UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address, including zip code, of principal executive offices)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: |
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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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Accelerated Filer |
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Non-Accelerated Filer |
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Smaller Reporting Company |
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Emerging Growth Company |
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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
On April 28, 2023, the registrant had
HUB GROUP, INC.
INDEX
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PART I. Financial Information:
Item1. Financial Statements |
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Consolidated Balance Sheets – March 31, 2023 (unaudited) and December 31, 2022 |
3 |
4 |
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5 |
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Unaudited Consolidated Statements of Cash Flows – Three Months Ended March 31, 2023 and 2022 |
6 |
7 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 |
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
16 |
16 |
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16 |
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16 |
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16 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
16 |
17 |
2
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
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March 31, |
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December 31, |
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2023 |
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2022 |
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ASSETS |
(unaudited) |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable trade, net |
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Other receivables |
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Prepaid taxes |
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Prepaid expenses and other current assets |
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TOTAL CURRENT ASSETS |
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Restricted investments |
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Property and equipment, net |
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Right-of-use assets - operating leases |
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Right-of-use assets - financing leases |
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Other intangibles, net |
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Goodwill |
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Other assets |
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TOTAL ASSETS |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable trade |
$ |
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$ |
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Accounts payable other |
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Accrued payroll |
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Accrued other |
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Lease liability - operating leases |
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Lease liability - financing leases |
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Current portion of long term debt |
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TOTAL CURRENT LIABILITIES |
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Long term debt |
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Non-current liabilities |
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Lease liability - operating leases |
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Lease liability - financing leases |
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Deferred taxes |
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STOCKHOLDERS' EQUITY: |
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Preferred stock: $ |
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Common stock |
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Class A: $ |
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Class B: $ |
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Additional paid-in capital |
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Purchase price in excess of predecessor basis, net of tax benefit of $ |
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( |
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( |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
) |
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( |
) |
Treasury stock; at cost, |
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( |
) |
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( |
) |
TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
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$ |
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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)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Operating revenue |
$ |
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$ |
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Operating expenses: |
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Purchased transportation and warehousing |
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Salaries and benefits |
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Depreciation and amortization |
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Insurance and claims |
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General and administrative |
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Gain on sale of assets, net |
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( |
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( |
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Total operating expenses |
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Operating income |
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Other income (expense): |
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Interest expense |
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( |
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( |
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Interest income |
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Other, net |
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Total other expense, net |
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( |
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( |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
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Other comprehensive income: |
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Foreign currency translation adjustments |
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Total comprehensive income |
$ |
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$ |
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Basic earnings per common share |
$ |
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$ |
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Diluted earnings per common share |
$ |
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$ |
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Basic weighted average number of shares outstanding |
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Diluted weighted average number of shares outstanding |
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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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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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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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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, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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( |
) |
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$ |
( |
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$ |
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Stock tendered 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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- |
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( |
) |
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( |
) |
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( |
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Issuance of restricted stock awards, net of forfeitures |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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Share-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net income |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Foreign currency translation adjustment |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Balance March 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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( |
) |
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$ |
( |
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$ |
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Balance December 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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( |
) |
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$ |
( |
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$ |
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Stock tendered 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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- |
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( |
) |
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( |
) |
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( |
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Issuance of restricted stock awards, net of forfeitures |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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Share-based compensation expense |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Net income |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Foreign currency translation adjustment |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Balance March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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( |
) |
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$ |
( |
) |
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$ |
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See notes to unaudited consolidated financial statements.
5
HUB GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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Three Months Ended |
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March 31, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net income |
$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Deferred taxes |
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Compensation expense related to share-based compensation plans |
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Gain on sale of assets, net |
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( |
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( |
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Changes in operating assets and liabilities, net of acquisition: |
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Restricted investments |
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( |
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Accounts receivable, net |
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( |
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Prepaid taxes |
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Prepaid expenses and other current assets |
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Other assets |
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( |
) |
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( |
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Accounts payable |
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( |
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Accrued expenses |
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( |
) |
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Non-current liabilities |
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( |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Proceeds from sale of equipment |
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Purchases of property and equipment |
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( |
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( |
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Acquisitions |
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Net cash used in investing activities |
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( |
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( |
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Cash flows from financing activities: |
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Repayments of long-term debt |
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( |
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( |
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Stock withheld for payments of withholding taxes |
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( |
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( |
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Finance lease payments |
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( |
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( |
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Proceeds from issuance of debt |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents beginning of the period |
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Cash and cash equivalents end of the period |
$ |
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$ |
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Supplemental disclosures of cash paid for: |
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Interest |
$ |
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$ |
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Income taxes |
$ |
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$ |
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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, 2023 and results of operations for the three months ended March 31, 2023 and 2022.
These unaudited consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.
Reclassifications: Due to presentation changes made in our consolidated income statement, certain prior year amounts have been reclassified to conform with the current year presentation.
NOTE 2. Earnings Per Share
The following is a reconciliation of our earnings per share (in thousands, except for per share data):
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Three Months Ended, March 31, |
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2023 |
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2022 |
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Net income for basic and diluted earnings per share |
$ |
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$ |
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Weighted average shares outstanding - basic |
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Dilutive effect of restricted stock |
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Weighted average shares outstanding - diluted |
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Earnings per share - basic |
$ |
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$ |
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Earnings per share - diluted |
$ |
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$ |
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NOTE 3. Segment Reporting
As we have continued to expand our service offerings and diversify our business, we have also made changes to the financial information that our CEO, who has been identified as our Chief Operating Decision Maker (CODM), uses to make operating and capital decisions. Beginning with the first quarter of 2023, we concluded that we had
7
Intermodal and Transportation Solutions. Our Intermodal and Transportation Solutions segment offers high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. This segment also includes our trucking operations which provides drayage for our intermodal service offering and serves our customers who require high service local and regional trucking transportation using equipment dedicated to their needs. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations. As of March 31, 2023, our trucking transportation operation consisted of approximately
Logistics. Our Logistics segment offers a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed, all of which is provided by third party carriers with whom we contract. This segment also offers a wide range of logistics services including transportation management, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment, cross-docking and consolidation services. We leverage proprietary technology along with collaborative relationships with third party service providers to deliver cost savings and performance-enhancing supply chain services to our clients. Our transportation management offering also serves as a source of volume for our intermodal and transportation solutions segment.
Separate balance sheets are not prepared by segment, and as a result, assets are not separately identifiable or presented by segment. Our CEO uses consolidated asset information to make capital decisions.
The following tables summarize our financial and operating data by segment (in thousands):
|
Three Months Ended |
|
|||||
Operating Revenue |
March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
|
|
$ |
|
||
Logistics |
|
|
|
|
|
||
Inter-segment eliminations |
|
( |
) |
|
|
( |
) |
Total operating revenue |
$ |
|
|
$ |
|
||
|
Three Months Ended |
|
|||||
Operating Income |
March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
|
|
$ |
|
||
Logistics |
|
|
|
|
|
||
Total operating income |
$ |
|
|
$ |
|
||
|
Three Months Ended |
|
|||||
Depreciation and Amortization |
March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
|
|
$ |
|
||
Logistics |
|
|
|
|
|
||
Total depreciation and amortization |
$ |
|
|
$ |
|
||
NOTE 4. Fair Value Measurement
The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of March 31, 2023 and December 31, 2022. As of March 31, 2023, the fair value of the Company’s fixed-rate borrowings was $
We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of March 31, 2023 and December 31, 2022, our cash and temporary investments were with high quality financial institutions in demand deposit accounts, savings accounts, checking accounts and money market accounts.
8
Restricted investments included $
NOTE 5. Long-Term Debt and Financing Arrangements
In February 2022, we entered into a
We have standby letters of credit that expire in
As March 31, 2023 and December 31, 2022, we had
We have entered into various Equipment Notes (“Notes”) for the purchase of tractors, trailers, containers and refrigeration units. The Notes are secured by the underlying equipment financed in the agreements.
Our outstanding Notes are as follows (in thousands):
|
March 31, |
|
|
December 31, |
|
||
|
2023 |
|
|
2022 |
|
||
|
|
|
|
|
|
||
Interim funding for equipment received and expected to be converted to an equipment note in subsequent year; interest paid at a variable rate |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Secured Equipment Notes due on various dates in |
|
|
|
|
- |
|
|
|
|
|
|
|
|
||
Secured Equipment Notes due on various dates in |
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||
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|
||
Secured Equipment Notes due on various dates in |
|
|
|
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|
||
|
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|
||
Secured Equipment Notes due on various dates in |
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|
||
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|
||
Secured Equipment Notes due on various dates in |
|
|
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|
||
|
|
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|
||
Secured Equipment Notes due on various dates in |
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|
||
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|
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|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
Less current portion |
|
( |
) |
|
|
( |
) |
Total long-term debt |
$ |
|
|
$ |
|
||
9
NOTE 6. Legal Matters
The Company is involved in certain claims and pending litigation arising from the normal conduct of business, including putative class-action lawsuits involving employment related claims. Based on management's present knowledge, management does not believe that any potential unrecorded loss contingencies arising from these pending matters are likely to have a material adverse effect on the Company's overall financial position, operating results, or cash flows after taking into account any existing accruals for settlements or losses determined to be probable and estimable. However, actual outcomes could be material to the Company's financial position, operating results, or cash flows for any particular period.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking 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,” “targets,” “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. In particular, information appearing under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes 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’ or suppliers' businesses and workforce levels, disruptions of our business and operations, or the operations of our customers and suppliers.
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, 2022 (the “2022 10-K”) include the following as they may be affected, either individually, or in the aggregate, by the effect of the ongoing COVID-19 pandemic, including any spikes, outbreaks or variants of the virus, as well as any future government actions taken in response to the pandemic, including on our business operations, as well as its impact on general economic and financial market conditions and on our customers, counterparties, employees and third-party service providers:
10
EXECUTIVE SUMMARY
We are a leading supply chain solutions provider in North America that offers comprehensive transportation and logistics management services focused on reliability, visibility and value for our customers. Our service offerings include a full range of freight transportation and logistics services, some of which are provided by assets we own and operate, and some of which are provided by third parties with whom we contract. Our services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Other services include full outsource logistics solutions, transportation management services, freight consolidation, warehousing and fulfillment, final mile delivery, parcel and international services.
We service a large and diversified customer base in a broad range of industries, including retail, consumer products and durable goods. We believe our strategy to offer multi-modal supply chain management solutions serves to strengthen and deepen our relationships with our customers and allows us to provide a more cost effective and higher service solution.
Beginning in first quarter 2023, we have two reportable segments - Intermodal and Transportation Solutions, and Logistics, which are based primarily on the services each segment provides. Results for the quarter ended March 31, 2022, have been recast to conform with the current period presentation.
11
Intermodal and Transportation Solutions. Our Intermodal and Transportation Solutions segment offers high service, nationwide door-to-door intermodal transportation, providing value, visibility and reliability in both transcontinental and local lanes by combining rail transportation with local trucking. This segment also includes our trucking operations which provides drayage for our intermodal service offering and serves our customers who require high service local and regional trucking transportation using equipment dedicated to their needs. Our dedicated service operation offers fleets of equipment and drivers to each customer on a contract basis, as well as the management and infrastructure to operate according to the customer’s high service expectations. We arrange for the movement of our customers’ freight in one of our approximately 48,000 containers. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Local pickup and delivery services (referred to as “drayage”) between origin or destination and rail terminals are provided by our own trucking operations and third-parties with whom we contract. As of March 31, 2023, our trucking transportation operation consisted of approximately 2,300 tractors, 3,300 employee drivers and 4,400 trailers. We also contract for services with approximately 650 independent owner-operators.
Logistics. Our Logistics segment offers a full range of trucking transportation services, including dry van, expedited, less-than-truckload, refrigerated and flatbed, all of which is provided by third party carriers with whom we contract. This segment also offers a wide range of logistics services including transportation management, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment, cross-docking and consolidation services. Many of the customers for these solutions are consumer goods companies who sell into the retail channel. Our business operates or has access to approximately 9.5 million square feet of warehousing and cross-dock space across North America, to which our customers ship their goods to be stored and distributed to destinations including residences, retail stores and other commercial locations. These services offer our customers shipment visibility, transportation cost savings, high service and compliance with retailers’ increasingly stringent supply chain requirements
In August 2022, we acquired TAGG Logistics, LLC which enhanced our presence in the consolidation and fulfillment space and added a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs. The acquisition added scale to our logistics segment.
We are working on several yield enhancement projects including network optimization, matching of inbound and outbound loads, reducing empty miles, improving our recovery of accessorial costs, increasing our driver and asset utilization, reducing repositioning costs, providing holistic solutions and improving low profit freight. Hub’s top 50 customers represent approximately 63% of revenue for the three months ended March 31, 2023, while one customer accounted for more than 10% of our quarterly revenue in 2023. We use various performance indicators to manage our business. We closely monitor profit levels for our top customers. We also evaluate on-time performance, customer service, cost per load and daily sales outstanding by customer account. Vendor cost changes and vendor service levels are also monitored closely.
Uncertainties and risks to our outlook include the following: inflation, a slowdown in consumer spending (driven by, among other factors, rising inflation, rapid increases in gasoline prices, recession, increases in interest rates, and geopolitical concerns), a shift by consumers to spending on services at the expense of goods, an increase of retailers' inventory levels, a significant increase in transportation supply in the marketplace, aggressive pricing actions by our competitors and any inability to pass cost increases, such as transportation and warehouse costs, through to our customers, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2023.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022
The following table summarizes our operating revenue by segment (in thousands):
|
Three Months Ended |
|
|||||
Operating Revenue |
March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
709,249 |
|
|
$ |
776,570 |
|
Logistics |
|
469,141 |
|
|
|
540,984 |
|
Inter-segment eliminations |
|
(26,125 |
) |
|
|
(19,431 |
) |
Total operating revenue |
$ |
1,152,265 |
|
|
$ |
1,298,123 |
|
12
|
Three Months Ended |
|
|||||
Operating Income |
March 31, |
|
|||||
|
2023 |
|
|
2022 |
|
||
Intermodal and Transportation Solutions |
$ |
49,379 |
|
|
$ |
85,696 |
|
Logistics |
|
28,826 |
|
|
|
29,364 |
|
Total operating income |
$ |
78,205 |
|
|
$ |
115,060 |
|
Operating Revenue
Total consolidated operating revenue decreased 11% to $1,152 million in 2023 from $1,298 million in 2022.
Intermodal and Transportation Solutions (“ITS”) revenue decreased 9% to $709 million primarily due to a 12% decrease in intermodal volume, partially offset by a 3% increase in intermodal revenue per load (price, fuel, and mix) and a 5% increase in dedicated revenue resulting from growth of existing customers. ITS operating income decreased to $49 million, 7% of revenue, as compared to $86 million, 11% of revenue, in the prior year due to lower volume, higher equipment costs and lower surcharges. These headwinds were partially offset by lower drayage costs as we increased the portion of drayage handled on our own fleet to 74% in first quarter 2023 as compared to 58% in the prior year, as well as an improvement in profitability at our Dedicated service line.
Logistics revenue decreased 13% to $469 million primarily due to lower revenue per load in our brokerage business line and lower managed transportation business line revenue, partially offset by revenue from TAGG. First quarter operating income was 6% of revenue as compared to 5% last year. Operating income was unchanged at $29 million, as lower revenue was offset by lower purchased transportation costs and our yield management initiatives.
The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue:
|
Three Months Ended |
||||||||
|
March 31, |
||||||||
|
2023 |
|
|
|
2022 |
|
|
||
|
|
|
|
|
|
|
|
||
Operating revenue |
$ |
1,152,265 |
|
100.0% |
|
$ |
1,298,123 |
|
100.0% |
|
|
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
|
||
Purchased transportation and warehousing |
|
866,931 |
|
75.2% |
|
|
995,265 |
|
76.7% |
Salaries and benefits |
|
137,431 |
|
11.9% |
|
|
128,739 |
|
9.9% |
Depreciation and amortization |
|
35,449 |
|
3.1% |
|
|
31,289 |
|
2.4% |
Insurance and claims |
|
12,683 |
|
1.1% |
|
|
9,293 |
|
0.7% |
General and administrative |
|
25,541 |
|
2.2% |
|
|
23,222 |
|
1.8% |
Gain on sale of assets, net |
|
(3,975 |
) |
0.3% |
|
|
(4,745 |
) |
0.4% |
Total operating expenses |
|
1,074,060 |
|
93.2% |
|
|
1,183,063 |
|
91.1% |
|
|
|
|
|
|
|
|
||
Operating income |
$ |
78,205 |
|
6.8% |
|
$ |
115,060 |
|
8.9% |
CONSOLIDATED OPERATING EXPENSES
Purchased Transportation and Warehousing
Purchased transportation and warehousing costs decreased 13% to $867 million in 2023 from $995 million in 2022.
Purchased transportation and warehousing costs declined as compared to prior year due to lower volumes, reductions in third party carrier costs per load and decreased use of third-party carriers for drayage in ITS, partially offset by higher equipment and rail costs in ITS.
13
Salaries and Benefits
Salaries and benefits increased to $137 million in 2023 from $129 million in 2022. As a percentage of revenue, salaries and benefits increased to 11.9% in 2023 from 9.9% in 2022.
The salaries and benefits increase of $8 million was primarily due to $28 million of incremental expense related to growth of our driver and warehouse employee headcount, partially offset by a $19 million reduction in office employee compensation due to lower headcount and lower incentive compensation expense.
Headcount, which includes drivers, warehouse personnel and office employees, was 6,084 and 4,784 as of March 31, 2023 and 2022, respectively. The increase in headcount related primarily to drivers as we have expanded the portion of drayage coverage handled by our own fleet, as well as the acquisition of TAGG, which added 669 warehouse employees.
Depreciation and Amortization
Depreciation and amortization expense increased to $35 million in 2023 from $31 million in 2022. This increase was related primarily to increased container and tractor depreciation expense as well as the amortization of intangibles related to the acquisition of TAGG. This expense, as a percentage of revenue, increased to 3.1% in 2023 from 2.4% in 2022. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, office equipment and building improvements.
Insurance and Claims
Insurance and claims expense increased to $13 million in 2023 from $9 million in 2022. This increase was related primarily to increased workers compensation costs and auto liability expenses not covered by insurance deductibles which increased due to an increase in mileage run on our own trucking fleet. These expenses, as a percentage of revenue, increased to 1.1% in 2023 from 0.7% in 2022.
General and Administrative
General and administrative expenses increased to $26 million in 2023 from $23 million in 2022. These expenses, as a percentage of revenue, increased to 2.2% in 2023 from 1.8% in 2022.
The increase in general and administrative expenses was primarily due to an increase in rent expense, professional services expense and IT software expense partially due to the acquisition of TAGG, partially offset by lower legal expenses.
Gain on Sale of Assets, Net
Net gains on the sale of equipment decreased to $4 million in 2023 from $5 million in 2022. The decrease in net gains resulted from lower average gain per unit sold in 2023 as compared to 2022. These gains, as a percentage of revenue, decreased to 0.3% in 2023 from 0.4% in 2022.
Other Income (Expense)
Other expense remained consistent at $2 million in both 2023 and in 2022. Interest expense increased to $3.0 million in 2023 from $2.0 million in 2022. This increase was due primarily to higher interest rates on our debt. Interest income increased to $1 million in 2023 due to higher interest rates on our cash balance.
Provision for Income Taxes
The provision for income taxes decreased to $15 million in 2023 from $26 million in 2022. We provided for income taxes using an effective rate of 19.4% in 2023 and an effective rate of 22.9% in 2022. The first quarter 2023 effective tax rate of 19.4% benefitted primarily from a change in state apportionment methodology.
14
LIQUIDITY AND CAPITAL RESOURCES
Our financing and liquidity strategy is to fund operating cash payments through cash received from the provision of services, cash on hand, and to a lesser extent, from cash received from the sale of equipment. As of March 31, 2023, we had $343 million of cash and $19 million of restricted investments. We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes. Payments for our other investing activities, investments in warehousing improvements and our capitalized technology investments, have been funded by cash on hand or cash flows from operations. Cash used in financing activities including the purchase of treasury stock has been funded by cash from operations or cash on hand. We have not historically used our Credit Facility to fund our operating, investing or financing cash needs, though it is available to fund future cash requirements as needed. In the last three years, we have funded our business acquisitions from cash on hand, though in the future we may elect to fund these activities through a combination of cash on hand, borrowings on our Credit Facility, or from issuance of secured or unsecured debt. Based on past performance and current expectations, we believe cash on hand and cash received from the provision of services, along with other financing sources, will provide us the necessary capital to fund transactions and achieve our planned growth for the next twelve months and the foreseeable future.
Cash provided by operating activities for the three months ended March 31, 2023 was $89 million, which resulted primarily from net income of $62 million plus non-cash charges of $52 million, partially offset by changes in operating assets and liabilities of $25 million.
Cash provided by operating activities totaled $89 million in 2023 compared to $80 million in 2022. The $9 million increase in cash flow was primarily due to increases in the change of assets and liabilities of $23 million and non-cash charges of $12 million, partially offset by a decrease in net income of $26 million.
Net cash used in investing activities for the three months ended March 31, 2023 was $17 million which resulted from capital expenditures of $27 million, partially offset by proceeds from the sale of equipment of $10 million. Capital expenditures of $27 million related primarily to tractors of $14 million, containers of $6 million, technology investments of $4 million and the remainder for leasehold improvements.
Capital expenditures decreased by approximately $4 million in 2023 as compared to 2022. The 2023 decrease was due to decreases in container purchases of $6 million and spend on our corporate headquarters of $4 million. These decreases were partially offset by increased tractor purchases of $3 million, leasehold improvements of $2 million and increased spend for technology investments of $1 million.
In 2023, we estimate capital expenditures will range from $140 million to $150 million. This range is lower than the estimate we disclosed in our 2022 10-K of $170 million to $190 million, as we have reduced our planned purchase of containers in 2023. We expect transportation equipment purchases to range from $116 million to $124 million and technology and other investments will range from $24 million to $26 million. We plan to fund these expenditures with a combination of cash and debt.
Net cash used in financing activities for the three months ended March 31, 2023 was $17 million which includes repayments of long-term debt of $29 million, cash for stock tendered for payments of withholding taxes of $8 million and finance lease payments of $1 million, partially offset by the proceeds from the issuance of debt of $21 million. Debt incurred in 2023 was used to fund the purchase of transportation equipment.
The $8 million increase in cash used in financing activities for 2023 versus 2022 was primarily due to the increase in repayments of long-term debt of $3 million, less proceeds from the issuance of debt of $3 million and an increase in cash paid for stock related to employee withholding taxes of $2 million.
As a result of anticipated favorable timing differences, primarily related to depreciation and compensation, we expect our cash paid for income taxes in 2023 to be less than our income tax expense.
See Note 5 of the consolidated financial statements for details related to interest rates and commitment fees.
We have standby letters of credit that expire in 2023. As of March 31, 2023 and December 31, 2022, our letters of credit were $43 million.
At March 31, 2023, and December 31, 2022, we had no borrowings under the Credit Agreement and our unused and available borrowings were $307 million. We were in compliance with our debt covenants as of March 31, 2023 and December 31, 2022.
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.
15
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk as of March 31, 2023 from that presented in our 2022 10-K.
Item 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. As of March 31, 2023, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023.
(b) Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
On August 22, 2022, we completed the acquisition of TAGG. We are currently integrating processes, employees, technologies and operations. Management will continue to evaluate our internal controls over financial reporting as we complete our integration.
PART II. Other Information
Item 1. Legal Proceedings
For information regarding legal proceedings, see Note 6 “Legal Matters” to the Consolidated Financial Statements included in Item 1. “Financial Statements.”
Item 1A. Risk Factors
Investing in shares of our stock involves certain risks, including those identified and described in Part I, Item 1A of our 2022 10-K, 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In October 2022, the Board authorized the purchase of up to $200 million of our Class A Common Stock pursuant to a share repurchase program (the “2022 Program”). Under the 2022 Program, the shares may be repurchased in the open market or in privately negotiated transactions, from time to time subject to market and other conditions. The approved share repurchase program does not obligate us to repurchase any dollar amount or number of shares and the program may be modified, suspended, or discontinued at any time.
We purchased 95,514 shares for $7.6 million during the first quarter of 2023 and 66,369 shares for $5.6 million during the first quarter of 2022 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 2023. These shares do not reduce the repurchase authority under the 2022 Program.
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
Maximum Value of |
|
||||
|
Total |
|
|
|
|
|
Total Number of |
|
|
Shares that May Yet |
|
||||
|
Number of |
|
|
Average |
|
|
Shares Purchased as |
|
|
Be Purchased Under |
|
||||
|
Shares |
|
|
Price Paid |
|
|
Part of Publicly |
|
|
the 2022 Program |
|
||||
|
Purchased |
|
|
Per Share |
|
|
Announced Plan |
|
|
(in 000’s) |
|
||||
January 2023 |
|
94,610 |
|
|
$ |
79.49 |
|
|
|
- |
|
|
$ |
200,000 |
|
February 2023 |
|
904 |
|
|
$ |
93.49 |
|
|
|
- |
|
|
$ |
200,000 |
|
March 2023 |
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
200,000 |
|
Total |
|
95,514 |
|
|
$ |
79.62 |
|
|
|
- |
|
|
$ |
200,000 |
|
16
Item 6. Exhibits
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 |
|
|
3.1 |
Amended and Restated By-Laws of Hub Group, Inc., effective as of February 23, 2023 |
|
|
31.1 |
|
|
|
31.2 |
|
|
|
32.1 |
|
101 |
Interactive data files for Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL: (i) the Consolidated Balance Sheets (unaudited); (ii) the Unaudited Consolidated Statements of Income and Comprehensive Income; (iii) the Unaudited Consolidated Statements of Stockholders’ Equity; (iv) the Unaudited Consolidated Statements of Cash Flows (unaudited); and (v) the Notes to Unaudited Consolidated Financial Statements. XBRL Instance Document-the XBRL Instance Document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document. |
104 |
The cover page from Hub Group, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (formatted in Inline XBRL and included in Exhibit 101).
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17
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.
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HUB GROUP, INC. |
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DATE: |
May 5, 2023 |
/s/ Geoffrey F. DeMartino |
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Geoffrey F. DeMartino |
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Executive Vice President, Chief Financial |
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Officer and Treasurer |
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(Principal Financial Officer) |
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/s/ Kevin W. Beth |
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Kevin W. Beth |
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Executive Vice President, Chief |
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Accounting Officer |
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(Principal Accounting Officer) |
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18
Exhibit 31.1
CERTIFICATION
I, Phillip D. Yeager, certify that:
Date: May 5, 2023 |
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/s/ Phillip D. Yeager |
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Name: Phillip D. Yeager |
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Title: Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Geoffrey F. DeMartino, certify that:
Date: May 5, 2023 |
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/s/ Geoffrey F. DeMartino |
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Name: Geoffrey F. DeMartino |
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Title: Executive Vice President, |
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Chief Financial Officer and Treasurer |
Exhibit 32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The following statement is provided by the undersigned to accompany the Form 10-Q for the quarter ended March 31, 2023 of Hub Group, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and shall not be deemed filed pursuant to any provision of the Exchange Act of 1934 or any other securities law.
Each of the undersigned certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Hub Group, Inc.
Date: May 5, 2023
/s/ Phillip D. Yeager |
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/s/ Geoffrey F. DeMartino |
Phillip D. Yeager |
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Geoffrey F. DeMartino |
Chief Executive Officer |
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Executive Vice President, Chief Financial Officer and Treasurer |
Hub Group, Inc. |
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Hub Group, Inc. |