# Hub Group, Inc.: Form 10-Q for the period ended Mar 31, 2023

- Company: [Hub Group, Inc.](/companies/hubg.md) (CIK 940942)
- Form: 10-Q
- Filed: 2023-05-05
- Accepted by EDGAR: May 5, 2023, 15:10 ET
- Period: 2023-03-31
- Accession: 0000950170-23-018273
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/940942/000095017023018273/hubg-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/940942/000095017023018273/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-03-31 | $1.15bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | $78.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $3.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $14.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $61.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $1.88 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $1.90 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 32,838 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $89.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $26.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $342.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $1.07bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $2.89bn | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $637.7m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2023-03-31 | $236.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-03-31 | $97.9m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-03-31 | $1.66bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 24,098 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’ 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:

- 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, tax incentives, 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, warehouse employees 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, for example, entry of new competitors including digital freight matching companies, direct marketing efforts by the railroads, marketing efforts of asset-based carriers, or 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, warehousing or port 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 related to 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 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.

*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):

| Operating Revenue | Three Months Ended 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

| Operating Income | Three Months Ended 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.

### 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.

### 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.

## Controls and procedures

As filed, 1,145 characters.

*(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.

## Risk factors

As filed, 375 characters.

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.

Filed May 5, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-018273. Last ingested by Listed: Oct 27, 2026, 16:30 ET. No prices; not investment advice.