Hub Group, Inc. - Quarter Report: 2023 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, 2023 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.) |
2001 Hub Group Way
Oak Brook, Illinois 60523
(Address, including zip code, of principal executive offices)
(630) 271-3600
Registrant’s telephone number, including area code
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 |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 28, 2023, the registrant had 31,415,349 outstanding shares of Class A common stock, par value $.01 per share, and 574,903 outstanding shares of Class B common stock, par value $.01 per share.
HUB GROUP, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
|
June 30, |
|
|
December 31, |
|
||
|
2023 |
|
|
2022 |
|
||
ASSETS |
(unaudited) |
|
|
|
|
||
CURRENT ASSETS: |
|
|
|
|
|
||
Cash and cash equivalents |
$ |
342,429 |
|
|
$ |
286,642 |
|
Accounts receivable trade, net |
|
612,163 |
|
|
|
716,190 |
|
Other receivables |
|
4,612 |
|
|
|
3,967 |
|
Prepaid taxes |
|
15,258 |
|
|
|
16,987 |
|
Prepaid expenses and other current assets |
|
15,445 |
|
|
|
32,914 |
|
TOTAL CURRENT ASSETS |
|
989,907 |
|
|
|
1,056,700 |
|
|
|
|
|
|
|
||
Restricted investments |
|
20,262 |
|
|
|
18,065 |
|
Property and equipment, net |
|
783,127 |
|
|
|
783,683 |
|
Right-of-use assets - operating leases |
|
167,681 |
|
|
|
102,114 |
|
Right-of-use assets - financing leases |
|
3,744 |
|
|
|
1,194 |
|
Other intangibles, net |
|
183,634 |
|
|
|
197,386 |
|
Goodwill |
|
629,407 |
|
|
|
629,402 |
|
Other assets |
|
22,280 |
|
|
|
21,537 |
|
TOTAL ASSETS |
$ |
2,800,042 |
|
|
$ |
2,810,081 |
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
||
CURRENT LIABILITIES: |
|
|
|
|
|
||
Accounts payable trade |
$ |
293,005 |
|
|
$ |
344,751 |
|
Accounts payable other |
|
12,213 |
|
|
|
15,563 |
|
Accrued payroll |
|
23,292 |
|
|
|
66,669 |
|
Accrued other |
|
128,825 |
|
|
|
132,324 |
|
Lease liability - operating leases |
|
35,687 |
|
|
|
29,547 |
|
Lease liability - financing leases |
|
2,365 |
|
|
|
1,175 |
|
Current portion of long-term debt |
|
98,350 |
|
|
|
101,741 |
|
TOTAL CURRENT LIABILITIES |
|
593,737 |
|
|
|
691,770 |
|
|
|
|
|
|
|
||
Long-term debt |
|
238,213 |
|
|
|
240,724 |
|
Non-current liabilities |
|
48,832 |
|
|
|
43,505 |
|
Lease liability - operating leases |
|
141,450 |
|
|
|
78,557 |
|
Lease liability - financing leases |
|
1,288 |
|
|
|
- |
|
Deferred taxes |
|
165,786 |
|
|
|
155,923 |
|
|
|
|
|
|
|
||
STOCKHOLDERS' EQUITY: |
|
|
|
|
|
||
Preferred stock: $.01 par value; 2,000,000 shares authorized; no shares issued or outstanding in 2023 and 2022 |
- |
|
|
- |
|
||
Common stock |
|
|
|
|
|
||
Class A: $.01 par value; 97,337,700 shares authorized; 41,312,185 shares issued in both 2023 and 2022; 31,402,008 shares outstanding in 2023 and 32,646,621 shares outstanding in 2022. |
|
413 |
|
|
|
413 |
|
Class B: $.01 par value; 662,300 shares authorized; 574,903 shares issued and outstanding in both 2023 and 2022. |
|
6 |
|
|
|
6 |
|
Additional paid-in capital |
|
214,356 |
|
|
|
208,165 |
|
Purchase price in excess of predecessor basis, net of tax benefit of $10,306 |
|
(15,458 |
) |
|
|
(15,458 |
) |
Retained earnings |
|
1,889,867 |
|
|
|
1,781,582 |
|
Accumulated other comprehensive loss |
|
(136 |
) |
|
|
(214 |
) |
Treasury stock; at cost, 9,910,177 shares in 2023 and 8,665,564 shares in 2022. |
|
(478,312 |
) |
|
|
(374,892 |
) |
TOTAL STOCKHOLDERS' EQUITY |
|
1,610,736 |
|
|
|
1,599,602 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
2,800,042 |
|
|
$ |
2,810,081 |
|
See notes to unaudited consolidated financial statements.
3
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating revenue |
$ |
1,040,462 |
|
|
$ |
1,401,456 |
|
|
$ |
2,192,727 |
|
|
$ |
2,699,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
||||
Purchased transportation and warehousing |
|
763,609 |
|
|
|
1,062,983 |
|
|
|
1,630,540 |
|
|
|
2,058,248 |
|
Salaries and benefits |
|
141,823 |
|
|
|
129,499 |
|
|
|
279,254 |
|
|
|
258,238 |
|
Depreciation and amortization |
|
35,386 |
|
|
|
32,244 |
|
|
|
70,835 |
|
|
|
63,533 |
|
Insurance and claims |
|
11,676 |
|
|
|
10,645 |
|
|
|
24,359 |
|
|
|
19,938 |
|
General and administrative |
|
26,757 |
|
|
|
36,213 |
|
|
|
52,298 |
|
|
|
59,435 |
|
Gain on sale of assets, net |
|
(859 |
) |
|
|
(7,764 |
) |
|
|
(4,834 |
) |
|
|
(12,509 |
) |
Total operating expenses |
|
978,392 |
|
|
|
1,263,820 |
|
|
|
2,052,452 |
|
|
|
2,446,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating income |
|
62,070 |
|
|
|
137,636 |
|
|
|
140,275 |
|
|
|
252,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
(3,116 |
) |
|
|
(1,407 |
) |
|
|
(6,086 |
) |
|
|
(3,110 |
) |
Interest income |
|
2,087 |
|
|
|
5 |
|
|
|
3,463 |
|
|
|
9 |
|
Other, net |
|
69 |
|
|
|
(195 |
) |
|
|
108 |
|
|
|
(63 |
) |
Total other expense, net |
|
(960 |
) |
|
|
(1,597 |
) |
|
|
(2,515 |
) |
|
|
(3,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income before provision for income taxes |
|
61,110 |
|
|
|
136,039 |
|
|
|
137,760 |
|
|
|
249,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Provision for income taxes |
|
14,605 |
|
|
|
33,193 |
|
|
|
29,475 |
|
|
|
59,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
46,505 |
|
|
|
102,846 |
|
|
|
108,285 |
|
|
|
190,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustments |
|
44 |
|
|
|
(16 |
) |
|
|
78 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total comprehensive income |
$ |
46,549 |
|
|
$ |
102,830 |
|
|
$ |
108,363 |
|
|
$ |
190,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per common share |
$ |
1.45 |
|
|
$ |
3.06 |
|
|
$ |
3.35 |
|
|
$ |
5.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per common share |
$ |
1.44 |
|
|
$ |
3.03 |
|
|
$ |
3.33 |
|
|
$ |
5.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average number of shares outstanding |
|
32,037 |
|
|
|
33,651 |
|
|
|
32,293 |
|
|
|
33,647 |
|
Diluted weighted average number of shares outstanding |
|
32,293 |
|
|
|
33,935 |
|
|
|
32,566 |
|
|
|
33,950 |
|
See notes to unaudited consolidated financial statements.
4
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, 2022 |
|
41,887,088 |
|
|
$ |
419 |
|
|
$ |
189,168 |
|
|
$ |
(15,458 |
) |
|
$ |
1,512,137 |
|
|
$ |
(187 |
) |
|
|
(7,236,001 |
) |
|
$ |
(259,108 |
) |
|
$ |
1,426,971 |
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,871 |
) |
|
|
(130 |
) |
|
|
(130 |
) |
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
917 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6,343 |
) |
|
|
(917 |
) |
|
|
- |
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
5,518 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,518 |
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
102,846 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
102,846 |
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(16 |
) |
|
|
- |
|
|
|
- |
|
|
|
(16 |
) |
Balance June 30, 2022 |
|
41,887,088 |
|
|
$ |
419 |
|
|
$ |
195,603 |
|
|
$ |
(15,458 |
) |
|
$ |
1,614,983 |
|
|
$ |
(203 |
) |
|
|
(7,244,215 |
) |
|
$ |
(260,155 |
) |
|
$ |
1,535,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance March 31, 2023 |
|
41,887,088 |
|
|
$ |
419 |
|
|
$ |
206,111 |
|
|
$ |
(15,458 |
) |
|
$ |
1,843,362 |
|
|
$ |
(180 |
) |
|
|
(8,551,550 |
) |
|
$ |
(375,206 |
) |
|
$ |
1,659,048 |
|
Purchase of treasury stock |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,323,425 |
) |
|
|
(100,026 |
) |
|
|
(100,026 |
) |
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,695 |
) |
|
|
(212 |
) |
|
|
(212 |
) |
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
2,868 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(32,507 |
) |
|
|
(2,868 |
) |
|
|
- |
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
5,377 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,377 |
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
46,505 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
46,505 |
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
|
|
- |
|
|
|
- |
|
|
|
44 |
|
Balance June 30, 2023 |
|
41,887,088 |
|
|
$ |
419 |
|
|
$ |
214,356 |
|
|
$ |
(15,458 |
) |
|
$ |
1,889,867 |
|
|
$ |
(136 |
) |
|
|
(9,910,177 |
) |
|
$ |
(478,312 |
) |
|
$ |
1,610,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance December 31, 2021 |
|
41,887,088 |
|
|
$ |
419 |
|
|
$ |
189,256 |
|
|
$ |
(15,458 |
) |
|
$ |
1,424,634 |
|
|
$ |
(207 |
) |
|
|
(7,317,058 |
) |
|
$ |
(258,330 |
) |
|
$ |
1,340,314 |
|
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(68,240 |
) |
|
|
(5,715 |
) |
|
|
(5,715 |
) |
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
(3,890 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
141,083 |
|
|
|
3,890 |
|
|
|
- |
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
10,237 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,237 |
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
190,349 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
190,349 |
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
|
|
- |
|
|
|
- |
|
|
|
4 |
|
Balance June 30, 2022 |
|
41,887,088 |
|
|
$ |
419 |
|
|
$ |
195,603 |
|
|
$ |
(15,458 |
) |
|
$ |
1,614,983 |
|
|
$ |
(203 |
) |
|
|
(7,244,215 |
) |
|
$ |
(260,155 |
) |
|
$ |
1,535,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Balance December 31, 2022 |
|
41,887,088 |
|
|
$ |
419 |
|
|
$ |
208,165 |
|
|
$ |
(15,458 |
) |
|
$ |
1,781,582 |
|
|
$ |
(214 |
) |
|
|
(8,665,564 |
) |
|
$ |
(374,892 |
) |
|
$ |
1,599,602 |
|
Purchase of treasury stock |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,323,425 |
) |
|
|
(100,026 |
) |
|
|
(100,026 |
) |
Stock withheld for payments of withholding taxes |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(98,209 |
) |
|
|
(7,818 |
) |
|
|
(7,818 |
) |
Issuance of restricted stock awards, net of forfeitures |
|
- |
|
|
|
- |
|
|
|
(4,424 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
177,021 |
|
|
|
4,424 |
|
|
|
- |
|
Share-based compensation expense |
|
- |
|
|
|
- |
|
|
|
10,615 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,615 |
|
Net income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
108,285 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
108,285 |
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
78 |
|
|
|
- |
|
|
|
- |
|
|
|
78 |
|
Balance June 30, 2023 |
|
41,887,088 |
|
|
$ |
419 |
|
|
$ |
214,356 |
|
|
$ |
(15,458 |
) |
|
$ |
1,889,867 |
|
|
$ |
(136 |
) |
|
|
(9,910,177 |
) |
|
$ |
(478,312 |
) |
|
$ |
1,610,736 |
|
See notes to unaudited consolidated financial statements.
5
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
Six Months Ended June 30, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Net income |
$ |
108,285 |
|
|
$ |
190,349 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
91,474 |
|
|
|
71,922 |
|
Impairment of right-of-use asset |
|
2,012 |
|
|
|
- |
|
Deferred taxes |
|
10,837 |
|
|
|
3,279 |
|
Compensation expense related to share-based compensation plans |
|
10,615 |
|
|
|
10,237 |
|
Gain on sale of assets |
|
(4,834 |
) |
|
|
(12,509 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Restricted investments |
|
(2,197 |
) |
|
|
5,200 |
|
Accounts receivable, net |
|
103,270 |
|
|
|
(93,767 |
) |
Prepaid taxes |
|
1,729 |
|
|
|
(2,166 |
) |
Prepaid expenses and other current assets |
|
17,469 |
|
|
|
9,664 |
|
Other assets |
|
(1,899 |
) |
|
|
(2,517 |
) |
Accounts payable |
|
(55,085 |
) |
|
|
3,380 |
|
Accrued expenses |
|
(47,700 |
) |
|
|
23,251 |
|
Non-current liabilities |
|
(12,595 |
) |
|
|
(5,588 |
) |
Net cash provided by operating activities |
|
221,381 |
|
|
|
200,735 |
|
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Proceeds from sale of equipment |
|
15,135 |
|
|
|
18,584 |
|
Purchases of property and equipment |
|
(65,635 |
) |
|
|
(85,942 |
) |
Cash used in acquisition |
|
108 |
|
|
|
- |
|
Net cash used in investing activities |
|
(50,392 |
) |
|
|
(67,358 |
) |
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
||
Purchase of treasury stock |
|
(100,026 |
) |
|
|
- |
|
Repayments of long-term debt |
|
(56,191 |
) |
|
|
(54,114 |
) |
Stock withheld for payments of withholding taxes |
|
(7,818 |
) |
|
|
(5,715 |
) |
Finance lease payments |
|
(1,501 |
) |
|
|
(1,059 |
) |
Proceeds from issuance of debt |
|
50,289 |
|
|
|
66,194 |
|
Net cash (used in) provided by financing activities |
|
(115,247 |
) |
|
|
5,306 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
45 |
|
|
|
9 |
|
|
|
|
|
|
|
||
Net increase in cash and cash equivalents |
|
55,787 |
|
|
|
138,692 |
|
Cash and cash equivalents beginning of the period |
|
286,642 |
|
|
|
159,784 |
|
Cash and cash equivalents end of the period |
$ |
342,429 |
|
|
$ |
298,476 |
|
|
|
|
|
|
|
||
Supplemental disclosures of cash paid for: |
|
|
|
|
|
||
Interest |
$ |
6,688 |
|
|
$ |
3,710 |
|
Income taxes |
$ |
14,410 |
|
|
$ |
58,082 |
|
See notes to unaudited consolidated financial statements.
6
HUB GROUP, INC.
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Interim Financial Statements
Our 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, 2023 and results of operations for the three and six months ended June 30, 2023 and 2022.
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, 2022 (the “2022 10-K”). Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.
Reclassifications: Due to presentation changes made in our consolidated income statement, certain prior year amounts have been reclassified to conform with the current year presentation.
NOTE 2. 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, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income for basic and diluted earnings per share |
$ |
46,505 |
|
|
$ |
102,846 |
|
|
$ |
108,285 |
|
|
$ |
190,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding - basic |
|
32,037 |
|
|
|
33,651 |
|
|
|
32,293 |
|
|
|
33,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of restricted stock |
|
256 |
|
|
|
284 |
|
|
|
273 |
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding - diluted |
|
32,293 |
|
|
|
33,935 |
|
|
|
32,566 |
|
|
|
33,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share - basic |
$ |
1.45 |
|
|
$ |
3.06 |
|
|
$ |
3.35 |
|
|
$ |
5.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share - diluted |
$ |
1.44 |
|
|
$ |
3.03 |
|
|
$ |
3.33 |
|
|
$ |
5.61 |
|
NOTE 3. Segment Reporting
As we have continued to expand our service offerings and diversify our business, we have also made changes to the financial information that our CEO, who has been identified as our Chief Operating Decision Maker (CODM), uses to make operating and capital decisions. Beginning with the first quarter of 2023, we concluded that we had two reportable segments: Intermodal and Transportation Solutions (“ITS”) and Logistics which are based primarily on the services each segment provides. Results for the three and six months ended June 30, 2022 have been recast below to conform with the current period presentation. Our ITS segment includes our asset-light business lines: intermodal and dedicated trucking. Our Logistics segment includes our non-asset business lines: managed transportation, truck brokerage, final mile, consolidation, warehousing and fulfillment.
7
Intermodal and Transportation Solutions. Our Intermodal and Transportation Solutions segment offers high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. This segment also includes our trucking operations which provides drayage for our intermodal service offering and serves our customers who require high service local and regional trucking transportation using equipment dedicated to their needs. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations. As of June 30, 2023, our trucking transportation operation consisted of approximately 2,400 tractors, 3,200 employee drivers and 4,400 trailers. We also contract for services with approximately 560 independent owner-operators. We arrange for the movement of our customers’ freight in one of our approximately 49,000 containers.
Logistics. Our Logistics segment offers a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed, all of which is provided by third party carriers with whom we contract. This segment also offers a wide range of logistics services including transportation management, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment, cross-docking, consolidation services and final mile delivery. We leverage proprietary technology along with collaborative relationships with third party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our transportation management offering also serves as a source of volume for our ITS segment.
Separate balance sheets are not prepared by segment, and as a result, assets are not separately identifiable or presented by segment. Our CEO uses consolidated asset information to make capital decisions.
The following tables summarize our financial and operating data by segment (in thousands):
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
Operating Revenue |
June 30, |
|
|
June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Intermodal and Transportation Solutions |
$ |
614,632 |
|
|
$ |
875,150 |
|
|
$ |
1,323,881 |
|
|
$ |
1,651,720 |
|
Logistics |
|
453,549 |
|
|
|
548,613 |
|
|
|
922,690 |
|
|
|
1,089,597 |
|
Inter-segment eliminations |
|
(27,719 |
) |
|
|
(22,307 |
) |
|
|
(53,844 |
) |
|
|
(41,738 |
) |
Total operating revenue |
$ |
1,040,462 |
|
|
$ |
1,401,456 |
|
|
$ |
2,192,727 |
|
|
$ |
2,699,579 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
Operating Income |
June 30, |
|
|
June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Intermodal and Transportation Solutions |
$ |
31,777 |
|
|
$ |
100,601 |
|
|
$ |
80,981 |
|
|
$ |
186,297 |
|
Logistics |
|
30,293 |
|
|
|
37,035 |
|
|
|
59,294 |
|
|
|
66,399 |
|
Total operating income |
$ |
62,070 |
|
|
$ |
137,636 |
|
|
$ |
140,275 |
|
|
$ |
252,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
Depreciation and Amortization |
June 30, |
|
|
June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Intermodal and Transportation Solutions |
$ |
27,117 |
|
|
$ |
25,383 |
|
|
$ |
54,003 |
|
|
$ |
49,758 |
|
Logistics |
|
8,269 |
|
|
|
6,861 |
|
|
|
16,832 |
|
|
|
13,775 |
|
Total depreciation and amortization |
$ |
35,386 |
|
|
$ |
32,244 |
|
|
$ |
70,835 |
|
|
$ |
63,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
NOTE 4. Fair Value Measurement
The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of June 30, 2023 and December 31, 2022. As of June 30, 2023, the fair value of the Company’s fixed-rate borrowings was $9.0 million less than the historical carrying value of $336.6 million. As of December 31, 2022, the fair value of the Company's fixed-rate borrowings was $11.7 million less than the historical carrying value of $342.5 million. 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.
8
We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of June 30, 2023 and December 31, 2022, our cash and temporary investments were with high quality financial institutions in demand deposit accounts, savings accounts, checking accounts and money market accounts.
Restricted investments included $20.3 million and $18.1 million as of June 30, 2023 and December 31, 2022, respectively, of mutual funds which are reported at fair value. These investments relate to our nonqualified deferred compensation plan and insurance deposits.
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 5. Long-Term Debt and Financing Arrangements
In February 2022, we entered into a five-year, $350 million unsecured credit agreement (the "Credit Agreement"). Borrowings under the Credit Agreement generally bear interest at a variable rate equal to (i) the secured overnight financing rate (published by the Federal Reserve Bank of New York, “SOFR”), plus a specified margin based on the term of such borrowing, plus a specified margin based upon Hub’s total net leverage ratio (as defined in the Credit Agreement) (the "Total Net Leverage Ratio"), or (ii) the base rate (which is the highest of (a) the administrative agent's prime rate, (b) the federal funds rate plus 0.50% or (c) the sum of 1% and one-month SOFR) plus a specified margin based upon the Total Net Leverage Ratio. The specified margin for SOFR loans varies from to basis points per annum. The specified margin for base rate loans varies from 0.0 to basis points per annum. Hub must also pay (1) a commitment fee ranging from to basis points per annum (based upon the Total Net Leverage Ratio) on the aggregate unused commitments and (2) a letter of credit fee ranging from to basis points per annum (based upon the Total Net Leverage Ratio) on the undrawn amount of letters of credit.
We have standby letters of credit that expire in 2023 and 2024. As of June 30, 2023 and December 31, 2022, our letters of credit were $0.9 million and $43.4 million, respectively.
As of June 30, 2023 and December 31, 2022, we had no borrowings under the Credit Agreement and our unused and available borrowings were $349.1 million and $306.6 million, respectively. We were in compliance with our debt covenants as of June 30, 2023 and December 31, 2022.
We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers, containers and refrigeration units. The Notes are secured by the underlying equipment financed in the agreements.
9
Our outstanding Notes are as follows (in thousands): |
June 30, |
|
|
December 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Interim funding for equipment received and expected to be converted to an equipment note in subsequent year; interest paid at a variable rate |
$ |
10,768 |
|
|
$ |
6,137 |
|
|
|
|
|
|
|
||
Secured Equipment Notes due on various dates in 2028 commencing on various dates in 2023; interest is paid monthly at a fixed annual rate between 5.21% and 5.99% |
|
39,546 |
|
|
|
- |
|
|
|
|
|
|
|
||
Secured Equipment Notes due on various dates in 2027 commencing on various dates in 2022 and 2023; interest is paid monthly at a fixed annual rate between 2.07% and 5.82% |
|
164,549 |
|
|
|
177,295 |
|
|
|
|
|
|
|
||
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 1.48% and 2.41% |
|
68,004 |
|
|
|
78,359 |
|
|
|
|
|
|
|
||
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% |
|
36,195 |
|
|
|
43,955 |
|
|
|
|
|
|
|
||
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% |
|
13,740 |
|
|
|
20,751 |
|
|
|
|
|
|
|
||
Secured Equipment Notes due on various dates in 2023 commencing on various dates from 2016 to 2019; interest is paid monthly at a fixed annual rate between 2.20% and 4.10% |
|
3,761 |
|
|
|
15,968 |
|
|
|
336,563 |
|
|
|
342,465 |
|
Less current portion |
|
(98,350 |
) |
|
|
(101,741 |
) |
Total long-term debt |
$ |
238,213 |
|
|
$ |
240,724 |
|
NOTE 6. Legal Matters
The Company is involved in certain claims and pending litigation arising from the normal conduct of business, including putative class-action lawsuits involving employment related claims. Based on management's present knowledge, management does not believe that any potential unrecorded 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 for settlements or losses determined to be probable and estimable. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Statements in this section and other parts of this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements, provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that might cause the actual performance of the Company to differ materially from those expressed or implied by this discussion and, therefore, should be viewed with caution. Further information on the risks that may affect the Company’s business is included in filings it makes with the SEC from time to time, including those discussed under the “Risk Factors” section in the 2022 10-K and subsequent filings. The Company assumes no obligation to update any such forward-looking statements.
EXECUTIVE SUMMARY
We are a leading supply chain solutions provider in North America that offers comprehensive transportation and logistics management services focused on reliability, visibility and value for our customers. Our service offerings include a full range of freight transportation and logistics services, some of which are provided by assets we own and operate, and some of which are provided by third parties with whom we contract. Our services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Other services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, final mile delivery, parcel and international services.
10
We service a large and diversified customer base in a broad range of industries, including retail, consumer products and durable goods. We believe our strategy to offer multi-modal supply chain management solutions serves to strengthen and deepen our relationships with our customers and allows us to provide a more cost effective and higher service solution.
Beginning in first quarter 2023, we have two reportable segments - Intermodal and Transportation Solutions, and Logistics, which are based primarily on the services each segment provides. Results for the for the three and six months ended June 30, 2022, have been recast to conform with the current period presentation.
Intermodal and Transportation Solutions. Our Intermodal and Transportation Solutions segment offers high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. This segment also includes our trucking operations which provides drayage for our intermodal service offering and serves our customers who require high service local and regional trucking transportation using equipment dedicated to their needs. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations. We arrange for the movement of our customers’ freight in one of our approximately 49,000 containers. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services (referred to as “drayage”) between origin or destination and rail terminals are provided by our own trucking operations and third-parties with whom we contract. As of June 30, 2023, our trucking transportation operation consisted of approximately 2,400 tractors, 3,200 employee drivers and 4,400 trailers. We also contract for services with approximately 560 independent owner-operators.
Logistics. Our Logistics segment offers a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed, all of which is provided by third party carriers with whom we contract. This segment also offers a wide range of logistics services including transportation management, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment, cross-docking, consolidation services and final mile delivery. Many of the customers for these solutions are consumer goods companies who sell into the retail channel. Our business operates or has access to approximately 9.5 million square feet of warehousing and cross-dock space across North America, to which our customers ship their goods to be stored and distributed to destinations including residences, retail stores and other commercial locations. These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements.
In August 2022, we acquired TAGG Logistics, LLC which enhanced our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs. The acquisition added scale to our logistics segment.
We are working on several yield enhancement projects including network optimization, matching of inbound and outbound loads, reducing empty miles, improving our recovery of accessorial costs, increasing our driver and asset utilization, reducing repositioning costs, providing holistic solutions and improving low profit freight. Hub’s top 50 customers represent approximately 63% of revenue for the six months ended June 30, 2023, while one customer accounted for more than 10% of our revenue for the six months ended June 30, 2023. We use various performance indicators to manage our business. We closely monitor profit levels for our top customers. We also evaluate on-time performance, customer service, cost per load and daily sales outstanding by customer account. Vendor cost changes and vendor service levels are also monitored closely.
Uncertainties and risks to our outlook include the following: inflation, a slowdown in consumer spending (driven by, among other factors, rising inflation, an economic recession, increases in interest rates, and geopolitical concerns), a shift by consumers to spending on services at the expense of goods, an increase of retailers’ inventory levels, a significant increase in transportation supply in the marketplace, aggressive pricing actions by our competitors and any inability to pass cost increases, such as transportation and warehouse costs, through to our customers, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2023.
11
RESULTS OF OPERATIONS
Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022
The following table summarizes our operating revenue by segment (in thousands):
|
Three Months Ended |
|
|||||
Operating Revenue |
June 30, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
614,632 |
|
|
$ |
875,150 |
|
Logistics |
|
453,549 |
|
|
|
548,613 |
|
Inter-segment eliminations |
|
(27,719 |
) |
|
|
(22,307 |
) |
Total operating revenue |
$ |
1,040,462 |
|
|
$ |
1,401,456 |
|
The following table summarizes our operating income by segment (in thousands):
|
Three Months Ended |
|
|||||
Operating Income |
June 30, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
31,777 |
|
|
$ |
100,601 |
|
Logistics |
|
30,293 |
|
|
|
37,035 |
|
Total operating income |
$ |
62,070 |
|
|
$ |
137,636 |
|
Total consolidated operating revenue decreased 26% to $1,040 million in 2023 from $1,401 million in 2022.
Intermodal and Transportation Solutions (“ITS”) revenue decreased 30% to $615 million primarily due to a 17% decrease in intermodal volume driven by elevated retailer inventory levels and soft import activity that impacted demand for our services, an 18% decrease in intermodal revenue per load (primarily due to lower price, fuel prices and mix) and a 7% decline in dedicated revenues due to lost customers partially offset by growth with existing and new customers.
ITS operating income decreased to $32 million, 5% of revenue, as compared to $101 million, 11% of revenue in the prior year due to lower volume, lower customer rates, higher equipment costs and lower surcharges and accessorial income. These headwinds were partially offset by lower drayage costs as we increased the portion of drayage handled on our own fleet to 79% in the second quarter of 2023 as compared to 62% in the prior year, as well as an improvement in profitability at our Dedicated service line.
Logistics revenue decreased 17% to $454 million primarily driven by lower revenue per load in our brokerage service line and lower managed transportation service line revenue, partially offset by revenue from TAGG. Brokerage volumes declined 1% compared to the prior year. Operating income was 7% of revenue in both 2023 and 2022. Operating income was $30 million as compared to $37 million last year, as lower revenue was partially offset by lower purchased transportation costs and our yield management initiatives.
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue (in thousands):
|
Three Months Ended |
||||||||
|
June 30, |
||||||||
|
2023 |
|
|
|
2022 |
|
|
||
|
|
|
|
|
|
|
|
||
Operating revenue |
$ |
1,040,462 |
|
100.0% |
|
$ |
1,401,456 |
|
100.0% |
|
|
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
|
||
Purchased transportation and warehousing |
|
763,609 |
|
73.4% |
|
|
1,062,983 |
|
75.9% |
Salaries and benefits |
|
141,823 |
|
13.6% |
|
|
129,499 |
|
9.2% |
Depreciation and amortization |
|
35,386 |
|
3.4% |
|
|
32,244 |
|
2.3% |
Insurance and claims |
|
11,676 |
|
1.1% |
|
|
10,645 |
|
0.8% |
General and administrative |
|
26,757 |
|
2.6% |
|
|
36,213 |
|
2.6% |
Gain on sale of assets, net |
|
(859 |
) |
-0.1% |
|
|
(7,764 |
) |
-0.6% |
Total operating expenses |
|
978,392 |
|
94.0% |
|
|
1,263,820 |
|
90.2% |
|
|
|
|
|
|
|
|
||
Operating income |
$ |
62,070 |
|
6.0% |
|
$ |
137,636 |
|
9.8% |
12
CONSOLIDATED OPERATING EXPENSES
Purchased Transportation and Warehousing
Purchased transportation and warehousing costs decreased 28% to $764 million in 2023 from $1,063 million in 2022.
Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes, reductions in third party carrier costs, decreased use of third-party carriers for drayage in ITS and a change in method of estimating accruals for certain costs, partially offset by higher equipment costs.
Salaries and Benefits
Salaries and benefits increased to $142 million in 2023 from $129 million in 2022. As a percentage of revenue, salaries and benefits increased to 13.6% in 2023 from 9.2% in 2022.
This increase was primarily due to $30 million of incremental expense related to growth of our driver and warehouse employee headcount, partially offset by an $18 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense.
Headcount, which includes drivers, warehouse personnel and office employees, was 5,864 and 4,783 as of June 30, 2023 and 2022, respectively. The increase in headcount related primarily to drivers as we have expanded the portion of drayage coverage handled by our own fleet, as well as the acquisition of TAGG, which added 671 warehouse employees.
Depreciation and Amortization
Depreciation and amortization expense increased to $35 million in 2023 from $32 million in 2022. This increase was primarily due to increased container and tractor depreciation expense as well as the amortization of intangibles related to the acquisition of TAGG. This expense, as a percentage of revenue, increased to 3.4% in 2023 from 2.3% in 2022. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, office equipment and building improvements.
Insurance and Claims
Insurance and claims expense increased to $12 million in 2023 from $11 million in 2022. This increase was primarily due to increased auto liability expenses not covered by insurance which increased due to an increase in mileage run on our own trucking fleet. These expenses, as a percentage of revenue, increased to 1.1% in 2023 from 0.8% in 2022.
General and Administrative
General and administrative expenses decreased to $27 million in 2023 from $36 million in 2022. These expenses, as a percentage of revenue, remained consistent at 2.6% in both 2023 and in 2022.
This decrease was primarily due to a decrease in legal and acquisition-related expenses, bad debt expense and professional services expense including IT software expense, partially offset by increased expense due to the acquisition of TAGG and higher rent expense.
Gain on Sale of Assets, Net
Net gains on the sale of equipment decreased to $1 million in 2023 from $8 million in 2022. This decrease resulted from both less units sold and a lower average gain per unit sold in 2023 as compared to 2022. These gains, as a percentage of revenue, decreased to 0.1% in 2023 from 0.6% in 2022.
Other Income (Expense)
Other expense decreased to $1 million in 2023 from $2 million in 2022. Interest expense increased due primarily to higher interest rates on our debt to $3 million in 2023 from $1 million in 2022. This increase was offset by increased interest income to $2 million in 2023 due to higher interest rates on our cash balance.
Provision for Income Taxes
The provision for income taxes decreased to $15 million in 2023 from $33 million in 2022. We provided for income taxes using an effective rate of 23.9% in 2023 and an effective rate of 24.4% in 2022. The second quarter 2023 effective tax rate of 23.9% benefitted primarily from a change in state apportionment methodology.
13
Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022
The following table summarizes our operating revenue by segment (in thousands):
|
Six Months Ended |
|
|||||
Operating Revenue |
June 30, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
1,323,881 |
|
|
$ |
1,651,720 |
|
Logistics |
|
922,690 |
|
|
|
1,089,597 |
|
Inter-segment eliminations |
|
(53,844 |
) |
|
|
(41,738 |
) |
Total operating revenue |
$ |
2,192,727 |
|
|
$ |
2,699,579 |
|
The following table summarizes our operating income by segment (in thousands):
|
Six Months Ended |
|
|||||
Operating Income |
June 30, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
80,981 |
|
|
$ |
186,297 |
|
Logistics |
|
59,294 |
|
|
|
66,399 |
|
Total operating income |
$ |
140,275 |
|
|
$ |
252,696 |
|
Total consolidated operating revenue decreased 19% to $2,193 million in 2023 from $2,700 million in 2022.
Intermodal and Transportation Solutions (“ITS”) revenue decreased 20% to $1,324 million primarily due to a 15% decrease in intermodal volume driven by elevated retailer inventory levels and soft import activity that impacted demand for our services, an 8% decrease in intermodal revenue per load (primarily due to lower price, fuel prices and mix) and a 1% decline in dedicated revenues due to lost customers, partially offset by growth with existing and new customers.
ITS operating income decreased to $81 million, 6% of revenue, as compared to $186 million, 11% of revenue, in the prior year due to lower volume, lower customer rates, higher equipment costs and lower surcharges and accessorial income. These headwinds were partially offset by lower drayage costs as we increased the portion of drayage handled on our own fleet to 76% in the first six months of 2023 as compared to 60% in the prior year, as well as an improvement in profitability at our Dedicated service line.
Logistics revenue decreased 15% to $923 million primarily driven by lower revenue per load in our brokerage service line and lower managed transportation service line revenue, partially offset by revenue from TAGG. Operating income was 6% of revenue in both 2023 and 2022. Operating income was $59 million as compared to $66 million last year, as lower revenue was partially offset by lower purchased transportation costs and our yield management initiatives.
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue (in thousands):
|
Six Months Ended |
||||||||
|
June 30, |
||||||||
|
2023 |
|
|
|
2022 |
|
|
||
|
|
|
|
|
|
|
|
||
Operating revenue |
$ |
2,192,727 |
|
100.0% |
|
$ |
2,699,579 |
|
100.0% |
|
|
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
|
||
Purchased transportation and warehousing |
|
1,630,540 |
|
74.4% |
|
|
2,058,248 |
|
76.2% |
Salaries and benefits |
|
279,254 |
|
12.7% |
|
|
258,238 |
|
9.6% |
Depreciation and amortization |
|
70,835 |
|
3.2% |
|
|
63,533 |
|
2.4% |
Insurance and claims |
|
24,359 |
|
1.1% |
|
|
19,938 |
|
0.7% |
General and administrative |
|
52,298 |
|
2.4% |
|
|
59,435 |
|
2.2% |
Gain on sale of assets, net |
|
(4,834 |
) |
-0.2% |
|
|
(12,509 |
) |
-0.5% |
Total operating expenses |
|
2,052,452 |
|
93.6% |
|
|
2,446,883 |
|
90.6% |
|
|
|
|
|
|
|
|
||
Operating income |
$ |
140,275 |
|
6.4% |
|
$ |
252,696 |
|
9.4% |
14
CONSOLIDATED OPERATING EXPENSES
Purchased Transportation and Warehousing
Purchased transportation and warehousing costs decreased 21% to $1,631 million in 2023 from $2,058 million in 2022.
Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes, reductions in third party carrier costs and decreased use of third-party carriers for drayage in ITS, partially offset by higher equipment costs.
Salaries and Benefits
Salaries and benefits increased to $279 million in 2023 from $258 million in 2022. As a percentage of revenue, salaries and benefits increased to 12.7% in 2023 from 9.6% in 2022.
This increase was primarily due to $58 million of incremental expense related to growth of our driver and warehouse employee headcount, partially offset by a $37 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense.
Depreciation and Amortization
Depreciation and amortization expense increased to $71 million in 2023 from $64 million in 2022. This increase was primarily due to increased container and tractor depreciation expense as well as the amortization of intangibles related to the acquisition of TAGG. This expense, as a percentage of revenue, increased to 3.2% in 2023 from 2.4% in 2022. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, office equipment and building improvements.
Insurance and Claims
Insurance and claims expense increased to $24 million in 2023 from $20 million in 2022. This increase was primarily due to increased workers compensation costs and auto liability expenses not covered by insurance which increased due to an increase in mileage run on our own trucking fleet. These expenses, as a percentage of revenue, increased to 1.1% in 2023 from 0.7% in 2022.
General and Administrative
General and administrative expenses decreased to $52 million in 2023 from $59 million in 2022. These expenses, as a percentage of revenue, increased to 2.4% in 2023 from 2.2% in 2022.
This decrease was primarily due to a decrease in legal and acquisition-related expenses, bad debt expense and professional services expense including IT software expense, partially offset by increased expense due to the acquisition of TAGG and higher rent expense.
Gain on Sale of Assets, Net
Net gains on the sale of equipment decreased to $5 million in 2023 from $13 million in 2022. The decrease resulted from both less units sold and a lower average gain per unit sold in 2023 as compared to 2022. These gains, as a percentage of revenue, decreased to 0.2% in 2023 from 0.5% in 2022.
Other Income (Expense)
Other expense remained consistent at $3 million in both 2023 and in 2022. Interest expense increased to $6 million in 2023 from $3 million in 2022. This increase was due primarily to higher interest rates on our debt. Interest income increased to $3 million in 2023 due to higher interest rates on our cash balance.
Provision for Income Taxes
The provision for income taxes decreased to $29 million in 2023 from $59 million in 2022. We provided for income taxes using an effective rate of 21.4% in 2023 and an effective rate of 23.7% in 2022. The effective tax rate for the six months ended June 30, 2023 of 21.4% benefitted primarily from a change in state apportionment methodology.
15
LIQUIDITY AND CAPITAL RESOURCES
Our financing and liquidity strategy is to fund operating cash payments through cash received from the provision of services, cash on hand, and to a lesser extent, from cash received from the sale of equipment. As of June 30, 2023, we had $342 million of cash and $20.3 million of restricted investments. We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes. Payments for our other investing activities, investments in warehousing improvements and our capitalized technology investments, have been funded by cash on hand or cash flows from operations. Cash used in financing activities including the purchase of treasury stock has been funded by cash from operations or cash on hand. We have not historically used our Credit Facility to fund our operating, investing or financing cash needs, though it is available to fund future cash requirements as needed. In the last three years, we have funded our business acquisitions from cash on hand, though in the future we may elect to fund these activities through a combination of cash on hand, borrowings on our Credit Facility, or from issuance of secured or unsecured debt. Based on past performance and current expectations, we believe cash on hand and cash received from the provision of services, along with other financing sources, will provide us the necessary capital to fund transactions and achieve our planned growth for the next twelve months and the foreseeable future.
Cash provided by operating activities for the six months ended June 30, 2023 was approximately $221 million, which resulted primarily from net income of $108 million plus non-cash charges of $110 million and changes in operating assets and liabilities of $3 million.
Cash provided by operating activities totaled $221 million in 2023 compared to $201 million in 2022. The $20 million increase in cash flow was primarily due to increases in a positive change in operating assets and liabilities of $65 million, primarily due to a decrease in the accounts receivable balance, an increase in non-cash charges of $37 million partially offset by a decrease in net income of $82 million.
Net cash used in investing activities for the six months ended June 30, 2023 was $50 million which resulted from capital expenditures of $66 million, partially offset by proceeds from the sale of equipment of $15 million. Capital expenditures of $66 million related primarily to tractors of $35 million, containers of $14 million, technology investments of $8 million, warehouse equipment of $7 million and leasehold improvements of $2 million.
Capital expenditures decreased by approximately $20 million in 2023 as compared to 2022. The 2023 decrease was due to lower spend on our corporate headquarters of $15 million, decreases in container purchases of $14 million and technology investments of $7 million. These decreases were partially offset by increases in the purchase of tractors and warehouse equipment of $7 million each and leasehold improvements of $2 million.
In 2023, we estimate capital expenditures will range from $140 million to $150 million. This range is lower than the estimate we disclosed in our 2022 10-K of $170 million to $190 million, as we have reduced our planned purchase of containers in 2023. We expect transportation equipment purchases to range from $116 million to $124 million and technology and other investments will range from $24 million to $26 million. We plan to fund these expenditures with a combination of cash and debt.
Net cash used in financing activities for the six months ended June 30, 2023 was $115 million which includes purchases of treasury stock of $100 million, repayments of long-term debt of $56 million, cash for stock tendered for payments of withholding taxes of $8 million and finance lease payments of $1 million, partially offset by proceeds from the issuance of debt of $50 million. Debt incurred in 2023 was used to fund the purchase of transportation equipment.
The $121 million increase in cash used in financing activities for 2023 versus 2022 was primarily due to the increase in the purchase of treasury stock of $100 million, less proceeds from the issuance of debt of $16 million and increases in both cash paid for stock related to employee withholding taxes and repayments of long-term debt of $2 million each.
As a result of anticipated favorable timing differences, primarily related to depreciation and compensation, we expect our cash paid for income taxes in 2023 to be less than our income tax expense.
See Note 5 of the consolidated financial statements for details related to interest rates and commitment fees.
We have standby letters of credit that expire in 2023 and 2024. As of June 30, 2023 and December 31, 2022, our letters of credit were $1 million and $43 million, respectively.
As of June 30, 2023, and December 31, 2022, we had no borrowings under the Credit Agreement and our unused and available borrowings were $349 million and $307 million, respectively. We were in compliance with our debt covenants as of June 30, 2023 and December 31, 2022.
16
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 and ability to pay. 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, 2023 from that presented in our 2022 10-K.
Item 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. As of June 30, 2023, 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, 2023.
(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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On August 22, 2022, we completed the acquisition of TAGG. We are currently integrating processes, employees, technologies and operations. Management will continue to evaluate our internal controls over financial reporting as we complete our integration.
PART II. Other Information
Item 1. Legal Proceedings
For information regarding legal proceedings, see Note 6 “Legal Matters” to the Consolidated Financial Statements included in Part I, Item 1. “Financial Statements.”
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 2022 10-K under the heading “Risk Factors.” When any one or more of these risks materialize from time to time, the Company’s business and stock price can be materially and adversely affected. There have been no material changes to the Company’s risk factors since the 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In October 2022, the Board authorized the purchase of up to $200 million of our Class A Common Stock pursuant to a share repurchase program (the “2022 Program”). Under the 2022 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. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be modified, suspended or discontinued at any time. We purchased 1,323,425 shares under this authorization during the first six months of 2023.
We purchased 2,695 shares for $0.2 million during the second quarter of 2023 related to withholding upon vesting of restricted stock. The table below includes information on a monthly basis regarding the number of shares delivered to us to satisfy the mandatory tax withholding requirement upon vesting of restricted stock during the second quarter of 2023. These shares do not reduce the repurchase authority under the 2022 Program.
|
|
|
|
|
|
|
|
|
|
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) |
|
||||
April 2023 |
|
1,284 |
|
|
$ |
83.47 |
|
|
|
- |
|
|
$ |
200,000 |
|
May 2023 |
|
761,063 |
|
|
$ |
74.19 |
|
|
|
759,714 |
|
|
$ |
143,638 |
|
June 2023 |
|
563,773 |
|
|
$ |
77.41 |
|
|
|
563,711 |
|
|
$ |
100,000 |
|
Total |
|
1,326,120 |
|
|
$ |
75.57 |
|
|
|
1,323,425 |
|
|
$ |
100,000 |
|
17
Item 5. Other Information
None of the Company’s directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company’s fiscal quarter ended June 30, 2023, as such terms are defined under Item 408(a) of Regulation S-K.
Item 6. Exhibits
Exhibit No. |
Description |
3.1 |
Certificate of Incorporation of Hub Group, Inc. (Amended as of June 26, 2023) |
|
|
31.1 |
Rule 13a-14(a) Certification of Phillip D. Yeager, Chief Executive Officer. |
|
|
31.2 |
Rule 13a-14(a) Certification of Geoffrey F. DeMartino, Chief Financial Officer. |
|
|
32.1 |
|
101 |
Inline XBRL Document Set for the unaudited consolidated financial statements and accompanying notes in Part 1, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q. |
|
|
104 |
Inline XBRL for the cover page of this Quarterly Report on Form 10-Q included in the exhibit 101 Inline XBRL Document Set. |
18
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 4, 2023 |
/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) |
|
|
19