Hub Group, Inc.: Form 10-Q for the period ended Jun 30, 2025

Forward-Looking Statements

Statements in this section and other parts of this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements, provided pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and other factors that might cause the actual performance of the Company to differ materially from those expressed or implied by this discussion and, therefore, should be viewed with caution. Further information on the risks that may affect the Company’s business is included in filings it makes with the SEC from time to time, including those discussed under the “Risk Factors” section in the 2024 10-K and subsequent filings. The Company assumes no obligation to update any such forward-looking statements.

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.

We concluded we have two reportable segments, Intermodal and Transportation Solutions (“ITS”) and Logistics, which are based primarily on the services each segment provides.

Intermodal and Transportation Solutions. Our ITS 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 includes our trucking operations which provides our customers with local pickup and delivery as well as high service local and regional trucking transportation using equipment dedicated to their needs. In the first six months of 2025, approximately 78% of our drayage services was provided by our own fleet. We arrange for the movement of our customers’ freight in one of our approximately 50,000 containers. We contract with railroads to provide transportation for the long-haul portion of the shipment between rail terminals. Drayage between origin or destination and rail terminals are provided by our own trucking operations and third parties with whom we contract. 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 June 30, 2025, our trucking transportation operation consisted of approximately 2,400 tractors, 3,300 employee drivers and 4,500 trailers. We also contract for services with approximately 500 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.

Logistics. Our Logistics segment offers a wide range of non-asset-based services including transportation management, freight brokerage services, shipment optimization, load consolidation, mode selection, carrier management, load planning and execution, cross-docking, consolidation and fulfillment services and final mile delivery. Logistics includes our brokerage business which consists of a full range of trucking transportation services, including dry van, expedited, less-than-truckload (“LTL”), refrigerated and flatbed, all of which is provided by third-party carriers with whom we contract. 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 ITS segment. Many of the customers for these solutions are consumer goods companies who sell into the retail channel. Our final mile delivery offering provides residential final mile delivery and installation of appliances and big and bulky goods. Final mile operates through a network of independent service providers in company, customer and third-party facilities throughout the continental United States. Our business operates or has access to approximately 7 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.

We are focused 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 68% of revenue for the six months ended June 30, 2025, while one customer accounted for more than 10% of our revenue in both segments for both the six months ended June 30, 2025 and 2024. We use various performance indicators to manage our business. We closely monitor profit levels for our 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.

The following table includes the one customer that represented 10% or more of our revenue by segment for the six months ending June 30, 2025 and 2024, respectively:

Uncertainties and risks to our outlook include inflation, increased healthcare costs, a slowdown in consumer spending (driven by, among other factors, tariffs, inflation, increases in interest rates, an economic recession and geopolitical concerns), a shift by consumers to spending on services at the expense of goods, an increase of retailers’ inventory levels, the ability of customers to pay our accounts receivable, 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, economic factors such as the impact of potentially increasing tariffs between trading partners, all of which could have a materially negative impact on our revenue, profitability and cash flow in 2025. Exiting of truckload capacity, retail inventory levels declining leading to restocking demand, a return of typical shipping peak season demands and a stronger used tractor market could have a materially positive impact on our revenue, profitability and cash flows in 2025.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024

The following table summarizes our operating revenue by segment (in thousands):

The following table summarizes our operating income by segment (in thousands):

17

Operating Revenue and Operating Income

Total consolidated operating revenue decreased 8% to $906 million in 2025 from $986 million in 2024.

Intermodal and Transportation Solutions (“ITS”) revenue decreased 6% to $528 million primarily due to intermodal mix, price declines and lower fuel revenue, as well as lower dedicated revenue. These decreases were partially offset by an increase in volume. ITS operating income increased 6% to $14.4 million, or 2.7% of revenue, as compared to $13.6 million, or 2.4% of revenue in the prior year primarily due to positive impacts from continued cost controls, improved insurance and claims expenses, and lower accessorial costs.

Logistics revenue decreased 12% to $404 million primarily due to lower volume and revenue per load in our brokerage business, exiting from unprofitable business in consolidation and fulfillment, and sub-seasonal demand in managed transportation and final mile businesses. Logistics operating income decreased to $20 million, or 4.9% of revenue, as compared to $26 million, or 5.6% of revenue, due to lower brokerage margins and $3 million of vendor settlement related costs.

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

CONSOLIDATED OPERATING EXPENSES. OTHER EXPENSES AND INCOME TAXES

Purchased Transportation and Warehousing

Purchased transportation and warehousing costs decreased 10% to $656 million in 2025 from $727 million in 2024. As a percentage of revenue, purchased transportation and warehousing costs decreased to 72.4% in 2025 from 73.7% in 2024.

Purchased transportation and warehousing costs declined compared to prior year due to rail cost decreases, lower third-party drayage and warehousing costs, and lower fuel costs.

Salaries and Benefits

Salaries and benefits increased to $143 million in 2025 from $142 million in 2024. As a percentage of revenue, salaries and benefits increased to 15.8% in 2025 from 14.4% in 2024.

The increase was primarily due to increased driver and warehouse employee costs of $4 million, which includes the acquisition of EASO on October 23, 2024. This increase was partially offset by decreases in office employee compensation expense of $3 million, primarily related to lower headcount, which excludes EASO.

Headcount, which includes drivers, warehouse personnel and office employees, was 6,310, which includes 614 employees of EASO, as of June 30, 2025 and 5,813 as of June 30, 2024, respectively. The increase in headcount related primarily to drivers and warehouse employees due to the EASO acquisition.

Depreciation and Amortization

Depreciation and amortization expense decreased to $32 million in 2025 from $38 million in 2024. This decrease was related primarily to decreased container depreciation expense resulting from changes made in the third quarter of 2024 to the estimated useful lives of our containers. This expense, as a percentage of revenue, decreased to 3.6% in 2025 from 3.8% in 2024. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.

Insurance and Claims

Insurance and claims expense decreased to $11 million in 2025 from $13 million in 2024. This decrease was primarily due to decreased claims costs related to auto liability claims. These expenses, as a percentage of revenue, decreased to 1.2% in 2025 from 1.3% in 2024.

General and Administrative

General and administrative expenses increased to $29 million in 2025 from $28 million in 2024. These expenses, as a percentage of revenue, increased to 3.2% in 2025 from 2.8% in 2024.

This increase in general and administrative expenses was primarily due to vendor settlement related costs of $3 million incurred in 2025, partially offset by decreases in third party service costs and bad debt expense of $1 million each.

Gain on Sale of Assets, Net

Net gains on the sale of equipment decreased to a loss of $0.1 million in 2025 from a gain of $0.4 million in 2024. This decrease resulted from both less units sold and a lower average gain per unit sold in 2025 as compared to 2024.

Other Income (Expense)

Other expense decreased to $1 million in 2025 from $2 million in 2024. Interest expense decreased $0.5 million primarily due to lower overall debt balances while interest rates remained relatively consistent. Interest income decreased by $0.8 million due to lower invested cash balances. These decreases were partially offset by a $0.8 million change in other, net related to the change in the Peso exchange rate due to the addition of EASO.

Provision for Income Taxes

The provision for income taxes decreased to $8 million in 2025 from $9 million in 2024 due primarily to lower pre-tax income in 2025. We provided for income taxes using an effective rate of 24.0% in 2025 and an effective rate of 22.8% in 2024. The second quarter 2025 effective tax rate of 24.0% was higher than the rate from 2024, as in 2024 we received a one-time benefit from amending state tax returns.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. We are still evaluating the impact the OBBBA will have on our financial statements.

Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

The following table summarizes our operating revenue by segment (in thousands):

The following table summarizes our operating income by segment (in thousands):

Operating Revenue and Operating Income

Total consolidated operating revenue decreased 8% to $1,821 million in 2025 from $1,986 million in 2024.

Intermodal and Transportation Solutions (“ITS”) revenue decreased 5% to $1,058 million primarily due to mix, price declines, lower fuel revenue, as well as lower dedicated revenue, partially offset by an increase in intermodal volume. ITS operating income increased 7% to $28 million, or 2.7% of revenue, as compared to $27 million, or 2.4% of revenue in the prior year, primarily due to cost control efforts, lower dedicated start-up costs, and improved insurance and claims expenses.

Logistics revenue decreased 13% to $815 million primarily due to lower volume and revenue per load in our brokerage business, exiting from unprofitable business in consolidation and fulfillment, and sub-seasonal demand in managed transportation and final mile businesses. Logistics operating income decreased to $43 million, or 5.3% of revenue, as compared to $50 million, or 5.3% of revenue, due to lower brokerage margins.

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

CONSOLIDATED OPERATING EXPENSES. OTHER EXPENSES AND INCOME TAXES

Purchased Transportation and Warehousing

Purchased transportation and warehousing costs decreased 10% to $1,314 million in 2025 from $1,467 million in 2024. As a percentage of revenue, purchased transportation and warehousing costs decreased to 72.2% in 2025 from 73.9% in 2024.

Purchased transportation and warehousing costs declined as compared to prior year due to lower rail, third-party warehouse, third party drayage and carrier costs, and fuel costs. The reduction in warehouse costs is primarily driven by the completion of our network optimization project in 2024.

Salaries and Benefits

Salaries and benefits increased to $293 million in 2025 from $286 million in 2024. As a percentage of revenue, salaries and benefits increased to 16.1% in 2025 from 14.4% in 2024.

The $7 million increase in salaries and benefits expense primarily related to increases in driver and warehouse employee costs of $11 million. This increase in expense was partially offset by lower office employee related expense of $4 million.

Depreciation and Amortization

Depreciation and amortization expense decreased to $65 million in 2025 from $76 million in 2024. This decrease was related primarily to decreased container depreciation expense resulting from changes made in the third quarter of 2024 to the estimated useful lives of our containers. This expense, as a percentage of revenue, decreased to 3.5% in 2025 from 3.8% in 2024. Depreciation expense includes transportation equipment, technology investments, leasehold improvements, warehouse equipment, office equipment and building improvements.

Insurance and Claims

Insurance and claims expense decreased to $22 million in 2025 from $25 million in 2024. This decrease was primarily due to decreased claim costs related to auto liability claims in 2025. These expenses, as a percentage of revenue, decreased to 1.2% in 2025 from 1.3% in 2024.

General and Administrative

General and administrative expenses increased to $56 million in 2025 from $55 million in 2024. These expenses, as a percentage of revenue, increased to 3.1% in 2025 from 2.8% in 2024.

This increase in general and administrative expenses was primarily due to an increase of $3 million of expense due to vendor settlement related costs incurred in 2025, as well as an increase in rent expense of approximately $0.7 million. These increases were partially offset by decreases in third party service costs and lower property taxes and licensing fees of $1 million each, and bad debt expense of $0.7 million.

Gain on Sale of Assets, Net

Net gains on the sale of equipment decreased to a loss of $0.1 million in 2025 from a gain of $0.9 million in 2024. The decrease resulted from both less units sold and a lower average gain per unit sold in 2025 as compared to 2024.

Other Income (Expense)

Other expense decreased to $3 million in 2025 from $5 million 2024. Interest expense decreased $1.2 million primarily due to lower overall debt balances while interest rates remained relatively consistent. Interest income decreased by $0.9 million due to lower invested cash balances. These decreases were partially offset by a $1.3 million change in other, net related to the change in the Peso exchange rate due to the addition of EASO.

Provision for Income Taxes

The provision for income taxes remained consistent at approximately $16 million in 2025 and 2024. We provided for income taxes using an effective rate of 23.9% in 2025 as compared to an effective rate of 22.2% in 2024. The effective tax rate was higher in 2025 as compared to 2024, as in 2024 we had a one-time benefit from amending state tax returns, and in 2025 we had a smaller rate benefit related to the vesting of stock-based compensation than in 2024.

LIQUIDITY AND CAPITAL RESOURCES

Our financing and liquidity strategy is to fund operating cash payments and future dividends 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 June 30, 2025, we had $137 million of cash. In addition, we had $20.0 million of restricted investments and $26.6 million of restricted cash, which are held for payments of long-term liabilities and the deferred cash consideration from the EASO transaction, respectively. 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 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 and dividend payments, have 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 six months ended June 30, 2025 was approximately $132 million, which resulted primarily from net income of $52 million plus non-cash charges of $100 million, partially offset by the changes in operating assets and liabilities of $20 million.

Cash provided by operating activities totaled $132 million in 2025 compared to $150 million in 2024. The $18 million decrease in cash flow was primarily due to a decrease in net income of $4 million and a negative change in operating assets and liabilities of $16 million, primarily due to the change in accounts payable, partially offset by an increase in non-cash charges of $2 million.

Net cash used in investing activities for the six months ended June 30, 2025 was $26 million which resulted from capital expenditures of $30 million, partially offset by proceeds from the sale of equipment of $4 million. Capital expenditures of $30 million related primarily to tractors of $18 million, technology investments of $9 million, warehouse equipment of $2 million, and other transportation equipment of $1 million.

Capital expenditures decreased by approximately $1 million in 2025 as compared to 2024. The 2025 decrease was due to decreases in container purchases of $2 million and warehouse equipment of $3 million. These decreases were partially offset by increases in spend on tractors of $4 million.

In 2025, we estimate capital expenditures will range from $40 million to $50 million. We expect to focus these expenditures on replacements for tractors that have reached the end of their useful life as well as technology investments. We do not plan to purchase containers in 2025. In addition to our estimated capital expenditures, we expect to fund the Marten Intermodal transaction disclosed in Note 8 with equipment debt.

Net cash used in financing activities for the six months ended June 30, 2025 was $68 million which includes repayments of long-term debt of $52 million, purchases of treasury stock of $14 million, dividends paid of $15 million, and cash for stock tendered for payments of withholding taxes of $6 million, partially offset by proceeds from the issuance of debt of $19 million. Debt incurred in 2025 was used to fund the purchase of transportation equipment.

The $27 million decrease in cash used in financing activities for 2025 versus 2024 was primarily due to the decrease in the purchase of treasury stock of $19 million, less repayments of long-term debt of $2 million, less stock tendered for payments of withholding taxes of $2 million, more proceeds from the issuance of debt of $3 million and a decrease in finance lease payments of $1 million.

While we still need more time to evaluate the impacts of the enactment of the OBBBA, it seems likely that given the enactment of 100% bonus depreciation and domestic research cost expensing for taxes, that our cash paid for income taxes in 2025 will be less than our income tax expense.

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

We have standby letters of credit that expire in 2025. As of both June 30, 2025 and December 31, 2024, our letters of credit were $1 million.

As of both June 30, 2025, and December 31, 2024, we had no borrowings under the Credit Agreement and our unused and available borrowings were $449 million and $349 million, respectively. We were in compliance with our debt covenants as of June 30, 2025 and December 31, 2024.

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.

We do not have any off-balance sheet transactions, arrangements, obligations (including contingent obligations) or liabilities.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to the company's 2024 10-K for a complete discussion regarding our critical accounting policies and estimates. As of June 30, 2025, there were no material changes to our critical accounting policies and estimates.

(a) Disclosure Controls and Procedures. As of June 30, 2025, 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 June 30, 2025.

(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 June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On October 23, 2024, we entered into an investment agreement with Corporación Interamericana de Logística, S.A. de C.V. and certain associated entities (commonly known as “EASO”), to acquire a controlling interest in EASO. 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.

Investing in shares of our stock involves certain risks, including those identified and described in Part I, Item 1A of our 2024 10-K under the heading “Risk Factors.” When any one or more of these risks materialize from time to time, the Company’s business and stock price can be materially and adversely affected. There have been no material changes to the Company’s risk factors since the 2024 Form 10-K.