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 September 30, 20192020 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, Illinois60523
(Address, including zip code, of principal executive offices)
(630) 271-3600
(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 October 27, 2019,30, 2020, the registrant had 33,375,32833,494,226 outstanding shares of Class A common stock, par value $.01 per share, and 662,296 outstanding shares of Class B common stock, par value $.01 per share.
HUB GROUP, INC.
INDEX
| Page |
PART I. Financial Information:
Item 1. Financial Statements |
|
Consolidated Balance Sheets – September 30, | 3 |
4 | |
5 | |
6 | |
7 | |
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3.Quantitative and Qualitative Disclosures about Market Risk |
|
| |
18 | |
18 | |
| |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
|
| |
| |
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
| September 30, |
|
| December 31, |
| ||
| 2020 |
|
| 2019 |
| ||
ASSETS | (unaudited) |
|
|
|
|
| |
CURRENT ASSETS: |
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 185,336 |
|
| $ | 168,729 |
|
Accounts receivable trade |
| 559,312 |
|
|
| 450,451 |
|
Allowance for uncollectible trade accounts |
| (8,574 | ) |
|
| (6,912 | ) |
Other receivables |
| 1,937 |
|
|
| 3,237 |
|
Prepaid taxes |
| 1,780 |
|
|
| 630 |
|
Prepaid expenses and other current assets |
| 13,661 |
|
|
| 24,086 |
|
TOTAL CURRENT ASSETS |
| 753,452 |
|
|
| 640,221 |
|
|
|
|
|
|
|
|
|
Restricted investments |
| 21,516 |
|
|
| 22,601 |
|
Property and equipment, net |
| 638,940 |
|
|
| 663,165 |
|
Right-of-use assets - operating leases |
| 34,400 |
|
|
| 35,548 |
|
Right-of-use assets - financing leases |
| 4,145 |
|
|
| 5,865 |
|
Other intangibles, net |
| 110,890 |
|
|
| 120,967 |
|
Goodwill, net |
| 484,295 |
|
|
| 484,459 |
|
Other assets |
| 17,332 |
|
|
| 18,748 |
|
TOTAL ASSETS | $ | 2,064,970 |
|
| $ | 1,991,574 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
Accounts payable trade | $ | 307,361 |
|
| $ | 257,247 |
|
Accounts payable other |
| 23,008 |
|
|
| 11,585 |
|
Accrued payroll |
| 25,533 |
|
|
| 45,540 |
|
Accrued other |
| 88,344 |
|
|
| 86,686 |
|
Lease liability - operating leases |
| 8,956 |
|
|
| 8,567 |
|
Lease liability - financing leases |
| 2,562 |
|
|
| 3,048 |
|
Current portion of long term debt |
| 86,964 |
|
|
| 94,691 |
|
TOTAL CURRENT LIABILITIES |
| 542,728 |
|
|
| 507,364 |
|
|
|
|
|
|
|
|
|
Long term debt |
| 149,004 |
|
|
| 186,934 |
|
Non-current liabilities |
| 49,242 |
|
|
| 36,355 |
|
Lease liability - operating leases |
| 27,191 |
|
|
| 28,518 |
|
Lease liability - financing leases |
| 12 |
|
|
| 1,820 |
|
Deferred taxes |
| 161,782 |
|
|
| 155,304 |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 2,000,000 shares authorized; 0 shares issued or outstanding in 2020 and 2019 |
| - |
|
|
| - |
|
Common stock |
|
|
|
|
|
|
|
Class A: $.01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2020 and 2019; 33,494,661 shares outstanding in 2020 and 33,353,904 shares outstanding in 2019 |
| 412 |
|
|
| 412 |
|
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2020 and 2019 |
| 7 |
|
|
| 7 |
|
Additional paid-in capital |
| 183,140 |
|
|
| 179,637 |
|
Purchase price in excess of predecessor basis, net of tax benefit of $10,306 |
| (15,458 | ) |
|
| (15,458 | ) |
Retained earnings |
| 1,230,772 |
|
|
| 1,179,601 |
|
Accumulated other comprehensive loss |
| (260 | ) |
|
| (186 | ) |
Treasury stock; at cost, 7,730,131 shares in 2020 and 7,870,888 shares in 2019 |
| (263,602 | ) |
|
| (268,734 | ) |
TOTAL STOCKHOLDERS' EQUITY |
| 1,135,011 |
|
|
| 1,075,279 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,064,970 |
|
| $ | 1,991,574 |
|
Item 1. Financial Statements
| September 30, |
|
| December 31, |
| ||
| 2019 |
|
| 2018 |
| ||
ASSETS | (unaudited) |
|
|
|
|
| |
CURRENT ASSETS: |
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 89,628 |
|
| $ | 61,435 |
|
Accounts receivable trade, net |
| 434,552 |
|
|
| 477,088 |
|
Other receivables |
| 3,945 |
|
|
| 22,021 |
|
Prepaid taxes |
| 5,238 |
|
|
| 616 |
|
Prepaid expenses and other current assets |
| 26,234 |
|
|
| 27,533 |
|
TOTAL CURRENT ASSETS |
| 559,597 |
|
|
| 588,693 |
|
|
|
|
|
|
|
|
|
Restricted investments |
| 21,428 |
|
|
| 19,236 |
|
Property and equipment, net |
| 657,826 |
|
|
| 681,859 |
|
Right-of-use assets - operating leases |
| 37,509 |
|
|
| - |
|
Right-of-use assets - financing leases |
| 6,432 |
|
|
| - |
|
Other intangibles, net |
| 124,422 |
|
|
| 134,788 |
|
Goodwill, net |
| 484,514 |
|
|
| 483,584 |
|
Other assets |
| 18,955 |
|
|
| 16,738 |
|
TOTAL ASSETS | $ | 1,910,683 |
|
| $ | 1,924,898 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
Accounts payable trade | $ | 180,490 |
|
| $ | 272,859 |
|
Accounts payable other |
| 13,487 |
|
|
| 10,906 |
|
Accrued payroll |
| 46,915 |
|
|
| 55,535 |
|
Accrued other |
| 96,575 |
|
|
| 82,900 |
|
Lease liability - operating leases |
| 8,665 |
|
|
| - |
|
Lease liability - financing leases |
| 3,021 |
|
|
| 2,845 |
|
Current portion of long term debt |
| 95,772 |
|
|
| 101,713 |
|
TOTAL CURRENT LIABILITIES |
| 444,925 |
|
|
| 526,758 |
|
|
|
|
|
|
|
|
|
Long term debt |
| 192,422 |
|
|
| 229,071 |
|
Non-current liabilities |
| 35,011 |
|
|
| 29,619 |
|
Lease liability - operating leases |
| 30,444 |
|
|
| - |
|
Lease liability - financing leases |
| 2,600 |
|
|
| 4,739 |
|
Deferred taxes |
| 160,725 |
|
|
| 153,877 |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 2,000,000 shares authorized; 0 shares issued or outstanding in 2019 and 2018 | - |
|
|
| - |
| |
Common stock |
|
|
|
|
|
|
|
Class A: $.01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2019 and 2018; 33,375,328 shares outstanding in 2019 and 33,793,709 shares outstanding in 2018 |
| 412 |
|
|
| 412 |
|
Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2019 and 2018 |
| 7 |
|
|
| 7 |
|
Additional paid-in capital |
| 175,749 |
|
|
| 172,220 |
|
Purchase price in excess of predecessor basis, net of tax benefit of $10,306 |
| (15,458 | ) |
|
| (15,458 | ) |
Retained earnings |
| 1,151,646 |
|
|
| 1,072,456 |
|
Accumulated other comprehensive loss |
| (211 | ) |
|
| (182 | ) |
Treasury stock; at cost, 7,849,464 shares in 2019 and 7,431,083 shares in 2018 |
| (267,589 | ) |
|
| (248,621 | ) |
TOTAL STOCKHOLDERS' EQUITY |
| 1,044,556 |
|
|
| 980,834 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,910,683 |
|
| $ | 1,924,898 |
|
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 |
|
| Nine Months |
| Three Months |
|
| Nine Months |
| ||||||||||||||||||||
| Ended September 30, |
|
| Ended September 30, |
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue | $ | 913,275 |
|
| $ | 933,224 |
|
| $ | 2,767,436 |
|
| $ | 2,665,300 |
| $ | 924,812 |
|
| $ | 913,275 |
|
| $ | 2,542,914 |
|
| $ | 2,767,436 |
|
Transportation costs |
| 778,057 |
|
|
| 818,240 |
|
|
| 2,372,226 |
|
|
| 2,358,286 |
|
| 816,777 |
|
|
| 778,057 |
|
|
| 2,223,036 |
|
|
| 2,372,226 |
|
Gross margin |
| 135,218 |
|
|
| 114,984 |
|
|
| 395,210 |
|
|
| 307,014 |
|
| 108,035 |
|
|
| 135,218 |
|
|
| 319,878 |
|
|
| 395,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
| 59,765 |
|
|
| 57,123 |
|
|
| 182,652 |
|
|
| 163,496 |
|
| 45,576 |
|
|
| 59,765 |
|
|
| 146,128 |
|
|
| 182,652 |
|
General and administrative |
| 30,906 |
|
|
| 19,327 |
|
|
| 77,852 |
|
|
| 55,557 |
|
| 20,845 |
|
|
| 30,906 |
|
|
| 76,151 |
|
|
| 77,852 |
|
Depreciation and amortization |
| 7,301 |
|
|
| 3,800 |
|
|
| 21,150 |
|
|
| 11,286 |
|
| 7,697 |
|
|
| 7,301 |
|
|
| 22,945 |
|
|
| 21,150 |
|
Total costs and expenses |
| 97,972 |
|
|
| 80,250 |
|
|
| 281,654 |
|
|
| 230,339 |
|
| 74,118 |
|
|
| 97,972 |
|
|
| 245,224 |
|
|
| 281,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
| 37,246 |
|
|
| 34,734 |
|
|
| 113,556 |
|
|
| 76,675 |
|
| 33,917 |
|
|
| 37,246 |
|
|
| 74,654 |
|
|
| 113,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| (2,780 | ) |
|
| (2,411 | ) |
|
| (8,526 | ) |
|
| (6,702 | ) |
| (2,237 | ) |
|
| (2,780 | ) |
|
| (7,698 | ) |
|
| (8,526 | ) |
Interest income |
| 613 |
|
|
| 340 |
|
|
| 1,581 |
|
|
| 365 |
| |||||||||||||||
Other, net |
| 56 |
|
|
| 251 |
|
|
| (14 | ) |
|
| 20 |
|
| (122 | ) |
|
| 669 |
|
|
| 106 |
|
|
| 1,567 |
|
Total other expense |
| (2,111 | ) |
|
| (1,820 | ) |
|
| (6,959 | ) |
|
| (6,317 | ) |
| (2,359 | ) |
|
| (2,111 | ) |
|
| (7,592 | ) |
|
| (6,959 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
| 35,135 |
|
|
| 32,914 |
|
|
| 106,597 |
|
|
| 70,358 |
| |||||||||||||||
Income before provision for income taxes |
| 31,558 |
|
|
| 35,135 |
|
|
| 67,062 |
|
|
| 106,597 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
| 9,030 |
|
|
| 7,150 |
|
|
| 27,381 |
|
|
| 16,371 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income from continuing operations |
| 26,105 |
|
|
| 25,764 |
|
|
| 79,216 |
|
|
| 53,987 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income from discontinued operations, net of income taxes |
| - |
|
| $ | 88,846 |
|
|
| - |
|
| $ | 98,842 |
| |||||||||||||||
Income tax expense |
| 6,777 |
|
|
| 9,030 |
|
|
| 15,891 |
|
|
| 27,381 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 26,105 |
|
| $ | 114,610 |
|
| $ | 79,216 |
|
| $ | 152,829 |
|
| 24,781 |
|
|
| 26,105 |
|
|
| 51,171 |
|
|
| 79,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
| (33 | ) |
|
| 22 |
|
|
| (29 | ) |
|
| 26 |
|
| 23 |
|
|
| (33 | ) |
|
| (74 | ) |
|
| (29 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income | $ | 26,072 |
|
| $ | 114,632 |
|
| $ | 79,187 |
|
| $ | 152,855 |
| $ | 24,804 |
|
| $ | 26,072 |
|
| $ | 51,097 |
|
| $ | 79,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic | $ | 0.79 |
|
| $ | 0.77 |
|
| $ | 2.37 |
|
| $ | 1.62 |
| |||||||||||||||
Diluted | $ | 0.78 |
|
| $ | 0.77 |
|
| $ | 2.36 |
|
| $ | 1.61 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic | $ | - |
|
| $ | 2.66 |
|
| $ | - |
|
| $ | 2.96 |
| |||||||||||||||
Diluted | $ | - |
|
| $ | 2.64 |
|
| $ | - |
|
| $ | 2.95 |
| |||||||||||||||
Basic earnings per common share | $ | 0.75 |
|
| $ | 0.79 |
|
| $ | 1.54 |
|
| $ | 2.37 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic | $ | 0.79 |
|
| $ | 3.43 |
|
| $ | 2.37 |
|
| $ | 4.58 |
| |||||||||||||||
Diluted | $ | 0.78 |
|
| $ | 3.41 |
|
| $ | 2.36 |
|
| $ | 4.56 |
| |||||||||||||||
Diluted earnings per common share | $ | 0.74 |
|
| $ | 0.78 |
|
| $ | 1.53 |
|
| $ | 2.36 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares outstanding |
| 33,034 |
|
|
| 33,399 |
|
|
| 33,385 |
|
|
| 33,387 |
|
| 33,177 |
|
|
| 33,034 |
|
|
| 33,169 |
|
|
| 33,385 |
|
Diluted weighted average number of shares outstanding |
| 33,265 |
|
|
| 33,605 |
|
|
| 33,522 |
|
|
| 33,548 |
|
| 33,597 |
|
|
| 33,265 |
|
|
| 33,513 |
|
|
| 33,522 |
|
See notes to unaudited consolidated financial statements.
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
| Purchase Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Purchase Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Class A & B |
|
|
|
|
|
| of Excess of |
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| Class A & B |
|
|
|
|
|
| of Excess of |
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
| Common Stock |
|
| Additional |
|
| Predecessor |
|
|
|
|
|
| Other |
|
| Treasury |
|
|
|
|
| Common Stock |
|
| Additional |
|
| Predecessor |
|
|
|
|
|
| Other |
|
| Treasury |
|
|
|
|
| ||||||||||||||||||||||||||
| Shares |
|
|
|
|
|
| Paid-in |
|
| Basis, Net |
|
| Retained |
|
| Comprehensive |
|
| Stock |
|
|
|
|
| Shares |
|
|
|
|
|
| Paid-in |
|
| Basis, Net |
|
| Retained |
|
| Comprehensive |
|
| Stock |
|
|
|
|
| ||||||||||||||||||||
| Issued |
|
| Amount |
|
| Capital |
|
| of Tax |
|
| Earnings |
|
| Income |
|
| Shares |
|
| Amount |
|
| Total |
| Issued |
|
| Amount |
|
| Capital |
|
| of Tax |
|
| Earnings |
|
| Income |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||||||||||||
Balance June 30, 2018 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 168,614 |
|
| $ | (15,458 | ) |
| $ | 908,935 |
|
| $ | (190 | ) |
|
| (7,507,623 | ) |
| $ | (251,260 | ) |
| $ | 811,060 |
| |||||||||||||||||||||||||||||||||||
Stock tendered for payments of withholding taxes |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,941 | ) |
|
| (245 | ) |
|
| (245 | ) | |||||||||||||||||||||||||||||||||||
Issuance of restricted stock awards, net of forfeitures |
| - |
|
|
| - |
|
|
| 4,320 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (100,157 | ) |
|
| (4,320 | ) |
|
| - |
| |||||||||||||||||||||||||||||||||||
Share-based compensation expense |
| - |
|
|
| - |
|
|
| 2,508 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,508 |
| |||||||||||||||||||||||||||||||||||
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 114,610 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 114,610 |
| |||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 22 |
|
|
| - |
|
|
| - |
|
|
| 22 |
| |||||||||||||||||||||||||||||||||||
Balance September 30, 2018 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 175,442 |
|
| $ | (15,458 | ) |
| $ | 1,023,545 |
|
| $ | (168 | ) |
|
| (7,612,721 | ) |
| $ | (255,825 | ) |
| $ | 927,955 |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Balance June 30, 2019 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 170,619 |
|
| $ | (15,458 | ) |
| $ | 1,125,541 |
|
| $ | (178 | ) |
|
| (7,369,052 | ) |
| $ | (248,361 | ) |
| $ | 1,032,582 |
|
| 41,887,088 |
|
| $ | 419 |
|
| $ | 170,619 |
|
| $ | (15,458 | ) |
| $ | 1,125,541 |
|
| $ | (178 | ) |
|
| (7,369,052 | ) |
| $ | (248,361 | ) |
| $ | 1,032,582 |
|
Purchase of treasury shares |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (444,509 | ) |
|
| (17,716 | ) |
|
| (17,716 | ) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (444,509 | ) |
|
| (17,716 | ) |
|
| (17,716 | ) |
Stock tendered for payments of withholding taxes |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,168 | ) |
|
| (129 | ) |
|
| (129 | ) | |||||||||||||||||||||||||||||||||||
Stock withheld for payments of withholding taxes |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,168 | ) |
|
| (129 | ) |
|
| (129 | ) | |||||||||||||||||||||||||||||||||||
Issuance of restricted stock awards, net of forfeitures |
| - |
|
|
| - |
|
|
| 1,383 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (32,735 | ) |
|
| (1,383 | ) |
|
| - |
|
| - |
|
|
| - |
|
|
| 1,383 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (32,735 | ) |
|
| (1,383 | ) |
|
| - |
|
Share-based compensation expense |
| - |
|
|
| - |
|
|
| 3,747 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,747 |
|
| - |
|
|
| - |
|
|
| 3,747 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,747 |
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26,105 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26,105 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26,105 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26,105 |
|
Foreign currency translation adjustment |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (33 | ) |
|
| - |
|
|
| - |
|
|
| (33 | ) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (33 | ) |
|
| - |
|
|
| - |
|
|
| (33 | ) |
Balance September 30, 2019 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 175,749 |
|
| $ | (15,458 | ) |
| $ | 1,151,646 |
|
| $ | (211 | ) |
|
| (7,849,464 | ) |
| $ | (267,589 | ) |
| $ | 1,044,556 |
|
| 41,887,088 |
|
| $ | 419 |
|
| $ | 175,749 |
|
| $ | (15,458 | ) |
| $ | 1,151,646 |
|
| $ | (211 | ) |
|
| (7,849,464 | ) |
| $ | (267,589 | ) |
| $ | 1,044,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2017 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 173,011 |
|
| $ | (15,458 | ) |
| $ | 870,716 |
|
| $ | (194 | ) |
|
| (7,777,722 | ) |
| $ | (258,622 | ) |
| $ | 769,872 |
| |||||||||||||||||||||||||||||||||||
Stock tendered for payments of withholding taxes |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (87,206 | ) |
|
| (4,262 | ) |
|
| (4,262 | ) | |||||||||||||||||||||||||||||||||||
Balance June 30, 2020 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 178,914 |
|
| $ | (15,458 | ) |
| $ | 1,205,991 |
|
| $ | (283 | ) |
|
| (7,706,638 | ) |
| $ | (263,746 | ) |
| $ | 1,105,837 |
| |||||||||||||||||||||||||||||||||||
Stock withheld for payments of withholding taxes |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,896 | ) |
|
| (97 | ) |
|
| (97 | ) | |||||||||||||||||||||||||||||||||||
Issuance of restricted stock awards, net of forfeitures |
| - |
|
|
| - |
|
|
| (7,059 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 252,207 |
|
|
| 7,059 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| (241 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (21,597 | ) |
|
| 241 |
|
|
| - |
|
Share-based compensation expense |
| - |
|
|
| - |
|
|
| 9,490 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9,490 |
|
| - |
|
|
| - |
|
|
| 4,467 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,467 |
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 152,829 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 152,829 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 24,781 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 24,781 |
|
Foreign currency translation adjustment |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26 |
|
|
| - |
|
|
| - |
|
|
| 26 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 23 |
|
|
| - |
|
|
| - |
|
|
| 23 |
|
Balance September 30, 2018 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 175,442 |
|
| $ | (15,458 | ) |
| $ | 1,023,545 |
|
| $ | (168 | ) |
|
| (7,612,721 | ) |
| $ | (255,825 | ) |
| $ | 927,955 |
| |||||||||||||||||||||||||||||||||||
Balance September 30, 2020 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 183,140 |
|
| $ | (15,458 | ) |
| $ | 1,230,772 |
|
| $ | (260 | ) |
|
| (7,730,131 | ) |
| $ | (263,602 | ) |
| $ | 1,135,011 |
| |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 172,220 |
|
| $ | (15,458 | ) |
| $ | 1,072,456 |
|
| $ | (182 | ) |
|
| (7,431,083 | ) |
| $ | (248,621 | ) |
| $ | 980,834 |
|
| 41,887,088 |
|
| $ | 419 |
|
| $ | 172,220 |
|
| $ | (15,458 | ) |
| $ | 1,072,456 |
|
| $ | (182 | ) |
|
| (7,431,083 | ) |
| $ | (248,621 | ) |
| $ | 980,834 |
|
Purchase of treasury shares |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (626,320 | ) |
|
| (24,998 | ) |
|
| (24,998 | ) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (626,320 | ) |
|
| (24,998 | ) |
|
| (24,998 | ) |
Stock tendered for payments of withholding taxes |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (75,881 | ) |
|
| (2,875 | ) |
|
| (2,875 | ) | |||||||||||||||||||||||||||||||||||
Stock withheld for payments of withholding taxes |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (75,881 | ) |
|
| (2,875 | ) |
|
| (2,875 | ) | |||||||||||||||||||||||||||||||||||
Issuance of restricted stock awards, net of forfeitures |
| - |
|
|
| - |
|
|
| (8,905 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 283,820 |
|
|
| 8,905 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| (8,905 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 283,820 |
|
|
| 8,905 |
|
|
| - |
|
Share-based compensation expense |
| - |
|
|
| - |
|
|
| 12,434 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,434 |
|
| - |
|
|
| - |
|
|
| 12,434 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,434 |
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 79,216 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 79,216 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 79,216 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 79,216 |
|
Adoption of ASU 2016-02 |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26 | ) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26 | ) |
Foreign currency translation adjustment |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (29 | ) |
|
| - |
|
|
| - |
|
|
| (29 | ) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (29 | ) |
|
| - |
|
|
| - |
|
|
| (29 | ) |
Balance September 30, 2019 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 175,749 |
|
| $ | (15,458 | ) |
| $ | 1,151,646 |
|
| $ | (211 | ) |
|
| (7,849,464 | ) |
| $ | (267,589 | ) |
| $ | 1,044,556 |
|
| 41,887,088 |
|
| $ | 419 |
|
| $ | 175,749 |
|
| $ | (15,458 | ) |
| $ | 1,151,646 |
|
| $ | (211 | ) |
|
| (7,849,464 | ) |
| $ | (267,589 | ) |
| $ | 1,044,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
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 |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (77,491 | ) |
|
| (4,041 | ) |
|
| (4,041 | ) | |||||||||||||||||||||||||||||||||||
Issuance of restricted stock awards, net of forfeitures |
| - |
|
|
| - |
|
|
| (9,173 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 218,248 |
|
|
| 9,173 |
|
|
| - |
| |||||||||||||||||||||||||||||||||||
Share-based compensation expense |
| - |
|
|
| - |
|
|
| 12,676 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 12,676 |
| |||||||||||||||||||||||||||||||||||
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 51,171 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 51,171 |
| |||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (74 | ) |
|
| - |
|
|
| - |
|
|
| (74 | ) | |||||||||||||||||||||||||||||||||||
Balance September 30, 2020 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 183,140 |
|
| $ | (15,458 | ) |
| $ | 1,230,772 |
|
| $ | (260 | ) |
|
| (7,730,131 | ) |
| $ | (263,602 | ) |
| $ | 1,135,011 |
|
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Nine Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 79,216 |
|
| $ | 152,829 |
| |||||||
Net Income | $ | 51,171 |
|
| $ | 79,216 |
| |||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 86,719 |
|
|
| 59,184 |
|
| 91,798 |
|
|
| 86,719 |
|
Deferred taxes |
| 7,145 |
|
|
| 33,989 |
|
| 7,436 |
|
|
| 7,145 |
|
Compensation expense related to share-based compensation plans |
| 12,434 |
|
|
| 9,490 |
|
| 12,676 |
|
|
| 12,434 |
|
Contingent consideration adjustment |
| - |
|
|
| (4,703 | ) | |||||||
Gain on sale of assets |
| (1,313 | ) |
|
| (1,458 | ) | |||||||
Gain on Disposition |
| - |
|
|
| (113,601 | ) | |||||||
Loss (gain) on sale of assets |
| 94 |
|
|
| (1,313 | ) | |||||||
Donated equipment |
| 5,626 |
|
|
| - |
| |||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments |
| (2,192 | ) |
|
| (2,454 | ) |
| 1,085 |
|
|
| (2,192 | ) |
Accounts receivable, net |
| 41,000 |
|
|
| (44,138 | ) |
| (105,918 | ) |
|
| 41,000 |
|
Prepaid taxes |
| (4,622 | ) |
|
| 11,918 |
|
| (1,154 | ) |
|
| (4,622 | ) |
Prepaid expenses and other current assets |
| 1,299 |
|
|
| 438 |
|
| 10,379 |
|
|
| 1,299 |
|
Other assets |
| (3,365 | ) |
|
| 1,572 |
|
| (429 | ) |
|
| (3,365 | ) |
Accounts payable |
| (89,800 | ) |
|
| 8,070 |
|
| 61,549 |
|
|
| (89,800 | ) |
Accrued expenses |
| 2,408 |
|
|
| 30,952 |
|
| (17,834 | ) |
|
| 2,408 |
|
Non-current liabilities |
| (225 | ) |
|
| 4,358 |
|
| 6,209 |
|
|
| (225 | ) |
Transaction costs for disposition |
| - |
|
|
| (5,665 | ) | |||||||
Net cash provided by operating activities |
| 128,704 |
|
|
| 140,781 |
|
| 122,688 |
|
|
| 128,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of equipment |
| 9,072 |
|
|
| 4,035 |
|
| 1,298 |
|
|
| 9,072 |
|
Purchases of property and equipment |
| (55,616 | ) |
|
| (138,847 | ) |
| (55,352 | ) |
|
| (55,616 | ) |
Acquisitions, net of cash acquired |
| (734 | ) |
|
| - |
|
| - |
|
|
| (734 | ) |
Proceeds from the disposition of discontinued operations |
| 19,439 |
|
|
| 227,986 |
|
| - |
|
|
| 19,439 |
|
Net cash (used in) provided by investing activities |
| (27,839 | ) |
|
| 93,174 |
| |||||||
Net cash used in investing activities |
| (54,054 | ) |
|
| (27,839 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
| 36,557 |
|
|
| 118,809 |
|
| 128,762 |
|
|
| 36,557 |
|
Repayments of long term debt |
| (79,147 | ) |
|
| (107,341 | ) |
| (174,419 | ) |
|
| (79,147 | ) |
Stock tendered for payments of withholding taxes |
| (2,875 | ) |
|
| (4,262 | ) | |||||||
Stock withheld for payments of withholding taxes |
| (4,041 | ) |
|
| (2,875 | ) | |||||||
Finance lease payments |
| (2,278 | ) |
|
| (2,206 | ) | |||||||
Purchase of treasury stock |
| (24,998 | ) |
|
| - |
|
| - |
|
|
| (24,998 | ) |
Finance lease payments |
| (2,206 | ) |
|
| (2,181 | ) | |||||||
Net cash (used in) provided by financing activities |
| (72,669 | ) |
|
| 5,025 |
| |||||||
Net cash used in financing activities |
| (51,976 | ) |
|
| (72,669 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
| (3 | ) |
|
| (30 | ) |
| (51 | ) |
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
| 28,193 |
|
|
| 238,950 |
| $ | 16,607 |
|
| $ | 28,193 |
|
Cash and cash equivalents beginning of the period |
| 61,435 |
|
|
| 28,557 |
| $ | 168,729 |
|
| $ | 61,435 |
|
Cash and cash equivalents end of the period | $ | 89,628 |
|
| $ | 267,507 |
| $ | 185,336 |
|
| $ | 89,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest | $ | 8,436 |
|
| $ | 6,740 |
| $ | 7,331 |
|
| $ | 8,436 |
|
Income taxes | $ | 32,917 |
|
| $ | 2,759 |
| $ | 12,406 |
|
| $ | 32,917 |
|
See notes to unaudited consolidated financial statements.
HUB GROUP, INC.
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
| NOTE 1. Interim Financial Statements |
The accounting andaccompanying unaudited consolidated financial reporting policiesstatements of Hub Group, Inc. and its subsidiaries (collectively referred to herein as “Hub”, or(the “Company,” “Hub,” “we”, “us” or “our”) conformhave been prepared pursuant to accounting principles generally acceptedthe rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the United States (“GAAP”). Our accompanying unaudited consolidatedannual financial statements have been prepared in accordance with instructionsomitted pursuant to Form 10-Qthose rules and , therefore, doregulations. However, we believe that the disclosures contained herein are adequate to make the information presented not include all information and footnotes necessary for a fair presentation of financial position, results of operation and cash flows in conformity with GAAP.misleading.
The financial statements in this Quarterly Report on Form 10-Q reflect, in management’sour opinion, all material adjustments (which include only normal recurring accruals)adjustments) necessary to fairly present our financial position as of September 30, 20192020 and results of operations for the three and nine months ended September 30, 20192020 and 2018. Certain amounts in prior periods have been reclassified to conform with current period presentation.2019.
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, 2018.2019. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.
NOTE 2.Acquisition
On December 3, 2018, we acquired CaseStack, Inc. (“CaseStack”). Total consideration for the transaction was $252.9 million, which included $249.4 million in cash, of which $248.7 million was paid in December 2018 and $0.7 million in April 2019. There was also a deferred purchase consideration of $3.5 million. The deferred purchase consideration is included in Accrued Other in our Consolidated Balance Sheet and is being paid equally over twenty-four months.
The acquisition of CaseStack expanded our logistics service offering to include transportation and warehousing consolidation solutions for consumer packaged goods companies selling into the North American retail channel. The acquisition also added scale to our truck brokerage service offering, particularly in the less-than-truckload segment of the market. Earnings Per Share
The following table summarizes the total purchase price allocated to the net assets acquired (in thousands):
Cash paid | $ | 249,389 |
|
Deferred purchase consideration |
| 3,469 |
|
Total consideration | $ | 252,858 |
|
The following table summarizes the allocationis a reconciliation of the total consideration to the assets and liabilities assumed as of the date of the acquisition (in thousands):
Accounts receivable trade | $ | 31,896 |
|
Prepaid expenses and other current assets |
| 694 |
|
Property and equipment |
| 3,247 |
|
Deferred tax assets |
| 6,433 |
|
Goodwill |
| 166,070 |
|
Other intangibles |
| 75,600 |
|
Other assets |
| 120 |
|
Total assets acquired | $ | 284,060 |
|
|
|
|
|
Accounts payable trade | $ | 24,542 |
|
Accrued payroll |
| 2,811 |
|
Accrued other |
| 3,849 |
|
Total liabilities assumed | $ | 31,202 |
|
|
|
|
|
Total consideration | $ | 252,858 |
|
The CaseStack 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 3, 2018 with the remaining unallocated purchase price recorded as goodwill. The goodwill
recognized in the CaseStack acquisition was primarily attributable to potential expansion and future development of the acquired business.
Tax history and attributes including net operating loss carryovers and other deferred tax assets are inherited in an equity purchase such as this, while goodwill is not tax deductible.
The components of “Other intangibles” listed in the above table as of the acquisition date are preliminarily estimated as follows (in thousands):
|
|
|
|
| Accumulated |
|
| Balance at |
|
| Estimated Useful | ||
| Amount |
|
| Amortization |
|
| September 30, 2019 |
|
| Life | |||
Customer relationships - logistics services | $ | 65,600 |
|
| $ | 5,467 |
|
| $ | 60,133 |
|
| 10 years |
Customer relationships - transportation services | $ | 8,700 |
|
| $ | 1,450 |
|
| $ | 7,250 |
|
| 5 years |
Trade name | $ | 1,300 |
|
| $ | 722 |
|
| $ | 578 |
|
| 18 months |
The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the three and nine month periods ended September 30, 2019 was $2.3 million and $6.9 million. The intangible assets have a weighted average useful life of approximately 9 years. Amortization expense related to CaseStack for the next five years is as follows (in thousands):
|
| Total |
| |
Remainder 2019 |
| $ | 2,292 |
|
2020 |
| $ | 8,661 |
|
2021 |
| $ | 8,300 |
|
2022 |
| $ | 8,300 |
|
2023 |
| $ | 8,155 |
|
The following unaudited pro forma consolidated results of operations presents the effects of CaseStack as though it had been acquired as of January 1, 2018our earnings per share (in thousands, except for per share amounts)data):
| Three Months Ended |
|
| Nine Months Ended |
| ||
| September 30, 2018 |
|
| September 30, 2018 |
| ||
Revenue | $ | 996,848 |
|
| $ | 2,850,047 |
|
Income from continuing operations | $ | 27,788 |
|
| $ | 59,874 |
|
Earnings per share (1) |
|
|
|
|
|
|
|
Basic | $ | 0.83 |
|
| $ | 1.79 |
|
Diluted | $ | 0.83 |
|
| $ | 1.78 |
|
|
|
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 CaseStack. 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, 2018.
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 24,781 |
|
| $ | 26,105 |
|
| $ | 51,171 |
|
| $ | 79,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
| 33,177 |
|
|
| 33,034 |
|
|
| 33,169 |
|
|
| 33,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and restricted stock |
| 420 |
|
|
| 231 |
|
|
| 344 |
|
|
| 137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted |
| 33,597 |
|
|
| 33,265 |
|
|
| 33,513 |
|
|
| 33,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic | $ | 0.75 |
|
| $ | 0.79 |
|
| $ | 1.54 |
|
| $ | 2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted | $ | 0.74 |
|
| $ | 0.78 |
|
| $ | 1.53 |
|
| $ | 2.36 |
|
|
|
On August 31, 2018, Hub agreed to sell Mode Transportation, LCC (“Mode”), then a direct wholly-owned subsidiary of the Company (the “Disposition”). Total consideration received by the Company for the Disposition in the third quarter of 2018 was $238.5 million in cash, subject to customary purchase price adjustments. An additional $19.4 million consideration receivable was recorded in other receivables in the Consolidated Balance Sheet in the fourth quarter of 2018 due to the settlement of the net working capital and other contractual adjustments. The $19.4 million receivable was received in the first quarter of 2019.
During the three months ended September 30, 2018, Mode had revenue of $10.6 million from Hub and Hub had revenue of $2.7 million from Mode. During the nine months ended September 30, 2018 Mode had revenue of $42.2 million from Hub and Hub had revenue of $17.9 million from Mode. These intercompany transactions were eliminated in our Consolidated Statements of Income. In connection with the Disposition, the Company and Mode have entered into a transition services agreement pursuant to which both the Company and Mode provided certain immaterial transition services to the other party. The agreement was completed during the second quarter of 2019.
The 2018 results associated with Mode are classified as income from discontinued operations, net of income taxes, in our Consolidated Statements of Income. Income from discontinued operations is comprised of the following:
| Three Months Ended |
|
| Nine Months Ended |
|
| ||
| September 30, 2018 |
|
| September 30, 2018 |
|
| ||
Revenue | $ | 196,546 |
|
| $ | 739,534 |
|
|
Transportation costs |
| 172,949 |
|
|
| 648,986 |
|
|
Gross margin |
| 23,597 |
|
|
| 90,548 |
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Salaries and benefits |
| 3,317 |
|
|
| 11,043 |
|
|
General and administrative |
| 16,827 |
|
|
| 62,426 |
|
|
Depreciation and amortization |
| 153 |
|
|
| 632 |
|
|
Total costs and expenses |
| 20,297 |
|
|
| 74,101 |
|
|
|
|
|
|
|
|
|
|
|
Operating income from discontinued operations |
| 3,300 |
|
|
| 16,447 |
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
Interest income |
| 3 |
|
|
| 22 |
|
|
Other, net |
| (1 | ) |
|
| (15 | ) |
|
Gain on Disposition |
| 113,601 |
|
|
| 113,601 |
|
|
Total other income |
| 113,603 |
|
|
| 113,608 |
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income taxes |
| 116,903 |
|
|
| 130,055 |
|
|
Provision for income taxes |
| 28,057 |
|
|
| 31,213 |
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations | $ | 88,846 |
|
| $ | 98,842 |
|
|
Selling, general and administrative expenses recorded in discontinued operations include corporate costs incurred directly in support of Mode.
Proceeds from the sale of Mode have been presented in the Consolidated Statements of Cash Flows under investing activities for the nine months ended September 30, 2019. Total operating and investing cash flows of discontinued operations for the nine months ended September 30, 2018 are comprised of the following, which exclude the effect of income taxes:
| |||
|
| ||
|
|
| |
|
|
NOTE 4.Revenue from Contracts with Customers
On January 1, 2018, we adopted the Accounting Standards Codification (ASC) topic 606, Revenue from Contracts with Customers.
The Company capitalizes commissions incurred in connection with obtaining a contract. Capitalized commission fees are amortized based on the transfer of services to which the assets relate and are included in selling, general and administrative expenses. In 2019 and 2018, the amount of commissions that were capitalized and the amortization were both immaterial.
Costs incurred to obtain an intermodal, truck brokerage or logistics contract are expensed as incurred according to the practical expedient that allows contract acquisition costs to be recognized immediately if the deferral period is one year or less.
Hub offers comprehensive multimodal solutions including intermodal, truck brokerage, logistics 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 and trailers, typically over 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 HGT subsidiary and third-party local trucking companies.
Truck Brokerage. We operate one of the largest truck brokerage operations in the U.S., providing customers with an over the road service option for their transportation needs. Our brokerage 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.
Logistics. Hub’s logistics business operates under the names Unyson Logistics (“Unyson”) and CaseStack. Unyson is comprised of a network of logistics professionals dedicated to developing, implementing and operating customized logistics solutions for customers. Unyson 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, railcar and international shipping. Our CaseStack logistics business leverages 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. CaseStack contracts with third-party warehouse providers in seven markets across North America to which its customers ship their goods to be stored and eventually consolidated, along with goods from other CaseStack customers, into full truckload shipments destined to major North American retailers. CaseStack offers its customers shipment visibility, transportation cost savings, high service levels and compliance with retailers’ increasingly stringent supply chain requirements.
Dedicated Trucking. 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 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 disaggregated revenue by business line (in thousands) for the three and nine months ended September 30:
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Intermodal | $ | 539,484 |
|
| $ | 582,878 |
|
| $ | 1,618,407 |
|
| $ | 1,615,453 |
|
Truck brokerage |
| 109,543 |
|
|
| 122,059 |
|
|
| 334,211 |
|
|
| 357,013 |
|
Logistics |
| 189,470 |
|
|
| 149,642 |
|
|
| 586,196 |
|
|
| 479,940 |
|
Dedicated |
| 74,778 |
|
|
| 78,645 |
|
|
| 228,622 |
|
|
| 212,894 |
|
Total revenue | $ | 913,275 |
|
| $ | 933,224 |
|
| $ | 2,767,436 |
|
| $ | 2,665,300 |
|
NOTE 3. Revenue from Contracts with Customers Hub offers comprehensive multimodal solutions including intermodal, truck brokerage, logistics 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, 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. 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. As part of our truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss or damage on behalf 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 Company capitalizes commissions incurred in connection with obtaining a Dedicated contract. In 2020 and 2019, the amount of commissions that were capitalized and the amortization related to these commissions were both immaterial. Costs incurred to obtain an intermodal, truck brokerage or logistics contract are expensed as incurred according to the practical expedient that allows contract acquisition costs to be recognized immediately if the deferral period is one year or less. |
|
The following is a reconciliation oftable summarizes our earnings per sharedisaggregated revenue by business line (in thousands, except for per share data)thousands):
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||
| 2019 |
|
| 2018 |
| 2019 |
|
| 2018 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations for basic and diluted earnings per share | $ | 26,105 |
|
| $ | 25,764 |
| $ | 79,216 |
|
| $ | 53,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations for basic and diluted earnings per share |
| - |
|
|
| 88,846 |
|
| - |
|
|
| 98,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| 26,105 |
|
|
| 114,610 |
|
| 79,216 |
|
|
| 152,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
| 33,034 |
|
|
| 33,399 |
|
| 33,385 |
|
|
| 33,387 |
|
Dilutive effect of stock options and restricted stock |
| 231 |
|
|
| 206 |
|
| 137 |
|
|
| 161 |
|
Weighted average shares outstanding - diluted |
| 33,265 |
|
|
| 33,605 |
|
| 33,522 |
|
|
| 33,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.79 |
|
| $ | 0.77 |
| $ | 2.37 |
|
| $ | 1.62 |
|
Diluted | $ | 0.78 |
|
| $ | 0.77 |
| $ | 2.36 |
|
| $ | 1.61 |
|
Earnings per share from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | - |
|
| $ | 2.66 |
| $ | - |
|
| $ | 2.96 |
|
Diluted | $ | - |
|
| $ | 2.64 |
| $ | - |
|
| $ | 2.95 |
|
Earnings per share net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.79 |
|
| $ | 3.43 |
| $ | 2.37 |
|
| $ | 4.58 |
|
Diluted | $ | 0.78 |
|
| $ | 3.41 |
| $ | 2.36 |
|
| $ | 4.56 |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Intermodal | $ | 559,759 |
|
| $ | 539,484 |
|
| $ | 1,515,759 |
|
| $ | 1,618,407 |
|
Logistics |
| 175,892 |
|
|
| 189,470 |
|
|
| 522,890 |
|
|
| 586,196 |
|
Truck brokerage |
| 119,994 |
|
|
| 109,543 |
|
|
| 304,686 |
|
|
| 334,211 |
|
Dedicated |
| 69,167 |
|
|
| 74,778 |
|
|
| 199,579 |
|
|
| 228,622 |
|
Total revenue | $ | 924,812 |
|
| $ | 913,275 |
|
| $ | 2,542,914 |
|
| $ | 2,767,436 |
|
| NOTE 4. Fair Value Measurement |
The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of September 30, 20192020 and December 31, 2018.2019. As of September 30, 20192020 and December 31, 2018,2019, the fair value of the Company’s fixed-rate borrowings was $4.9$7.3 million more and $0.4$3.8 million lessmore than the historical carrying value of $288.2$236.0 million and $330.8 million.$281.6 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 September 30, 20192020 and December 31, 2018,2019, our cash and temporary investments wereis with high quality financial institutions in demand deposit accounts, (DDAs), savings accounts and an interest bearing checking account.
Restricted investments included $21.5 million and $22.6 millionas of September 30, 2019 of $21.4 million2020 and December 31, 20182019, respectively, of $19.2 million, included mutual funds, which are reported at fair value.
Our assets and liabilities measured at fair value are based on valuation techniques whichthat 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. Allowance for Credit Losses
On January 1, 2020, we adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the Current Expected Credit Loss (“CECL”). The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables. Results for reporting periods beginning January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable generally accepted accounting principles. The impact of adopting the standard was immaterial. In accordance with the standard, trade receivables are reported at amortized cost net of the allowance for credit losses.
The allowance for credit losses is a valuation account that is deducted from the trade receivables’ amortized cost basis to present the net amount expected to be collected on the receivables. Trade receivables are charged off against the allowance when we believe the uncollectability of a receivable balance is confirmed, and the expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management continuously reviews and assesses the environment, especially with the rapidly-changing COVID-19 pandemic and its potential impact on the credit worthiness and collectability of our accounts receivable with customers most affected by the COVID-19 pandemic. Our allowance for credit losses is presented in the allowance for uncollectible trade accounts and is immaterial at September 30, 2020 and December 31, 2019.
|
|
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. In March 2020, we elected to borrow $100 million under the Credit Agreement as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of uncertainty in the global markets resulting from the COVID-19 pandemic. We repaid the $100 million in June 2020. At September 30, 2019,2020, we were authorized to borrow up to $350 million under a revolving line of credit. We have had standby letters of credit that expire at various dates in 20192020 and 2020.2021. As of September 30, 2019,2020, our letters of credit were $30.6 million and we had 0 borrowings under our bank revolving line of credit. totaled $32.6 million.
Our unused and available borrowings were $319.4$317.4 million as of September 30, 20192020 and $323.0$318.5 million as of December 31, 2018.2019. We were in compliance with our debt covenants as of September 30, 2019.2020.
We have entered into various secured Equipment Notes (“Notes”) for the purchase of tractors, trailers containers and containers.other equipment. The Notes are secured by the underlying equipment financed inwith the agreements.proceeds from the Notes.
| September 30, |
|
| December 31, |
| ||
| 2019 |
|
| 2018 |
| ||
| (in thousands except principal and interest payments) |
| |||||
|
|
| |||||
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2024 commencing on various dates in 2017, 2018 and 2019; interest is paid monthly at a fixed annual rate between 2.75% and 3.59% | $ | 45,354 |
|
| $ | 11,658 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2023 commencing on various dates in 2016, 2017, 2018 and 2019; interest is paid monthly at a fixed annual rate between 2.23% and 4.16% |
| 163,536 |
|
|
| 192,858 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2022 commencing on various dates from 2015 to 2017; interest is paid monthly at a fixed annual rate of between 2.16% and 2.87% |
| 18,654 |
|
|
| 24,092 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2021 commencing on various dates from 2014 to 2017; interest is paid monthly at a fixed annual rate between 2.04% and 2.96% |
| 40,266 |
|
|
| 55,855 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2020 commencing on various dates from 2013 to 2016; interest is paid monthly at a fixed annual rate between 1.72% and 2.78% |
| 18,645 |
|
|
| 32,904 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2019 commencing on various dates from 2013 to 2015; interest is paid monthly at a fixed annual rate between 2.05% and 2.62% |
| 1,739 |
|
|
| 13,417 |
|
|
|
|
|
|
|
|
|
|
| 288,194 |
|
|
| 330,784 |
|
|
|
|
|
|
|
|
|
Less current portion |
| (95,772 | ) |
|
| (101,713 | ) |
Total long-term debt | $ | 192,422 |
|
| $ | 229,071 |
|
| September 30, |
|
| December 31, |
| ||
| 2020 |
|
| 2019 |
| ||
| (in thousands) |
| |||||
|
|
|
|
|
|
|
|
Interim Funding for a deposit on equipment expected to be received in the fourth quarter of 2020; interest paid monthly at a variable rate | $ | 3,820 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
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% |
| 22,036 |
|
|
| - |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2024 commencing on various dates in 2017 to 2020; interest is paid monthly at a fixed annual rate between 2.49% and 3.59% |
| 53,497 |
|
|
| 62,690 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2023 commencing on various dates in 2016 to 2019; interest is paid monthly at a fixed annual rate between 2.23% and 4.16% |
| 123,314 |
|
|
| 153,350 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2022 commencing on various dates in 2015 to 2017; interest is paid monthly at a fixed annual rate of between 2.16% and 2.85% |
| 10,687 |
|
|
| 16,892 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2021 commencing on various dates from 2014 to 2017; interest is paid monthly at a fixed annual rate between 2.04% and 2.96% |
| 20,043 |
|
|
| 35,076 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2020 commencing on various dates from 2013 to 2016; interest is paid monthly at a fixed annual rate between 1.84% and 2.74% |
| 2,571 |
|
|
| 13,617 |
|
|
|
|
|
|
|
|
|
|
| 235,968 |
|
|
| 281,625 |
|
|
|
|
|
|
|
|
|
Less current portion |
| (86,964 | ) |
|
| (94,691 | ) |
Total long-term debt | $ | 149,004 |
|
| $ | 186,934 |
|
NOTE 8. Leases, User Charges and Commitments
In February 2016, the FASB issued ASC 842, Leases, (“ASC 842”) which requires lessees to recognize a right-of-use asset (“ROU”) and a lease obligation for all leases. We adopted ASC 842 as of January 1, 2019, in accordance with the standard. ASC 842 provides an option to apply the transition provisions as of the effective date. We elected this option when we adopted the new standard using a modified retrospective transition method and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. In addition, we elected to apply a package of practical expedients and as such did not reassess at the date of initial adoption (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, or (3) initial direct costs for existing leases. Lessees can also make an accounting policy election to not recognize an asset and liability for leases with a term of twelve months or less which we elected.
As of September 30, 2019, Hub recognized $43.9 million of ROU assets and $44.7 million of Lease liabilities on our consolidated balance sheet. The lease liabilities recognized are measured based upon the present value of minimum future payments. The ROU assets are equal to lease liabilities, adjusted for prepaid and accrued rent balances which are recorded in the Consolidated Balance Sheets.
Hub currently does not have any variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate). Some leases have options to extend or terminate the agreement, which Management assesses in determining the estimated lease term. If any of the options to extend a lease are exercised, this change will be reflected as a remeasurement of the ROU asset and lease liability accordingly. As of September 30, 2019, the ROU asset and lease liabilities do not reflect any options to extend or terminate a lease as management is not reasonably certain it will exercise any of these options. Also, current leases do not contain any restrictions or covenants imposed by the leases or residual value guarantees.
Occasionally, Hub will sublease office space or parking spaces. The subleases do not relieve Hub of any of its primary obligations under the original agreement. Currently, Hub has subleases with an expected annual income totaling $0.6 million.
As of September 30, 2019, Hub signed new property lease contracts which have not commenced. Based on the present value of the lease payments, the estimated ROU assets and lease liabilities related to these contracts will total approximately $11.2 million.
Discount rates are not specified on the individual lease contracts at the commencement date. To determine the present value of the lease payments, Hub used its incremental borrowing rate which was determined based on Hub’s credit standing and factoring in the current 12-month LIBOR rate published at the time of the lease commencement. This incremental borrowing rate represents the rate of interest that Hub would have to pay to borrow on a collateralized basis over a similar term and amounts equal to the lease payments in a similar economic environment.
The following table summarizes the lease costs for the three and nine months ended September 30, 2019 (in thousands), which are included in general and administrative costs in the accompanying consolidated statement of income:
| Three Months Ended |
|
| Nine Months Ended |
| ||
| September 30, 2019 |
|
| September 30, 2019 |
| ||
|
|
|
|
|
|
|
|
Amortization of finance right-of-use assets | $ | 590 |
|
| $ | 1,760 |
|
Interest on finance lease liabilities |
| 59 |
|
|
| 200 |
|
Finance lease cost |
| 649 |
|
|
| 1,960 |
|
|
|
|
|
|
|
|
|
Operating lease cost |
| 2,748 |
|
|
| 8,060 |
|
Short-term lease cost |
| 92 |
|
|
| 154 |
|
Sublease income |
| (124 | ) |
|
| (442 | ) |
Total lease cost | $ | 3,365 |
|
| $ | 9,732 |
|
The table below summarizes the Company’s scheduled future minimum lease payments under operating and finance leases, recorded on the sheet, as of September 30, 2019 (in thousands):
| Operating Leases |
|
| Finance Leases |
| ||
Less than 1 year | $ | 9,868 |
|
| $ | 3,186 |
|
1-3 years |
| 16,205 |
|
|
| 2,645 |
|
3-5 years |
| 9,194 |
|
|
| 2 |
|
Over 5 years |
| 7,933 |
|
|
| - |
|
Minimum lease payments |
| 43,200 |
|
|
| 5,833 |
|
Imputed interest |
| 4,091 |
|
|
| 212 |
|
Present value of minimum lease payments |
| 39,109 |
|
|
| 5,621 |
|
Less: current lease liabilities |
| 8,665 |
|
|
| 3,021 |
|
Long-term lease liabilities | $ | 30,444 |
|
| $ | 2,600 |
|
Other information: | Three Months Ended |
|
| Nine Months Ended |
| ||
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Operating cash flows from operating leases | $ | 2,462 |
|
| $ | 7,178 |
|
Financing cash flows from finance leases |
| 741 |
|
|
| 2,206 |
|
Operating cash flows from finance leases |
| 60 |
|
|
| 200 |
|
Cash paid for lease liabilities | $ | 3,263 |
|
| $ | 9,584 |
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new financing lease liabilities | $ | - |
|
| $ | 6 |
|
|
|
|
|
|
|
|
|
Rights-of-use assets obtained in exchange for new operating lease liabilities | $ | 7,748 |
|
| $ | 12,736 |
|
The weighted average remaining lease term and discount rates as of September 30, 2019 (in thousands) are as follows:
|
| ||||
|
| ||||
|
|
| |||
|
|
|
NOTE 9. Internal-Use Software
In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing (Hosting) Arrangement That Is a Service Contract. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendment is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, for all entities and should be applied either retrospectively or prospectively. We early adopted the amendment in the fourth quarter of 2018 and applied prospectively to all implementation costs incurred after the date of adoption.
In accordance with this ASU, we had capitalized implementation costs, net of amortization, of $14.2 million and $10.6 million from our hosting arrangements for various corporate software services as of September 30, 2019 and December 31, 2018, respectively. Prior to adoption, these costs were previously presented as part of Property and equipment and are included in Other assets in the consolidated balance sheet subsequent to adoption. The amount of capitalized implementation costs for the three and nine months ended September 30, 2019 was $0.9 million and $4.5 million. The corresponding cash flows from capitalized implementation costs incurred in our hosting arrangements is classified as a change in other assets in cash flows from operating activities. The capitalized implementation costs incurred in our hosting arrangements are amortized, once ready for intended use, over the term of the associated hosting arrangements of 3 to 10 years. The related amortization of capitalized implementation costs are classified as general and administrative expense in the same line item as the expense for fees for the associated hosting arrangement.
| 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 Hub Group Trucking, Inc (“HGT”).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 decided to convertconverted its model from independent contractors to employee drivers in California (the “Conversion”).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 HGT and 5 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. As mentioned above,
The plaintiffs’ counsel and Hub Group agreed in principle to settle this and the Robles matters. Accordingly, this case is no longer material to HGT and the Company will no longer report on this case.
Plaintiffs’ counsel and Hub agreed in principle to settle all claims under both the Robles and Adame matters for $4.8 million, which has beenwas recorded asin the third quarter of 2019 and is included in Accrued other inon the accompanying Consolidated Balance Sheet and General and administrative costs in the Consolidated Statement of Income and Comprehensive Income.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 11.8. New Accounting Pronouncements
In 2016, the FASB issued ASC 326, Financial Instruments – Credit Losses, (“ASC 326”) that requires credit losses on financial instruments measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 is permitted. We plan to adopt this standard on January 1, 2020, as required. We do not believe the adoption of ASC 326 will have a material impact on our consolidated financial statements as the new guidance is consistent with our current accounting policy in determining expected credit losses on financial assets.
In January 2017, the FASB issued ASU No. 2017-04 Intangibles – Goodwill and other (Topic 350): simplifying the test for goodwill impairment. This ASU simplifies how all entities assess goodwill for impairment by eliminating step two from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The standard is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.2019. We plan to adoptadopted this standard on January 1, 2020, as required. We do not believe theThe adoption of Topic 350 willdid not have a material effect on our financial statements.
In JuneAugust 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. Under this new standard, companies will no longer be required to value non-employee awards differently from employee awards.2018-13, Fair Value Measurement. This means that companies will value all equity classified awards at their grant-date and forgo revaluing the award after this date. The standard is effective for public business entities in fiscal years beginning after December 15, 2018,2019, and for interim periods within those fiscal years. This standard wasrequires changes to the disclosure requirements for fair value measurements for certain Level 3 items and specifies that some of the changes must be applied prospectively, while others should be applied retrospectively. We adopted onthe standard as of January 1, 2019 and had no material2020, but it did not have an impact on our consolidated financial statements.
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. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. The Company is evaluating the impact of this ASU.
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
Forward-looking informationForward-Looking Information
The information contained in this Quarterly Report on Form 10-Qquarterly 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 should be viewed with caution. Theyare 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. Actual results or experience could differ materially from the forward-looking statementsSuch factors include, but are not limited to, uncertainties caused by adverse economic conditions, including, without limitation, as a result of many factors.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.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 releaseupdate any revisions to forward-looking statements, whether written or oral, that may be made from time to reflect events aftertime, 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 date of this report. Inforward-looking statements, in addition to factors that arethose identified in “Risk Factors” in our Annual Report on Form 10-K factors that could cause our actual results to differ materially include:for the year ended December 31, 2019 (the “2019 10-K”) as well as in Part II, Item 1A of this Quarterly Report on Form 10-Q, include the following as they may be affected, either individually, or in the aggregate, by the ongoing effects of the COVID-19 outbreak:
| • | the degree and rate of market growth in the |
| • | 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 |
| • | unanticipated changes in rail, drayage, warehousing and trucking company capacity or costs of services; |
| • | increases in costs related to any reclassification or change in |
| • | 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 |
| • | awards received during annual customer bids not materializing; |
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|
| • | union organizing efforts and changes to current laws which will 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; and |
| • | losses sustained on insured matters where the liability materially exceeds available insurance proceeds. |
Current Update and Effects of COVID-19 Outbreak
For the fourth quarter of 2020 we expect high single digit intermodal volume growth. Revenue for our logistics, truck brokerage and dedicated business lines is expected to decline due to the impact of business lost earlier in the year which is not yet being fully offset by our new business wins. Gross margin is being impacted by lower pricing, increased repositioning, rail and other transportation costs, as well as higher insurance expense.
We provided assistance and support to hospitals, food banks and other organizations across the United States by donating refrigerated trailers to be used by emergency responders in fighting the COVID-19 pandemic. We donated refrigerated trailers with a carrying value of approximately $5.4 million during the second quarter of 2020 and $5.6 million in total for the nine months ended September 30, 2020.
EXECUTIVE SUMMARY
Hub Group, Inc. (the “Company”, “Hub”, “we”, “us” or “our”) is a leading, world class supply chain management company that provides value-added multi-modal transportation and logistics solutions by offering reliability, visibility and value to 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 customer-centric supply chain solutions. Our service offerings include comprehensive intermodal, truck brokerage, dedicated trucking, managed transportation, freight consolidation, warehousing, international transportation and other logistics services. The Company is a Delaware corporation that was incorporated on March 8, 1995 as successor to a business that was founded in 1971.
As an intermodal provider, we arrange for the movement of our customers’ freight in containers, and trailers, typically over long distances of 750 miles or more. As of September 30, 2019, we owned or leased approximately 37,800 containers. 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 HGTHub Group Trucking (“HGT”) subsidiary and third-party local trucking companies.
For the nine months ended September 30, 2020, HGT accounted for approximately 54% of our drayage needs by assisting us in providing reliable, cost effective intermodal services to our customers. As of September 30, 2020, HGT operated approximately 1,500 tractors and 200 trailers, employed approximately 1,500 drivers and contracted with approximately 950 owner-operators.
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 1,150 tractors and 5,500 trailers at 69 locations throughout the U.S. As of September 30, 2020, our dedicated operation employed approximately 1,400 drivers.
Our 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, 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 and compliance with retailers’ increasingly stringent supply chain requirements.
We also arrangeOur truck brokerage operation arranges for the transportation of freight by truck, providing customers with anotheran over the road service option for their transportation needs. WeOur brokerage service does not operate any trucks; instead we match our customers’ needs with carriers’ capacity to provide the most effective service and price combinations.combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers. As part of our truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss or damage on behalf of our customers.
Our dedicated service line, Dedicated, contracts with customers looking to outsource a portion of their transportation needs. We offer a dedicated fleet of equipment and drivers, as well as the management and infrastructure to operate according to the customers’ high service expectations. As of September 30, 2019, Dedicated leased or owned approximately 1,300 tractors and 5,200 trailers and employed approximately 1,700 drivers.
Our logistics line of business consists of complex transportation management services, including load consolidation, mode optimization and carrier management. These service offerings are designed to take advantage of the increasing trend for shippers to outsource all or a greater portion of their transportation needs. Our acquisition of CaseStack added consolidation and warehousing services that are marketed to consumer-packaged goods companies who serve the North American retail channel.
As of September 30, 2019, our subsidiary HGT accounted for 58% of Hub’s drayage needs by assisting us in providing reliable, cost effective intermodal services to our customers. As of September 30, 2019, HGT leased or owned approximately 1,300 tractors and 200 trailers, employed approximately 1,300 drivers and contracted with approximately 1,300 owner-operators.
Hub hashave 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.
Hub’sOur multimodal solutions group works with our pricing, account management and operations teams to enhance Hub’sour customer margins across all lines of business. We are working on margin enhancement projectsinitiatives including revenue management,pricing optimization, matching of inbound and outbound loads, reducing empty miles, improving the retention of our recovery of accessorialdrivers, controlling our maintenance costs, improving tractor and driver utilization, enhancing our procurement strategy, improving our recovery of accessorial costs, reducing repositioning costs, driving procurement savings and providing holistic solutions.solutions, and reviewing and improving low profit freight.
Hub’sOur top 50 customers represent approximately 68%72% of revenue for the threenine months ended September 30, 2019.2020. We use various performance indicators to manage our business. We closely monitor margin and gains and losses forprofitability of our top 50 customers. We also evaluate on-time performance, customer service, cost per load and daily sales outstanding bytrade receivables of these customer account.accounts. Vendor cost changes and vendor service issues are also monitored closely.
Strategic Transactions
On August 31, 2018, we sold Management continuously reviews and assesses the environment, especially with the rapidly-changing COVID-19 pandemic and its potential impact on the credit worthiness and collectability of our Mode Transportation, LLC (“Mode”) subsidiary. Mode’s temperature protected division (“Temstar”) was not included inaccounts receivable with customers most affected by the transaction and is now included in our intermodal line of business.
Prior to the decision to sell Mode, Hub historically reported two distinct and reportable business segments. As a result of the decision to sell Mode, which was accounted for as discontinued operations in 2018, we have one reporting segment. Revenue and costs related to Hub’s business that were not included in the sale of Mode are reported within results from continuing operations. All revenues and costs related to Mode’s business (other than Temstar) are presented in results from discontinued operations. Unless otherwise stated, the information disclosed in Management’s Discussion and Analysis refers to continuing operations. See Note 3 of the Consolidated Financial Statements for additional information regarding results from discontinued operations.
On December 3, 2018, we acquired CaseStack. Total consideration for the transaction was $252.9 million consisting of $249.4 million in cash and deferred purchase consideration of $3.5 million. The deferred purchase consideration is included in Accrued Other in our Consolidated Balance Sheet and is being paid equally over twenty-four months. COVID-19 pandemic.
RESULTS OF OPERATIONS
Overview from continuing operations
Three Months Ended September 30, 20192020 Compared to the Three Months Ended September 30, 20182019
The following table summarizes our revenue by business line (in thousands):
| Three Months Ended September 30, |
| Three Months Ended September 30, |
| ||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Intermodal | $ | 539,484 |
|
| $ | 582,878 |
| $ | 559,759 |
|
| $ | 539,484 |
|
Logistics |
| 175,892 |
|
|
| 189,470 |
| |||||||
Truck brokerage |
| 109,543 |
|
|
| 122,059 |
|
| 119,994 |
|
|
| 109,543 |
|
Logistics |
| 189,470 |
|
|
| 149,642 |
| |||||||
Dedicated |
| 74,778 |
|
|
| 78,645 |
|
| 69,167 |
|
|
| 74,778 |
|
Total revenue | $ | 913,275 |
|
| $ | 933,224 |
| $ | 924,812 |
|
| $ | 913,275 |
|
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 |
| ||||||||||||||||||||||||||||
| September 30, |
| Three Months Ended September 30, |
| ||||||||||||||||||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||||||||||||||||||
Revenue | $ | 913,275 |
|
| 100.0% |
|
| $ | 933,224 |
|
| 100.0% |
| $ | 924,812 |
|
| 100.0% |
|
| $ | 913,275 |
|
| 100.0% |
| ||||
Transportation costs |
| 778,057 |
|
| 85.2% |
|
|
| 818,240 |
|
| 87.7% |
|
| 816,777 |
|
| 88.3% |
|
|
| 778,057 |
|
| 85.2% |
| ||||
Gross margin |
| 135,218 |
|
| 14.8% |
|
|
| 114,984 |
|
| 12.3% |
|
| 108,035 |
|
| 11.7% |
|
|
| 135,218 |
|
| 14.8% |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
| 59,765 |
|
| 6.5% |
|
|
| 57,123 |
|
| 6.1% |
|
| 45,576 |
|
| 4.9% |
|
|
| 59,765 |
|
| 6.5% |
| ||||
General and administrative |
| 30,906 |
|
| 3.4% |
|
|
| 19,327 |
|
| 2.1% |
|
| 20,845 |
|
| 2.3% |
|
|
| 30,906 |
|
| 3.4% |
| ||||
Depreciation and amortization |
| 7,301 |
|
| 0.8% |
|
|
| 3,800 |
|
| 0.4% |
|
| 7,697 |
|
| 0.8% |
|
|
| 7,301 |
|
| 0.8% |
| ||||
Total costs and expenses |
| 97,972 |
|
| 10.7% |
|
|
| 80,250 |
|
| 8.6% |
|
| 74,118 |
|
| 8.0% |
|
|
| 97,972 |
|
| 10.7% |
| ||||
|
|
|
|
|
|
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|
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|
|
|
|
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|
|
Operating income | $ | 37,246 |
|
| 4.1% |
|
| $ | 34,734 |
|
| 3.7% |
| $ | 33,917 |
|
| 3.7% |
|
| $ | 37,246 |
|
| 4.1% |
|
Revenue
Revenue decreased 2.1%increased 1.3% to $924.8 million in 2020 from $913.3 million in 2019 from $933.2 million in 2018.2019. Intermodal revenue decreased 7.4%increased 3.8% to $539.5$559.8 million primarily due to a 9.4% decrease9.3% increase in volume, partially offset by improved lower customer pricing. VolumeLogistics revenue decreased 7.2% to
$175.9 million as new customer wins and growth from existing customers was down compared tomore than offset by the priorimpact of customer losses earlier this year due to a soft demand environment, increased truckload and intermodal competition, and a 1.0% volume decrease from lane cancellations.. Truck brokerage revenue decreased 10.3%increased 9.5% to $109.5$120.0 million due to a decrease of 24.6%19.3% increase in fuel, price and mix combined, partially offset by a 14.3% increase9.8% decrease in volume. Fuel, price, and mix were down primarily due to the addition of CaseStack less than truckload brokerage business. Logistics revenue increased 26.6% to $189.5 million primarily due to the addition of CaseStack, benefits from continuous improvements, revenue management, new service lines, and cross selling to customers. Dedicated’s revenue decreased 4.9%7.5% to $74.8$69.2 million primarily due to the impact of lost business, partially offset by growth with new accounts.
Transportation Costs
Transportation costs decreased 4.9%increased 5.0% to $816.8 million in 2020 from $778.1 million in 2019 from $818.2 million in 2018.2019. Transportation costs in 20192020 consisted of purchased transportation costs of $654.5 million and equipment and driver related costs of $162.3 million compared to 2019 purchased transportation costs of $615.5 million and equipment and driver related costs of $162.6 million compared to 2018 purchased transportation costs of $658.3 million and equipment and driver related costs of $159.9 million. The 6.5% decreaseincrease in purchased transportation costs werewas due primarily to decreasesincreases in intermodal volumes, rail costs and truck brokerage truckload volumes and improved purchasing partially offset by rail cost increases and increased chassis cost.third-party carrier costs. Equipment and driver related costs increased 1.7% in 2019 due primarilydecreased slightly compared to higher transportation equipment depreciation.2019.
Gross Margin
Gross margin increased 17.6%decreased 20.1% to $108.0 million in 2020 from $135.2 million in 2019 from $115.0 million in 2018.2019. The margin increasedecrease of $20.2$27.2 million was the result of the addition of CaseStack, increases in the dedicated and logistics gross margin partially offset by a decrease in intermodal gross margin.decreases for all lines of business. Intermodal gross margin decreased compared to the third quarter of 20182019 primarily due to the decline in volumeslower prices, increased purchased transportation costs, and rail cost increases,higher equipment repositioning costs, partially offset by an increase in intermodal volume and the benefits from revenue management, operational improvements network balance,in our trucking operation. Logistics gross margin decreased primarily due to lost customers and improved purchasing.lower volume, partially offset by benefits from continuous improvements and growth with new customers. Truck brokerage gross margin increaseddecreased primarily due to growth of higher margin spot freight that was more than offset by the additionimpact of CaseStack, further benefits fromhigher purchased transportation costs on our new operating model and yield management strategy,contractual freight, as well as our new technology platform. Logisticsless project and less-than-truckload business. Dedicated gross margin grewdecreased primarily due to business we exited and higher insurance and repair costs. Due to the addition of CaseStack, benefits from continuous improvements, revenue management, new service lines and cross selling customers. Dedicated gross margin grew primarily due to revenue management initiatives and improved operational discipline.
As a percentage of revenue, gross margin increased to 14.8% in 2019 from 12.3% in 2018. Intermodalaforementioned reasons, gross margin as a percentage of revenue increased 10 basis points duedecreased to improved pricing, partially offset by rail and driver and equipment cost increases. Truck brokerage gross margin as a percentage of revenue improved 520 basis points due to the addition of CaseStack and benefits11.7% in 2020 from our yield management strategy and technology investments. Logistics gross margin as a percentage of revenue improved 680 basis points due to changes14.8% in customer mix and the addition of CaseStack. Dedicated gross margin as a percentage of revenue improved 790 basis points due to improved revenue management and operational discipline.2019.
CONSOLIDATED OPERATING EXPENSES
Salaries and Benefits
Salaries and benefits expense increaseddecreased to $45.6 million in 2020 from $59.8 million from $57.1 million in 2018.2019. As a percentage of revenue, Hub’s salaries and benefits increaseddecreased to 4.9% in 2020 from 6.5% in 2019 from 6.1% in 2018.2019. The salaries and benefits increasedecrease of $2.7$14.2 million iswas primarily due to the additionlower variable compensation and lower headcount, including reductions in bonus expense of CaseStack employees, partially offset by a decrease$8.6 million, salaries expense of $5.1$4.2 million in compensation expense.
and employee benefits expense of $1.0 million. Headcount as of September 30, 2020 and 2019 was 1,849 and 2018 was 2,104 and 1,998 respectively, which excludes drivers, as driver costs are included in transportation costs. The increasedecrease in Hub’s headcount is primarily due to the acquisition of CaseStack, which had 292 employees at September 30, 2019. technology driven efficiencies and improved processes.
General and Administrative
Hub’s generalGeneral and administrative expenses increaseddecreased to $20.8 million in 2020 from $30.9 million in 2019 from $19.3 million in 2018.2019. These expenses, as a percentage of revenue, increaseddecreased to 2.3% in 2020 from 3.4% in 2019 from 2.1%2019. The decrease of $10.1 million in 2018. The increasegeneral and administrative expense was primarily due primarily to the addition of CaseStack, a decrease in claims expense related to a $4.8 million settlement of a claim first made in 2013 for the alleged misclassification of drivers $1.6, a $3.0 million lower gain on sale of equipment, $1.5 million of higher technology expenses, the $1.1 million fair value consideration adjustment related to the Dedicated acquisition that decreased general and administrative expensesdecrease in 2018 and $0.7 million forprofessional services which included a consulting project.project in 2019, a $1.3 million decrease in travel and meals and entertainment expenses and the impact of our cost reduction efforts.
Depreciation and Amortization
Hub’s depreciationDepreciation and amortization expense increased to $7.7 million in 2020 from $7.3 million in 2019 from $3.8 million in 2018.related primarily to the deployment of IT initiatives. This expense as a percentage of revenue increased toremained consistent at 0.8% in 2019 from 0.4% in 2018. This increase was related primarily to the addition of amortization of the CaseStack intangible assets.both 2020 and 2019.
Other Income (Expense)Expense
Total otherOther expense increased to $2.4 million in 2020 from $2.1 million in 2019 from $1.8 million in 2018 due primarily to an increaselower interest income on cash balances due to the decrease in interest expense due to higherrates and lower foreign currency gains, partially offset by lower interest rates on debtexpense related to equipment purchases.lower borrowings.
Provision for Income Taxes
The provision for income taxes increaseddecreased to $6.8 million in 2020 from $9.0 million in 2019 from $7.2 million in 2018, while we provided for income taxes using an effective rate of 25.7%21.5% in 2019 and2020 versus an effective rate of 21.7%25.7% in 2018.2019. The provision for income taxes and the effective tax rate were both highersignificantly lower in 20192020 due primarily to the combination of higher $0.3 million state apportionment and tax rates in 2019credits claimed on an amended return this quarter as well as the realization in 2018
releaseof a deferred$0.4 million reserve for an uncertain tax benefit upon the sale of Mode.position this quarter. We expect our effective tax rate for the entire year of 20192020 will range from 25.0%24.0% to 26.0%25.0%.
Net Income
Net income increaseddecreased to $24.8 million in 2020 from $26.1 million in 2019 from $25.8 million in 2018 due primarily to increaseddecreases in gross margin, partially offset by higher operatinglower costs and higherexpenses, and income tax expense.expenses.
Nine Months Ended September 30, 20192020 Compared to the Nine Months Ended September 30, 20182019
The following table summarizes our revenue by business line (in thousands):
| Nine Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Intermodal | $ | 1,618,407 |
|
| $ | 1,615,453 |
| $ | 1,515,759 |
|
| $ | 1,618,407 |
|
Logistics |
| 522,890 |
|
|
| 586,196 |
| |||||||
Truck brokerage |
| 334,211 |
|
|
| 357,013 |
|
| 304,686 |
|
|
| 334,211 |
|
Logistics |
| 586,196 |
|
|
| 479,940 |
| |||||||
Dedicated |
| 228,622 |
|
|
| 212,894 |
|
| 199,579 |
|
|
| 228,622 |
|
Total revenue | $ | 2,767,436 |
|
| $ | 2,665,300 |
| $ | 2,542,914 |
|
| $ | 2,767,436 |
|
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue:
| Nine Months Ended |
| ||||||||||||||||||||||||||||
| September 30, |
| Nine Months Ended September 30, |
| ||||||||||||||||||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||||||||||||||||||
Revenue | $ | 2,767,436 |
|
| 100.0% |
|
| $ | 2,665,300 |
|
| 100.0% |
| $ | 2,542,914 |
|
| 100.0% |
|
| $ | 2,767,436 |
|
| 100.0% |
| ||||
Transportation costs |
| 2,372,226 |
|
| 85.7% |
|
|
| 2,358,286 |
|
| 88.5% |
|
| 2,223,036 |
|
| 87.4% |
|
|
| 2,372,226 |
|
| 85.7% |
| ||||
Gross margin |
| 395,210 |
|
| 14.3% |
|
|
| 307,014 |
|
| 11.5% |
|
| 319,878 |
|
| 12.6% |
|
|
| 395,210 |
|
| 14.3% |
| ||||
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Costs and expenses: |
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Salaries and benefits |
| 182,652 |
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| 6.6% |
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| 163,496 |
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| 6.1% |
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| 146,128 |
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| 5.7% |
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| 182,652 |
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| 6.6% |
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General and administrative |
| 77,852 |
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| 2.8% |
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| 55,557 |
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| 2.1% |
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| 76,151 |
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| 3.0% |
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| 77,852 |
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| 2.8% |
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Depreciation and amortization |
| 21,150 |
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| 0.8% |
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| 11,286 |
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| 0.4% |
|
| 22,945 |
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| 0.9% |
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|
| 21,150 |
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| 0.8% |
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Total costs and expenses |
| 281,654 |
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| 10.2% |
|
|
| 230,339 |
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| 8.6% |
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| 245,224 |
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| 9.6% |
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| 281,654 |
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| 10.2% |
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Operating income | $ | 113,556 |
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| 4.1% |
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| $ | 76,675 |
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| 2.9% |
| $ | 74,654 |
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| 3.0% |
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| $ | 113,556 |
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| 4.1% |
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Revenue
Revenue increased 3.8%decreased 8.1% to $2.5 billion from $2.8 billion.billion in 2019. Intermodal revenue increased 0.2%decreased 6.3% to $1.6$1.5 billion primarily due to improved pricing,lower prices, a 2.0% decrease in volume, and increased intermodal competition. Logistics revenue decreased 10.8% to $522.9 million related primarily to lost customers and a soft demand environment, partially offset by new accounts. Truck brokerage revenue decreased 8.8% to $304.7 million primarily due to a 10.5% decrease in volume, partially offset by a 6.0% decrease in volume due to a soft demand environment, and increased truckload and intermodal competition. Truck brokerage revenue decreased 6.4% to $334.2 million due to a 23.6% decrease1.7% increase in fuel, mix, and price. Dedicated’s revenue decreased 12.7% to $199.6 million due to the impact of business we exited, partially offset by a 17.2% volume increase due to the addition of CaseStack. Logistics revenue increased 22.1% to $586.2 million related primarily to growth with existing customers and the addition of Casestack. Dedicated’s revenue increased 7.4% to $228.6 million due to revenue management and growth with new accounts.
Transportation Costs
Transportation cost increased 0.6%decreased 6.3% to $2.2 billion in 2020 from $2.4 billion in 2019. 2019. Transportation costs in 20192020 consisted of purchased transportation costs of $1.8 billion and equipment and driver related costs of $471.9 million compared to 2019 purchased transportation costs of $1.9 billion and equipment and driver related costs of $471.8 million compared to 2018 purchased transportation costs of $1.9 billion and equipment and driver related costs of $452.1$471.9 million. Purchased transportation costs were down slightly7.9% for the comparable periods. The 7.9% decline in purchased transportation costs were due primarily to decreases in intermodal and brokerage volumes, partially offset by rail cost increases. Equipment and driver related costs increased 4.4% in 2019 due primarilywere flatcompared to equipment depreciation expense, an increase in the number of drivers, claims, and wage increases.2019.
Gross Margin
Gross margin increased 28.7%decreased 19.1% to $319.9 million from $395.2 million. million in 2019. The $88.2$75.3 million gross margin increase decline was the result of increasesdecreases in all service lines. Intermodal gross margin increaseddecreased primarily due to improved pricinga 2.0% decline in volumes, lower prices and improved network balance.higher rail costs. Partially offsetting the intermodal gross margin decrease was higher fuel surcharge margin. Logistics gross margin decreased primarily due to lost customers, partially offset by growth were higher rail costs, higher driver and equipment costs, and lower volume.with existing customers. Truck brokerage gross margin increaseddecreased due to a 17.2% increase10.5% decrease in volume, andpartially offset by the addition of CaseStack and benefits from our yield management strategy and technology. LogisticsDedicated gross margin increaseddecreased primarily due to the addition of CaseStack, and growth with existing customers. Dedicated gross margin increased due tobusiness we exited, partially offset by revenue management initiatives and improved operational discipline.
As a percentage of revenue, gross margin increased Due to 14.3% in 2019 from 11.5% in 2018. Intermodalthe aforementioned reasons, gross margin as a percentage of sales increased 130 basis points duerevenue decreased to revenue management, partially offset by rail and driver and equipment cost increases. Truck brokerage gross margin as a percentage of sales was up 380 basis points due to improved purchasing and the addition of CaseStack. Logistics gross margin as a percentage of sales was up 600 basis points due to improved pricing, better purchasing, improved optimization and the addition of CaseStack. Dedicated gross margin as a percentage of revenue improved 580 basis points due to revenue management and operational discipline.12.6% in 2020 from 14.3% in 2019.
CONSOLIDATED OPERATING EXPENSES
Salaries and Benefits
Salaries and benefits expense increased $19.2decreased $36.5 million to $146.1 million in 2020 from $182.7 million in 2019 from $163.5 million in 2018.2019. As a percentage of revenue, Hub’s salaries and benefits increaseddecreased to 5.7% in 2020 from 6.6% in 2019 from 6.1% in 2018.2019. The salaries and benefits increasedecrease of $19.2$36.5 million iswas primarily due to the addition of CaseStack employees, partially offset bylower variable compensation and lower headcount, including a $3.4 million decrease in bonusesbonus expense of $20.6 million, salaries expense of $11.3 million, employee benefits expense of $2.1 million and a $0.7 million decrease in payroll taxes.tax expense of $1.9 million.
General and Administrative
General and administrative expense increaseddecreased to $76.2 million in 2020 from $77.9 million in 2019 from $55.6 million in 2018.2019. These expenses, as a percentage of revenue, increased to 3.0% in 2020 from 2.8% in 2019 from 2.1% in 2018.2019. The 2019 increasedecrease of $1.7 million was due primarily due to the addition of CaseStack. Increased expenses included a decrease in claims expense related to a $4.8 million for a legal settlement of claimsa claim first made in 2013 for the alleged misclassification of drivers, the $4.7 million fair value consideration adjustment related to the Dedicated acquisition that decreased generala decrease of travel and administrative expenses in 2018, outside accounting and consultingentertainment expenses of $4.8$3.7 million, technology and office equipment maintenance expensetemporary labor expenses of $0.9 million insuranceand the impact of our cost reduction efforts. These decreases were offset by $5.9 million of expense related to donations of $0.4 million, rentrefrigerated trailers in support of $0.4 million and $0.2COVID-19 efforts, a $2.2 million increase in bad debt expense, partially offset byprofessional services related primarily to a decrease in training expenseconsulting project and lower gains on the sale of $0.5 million.equipment of $1.4 million.
Depreciation and Amortization
Depreciation and amortization expense increased to $22.9 million in 2020 from $21.2 million in 2019 from $11.3 million in 2018. related primarily to the deployment of IT initiatives. This expense as a percentage of revenue increased to 0.9% in 2020 from 0.8% in 2019 from 0.4% in 2018. This increase was related primarily to the addition of amortization due to the addition of CaseStack intangible assets.2019.
Other Income (Expense)Expense
Total otherOther expense increased to $7.6 million in 2020 from $7.0 million in 2019 from $6.3 million in 2018 due to higherlower interest income on cash balances due to the decrease in interest rates on debt related to equipment purchases,and higher foreign currency losses, partially offset by higherlower interest income dueexpense related to higher cash balances.lower borrowings.
Provision for Income Taxes
The provision for income taxes increaseddecreased to $27.4$15.9 million in 20192020 from $16.4$27.4 million in 20182019 while the effective tax rate increaseddecreased to 25.7%23.7% from 23.3%25.7%. The provision for income taxes increaseddecreased primarily due to highersignificantly lower pre-tax income in 2019,2020, while the 20192020 effective tax rate was higherlower primarily due to a combination of higher state apportionmentmore tax credits claimed in 2020 and an excess tax rates as well asbenefit related to stock-based compensation in 2020 compared to a tax shortfall related to stock-based compensation realized in 2019 compared to an excess tax benefit realized in 2018. .
Net Income
Net income increaseddecreased to $51.2 million in 2020 from $79.2 million in 2019 from $54.0 million in 2018 due primarily to increaseddecreases in gross margin, partially offset by higher operatinglower costs and expenses, and higher income tax expense in 2019.
Results from discontinued operations
Results associated with Mode are classified as income from discontinued operations, net of taxes, in our Consolidated Statements of Income. Below is a summary of results from discontinued operations for the three and nine months ended September 30, 2018.expenses.
| Three months ended September 30 |
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| 2018 |
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Income from discontinued operations before gain on sale of Mode | $ | 3,302 |
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Gain on sale of Mode |
| 113,601 |
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Income from discontinued operations before income taxes |
| 116,903 |
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Provision for income taxes |
| 28,057 |
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Income from discontinued operations | $ | 88,846 |
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| Nine months ended September 30 |
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| 2018 |
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Income from discontinued operations before gain on sale of Mode | $ | 16,454 |
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Gain on sale of Mode |
| 113,601 |
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Income from discontinued operations before income taxes |
| 130,055 |
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Provision for income taxes |
| 31,213 |
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Income from discontinued operations | $ | 98,842 |
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LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 2019,2020, we funded operations, capital expenditures, payments for finance leases, repayments of debt purchases of treasury shares 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 including our revolver and cash on hand. In March 2020, we elected to borrow $100 million under the Credit Agreement as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. We repaid the $100 million of borrowings in June 2020. We believe that our cash, cash flows from operations and borrowings available under ourthe Credit Agreement will be sufficient to meet our cash needs for at least the next twelve months.
Cash provided by operating activities for the nine months ended September 30, 20192020 was $128.7$122.7 million, which resulted primarily from net income of $79.2$51.2 million adjusted for non-cash items of $105.0$117.6 million partially offset by the change in operating assets and liabilities of $55.5$46.1 million.
Cash provided by operating activities decreased $12.1$6.0 million in 20192020 versus 2018.2019. The total decrease is due to lower net income of $73.6 million and a negative change in operating assets and liabilities of $66.2$28.0 million, partially offset by a change of $122.0$12.6 million in non-cash items and $5.7a $9.4 million of transaction costs related to the disposition of Mode (the “Disposition”).
The decrease in the change in operating assets and liabilities.
The change in non-cash items was primarily due to a decrease of $28.5 million in accrued expenses, a decrease in the cash paid for prepaid taxes of $16.5 million, a decrease of $12.7 million due to timing of customer and vendor payments in 2019 versus 2018 and decreases in the cash paid for other assets of $4.9 million and non-current liabilities of $4.6 million. The increase in non-cash charges resulted primarily from the gain on the Dispositiondonated equipment of $113.6$5.6 million, an increase in depreciation and amortization of $27.5$5.1 million related to equipment purchases as well as lease amortization, lower gains on the $4.7 sale of equipment of $1.4
million contingent consideration adjustment, an increase in deferred taxes of $0.3 million and thean increase in compensation expense related to stock-based compensation plans of $0.2 million. The increase in the change of operating assets and liabilities of $9.4 million was caused by increases in the change of accounts payable of $151.3 million, prepaid expenses of $9.1 million, non-current liabilities of $6.4 million, prepaid taxes of $3.5 million, restricted investments of $3.3 million and other assets of $2.9 millionmillion. These increases were partially offset by decreases in the changechanges in deferred taxesaccounts receivable of $26.8 million. $146.9 million and accrued expenses of $20.2 million.
Net cash used in investing activities for the nine months ended September 30, 20192020 was $27.8$54.1 million which included capital expenditures of $55.6 million and cash used in acquisitions of $0.7$55.4 million, partially offset by proceeds from the Disposition of discontinued operations of $19.4 million and proceeds from the sale of equipment of $9.1$1.3 million. Capital expenditures of $55.6$55.4 million related primarily to tractorsconstruction of $22.8a new building on our corporate headquarters campus of $19.7 million, containers of $14.6 million, technology investments of $13.9$11.1 million, containerstrailers of $11.4 million, construction in process of $4.6 million, other transportation equipment of $2.5$9.6 million and the remainder for leasehold improvements.
We estimate our capital expenditures for the remainder of 2020 will range from $90$70 million to $95$75 million and will primarily consist of purchases for 2019.containers, tractors, and technology to support growth in our business. We plan to fund these expenditures with a combination of cash and debt.
The net cash provided by investing activities for the nine months ended September 30, 20182019 was $93.2$27.8 million. ProceedsThe net cash used in investing activities increased $26.2 million in 2020 from 2019 due to no proceeds from the Disposition were $228.0disposition of discontinued operations which was $19.4 million in 2019 and a decrease of $7.8 million of proceeds from the sale of equipment were $4.0 million. Capital, partially offset by $0.7 million less cash used in acquisitions and a decrease in capital expenditures of $138.8$0.3 million related primarily to tractors of $71.6 million, trailers of $24.1 million, containers of $22.8 million, technology investments of $19.8 million, and the remainder was for leasehold improvements..
The net cash used in financing activities for the nine months ended September 30, 2019 was $72.7$52.0 million which resulted from the repayment of long-term debt and borrowings on our revolver of $79.1 million, the purchase of treasury shares of $25.0$174.4 million, stock tenderedwithheld for payments of withholding taxes of $2.9$4.0 million and capitalfinance lease payments of $2.2$2.3 million, partially offset by proceeds from the issuance of debt of $36.5$128.7 million.
The increasedecrease in net cash used byin financing activities of $77.7$20.7 million from 2018 to2020 versus 2019 wasis primarily due to decreasesthe increase in the proceeds from the issuance of debt of $82.2$92.2 million and increases in the purchase$25.0 million less purchases of treasury shares of $25.0 million stock, partially offset by less an increase in the repayments of long term debt and our revolver of $28.1$95.3 million and stock tenderedwithheld for payments of withholding taxes of $1.4$1.2 million.
In 2019,2020, we expect our cash paid for taxes to be significantly largerlower than in 20182019 due to higherlower pre-tax income smaller favorable timing differences related to depreciation, and tax extension payments related to our 2018 sale of Mode.in 2020. We expect our cash used to pay taxes in 20192020 will be slightly greaterlower than our income tax expense because of extension payments related to our 2018 sale of Mode exceeding the benefit of favorable timing differences related to depreciation for 2019.2020.
AtOur unused and available borrowings were $317.4 million as of September 30, 2019, we are authorized to borrow up to $3502020 and $318.5 million under a revolving lineas of credit.December 31, 2019. We havehad standby letters of credit that expire at various dates in 20192020 and 2020.2021. As of September 30, 2019,2020, our letters of credit were $30.6 million and we had no borrowings under our bank revolving line of credit. Our unused and available borrowings were $319.4 million as of September 30, 2019 and $323.0 as of December 31, 2018.$32.6 million. We were in compliance with our debt covenants as of September 30, 2020 and December 31, 2019.
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 |
We are exposed toThere have been no material changes in our market risk related to changes in interest rates on our bank line of credit which may adversely affect our results of operations and financial condition. Although we conduct business in foreign countries, international operations are not material to our consolidated financial position, results of operations, or cash flows. Additionally, foreign currency transaction gains and losses were not material to our results of operations for the nine months ended September 30, 2019. Accordingly, we are not currently subject to material foreign currency exchange rate risks from the effects that exchange rate movements of foreign currencies would have on our future costs or on future cash flows we would receive from our foreign investment. To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. We do not use financial instruments for trading purposes.
We have both fixed and variable rate debt as described in Note 7 to the unaudited consolidated financial statements. Any material increase in market interest rates would not have a material impact on the results of operations for the quarter ended September 30, 2019.
As of September 30, 2020 from that presented in our 2019 we had no borrowings under our bank revolving line of credit and our unused and available borrowings were $319.4 million. As of December 31, 2018, our unused and available borrowings were $323.0 million.10-K.
Item 4. | CONTROLS AND PROCEDURES |
1. | Disclosure Controls and Procedures. As of September 30, 2020, 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 September 30, 2020. |
2. | Changes in Internal Control over Financial Reporting.During the quarter ended September 30, 2020, our Dedicated division implemented our new enterprise resource planning ("ERP") system. We expect the implementation of the ERP system to reduce the number of financial systems across the Company and enhance our internal controls over financial reporting. The implementation has resulted in certain changes to business processes and internal controls over financial reporting. We have taken steps to monitor and maintain appropriate internal control over financial reporting and will continue to evaluate the operating effectiveness of related controls. |
(a)
Disclosure Controls and Procedures. As of September 30, 2019, 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, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2019.
(b) Changes in Internal Control over Financial Reporting. On July 1, 2019, we implemented the first phase of a phased implementation of a new enterprise resource planning (“ERP”) system. We expect the implementation of the ERP system to reduce the number of financial systems across the Company and enhance our internal controls over financial reporting. The implementation has resulted in certain changes to business processes and internal controls over financial reporting. We have taken steps to monitor and maintain appropriate internal control over financial reporting and will continue to evaluate the operating effectiveness of related controls during future periods.
Except as set forth above, no other changes have occurred in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the fiscal quarter ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| PART II. Other Information |
Item 1.Legal Proceedings
During the nine months ended September 30, 2019,2020, there have been no material developments infrom the legal proceedings disclosed in our Annual Report on Form2019 10-K, for our fiscal year ended December 31, 2018, except those developments disclosed in Note 107 to the unaudited consolidated financial statements under “Legal Matters,” which is incorporated herein by reference, in which we reported the resolution of two legal proceedings.reference.
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During the nine months ended September 30,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 2019 there have been no material changes from the risk factors disclosed10-K, as well as cautionary statements contained in our Annual Report on Form 10-K for our year ended December 31, 2018 and in thethis Quarterly Report on Form 10-Q, including those under the caption “Forward-Looking Information” in Part I, Item 2 of this Quarterly Report on Form 10-Q and in our other filings with the SEC.
The Company is providing the following additional risk factor to supplement the risk factors contained in Part I, Item 1A of our 2019 10-K.
The COVID-19 pandemic has disrupted and has and could materially and adversely affect our business, financial condition and results of operations, and the ultimate impacts of the pandemic on our business, financial condition and results of operations will depend on future developments and other factors that are highly uncertain and will be affected by the scope and duration of the pandemic and actions taken by individuals and governmental authorities in response to the pandemic.
The ongoing COVID-19 pandemic has caused and will continue to cause significant disruption in the international and United States economies and financial markets and has had and may continue to have a significant and a material adverse effect on our business, financial condition and results of operations. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability. In response to the COVID-19 pandemic, the governments of most states have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.
The ultimate duration of the pandemic and of responsive governmental regulations, including shelter-in-place orders and mandated business closures, is uncertain. New and changing government and private actions to address the COVID-19 pandemic have been occurring daily. We have been closely monitoring the COVID-19 pandemic and its impacts and potential impacts on our business. However, because developments with respect to the spread of COVID-19 and its impacts have been occurring so rapidly, we are unable to predict the extent and duration of the impact of COVID-19 on our business, financial condition and results of operations. These restrictions and other consequences of the pandemic, however, have resulted in significant adverse effects for many different types of businesses, including, among others, those in the retail, travel, hospitality and food and beverage industries, and have resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.
We have been deemed an essential business and have been permitted to continue to operate in all of the jurisdictions in which we operate, including jurisdictions that have mandated the closure of certain businesses, and we expect to be permitted to continue to operate in the future. Nevertheless, there is no assurance that we will continue to be permitted to operate under every future government order or other restriction and in every location.
In addition, the COVID-19 pandemic has caused, and may in the future continue to cause, disruptions, and in some cases severe disruptions, to the business and operations of our customers as a result of quarantines, worker absenteeism as a result of illness or other factors, social distancing measures, consumer concerns, and other travel, health-related, business or other restrictions. Certain of our customers have been, and may in the future be, required to close or operate at a lower capacity, which as a result, has and will continue to affect our business, financial condition and results of operations. There can be no assurance that any decrease in revenues resulting from the COVID-19 pandemic will be offset by increased revenues in the future. The ultimate effects of the COVID-19 pandemic on the broader economy and the markets that we serve are not known nor is the ultimate length of the restrictions described above and any accompanying effects. Additional impacts of the COVID-19 pandemic on our business could be widespread and material, and may include, or exacerbate, among other consequences, any of the risk factors described in the 2019 10-K or in any of the following:
• | Adverse effects on our growth and strategic plans; |
• | The risk that government programs meant to address COVID-19, including the additional lending facilities announced by the Federal Reserve, prove to be ineffective; |
• | Decline in the credit quality of our customers, owing to the effects of the COVID-19 pandemic in the markets we serve, as a result of layoffs, furloughs, closure orders, business slowdowns and lack of consumer confidence, all of which could lead to a need to increase our allowance for credit losses; |
• | Volatility or increases in the allowance for credit losses, either alone or as that may be affected by conditions arising out of the COVID-19 pandemic; |
• | Reductions in our operating effectiveness as our employees work from home; |
• | Increased cybersecurity risks as a result of many of our employees working remotely; |
• | Unavailability of key personnel necessary to conduct our business activities; |
• | Effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating our financial reporting and internal controls; |
• | Sustained changes in consumer behavior, including reductions in consumer discretionary spending even after the crisis has subsided, due to both job losses, lack of consumer confidence and other effects attributable to the COVID-19 pandemic; |
• | Unprecedented volatility in United States financial markets, which may cause the price of our securities to fluctuate irrespective of the performance of our company; and |
• | Declines in demand resulting from businesses being deemed to be “non-essential” by governments in the markets we serve, and from “non-essential” and “essential” businesses suffering adverse effects from reduced levels of economic activity in our markets. |
These factors, together or in combination with other events or occurrences that may not yet be known or anticipated, may materially and adversely affect our business, financial condition and results of operations.
The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, as well as the trading prices for many other securities. The further spread of the COVID-19 outbreak, as well as ongoing or new governmental, regulatory and private sector responses to the pandemic, may materially disrupt banking and other economic activity generally and in the areas in which we operate. This could result in further decline in demand for our quarter ended June 30, 2019.services, and could negatively affect, among other things, our liquidity, regulatory capital and our growth strategy. Any one or more of these developments could have a material adverse effect on our business, financial condition and results of operations.
Although we are taking precautions to protect the safety and well-being of our team members and customers, no assurance can be given that the steps being taken will be adequate or deemed to be appropriate, nor can we predict the level of disruption which will occur to our team members’ ability to provide customer support and service. If we are unable to recover from a business disruption on a timely basis, our business, financial condition and results of operations could be materially and adversely affected. We may also incur additional costs to remedy damages caused by such disruptions, which could further adversely affect our business, financial condition and results of operations.
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
The following contains information regarding purchases of our common stock made during the quarter ended September 30, 2019 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act:
Issuer Purchases of Equity Securities
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| Approximate Dollar Value of |
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| Total |
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| Total Number of |
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| Shares that May Yet |
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| Number of |
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| Average |
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| Shares Purchased as |
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| Be Purchased Under |
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| Shares |
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| Price Paid |
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| Part of Publicly |
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| the Plan |
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| Purchased |
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| Per Share |
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| Announced Plan |
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| (in 000’s) |
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July 1 to July 31 |
| 444,509 |
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| $ | 39.85 |
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| 444,509 |
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| $ | 75,002 |
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Total |
| 444,509 |
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| $ | 39.85 |
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| 444,509 |
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| $ | 75,002 |
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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 purchased 626,320 sharesmade no purchases under this authorization fromduring the authorization date through September 30, 2019.first nine months of 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.
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On July 15, 2019, Hub entered into a separation agreement and release with Donald G. Maltby, former President and Chief Operating Officer of the Company. The separation agreement provided that Mr. Maltby was entitled to receive a separation payment of $0.7 million, less applicable tax withholdings and payroll deductions, payable over 18 months, and COBRA continuation through December 31, 2019. Under the separation agreement, Mr. Maltby agreed to customary confidentiality, non-compete, non-solicitation, non-disparagement, and further covenants with respect to the Company. The separation agreement became effective on July 22, 2019.
| Item 6. Exhibits |
The exhibits included as part of the Form 10-Q are set forth in the Exhibit Index below.Index.
EXHIBIT INDEX
Exhibit No. | Description |
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31.1 | |
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31.2 | |
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32.1 | |
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101 | Interactive data files for Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, |
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104 | The cover page from |
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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. | |
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DATE: | November | /s/ |
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| 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) |
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