# Hub Group, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Hub Group, Inc.](/companies/hubg.md) (CIK 940942)
- Form: 10-Q
- Filed: 2022-11-04
- Accepted by EDGAR: Nov 4, 2022, 15:07 ET
- Period: 2022-09-30
- Accession: 0000950170-22-022161
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/940942/000095017022022161/hubg-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/940942/000095017022022161/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $1.36bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $4.05bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $1.13bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $3.37bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $223.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $685.1m | us-gaap:GrossProfit |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | $117.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $370.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $2.2m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $5.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $27.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $87.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $87.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $277.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $2.61 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $8.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $2.63 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $8.29 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 33,521 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 33,807 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $350.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $157.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $75.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-30 | $211.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $1.02bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $2.75bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $740.7m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2022-09-30 | $217.8m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2022-09-30 | $102.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-30 | $1.52bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,575 characters.

### 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’ 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, 2021 (the “2021 10-K”) include the following, each of which 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:

- the degree and rate of market growth in the transportation and logistics markets served by us;
- any impacts on consumer sentiment and demand for our customers’ goods and services resulting from a recession or rising inflation rates, increasing commodities prices including gasoline, rising interest rates, and geopolitical events (and governmental responses thereto, including tariffs, sanctions and embargoes);
- deterioration in our relationships, service conditions or provision of equipment with railroads or adverse changes to the railroads’ operating rules;
- inability to recruit and retain company drivers and owner-operators;
- inability to hire or retain management and other employees who are critical to our continued success;
- the impact of competitive pressures in the marketplace, including entry of new competitors including digital freight matching companies, direct marketing efforts by the railroads or marketing efforts of asset-based carriers, innovative new services resulting in lower emissions;
- unanticipated changes in rail, drayage, warehousing and trucking company capacity or costs of services;
- the impact on costs of services, service and reliability of further consolidation of railroads;
- increases in costs or shortages of drivers related to any reclassification or change in company drivers, owner-operators or other workers due to regulatory, legislative or judicial decisions impacting independent contractors, including owner-operators or workers directly contracted with the Company and those contracted to the Company’s vendors;
- joint employer claims alleging that the Company is a co-employer of any workers providing services to a Company contractor;
- labor unrest or shortages in the rail, drayage, trucking or warehousing sectors;
- significant deterioration in our customers’ financial condition, particularly in the retail, consumer products and durable goods sectors;
- inability to identify, close and successfully integrate any recent or future business combinations;
- fuel shortages or fluctuations in fuel prices;
- increases in interest rates;
- acts of terrorism, military action or geopolitical events, including events that disrupt the global supply chain or impact consumer spending;
- difficulties in maintaining or enhancing our information technology systems, implementing new systems or protecting against cyber-attacks;
- increases in costs or operating challenges associated with complying with current or new governmental regulations, including lower emission regulations;
- significant increases to employee health insurance costs;
- loss of one or more of our largest customers;
- expected awards during annual customer bids not materializing;
- changes in insurance costs, retention amounts and claims expense;
- losses sustained on matters where the liability materially exceeds available insurance proceeds, if any;
- union organizing efforts and changes to current laws, rules and regulations which may aid in these efforts;
- the effects of pandemics, including disruptions to global manufacturing and demand for transportation services resulting from government restrictions particularly in China;
- imposition of new tariffs or trade barriers or withdrawal from or renegotiation of existing free trade agreements which could reduce international trade and economic activity; and
- disruptions due to severe weather conditions or adverse climate change.

### 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 transportation services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, dedicated and regional trucking. Our logistics 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.

As part of our profit improvement initiatives, we have focused on realizing efficiencies between our drayage trucking operation (which supports our intermodal service) and our dedicated trucking operation, including through the sharing of equipment and drivers, and by leveraging a combined set of driver support services including driver recruiting, asset management and safety functions. Our dedicated and drayage teams are now one combined organization. As a result, beginning in first quarter of 2022, we reported revenue for these operations under the “Intermodal and Transportation Solutions” line of business.

We provide services in three lines of business. Our intermodal and transportation solutions line of business 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. 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 September 30, 2022, our trucking transportation operation consisted of approximately 2,300 tractors, 2,700 employee drivers and 4,600 trailers. We also contract for services with approximately 800 independent owner-operators. These assets and contractual services are used to support drayage for our intermodal service offering and to serve 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.

Our truck brokerage operation offers a full range of trucking transportation on a non-asset basis, as we match customers’ shipping needs with trucking carriers’ capacity to provide the most effective combination of service and price. Our services include dry van, expedited, less-than-truckload, refrigerated and flatbed. We substantially increased the size of our brokerage service line, and increased our refrigerated transportation capabilities, through the acquisition of Choptank Transport, LLC (“Choptank”) in October 2021.

Approximately half of our truck brokerage volume is generated from committed pricing transactions, with the remainder consisting of loads that are priced on a transactional basis.

Our logistics business offers a wide range of transportation and logistics management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, warehousing, fulfillment and shipment visibility. We offer multi-modal transportation services including full truckload, less-than-truckload, intermodal, final mile, railcar, small parcel and international transportation. The acquisition of TAGG Logistics, LLC (“TAGG”) enhances our presence in the consolidation and fulfillment space and adds a complementary e-commerce offering to serve our customers' multimodal transportation and logistics needs. The acquisition adds scale to our logistics service line and is expected to result in complementary cross-selling opportunities.

In the first nine months of 2022, we experienced favorable market conditions for our services. Demand for our services continued to show strength, as North American consumer spending, particularly on the types of goods that our customers offer, remained robust. The response to the COVID-19 pandemic caused many changes in consumer behavior, including a propensity for consumers to shift spending from services toward goods, and also to increase spending on household goods. During the third quarter many of our customers, particularly our retailer customers, began to experience rising inventory levels which led to a reduction in their demand for shipping services.

Available transportation capacity in North America continues to be constrained by high levels of demand, shortages of available drivers, and challenges with the production of new tractors and other equipment. These factors resulted in strong demand for our transportation capacity in the first half of 2022, as well as rising prices for certain of our services and those of our competitors. Beginning in the second quarter of 2022, pricing for certain types of transportation, including transactionally priced freight, began to decline from levels that existed during the first quarter.

In order to meet customer demand, we have taken several important actions. We are increasing our capacity to handle additional volume by ordering approximately 6,000 new containers, substantially all of which we expect will be delivered in 2022. Included in this order is a significant expansion of our refrigerated intermodal container fleet, as we believe there is a large opportunity to sell this expanded service to our existing customer base.

We are working on several margin 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 64% of revenue for the nine months ended September 30, 2022 while one customer accounted for more than 10% of our revenue for the nine months ended September 30, 2022. 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 levels are also monitored closely.

Uncertainties and risks to our outlook include the following: 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 the remainder of 2022.

### RESULTS OF OPERATIONS

#### Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

The following table summarizes our revenue by business line (in thousands):

|  | Three Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Intermodal and transportation solutions | $853,490 | $697,701 |
| Logistics | 251,887 | 224,136 |
| Truck brokerage | 250,030 | 153,270 |
| **Total revenue** | $1,355,407 | $1,075,107 |

16

The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue:

|  | Three Months Ended September 30, 2022 |  | 2021 |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $1,355,407 | 100.0% | $1,075,107 | 100.0% |
| Transportation costs | 1,132,174 | 83.5% | 917,507 | 85.3% |
| Gross margin | 223,233 | 16.5% | 157,600 | 14.7% |
| Costs and expenses: |  |  |  |  |
| Salaries and benefits | 65,502 | 4.8% | 65,370 | 6.1% |
| General and administrative | 28,109 | 2.1% | 23,445 | 2.2% |
| Depreciation and amortization | 11,884 | 0.9% | 8,912 | 0.8% |
| Total costs and expenses | 105,495 | 7.8% | 97,727 | 9.1% |
| Operating income | $117,738 | 8.7% | $59,873 | 5.6% |

### Revenue

Revenue increased 26% to $1,355 million in 2022 from $1,075 million in 2021. Intermodal and Transportation Solutions (“ITS”) revenue increased 22% to $853 million due to a 31% increase in intermodal revenue per load (price, fuel, and mix), offset by a 6% decrease in intermodal volume. Logistics revenue increased 12% to $252 million due to growth of our managed transportation, final mile and consolidation services, as well as the acquisition of TAGG. Truck brokerage revenue increased 63% to $250 million primarily due to the addition of Choptank as well as growth in the existing operations resulting from higher revenue per load.

### Transportation Costs

Transportation costs increased 23% to $1,132 million in 2022 from $918 million in 2021. Transportation costs in 2022 consisted of purchased transportation and warehousing costs of $917 million and equipment and driver related costs of $215 million. Transportation costs in 2021 consisted of purchased transportation and warehousing costs of $737 million and equipment and driver related costs of $181 million. The 25% increase in purchased transportation and warehousing costs was primarily due to increased rail costs, increased fuel costs, higher third-party carrier costs, and increased repositioning costs, offset by lower volumes. Equipment and driver related costs increased 19% in 2022 due to higher driver wages, increased equipment depreciation expense, increased repairs and maintenance expense, and increased usage of our internal drayage resources to 55% of total drayage moves in 2022 from 47% in 2021.

### Gross Margin

Gross margin increased 42% to $223 million in 2022 from $158 million in 2021. The $66 million gross margin increase was the result of increases in all lines of business. Gross margin as a percentage of revenue increased to 16.5% in 2022 from 14.7% in 2021.

ITS gross margin increased primarily due to a 31% increase in intermodal revenue per load, partially offset by a 6% decrease in intermodal volume and increased purchased transportation costs. ITS gross margin as a percentage of revenue increased 180 basis points. Truck brokerage gross margin increased primarily due to the Choptank acquisition and growth in revenue in our existing operations, partially offset by the impact of higher purchased transportation costs. Truck brokerage gross margin as a percentage of revenue decreased 60 basis points. Logistics gross margin increased primarily due to growth with existing customers, new business onboardings, yield management initiatives and the acquisition of TAGG, partially offset by higher warehousing and transportation costs. Logistics gross margin as a percentage of revenue increased 370 basis points.

### CONSOLIDATED OPERATING EXPENSES

### Salaries and Benefits

Salaries and benefits expense remained consistent at $65 million in both 2022 and 2021.

As a percentage of revenue, salaries and benefits decreased to 4.8% in 2022 from 6.1% in 2021.

The additions of TAGG and Choptank were offset by decreases in employee bonuses of $5 million, salary expense and commissions expense of $2 million each and restricted stock expense of $1 million, primarily related to a reduction in headcount excluding the additions of TAGG and Choptank employees.

Headcount as of September 30, 2022 and 2021 was 2,144 and 1,971 respectively, which excludes drivers and warehouse employees, as these costs are included in transportation costs. The increase in headcount is due to the additions of both TAGG and Choptank employees.

### General and Administrative

General and administrative expenses increased to $28 million in 2022 from $23 million in 2021.

These expenses, as a percentage of revenue, decreased to 2.1% in 2022 from 2.2% in 2021.

The increase of $5 million in general and administrative expense was primarily due to the additions of TAGG and Choptank as well as increases in legal expense for related claims, higher use tax expense, the impairment write-off of a leased asset, partially offset by higher gains recognized from the sale of equipment in 2022.

### Depreciation and Amortization

Depreciation and amortization expense increased to $12 million in 2022 from $9 million in 2021.

This increase was related primarily to the amortization of intangibles related to the additions of TAGG and Choptank as well as increases in depreciation related to our new building and capitalized technology.

These expenses as a percentage of revenue increased to 0.9% in 2022 from 0.8% in 2021.

### Other Expense

Other expense increased to $3 million in 2022 from $2 million in 2021 due to higher average borrowings and higher average interest rates on existing borrowings.

### Provision for Income Taxes

The provision for income taxes increased to $28 million in 2022 from $15 million in 2021, due to significantly higher pre-tax income in 2022.

We provided for income taxes using an effective rate of 24.2% in 2022 and an effective rate of 25.3% in 2021.

The lower effective tax rate in 2022 was the result of the favorable impact of discrete adjustments in 2022 and permanent differences having a small impact on the tax rate due to higher pre-tax income in 2022. We expect our effective tax rate for the full year of 2022 to be between 23.5% and 24.5%.

### Net Income

Net income increased to $87 million in 2022 from $43 million in 2021 due primarily to increases in gross margin, partially offset by higher costs and expenses and higher income tax expense.

### Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

The following table summarizes our revenue by business line (in thousands):

The following is a summary of operating results and certain items in the consolidated statements of income as a percentage of revenue:

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Intermodal and transportation solutions | $2,499,567 | $1,891,837 |
| Logistics | 743,924 | 663,620 |
| Truck brokerage | 811,496 | 420,523 |
| **Total revenue** | $4,054,987 | $2,975,980 |

|  | Nine Months Ended September 30, 2022 |  | 2021 |  |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $4,054,987 | 100.0% | $2,975,980 | 100.0% |
| Transportation costs | 3,369,899 | 83.1% | 2,589,072 | 87.0% |
| Gross margin | 685,088 | 16.9% | 386,908 | 13.0% |
| Costs and expenses: |  |  |  |  |
| Salaries and benefits | 202,469 | 5.0% | 176,696 | 5.9% |
| General and administrative | 78,249 | 1.9% | 63,058 | 2.1% |
| Depreciation and amortization | 33,936 | 0.9% | 26,282 | 0.9% |
| Total costs and expenses | 314,654 | 7.8% | 266,036 | 8.9% |
| Operating income | $370,434 | 9.1% | $120,872 | 4.1% |

### Revenue

Revenue increased 36% to $4,055 million in 2022 from $2,976 million in 2021. ITS revenue increased 32% to $2,500 million due to a 36% increase in intermodal revenue per load. Truck brokerage revenue increased 93% to $811 million due primarily due to the addition of Choptank as well as growth in the existing operations. Logistics revenue increased 12% to $744 million primarily due to the acquisition of TAGG and growth of our managed transportation, final mile and consolidation services.

### Transportation Costs

Transportation cost increased 30% to $3,370 million in 2022 from $2,589 million in 2021. Transportation costs in 2022 consisted of purchased transportation costs of $2,782 million and equipment and driver related costs of $588 million compared to 2021, which consisted of purchased transportation costs of $2,080 million and equipment and driver related costs of $509 million. The 34% increase in purchased transportation costs was primarily due to increased rail costs, increased fuel costs, higher brokerage volume, higher third-party carrier costs, and increased repositioning costs. Equipment and driver related costs increased 16% in 2022 primarily due to higher driver wages and increased equipment depreciation expense, increased repairs and maintenance expense, and increased usage of our internal drayage resources to 52% of total drayage moves in 2022 from 51% in 2021.

### Gross Margin

Gross margin increased 77% to $685 million in 2022 from $387 million in 2021. The $298 million gross margin increase was the result of increases in all lines of business lines. Gross margin as a percentage of revenue increased to 16.9% in 2022 from 13.0% in 2021. ITS gross margin increased compared to the prior year primarily due to a 36% increase in intermodal revenue per load, partially offset by increased purchased transportation costs. ITS gross margin as a percentage of revenue increased 540 basis points. Truck brokerage gross margin increased primarily due to the Choptank acquisition and growth in revenue in our existing operations, partially offset by the impact of higher purchased transportation costs. Truck brokerage gross margin as a percentage of revenue declined 130 basis points. Logistics gross margin increased primarily due to growth with existing customers, new business onboardings, and yield management initiatives and the TAGG acquisition, partially offset by higher warehousing and transportation costs. Logistics gross margin as a percentage of revenue expanded by 330 basis points.

### CONSOLIDATED OPERATING EXPENSES

### Salaries and Benefits

Salaries and benefits expense increased to $202 million in 2022 from $177 million in 2021.

As a percentage of revenue, Hub’s salaries and benefits decreased to 5.0% in 2022 from 5.9% in 2021.

The increase of $25 million was primarily due to the additions of TAGG and Choptank and increases in employee bonuses of $4 million, partially offset by reductions in salary expense of $4 million and restricted stock expense of $2 million, related to a reduction in headcount, which does not include the additions of TAGG and Choptank.

### General and Administrative

General and administrative expense increased to $78 million in 2022 from $63 million in 2021.

These expenses, as a percentage of revenue, decreased to 1.9% in 2022 from 2.1% in 2021.

The increase of $15 million was primarily due to the additions of TAGG and Choptank as well as increases in legal expense for related claims, higher use tax expense, the impairment write-off of a leased asset and higher outside services expense, partially offset by higher gains recognized from the sale of equipment of $12 million in 2022.

### Depreciation and Amortization

Depreciation and amortization expense increased to $34 million in 2022 from $26 million in 2021

This increase was related primarily to the amortization of intangibles related to the additions of TAGG and Choptank as well as increases in depreciation related to our new building and capitalized technology.

This expense as a percentage of revenue remained consistent at 0.9% in both 2022 and 2021.

### Other Expense

Other expense remained consistent at $6 million in both 2022 and in 2021.

### Provision for Income Taxes

The provision for income taxes increased to $87 million in 2022 from $28 million in 2021 due to significantly higher pre-tax income in 2022.

We provided for income taxes using an effective rate of 23.9% in 2022 and an effective rate of 24.2% in 2021.

The lower effective tax rate in 2022 was the result of the favorable impact of discrete adjustments related to new state tax legislation in 2022. We expect our effective tax rate for the full year of 2022 to be between 23.5% and 24.5%.

### Net Income

Net income increased to $278 million in 2022 from $87 million in 2021 due primarily to increases in revenue and gross margin, partially offset by higher operating costs and expenses and higher income tax expense.

### 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 September 30, 2022, we had $212 million of cash and $17 million of restricted investments. We generally fund our purchases of transportation equipment through the issuance of secured, fixed rate Equipment Notes. In prior years, we have funded our business acquisitions from cash on hand. Payments for our other investing activities, such as the construction of our office buildings 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. 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 nine months ended September 30, 2022 was $350 million, which resulted primarily from net income of $278 million plus non-cash charges of $109 million, partially offset by changes in operating assets and liabilities of $37 million.

Cash provided by operating activities totaled $350 million in 2022 compared to $178 million in 2021. The $172 million increase in cash flow was primarily due to an increase in net income of $191 million and an increase in non-cash charges of $20 million, partially offset by decreases in the change in assets and liabilities of $39 million.

Net cash used in investing activities for the nine months ended September 30, 2022 was $226 million which included capital expenditures of $158 million and cash used in acquisitions of $103 million, partially offset by proceeds from the sale of equipment of $34 million. Capital expenditures of $158 million related primarily to containers of $73 million, tractors of $48 million, technology investments of $19 million and building and furniture spend for our corporate headquarters of $18 million.

Capital expenditures increased by approximately $74 million in 2022 as compared to 2021. The 2022 increase was due to increases in container purchases of $38 million, tractor purchases of $20 million, spend on our corporate headquarters of $13 million and technology investments of $6 million. These increases were partially offset by less purchases of other transportation equipment of $3 million in 2022.

In 2022, we estimate capital expenditures will range from $240 million to $250 million. We expect transportation equipment purchases to range from $210 million to $220 million and building and technology investments will range from $30 million to $35 million. We plan to fund these expenditures with a combination of cash and debt.

Net cash used in financing activities for the nine months ended September 30, 2022 was $72 million which includes proceeds from the issuance of debt of $127 million, offset by the repayments of long-term debt of $82 million, cash used for the purchase of treasury stock of $75 million, cash used for the purchase of treasury stock from related party of $35 million, cash used for stock tendered for payments of withholding taxes of $6 million and finance lease payments of $2 million. Debt incurred in 2022 was used to fund the purchase of transportation equipment.

The $54 million increase in cash used in financing activities for 2022 versus 2021 was primarily due to the increase in the purchase of treasury stock of $75 million, the purchase of treasury stock from a related party of $35 million and cash paid for stock related to employee withholding taxes of $2 million, partially offset by the increase in proceeds from the issuance of debt of $56 million as well as decreases in repayments of long-term debt and finance lease payments of $1 million each.

In 2022, we expect our cash paid for income taxes to be significantly more than in 2021 due to significantly higher pre-tax income in 2022. We expect our cash paid for taxes to be slightly less than our income tax expense in 2022 due to net favorable timing differences related to depreciation and the sale of equipment.

The Coronavirus Aid, Relief, and Economic Security ("CARES") Act allowed us to defer $11.3 million of 2020 payroll taxes until future years. Half of those payroll taxes were remitted in December 2021 and the other half will be remitted in December 2022.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into U.S. law. Under this law, there is a new 15% corporate minimum tax, which will not have an impact on the Company. In addition, beginning after December 31, 2022 there will be a 1% excise tax on certain share repurchases, which is not expected to have a material impact on the Company’s Consolidated Financial Statements. There are other aspects within this new law that the Company is evaluating but none are expected to have a material impact on the Company’s Consolidated Financial Statements.

See Note 6 of the consolidated financial statements for details related to interest rates and commitment fees.

We have standby letters of credit that expire in 2022 and 2023. As of September 30, 2022 and December 31, 2021, our letters of credit were $42 million and $41 million, respectively.

As of September 30, 2022, and December 31, 2021, we had no borrowings under the Credit Agreement and our unused and available borrowings were $308 million and $309 million, respectively. We were in compliance with our debt covenants as of September 30, 2022 and December 31, 2021.

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.

## Controls and procedures

As filed, 1,156 characters.

*a) Disclosure Controls and Procedures.* As of September 30, 2022, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.

*(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 September 30, 2022 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.

## Risk factors

As filed, 345 characters.

Investing in shares of our stock involves certain risks, including those identified and described in Part I, Item 1A of our 2021 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 here of and in our other filings with the SEC.

Filed Nov 4, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-022161. Last ingested by Listed: Oct 27, 2026, 16:30 ET. No prices; not investment advice.