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
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For the quarterly period ended March 31, 2020 2021or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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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) (630) 271-3600
(Registrant’s telephone number, including area code)
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Class A Common Stock, par value $0.01 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 and posted 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.
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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 May 1, 2020,April 30, 2021, the registrant had 33,527,94333,764,632 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
2
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
| March 31, |
|
| December 31, |
| March 31, |
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| December 31, |
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| 2020 |
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| 2019 |
| 2021 |
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| 2020 |
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ASSETS | (unaudited) |
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| (unaudited) |
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CURRENT ASSETS: |
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Cash and cash equivalents | $ | 276,880 |
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| $ | 168,729 |
| $ | 226,264 |
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| $ | 124,506 |
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Accounts receivable trade |
| 462,813 |
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| 450,451 |
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Allowance for credit losses |
| (7,795 | ) |
|
| (6,912 | ) | |||||||
Accounts receivable trade, net |
| 507,377 |
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| 518,975 |
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Other receivables |
| 1,297 |
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| 3,237 |
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| 3,364 |
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| 1,265 |
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Prepaid taxes |
| 673 |
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| 630 |
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| 985 |
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| 1,336 |
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Prepaid expenses and other current assets |
| 14,993 |
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| 24,086 |
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| 17,898 |
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| 26,753 |
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TOTAL CURRENT ASSETS |
| 748,861 |
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| 640,221 |
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| 755,888 |
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| 672,835 |
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Restricted investments |
| 18,192 |
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| 22,601 |
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| 21,735 |
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| 23,353 |
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Property and equipment, net |
| 668,398 |
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| 663,165 |
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| 641,858 |
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| 671,101 |
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Right-of-use assets - operating leases |
| 33,332 |
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| 35,548 |
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| 42,859 |
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| 43,573 |
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Right-of-use assets - financing leases |
| 5,298 |
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| 5,865 |
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| 2,973 |
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| 3,557 |
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Other intangibles, net |
| 117,511 |
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| 120,967 |
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| 150,857 |
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| 163,953 |
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Goodwill, net |
| 484,404 |
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| 484,459 |
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| 520,592 |
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| 508,555 |
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Other assets |
| 18,611 |
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| 18,748 |
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| 18,005 |
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| 18,469 |
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TOTAL ASSETS | $ | 2,094,607 |
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| $ | 1,991,574 |
| $ | 2,154,767 |
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| $ | 2,105,396 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable trade | $ | 270,384 |
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| $ | 257,247 |
| $ | 317,798 |
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| $ | 285,320 |
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Accounts payable other |
| 18,085 |
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| 11,585 |
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| 17,019 |
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| 12,680 |
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Accrued payroll |
| 23,663 |
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| 45,540 |
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| 33,395 |
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| 23,044 |
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Accrued other |
| 84,748 |
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| 86,686 |
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| 111,942 |
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| 102,613 |
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Lease liability - operating leases |
| 8,244 |
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| 8,567 |
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| 10,233 |
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| 10,093 |
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Lease liability - financing leases |
| 3,064 |
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| 3,048 |
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| 1,023 |
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| 1,793 |
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Current portion of long term debt |
| 94,620 |
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| 94,691 |
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| 89,531 |
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| 93,562 |
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TOTAL CURRENT LIABILITIES |
| 502,808 |
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| 507,364 |
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| 580,941 |
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| 529,105 |
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Long term debt |
| 284,076 |
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| 186,934 |
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| 154,341 |
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| 176,797 |
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Non-current liabilities |
| 35,577 |
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| 36,355 |
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| 41,085 |
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| 42,910 |
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Lease liability - operating leases |
| 26,564 |
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| 28,518 |
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| 35,037 |
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| 36,328 |
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Lease liability - financing leases |
| 1,051 |
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| 1,820 |
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| 6 |
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| 8 |
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Deferred taxes |
| 155,822 |
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| 155,304 |
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| 166,856 |
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| 162,325 |
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STOCKHOLDERS' EQUITY: |
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Preferred stock: $.01 par value; 2,000,000 shares authorized; 0 shares issued or outstanding in 2020 and 2019 | - |
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| - |
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Preferred stock: $.01 par value; 2,000,000 shares authorized; 0 shares issued or outstanding in 2021 and 2020 | - |
| - |
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Common stock |
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Class A: $.01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2020 and 2019; 33,544,287 shares outstanding in 2020 and 33,353,904 shares outstanding in 2019 |
| 412 |
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| 412 |
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Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2020 and 2019 |
| 7 |
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| 7 |
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Class A: $.01 par value; 97,337,700 shares authorized and 41,224,792 shares issued in 2021 and 2020; 33,755,036 shares outstanding in 2021 and 33,549,708 shares outstanding in 2020 |
| 412 |
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| 412 |
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Class B: $.01 par value; 662,300 shares authorized; 662,296 shares issued and outstanding in 2021 and 2020 |
| 7 |
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| 7 |
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Additional paid-in capital |
| 175,370 |
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| 179,637 |
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| 182,005 |
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| 186,058 |
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Purchase price in excess of predecessor basis, net of tax benefit of $10,306 |
| (15,458 | ) |
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| (15,458 | ) |
| (15,458 | ) |
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| (15,458 | ) |
Retained earnings |
| 1,192,837 |
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| 1,179,601 |
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| 1,270,390 |
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| 1,253,160 |
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Accumulated other comprehensive loss |
| (320 | ) |
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| (186 | ) |
| (201 | ) |
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| (191 | ) |
Treasury stock; at cost, 7,680,505 shares in 2020 and 7,870,888 shares in 2019 |
| (264,139 | ) |
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| (268,734 | ) | |||||||
Treasury stock; at cost, 7,469,756 shares in 2021 and 7,675,084 shares in 2020 |
| (260,654 | ) |
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| (266,065 | ) | |||||||
TOTAL STOCKHOLDERS' EQUITY |
| 1,088,709 |
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| 1,075,279 |
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| 1,176,501 |
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| 1,157,923 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,094,607 |
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| $ | 1,991,574 |
| $ | 2,154,767 |
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| $ | 2,105,396 |
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See notes to unaudited consolidated financial statements.
3
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
| Three Months |
| Three Months |
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| Ended March 31, |
| Ended March 31, |
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| 2020 |
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| 2019 |
| 2021 |
| 2020 |
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Revenue | $ | 838,859 |
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| $ | 932,998 |
| $ | 919,553 |
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| $ | 838,859 |
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Transportation costs |
| 734,265 |
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| 805,709 |
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| 810,806 |
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| 734,265 |
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Gross margin |
| 104,594 |
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| 127,289 |
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| 108,747 |
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| 104,594 |
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Costs and expenses: |
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Salaries and benefits |
| 50,876 |
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| 62,028 |
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| 56,951 |
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| 50,876 |
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General and administrative |
| 26,336 |
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| 22,918 |
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| 19,243 |
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| 26,336 |
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Depreciation and amortization |
| 7,623 |
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| 6,754 |
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| 8,502 |
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| 7,623 |
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Total costs and expenses |
| 84,835 |
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| 91,700 |
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| 84,696 |
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| 84,835 |
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Operating income |
| 19,759 |
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| 35,589 |
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| 24,051 |
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| 19,759 |
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Other income (expense): |
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Interest expense |
| (2,455 | ) |
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| (3,056 | ) |
| (1,905 | ) |
|
| (2,455 | ) |
Interest and dividend income |
| 403 |
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|
| 373 |
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| 1 |
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| 403 |
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Other expense, net |
| (222 | ) |
|
| (40 | ) |
| (93 | ) |
|
| (222 | ) |
Total other expense |
| (2,274 | ) |
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| (2,723 | ) |
| (1,997 | ) |
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| (2,274 | ) |
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Income before provision for income taxes |
| 17,485 |
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| 32,866 |
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| 22,054 |
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| 17,485 |
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Provision for income taxes |
| 4,249 |
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| 8,972 |
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| 4,824 |
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| 4,249 |
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Net income |
| 13,236 |
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| 23,894 |
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| 17,230 |
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| 13,236 |
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Other comprehensive income: |
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Foreign currency translation adjustments |
| (134 | ) |
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| 7 |
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| (10 | ) |
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| (134 | ) |
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Total comprehensive income | $ | 13,102 |
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| $ | 23,901 |
| $ | 17,220 |
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| $ | 13,102 |
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Basic earnings per common share | $ | 0.40 |
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| $ | 0.71 |
| $ | 0.52 |
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| $ | 0.40 |
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Diluted earnings per common share | $ | 0.40 |
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| $ | 0.71 |
| $ | 0.51 |
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| $ | 0.40 |
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Basic weighted average number of shares outstanding |
| 33,159 |
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| 33,569 |
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| 33,419 |
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| 33,159 |
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Diluted weighted average number of shares outstanding |
| 33,488 |
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| 33,585 |
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| 33,775 |
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| 33,488 |
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See notes to unaudited consolidated financial statements.
4
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except per share amounts)
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| Purchase Price |
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| Class A & B |
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| of Excess of |
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| Accumulated |
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| Purchase Price |
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| Common Stock |
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| Additional |
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| Predecessor |
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| Other |
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| Treasury |
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| Class A & B |
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| of Excess of |
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| Accumulated |
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| Shares |
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| Paid-in |
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| Basis, Net |
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| Retained |
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| Comprehensive |
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| Stock |
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| Common Stock |
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| Additional |
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| Predecessor |
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| Other |
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| Treasury |
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| Issued |
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| Amount |
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| Capital |
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| of Tax |
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| Earnings |
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| Income |
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| Shares |
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| Amount |
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| Total |
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Balance December 31, 2018 |
| 41,887,088 |
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| $ | 419 |
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| $ | 172,220 |
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| $ | (15,458 | ) |
| $ | 1,072,456 |
|
| $ | (182 | ) |
|
| (7,431,083 | ) |
| $ | (248,621 | ) |
| $ | 980,834 |
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Stock withheld for payments of withholding taxes |
| - |
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|
| - |
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| - |
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|
| - |
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|
| - |
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|
| - |
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|
| (68,908 | ) |
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| (2,578 | ) |
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| (2,578 | ) | |||||||||||||||||||||||||||||||||||
Issuance of restricted stock awards, net of forfeitures |
| - |
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| - |
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| (13,813 | ) |
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| - |
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| - |
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| - |
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| 385,681 |
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| 13,813 |
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| - |
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Share-based compensation expense |
| - |
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| - |
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| 4,933 |
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| - |
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| - |
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| - |
|
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| - |
|
|
| - |
|
|
| 4,933 |
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Net income |
| - |
|
|
| - |
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|
| - |
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|
| - |
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|
| 23,894 |
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| - |
|
|
| - |
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|
| - |
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| 23,894 |
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Adoption of ASU 2016-02 |
| - |
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|
| - |
|
|
| - |
|
|
| - |
|
|
| (26 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (26 | ) | |||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7 |
|
|
| - |
|
|
| - |
|
|
| 7 |
| |||||||||||||||||||||||||||||||||||
Balance March 31, 2019 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 163,340 |
|
| $ | (15,458 | ) |
| $ | 1,096,324 |
|
| $ | (175 | ) |
|
| (7,114,310 | ) |
| $ | (237,386 | ) |
| $ | 1,007,064 |
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| Shares |
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| Paid-in |
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| Basis, Net |
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| Retained |
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| Comprehensive |
|
| Stock |
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| |||||||||||||
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| Issued |
|
| Amount |
|
| Capital |
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| of Tax |
|
| Earnings |
|
| Income |
|
| Shares |
|
| Amount |
|
| Total |
| |||||||||
Balance December 31, 2019 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 179,637 |
|
| $ | (15,458 | ) |
| $ | 1,179,601 |
|
| $ | (186 | ) |
|
| (7,870,888 | ) |
| $ | (268,734 | ) |
| $ | 1,075,279 |
|
| 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 |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (71,717 | ) |
|
| (3,769 | ) |
|
| (3,769 | ) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (71,717 | ) |
|
| (3,769 | ) |
|
| (3,769 | ) |
Issuance of restricted stock awards, net of forfeitures |
| - |
|
|
| - |
|
|
| (8,364 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 262,100 |
|
|
| 8,364 |
|
|
| - |
|
| - |
|
|
| - |
|
|
| (8,364 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 262,100 |
|
|
| 8,364 |
|
|
| - |
|
Share-based compensation expense |
| - |
|
|
| - |
|
|
| 4,097 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,097 |
|
| - |
|
|
| - |
|
|
| 4,097 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,097 |
|
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,236 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,236 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,236 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 13,236 |
|
Foreign currency translation adjustment |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (134 | ) |
|
| - |
|
|
| - |
|
|
| (134 | ) |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (134 | ) |
|
| - |
|
|
| - |
|
|
| (134 | ) |
Balance March 31, 2020 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 175,370 |
|
| $ | (15,458 | ) |
| $ | 1,192,837 |
|
| $ | (320 | ) |
|
| (7,680,505 | ) |
| $ | (264,139 | ) |
| $ | 1,088,709 |
|
| 41,887,088 |
|
| $ | 419 |
|
| $ | 175,370 |
|
| $ | (15,458 | ) |
| $ | 1,192,837 |
|
| $ | (320 | ) |
|
| (7,680,505 | ) |
| $ | (264,139 | ) |
| $ | 1,088,709 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||
Balance December 31, 2020 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 186,058 |
|
| $ | (15,458 | ) |
| $ | 1,253,160 |
|
| $ | (191 | ) |
|
| (7,675,084 | ) |
| $ | (266,065 | ) |
| $ | 1,157,923 |
| |||||||||||||||||||||||||||||||||||
Stock withheld for payments of withholding taxes |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (65,979 | ) |
|
| (3,759 | ) |
|
| (3,759 | ) | |||||||||||||||||||||||||||||||||||
Issuance of restricted stock awards, net of forfeitures |
| - |
|
|
| - |
|
|
| (9,170 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 271,307 |
|
|
| 9,170 |
|
|
| - |
| |||||||||||||||||||||||||||||||||||
Share-based compensation expense |
| - |
|
|
| - |
|
|
| 5,117 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,117 |
| |||||||||||||||||||||||||||||||||||
Net income |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 17,230 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 17,230 |
| |||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment |
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (10 | ) |
|
| - |
|
|
| - |
|
|
| (10 | ) | |||||||||||||||||||||||||||||||||||
Balance March 31, 2021 |
| 41,887,088 |
|
| $ | 419 |
|
| $ | 182,005 |
|
| $ | (15,458 | ) |
| $ | 1,270,390 |
|
| $ | (201 | ) |
|
| (7,469,756 | ) |
| $ | (260,654 | ) |
| $ | 1,176,501 |
|
See notes to unaudited consolidated financial statements
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net Income | $ | 13,236 |
|
| $ | 23,894 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
| 30,576 |
|
|
| 28,383 |
|
Deferred taxes |
| 696 |
|
|
| 6,335 |
|
Compensation expense related to share-based compensation plans |
| 4,097 |
|
|
| 4,933 |
|
Loss (gain) on sale of assets |
| 121 |
|
|
| (835 | ) |
Donated equipment |
| 240 |
|
|
| - |
|
Restricted investments |
| 4,409 |
|
|
| (1,841 | ) |
Accounts receivable, net |
| (9,480 | ) |
|
| 32,906 |
|
Prepaid taxes |
| (50 | ) |
|
| 447 |
|
Prepaid expenses and other current assets |
| 9,054 |
|
|
| 12,560 |
|
Other assets |
| (477 | ) |
|
| (819 | ) |
Accounts payable |
| 19,657 |
|
|
| (14,389 | ) |
Accrued expenses |
| (28,551 | ) |
|
| (30,123 | ) |
Non-current liabilities |
| (2,875 | ) |
|
| 1,982 |
|
Net cash provided by operating activities |
| 40,653 |
|
|
| 63,433 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Proceeds from sale of equipment |
| 497 |
|
|
| 3,799 |
|
Purchases of property and equipment |
| (25,467 | ) |
|
| (17,057 | ) |
Proceeds from the disposition of discontinued operations |
| - |
|
|
| 19,439 |
|
Net cash (used in) provided by investing activities |
| (24,970 | ) |
|
| 6,181 |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from issuance of debt |
| 121,444 |
|
|
| 10,456 |
|
Repayments of long-term debt |
| (24,373 | ) |
|
| (25,780 | ) |
Stock withheld for payments of withholding taxes |
| (3,769 | ) |
|
| (2,578 | ) |
Finance lease payments |
| (747 | ) |
|
| (740 | ) |
Net cash provided by (used in) financing activities |
| 92,555 |
|
|
| (18,642 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
| (87 | ) |
|
| (5 | ) |
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
| 108,151 |
|
|
| 50,967 |
|
Cash and cash equivalents beginning of the period |
| 168,729 |
|
|
| 61,435 |
|
Cash and cash equivalents end of the period | $ | 276,880 |
|
| $ | 112,402 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash paid for: |
|
|
|
|
|
|
|
Interest | $ | 2,563 |
|
| $ | 2,749 |
|
Income taxes | $ | 355 |
|
| $ | 191 |
|
See notes to unaudited consolidated financial statements.
5
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Three Months Ended March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net Income | $ | 17,230 |
|
| $ | 13,236 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 32,111 |
|
|
| 30,576 |
|
Deferred taxes |
| 4,325 |
|
|
| 696 |
|
Compensation expense related to share-based compensation plans |
| 5,117 |
|
|
| 4,097 |
|
(Gain) loss on sale of assets |
| (1,924 | ) |
|
| 121 |
|
Other operating activities |
| - |
|
|
| 240 |
|
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
| ||
Restricted investments |
| 1,618 |
|
|
| 4,409 |
|
Accounts receivable, net |
| 8,389 |
|
|
| (9,480 | ) |
Prepaid taxes |
| 350 |
|
|
| (50 | ) |
Prepaid expenses and other current assets |
| 8,825 |
|
|
| 9,054 |
|
Other assets |
| (189 | ) |
|
| (477 | ) |
Accounts payable |
| 36,820 |
|
|
| 19,657 |
|
Accrued expenses |
| 18,695 |
|
|
| (28,551 | ) |
Non-current liabilities |
| (3,994 | ) |
|
| (2,875 | ) |
Net cash provided by operating activities |
| 127,373 |
|
|
| 40,653 |
|
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Proceeds from sale of equipment |
| 14,933 |
|
|
| 497 |
|
Purchases of property and equipment |
| (9,522 | ) |
|
| (25,467 | ) |
Net cash provided by (used in) investing activities |
| 5,411 |
|
|
| (24,970 | ) |
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Repayments of long-term debt |
| (33,381 | ) |
|
| (24,373 | ) |
Stock withheld for payments of withholding taxes |
| (3,759 | ) |
|
| (3,769 | ) |
Finance lease payments |
| (772 | ) |
|
| (747 | ) |
Proceeds from issuance of debt |
| 6,894 |
|
|
| 121,444 |
|
Net cash (used in) provided by financing activities |
| (31,018 | ) |
|
| 92,555 |
|
|
|
|
|
|
| ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
| (8 | ) |
|
| (87 | ) |
|
|
|
|
|
| ||
Net increase in cash and cash equivalents |
| 101,758 |
|
|
| 108,151 |
|
Cash and cash equivalents beginning of the period |
| 124,506 |
|
|
| 168,729 |
|
Cash and cash equivalents end of the period | $ | 226,264 |
|
| $ | 276,880 |
|
|
|
|
|
|
| ||
Supplemental disclosures of cash paid for: |
|
|
|
|
| ||
Interest | $ | 2,005 |
|
| $ | 2,563 |
|
Income taxes | $ | 317 |
|
| $ | 355 |
|
See notes to unaudited consolidated financial statements.
6
HUB GROUP, INC.
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Interim Financial Statements
Our accompanying unaudited consolidated financial statements of Hub Group, Inc. (the “Company,” “Hub,” “we”, “us” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been omitted pursuant to those rules and regulations. However, we believe that the disclosures contained herein are adequate to make the information presented not misleading.
The financial statements reflect, in our opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present our financial position as of March 31, 20202021 and results of operations for the three months ended March 31, 20202021 and 2019.2020.
These unaudited consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.2020. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality. Certain prior year immaterial amounts have been reclassified in Note 4, Revenue from Contracts with Customers, to conform with the current year presentation.
NOTE 2. Acquisition
On December 9, 2020, we acquired 100% of the equity interest of NonstopDelivery, LLC ("NSD"). Total consideration for the transaction was $104.6 million which consisted of cash paid of $89.7 million, the settlement of Hub’s accounts receivable due from NSD of $14.8 million and the true-up of certain post-closing activities of $0.1 million.
The acquisition of NSD expanded our logistics service offering to include residential last mile logistics. NSD operates through a non-asset business model, working with a network of over 170 carriers throughout the country. The financial results of NSD since the acquisition date are included in our logistics line of business.
The initial accounting for the acquisition of NSD is incomplete as we, with the support of our valuation specialist, are in the process of finalizing the fair market value calculations of the acquired net assets. In addition, the Company is in the process of reviewing the applicable future cash flows used in determining the purchase accounting. Finally, certain post-closing activities outlined in the acquisition agreement remain incomplete. As a result, the amounts recorded in the consolidated financial statements related to the NSD acquisition are preliminary and the measurement period remains open. The following table summarizes the preliminary allocation of the total consideration to the assets acquired and liabilities assumed as of the date of the acquisition (in thousands):
| December 9, 2020 |
| |
Cash and cash equivalents | $ | 4,829 |
|
Accounts receivable trade |
| 26,250 |
|
Prepaid expenses and other current assets |
| 207 |
|
Property and equipment |
| 1,018 |
|
Right of use assets - operating leases |
| 1,295 |
|
Goodwill, net |
| 36,388 |
|
Other intangibles |
| 47,700 |
|
Other assets |
| 42 |
|
Total assets acquired | $ | 117,729 |
|
|
|
| |
Accounts payable trade | $ | 9,972 |
|
Accrued payroll |
| 1,324 |
|
Accrued other |
| 578 |
|
Lease liability - operating leases short-term |
| 373 |
|
Lease liability - operating leases long-term |
| 922 |
|
Total liabilities assumed | $ | 13,169 |
|
|
|
| |
Total consideration | $ | 104,560 |
|
|
|
| |
Cash paid, net | $ | 84,845 |
|
7
The NSD acquisition was accounted for as a purchase business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of December 9, 2020 with the remaining unallocated purchase price recorded as goodwill. The goodwill recognized in the NSD acquisition was primarily attributable to potential expansion and future development of the acquired business.
The following table presents the carrying amount of goodwill (in thousands):
| Total |
| |
Balance at January 1, 2021 | $ | 508,555 |
|
Acquisition |
| 12,073 |
|
Other |
| (36 | ) |
Balance at March 31, 2021 | $ | 520,592 |
|
The changes noted as "acquisition" in the above table refer to purchase accounting adjustments related to the NSD acquisition.
The changes noted as "other" in the above table refer to the amortization of the income tax benefit of tax goodwill in excess of financial statement goodwill.
Tax history and attributes are not inherited in an equity purchase of this kind; however, the goodwill and other intangibles recognized in this purchase will be fully tax deductible over a period of 15 years.
The components of “Other intangibles” listed in the above table as of the acquisition date are preliminarily estimated as follows (in thousands):
|
|
|
| Accumulated |
|
| Balance at |
|
| Estimated Useful | |||
| Amount |
|
| Amortization |
|
| March 31, 2021 |
|
| Life | |||
Customer relationships | $ | 46,200 |
|
| $ | 1,027 |
|
| $ | 45,173 |
|
| 15 years |
Agent relationships | $ | 600 |
|
| $ | 50 |
|
| $ | 550 |
|
| 4 years |
Trade name | $ | 900 |
|
| $ | 200 |
|
| $ | 700 |
|
| 18 months |
The above intangible assets are amortized using the straight-line method. Amortization expense related to this acquisition for the three months ended March 31, 2021 was $0.8 million. The intangible assets have a weighted average useful life of approximately 14.33 years. Amortization expense related to NSD for the next five years is as follows (in thousands):
|
| Total |
| |
Remainder of 2021 |
| $ | 2,873 |
|
2022 |
|
| 3,480 |
|
2023 |
|
| 3,230 |
|
2024 |
|
| 3,218 |
|
2025 |
|
| 3,080 |
|
|
|
|
|
The following unaudited pro forma consolidated results of operations present the effects of NSD as though it had been acquired as of January 1, 2020 (in thousands, except for per share amounts):
| Three Months Ended |
| |
| March 31, 2020 |
| |
Revenue | $ | 854,960 |
|
Net income | $ | 13,789 |
|
Earnings per share |
|
| |
Basic | $ | 0.42 |
|
Diluted | $ | 0.41 |
|
The unaudited pro forma consolidated results for the periods shown were prepared using the acquisition method of accounting and are based on the historical financial information of Hub and NSD. The historical financial information has been adjusted to give effect to the pro forma adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisition on January 1, 2020.
8
NOTE 2.3. Earnings Per Share
The following is a reconciliation of our earnings per share (in thousands, except for per share data):
| Three Months Ended, March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
| ||
Net income for basic and diluted earnings per share | $ | 17,230 |
|
| $ | 13,236 |
|
|
|
|
|
|
| ||
Weighted average shares outstanding - basic |
| 33,419 |
|
|
| 33,159 |
|
|
|
|
|
|
| ||
Dilutive effect of restricted stock |
| 356 |
|
|
| 329 |
|
|
|
|
|
|
| ||
Weighted average shares outstanding - diluted |
| 33,775 |
|
|
| 33,488 |
|
|
|
|
|
|
| ||
Earnings per share - basic | $ | 0.52 |
|
| $ | 0.40 |
|
|
|
|
|
|
| ||
Earnings per share - diluted | $ | 0.51 |
|
| $ | 0.40 |
|
| Three Months Ended, March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
|
Net income for basic and diluted earnings per share | $ | 13,236 |
|
| $ | 23,894 |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
| 33,159 |
|
|
| 33,569 |
|
|
|
|
|
|
|
|
|
Dilutive effect of restricted stock |
| 329 |
|
|
| 16 |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted |
| 33,488 |
|
|
| 33,585 |
|
|
|
|
|
|
|
|
|
Earnings per share - basic | $ | 0.40 |
|
| $ | 0.71 |
|
|
|
|
|
|
|
|
|
Earnings per share - diluted | $ | 0.40 |
|
| $ | 0.71 |
|
NOTE 3.4. Revenue from Contracts with Customers
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.
Hub offers comprehensive multimodal solutions including intermodal, logistics, truck brokerage, logistics and dedicated services. Hub has full time employees located throughout the United States, Canada and Mexico.
Intermodal. As an intermodal provider, we arrange for the movement of our customers’ freight in containers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services between origin or destination and rail terminals (referred to as “drayage”) are provided by our subsidiary Hub Group Trucking, Inc. (“HGT”) and third-party local trucking companies.
Logistics. Hub’s logistics operation offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal, last mile delivery, railcar and international shipping. We leverage proprietary technology along with collaborative relationships with retailers and logistics providers to deliver cost savings and performance-enhancing supply chain services to consumer-packaged goods clients. We contract with third-party warehouse providers in seven markets across North America to which our customers ship their goods to be stored and eventually consolidated, along with goods from other customers into full truckload shipments destined to major North American retailers. These services offer our customers shipment visibility, transportation cost savings, high service levels and compliance with retailers’ increasingly stringent supply chain requirements.
On December 9, 2020, we acquired NSD. NSD provides basic, residential last mile delivery services through a non-asset business model, working with a network of over 170 carriers throughout the country. The financial results of NSD since the acquisition are included in our logistics line of business.
Truck Brokerage. We operate one of the largest truck brokerage operations, providing customers with an over the road service option for their transportation needs. Our brokerage service does not operate any trucks; instead we match customers’ needs with carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers. 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.
Logistics. Hub’s logistics business offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal, railcar and international shipping. In 2018, we acquired CaseStack, Inc. (“CaseStack”) which leverages proprietary technology along with collaborative partnerships 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.9
Dedicated Trucking.
Dedicated. Our dedicated operation contracts with customers who seek to outsource a portion of their trucking transportation needs. We offer a dedicated fleet of equipment and drivers to each customer, as well as the management and infrastructure to operate according to the customer’s high service expectations. Contracts with customers generally include fixed and variable pricing arrangements and may include charges for early termination which serves to reduce the financial risk we bear with respect to the utilization of our equipment.
The following table summarizes our disaggregated revenue by business line (in thousands):
| Three Months Ended March 31, |
| |||||
| 2021 |
|
| 2020 |
| ||
Intermodal | $ | 506,004 |
|
| $ | 478,034 |
|
Logistics |
| 217,035 |
|
|
| 200,202 |
|
Truck brokerage |
| 127,262 |
|
|
| 98,017 |
|
Dedicated |
| 69,252 |
|
|
| 62,606 |
|
Total revenue | $ | 919,553 |
|
| $ | 838,859 |
|
| Three Months Ended March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Intermodal | $ | 495,324 |
|
| $ | 536,032 |
|
Truck brokerage |
| 98,017 |
|
|
| 117,587 |
|
Logistics |
| 183,255 |
|
|
| 203,263 |
|
Dedicated |
| 62,263 |
|
|
| 76,116 |
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Total revenue | $ | 838,859 |
|
| $ | 932,998 |
|
NOTE 4.5. Fair Value Measurement
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and borrowings under our revolving line of credit approximated fair value as of March 31, 20202021 and December 31, 2019.2020. As of March 31, 20202021 and December 31, 2019, respectively,2020, the fair value of the Company’s fixed-rate borrowings was $5.6$4.1 million and $3.8$6.1 million more than the historical carrying value of $278.7$243.9 million and $281.6 million.$270.4 million, respectively. The fair value of the fixed-rate borrowings was estimated using an income approach based on current interest rates available to the Company for borrowings on similar terms and maturities.
We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of March 31, 20202021 and December 31, 2019,2020, our cash and temporary investments were with high quality financial institutions in demand deposit accounts (DDAs), savings accounts and an interest bearing checking account.
Restricted investments included $18.2$21.7 million and $22.6$23.4 million as of March 31, 20202021 and December 31, 2019,2020, respectively, of mutual funds which are reported at fair value. These investments relate to our nonqualified deferred compensation plan.
Our assets and liabilities measured at fair value are based on valuation techniques which 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. 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 uncollectibility 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.
We pool into one category our trade receivables that we believe share similar risk characteristics and estimate the allowance balance using an aging schedule based on relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Annually, we review, in hindsight, the percentage of receivables that are collected that aged over one year, those that are less than one year old and the accounts that went into bankruptcy. We provide for credit allowances for accounts less than one year old based on specifically identified uncollectible balances and our historical collection percentages. In establishing an allowance for credit losses for certain account balances specifically identified as uncollectible, we consider the aging of the customer receivables, the specific details as to why the receivable has not yet been paid, the customer’s current and projected financial results, the customer’s ability to meet and sustain its financial commitments, the positive or negative effects of the current and projected industry outlook and general economic conditions. Adjustments to historical loss information are made for differences in current receivable-specific risk characteristics such as differences in delinquency levels or term as well as changes in environmental conditions or other relevant factors.
We believe that this historical loss information is a reasonable basis on which to determine expected credit losses because the composition of the trade receivables at the reporting date is consistent with that used in developing the historical credit loss percentages. That is, the similar risk characteristics of our customers and our lending practices have not changed significantly over time. However, we have determined that current reasonable and supportable forecasted economic conditions, including the effects of the COVID-19 pandemic, have deteriorated as compared with the economic conditions included in the historical information. As such, the Company adjusted the historical loss rates to reflect the differences in current conditions and forecasted changes for total estimated allowance for credit losses as of March 31, 2020. The allowance for credit losses was $7.8 million and $6.9 million at March 31, 2020 and December 31, 2019, respectively. There were no material write offs charged or increases to the allowance for credit losses during the first quarter of 2020.
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, we2022 elected to borrow $100.0 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. The $100.0 million of proceeds from the borrowing may be used for general corporate purposes. . At March 31, 2020,2021, we had standby letters of credit that expire at various dates in 2020.2021. As of March 31, 2020,2021, our letters of credit were $30.8$37.4 million.
Our unused and available borrowings were $219.2$312.6 million as of March 31, 20202021 and $318.5$312.3 million as of December 31, 2019.2020. We were in compliance with our debt covenants as of March 31, 20202021 and December 31, 2019.2020.
We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers and containers. The Notes are secured by the underlying equipment financed inwith the agreements.proceeds from the Notes.
10
| March 31, |
|
| December 31, |
| ||
| 2021 |
|
| 2020 |
| ||
| (in thousands) |
| |||||
|
|
|
|
|
| ||
Interim funding for equipment received and expected to be converted to an equipment note in subsequent period; interest paid at a variable rate | $ | 2,265 |
|
| $ | 8,902 |
|
|
|
|
|
| |||
Secured Equipment Notes due on various dates in 2026 commencing on various dates in 2021; interest is paid monthly at a fixed annual rate of 1.72% |
| 13,529 |
|
|
| 0 |
|
|
|
|
| ||||
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% |
| 70,749 |
|
|
| 74,494 |
|
|
|
|
|
|
| ||
Secured Equipment Notes due on various dates in 2024 commencing on various dates in 2017, 2019 and 2020; interest is paid monthly at a fixed annual rate between 2.50% and 3.59% |
| 46,042 |
|
|
| 49,920 |
|
|
|
|
|
|
| ||
Secured Equipment Notes due on various dates in 2023 commencing on various dates in 2016 through 2019; interest is paid monthly at a fixed annual rate of between 2.20% and 4.20% |
| 93,331 |
|
|
| 112,668 |
|
|
|
|
|
|
| ||
Secured Equipment Notes due on various dates in 2022 commencing on various dates in 2015 through 2017; interest is paid monthly at a fixed annual rate between 2.20% and 2.90% |
| 7,840 |
|
|
| 8,943 |
|
|
|
|
|
|
| ||
Secured Equipment Notes due on various dates in 2021 commencing on various dates in 2014 through 2017; interest is paid monthly at a fixed annual rate between 2.02% and 2.96% |
| 10,116 |
|
|
| 15,432 |
|
|
|
|
|
|
| ||
|
| 243,872 |
|
|
| 270,359 |
|
|
|
|
|
|
| ||
Less current portion |
| (89,531 | ) |
|
| (93,562 | ) |
Total long-term debt | $ | 154,341 |
|
| $ | 176,797 |
|
| March 31, |
|
| December 31, |
| ||
| 2020 |
|
| 2019 |
| ||
| (in thousands) |
| |||||
|
|
|
|
|
|
|
|
Borrowings on revolving line of credit | $ | 100,000 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
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 1.79% |
| 21,444 |
|
|
| - |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2024 commencing on various dates in 2018, 2019 and 2020; interest is paid monthly at a fixed annual rate between 2.50% and 3.59% |
| 59,517 |
|
|
| 62,690 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2023 commencing on various dates in 2018 and 2019; interest is paid monthly at a fixed annual rate between 2.23% and 4.16% |
| 143,445 |
|
|
| 153,350 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2022 commencing on various dates in 2017; interest is paid monthly at a fixed annual rate of between 2.20% and 2.80% |
| 14,546 |
|
|
| 16,892 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2021 commencing on various dates in 2016 and 2017; interest is paid monthly at a fixed annual rate between 2.04% and 2.96% |
| 30,142 |
|
|
| 35,076 |
|
|
|
|
|
|
|
|
|
Secured Equipment Notes due on various dates in 2020 commencing on various dates in 2015 and 2016; interest is paid monthly at a fixed annual rate between 1.84% and 2.78% |
| 9,602 |
|
|
| 13,617 |
|
|
|
|
|
|
|
|
|
|
| 378,696 |
|
|
| 281,625 |
|
|
|
|
|
|
|
|
|
Less current portion |
| (94,620 | ) |
|
| (94,691 | ) |
Total long-term debt | $ | 284,076 |
|
| $ | 186,934 |
|
NOTE 7. Legal Matters
Robles
On January 25, 2013, a complaint was filed in the U.S. District Court for the Eastern District of California (Sacramento Division) by Salvador Robles against our subsidiary HGT. The action was brought on behalf of a class comprised of present and former California-based truck drivers for HGT who, from January 2009 to September 2014 were classified as independent contractors. It alleged that HGT misclassified these drivers as independent contractors and that such drivers were employees. It asserted various violations of the California Labor Code and claimed that HGT engaged in unfair competition practices. The complaint sought, among other things, declaratory and injunctive relief, monetary damages and attorney’s fees. In May 2013, the complaint was amended to add similar claims based on Mr. Robles’ status as an employed company driver. These additional claims were only on behalf of Mr. Robles and not a putative class.
Although the Company believes that the California drivers were properly classified as independent contractors at all times because litigation is expensive, time-consuming and could interrupt our business operations, HGT decided to makemade settlement offers to individual drivers with respect to the claims alleged in this lawsuit, without admitting liability. In late 2014, HGT converted its model from independent contractors to employee drivers in California. In early 2016, HGT closed its operations in Southern California.
Adame
On August 5, 2015, a suit was filed in state court in San Bernardino County, California on behalf of 63 named plaintiffs against 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.
The plaintiffs’In September 2019, the Plaintiffs’ counsel and Hub agreed in principle to settle all claims under both the Robles and Adame matters for $4.8 million, which was recorded in the third quarter of 2019 and is included in Accrued other on the accompanying Consolidated Balance Sheet. The settlements are subject to final court approval.
We are involved in certain other claims and pending litigation arising from the normal conduct of business, including putative class-action lawsuits in which the plaintiffs are current and former California-based drivers who allege claims for unpaid wages, failure to provide meal and rest periods, failure to reimburse incurred business expenses and other items. Based on management's present knowledge, management does not believe that loss contingencies arising from these pending matters are likely to have a material adverse
11
effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
NOTE 8. New Pronouncements
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. We adopted this standard on January 1, 2020, as required. The adoption of Topic 350 did not have a material effect on our financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement. This standard is effective for public business entities in fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. This standard 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 the standard as of January 1, 2020, but it did not have an impact on our 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 ofWe adopted this ASU is for fiscal years and interim periods beginning after December 15, 2020. The Company is evaluating thestandard on January 1, 2021, as required, but it did not have a material impact of this ASU.on our consolidated financial statements.
NOTE 9. Subsequent Event12
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. In April 2020, we donated refrigerated trailers with a carrying value of approximately $5.2 million.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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Forward-Looking Information
The information contained in this quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” “predicts,” “projects,” “potential,” “may,” “could,” “might,” “should,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are neither historical facts nor assurance of future performance. Instead, they are based on our beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Such factors include, but are not limited to, uncertainties caused by adverse economic conditions, including, without limitation, as a result of extraordinary events or circumstances such as the coronavirus (COVID-19)
pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations, or the operations of our customers.
Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. All forward-looking statements made by us in this report are based upon information available to us on the date of this report and speak only as of the date in which they are made. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those identified in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20192020 (the “2019“2020 10-K”) as well as in Part II, Item 1A of this Quarterly Report on Form 10-Q,, include the following, either in their own right or as they may be affected, either individually, or in the aggregate, by the ongoing effects of the COVID-19 outbreak:
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13
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Current Update – Effects of COVID-19 Outbreak
We are anticipating a mid- to high-teens percentage decline in our April 2020 revenue as compared to April of 2019. As a result, our revenue is expected to decline in the second quarter of 2020 as compared to 2019.
All business lines are experiencing soft demand from customers whose businesses are being impacted by the COVID-19 pandemic. We estimate that approximately 20% of our revenue from our top 100 customers is from businesses that are currently closed. Intermodal revenue is also being impacted by the loose truckload environment as well as lower import activity and lower fuel prices. Brokerage is being impacted by weakness in the spot truckload market
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. In April 2020, we donated refrigerated trailers with a carrying value of approximately $5.2 million.
EXECUTIVE SUMMARY
Hub Group, Inc. (the “Company”, “Hub”, “we”, “us” or “our”) is a leading world class supply chain management companysolutions provider that provides value-added multi-modaloffers comprehensive transportation and logistics solutions by offeringmanagement services focused on reliability, visibility and value tofor 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, last mile delivery, 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, 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 HGTHub Group Trucking ("HGT") subsidiary and third-party local trucking companies.
For the three months ended March 31, 2020,2021, HGT accounted for approximately 60%53% of Hub’s drayage needs by assisting us in providing reliable, cost effective intermodal services to our customers. As of March 31, 2020,2021, HGT leased or owned approximately 1,3001,500 tractors and 200 trailers, employed approximately 1,500 drivers and contracted with approximately 1,000900 owner-operators.
Our logistics business offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal, last mile, railcar and international shipping. We leverage proprietary technology along with collaborative relationships with retailers and logistics providers to deliver cost savings and performance-enhancing supply chain services to consumer goods clients. We contract with third-party warehouse providers in seven markets across North America to which our customers ship their goods to be stored and eventually consolidated, along with goods from other customers, into full truckload shipments destined to major North American retailers. These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements.
In December 2020, we expanded our logistics services through the acquisition of NSD. NSD provides basic, threshold and white glove residential last mile delivery services including warehousing and distribution, product assembly and reverse logistics to many of the largest retailers in the United States. NSD operates a non-asset business model, working with a network of over 170 carriers through the country. NSD provides high levels of service to customers and end consumers through a centralized call center and dedicated account management teams. NSD’s logistics technology provides customers with real-time visibility to shipments, access to analytical tools and seamless integration with other platforms.
We operate one of the largest truck brokerage operations in the United States, 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 trucking carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers.
Our dedicated service line 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 1,2001,100 tractors and 5,4004,600 trailers at 8660 locations throughout the U.S. As of March 31, 2020,2021, our dedicated operation employed approximately 1,4001,300 drivers.
Our truck brokerage operation arranges for the transportation of freight by truck, providing customers with an over the road service option for their transportation needs. Our brokerage service does not operate any trucks; instead we match customers’ needs with carriers’ capacity to provide the most effective service and price combination. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers. 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.
Hub’s logistics business offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal,
railcar and international shipping. In 2018, we acquired CaseStack, which leverages proprietary technology along with collaborative partnerships 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 and compliance with retailers’ increasingly stringent supply chain requirements.
Hub has full time14
We employ sales and 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 services to them.
Hub’sOur multimodal solutions group works with pricing, account management and operations to enhance Hub’s customerour profit margins across all lines of business. We are working on margin enhancement projects including pricing optimization, matching of inbound and outbound loads, reducing empty miles, improving the retention of our drivers, improving our recovery of accessorial costs, optimizing our drayage costs, enhancing our procurement strategy, reducing repositioning costs, providing holistic solutions and reviewing and improving low profit freight.
Hub’s top 50 customers represent approximately 68%71% of revenue for the three months ended March 31, 2020.2021. We use various performance indicators to manage our business. We closely monitor margin and gains and losses for our top 50 customers. We also evaluate on-time performance, customer service, cost per load and daily sales outstanding by customer account. Vendor cost changes and vendor service issues are also monitored closely. Management continuously reviews and assesses the environment, especially with the current, rapidly-changing COVID-19 pandemic and its potential impacts on the credit worthiness and collectability of our accounts receivable with customers most affected by the COVID-19 pandemic.
RESULTS OF OPERATIONS
Three Months Ended March 31, 20202021 Compared to the Three Months Ended March 31, 20192020
The following table summarizes our revenue by business line (in thousands):
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| ||||||||||
| 2020 |
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| 2019 |
| 2021 |
| 2020 |
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Intermodal | $ | 495,324 |
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| $ | 536,032 |
| $ | 506,004 |
|
| $ | 478,034 |
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Logistics |
| 217,035 |
|
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| 200,202 |
| |||||||
Truck brokerage |
| 98,017 |
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| 117,587 |
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| 127,262 |
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| 98,017 |
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Logistics |
| 183,255 |
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| 203,263 |
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Dedicated |
| 62,263 |
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| 76,116 |
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| 69,252 |
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| 62,606 |
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Total revenue | $ | 838,859 |
|
| $ | 932,998 |
| $ | 919,553 |
|
| $ | 838,859 |
|
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 |
| Three Months Ended | |||||||||||||||||||||||
| March 31, |
| March 31, | |||||||||||||||||||||||
| 2020 |
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| 2019 |
| 2021 |
| 2020 | ||||||||||||||||||
Revenue | $ | 838,859 |
|
| 100.0% |
|
| $ | 932,998 |
|
| 100.0% |
| $ | 919,553 |
|
| 100.0% |
| $ | 838,859 |
|
| 100.0% | ||
Transportation costs |
| 734,265 |
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| 87.5% |
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| 805,709 |
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| 86.4% |
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| 810,806 |
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| 88.2% |
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| 734,265 |
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| 87.5% | ||
Gross margin |
| 104,594 |
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| 12.5% |
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| 127,289 |
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| 13.6% |
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| 108,747 |
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| 11.8% |
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| 104,594 |
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| 12.5% | ||
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Costs and expenses: |
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Salaries and benefits |
| 50,876 |
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| 6.1% |
|
|
| 62,028 |
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| 6.6% |
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| 56,951 |
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| 6.2% |
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| 50,876 |
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| 6.1% | ||
General and administrative |
| 26,336 |
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| 3.1% |
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| 22,918 |
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| 2.5% |
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| 19,243 |
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| 2.1% |
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| 26,336 |
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| 3.1% | ||
Depreciation and amortization |
| 7,623 |
|
| 0.9% |
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| 6,754 |
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| 0.7% |
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| 8,502 |
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| 0.9% |
|
| 7,623 |
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| 0.9% | ||
Total costs and expenses |
| 84,835 |
|
| 10.1% |
|
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| 91,700 |
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| 9.8% |
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| 84,696 |
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| 9.2% |
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| 84,835 |
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| 10.1% | ||
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Operating income | $ | 19,759 |
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| 2.4% |
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| $ | 35,589 |
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| 3.8% |
| $ | 24,051 |
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| 2.6% |
| $ | 19,759 |
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| 2.4% |
Revenue
Revenue
Hub’s revenue decreased 10.1% increased 9.6% to $919.6 million in 2021 from $838.9 million in 2020 from $933.0 million in 2019.2020. Intermodal revenue decreased 7.6%increased 6% to $495.3$506 million primarily due to a 6.8% decrease2% increase in volume as well as lowerhigher pricing. Logistics revenue increased 8% to $217 million primarily due to growth of our retail supplier solutions services and the contribution of NSD, partially offset by the impact of lost customers. Truck brokerage revenue decreased 16.6%increased 30%to $98.0$127 million due to a 9.6% decrease36% increase in volume, whilerevenue per load (price, fuel, price and mix combined were down 7.0% due primarily to the soft demand environment. Logistics revenue decreased 9.8% to $183.3 million primarily due to a soft demand environmentmix), partially offset by strong growth at CaseStack. Dedicated’sa 6% decrease in volume. Dedicated revenue decreased 18.2%increased 11% to $62.3$69million primarily due to the impact of business we exited,growth with new and existing accounts, partially offset by growth with new accounts.business we exited.
Transportation Costs
Hub’s transportationTransportation costs decreased 8.9%increased 10.4% to $810.8 million in 2021 from $734.3 million in 2020 from $805.7 million in 2019.2020. Transportation costs in 20202021 consisted of purchased transportation costs of $647.5 million and equipment and driver related costs of $163.3 million. In 2020, purchased transportation costs were $568.7 million and equipment and driver related costs of $165.6 million. In 2019, purchased transportation costs were $652.7 million and equipment and driver related costs were $153.0$165.5 million. The 12.9% decrease13.8% increase in purchased transportation costs was primarily due to decreasesincreased usage, capacity constraints in the market which resulted in higher costs and an increase in intermodal and brokerage volumes and improved purchasing,volume, partially offset by rail cost increases.a decrease in truck brokerage volume. Equipment and driver related costs increased 8.2%
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decreased 1.3% in 20202021 primarily due to an increased usage of our internal drayage resources from 53% in the first quarter of 2019 to 60% in the first quarter of 2020lower driver costs and decreased equipment depreciation expense, partially offset by an increase in equipment depreciationrepairs and maintenance expense.
Gross Margin
Hub’s grossGross margin decreased 17.8%increased 4.0% to $108.7 million in 2021 from $104.6 million in 2020 from $127.3 million in 2019. The $22.7 million gross margin decrease was the result of decreases in all lines of business. Intermodal gross margin decreased primarily due to a 6.8% decrease in volume, lower prices, higher insuranceand claims costs, and rail cost increases, partially offset by the benefits from operational improvements and better purchasing. Truck brokerage gross margin decreased primarily due to a 9.6% decrease in volume. Logistics gross margin decreased primarily due to soft customer demand, partially offset by strong growth at CaseStack. Dedicated gross margin decreased primarily due to business we exited, repairs expense, start up costs and idle equipment cost, partially offset by revenue management initiatives.
2020. As a percentage of revenue, gross margin decreased to 11.8% in 2021 from 12.5% in 2020 from 13.6%2020. The $4.2 million gross margin increase was the result of increases in 2019. Logistics, Truck Brokerage, and Dedicated, partially offset by a decrease in Intermodal. Intermodal gross margin decreased primarily due to increased purchased transportation costs, the impact of winter storms and higher equipment repositioning costs, partially offset by a 2.1% increase in volume and improved pricing to customers. Intermodal gross margin as a percentage of revenue decreased 210190 basis pointspoints. Logistics gross margin increased primarily due to lower prices, rail cost increases,actions we have taken to improve profitability, higher revenue, and the contribution of NSD, partially offset by higher insurancewarehousing costs. Logistics gross margin as a percentage of revenue increased 180 basis points. Truck brokerage gross margin increased primarily due to revenue per load growth in both contractual and claims costs,transactional freight, partially offset by the benefits from operational improvements and better purchasing.impact of higher purchased transportation costs. Truck brokerage gross margin as a percentage of revenue increased 150decreased 110 basis points as a result of the benefits from the transformation of our operating model, an enhanced technology platform and a deeper engagement with our carrier network. Logisticspoints. Dedicated gross margin as a percentage of revenue increased 70 basis pointsprimarily due to our continuousprofit improvement initiatives,actions and growth in revenue, management, and strong growth at CaseStack.partially offset by higher driver costs. Dedicated gross margin as a percentage of revenue decreased 16090 basis points due primarily to increased idle equipment costs, start up costs and repairs and maintenance expense.points.
CONSOLIDATED OPERATING EXPENSES
Salaries and Benefits
Hub’s salariesSalaries and benefits decreasedincreased to $57.0 million in 2021 from $50.9 million in 2020 from $62.0 million in 2019.2020. As a percentage of revenue, Hub’s salaries and benefits decreasedincreased to 6.1%6.2% in 20202021 from 6.6% 6.1%in 2019.2020.
Hub’sThe salaries and benefits decreaseincrease of $11.2$6.1 million is primarily due to lower variablethe addition of NSD, as well as increases in incentive compensation of $6.7 million, restricted stock and lower headcount. Variable compensation had decreases in bonuspayroll tax expense of $7.0 million, salaries expense of $3.5 million, commissions expense of $0.7 million, payroll tax and restricted stock expenses of $0.5$0.6 million each, and employee benefits expense$0.3 million of $0.3 million.commission expense. These decreasesincreases were partially offset by an increasea reduction in severance expense of $1.3 million. Salary and benefit expenses included $2.1 million of severance expense in 2020.expense.
Hub’s headcountHeadcount as of March 31, 2021 and 2020 was 1,958 and 2019 was 1,971, and 2,247, respectively, which excludes drivers, as driver costs are included in transportation costs. The decrease in Hub’s headcount is primarily due to technology driven efficiencies and improved processes.processes, partially offset by the addition of NSD employees.
General and Administrative
Hub’s generalGeneral and administrative expenses increaseddecreased to $19.2 million in 2021 from $26.3 million in 2020 from $22.9 million in 2019.2020. These expenses, as a percentage of revenue, increaseddecreased to 2.1% in 2021 from 3.1% in 2020 from 2.5% in 2019.2020. The increasedecrease of $3.4$7.1 million in general and administrative expense was primarily due to a $3.1$3.4 million increasedecrease in professional services primarily related to IT development and implementation costs,decreased legal expenses and costs related tocompletion of consulting projects, a consulting project, less gains$2.0 million net increase in gain on the sale of property and equipment, of $1.0 million and trailer donations of $0.2 million, partially offset by a $0.5$1.1 million decrease in travel, and meals and entertainment, expenses, and decreases in voice data services and temporary labor expenses of $0.2 million each.partially offset by additional costs from NSD.
Depreciation and Amortization
Hub’s depreciationDepreciation and amortization increased to $8.5 million in 2021 from $7.6 million in 2020 from $6.8 million 2019.2020. This expense as a percentage of revenue increasedwas consistent from 2020 to 2021 at 0.9% in 2020 from 0.7% in 2019.of revenue. This increase was related primarily to the deploymentamortization of IT initiatives.the NSD other intangibles.
Other Income (Expense)
Hub’s otherOther expense decreased to $2.0 million in 2021 from $2.3 million in 2020 from $2.7 million in 2019 due to lower interest expense on debt related to equipment purchases.
Provision for Income Taxes
The provision for income taxes decreasedincreased to $4.8 million in 2021 from $4.2 million in 2020 from $9.0 million in 2019.2020. We provided for income taxes using an effective rate of 24.3%21.9% in 20202021 and an effective rate of 27.3%24.3% in 2019.2020. The 20202021 effective tax rate was lower primarily due to the expiration of a statute of limitations causing the reversal of unrecognized tax benefit related to stock-based compensation realizedbenefits in the first quarter of 2020, compared to a tax deficit realized in the first quarter of 2019.2021.
Net Income
Net income decreasedincreased to $17.2 million in 2021 from $13.2 million in 2020 from $23.9 million in 2019 due primarily to decreasedincreased gross margin, partially offset by lower costs and expenses and a lower provision for income taxes.
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LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 2020,2021, we funded operations, capital expenditures, finance leases, repayments of debt and the purchase of our stock related to employee withholding upon vesting of restricted stock through cash flows from operations, proceeds from the issuance of long-term debt including our revolver and cash on hand. In March 2020, we elected to borrow $100.0 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. The $100.0 million of proceeds from the borrowing may be used for general corporate purposes. We believe that our cash, cash flows from operations and borrowings available under our credit agreement will be sufficient to meet our cash needs for at least the next twelve months.
Cash provided by operating activities for the three months ended March 31, 20202021 was $40.7$127.4 million, which resulted primarily from non-cash charges of $35.8 million, net income of $13.2 million, and a negative changechanges in operating assets and liabilities of $8.3$70.5 million, non-cash charges of $39.7 million and net income of $17.2 million.
Cash provided by operating activities decreased $22.8increased $86.7 million in 20202021 versus 2019.2020. The decreaseincrease was due to a $10.7positive change of $78.8 million decrease in net income, a $9.0 million decrease in the change of operating assets and liabilities, a $4.0 million increase in net income and a $3.1$3.9 million decreaseincrease in non-cash items in 2020 as compared to 2019.items.
The decreaseincrease in the change of operating assets and liabilities of $9.0$78.8 million was caused by decreasesincreases in the change of accrued expenses of $47.2 million, accounts receivable of $42.4$17.9 million, non-current liabilitiesaccounts payable of $4.8$17.1 million, prepaid expenses of $3.5 million and prepaid taxes of $0.5 million. These decreases were partially offset by increases in the changes in accounts payable of $34.0 million, restricted investments of $6.3 million, accrued expenses of $1.6$0.4 million and other assets of $0.3 million, partially offset by decreases in restricted investments of $2.8 million, non-current liabilities of $1.1 million and prepaid expenses of $0.2 million. The negativepositive change in non-cash items of $3.9 million was due to decreasesincreases in deferred taxes of $5.6$3.6 million, depreciation and amortization of $1.5 million and compensation expense related to stock-based compensation plans of $0.8 million,$1.0 million. These increases were partially offset by increases in depreciation and amortization related to equipment purchases as well as additional amortization incurred for lease accounting of $2.2 million and a lower gaingains on the sale of equipmentfixed assets of $1.2$2.0 million in 2021 and a decrease in other operating activities of $0.2 million.
Net cash used inprovided by investing activities for the three months ended March 31, 20202021 was $25.0 million. Capital expenditures of $25.5 million related primarily to containers of $8.8 million, trailers of $7.8 million, technology investments of $4.8 million and construction of a new building on our corporate headquarters campus of $3.9$5.4 million. Proceeds from the sale of equipment was $0.5were $14.9 million. Capital expenditures of $9.5 million related primarily to technology investments of $4.6 million, tractors of $2.6 million, trailers of $2.1 million and the remainder for leasehold improvements.
Net cash provided byused in investing activities for the quarter ended March 31, 20192020 was $6.2$25.0 million. The decreasechange from net cash used in investing activities in 2020 to net cash provided by investing activities in 2021 of $31.2$30.4 million in 2020 versus 2019 was due primarily to lower proceeds related to the disposition of discontinued operations of $19.4 million, an increasea decrease in capital expenditures of $8.4$16.0 million related primarily to the purchasefewer purchases in 2021 of containers, and trailers, technology development and construction of a new building on our corporate headquarters campus and the decreaseincrease in proceeds from the sale of equipment of $3.3 million. $14.4 million in 2021.
We estimate capital expenditures for the remainder of 20202021 will range from $50$155 million to $80$165 million and will primarily consist of purchases for tractors, trailers and containers to support growth in our business, as well as technology investments. We plan to fund these expenditures with a combination of cash and debt.
The net cash provided byused in financing activities for the three months ended March 31, 2020 was $92.62021 of $31.0 million which resulted from the proceeds from the issuance of long-term debt of $121.4 million which included $100.0 million we borrowed on our revolver as noted above, partially offset by the repayment of long-term debt of $24.3$33.4 million, stock withheld for payments of withholding taxes of $3.8$3.7 million and finance lease payments of $0.7 million.
The decrease in net cash used in financing activities of $111.2$0.8 million, in 2020 versus 2019 was primarily due to an increase ofpartially offset by proceeds from the issuance of long-term debt of $111.0$6.9 million.
Net cash provided by financing activities for the quarter ended March 31, 2020 was $92.6 million. The change from net cash provided by financing activities in 2020 to net cash used in financing activities in 2021 of $123.6 million was primarily due to a decrease of proceeds from the issuance of debt of $114.6 million, including the $100.0 million borrowingborrowed under our revolving line of credit in the first quarter of 2020, and less repaymentsan increase in the repayment of long-term debt of $1.4 million, partially offset by an increase in stock withheld for payments of withholding taxes of $1.2$9.0 million.
As a result of anticipated unfavorablefavorable timing differences, primarily related to depreciation, we expect our cash paid for income taxes in 20202021 to be moreless than our income tax expense.
We have standby letters of credit that expire in 2021. As of March 31, 2021, our letters of credit were $37.4 million.
Our unused and available borrowings were $219.2$312.6 million as of March 31, 20202021 and $318.5$312.3 million as of December 31, 2019. We had standby letters of credit that expire at various dates in 2020. As of March 31, 2020, our letters of credit were $30.8 million. We were in compliance with our debt covenants as of March 31, 20202021 and December 31, 2019.2020.
We are continually evaluating the possible effects of current economic conditions and reasonable and supportable economic forecasts in operational cash flows, including the risks of declines in the overall freight market and our customers’ liquidity 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
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There have been no material changes in our market risk as of March 31, 20202021 from that presented in our 20192020 10-K.
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Item 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. As of March 31, 2021, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021.
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(b) Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the fiscal quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On December 9, 2020, we completed the acquisition of NSD. We are currently integrating processes, employees, technologies and operations. Management will continue to evaluate our internal controls over financial reporting as we complete our integration.
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PART II. Other Information
Item 1. Legal Proceedings
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During the three months ended March 31, 2020,2021, there have been no material developments from the legal proceedings disclosed in our 2019 10-K, except those disclosed in Note 7 to the unaudited consolidated financial statements under “Legal Matters,” which is incorporated herein by reference.2020 10-K.
Item 1A. Risk Factors
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Investing in shares of our stock involves certain risks, including those identified and described in Part I, Item 1A of our 20192020 10-K, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Forward-Looking Information” in Part I, Item 2 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 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 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 other 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 on a daily basis. 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 down 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:
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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 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 member’s ability to provide customer support and service. If we are unable to recover from a business disruption on a timely basis, our business, financial condition and results of operations could be materially and adversely affected. We may also incur additional costs to remedy damages caused by such disruptions, which could further adversely affect our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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On May 28, 2019, our Board of Directors authorized the purchase of up to $100 million of our Class A Common Stock. Under the program, the shares may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. We made no purchases under this authorization during the first quarter of 2021 and 2020. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended, or discontinued at any time.
We purchased 65,979 shares for $3.8 million during the first quarter of 2021 and 71,717 shares for $3.8 million during the first quarter of 2020 related to employee withholding upon vesting of restricted stock. The table below gives information on a monthly basis regarding the number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of restricted stock during the first quarter of 2021:
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| the Plan |
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| Purchased |
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1/1/2021 - 1/31/2021 |
| 63,349 |
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| $ | 57.00 |
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| �� | $ | 75,002 |
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2/1/2021 - 2/28/2021 |
| 2,630 |
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| $ | 56.29 |
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| $ | 75,002 |
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| $ | 75,002 |
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Total |
| 65,979 |
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| $ | 56.97 |
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| $ | 75,002 |
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Item 6. Exhibits
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The exhibits included as part of the Form 10-Q are set forth in the Exhibit Index immediately preceding such Exhibits.
EXHIBIT INDEX
Exhibit No. | Description |
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31.2 | |
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32.1 | |
101 |
Interactive data files for the following financial statements and footnotes from the Hub Group, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, |
104 |
The cover page from Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31,
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HUB GROUP, INC. | |
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DATE: | May | /s/ |
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| Executive Vice President, Chief Financial | |
| Officer and Treasurer | |
| (Principal Financial Officer) | |
/s/ Kevin W. Beth | ||
Kevin W. Beth | ||
Executive Vice President, Chief | ||
Accounting Officer | ||
(Principal Accounting Officer) |
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