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, ~~2019~~2020 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 ~~33,375,328~~33,494,226 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, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	3
Unaudited Consolidated Statements of Income and Comprehensive Income – Three Months and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	4
Unaudited Consolidated Statements of Stockholders’ ~~Equity-Three~~Equity – Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	5
Unaudited Consolidated Statements of Cash Flows – Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	6
Notes to Unaudited Consolidated Financial Statements	7
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	1611
Item 3.Quantitative and Qualitative Disclosures about Market Risk	2317
Item 4.Controls and Procedures	2317
PART II. Other Information	18
Item 1. Legal Proceedings	23 18
Item 1A. Risk Factors	2418
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
~~Item 5. Other Information~~	2419
Item 6. Exhibits	2419

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.~~

NOTE 1. Interim Financial Statements

The ~~accounting and~~accompanying unaudited consolidated financial ~~reporting policies~~statements of Hub Group, Inc. ~~and its subsidiaries (collectively referred to herein as “Hub”, or~~(the “Company,” “Hub,” “we”, “us” or “our”) ~~conform~~have been prepared pursuant to ~~accounting principles generally accepted~~the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in ~~the United States (“GAAP”). Our accompanying unaudited consolidated~~annual financial statements have been ~~prepared in accordance with instructions~~omitted pursuant to ~~Form 10-Q~~those rules and ~~, therefore, do~~regulations. 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’s~~our opinion, all material adjustments (which include only normal recurring ~~accruals)~~adjustments) necessary to fairly present our financial position as of September 30, ~~2019~~2020 and results of operations for the three and nine months ended September 30, ~~2019~~2020 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 allocation~~is 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, 2018~~our 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

~~(1)~~

~~Earnings per share is from continuing operations.~~

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

~~NOTE 3.~~

~~Discontinued Operations~~

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:

	~~Nine Months Ended~~
~~(in thousands)~~	~~September 30, 2018~~
~~Net cash (used in) provided by operating activities~~		~~(4,184~~	)
~~Net cash provided by investing activities~~		~~226,358~~

~~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 5.~~

NOTE 3. Revenue from Contracts with Customers

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.

~~Earnings Per Share~~

The following ~~is a reconciliation of~~table summarizes our ~~earnings per share~~disaggregated 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 6.~~

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, ~~2019~~2020 and December 31, ~~2018.~~2019. As of September 30, ~~2019~~2020 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 ~~less~~more 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, ~~2019~~2020 and December 31, ~~2018,~~2019, our cash ~~and temporary investments were~~is 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 million~~2020 and December 31, ~~2018~~2019, 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 ~~which~~that consider prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. These valuation methods are based on either quoted market prices (Level 1) or inputs, other than quoted prices in active markets, that are observable either directly or indirectly (Level 2), or unobservable inputs (Level 3). Cash and cash equivalents, mutual funds, accounts receivable and accounts payable are defined as “Level 1,” while long-term debt is defined as “Level 2” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the Codification.

NOTE 5. 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 7.~~

~~Long-Term Debt and Financing Arrangements~~

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 ~~2019~~2020 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, ~~2019~~2020 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:~~

~~Weighted average remaining lease term — finance leases~~	~~1.84 years~~
~~Weighted average remaining lease term — operating leases~~	~~5.54 years~~

~~Discount rate — finance leases~~		~~3.88~~	%
~~Discount rate — operating leases~~		~~3.44~~	%

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.

~~NOTE 10.~~

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 convert~~converted 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 been~~was 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 adopt~~adopted this standard on January 1, 2020, as required. ~~We do not believe the~~The adoption of Topic 350 ~~will~~did not have a material effect on our financial statements.

In ~~June~~August 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 ~~was~~requires 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 material~~2020, 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

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Forward-looking information~~Forward-Looking Information

The information contained in this ~~Quarterly Report on Form 10-Q~~quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” “predicts,” “projects,” “potential,” “may,” “could,” “might,” “should,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements ~~should be viewed with caution. They~~are neither historical facts nor assurance of future performance. Instead, they are based on our beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. ~~Actual results or experience could differ materially from the forward-looking statements~~Such 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 ~~release~~update any ~~revisions to~~ forward-looking statements, whether written or oral, that may be made from time to ~~reflect events after~~time, whether as a result of new information, future developments or otherwise. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the ~~date of this report. In~~forward-looking statements, in addition to ~~factors that are~~those 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 ~~domestic~~ intermodal, logistics, truck brokerage ~~dedicated~~ and ~~logistics~~dedicated markets served by us;

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

fuel shortages or fluctuations in fuel prices;

•

increases in interest rates;

•

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

•

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

•

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

•

significant increases to employee health insurance costs;

•

loss of ~~several~~one or more of our largest customers;

•

awards received during annual customer bids not materializing;

•

~~changes in insurance costs and claims expense;~~

•

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 ~~HGT~~Hub 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 arrange~~Our truck brokerage operation arranges for the transportation of freight by truck, providing customers with ~~another~~an 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 has~~have 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’s~~Our multimodal solutions group works with our pricing, account management and operations teams to enhance ~~Hub’s~~our customer margins across all lines of business. We are working on margin enhancement ~~projects~~initiatives including ~~revenue management,~~pricing optimization, matching of inbound and outbound loads, reducing empty miles, improving the retention of our ~~recovery of accessorial~~drivers, 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’s~~Our top 50 customers represent approximately ~~68%~~72% of revenue for the ~~three~~nine months ended September 30, ~~2019.~~2020. We use various performance indicators to manage our business. We closely monitor ~~margin and gains and losses for~~profitability of our top 50 customers. We also evaluate on-time performance, customer service, cost per load and ~~daily sales outstanding by~~trade 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 in~~accounts 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, ~~2019~~2020 Compared to the Three Months Ended September 30, ~~2018~~2019

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:
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%

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% decrease~~9.3% increase in volume, partially offset by ~~improved~~ lower customer pricing. ~~Volume~~Logistics revenue decreased 7.2% to

$175.9 million as new customer wins and growth from existing customers was ~~down compared to~~more than offset by the ~~prior~~impact 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% increase~~9.8% 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 ~~2019~~2020 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% decrease~~increase in purchased transportation costs ~~were~~was due primarily to ~~decreases~~increases 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 primarily~~decreased 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 ~~increase~~decrease 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 ~~2018~~2019 primarily due to ~~the decline in volumes~~lower 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 ~~increased~~decreased primarily due to growth of higher margin spot freight that was more than offset by the ~~addition~~impact of ~~CaseStack, further benefits from~~higher purchased transportation costs on our ~~new operating model and yield management strategy,~~contractual freight, as well as ~~our new technology platform. Logistics~~less project and less-than-truckload business. Dedicated gross margin ~~grew~~decreased 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. Intermodal~~aforementioned reasons, gross margin as a percentage of revenue ~~increased 10 basis points due~~decreased 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 changes~~14.8% 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 ~~increased~~decreased 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 ~~increased~~decreased to 4.9% in 2020 from 6.5% in ~~2019 from 6.1% in 2018.~~2019. The ~~salaries and benefits increase~~decrease of ~~$2.7~~$14.2 million iswas primarily due to ~~the addition~~lower 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 ~~increase~~decrease 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 general~~General and administrative expenses ~~increased~~decreased 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, ~~increased~~decreased to 2.3% in 2020 from 3.4% in ~~2019 from 2.1%~~2019. The decrease of $10.1 million in ~~2018. The increase~~general 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 for~~professional 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 depreciation~~Depreciation 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 to~~remained 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 other~~Other expense increased to $2.4 million in 2020 from $2.1 million in 2019 ~~from $1.8 million in 2018~~ due ~~primarily~~ to ~~an increase~~lower interest income on cash balances due to the decrease in interest ~~expense due to higher~~rates and lower foreign currency gains, partially offset by lower interest ~~rates on debt~~expense related to ~~equipment purchases.~~lower borrowings.

Provision for Income Taxes

The provision for income taxes ~~increased~~decreased 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 and~~2020 versus an effective rate of ~~21.7%~~25.7% in ~~2018.~~2019. The provision ~~for income taxes~~ and ~~the~~ effective tax rate were ~~both higher~~significantly lower in ~~2019~~2020 due primarily to the combination of ~~higher~~ $0.3 million state ~~apportionment and~~ tax ~~rates in 2019~~credits 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 ~~2019~~2020 will range from ~~25.0%~~24.0% to ~~26.0%~~25.0%.

Net Income

Net income ~~increased~~decreased to $24.8 million in 2020 from $26.1 million in 2019 ~~from $25.8 million in 2018~~ due primarily to ~~increased~~decreases in gross margin, partially offset by ~~higher operating~~lower costs and ~~higher~~expenses, and income tax ~~expense.~~expenses.

Nine Months Ended September 30, ~~2019~~2020 Compared to the Nine Months Ended September 30, ~~2018~~2019

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%

Costs and expenses:
Salaries and benefits		182,652	6.6%		163,496	6.1%		146,128	5.7%		182,652	6.6%
General and administrative		77,852	2.8%		55,557	2.1%		76,151	3.0%		77,852	2.8%
Depreciation and amortization		21,150	0.8%		11,286	0.4%		22,945	0.9%		21,150	0.8%
Total costs and expenses		281,654	10.2%		230,339	8.6%		245,224	9.6%		281,654	10.2%

Operating income	$	113,556	4.1%	$	76,675	2.9%	$	74,654	3.0%	$	113,556	4.1%

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% decrease~~1.7% 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 ~~2019~~2020 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 ~~slightly~~7.9% 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 primarily~~were 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 ~~increases~~decreases in all service lines. Intermodal gross margin ~~increased~~decreased primarily due to ~~improved pricing~~a 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 ~~increased~~decreased due to a ~~17.2% increase~~10.5% decrease in volume, ~~and~~partially offset by the ~~addition of CaseStack and~~ benefits from our yield management strategy and technology. ~~Logistics~~Dedicated gross margin ~~increased~~decreased primarily due to ~~the addition of CaseStack, and growth with existing customers. Dedicated gross margin increased due to~~business 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. Intermodal~~the aforementioned reasons, gross margin as a percentage of ~~sales increased 130 basis points due~~revenue 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 $19.2~~decreased $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 ~~increased~~decreased to 5.7% in 2020 from 6.6% in ~~2019 from 6.1% in 2018.~~2019. The ~~salaries and benefits increase~~decrease of ~~$19.2~~$36.5 million iswas primarily due to ~~the addition of CaseStack employees, partially offset by~~lower variable compensation and lower headcount, including a ~~$3.4 million~~ decrease in ~~bonuses~~bonus 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 ~~increased~~decreased 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 increase~~decrease 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 ~~claims~~a 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 general~~a decrease of travel and ~~administrative expenses in 2018, outside accounting and consulting~~entertainment expenses of ~~$4.8~~$3.7 million, ~~technology and office equipment maintenance expense~~temporary labor expenses of $0.9 million ~~insurance~~and the impact of our cost reduction efforts. These decreases were offset by $5.9 million of expense related to donations of ~~$0.4 million, rent~~refrigerated trailers in support of ~~$0.4 million and $0.2~~COVID-19 efforts, a $2.2 million increase in ~~bad debt expense, partially offset by~~professional services related primarily to a ~~decrease in training expense~~consulting 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 other~~Other expense increased to $7.6 million in 2020 from $7.0 million in 2019 ~~from $6.3 million in 2018~~ due to ~~higher~~lower 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 ~~higher~~lower interest ~~income due~~expense related to ~~higher cash balances.~~lower borrowings.

Provision for Income Taxes

The provision for income taxes ~~increased~~decreased to ~~$27.4~~$15.9 million in ~~2019~~2020 from ~~$16.4~~$27.4 million in ~~2018~~2019 while the effective tax rate ~~increased~~decreased to ~~25.7%~~23.7% from ~~23.3%~~25.7%. The provision for income taxes ~~increased~~decreased primarily due to ~~higher~~significantly lower pre-tax income in ~~2019,~~2020, while the ~~2019~~2020 effective tax rate was ~~higher~~lower primarily due to a combination of ~~higher state apportionment~~more tax credits claimed in 2020 and an excess tax ~~rates as well as~~benefit 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 ~~increased~~decreased to $51.2 million in 2020 from $79.2 million in 2019 ~~from $54.0 million in 2018~~ due primarily to ~~increased~~decreases in gross margin, partially offset by ~~higher operating~~lower 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

2018

Income from discontinued operations before gain on sale of Mode
$
3,302

Gain on sale of Mode

113,601

Income from discontinued operations before income taxes

116,903

Provision for income taxes

28,057

Income from discontinued operations
$
88,846

Nine months ended September 30

2018

Income from discontinued operations before gain on sale of Mode
$
16,454

Gain on sale of Mode

113,601

Income from discontinued operations before income taxes

130,055

Provision for income taxes

31,213

Income from discontinued operations
$
98,842

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 ~~our~~the 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, ~~2019~~2020 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 ~~2019~~2020 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 ~~$5.7~~a $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 Disposition~~donated 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 ~~the~~an 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 ~~million~~million. These increases were partially offset by decreases in the ~~change~~changes in ~~deferred taxes~~accounts 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, ~~2019~~2020 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 ~~tractors~~construction of ~~$22.8~~a new building on our corporate headquarters campus of $19.7 million, containers of $14.6 million, technology investments of ~~$13.9~~$11.1 million, ~~containers~~trailers 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, ~~2018~~2019 was ~~$93.2~~$27.8 million. ~~Proceeds~~The net cash used in investing activities increased $26.2 million in 2020 from 2019 due to no proceeds from the ~~Disposition were $228.0~~disposition 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 ~~tendered~~withheld for payments of withholding taxes of ~~$2.9~~$4.0 million and ~~capital~~finance lease payments of ~~$2.2~~$2.3 million, partially offset by proceeds from the issuance of debt of ~~$36.5~~$128.7 million.

The ~~increase~~decrease in net cash used byin financing activities of ~~$77.7~~$20.7 million from ~~2018 to~~2020 versus 2019 ~~was~~is primarily due to ~~decreases~~the 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 ~~tendered~~withheld for payments of withholding taxes of ~~$1.4~~$1.2 million.

In ~~2019,~~2020, we expect our cash paid for taxes to be significantly ~~larger~~lower than in ~~2018~~2019 due to ~~higher~~lower 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 ~~2019~~2020 will be ~~slightly greater~~lower 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 $350~~2020 and $318.5 million ~~under a revolving line~~as of ~~credit.~~December 31, 2019. We ~~have~~had standby letters of credit that expire at various dates in ~~2019~~2020 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 to~~There 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

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.

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, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~PART II.~~

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 Form~~2019 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.

~~Item 1A.~~

~~Risk Factors~~

~~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 disclosed~~10-K, as well as cautionary statements contained in ~~our Annual Report on Form 10-K for our year ended December 31, 2018 and in the~~this 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.~~

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~~

Approximate Dollar Value of

Total

Total Number of

Shares that May Yet

Number of

Average

Shares Purchased as

Be Purchased Under

Shares

Price Paid

Part of Publicly

the Plan

Purchased

Per Share

Announced Plan

(in 000’s)

July 1 to July 31

444,509

$
39.85

444,509

$
75,002

Total

444,509

$
39.85

444,509

$
75,002

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 shares~~made no purchases under this authorization ~~from~~during 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.

~~Item 5.~~

~~Other Information~~

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.~~

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


~~10.1~~	~~Separation Agreement dated July 15, 2019, between Hub Group, Inc. and Donald Maltby.~~

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

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

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

101	Interactive data files for Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2019,~~2020, formatted in Inline XBRL: (i) the Consolidated Balance Sheets (unaudited); (ii) the Unaudited Consolidated Statements of Income and Comprehensive Income; (iii) the Unaudited Consolidated Statements of Stockholders’ Equity; (iv) the Unaudited Consolidated Statements of Cash Flows (unaudited); and (v) the Notes to Unaudited Consolidated Financial Statements. XBRL Instance Document-the XBRL Instance Document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document.

104	The cover page from ~~the Company’s~~Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2019~~2020 (formatted in Inline ~~XBR) (included~~XBRL and included in Exhibit 101)











	.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		HUB GROUP, INC.

DATE:	November ~~8, 2019~~5, 2020	/s/ ~~Terri A. Pizzuto~~Geoffrey F. DeMartino
		~~Terri A. Pizzuto~~Geoffrey F. DeMartino
		Executive Vice President, Chief Financial
		Officer and Treasurer
		(Principal Financial Officer)




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

Cash paid	$	249,389
Deferred purchase consideration		3,469
Total consideration	$	252,858

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

			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

	Total
Remainder 2019	$	2,292
2020	$	8,661
2021	$	8,300
2022	$	8,300
2023	$	8,155

	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

	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

	Three months ended September 30
	2018
Income from discontinued operations before gain on sale of Mode	$	3,302
Gain on sale of Mode		113,601
Income from discontinued operations before income taxes		116,903

Provision for income taxes		28,057
Income from discontinued operations	$	88,846

	Nine months ended September 30
	2018
Income from discontinued operations before gain on sale of Mode	$	16,454
Gain on sale of Mode		113,601
Income from discontinued operations before income taxes		130,055

Provision for income taxes		31,213
Income from discontinued operations	$	98,842

							Approximate Dollar Value of
	Total				Total Number of		Shares that May Yet
	Number of		Average		Shares Purchased as		Be Purchased Under
	Shares		Price Paid		Part of Publicly		the Plan
	Purchased		Per Share		Announced Plan		(in 000’s)
July 1 to July 31		444,509	$	39.85		444,509	$	75,002
Total		444,509	$	39.85		444,509	$	75,002