HUBG 10-Q Quarter ended Sept. 30, 2013

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended September 30, 2013

or

For the transition period from to

Commission file number: 0-27754

HUB GROUP, INC.

(Exact name of registrant as specified in its charter)

3050 Highland Parkway, Suite 100

Downers Grove, Illinois 60515

(Address, including zip code, of principal executive offices)

(630) 271-3600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).     Yes ¨ No x

On October 24, 2013, the registrant had 36,979,841 outstanding shares of Class A common stock, par value $.01 per share, and 662,296 outstanding shares of Class B common stock, par value $.01 per share.

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HUB GROUP, INC.

INDEX

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HUB GROUP, INC.

(in thousands, except share amounts)

See notes to unaudited consolidated financial statements.

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HUB GROUP, INC.

AND COMPREHENSIVE INCOME

(in thousands, except per share amounts)

See notes to unaudited consolidated financial statements.

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HUB GROUP, INC.

(in thousands)

See notes to unaudited consolidated financial statements.

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HUB GROUP, INC.

NOTES TO UNAUDITED

CONSOLIDATED FINANCIAL STATEMENTS

Our accompanying unaudited consolidated financial statements of Hub Group, Inc. (“we”, “us” or “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been omitted pursuant to those rules and regulations. However, we believe that the disclosures contained herein are adequate to make the information presented not misleading.

The financial statements reflect, in our opinion, all material adjustments (which include only normal recurring adjustments) necessary to fairly present our financial position as of September 30, 2013 and results of operations for the three months and nine months ended September 30, 2013 and 2012.

These unaudited consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year due partially to seasonality.

We report two business segments, Hub and Mode, based on the way we manage, evaluate and internally report our business activities.

Hub offers comprehensive intermodal, truck brokerage and logistics services. Our employees operate the freight through a network of operating centers located in the United States and Mexico. Each operating center is strategically located in a market with a significant concentration of shipping customers and one or more railheads. Hub has full time employees located throughout the United States and Mexico.

Mode has independent business owners who sell and operate the business throughout North America, as well as sales only agents. Mode also has a company managed operation and corporate offices in Dallas, TX, a temperature protected services division, Temstar, located in Downers Grove, IL and corporate offices in Memphis, TN.

Mode markets and operates its freight transportation services, consisting of intermodal, truck brokerage and logistics, primarily through agents who enter into contractual arrangements with Mode.

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The following is a summary of operating results and certain other financial data for our business segments (in thousands):

The following tables summarize our revenue by segment and business line (in thousands):

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The following tables summarize our revenue by segment and business line (in thousands):

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The following is a reconciliation of our earnings per share (in thousands, except for per share data):

The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximated fair value as of September 30, 2013 and December 31, 2012 due to their short-term nature.

We consider as cash equivalents all highly liquid instruments with an original maturity of three months or less. As of September 30, 2013 and December 31, 2012, our cash is with high quality financial institutions in DDAs (Demand Deposit Accounts).

Restricted investments included $19.1 million and $17.2 million as of September 30, 2013 and December 31, 2012, respectively, of mutual funds which are reported at fair value.

The fair value measurement of these securities is based on quoted prices in active markets for identical assets which are defined as “Level 1” of the fair value hierarchy in the Fair Value Measurements and Disclosures Topic of the Codification.

As a recruiting tool for our owner-operators, we are guaranteeing certain owner-operators’ lease payments for tractors. The guarantees expire at various dates beginning in 2013 through 2020.

The potential maximum exposure under these lease guarantees was approximately $42.2 million and $48.2 million as of September 30, 2013 and December 31, 2012, respectively. The potential maximum exposure represents the amount of the remaining lease payments on all outstanding guaranteed leases as of September 30, 2013 and December 31, 2012. However, upon default, we have the option to purchase the tractors. We could then sell the tractors and use the proceeds to recover all or a portion of the amounts paid under the guarantees. Alternatively, we can contract with another owner-operator who would assume the lease. There were no material defaults during the periods ended September 30, 2013 and December 31, 2012 and no potential material defaults.

We had a liability of approximately $0.8 million as of September 30, 2013 and $1.0 million as of December 31, 2012, representing the fair value for estimated defaults of the guarantees, based on a discounted cash-flow analysis which is included in current and non-current liabilities in our Consolidated Balance Sheets. We are amortizing the amounts over the remaining lives of the respective guarantees.

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During the first half of 2013, we entered into equipment purchase contracts for the acquisition of 4,029 53’ containers. We expect the total cost of purchasing the containers to be approximately $45.7 million. As of September 30, 2013, $11.3 million of the remaining $25.8 million to be paid is accrued in our current liabilities. As of October 14, 2013, 3,258 containers have been delivered with the remaining 771 containers to be delivered by the end of 2013.

During the fourth quarter of 2012, we exercised our purchase option on approximately 4,000 containers that are currently leased. In addition, during the second quarter of 2013, we exercised our purchase option on another 200 containers that are currently leased. The purchases, totaling approximately $14.8 million, will occur as the leases expire throughout 2013. As of October 14, 2013, we have purchased 3,193 containers for approximately $11.4 million.

NOTE 7.

We entered into a Master Loan and Security Agreement on April 29, 2013 containing various Equipment Notes (Notes). The Notes provided financing for eighty 2014 Peterbilt tractors. The Notes have terms that expire between May 14, 2018 and June 19, 2018 and bear fixed interest rates between 1.9% and 2.0%. The Notes require quarterly principal and interest payments of $480,000.

Our outstanding debt is as follows (in thousands):

Aggregate principal payments, in thousands, due subsequent to September 30, 2013, are as follows:

We have standby letters of credit that expire on various dates in 2013 and 2014. As of September 30, 2013, our letters of credit were $4.2 million.

Our unused and available borrowings under our bank revolving line of credit were $45.8 million as of September 30, 2013 and $46.3 million as of December 31, 2012. We were in compliance with our debt covenants as of September 30, 2013.

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We are a party to litigation incident to our business, including claims for personal injury and/or property damage, bankruptcy preference claims, claims regarding freight lost or damaged in transit, improperly shipped or improperly billed. Some of the lawsuits to which we are party are covered by insurance and are being defended by our insurance carriers. Some of the lawsuits are not covered by insurance and we defend those ourselves. We do not believe that the outcome of this litigation will have a material adverse effect on our financial position or results of operations.

On January 25, 2013, a complaint was filed in the U.S. District Court for the Eastern District of California (Sacramento Division) by Salvador Robles against our subsidiary, Comtrak Logistics, Inc. Mr. Robles drove a truck for Comtrak in California, first as an independent contractor and then as an employee. The action seeks class certification on behalf of a class comprised of present and former California-based truck drivers for Comtrak who were classified as independent contractors, from January 2009 to the present. The complaint alleges Comtrak has misclassified such drivers as independent contractors and that such drivers were employees. The complaint asserts various violations of the California Labor Code and claims that Comtrak has engaged in unfair competition practices. The complaint seeks, among other things, declaratory and injunctive relief, compensatory damages and attorney’s fees. In May 2013, the complaint was amended to add similar claims based on Mr. Robles’ status as an employed company driver. These additional claims are only on behalf of Mr. Robles and not a proposed class. In August 2013, the court stayed proceedings in the case pending decisions by the Court of Appeals for the 9 ^th Circuit to decide whether two similar cases should be dismissed on federal preemption grounds. We cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from this lawsuit.

In July 2012, the FASB issued an update to Topic 350 – Intangibles – Goodwill and Other of the Accounting Standards Codification. The objective of this update is to simplify how entities test indefinite lived intangibles for impairment. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. We adopted this guidance effective January 1, 2013 as required, and the adoption did not impact our consolidated financial statements.

In October 2013, we entered into an equipment purchase contract for the acquisition of 200 Freightliner tractors. We expect the cost of purchasing the tractors to be approximately $25.5 million.

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HUB GROUP, INC.

The information contained in this quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. We assume no liability to update any such forward-looking statements contained in this quarterly report. Factors that could cause our actual results to differ materially include:

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EXECUTIVE SUMMARY

Hub Group, Inc. (“we”, “us” or “our”) reports two distinct business segments, Hub and Mode. The Mode segment includes only the business we acquired on April 1, 2011. The Hub segment includes all businesses other than Mode. Hub Group (as opposed to just Hub), refers to the consolidated results for the whole company, including both the Mode and Hub segments. For the segment financial results, refer to Note 2 of the consolidated financial statements.

We are the largest intermodal marketing company (“IMC”) in the United States and a full service transportation provider offering intermodal, truck brokerage and logistics services. We operate through a nationwide network of operating centers and independent business owners.

As an IMC, we arrange for the movement of our customers’ freight in containers and trailers over long distances. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, known as “drayage companies,” for local pickup and delivery. As part of the intermodal services, we negotiate rail and drayage rates, electronically track shipments in transit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.

As of September 30, 2013, approximately 66% of Hub’s drayage needs were met by our subsidiary, Comtrak Logistics, Inc. (“Comtrak”), which assists us in providing reliable, cost effective intermodal services to our customers. Comtrak has terminals in Atlanta, Birmingham, Charlotte, Chattanooga, Chicago, Cleveland, Columbus (OH), Dallas, Harrisburg, Huntsville, Indianapolis, Jacksonville, Kalamazoo, Kansas City, Milwaukee, Memphis, Nashville, Newark, Los Angeles, Perry (FL), Philadelphia, Portland (OR), Savannah, Seattle, St. Louis, Stockton, and Titusville (FL). As of September 30, 2013, Comtrak leased or owned 333 tractors, leased or owned 448 trailers, employed 405 drivers and contracted with 2,290 owner-operators.

We also arrange for the transportation of freight by truck, providing customers with another option for their transportation needs. We match the customers’ needs with carriers’ capacity to provide the most effective service and price combinations. As part of our truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss or damage on behalf of our customers.

Our logistics service consists of complex transportation management services, including load consolidation, mode optimization and carrier management. These service offerings are designed to take advantage of the increasing trend for shippers to outsource all or a greater portion of their transportation needs.

Hub has full time marketing representatives throughout North America who service local, regional and national accounts. We believe that fostering long-term customer relationships is critical to our success and allows us to better understand our customers’ needs and specifically tailor our transportation services to them.

Hub’s yield management group works with pricing and operations to enhance Hub’s customer margins. We are working on margin enhancement projects including matching up inbound and outbound loads, reducing empty miles, improving our recovery of accessorial costs, using Comtrak more, and reviewing and improving low margin loads.

Hub’s top 50 customers represent approximately 63% of the Hub segment revenue for the nine months ended September 30, 2013. 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, cost per load and daily sales outstanding by customer account. Vendor cost changes and vendor service issues are also monitored closely.

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Mode has approximately 235 agents, consisting of 96 sales/operating agents, known as Independent Business Owners (“IBOs”), who sell and operate the business throughout North America and 139 sales only agents. Mode also has a company managed operation and corporate offices in Dallas, a temperature protected services division, Temstar, located in Downers Grove, IL and corporate offices in Memphis. Mode’s top 20 customers represent approximately 36% of the Mode segment revenue for the nine months ended September 30, 2013. We closely monitor revenue and margin for these customers. We believe Mode brings us highly complementary service offerings, more scale and a talented sales channel that allows us to better reach small and midsize customers.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2013 Compared to the Three Months Ended September 30, 2012

The following table summarizes our revenue by segment and business line (in thousands) for the three months ended September 30:

Revenue

Hub Group’s revenue increased 9.7% to $883.0 million in 2013 from $804.9 million in 2012.

The Hub segment revenue increased 9.6% to $678.6 million. Hub intermodal revenue increased 5% to $466.8 million due to a 5% increase in loads. Price was up, but was offset by the impact of lower fuel surcharges and unfavorable mix. Hub truck brokerage revenue increased 1% to $88.3 million due primarily to a 4% increase in loads partially offset by unfavorable mix, which was primarily due to a 6% decrease in length of haul. Hub logistics revenue increased 42% to $123.4 million related primarily to new customer growth.

Mode’s revenue increased 8.8% to $217.4 million in 2013 from $199.9 million in 2012. Mode intermodal revenue increased 10% while Mode truck brokerage and logistics revenues increased 2% and 22%, respectively. Mode’s intermodal loads increased 16% while logistics revenue increased due to 19% growth in less than truckload business.

Gross Margin

Hub Group’s gross margin increased 1.7% to $93.1 million in 2013 from $91.6 million in 2012.

The Hub segment gross margin decreased 0.1% to $67.2 million. Logistics’ gross margin increased but was offset by a decline in truck brokerage gross margin. Intermodal gross margin was flat. Logistics’ gross margin is up due to new customer growth. Truck brokerage gross margin is down because of unfavorable traffic mix, including growth in short-haul lanes. Intermodal margin was flat as volume and modest price increases were offset by higher transportation costs and unfavorable mix. Hub’s gross margin as a percentage of sales decreased to 9.9% as compared to last year’s 10.9% margin. This decrease is due to lower yields in all three business lines.

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Mode’s gross margin increased 6.5% to $25.9 million in 2013 from $24.3 million in 2012 due primarily to growth in intermodal. Mode’s gross margin as a percentage of revenue decreased to 11.9% in 2013 from 12.2% in 2012.

CONSOLIDATED OPERATING EXPENSES

The following table includes certain items in the consolidated statements of income as a percentage of revenue:

S alaries and Benefits

Hub Group’s salaries and benefits increased to $31.9 million in 2013 from $31.4 million in 2012. As a percentage of revenue, Hub Group’s salaries and benefits decreased to 3.6% in 2013 from 3.9% in 2012 due to increased revenue.

The Hub segment increase of $0.4 million was due to increases in salaries of $2.2 million, due to higher headcount and merit increases, compensation related to restricted stock awards of $0.2 million and employee benefits of $0.1 million. These increases were offset by a decrease in employee bonuses of $2.1 million.

Mode’s salaries and benefits expense increased to $3.6 million in 2013 from $3.5 million in 2012. The increase was due primarily to increases in salaries of $0.1 million and compensation related to restricted stock awards of $0.1 million, offset by a decrease in employee bonuses of $0.1 million.

Hub Group’s headcount as of September 30, 2013 was 1,413, which excludes drivers, as driver costs are included in transportation costs. As of September 30, 2013, Mode had 129 employees.

Agent Fees and Commissions

Hub Group’s agent fees and commissions expenses increased to $14.6 million in 2013 from $13.8 million in 2012. These expenses as a percentage of revenue decreased to 1.6% in 2013 from 1.7% in 2012.

The Hub segment agent fees and commissions expense remained consistent at $0.4 million in both 2013 and 2012.

The Mode segment agent fees and commissions expense increase of $0.7 million was due to the increase in gross margin.

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General and Administrative

Hub Group’s general and administrative expenses decreased to $13.8 million in 2013 from $14.4 million in 2012. As a percentage of revenue, these expenses decreased to 1.6% in 2013 from 1.8% in 2012.

The Hub segment decrease of $0.5 million was due primarily to a decrease in claims expense of $1.5 million and a decrease in outside consultant expenses of $0.7 million. These decreases were partially offset by increases in bad debt expense of $0.4 million, repairs and maintenance expense of $0.4 million, general insurance expense of $0.3 million, rent expense of $0.2 million and meals and entertainment, office expense, temporary labor and employee training each for $0.1 million.

Mode’s general and administrative expenses decreased to $1.7 million in 2013 from $1.9 million in 2012. The decrease was primarily due to a decrease in outside consultant expense of $0.2 million.

Depreciation and Amortization

Hub Group’s depreciation and amortization remained consistent at $1.6 million in both 2013 and 2012.

The Hub segment’s depreciation expense was consistent at $1.1 million in both 2013 and 2012.

Mode’s depreciation expense was consistent at $0.5 million in both 2013 and 2012

Other Income (Expense)

Hub Group’s interest expense remained consistent at $0.3 million in both 2013 and 2012.

Provision for Income Taxes

The provision for income taxes increased to $12.4 million in 2013 from $11.6 million in 2012. This increase was the combined result of greater income in 2013 and the enactment of Pennsylvania income tax changes in July 2013 which increased our effective rate to 39.9% in 2013 from 38.5% in 2012.

Net Income

Net income increased to $18.6 million in 2013 from $18.5 million in 2012 due primarily to higher gross margin.

Earnings Per Common Share

Basic earnings per share were $0.50 in both 2013 and 2012.

Diluted earnings per share were $0.50 in both 2013 and 2012.

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Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012

The following table summarizes our revenue by segment and business line (in thousands) for the nine months ended September 30:

Revenue

Hub Group’s revenue increased 7.1% to $2.5 billion in 2013 from $2.3 billion in 2012.

The Hub segment revenue increased 7.7% to $1.9 billion. Hub’s intermodal revenue increased 5% to $1.3 billion due to a 3% increase in loads and an increase in price partially offset by slightly lower fuel surcharges. Hub truck brokerage revenue increased 3% to $255.7 million primarily due to a 5% increase in loads partially offset by unfavorable mix, which was primarily due to a 5% reduction in length of haul. Hub logistics revenue increased 27% to $317.8 million related primarily to new customer growth.

Mode’s revenue increased 4.7% to $608.8 million in 2013 from $581.4 million in 2012. Mode’s intermodal revenue increased 9% while Mode’s truck brokerage revenue decreased by 3%. Mode’s logistics revenue increased by 13%. Mode’s` intermodal loads increased 13% while logistics revenue increased due to 11% growth in less than truckload business.

Gross Margin

Hub Group’s gross margin increased 5.0% to $275.9 million in 2013 from $262.7 million in 2012.

The Hub segment gross margin increased 5.3% to $203.8 million. Hub’s $10.2 million gross margin increase came primarily from intermodal and logistics. Intermodal margin grew primarily due to 3% volume growth. Logistics margin growth was driven primarily by new customers. As a percentage of Hub segment revenue, gross margin decreased to 10.6% in 2013 from 10.9% in 2012. This decrease is due to lower yield in intermodal and truck brokerage.

Mode’s gross margin increased 4.3% to $72.1 million in 2013 from $69.1 million in 2012 due primarily to growth in intermodal gross margin. Mode’s gross margin as a percentage of revenue decreased slightly to 11.8% in 2013 from 11.9% in 2012.

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CONSOLIDATED OPERATING EXPENSES

The following table includes certain items in the consolidated statements of income as a percentage of revenue: