenue per load (price, fuel, and mix), partially offset by a 1.1% decline in volume. Dedicated revenue increased 5.5% to $137.9 million primarily due to growth with new and existing accounts, partially offset by business we exited.

Transportation Costs

Transportation costs increased 18.9% to $1.7 billion in 2021 from $1.4 billion in 2020. Transportation costs in 2021 consisted of purchased transportation costs of $1.3 billion and equipment and driver related costs of $327.9 million compared to 2020, which consisted of purchased transportation costs of $1.1 billion and equipment and driver related costs of $324.1 million. The 24.2% increase in purchased transportation costs was primarily due to higher volumes in intermodal, increased fuel costs, increased repositioning costs, and increased purchasing costs, partially offset by a decrease in truck brokerage volume and decreased container stacking charges. Equipment and driver related costs increased 1.2% in 2021 primarily due to higher driver costs and an increase in repairs and maintenance expense, partially offset by decreased depreciation expense and decreased usage of our internal drayage resources to 52% of total drayage moves in 2021 from 60% in 2020.

Gross Margin

Gross margin increased to $229.3 million in 2021 from $211.8 million in 2020. The $17.5 million gross margin increase was the result of increases in logistics and brokerage margin, partially offset by decreases in intermodal and dedicated margin. Intermodal gross margin decreased compared to the prior year primarily due to increased purchased transportation costs, partially offset by a 4.7% increase in volume, along with higher pricing. Logistics gross margin increased primarily due to actions we have taken to improve profitability, higher revenue, and the contribution of NSD, partially offset by higher warehousing costs. Truck brokerage gross margin increased primarily due to revenue per load growth in both contractual and transactional freight, partially offset by the impact of higher purchased transportation costs and a 1.1% decline in volume. Dedicated gross margin declined primarily due to business we exited.

Gross margin as a percentage of revenue declined to 12.1% in 2021 from 13.1% in 2020. Intermodal gross margin as a percentage of revenue declined 160 basis points due to higher purchased transportation costs and drayage costs, partially offset by higher pricing. Logistics gross margin as a percentage of revenue expanded by 80 basis points due to our continuous improvement initiatives, and the addition of NSD. Truck brokerage gross margin as a percentage of revenue declined 170 basis points as a result of increased purchase transportation costs. Dedicated gross margin as a percent of revenue declined 280 basis points compared to the prior year primarily due to changes in customer mix.

CONSOLIDATED OPERATING EXPENSES

Salaries and Benefits

Salaries and benefits increased to $111.3 million in 2021 from $100.6 million in 2020. As a percentage of revenue, salaries and benefits decreased to 5.9% in 2021 from 6.2% in 2020. The increase of $10.8 million was primarily due the addition of NSD, increases in employee bonuses of $9.1 million, commissions expense and payroll taxes of $0.7 million each, partially offset by a reduction of salaries expense of $6.6 million primarily related to a reduction in headcount, excluding NSD, and severance expenses in 2020.

General and Administrative

General and administrative expenses decreased to $39.6 million in 2021 from $55.3 million in 2020. As a percentage of revenue, these expenses decreased to 2.1% in 2021 from 3.4% in 2020. The decrease of $15.7 million was primarily due to $5.9 million of expense related to donations of refrigerated trailers in support of COVID-19 relief efforts in 2020, a $5.9 million decrease in professional services related to the completion of a consulting project in 2020, and an increase of $4.1 million of capital gains recognized for the sale of equipment, partially offset by additional costs from NSD.

Depreciation and Amortization

Depreciation and amortization increased to $17.4 million in 2021 from $15.2 million in 2020. This increase was related primarily to the amortization of computer software and intangibles related to the acquisition of NSD. This expense as a percentage of revenue decreased to 0.9% in 2021 from 1.0% in 2020.

Other Expense

Other expense decreased to $4.0 million in 2021 from $5.2 million in 2020 due to lower interest expense related to less borrowings and lower interest rates.

Provision for Income Taxes

Provision for income taxes increased to $13.1 million in 2021 from $9.1 million in 2020 due largely to significantly higher book income in 2021, partially offset by a lower effective tax rate. We provided for income taxes using an effective rate of 23.1% in 2021 and an effective rate of 25.7% in 2020. The lower effective tax rate in 2021 is a result of smaller permanent differences in 2021 than 2020, higher book income in 2021 than 2020, and a tax reserve established in 2020 which had an unfavorable impact on the 2020 tax rate. No reserves were added in 2021. We expect our effective tax rate for the full year of 2021 to be approximately 24.0%.

Net Income

Net income increased to $43.8 million in 2021 from $26.4 million in 2020 due primarily to increases in gross margin and lower costs and expenses, partially offset with higher income tax expenses.

LIQUIDITY AND CAPITAL RESOURCES

During the first six months of 2021, we funded operations, capital expenditures, finance leases, repayments of debt and the purchase of our stock related to employee withholding upon vesting of restricted stock through cash flows from operations, proceeds from the issuance of long-term debt and cash on hand. We believe that our cash, cash flows from operations and borrowings available under our credit agreement will be sufficient to meet our cash needs for at least the next twelve months.

Cash provided by operating activities for the six months ended June 30, 2021 was approximately $173.9 million, which resulted primarily from income of $43.8 million adjusted for non-cash charges of $73.7 million and a positive change in operating assets and liabilities of $56.4 million.

Cash provided by operating activities increased $62.4 million in 2021 versus 2020. The increase was due to increases in net income of $17.4 million and operating assets and liabilities of $51.9 million in 2021, partially offset by decreases in non-cash charges of $6.9 million.

The increase in the change of operating assets and liabilities of $51.9 million was caused by increases in the change of accounts payable of $66.3 million, accrued expenses of $7.8 million, prepaid expenses of $1.9 million and other assets of $0.3 million, partially offset by increases in the cash flow used by accounts receivable of $17.7 million, non-current liabilities of $4.8 million, restricted investments of $1.6 million and prepaid taxes of $0.3 million.

The lower amount of non-cash items of $6.9 million was due to a decrease in other operating activities of $5.6 million, more gains on the sale of fixed assets of $4.1 million and a decrease in deferred taxes of $0.6 million. These decreases were partially offset by an increase in depreciation and amortization of $2.3 million and compensation expense related to stock-based compensation plans of $1.1 million.

Net cash used in investing activities for the six months ended June 30, 2021 was $6.5 million which included capital expenditures of $26.3 million and cash used in acquisitions of $0.1 million, partially offset by proceeds from the sale of equipment of $19.9 million. Capital expenditures of $26.3 million related primarily to technology investments of $10.2 million, containers of $7.3 million, tractors of $4.9 million, trailers of $3.2 million and the remainder for construction of a new building on our corporate headquarters campus.

We estimate capital expenditures for the remainder of 2021 will range from $140 million to $150 million and primarily for purchases of tractors and containers to support growth in our business, as well as technology investments and the new building construction. We plan to fund these expenditures with a combination of cash and debt.

Net cash used in investing activities for the six months ended June 30, 2020 was $48.8 million. The net cash used in investing activities decreased $42.2 million in 2021 from 2020 due to an increase of $19.4 million of proceeds from the sale of equipment, less capital expenditures related primarily to the construction of a new building on our corporate headquarters campus of $18.7 million, fewer container purchases of $5.7 million, fewer trailer purchases of $5.9 million, partially offset by $4.9 million more of tractor purchases, $2.5 million more in technology investments, and $0.1 million more cash used in acquisitions.

The net cash used in financing activities for the six months ended June 30, 2021 was $45.9 million, which resulted from the repayment of long-term debt of $57.9 million, stock withheld for payments of withholding taxes of $4.0 million and finance lease payments of $1.5 million, partially offset by proceeds from the issuance of debt of $17.5 million.

During the six months ended June 30, 2020, we both borrowed $100 million on our revolving loan facility under the credit agreement and repaid the $100 million, therefore these transactions did not affect the variance in cash used in financing activities between 2021 and 2020. The increase in net cash used in financing activities of $17.6 million from 2021 versus 2020 was primarily due to less proceeds from the issuance of new debt of $10.0 million and an increase in the repayment of long-term debt of $7.6 million.

In 2021, we expect our cash paid for income taxes to be more than in 2020 due to significantly higher book income in 2021. We expect our cash paid for taxes to be less than our income tax expense in 2021 due to favorable timing differences related to depreciation.

The Coronavirus Aid, Relief, and Economic Security ("CARES") Act allowed us to defer $11.3 million of 2020 payroll taxes until future years. Half of those payroll taxes will be remitted in December 2021 and the other half in December 2022.

We have standby letters of credit that expire in 2021 and 2022. As of June 30, 2021, our letters of credit were $37.4 million.

Our unused and available borrowings were $312.6 million as of June 30, 2021 and $312.3 million as of December 31, 2020. We were in compliance with our debt covenants under the credit agreement as of June 30, 2021 and December 31, 2020.

We are continually evaluating the possible effects of current economic conditions and reasonable and supportable economic forecasts in operational cash flows, including the risks of declines in the overall freight market and our customers’ liquidity. We are monitoring working capital on a daily basis and are in frequent communications with our customers.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk as of June 30, 2021 from that presented in our 2020 10-K.

Item 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. As of June 30, 2021, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

(b) Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the fiscal quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On December 9, 2020, we completed the acquisition of NSD. We are currently integrating processes, employees, technologies and operations associated with this acquisition. Management will continue to evaluate our internal controls over financial reporting as we complete this integration of business.

PART II. Other Information

Item 1. Legal Proceedings

During the six months ended June 30, 2021, there have been no material developments from the legal proceedings disclosed in our 2020 10-K.

Item 1A. Risk Factors

Investing in shares of our stock involves certain risks, including those identified and described in Part I, Item 1A of our 2020 10-K, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Forward-Looking Information” in Part I, Item 2 here of and in our other filings with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 28, 2019 our Board of Directors authorized the purchase of up to $100 million of our Class A Common Stock. Under the program, the shares may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. We made no purchases under this authorization during 2021 or 2020. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended, or discontinued at any time.

We purchased 3,229 shares for $0.2 million during the second quarter of 2021 and 3,878 shares for $0.2 million during the second quarter of 2020 related to employee withholding upon vesting of restricted stock. The table below gives information on a monthly basis regarding the number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock during the second quarter of 2021:


							Maximum Value of
	Total				Total Number of		Shares that May Yet
	Number of		Average		Shares Purchased as		Be Purchased Under
	Shares		Price Paid		Part of Publicly		the Plan
	Purchased		Per Share		Announced Plan		(in 000’s)
4/1/2021 - 4/30/2021		968	$	66.89		-	$	-
5/1/2021 - 5/31/2021		1,144	$	66.50		-	$	-
6/1/2021 - 6/30/2021		1,117	$	65.24		-	$	-
Total		3,229	$	66.18		-	$	75,002

Item 6. Exhibits

The exhibits included as part of the Form 10-Q are set forth in the Exhibit Index.

EXHIBIT INDEX


Exhibit No.	Description

31.1	Certification of David P. Yeager, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2	Certification of Geoffrey F. DeMartino, Executive Vice President, Chief Financial Officer and Treasurer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1	Certification of David P. Yeager and Geoffrey F. DeMartino, Chief Executive Officer and Chief Financial Officer, respectively, Pursuant to 18 U.S.C. Section 1350.

101 104	Interactive data files for Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL: (i) the Consolidated Balance Sheets (unaudited); (ii) the Unaudited Consolidated Statements of Income and Comprehensive Income; (iii) the Unaudited Consolidated Statements of Stockholders’ Equity; (iv) the Unaudited Consolidated Statements of Cash Flows (unaudited); and (v) the Notes to Unaudited Consolidated Financial Statements. XBRL Instance Document-the XBRL Instance Document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. The cover page from Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (formatted in Inline XBRL and included in Exhibit 101).

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 hereunto duly authorized.


	HUB GROUP, INC.

DATE: August 6, 2021	/s/ Geoffrey F. DeMartino
	Geoffrey F. DeMartino
	Executive Vice President, Chief Financial
	Officer and Treasurer
	(Principal Financial Officer)

	/s/ Kevin W. Beth
	Kevin W. Beth
	Executive Vice President, Chief
	Accounting Officer
	(Principal Accounting Officer)